What Can Cooperatives Bring to the Future of Fine Wine?
The cooperative movement springs from the 19th century, when working people began to create mutual aid societies, helping one another to access everything from banking, to funerals, to healthcare. Later in the century, after France lost Alsace, Alsatian growers began to form cooperatives, where they brought their grapes to a central site to be crushed and vinified. Today, the cooperative system accounts for around 50% of Europe’s wine production.
In 2016, UNESCO added cooperatives to its list of intangible cultural assets, recognising them as entities that “allow for community building through shared interests and values creating innovative solutions to societal problems, from generating employment and assisting seniors to urban revitalization and renewable energy projects”.
But until recently, cooperatives were generally regarded as the place for bulk wine production, or the production of lesser-quality wines. A new generation of ambitious managers and growers has changed that, at the same time that consumers are now drawn to ethical, social enterprises.
Could cooperatives play a role in fine wine? We assembled a team including Philippe Leveau, the CEO of InVivo, a union of French cooperatives; Roman Horvath MW, winery director of Domäne Wachau cooperative in Austria; Brendan Carter, winemaker and distiller at Team Unico in Australia; and Christian Holthausen, founder of Westbrook Marketing Partners, which has a particular emphasis on Champagne.
ARENI
Like many of you in the audience today I have been tasting wines from cooperatives that were extremely well made, premium in price and vision driven. And I’ve also met a new generation of both trade and consumers who are actively interested in cooperative models. So, are cooperatives the next big thing for fine wine? Can they be a source of inspiration? Those are the big questions for today.
Roman, can you explain briefly what cooperatives are, how they operate, and how the governance system works.
Roman Horvath MW
Well, of course, we are focusing on wine cooperatives, but cooperative exists in many other industries as well. In other industries, cooperatives seem to be much more successful than in the wine industry. And there are some reasons behind it. A cooperative produces and hopefully sells wine made from grapes grown by its members. It seems pretty easy to understand, but behind that are a lot of complications. Producers and growers form a kind of club or association, and try to sell this wine. Of course, they need some rules for that. I’m referring mostly to the German and Austrian historical backgrounds. There might be slight differences in Italy, France and Spain, but here you have this kind of charter constitution statute that you start with. It’s mostly highly bureaucratically written, to organize yourself in a general assembly.
All the growers meet and elect an executive board, or a board of directors, and the head of the executive board or board of directors is the chairman or president. Sometimes you have a supervisory board who’s checking the board of directors. They produce wine they have to sell, together. And that’s already a kind of obstacle because most are small growers. They are deeply embedded in the local culture; however, not with the vision of the market, or how to organize such a complex structure. And that’s where we start from with a cooperative.
ARENI
And basically normally it’s one man or one woman, one person, one vote. The vines are their own, but the equipment is collective, and the property of the cooperative.
Phillipe Leveau
Another key point for me is the fact that you’ve got a footprint or a fingerprint – it’s about a specific area. The size and the type of members are different, so you have a lot of politics. And for me, the cooperatives that are the most successful are the ones where the politics stays on the politics side of management, and the manager, or CEO, has the full power to develop the strategy. This is where, most of the time, coops are making the mistake of not investing enough in the operational and executive management.
For me, the cooperatives that are the most successful are the ones where the politics stays on the politics side of management, and the manager, or CEO, has the full power to develop the strategy.
Phillipe Leveau, CEO, InVivo
ARENI
Roman and Philipp, how many vine growers are you gathering in your cooperatives or your union of cooperatives?
Roman Horvath MW
We speak about 250 family growers because in agriculture, if a farm or a vineyard is divided between the family and the father has something and the grandparents still have little bit, each of them is a member; however, they work together in the vineyard. But in total we have 500 memberships.
Phillipe Leveau
We aggregate 3,800 growers for a total of 28,000 acres. Some of them are just bringing us the grapes. Others could be a member of the coop, but are doing their own vinification. If I look at Champagne, for example, growers having their own brand of Champagne from their domain is less and less, because the revenue is so nice and good at the moment from LVMH.
ARENI
Why did cooperatives suddenly emerge? It was to maintain people on the land and to stop the rural exodus towards the city. It was to bring research and education in rural parts of the country as well. It was a way to develop technical progress. It was also political in France. Why are they still important to the viticultural landscape today?
Roman Horvath MW
A major reason was, and still is, that the production side is still in some parts highly fragmented. On the consumer side you have a high level of concentration with the multiple growers. So you need producers who are able to provide volume, hopefully in very good quality. On the other side you have bottling companies buying in bulk. As a cooperative, I think you can add so much more to the wine business, because it’s always with ownership of the vineyard. It’s always very, very local culturally and very valuable because the people here are part of the land. They are extremely good in the vineyard. They just don’t have the power or the size to go to the market. Having a mutual goal for reaching the next level is something very important.
ARENI
Brendan, Australia is not well known for its cooperatives. Can you tell us why in the Australia you thought that there was a need for cooperative approach? Tell us more about the project.
Brendan Carter
In Australia, contrary to a lot of the Old World, most of the fruit grown and sold for wine production is sold at the farm gate. The value-added step is completed by the winery. All the wine brands are built as machines to make and sell wine. Because there is a transaction that happens at the farm gate, the only opportunities for the growers to make a profit predefines a lot of little things about the vineyard.
Firstly, how does it grow or make more money? Well, they could sell more fruit. They could [increase] the price of their fruit, or they could lower their cost inputs to be able to maximize their profits. Because the transaction happens there and, typically, they’re trying to feed a house of people, it largely pre-determines the size of vineyard as well. This starts to lock in the grower. In a premium region like the Adelaide Hills where we are set up, the rule of thumb is around about 80 hectares. You can’t employ people below that. It is not possible with the market prices for fruit. If you want to employ people, you’re really looking at a 100 to 120 hectares. You’re looking at a lot of fruit – nearly a million bottles being produced off that vineyard at the requested yields that most of the wineries request. How do you build a winery that can process a million bottles? You need $10 to $20 million.
There are not a lot of buyers able to acquire 400-1,000 tons off your vineyard [which limits who growers can sell to]. They grower can’t raise their price – they can grow more. We started to see outrageous amounts of irrigation. We’re seeing drastic degradation in soil structure due to rising salt damp.
ARENI
So for you, having that that cooperative was breaking that cycle of always producing more. If we think about the future of fine wine, it’s funny to think that cooperatives like this can break that cycle and actually help increase quality because of increasing revenue.
Roman Horvath MW
The challenge with cooperatives [in Europe] is to move out of this bulk business, because most of the wine produced by cooperatives is sold in bulk. And then you are on the open market. So it’s important that you increase quality. Breaking this cycle is extremely challenging.
With us, it worked because in the first period we focused mostly on the market, increasing a bit the percentage of bottled wines. And that way we could already increase the income for the growers and that built some trust. After a few years of increasing the income of the growers we started asking for more quality and started a complete restructuring of the cooperative. We started this 16 or 17 years ago.
It’s a long-term project. That’s also a challenge because you need good management – you need a 10 to 20 years’ view, or even longer.
ARENI
That’s what Philip was saying. It’s all about the leadership. Christian, what are cooperatives for you? What role do they play?
Christian Holthausen
We have a real opportunity to redefine cooperative, to redefine cooperation. What I find quite funny in Champagne is the absence of the cooperative narrative in the fine wine community. The cooperatives are a huge part of Champagne; 50% of the Champagne appellation are cooperatives. But they don’t get talked about. A lot of people think of cooperative brands as negociants. Some producers have even tried to hide the fact that they’re a cooperative, which is absolutely ridiculous. Co-ops exist all over the world, not just in wine. We have this tendency to sort of think that cooperatives will just throw it all into the pot, and it’s completely wrong. We had the important revolution in Champagne in 1911, when people first started to mobilise and realized they had to work together, because farmers were being exploited. The very first cooperatives in Champagne go back to that period, before the appellation was even defined.
They’ve been this powerful force in Champagne for over a century, but we don’t really talk about them that much. I don’t like cooperative versus grower versus House; there are cooperatives that are amazing, there are negociants who are amazing, there are growers that are amazing. And there are mediocre producers of all stripes. While I think people don’t really understand about cooperatives is just how important it is to have coalitions to help your farmers farm better, to learn how to share best practices.
The cooperative consumer narrative doesn’t exist, and I think we’re missing an opportunity to explain some of the benefits of being a cooperative.
We have a real opportunity to redefine cooperative, to redefine cooperation… The cooperative consumer narrative doesn’t exist, and I think we’re missing an opportunity to explain some of the benefits of being a cooperative.
Christian Holthausen, Founder, Westbrook Marketing Partners
ARENI
Brendan, I know that your project was also very much driven by environmental sustainability and what you could achieve by giving people more money for their grapes.
Brendan Carter
In our way of conceptualizing, there’s no actual difference between grapes coming from a vineyard, going to a winery, being put into a bottle and sold to a consumer, whether with a cooperative model or similar structure. The big difference is the motivation. We needed to move transactions from the farm gate all the way to the market. What we didn’t expect was what – in finance terms – you would call the size of the arbitrage. The gap, or difference in profitability, between farmers and wineries, for what is some of the cheapest wine being made in Australia.
The way the model worked was simple. In fact, we tried to avoid the key things that would have legitimized us as a cooperative: ownership, governance, and control. We tried to develop models that removed those things, because we recognized that those are the things that actually slowed down cooperatives and made the barrier for entry into a cooperative model quite difficult. Growers can choose to sell to other people if they want, or they could bring them into us. We’ll turn them into wine and give them a 50% profit share on the final product.
From the growers perspective, it was over 400% more than they were garnering for the sale of their fruit. We were paying them twice as quickly and 400% more than they were actually getting used to. And it’s really interesting, the effect that happens when the growers suddenly have a lot more money to play with. What they do is, they go, “well, I’m going to get a new tractor. I’m going to employ someone.”
We had the opportunity to take great varieties that were incredibly unsustainable for those sites, and then move them to varieties that were inherently drought resistant, that would decrease the risk of water shortages. Rather than this gradual degradation of a vineyard’s quality, we started to see an improvement in what is essentially the farmer’s fixed asset. The farmer can’t just magic up more grapes without nefarious growing tactics.
We’ve doubled the profitability of a number of growers through the Adelaide Hills, purely based on the fact that they’re not growing Sauvignon Blanc any more.
We were paying them twice as quickly and 400% more than they were actually getting used to. And it’s really interesting, the effect that happens when the growers suddenly have a lot more money to play with. What they do is, they go, “well, I’m going to get a new tractor. I’m going to employ someone.
Brendan Carter, Winemaker and Distiller, Team Unico
ARENI
Roman, how do you encourage the younger generation to stay within the cooperative system to avoid losing members and vineyards?
Roman Horvath MW
We want our members to be proud of what they do. Proud that they are farmers, proud that they grow grapes and not any average, anonymous grapes, but grapes that are part of the best wines from Austria.
A cooperative, in the end, is about what comes from the vineyard. Organising the work in the vineyards and defining precise picking dates and, going a step further, defining all the measures that you need for high quality production. Not using insecticides and going towards organic, and so on. That’s our goal.
We want our members to be proud of what they do. Proud that they are farmers, proud that they grow grapes and not any average, anonymous grapes, but grapes that are part of the best wines from Austria.
Roman Horvath MW, Winery Director, Domäne Wachau
ARENI
Why don’t we talk more about cooperatives?
Christian Holthausen
When I started in Champagne, there were a lot of people that came and talked about the 18th century and caviar, who didn’t talk at all about the vineyards. Today, when people come to Champagne, the first thing they want to know is how do you farm, do you use herbicides? Do you use pesticides? Why do you do this? Why do you do that? They want to go out into the vineyard.
I think people are much more interested in how people are being treated and compensated. In my father’s generation, cooperatives were this place where you just dumped everything. I’m in Paris right now. If you walk outside my door, there’s a coop next door selling cheese, vegetables, wine. Every single product. And it’s packed with hipsters. They actually think the fact that it comes from a cooperative is super cool.
These are the values that we need to champion. The real, human values.
Roman Horvath MW
I’ve been working here now for 16 or 17 years and we’ve discussed a lot about how we tell the story. For a long time, for the first 10 to 14 years, we did not actively tell the story about our cooperative. It’s only very recently that we started to put the story of each of our growers on our website. It’s a very recent change. For a long time, we didn’t dare say that we were a cooperative.
For the average consumer, we’d hide it, because it’s a complicated story. Usually it’s the one hero figure that’s responsible for success and high quality, and not a collective group of small growers. But now we are telling the narrative, very proudly.
This is an edited, condensed version of an extremely interesting conversation. To hear the entire discussion, listen to the podcast.