Governance in the Value Chain for South African Wine
Global value chain (GVC) analysis has emerged in the last decade and a half as a novel tool for understanding the dynamics of economic globalization and international trade. It postulates that the global economy can be usefully understood as a combination of discrete, product-specific ‘value chains’ rather than of generic ‘markets’. In these value chains, firms are linked in internationally dispersed but integrated systems of input supply, trade, production, and final marketing. In addition to the descriptive projects of tracing input-output structures and geographical configurations, the central focus of the GVC literature has been analysing how, and by which types of firms, individual chains are ‘governed’, whether there are systematic patterns to governance and – if so – what accounts for them.
This paper aims at advancing the theoretical discussion of governance in GVCs through the analysis of the wine industry in South Africa. It follows an earlier paper dedicated to the geographic and input-output configurations, institutional framework and upgrading possibilities in the South African wine industry. With the aid of convention theory, this paper examines governance in the global part of the value chain for wine to understand how South Africa-based wine actors transmit demands placed on them by ‘lead firms’ and how this process leads to specific structures of reward and procurement operations within South Africa. This is done by differentiating among quality levels and, to some extent, end-markets.
What emerges from this analysis is a picture of a global value chain for wine that is, in its lower quality configuration, highly-driven by retailers on the basis of strict demands on ‘basic quality’, price and (at least for the UK) promotional support. Some variations of governance are found in different strands of the GVC, both by level of quality and by geography of end-market. The middle range quality strand is found to be less driven than the basic quality strand, to be without a clear group of lead firms, and to allow for better margins and more input by suppliers in the determination of ‘quality’. The top quality strand is placed in between the other two quality strands in terms of levels of drivenness, with a group of external actors (wine critics) vying for prominence in driving the chain against élite producers.
Within South Africa, producer-wholesalers and marketers are found to be the main drivers of the value chain, although their power over other actors is limited by their need to deliver volume, consistency and quality to importers. Still, they are shaping the functional division of labour along the value chain for wine within South Africa by seeking to disengage from productive activities and by increasingly focusing on branding, service delivery and assembly of orders. In this re-configuration, inventory is pushed upstream all the way to cooperatives and other large cellars and to grape growers, who increasingly bear the consequences of higher risk.
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