Cien. Inv. Agr. 40(3):491-501. 2013 www.rcia.uc.cl AGRICULTURAL ECONOMICS RESEARCH PAPER Analysis of international competitive positioning of quality wine from Spain Juan Sebastián Castillo and Mª Carmen García Instituto de Desarrollo Regional, Universidad Castilla-La Mancha, Campus Universitario s/n, Albacete, Spain. Abstract J.S. Castillo, and M.C. García. 2013. Analysis of international competitive positioning of quality wine from Spain. Cien. Inv. Agr. 40(3):491-501. The global vitiviniculture sector is undergoing systemic and thorough changes. Spain occupies a privileged position in the global industry, ranking first in surface area, third in production and second in export volume. In recent years, domestic consumption has experienced a clear and pronounced decline, as observed in France and Italy. Therefore, exportation has become the main commercial avenue for table and quality wine. In Spain, designated quality wine represents 50% of total production and has experienced commercial dynamics in international markets that differ from those affecting table wine. The object of this paper is to analyze the factors influencing the competitiveness of quality wine, represented by designations of origin, in international markets. After defining a competitiveness index, adapted from the Balassa index, and using environmental and internal variables, three panel data models of the most representative Designations were specified for the 2000/2001 to 2009/2010 seasons. The results demonstrated that environmental variables were more influential in explaining the weak international competitive positioning of the poorer performing Designations. European regulations resulting from the Common Agricultural Policy (CAP) and the economic crisis were significant and influential in this respect. Economies of scale, quality, and unit cost were the most influential internal factors for each D.O.factors for the most competitive quality-wine production areas. Key words: Agricultural economics, competitiveness, designation of origin, foreign trade, panel data, quality wine. Introduction Bouamra-Mechemache and Chaaban (2010), De- selnicu et al. (2011), and Valenciano and Roman Analyzing quality wine implies assessing what (2011) agree that quality is a means of product such an abstract concept means. In the case of differentiation. In Spain, the fertility and variety of Spain, this designation is determined by the the soil and the climate have favored the presence territorial origin of the wine, along the lines of of a number of wines, each with a characteristic terroir in the French tradition. Maher (2001), personality (Jones and Davis, 2000). Therefore, an important number of Designations of Origin Received March 29, 2013. Accepted September 25, 2013. Corresponding author: [email protected] (D.O.s) were recognized as a product identification 492 CIENCIA E INVESTIGACIÓN AGRARIA mark (Thode and Maskulka, 1998; Ribeiro et al., as where X represents exports; , DO,j 2002; Martínez-Carrasco et al., 2005). CDO,j, total trade; and N, total D.O.s (i=1,…j). The mean ICDO was 0.65 over the past decade, D.O.s represented 50% of Spanish vitivinicul- with a rising trend exhibited throughout the pe- ture production in the 2010/2011 season, near riod, increasing more due to the increased share the standards of the other two great global wine exported to international markets than with the producers, France and Italy. At the international interior market (Figure 4). However, the growth level, exports increased by 32% over the past in international trade has not been homogeneous. decade (Figure 1). The Cava, Rioja, Valencia There are outstanding differences among D.O.s and La Mancha D.O.s stand out with over 50% of in the ICDO (Figure 5). the market quota (Figure 2). The EU is the main destination for exports, receiving 71%, followed Having defined competitiveness, it is necessary to by the USA with 9% and, in recent years, China analyze the factors that influenced the competi- with 2% (Figure 3). tive international positioning of different D.O. areas. From the emergence of the discipline, the These initial data show the clear dynamism of topic of commercial positioning has concerned quality wine exports that, according to Markusen international trade researchers. In a more recent, (1992), indicates an increase in competitiveness. brief and superficial revision, Porter (1985) noted For the purposes of this article, competitiveness that low costs and product differentiation allow an is understood in Markusen’s terms, defined as an organization to achieve a competitive advantage. industry’s increasing market share of exports to a For Mathison et al. (2007) and Gwynne (2008), specific market. As Balassa (1965), Araoz (1998) and the degree of innovation was responsible for com- Roldan (2000) indicate, increased competitiveness petitive advantage. Rumelt (1991), Roquebert et reflects ongoing efforts to acquire differentiating al. (1996), and Mauri and Michaels (1998) argued attributes and gain advantages. Therefore, the that the talent and ability to acquire and manage objective of this paper is to measure that notion resources explained competitive advantage, while of competitiveness in Markusen’s terms (1992) Clifford and Cavanagh (1985) advocated the exist- and study its determinants. ing history and culture of the product. However, Aragón and Rubio (2005) stated that the capacity An index adapted from that developed by Balassa to achieve market success reflects a combina- was employed to measure competitiveness, a tion of factors: financial capacity, technological concept that has been used by researchers such as position, innovation, good marketing, human Van Rooyen et al. (2000), Valentine and Krasnik resources and information and communications (2000), Pitts et al. (2001) and Esterhuizen (2005) to technology (ICT). examine the South African wine industry. Boriraj (2008) applied it to the Australian wine industry; This paper is more in line with the approach Cerda et al. (2008) used it to study the competi- advocated by Moreira et al. (2011) that the cur- tiveness of Chilean wine exports; Medina and rent wine supply increases competition and Martínez (2012) applied it to the main exporting there are many, diverse factors determining the countries (France, Italy, Spain, Portugal, Germany, level of competitiveness of an organization. In Argentina, Australia, Chile, the USA, and South this paper, factors were grouped into two cat- Africa), and Martínez and Medina (2013) used it egories: 1) environmental factors affecting all to analyze the Spanish wine sector. Designations, and 2) internal factors specific to each D.O. The first group includes the effects of This paper also calculated a competitiveness index, the economic since 2007 and the reform of the adapted from the Balassa index and formulated Common Market Organisation (CMO) in 2008, VOLUME 40 Nº3 SEPTEMBER – DECEMBER 2013 493 two incidents from the first decade of the 2000s country determine competitiveness in the market that affected the sector. Internal factors include: (Avondet and Pinero, 2007). Cancino del Castillo a) economies of scale, b) product differentiation, (2004) highlighted that in an analysis of export c) export destinations and d) price. competitiveness, price must be considered, as prices and export shares move together. Medina The theory and conceptual framework on which and Martínez (2012) consider price in the Spanish this research is based begins with economies of context, while Bozsik (2005) does so for Hungar- scale, the implications of which for international ian wine on the international market; Cerda et al. trade are due to seminal contributions by Porter (2008) use price to analyze the determinants of the (1985). Previous papers considering economies competitiveness of Chilean wine exports, Vlahovic of scale as an explanatory factor for competitive- et al. (2009) does so for the wine industry in the ness in the wine sector include Esterhuizen and Republic of Serbia and Van Rooyen et al. (2011) Van Rooyen (2006) for the South African wine apply it to the South African wine industry. These industry, Skorpikova (2002) for wine from the authors find that a lower price is associated with Check Republic and Martin and Heien (2004) for increased competitiveness. the Californian wine industry. These researchers, together with Reinert (1995), Eyler (2001) and Although all of these variables are important Rebelo et al. (2007), indicate that economies of when studying competitiveness, Schumpeter scale have a positive effect on export competive- (1942) established that they should be consid- ness. In addition to Porter (1985), Krugman (1989) ered jointly. Schumpeterian thinking advocates also emphasized that economies of scale must be a wider perspective on the modus operandi for considered as a factor affecting trade imbalances: obtaining a dominant position in international “introducing economies of scale as a determinant markets, where quality competition, product dif- of trade seemed to resolve the puzzles uncovered ferentiation, innovation in new markets and sales by empirical work.” efforts are jointly considered with the traditional price variable. Porter (1985) and Oster (1999) consider product differentiation as a positive factor in an environ- In our case, following this central idea, we de- ment characterized by intense competitive rivalry. veloped a model in which the competitiveness Therefore, producers should search for goods (according to Markusen, 1992) of Spanish