However, there is a convergence among the different schools of though that, in order to .... Source: Global Wine Production, Consumption and Trade, 1960-1999. ... wine) was cheap blue-bottled German white wine (which accounted for 38,8 ...
Technological upgrading, learning and innovative strategies in the wine productive system of Serra Gaúcha in the South of Brazil . Paper prepared for the UNU/INTECH Project on Technological Upgrading in Traditional Industries: From Clusters to Innovation Systems in the Wine Sectors of the New World Wine Producers Dec 2005 José Eduardo Cassiolato1 Marco Antonio Vargas2 1 - Introduction The world economy has gone through important transformations in the last two decades. Productive activities have been significantly affected by the consolidation of the information and communication technologies paradigm, the increasing role of the financial system in the economy and the acceleration of globalisation. Within this wider set of transformations, one should note that the very process of economic development is being significantly influenced and altered by the important changes witnessed during the last twenty years. As a response to these changes, new approaches to industrial and innovation policies are needed, at the same time that the very concept of the Nation State and its forms of intervention are being reviewed. However, there is a convergence among the different schools of though that, in order to understand the factors underlying a better competitive performance of firms, the analysis should concentrate not in the single, individual firm, but mostly in the investigation of the relations between firms and between firms and other institutions and organisations. Analyses focusing on different productive clusters and local systems, and aiming at examining their forms of interaction (and their dynamics) have progressively been used. Terms such as synergy, collective efficiency, economies of agglomeration (clustering), learning-by-interaction, associational economy and local systems of innovation express the main preoccupations of this debate. Also, different concepts – such as industrial districts and poles, clusters, networks innovation “milieu” and others – have been used in order to account for the need of focusing a specific set of economic activities, which would permit the analyses of these interactions. The growing interest in local systems is related to the diffusion of the microelectronics paradigm. As production becomes increasingly more knowledge-intensive, investments in intangibles such as R&D, software, product design, process engineering, training, marketing and management came to play a greater role in the production of goods and services (Mytelka: 1987,1999). 1
Professor of Economics of Innovation at the Federal University of Rio de Janeiro IE/UFRJ, Brazil. And Coordinator of RedeSist - Research Network on Local Productive and Innovative Systems 2 Professor of Industrial Economics at the Federal Rural University of Rio de Janeiro – UFRRJ, Brazil; Associate Researcher of the Local Productive and Innovative Systems Research Network - RedeSist at the Federal University of Rio de Janeiro IE/UFRJ, Brazil. 1
The emphasis is on the process in which enterprises in interaction with each other and supported by institutions and organisations – such as industry associations, R&D, innovation and productivity centres, standard setting bodies, university and vocational training centres, information gathering and analysis services and banking and other financing mechanisms — play a key role in bringing new products, new processes and new forms of organisation into economic use. In most developing countries, particularly in Latin America, the impact of these changes has been magnified by very rapid and muddled processes of deregulation, privatisation and liberalisation. In Brazil a significant challenge to a wide range of local producers was how to survive in a very turbulent environment. Empirical research carried out by RedeSist in more than 50 local productive systems in Brazil has shown, among other things, both successes and failure stories (Cassiolato, Lastres and Maciel 2003). Some local systems were able to react to the tough competition by transforming and modernizing their production structures while others disappeared. The local system of wine production in the South of Brazil is one that responded positively to the new policy atmosphere. In order to face the very tough external competition in their domestic markets Brazilian vintners of the region rapidly changed production and marketing strategies New approaches based on improving productive and innovative capabilities and targeting premium wines were set into motion. A strong scientific and technological infrastructure which was built during the 1970s was essential to this process. Vintners set up new forms of cooperation that helped their up-grading. . The aim of this paper is to investigate the learning and technological upgrading strategies adopted by vintners in the Brazilian wine productive system located in the Serra Gaúcha region in the state of Rio Grande do Sul, South of Brazil. This case study discusses interactive learning processes among vintners and the evolution of the institutional structure of the local wine productive system. Moreover, the study explores the innovative paths adopted by diverse segments of vintners during the 1990s as a result of the new competitive pressures in local markets and how they are supporting novel export strategies. The paper uses the conceptual framework of the ‘innovation system’ literature and the approach on ‘local productive and innovative arrangements’ developed by RedeSist in Brazil3. It is structured as follows. Next section presents a summary of recent developments in the international wine industry associated with “globalization”. The third section examines the historical process which led to the setting up of the Brazilian wine arrangement and addresses their place in the international context of wine industry. The fourth section introduces a characterization of the critical actors as well as the institutional and organisational designs supporting the articulation between local actors within the arrangement. The fifth section examines the learning mechanisms and innovative strategies adopted by local actors within the wine arrangement in the South of Brazil. Finally, the sixth section presents the conclusions and explores the policy implications concerning the competitive and innovative dynamism of the wine productive arrangement in Brazil. The material on which this study is based includes a number of information sources. Particularly worth stressing is a survey that included wineries, suppliers, industry associations and research and training institutes, government and other relevant actors in the wine arrangements. In-depth interviews with selected wineries and other local organizations were 3
See Cassiolato, Lastres and Maciel (2003). 2
conducted in 2000 and 2003.4 The fieldwork covered a sample of wineries segmented according to size (processing capacity) and market niches (premium x bulk wine). Interviews were also held with some of the main business associations and local support organizations related to the Serra Gaúcha wine arrangement such as: Brazilian Viticulture Association (UVIBRA); Association of the Growers of Fine Wines from the Vineyards Valley (APROVALE); Brazilian Wine Institute (IBRAVIN), Federation of Rio Grande do Sul Winery Cooperatives (FECOVINHO); Embrapa Grape and Wine Brazilian Agricultural Research Corporation (EMBRAPA-CNPUV) and the Federal Center for Technological Education (CEFET Bento Gonçalves)5. 2. The Brazilian wine industry in the context of globalisation. The wine industry has been deeply affected by the unequal diffusion of the microelectronics techno-paradigm and other processes associated with globalisation. However, these processes have affected the wine industry in a very particular way according to its particularities. One of the specific characteristics of the industry is that most of the high producing countries are not only the most significant consumers of wine but also invariably very parochial in their consumption habits. France is a good case in point since the country is both one of the biggest consumers as well as producers of wine and yet imports are responsible for less than 5% of total consumption. This is not a pattern of old European countries alone. In Australia, for example, around 90% of the wine drunk is home-grown. In this sense the home market is still the most significant market for wine in almost all wine producing countries. Another feature is the very highly fragmented nature of the wine industry. Not only the industry is little concentrated - the world’s largest wine company in terms of volume, California’s E&J Gallo, commands just over 1% of world production – but also shows a huge variety in terms of quality, price and characteristics of the product. Actually, although one increasingly notes that large producers seek a “commoditisation” the industry, the fact is that variety and diversity better qualify it. It is true however that, in the New World, production is more concentrated: in Australia just four companies dominate 80% of the wine market and in Chile the top five command 50%. The search for commoditization is associated with an increasing trend for the industry to become, as others, knowledge intensive. Australia is the most obvious case. Rankine (1996) claims that even though Australia has supplied less than 2 per cent of the world’s wine until very recently, it contributes as much as 20 per cent of the global flow of research papers on viticulture and oenology. Firms (mostly large) from countries like Australia and the US are also more likely to invest in R&D than traditional European winemakers. Public-private partnerships are set up to fund these investments characterised by uncertainty. Hence, for example, grape growers and winemakers in Australia agree to pay a production-based annual levy to fund these activities. The Australian Government supplements those funds, matching them in the case of R&D on a 4
The 2000 interviews were part of a PhD thesis (Vargas 2002) that analysed learning strategies of firms and the role of territorial proximity in the evolution of 4 local productive arrangements in the state of Rio Grande do Sul, Brazil 5 The authors are grateful to the many entrepreneurs and association officials who provided valuable information and views on the major changes occurring in the wine productive arrangement in the Serra Gaúcha region. Particularly, we would like to acknowledge the valuable support of Adriano Miolo, Carlos Nogueira, , Carlos Paviani, Ignácio Geisse, Jaime Milan and José Protas during the field research. 3
dollar-for-dollar basis up to 0.5 per cent of the value of production (Brennan and Mullen, 2002). In a globalized world, it is interesting to note that countries outside the Triad are making important inroads in wine technology. Wine specialists from these countries are increasingly workings as consultants to wineries in different countries. As commented by The Economist: “Flying wine makers from Australia and New Zealand are advising vineyards and winemakers in every corner of the world” (The Economist, 1999). In a period where the industry is attempting to become global it is noticed an overall trend of the world’s consumption of wine to fall. As shown in figure 1 below, in the highest consuming countries such as France and Italy, per capita consumption has halved in the past 30 years. However, in some countries that historically have never been associated with wine production, recent trends show the opposite: wine drinking is fashionable, synonymous with modernisation. In the developed world, Britain, Japan and Scandinavia are the obvious examples. In 1998 Japan became the largest importer (in value terms) of wines from both Bordeaux and California. In the developing world, Brazil is perhaps one of the most significant examples. This means that, although total consumption may be falling, it is becoming more quality-driven (The Economist 1999). In France, in 2002, for the first time ever, over 50% of the wine consumed was appellation contrôlée. Figure 1:Wine consumption per capita, traditional and emerging markets: 1960-1999 120,0
World Denmark
110,0
France Netherlands
Italy United Kingdom
100,0 90,0 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0
19 99
19 97
19 95
19 93
19 91
19 89
19 87
19 85
19 83
19 81
19 79
19 77
19 75
19 73
19 71
19 69
19 67
19 65
19 63
19 61
0,0
Source: Global Wine Production, Consumption and Trade, 1960-1999.
Finally, another important recent trend of the world wine industry is an increase in international, cross-border investment by large wine firms. The clash between this trend and the fragmented characteristic of the wine industry is inevitable and worldwide consolidation of the industry is in the agenda. Such movements of the global wine industry obviously are both responsible and affect the recent evolution of the wine industry in South America which, although small, share some of these characteristics.
4
The Brazilian wine production (around 300 million litres per year) represents 1% of the world production. Although comparable with the Chilean wine production in terms of volume, most of the Brazilian wine production (about 80%) corresponds to bulk wine and not to premium wines. Most of the grape production consists of American Hybrid and other hybrid grape varieties. The Isabel cultivar is still predominant, followed by other varieties like Moscato Branco, Italic Riesling, Trebbiano and Chardonnay for whites and Cabernet Sauvignon, Merlot, Cabernet Franc and Tannat for reds. Taking into account countries as France and Italy, which are the largest producers of wine in the world, the Brazilian wine production is still 30 times smaller. Even a comparison between Brazilian wine industry and their partners in South America reveals production and export levels considerably smaller than that of countries as Chile and Argentina, presently the fifth largest wine producer in the world. Figure 2 below presents the share of Argentine, Brazil, Chile and Uruguay in the world wine production from 1980 to 1999. Figure 2: Share of World Wine Production, selected Mercosur Countries 1980-1999 (%)
Source: Global Wine Production, Consumption and Trade, 1960-1999.
The importance of the external market has been marginal to the Brazilian wine industry. Up to the mid 1990s, there was only one attempt worth mentioning, which accounted for more than 90 per cent of all wine exports, amounted US$ 16 million in 1997. This refers to an agreement between the largest Brazilian winery (Cooperativa Vinícola Aurora) and a major USA wine importer which was terminated in the late 1990s6. Since then the Brazilian wine exports to the US virtually collapsed and countries like Japan, Paraguay, Argentina, Finland and the UK became the main importers of Brazilian wines (Figure 3). In 1999, Brazil was responsible for 0.124% of world exports in volume and 0.036% in value. The share of exports in total production was 2.68% and the unit value of wine exports was US$ 0.61 per litre. 6
See box 1 for further details on the importance of Cooperativa Vinícola Aurora on the upgrading trajectory of Brazilian wine industry. 5
Figure 3 Share of Brazilian Exports to selected Countries - 1988-1999 100,00 90,00 80,00 70,00 60,00 50,00 40,00 30,00 20,00 10,00 0,00 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
USA
Other Latin American Countries
Japan
EU-15
Source: Global Wine Production, Consumption and Trade, 1960-1999.
Brazil has also not been significant wine importer up to the 1990s. A decade of liberalisation changed significantly this pattern, particularly in Brazil, a country where wine drinking has always been second to beer drinking. During the 1990s wine drinking became associated to modernization and medium classes increased consumption of wine, preferably imported. In the first half of the 1990s the bulk of imported wine (apart from Portuguese and Spanish wine) was cheap blue-bottled German white wine (which accounted for 38,8 % of Brazilian wine imports in 1994 and only 5.3% in 1999). This type of wine rapidly disappeared from supermarket shelves as consumers became better informed and imports from other countries soared. From the mid 1990s, these new consumption habits have contributed to raise the share of imported wine in the Brazilian total consumption of fine wines. In this sense, in 1996 imported wines accounted for only 35% of Brazilian total consumption of fine wines. In 2004 the share of imported wines in national consumption have reached more than 65% (UVIBRA, 2005). Over the last 10 years, the consumption of imported premium wines has increased by almost 50%. According to the Brazilian Department of Foreign Commerce (SECEX), in 2003 Brazil imported more than US$ 68 million in premium wines and US$ 7 million in sparkling wines. Chile, Italy, Argentine and Portugal are among the foreign suppliers by commercial volume. It is worth mentioning that the imported wines enjoy automatic licensing in Brazil. In terms of taxes, wines imported from Mercosur countries (e.g. Argentine and Uruguay) are not taxed except for IPI (a federal excise taxes). For Mercosur, non-member countries there is an additional 21.5% tax. (Anuário Brasileiro do Vinho, 2004). It is also interesting to note that different trends are happening as far as the quality of exported wine is concerned. Figure 4 below shows the average value of exported wine from 1980 to 1999 for Brazil and some other countries. For instance, the average price of wine exported by Uruguay since it started exporting in the mid 1980s has been consistently increasing. By the late 1990s the average price of wine exported by Uruguay was significantly higher than Argentina’s and matched Chilean wine. For Brazilian exported wine, however, the situation is
6
completely differently. Throughout the 1980s and till the mid 1990s the average price of Brazilian exported wine not only increased but also was higher than all other Mercosur countries (Chile, Argentina and Uruguay). This reflected the strategy of the Brazilian most important wine exporter and largest winery (Cooperativa Vinícola Aurora) and results in upgrading the quality of its products. After Aurora’s agreement to export to the USA collapsed in the late 1990s, the average price of Brazilian exported wine fell significantly being much smaller than its Mercosur neighbours7. Table 1: Brazilian premium wine and Sparkling wine consumption: domestic production x imports (%) – 1996-2004 80% 70%
74%
70%
54%
50%
30%
65%
64%
60%
40%
70%
65%
46%
51% 49%
47%
36% 26%
30%
64%
53%
51% 49%
35%
65%
35%
36% 35%
30%
20% 10% 0% 1996
2000
2001
2002
2003
Premium wine imports
Premium Wine Domestic
Sprinkling Imports
Sprinkling Domestic
2004
Source: UVIBRA (2005).
Figure 4: Unit Value of Wine Exports (US$/litre) - 1980/1999
4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50
19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99
0,00
Argentina
Brazil
Chile
Uruguay
France
Source: Global Wine Production, Consumption and Trade, 1960-1999. 7
The development trajectory of Aurora winery in the context of the Brazilian wine industry will be discussed in the next section. 7
Figure 5 below shows the average value of wine imported from 1980 to 1999 into Brazil, and some other countries. In a sense it reflects the pattern of internal consumption. We can notice that Uruguay, for instance, not only imports relatively little wine but also it does not import significantly wine of higher price: the average price of wine imported into Uruguay is very small and is decreasing throughout the last two decades. In Brazil the situation is totally different. In the first half of the 1990s the average price actually fell since liberalisation flooded the market with cheap (mostly white) wine. As the demand pattern changed with consumers becoming more exigent, prices of imported wine increased significantly. At the end of the 1990s the average price of Brazilian imported wine (about US$ 3 per litre) was higher than its neighbours. Figure 5: Unit value of wine imports US$/litre - 1980/1999 5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50
19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99
0,00
France
Brazil
Chile
Uruguay
Source: Global Wine Production, Consumption and Trade, 1960-1999.
The important fact for our analysis is that increase in local consumption and imports in Brazil triggered a quick reaction from local producers of better wines in order to capture this market by improving quality. The critical actors, institutional designs and learning mechanisms that have supported the upgrading processes of Brazilian wineries are analysed in the next sections. 3. Origins and development paths of wine industry in the South of Brazil Vineyards were introduced in Brazil as early as 1532 by the first colonisers, where now is São Paulo State. It was, however, only 200 years latter that an attempt was made to produce grapes and wine in a fully economic sense. Brought by Azorian immigrants in 1732, vineyards and wine making were introduced in the Southern region of Rio Grande do Sul, were better weather conditions allowed for its successful development. Almost immediately, in 1739, the Portuguese Crown passed legislation forbidding the local production of grapes and wines in order to protect its own important wine industry. It was only after the independence of Brazil in 1822, that the wine industry started to be effectively organized. In fact this took place only around the second half of XIX Century as part of a further process of colonization that took place during that period in Southern Brazil. Then, Italian immigrants 8
who settled during this period in Serra Gaúcha in the State of Rio Grande do Sul started to produce grapes and wine as organized economic activities. The Sierra Gaucha region (see map in annex 2), 100 kilometres northeast of Porto Alegre (the capital city of Rio Grande do Sul, Brazilian most southern state), is nowadays the home of approximately 90% of all Brazilian wineries and fine wine production. The small and prosperous city of Bento Gonçalves is the country's wine capital while neighboring Garibaldi specializes in sparking wine. Serra Caucha, or more strictly speaking, the wide Rio das Antas Valley, which descends from the rocky slopes of the southeast, is subdivided into 5 wine districts according to topography and cultural heritage developed over a century of Venetian colonization. Of the five, the Vale dos Vinhedos (literally, Vineyard Valley) is the only one to have formalized its "Indication of Geographic Origin" in 2003. Initially, these European immigrants attempted to introduce vitis vinefera varieties in Brazil. However, the introduction of these premium varieties was not successful given its sensibility to typical diseases caused by the weather in the region. These producers decided then to introduce American varieties such as Isabel and Niagara, more rustic, disease resistant. These varieties produce grapes less appropriated to the production of quality wine and, as a result, only grape juice and table wine have become the backbone of local production An structure of land ownership based on small properties and family labour co-evolved with an increasingly skilled labour force at local level with knowledge in handling grape cultivation The first industrialisation stage happened around the early XX century by cooperatives in the region of Serra Gaúcha. This allowed for widening of markets and a major integration along the viticulture and wine processing productive chain. Throughout the XX century processes of cooperation allowed for important institutional building. In fact, as grape-processing activities acquired major economic importance the consolidation of a nucleus of local-owned firms was instrumental in the setting up of an incipient infrastructure of production and trade. The first important institutional development was the setting up of the Wine Institute of Rio Grande do Sul (Instituto Riograndense do Vinho) in 1926 with the objective of supervising production and trade activities and setting up prices for grapes. Although important for organizing grape growing and wine production this movement did not have any impact on the technologies level of the industry. In fact, up to the late1960s, no significant changes occurred as far as technical characteristics of production are concerned. During this period technological standards in the viticulture and wine processing activities were relatively poor. This started to change in the 1970s, when wine consumption significantly increased. The growth of Brazilian domestic market took place through the expansion of the purchasing power of the urban middle classes which, in this case, allowed for the creation of a domestic market of premium wines. In an economic environment characterized by import tariffs opportunities for replacing replacing high-prices imported wines were perceived by local and foreign firms. Major quality improvement happened in Serra Gaúcha during this period, with the upgrading of machinery and wine-processing technologies used by the local wineries and through the introduction of new grape varieties more adapted to the region. Two developments were responsible for this change. The first was the setting up, in the region, of one branch of EMBRAPA, the government-owned Brazilian Enterprise for Agricultural Research. This
9
branch, the National Research Centre for Grapes and Wine followed the same basic institutional model which proved to be also successful in other agricultural areas (as for example soy,) providing first-quality research in agricultural and agroindustrial technology and advanced diffusion models. Market-seeking foreign direct investment (FDI) and different types of alliance of national firms with foreign groups during this period also fostered the upgrading process. For example, Chandon, a subsidiary of the French firm Moet-Chandon, started to produce sparkling wine in Brazil. The oldest and largest Brazilian winery, a cooperative - Cooperativa Vinícola Aurora Ltda - signed an agreement with Seagram in the 1960s that allowed it to introduce premium wines in the Brazilian market and to penetrate the U.S. market in the 1970s (see box 1). BOX 1 – Development and upgrading of the Brazilian wine industry during the 1970s: The trajectory of Aurora Winery. The history of Cooperativa Vinícola Aurora in Brazil began in 1930 when 16 families of Italian immigrants joined to form the wine cooperative. In 1962, Aurora began the production of premium wines for a French trading firm (Bernard Taillan Import), which used to commercialize wine in France, Brazil and North America. This association helped to expand considerably the technological capabilities of Cooperativa Vinícola Aurora. In the beginning of the 1970s, this winery also signed an agreement with Seagrans, expanding more its position in the premium and semi-premium wines for the domestic market. It was in this period that it launched their first own brand “Forestier”, which, for years was considered the best Brazilian wine. In 1973, the company began exporting to the United States with 20,000 cases of jug wine (Sangue de Boi) a year. From 1988 to 1998, Aurora’s exporting strategies were connected to an agreement with Canandaigua Wine Co. to export a new brand named Marcus James to United States. However, such agreement was cancelled in 1998 due to the inability of Aurora in guaranteeing production at the level required by the agreement. In fact the booming internal market made exports less attractive to Aurora. Since then Canandaigua began to import red wine from Argentine. Despite the impact the cancellation of the agreement with Canandaigua had on Aurora’s exports to the United States, in 1998 Marcus James became the main brand in Brazil and its total production came to 1.8 million cases. Therefore, Aurora’s policy is to target the Brazilian domestic market. In Brazil, Aurora was, in 2001, the dominant brand, with almost 30% of the internal market for fine wines. In 2003, the winery, had annual sales of US$80 million. There are almost 1,300 associated grape growers that sell around 50 to 65 million kilograms of grapes a year to Aurora for processing into table wines, fine wines, grape juice and frozen concentrate. Source: Wines and Vines, May 2001; IBRAVIN
The upgrading movement of the 1970s was important in the sense that, for the first time in the Brazilian history, organized scientific and technological developments were associated to grape and wine production, Even though there were marked differences in the agricultural and in the wine-processing spheres, they represented the basis from which subsequent improvements would happen and were the origins of the breakthroughs of the early 1990s. This breakthrough, which is going to be presented in a more detailed way in the next item, 10
was characterized by the crucial setting up in the 1980s of several small “cantinas” (wineries) managed by a younger generation of owners scientifically trained and the associated institutionalisation of wine and grape production in Brazil Up to the 1990s, around 60-70% of all grapes planted were white.8 Explaining the Brazilian market growth and evolution over the last decade, the Chief-Director of EMBRAPA Grape and Wine Research Center, Jose Fernando Protas, recalls that the shift toward a preference for reds began around 1994, when liberalization started to be accompanied by a flood of imported wine. New specialized publications started to appear (for example a good magazine caIled Vinho, several books on wine appreciation, a guide to Brazilian Wines (Guia dos Vinhos Brasileiros), some newsletters, etc) and “brotherhoods of wine lovers were set up forming an entire network of oenophiles unparalled in South America, and perhaps in all of the New World” (Austral Spectator 2003, p. 259). 4. Critical actors and institutional designs in the Brazilian wine industry Although little important if compared to some of the highest producers and consumers in the world, the Brazilian wine economy entail a significant number of people and institutions9. According to the Brazilian Wine Institute (IBRAVIN), Rio Grande do Sul is the state that concentrates the largest number of individuals, companies and organisations in the wine sector. It is responsible for 90% of the Brazilian wine production that is around 300 million litres per year. Most of the wineries in Serra Gaúcha currently target the domestic market. According to IBRAVIN (2003), the major consumer market in Brazil is the São Paulo State, which accounts for almost 40% of the national consumption, followed by Rio de Janeiro and Rio Grande do Sul (around 12%), Paraná (9,5%) and Minas Gerais (6,2%). The wine productive system of Serra Gaúcha is geographically located in some cities like Bento Gonçalves, Flores da Cunha, Caxias do Sul, Farroupilha and Garibaldi. In Serra Gaúcha, in 2002, there were 572 wineries and 12,829 vine-grower farms in an area of 27,986.97 hectares. The region accounts for almost 66% of the grape production in the State. Most of the producers are small and medium family-owned wineries or co-operatives. The activities related to the grape production comprise a land structure still characterized by the predominance of small properties and by the intensive use of family labour. It is important to stress that addition to the Serra Gaucha, there are 2 other wine regions in Brazil that are acquiring importance since the mid 1990s. The increasing utilization of technology in grapes and wine production to the far north, at 9. latitude south, the vast mid San Francisco River Valley uses artificial irrigation to induce the vineyard seasons. With irrigation, there are three crops every two years, which allows for significant productivity gains. In that region successful plantation of Moscatel, Shiraz, Cabernet Sauvignon, and other varieties was obtained by combining some natural advantages (exposure to sun, humidity levels: it is a very dry region) with modern technology. Some producers ship their grapes in refrigerated containers to their winemaking faci1ities in Serra Gaucha; others have already installed wineries on-site. The particular importance of this site is that it is located into the dry Northeast of Brazil, the poorest area in the country. 8
Information given by José Fernando da Silva Pratas, an economist who is the Director of Grape and Wine Research Center, a division of EMBRAPA 9 Planted areas in Brazil total around 60 thousand hectares and are located between 30o.S parallel in the State of Rio Grande do Sul and 9oS in the Northeast region of Brazil. Since the 1980s, the viticulture is effectively developed in new areas located in the Northeast region (São Francisco Valley). 11
Some 250 miles to the southeast and close to the Uruguayan border at 310 latitude south, there are other vineyards and wineries owned by major foreign companies in the Santana do Livramento area. There are nearly 3000 miles and 20' of latitude between Brazil's most northerly Vitis vinifera vine and it's most southerly counterpart. To our knowledge, no other country can claim to involve so much of the Earth's curvature in wine-making. 4.1. Main segments of wineries at the local productive chain Since the 1990s, it is possible to identify three distinct segments of wineries in Serra Gaúcha. First, there are those larger wineries (with processing capacity higher than six millions litres/year) that produce premium wines. In this segment, there are as much national-owned firms, like Cooperativa Vinícola Aurora and Salton, as MNC subsidiaries, like De Lantier Winery associated to the Group Baccardi-Martini10. Nowadays, Aurora is the dominant brand in Brazil, with 27% of the domestic market for fine wines. The winery had 13 separate units covering 110,000 square meters, with an annual production capacity of 85 million litres. The company has also two vineyards in other regions in Rio Grande do Sul (Bento Gonçalves and Bom Principio) and a wine bottling plant in Montevideo (Uruguay). Seagram’s subsidiary (Forestier and Almaden), and Cooperativa Garibaldi are the two other more important large firms. In spite of representing less than 2% of the wineries, the firms in this segment are responsible for almost 30% of total wine production in Brazil. Salton is another typical example of the use of sophisticated technology in this first segment of wineries. This winery is recognized as one the most successful Brazilian locally-owned midium-sized wineries. In Salton, the vinification equipment is remarkable: it includes four Vinomatics, vacuum filters, 4 132,000-pound Italian pneumatic presses, an enormous cold chamber for chilling grapes, several stainless tanks with automatic temperature control and a stone-lined cellar (large enough for a football field) for making sparkling wine by the Champenoise method, plus a 'rest house' for the 1,000 associated producers who bring their grapes in their own trucks. Secondly, there are small wineries (producing less than three million litres/year) that are dedicated mainly to the production of bulk and cask wines of lower quality. They are responsible for more than 50% of the total wine production in the region, but their level of technological capabilities is very low. It is worth mentioning that an important part of this segment is comprised by cooperatives of small grape growers. Concerning the linkages between grape growers and wineries it is worth emphasizing the high degree of associative schemes present in the relationship between growers and local wineries. The wine productive arrangement in Serra Gaúcha counts about 19 cooperatives currently associated with the Federation of Rio Grande do Sul Winery Cooperatives (FECOVINHO). This organizational model has represented as much as 60% of the wine market in the region, but today that figure has dropped to around 25%. The crisis faced by the associations of growers and the competition from private wineries are among the main factors that have contributed to the drop of their participation in the Brazilian wine market. Notwithstanding, the winery cooperatives are still strong in the region, involving 5,000 families and generating total sales of around U$ 80 million. This integration of individual growers through cooperatives wineries shows co-ordinating mechanisms modes quite distinct from those presented in other agro-industrial chains (like tobacco and poultry in Brazil), where a small 10
Among the main MNCs which operate in the wine arrangement in the Serra Gaúcha region, we find, today: Domeck do Brasil (Spain), Chandon do Brasil (France) and Seagram do Brasil (Canada). 12
number of big firms control the entire production chain and dominate the trade channels. It is certainly associated to the settling in the region of Italian (Venetian) migrants in the late 19th. Century. Finally, a third, restricted but important segment of small family-owned wineries (called “cantinas”) emerged during the 1980s within the universe of small and medium sized firms of the arrangement. Since them, these small wineries have conquered important national and international awards, mainly in European countries. Gradually, producing small lots of quality wine and sparkling wines, they became the best-known wineries in Brazil along with the largest ones like Aurora and Chandon. It is worthwhile to notice that the production of premium wines in the South of Brazil is not limited to this segment of familiar cantinas. The table below shows that the total production of varietal wines in Serra Gaúcha is spread over a hundred wineries of different sizes. However, a minority of these wineries are dedicated entirely to the production of premium wines and aware of the importance associated to technological upgrading process both in grape production and wine processing. Table 2: Premium wine producers in the State of Rio Grande do Sul according to size -2002 Wineries
Production (litres))
% Wineries
% Production
Above 2,000,000
3,00
12.455.591,00
2,16%
39,35%
Between 1,000,000 and 2,000,000
7,00
9.655.919,00
5,04%
30,50%
Between 250,000 and 1,000,000
7,00
3.508.876,00
5,04%
11,08%
Between 100,000 and 250,000
22,00
3.509.840,00
15,83%
11,09%
Between 50,000 and 100,000
15,00
1.116.160,00
10,79%
3,53%
Up to 50,000
85,00
1.408.840,00
61,15%
4,45%
139,00
31.655.226,00
100,00%
100,00%
Total
Source: Cadastro vinícola do Rio Grande do Sul –2001-2002
Despite constituting a restrict group, the segment of family-owned cantinas became a critical part of the current upgrading process in the wine productive arrangement in the Serra Gaúcha Region. Originally, the family-owned “cantinas” insertion in the arrangement was characterized by their role as primary suppliers of grape or bulk wine to the segment of large firms. However, since the mid-1980s these small grape producers start investing in the quality of their own wines based on the experience achieved so far as suppliers of the big companies. Gradually, most of these producers achieved a high standard of quality in the premium wines production through the modernisation of equipment and qualification of a younger generation of owners who were technically educated in oenology programs in countries like Argentina and France. Many of these small wineries are now prominent in the national scenario like Miolo, Valduga, Cave Amadeu, Don Laurindo.
13
Table 3: Main segments of wineries in the Serra Gaúcha Segment
Main characteristics
Larger wineries
(Aurora, Salton, Bacardi, Allied Domeck, Chandon do Brasil, among others)
Small and medium sized wineries
(Jota Pe, Abegê, Monte Lemos, among others)
Family owned “cantinas”
Miolo, Valduga, Cave Amadeu, Don Laurindo, Don Giovanni, Angheben, Boscato, Marson, Lovara, among others)
High processing capacity (up to 3 million litres) Focused primarily in the production of fine wine and sparkling wine. Both local owned and transnational companies Modern technologies in wine making processes Substantial investments in R&D and Marketing Targets national and external markets Mostly members of UVIBRA Low processing capacity (50,000 to 500,000 litres) Focused primarily in the production of jug wine Predominance of cooperatives of small grape growers Low technological capabilities in wine making Reduced investments in training and marketing Targets low price local and regional markets Mostly members of AGAVI Historically low processing capacity (50,000 to 500,000 litres); some nowadays increased capacity significantly Focused only in the production of premium and sparkling wines Viticulture practices focused in the importance of terroir Strongly committed to the establishment of origin indication control in the Serra Gaúcha region. Linked to wine tourism initiatives High technological capabilities in wine making High investments in training and marketing Extensive use of foreign consultants (oenologists and agronomists) Targets high quality and high price niches at national and external markets Mostly members of APROVALE (Association of the Growers of Fine Wines from the Vineyards Valley)
Source: Author’s survey
4.2. The upgrading processes of the small cantinas The transition of the cantinas to the production of premium wines in Brazil is well illustrated by the history of Miolo. Its origin dates back to 1897 when the Italian immigrant Guiseppe Miolo received a piece of land in “Vale dos Vinhedos”. Initially, the grapes harvested were vied by the main wine industries of the region. During the 1990s, two members of the family graduated in Ooenology (one at Escola Técnica de Bento Gonçalves and the other at Faculdade Don Bosco at Mendonza, Argentina) and them decided to build a cellar to manufacture their own wine and promote their own brands´ name. In less than ten years
14
Miolo became the second largest producer of premium wines in Brazil and it is no longer a “small familiar” cantina. The investments and improvements made by this winery on producing and promoting premium wines have resulted in an impressive growth. Overall sales jumped from less than US$ 1 million in 1998 to US$ 13 million in 2001. Notwithstanding, the company is foreseeing a huge expansion both in terms of vineyards and grape processing capacity for the next five years.11 In 1999, the winery also started to produce premium wines in the São Francisco Valley in the northeast of Brazil through an agreement with a grape producer in the State of Pernambuco. The success of this experiment also induced the Miolo family to expand their grape and wine production to a new area in the State of Rio Grande do Sul, the Campanha region, near the border with Uruguay. Today, the company holds a processing capacity of 5,5 million litres/year and employs nine full time oenologists among its 15 permanent employees. As part of its growth policy it hired in one of the most famous French flying winemakers, Michel Rolland who helped them to design a new strategy and produce new wines. The growth strategy has in exports one of its main axis. In fact, although Miolo’s exports are still reduced (1% of sales in 2003 and around 5% in 2004) the company has set a goal to boost annual exports to over 30% of its total wine production. In order to achieve such prospects, Miolo set up an exports department in 2002 (when export revenues accounted for 0.1 of sales) and introduced a new line of wines (using blends of Cabernet Sauvignon, Pinot Noir and Merlot) directed towards European and North American markets. Instead of targeting supermarkets (where competition with Australian and Chilean wine is tough) Miolo is directing its external sales to specific distributors (Vins de Monde in France, Plaza Latina in Italy, for example) that target restaurants, specialized stores and delis. With this strategy Miolo already closed agreements to sell its premium wines in France, Italy and USA. It is also taking part of an export consortium group with other four Brazilian wineries (Aurora, Salton, Lovara and Valduga). This group of exporters is partially funded by APEX, a federal government initiative aimed at promoting exports in diverse Brazilian industry segments. Among the other wineries that became the drivers of the productivity and quality enhancements in the Brazilian wine industry are Valduga, Cave Amadeu (Geisse Family), Don Laurindo, Cave de Pedra and Angheben, among others. The technological level utilized in the production process of this segment of wineries is comparable to those existing in traditional wine producing countries. Angheben is another noteworthy example of the upgrading process in the small cantinas. This still small cantina was founded in 1999. The owner was responsible for the Chandon winery in Garibaldi {from 1975 to 2002) and taught viticulture in the Federal Center for Technological Education in Bento Gonçalves, and he is generally deemed to be one of the leading experts on the cultivation of viti-vinifera in Brazil. The winery started buying grapes and renting facilities to make its wines, but from the 2004 harvest they are able to cover 100% of their needs with their own grapes. Aiming for high-quality red wines, the strategy is to target the quality of the fruit 12 11
Miolo’s vineyards total 370 hectares in three main plantations located in the Vale dos Vinhedos (100 ha), Fortaleza do Seival in the Campanha region (150 ha) and Fazenda Ouro Verde in the State of Bahia (120 ha). Also, in Vale dos Vinhedos in the Serra Gaúcha region the winery accounts for 300 hectares from other growers.
12
When he left Chandon to set up his own winery, Professor Angheben planted his vineyard 155 miles to the south in Encruzilhada do Sul, in the Serra do Sudeste, where the climate and the soil are fIat and dry, making the use of machinery a possibility. The varieties planted are Cabernet Sauvignon, Merlot, Pinot Noir, Nebbiolo, 15
Another interesting case is the one of Cave do Amadeu. This small winery producing arguably the best Brazilian sparkling wine is owned by Chilean agronomist and wine-maker Mario Geisse and his nephew microbiologist Caros Abarzúa. Geisse came to Brazil in the late 1970´s brought by Chandon to lead its business in Serra Gaucha. Today he still does consulting work to Chilean wineries, being perhaps the only Brazilian-settled flying winemaker. The winery is the model of technology, using temperature-controlled stainless steel, gravity fIow, and American oak barrels. It is also where you can find a fine example of how modern technology incorporated into equipment is linked to good tacit knowledge by qualified human resources. Geisse tried to find the highest and coolest land he could find to produce Cabernet Sauvignon, Merlot Pinot Noir, and Chardonnay. They are all on vertical shoot positioning, planted on the steepest slopes set into tractor-accessible terraces. The idea is “to find the best solar exposure, ventilation, and drainage” tells Geisse. Most of these small family wineries are located in the “Vale dos Vinhedos” (Vineyards Valley) among the borders of Bento Gonçalves, Garibaldi and Monte Belo do Sul. The Vale dos Vinhedos comprises around 81 square kilometres and is privileged for its mild climate, severe winters and exceptional sunny periods in the summer. Also, the Valley is considered by local producers as one of the best wine producer regions of Brazil and became an official trademark for some Brazilian wineries13. In order to differentiate their wine’s origin some of these wineries in this Valley have worked along with Aprovale (Association of the Growers of Fine Wines from the Vineyards Valley) to create the first Origin Indication certificate for Brazilian wines, which was achieved in 2003. They are now in the process of obtaining the certificate of Origin Appellation which will significantly improve the prestige of the wine. As it is known, products must keep minimal quality and certain regularity in their characteristics and there are specific producing rules to be followed for the certificate to be given.. According to Aprovale (2002), the conquest of the origin seal represents a major achievement in the in the production, organization and marketing of wines in Brazil. There is an increasing winegrowing area as well as a boom of systems to elevate the grapes quality. The value average rates of the grapes are superior to those from other producing areas. There is an increasing number of wineries as well as of the technological pattern. Moreover, this first geographical indication will contribute to foster the development of winegrowing among other geographical areas in the Serra Gaúcha region. 4.2. Institutional learning and the role of supporting organizations The analysis of institutional designs within the Brazilian wine arrangement reveals the existence of some key organizations connected with the coordination of inter-firm relationships and the research, technological development and human resources training activities.
Barbera, Touriga, Dolcetto, and Teroldego in red, and Chardonnay and Gewürtztraminer in whites. 13
In the last few years, some of these wineries have also started producing grapes and wines in new areas. These new areas attract investment from local and international companies and are located in the southern parts of Rio Grande do Sul (Bagé and Encruzilhada do Sul) and in the Vale of the River São Francisco, in the Northeast of Brazil, on the border of Pernambuco and Bahia. 16
Historically, however, one may suggest that institutional development in the Brazilian wine industry has gone through three different phases. First in the late 20s and early 30s when institutions aiming primarily at organising production and trade and setting up minimum prices for grapes were set up in the Serra Gaúcha region. Cooperatives of small producers were also created in the following decades. Although helping organizing activities these institutions did not have any significant impact on the quality of grapes and wines. The second phase begins in the 1970s when technological and training institutions, such as EMBRAPA-CNPUV and JK technical school, were set up precisely aiming at increasing quality in vineyards and wine-making. The Embrapa Grape and Wine Brazilian Agricultural Research Corporation targeted agricultural technology and the Federal Center for Technological Education- Cefet Bento Gonçalves (formerly the JK agro-technical school) was set up in order to train oenology technicians. The third phase is characterized by the establishment of a number of industry associations and other organizations with the specific objective of increasing the quality of wine through collective action, during the late 1980s. Institutions that have been set up from this period onwards play nowadays a significant role in different ways: diffusing information, promoting the exchange of experiences between the wineries, organising study travels abroad or supporting small vineries’ participation in international fairs. The prevalence in the Serra Gaucha of an associative culture provided a primordial factor for the consolidation of this extensive institutional framework. The Embrapa Grape and Wine Brazilian Agricultural Research Corporation (EMBRAPACNPUV) and the Federal Center for Technological Education- Cefet, both sited in Bento Gonçalves, constitute the main research and human resources formation centres of the wine sector in Brazil. The EMBRAPA is the research arm of the Ministry of Agriculture and Production, has 42 other similar applied research centers throughout the country and is arguably responsible for most of Brazilian successful performance in agribusiness. The EMBRAPA-CNPUV, is a national referential centre for wine research. The centre was created in 1975, during the modernization cycle of the wine sector in the region, and its main purpose was the development of product and process technologies related to the wine agro-industrial complex. It is almost entirely devoted to viticulture and is the hub of Brazilian scientific knowledge on the subject. Here they study apple and other fruit trees as well, although the focus is on grape vines. They produce vegetal material and grafts for sale to nurseries. They research local vine pests and offer scientific and agro-technical support to viticulturists. The Federal Center for Technological Education in Bento Gonçalves, originally called Juscelino Kubitschek Agrotechnical Federal School, was constituted yet in 1959, being the only teaching institution in Brazil that offers formation as technician in oenology at intermediate degree. Since 1995, the Agrotechnical School starts offering also a BSc program of viticulture and oenology technology. In this sense, the school constitutes an important centre for the development of human resources at local and regional level. The program graduated more than 250 students in the last six years (table 5 below), mostly coming from the region. The course was set up with the support of ENFA – (National School of Agronomic Formation) from Toulouse, France and the Federal University of Rio Grande do Sul – UFRGS. The school also maintains several cooperative agreements with wine-related organizations in Brazil and abroad.
17
Table 5: Number of oenologists and technicians graduated in the JK Agro-technical federal school Degree/year 1995 1996 1997 1998 1999 2000 2001 Total Oenologists 35 16 14 11 9 n..a. n.a. 74 Technicians 18 23 22 28 21 20 44 176 Total
53
39
36
39
30
20
44
250
Obs: n.a. not available Source: Author’s survey
Concerning the set up of organizations connected with the coordination of inter-firm cooperative initiatives, it is worthwhile outlining the establishment of the Instituto Brasileiro do Vinho (IBRAVIN), in the 1990s. The set up of IBRAVIN represents the more distinctive example of the joint efforts that has been undertaken by the different segments of actors in the Brazilian wine industry for the upgrading strategies of the wineries in the Serra Gaúcha. The institute represents the main forum where vine-growers, wineries, producers' associations and the government of the state of Rio Grande do Sul have been promoting the development of this sector. IBRAVIN was originally created with the proposal of managing and executing a series of projects approved through the so-called Fund for Support to the Wine Sector (Fundovitis) which was constituted by resources coming from the state government’s tax bill. The Institute, initially, got to coordinate the interests of the main associations of the sector in order to cope with a wide effort for upgrading of the whole wine productive chain. This process would be fostered by the development of projects that comprised many areas. The key areas identified were market information, improved viticulture practices, improved cooperation between growers and wineries, improvement of grape quality, elaboration of a viticulture directory in the region, setting up of geographical indicators and a new proposal of legislation for the sector. The Institute is potentially a body of regulation and control of the sector, emulating, in part, the model of INAVI that has been applied with success in the upgrading process of the wine sector in Uruguay. In the same way, its structure reflected the increasing interest in approaching the productive chain demands to the research efforts developed in the research centres and universities of the region. According to IBRAVIN, in the last two years and a half important results have been harvested: some of the sector's long date demands have been answered with the creation of the Vineyards and Wineries Records (Cadastro Vitícola e Vinícola) and the Grape Producers' Training and Development Programme (Programa de Capacitação e Formação de Viticultores). Other achievements are the research made to assess the Brazilian market for wine consumption and the creation of the Wine Reference Laboratory, in Caxias do Sul (IBRAVIN, 2003)14. In addition to the role played by IBRAVIN, the existence of wineries operating in different niches has contributed for the creation of several producers associations aimed at supporting the interests and specific needs of each segment of wineries in Serra Gaucha. The Association of the Growers of Fine Wines from the Vineyards Valley (APROVALE) is by far the most 14
The Consultative Council of IBRAVIN comprises, among others, representatives of the following organizations: Embrapa - Uva e Vinho; Escola Agrotécnica Federal Presidente Jucelino Kubitschek; Associação dos Engenheiros Agrônomos da Região dos Vinhedos (Asarvi); Emater; Universities.
18
significant institutional development since it congregates most of the Brazilian wineries that produce fine wines. Since the late 1990s Association members were gathered around a common aim of promoting the geographical region of “Vale dos Vinhedos”. Also, the Brazilian Viticulture Association (UVIBRA) founded in 1967, counts on about 150 associated wineries at national level and congregates the major part of large and small wineries which operate in the production of fine wines in Brazil. The regional viticulture association (AGAVI) is another chief association of the Brazilian wine industry that represents the interests of small and medium producers dedicated to the production of bulk wines in the State of Rio Grande do Sul. Together with the Federation of Rio Grande do Sul Winery Cooperatives (FECOVINHO), AGAVI concentrates most of the cooperatives which operate in the production of bulk wines Also important is the A.B.E., the Associaçâo Brasileira de Enologia (Brazilian Enological Association), an organization of winemakers from the most important wineries of the Serra Gaucha, which promotes the wines of the region and Brazil in general. Each October, the ABE organizes the enormous Fenavinho National Wine Fair just outside Bento Gonçalves. The Fair coincides with another AB.E. -coordinated event the Avaliação Nacional de Vinhos (National Wine Evaluation), which concludes the Brazilian vitivinicultural calendar year. Finally it is worth mentioning that wine tourism is very well planned and the Vineyard Valley Wineries are well-equipped to receive visitors. They also maintain the lively cultural and gastronomic tradition of northern Italy found throughout Serra Gaucha. The mutes around Bento Gonçalves are clearly marked to indicate the many wineries that welcome visitors. More recently several wineries (including Miolo) are participating in another ambitious project: South America's first Wine Spa, scheduled to open in 2004. 5. Interactive learning mechanisms and upgrading strategies One of the key elements for the analysis of interactive learning mechanisms involving different set of actors and institutions in the study of the wine industry lays on the agroindustrial nature of this productive chain. Such characteristic reflects in the articulation of different stages upstream and downstream from the wine production and involves two different production and innovation circuits each one connected to the activities at agricultural level and at the grape processing. In this sense, it is possible to explain the innovation process within the Brazilian wine arrangement according to these two distinct innovative circuits. Obviously, although both circuits comprised a different set of actors and learning dynamics, they have a high degree of complementarities and entail a wider number of actors at local level, in which are included, besides the wineries, research centres, industry associations and other regional winemakers and grape growers organizations. Despite the quality improvements occurred in the wine sector during the 1990s, the upgrading of vineyards and viticulture practices remains today as one of the major challenges for the wine productive arrangement in Serra Gaucha. In this sense, there is a consensus concern among wineries, grape growers and the supporting organisations within the arrangement regarding the need to improve the viticulture quality profile in this region. Most of the Brazilian vineyards are still made of ordinary grape varieties like Isabel and Muscat. Despite the efforts of vintners in replanting these grapes used for jug wines with
19
others premium varietals (like Chardonnay, Merlot, Cabernet, etc), jug wines still account for almost 90% of the Brazilian wine production. The concern with vineyards conversion has led many wineries to expand their investment in their own vineyards and to import seedlings from the main wine producer countries. The commitment to the viticulture upgrading process includes, for instance, actions like evolvement of new premium grape species, diffusion of technical advising in the handling of the culture and plague control. In Brazil private firms’ strategies have been totally interconnected with Embrapa’s effort and one may suggest that at the agricultural level an innovation system has been developed. As for wine processing it is true that the wineries in Serra Gaucha significantly improved their level of technological capabilities. Since the first modernization cycle, in the 1970s, the wineries have been introducing significant innovations in machinery and in new winemaking techniques. In this aspect, although Brazil's winemaking industry is not among most important in South America, it is arguably one of the best technologically equipped. In the vinification process control, much advancement has been made through the increasing use of supporting enzymes for the maceration, malolactic fermentation, fining techniques and in using technologically improved yeast. In the machinery upgrading, at present, the use of stainless steel wine storage tanks constitutes a widely spread practice in the arrangement. Moreover, the use of oak casks in the wine maturation has been multiplied. The barrels imported from France, USA or made in Río Grande do Sul with imported oak are also commonplace, as is the use of oak staves and chips. In the same way, this kind of equipment has presently an important nucleus of local suppliers. Other kinds of machinery like special vacuum filters or refrigerator devices are still restricted to a small number of wineries15. These complex machinery, as well as some of the main inputs such as cork and oak casks are still imported from countries such as Italy, Argentina and Spain. Also, efforts to improve interaction with the local suppliers have been increasing. An example of this behaviour is illustrated by the partnership established since 1998 between Adega Miolo and a local furniture firm Bentec, for the production of oak barrels that allowed the replacement of the foreign suppliers from France and United States. Also, it is important to emphasize that the production of premium wines involves a higher level of wine processing technology, not only in terms of the required equipment, but also in the technical knowledge of oenology best practices. In the same sense, the success in the production of premium wines requires a high quality standard of premium grapes varieties used. Thus, the evolution process of the wineries towards the knowledge of premium wine production is, therefore, the best indicator of technological learning practices in the Brazilian wine productive arrangement. In this aspect, besides the role carried out by industry associations and other support organisations like IBRAVIN, the increasing exchange of information of Brazilian vintners with wineries in the main producer countries like France, Italy and Argentina has also been increasing in the last decade. In the chief firms this flow of knowledge happens in a systematic way trough the hiring of foreign winemakers advising. Moreover, the participation in international fairs and the organisation of study groups to the main producer countries, promoted through the different wineries’ organisations, has contributed for the dissemination 15
The refrigerator devices, for instance, are used in the control of the process of fermentation, clarification and storage and are essential for producing premium wines. 20
of new best practices. Particularly, in the small familial wineries, specialized in the production of premium wines, the training of winemakers was basically directed to the technical formation of the owner’s sons and daughters, in the best oenology schools in France and Argentina. Table 4 below provides an overview regarding product and process innovations introduced by wineries in Serra Gaúcha during the late 1990s. This information was gathered during interviews and the responses provided by respondents suggest that in all wineries interviewed, there is up-to-date national or imported technology in differing degrees of completion. Table 4: Product and process innovations adopted by Brazilian wineries - 1998 Winery
Processing Innovation Capacity* Bacardi 1598500 New packaging design Upgrading in machinery Introduction of new labour training methods Cordelier 210025 Acquisition of new machinery Aurora 33366300 Release of new products (varietal wines) New bottle design Rossini Subcontracting practices Process automation Livramento 337500 Release of new products (varietal wines) Monte Lemos 173232 New bottling machinery Manosso 529500 New organisational practices Sandi New organisational practices Mioranza 10430 New grapes storage system Muraro Moranza Panizon
66000
7739100
Fante Vani Dal B
104450
Release of new products Upgrading in machinery Release of new products (varietal wines) New layout Release of new products (destillled) New bottle design Upgrading in machinery Introduction of new enzymatic processes Introduction of fast fermentation processes
Impacts ACP RC RNE RE MQ X X X X X X X X X X X
X X X
X X X
X X X X
X X
X
X
X X X
X X
X
X
X X X
X
X X X X
X X X
X X
Keys: ACP= increase in production capacity; RC= cost reductions; RNE= reduction in number of employees; RE= inventory reductions; MQ= pquality improvement. * In litres, premium and jug wines production. Source (Vargas 2002)
Another indication of the innovation pattern of wineries in Serra Gaúcha is provided by figure 6 below which assesses the main sources of information for innovation used by them. According to the figure, the most important sources of information for innovation used by Brazilian wineries are exchange of information with costumers - domestic and international; exchange of information with others wineries in the arrangement and the participation in trade shows. Others sources like technical consultants, universities and research centers in the region were considered a less important source of information for wineries. However, the importance conferred by Brazilian wineries to the local research centres needs some additional observations. First of all, at least one third of the surveyed firms pointed to the existence of exchange with research institutions in the region, aiming R&D activities. Also, the analysis of the main innovations adopted by the wineries in the last decade shows that the major part of the innovations were related to improvements in grape processing techniques. These two points, in fact, are associated with Embrapa, confirming what was stated above. However, one has to point out that the crisis of the 1990s meant less government funding for technological centres as Embrapa. Finally, it is 21
noteworthy that the significant role of the local institutions in the qualification of human resources for the arrangement tends to be unnoticed by the firms, which considers the local labour quality as an intrinsic local externality. Figure 6: Main sources of information for innovation in Brazilian wineries
National and International trade shows Exchange of Informations with other wineries Specialized Publications/Catalogs Clients Machinery Suppliers in other regions/countries Local Machinery Suppliers Research Institutes and Universities in other regions Local Research Institutes and Universities Technical consultants Firm R&D department in other regions Firm Local R&D department 0%
High importance
20%
Medium importance
40%
60%
80%
100%
Low importance
Source: Vargas (2002)
Finally, the learning paths of the wine productive arrangement in Serra Gaucha are in fact a combination of what happens both at the segment of small family-owned wineries dedicated to the production of premium wines and at the segment of the largest wineries (Aurora, Chandon, Santon and Bacardi) that hold a high wine processing capacity (above one million litres year). On the one hand, it is true that the small cantinas, as emphasized earlier, are today at the most dynamic part of the wine cluster upgrading process. In this aspect, it should be considered that before the appearance of this small and qualified segment in the productive scenery, the premium wines production used to be a restrict activity of the largest wineries due to the required level of investment and technical qualification. On the other hand, either as a reaction to the strategies of the small cantinas or because they sensed the opportunities brought by the expansion of the internal market the big wineries also have expanded considerably their investments during the 1990s by importing seedlings of noble varieties as Chardonnay, Pinot Noir, Cabernet Sauvignon and Merlot from France, Italy, South Africa and Australia. Overall, the analysis shows that long run processes of learning have been important in the transformation of the Serra Gaucha productive system which was triggered during the 1990s. In both cases practical tacit learning processes were associated to formal education and training at Cefet Bento Gonçalves and EMBRAPA. Nowadays winemaker as a profession is a widespread practice. Every winery has one or more resident wine-makers, most of whom have been trained in the Cefet in Bento Gonçalves, although a few have studied abroad.
22
7. Conclusions This paper has analysed how different learning and technological upgrading strategies have emerged in the Brazilian wine industry during the 1990s. It has given particular emphasis to the challenges posed for local wine producers in the South of Brazil due to increasing in local consumption and the very tough external competition in their domestic markets. In order to face these challenges Brazilian vintners began to seek for new strategies based on improving productive and innovative capabilities. The Table 6 below attempts to summarize the main features affecting the innovative and competitive dynamics of the Serra Gaúcha wine arrangement. Table 6: wine industry in the South of Brazil: knowledge structure and learning mechanisms Variable \ Arrangement Main market channels Role of industry associations and other local support organizations Governance structure Role of local technological infrastructure Sources of information external to the arrangement Main sources of information at local level Main focus of innovative activities Innovative and learning strategies
Domestic Major joint programmes develop by IBRAVIN and other associations representing specific needs of different groups of wineries Networks (with diffuse governance) Active role of Embrapa in developing grape quality programs Restricted to agriculture International trade shows International consultants Own innovative capabilities in wine processing and vineyards quality from lead wineries Higher capabilities on wine cellar technology and oenology Active and related to the small family-owned wineries’ upgrading processes
Concerning the role of industry associations and other support organizations connected to the local technological infrastructure, it is worth emphasizing the importance of local organisations concerned with technological development and training like EMBRAPA/CNPUV and the CEFET. Both organizations play an important role in promoting innovative circuits related to grape growing and winemaking activities. It is also suggested that the local industry associations carry out an important role in engaging local actors in collective learning processes and in shaping upgrading strategies. The high diversity of wineries in terms of technological level and processing capacity allowed the creation of different industry associations aimed at supporting wineries producing for specific market niches. Moreover, the establishment of IBRAVIN in the 1990s was critical to unify the Brazilian wine policy and to promote joint efforts by different segments of wineries in the Serra Gaúcha. In particular, the Brazilian wine productive system in the Serra Gaúcha seems to demonstrate the central role of a small segment of wineries producing fine wines in shaping the upgrading paths adopted by different segment of Brazilian wineries during the 1990s. The segment of the largest wineries has also played a significant role in the pursuit of higher capabilities both in terms of winemaking techniques and grape growing activities during the last decade.
23
Presently, the great challenges offered to the grape growers and wineries in Serra Gaucha are precisely to be found in the two extremities of the productive chain. First, there is still a large way to in terms of the grape production for increasing both volume production of grape premium varieties and productivity. A second challenge rests on increasing the participation of Brazilian wine industry in the domestic and world markets. As emphasized earlier, the participation of Brazilian wine industry in the world market is still extremely reduced, as well as its own participation in the domestic market that still has a significant potential to increase16. Also, It is important to notice that, in the last decade, the sparkling wine production in Brazil has developed significantly both in terms of quality and sales volume. This is due to an increase in the domestic consumption as well as the growing international reputation of the Brazilian sparkling wine. In this sense, although significant improvements were made during the 1990s one cannot say that a local innovation system has been effectively established in the Serra Gaúcha wine productive system. It is possible to be suggested that at the agricultural level a more complete innovation circuit was set into motion. The crucial problem her is that problems with government budget can put into jeopardy the model that is succeeding at the agricultural level. At the wine processing level, the innovation circuit is partial since wineries do not go further than adapting and importing technologies. The analysis of the technological and interactive learning dynamics in the Brazilian wine industry raises a fundamental question on the kind of possible competitive insertion of small scale wineries in an increasingly globalized environment. In this aspect, the empirical evidences allow emphasizing the possibilities of fostering innovative paths based in the role of local actors and domestic markets. Moreover, although knowledge flows may emerge from internal or external sources, the ability of local actors to sustain learning mechanisms within the productive arrangement remains a crucial issue to foster technological dynamism. Finally, the experience of different countries that reached a high level of competitiveness in the international wine market proves that this kind of path do not occurs simply by the mediation of power in the market. Rather, this process requires the adoption of specific supporting policies to productive and innovative capabilities.
16
The wine consumption per head in Brazil is at present around 2 litres/year, while in Argentina it is 48 liters/years and in Uruguay, 33 liters/year. Moreover, about 20% of the Brazilian consumption (in volume) corresponds to imports from countries as Argentina, Chile, Germany and France. 24
Bibliography Anderson, K. (2001) Australia´s Wine Industry: Recent growth and prospects. Cahiers d´economie et sociologie rurales, n.60-61, 2001. Anuário Brasileiro da Uva e do Vinho (2005) Edição especial. Santa Cruz do Sul: Ed. Gazeta Grupo de Comunicações, 136 p. Anuário Brasileiro da Uva e do Vinho (2004) Edição especial. Santa Cruz do Sul: Ed. Gazeta Grupo de Comunicações, 136 p. Brennan, J.P. and J.D. Mullen (2002), Australia’s Research Levy System, in G.H. Peters and P. Pingali (eds) Tomorrow’s Agriculture: Incentives, Institutions, Infrastructure and Innovations. Aldershot: Ashgate for the IAAE. Cassiolato, J., Lastres, H. e Maciel, M. (2003) Systems of Innovation for Development, Edward Elgar, London. Cadastro Vitícola do Rio Grande do Sul 1995/2000. IBRAVIN (Brazilian Institute of Wine) Cadastro Vinícola do Rio Grande do Sul 2001/2002. IBRAVIN (Brazilian Institute of Wine) EMBRAPA-CNPUV (National Centre for Research on Grape and Wine). (2003) On line statistics at < www.cnpuv.embrapa.br > IBRAVIN (2003). On line statistics at . Loiva, M.R.M. (2001). Produção e Comercilização de Uvas, Vinhosd e Derivados – Panorama 2001, Artigo técnico EMBRAPA-CNPUV. Available on line at www.cnpuv.embrapa.br/produção.html Luxner, L. (2001) Brazil’s Aurora Winery 70 years in business . Wines & Vines, May 2001. Available on line at < www.findarticles.com> . Mytelka, L. (1987) The Evolution of Knowledge Production Strategies Within Multinational Firms, in. J. Caporaso (ed) A Changing International Division of Labour, Boulder, CO: Lynne Reiner. Mytelka, L. (1999) Competition, Innovation and Competitiviness: A Framework for Analysis, in. L.K. Mytelka (ed), Competition, Innovation and Competitiviness in Developing Countries, Paris: OECD. Penn, C. (2001) Uruguay is Ready! Wine Business Monthly, v.8, n.7, Aug 2001. Available on line at Rankine, B. (1996), Evolution of the Modern Australian Wine Industry: A Personal Appraisal, Adelaide: Ryan Publications. Snoeck, M. (1998) Transición, Aprendizaje e Innovación en la Industria Vinícola Uruguaya. GEI/NT 31/99, IE/UFRJ, projeto Arranjos e Sistemas Produtivos Locais e as Novas Políticas de Desenvolvimento Industrial e Tecnológico, Rio de Janeiro, (available on line at http://www.ie.ufrj.br/redesist . The Economist (1999) The Globe in a Glass: Survey on Wine Industry, December 16th, London.
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Vargas, M. (2002). Proximidade territorial, aprendizado e inovação: um estudo sobre a dimensão local de processos de capacitação inovativa em arranjos e sistemas produtivos no Brasil. Rio de Janeiro: UFRJ/IE (PhD Thesis). Vargas, M.A., (2000) Local Systems of Innovation in Developing Countries: A study of technological Learning in Local Productive Arrangements in Brazil. In: Druid’s Winter Conference on Industrial Dynamics: Hillerod, January 6-8.
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Annex 1 Data Collection: main interviews held with local actors in the Brazilian wine Arrangement Institution/Organization Name/ Position Industry associations União Brasileira de Vitivinicultura Danilo Cavagni President (UVIBRA) Associação dos Produtores de Jaime Milan Executive Director Vinhos Finos do Vale dos Vinhedos (APROVALE); Instituto Brasileiro do Vinho Carlos Paviani Executive Director (IBRAVIN), Research Centres and Technical Schools JK Agro-technical Federal School Paulo Cesar Scopel Director The National Centre for Research José Protas General Director on Grape and Wine of EMBRAPA (CNPUV) Government Secretary of Agriculture of the Plínio Manosso Inspection Unit manager State of RGS Wineries Cave Amadeu Ignacio Geisse Owner and administrative manager Chandon Danilo Cavagni General Director Miolo Adriano Miolo Owner Carlos Nogueira marketing and export manager
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Annex 2: Location of the Serra Gaucha wine arrangement – Rio Grande do Sul – Brazil
Source: IBGE (2005)
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