RENCOM – Workpackage 4 – Hungarian case studies: Eger Bull’s blood project Page 1 Eger Bull’s blood project (Heves) Winegrowers play a major rule in this county. Bull’s blood is one of the two most famous wines in Hungary (the other one is the „old Tokay” from the county next to Heves) which is grown in Eger, the capital city of Heves. After the transition in the early 90’s, many new small farmers have appeared on the hills of Eger, who try to produce Bull’s blood. At this time there wasn’t any approving method to control the quality of wines. This situation was very harmful for the wine-growers who tried to sell quality wines with high prices, and of course it was very harmful for the famous brand, „Bull’s blood”. But many small farmers produced red wine under the brand’s name “Bull’s blood”, whose quality were not suitable, and before the transition, in the foreign markets the brand became the synonym of a “moderate quality” Hungarian red wine, and these bottles abided on the bottom shelves of the supermarkets. Another problem also arose: Eger’s farmers can’t deal with each other if the Bull’s blood has to become the region’s dominant famed high quality wine or it should remain an in quantity produced and within easy reach market-leader red wine. We try to focus on a special network in which actors try to rebuild the brand of the wine in the Hungarian market as well as in the world market. The most important step in this process was to create a legal text which controls the winegrower’s method, and ordains some quantitative indicators (for example: weight of grapes per hectare, the area where the grapes from etc.). But before this step they had to determine the special chemical components that can be used in the course of the wine- production, and the weight of these components. Eventually, in 2003 the authorities modified the “wine-law” which opens hence the door to regulate the production and preparation of proprietary extra fine quality wines. The council of the 15 parishes of the region settled down the regulation of the production of a “simpler Bull’s blood” and in the same time they created a new category: “Bull’s blood Superior”, and agreed, that the best quality will be the “Superior Eger”. (The differences result in the permitted volume-crop of grape per hectare, the permitted types of grapes or the degree of the sugar etc). Naturally the RENCOM – Workpackage 4 – Hungarian case studies: Eger Bull’s blood project Page 2 strict ordain results high costs, so the small farmers can’t finance this process. Anyway, the result of this project will be lower grapes with higher quality. There are four major groups of the actors in our case study: 1) the group of farmers with high revenue and good export possibility; 2) the group of small farmers who won’t be able to follow the conditions; 3) the group of institutions are interested in the research to find the „best quality”; 4) the last one is the group of institutions linked to the big farmers who help to lobby in all levels of the politic. The OPP (obligatory passage point) is to safeguard the quality and the nimbus of the wine nevertheless make a deal in favor of smaller farmers also. Within the framework of the National Research and Developing Program, Eszterházy Károly College applied for a tender to improve and to amend technologically the production of the wine and to finish a marketing strategy which enhance the competitiveness of the famous Bull’s blood. The essential goal is to ameliorate the qualitative production of the Bull’s blood and other wines of Eger. The project covers four years. The members of the consortium are: ¾ the College, ¾ the Guild of 9 wine producers (who are the major wine-growers), ¾ the Research Institute for Grape and Wine in Eger ¾ and some small- and medium farmers who already won at more international competition. The intellectual basis is the College. They make researches in the field of biology, chemistry, viticulture, meteorology, geography, and history too. RENCOM – Workpackage 4 – Hungarian case studies: Eger Bull’s blood project Page 3 The model New entrants1a, Substitute Products1b 4 Bargaining Power Suppliers2 Project Bargaining Power Buyers3 Factor Conditions5 Demand Conditions6 Related & Supporting Industries7 Local Governments8 National Governments9 1a The threat of the new entrants: It depends on how opened the market is, on capital requirement, on resiliency of the market, on government policy, on the possibility to access to input and to distribution, on Brand identity, on switching costs, or on proprietary products etc. The possibility that new farmers may enter the market also affects competition. But there are many barriers (modified wine-law, the high cost of suffice the specialized technological requirement, cost of investment assets, etc) which reduces the number of possible new entrants. 1b The scale of the substitute products: other wines on the market whose quality is pretty much the same. The threat of substitutes depends on switching costs, on buyer’s inclination to substitute or on price- performance trade-off substitute. In Hungary we can find pretty much kind of (red) wine in the market whose price often lower than the Bull’s blood’s price, even if they are foreign wines. Nowadays customers can’t trust in RENCOM – Workpackage 4 – Hungarian case studies: Eger Bull’s blood project Page 4 this brand name because they can’t be sure, if they choose Bull’s blood it means that they bought the expected and desirable quality. 2 Bargaining Power Suppliers: It depends on how efficiently organized they are, on suppliers concentration, on the importance of volume to supplier, on presence of substitute inputs or on impact of inputs on cost or differentiation. In our case, Bull’s blood has a good position, because in the region this kind of wine is the most famous, the brand name is already familiar, the enhance and the promotion of the product is in the interest of the national and regional authorities too. It could lead the market in the future, and it would become a luxurious-product, if the low quality wines were withdraw from circulation of the market. 3 Bargaining Power Buyers: It depends on how efficiently organized they are, on buyer volume (how much wine they want to buy), if the product is unique (Brand identity; it means less the product is unique, the BPB is bigger), on the cost of the substitute of the product, the price-sensitivity of the consumers, or if any substitutes are available. In our case the consumer’s interest is to get good quality wine in “normal” price. Whereas Bull’s blood is a traditionally appreciated Hungarian product, consumer likely pays the additional price, if the quality of this wine is undeniably guarantied. 4 Project: The goal of the project is to rebuild the brand of the wine in the Hungarian market as well as in the world market, and to make Bull’s blood the region’s dominant and appreciated extra fine quality wine. 5 Factor conditions: The nation’s – or in this case the region’s – position in factors of production is necessary and essential to compete in a given industry. We can rate here for example skill labor or infrastructure. In Eger’s wine-country there isn’t any “wine-producer training”, while it should be indispensable in order to produce Bull’s blood and other wines on high quality. This task waits for the College. In the Research Institute for Grape and Wine in Eger, the experts make researches and experiments to improve the wine’s quality, but they don’t have enough informational and technological background to attain smashing results. RENCOM – Workpackage 4 – Hungarian case studies: Eger Bull’s blood project Page 5 6 Demand conditions: The home demand for Eger’s products is quietly sufficient, but on the foreign markets the Brand name has already bore loss of face. To add, a more demanding local market leads to national advantage. To improve the export opportunities all the participant should make more efforts. 7 Related and Supporting Industries: It’s evident, that when local supporting industries are competitive, firms and farmers enjoy more cost effective and innovative inputs. In Eger the wine-producers not only grow the grape but they have their own installation and materials with good technology to bottle the wine. Moreover there are many subcontractor who doesn’t produce wine, but bottles them. If they establish a good relationship whit numerous producers, they can deal in a way, which is fruitful for all of them. 8&9 Local and National Governments: As we analyze on regional or local level we have to recognize the role of the regional decision making centers. The sub-regional or local authorities can intervene in order to support economic as well as socio-cultural activities. To add, it’s necessary to make the distinction between hard and soft support in this context. Generally, the hard support which refers to physical infrastructural aspects (such as roads, buildings) or favourable monetary conditions (taxation measures) is given by the national authorities. The regional or local authorities or institutes can rather give soft support for example education, consultation for the small- and medium enterprises, or for farmers in European Union’s affaires. In our study the national authority modified the wine-law in order to protect the decent and honest producers. (The role of government in this case is to encourage companies – and the growers – to raise their performance by enforcing strict product standards.) The government realized that the project is essential to the whole country, so the Ministry of Education gave 100 million Forint for the Bull’s blood project in the framework of National Program for R&D.