German Wine Cooperatives: Lower Rewards for Quality
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The German Agricultural Society (DLG) manages a multi-round annual award competition where wines undergo a blind, sensory testing procedure using a 5-point scale to determine superior quality wines worthy of a Bronze, Silver, Gold, or Gold Extra award. We develop a hedonic model for the 2005 award competition estimating implicit prices for different product attributes including sensory awards, quality categories, and wine style. We also control for regional origin, variety, colour, and age. To discern the impact of ownership structure, we differentiate cooperatives and privately owned wineries. Silver and Bronze awards show significant price effects relative to Gold. We estimate highly significant price effects between quality categories (e.g. Auslese +34% relative to Spätlese) and wine style (e.g. dry +10%). Our results indicate that cooperatively produced wines are lagging behind in terms of strategically addressing the opportunities presented in today’s global wine market (i.e. going for varietal wines of high quality with aging potential that are competitive and fetch higher prices). Cooperatives seem to have opted for barrique-style wines and Chardonnay for which they gain higher implicit prices relative to non-coops. Our analysis suggests that this may not be wise in light of the characteristic strengths of German wine production.