The role of cooperatives in the Georgian wine industry

Abstract

Abstract. The potential of the Georgian wine industry is not fully utilized. High fragmentation of agricultural land leads to limited production that restricts farmers' access to capital resources, finances, and markets, and prevents further development of the Georgian wine industry. Grape collectors and wine makers need help to join their capital and efforts, to gain economies of scale in production and marketing by jointly accessing agricultural inputs. This study aims to identify the importance of farmer cooperatives for grape producers in the Georgian wine industry in order to overcome inefficiency in the sector. Furthermore, this research project investigates the barriers and driving forces of smallholder grape farmers or wine makers to join cooperatives. Semi-structured interviews were conducted with stakeholders of the Georgian wine industry in order to assess different perspectives on the importance and benefits of farmer cooperatives in the local context. The interview results permit economic analysis of transaction costs, agency theory and property rights in the context of the nascent cooperative movement in the Georgian wine industry. The interviews revealed that development of agriculture cooperatives in the Georgian wine industry is strongly dependent on both farmer enthusiasm and governmental support.

Revealing the challenges facing Georgia’s wine industry from a natural winemaker perspective using Q-methodology

“…The interviewed natural winemakers could potentially benefit from cooperatives that help them establish economies of scale; however, they do not really believe that it is beneficial for them to be part one (S1 at −1 and 0), as they do not view increased output as desirable. They are very individualistic and do not want to give up control of their vineyards and share their assets, echoing opinions expressed by Georgian grape growers from a previous study (Kvariani and Ghvanidze, 2015). These opinions align with views expressed by Anderson (2013), suggesting that small Georgian firms such as Pheasant’s Tears are mostly successful exporters because they are able to brand their product, segment their markets and upgrade the quality when selling to high-income countries.…”

“…Agricultural cooperatives could address the issues small producers and grape growers face. Grape farmers and family wine producers with different specific assets and skills can join cooperatives to capture the additional value created through wine production and start producing their own natural wines (Kvariani and Ghvanidze, 2015). This type of vertical integration to establish second-level wine-producing cooperatives would provide opportunities for farmers to access additional financial resources, equipment and knowledge, allowing them to benefit from Georgia's status as a hotspot for natural wines and gain access to international markets.…”

“…On average, rural households own up to 1 ha of arable land, with only 5% of households owning more than 2 ha (GEOSTAT, 2021). The small scale of grape farmers limits their ability to achieve economies of scale and gain market power (Kvariani and Ghvanidze, 2015). Because of their limited capital and finances, increasing the production of grapes or investing in new equipment becomes very risky if a full harvest is not realised.…”

“…Since then, 300 agricultural cooperatives have been established, with 13 in viticulture (RDA, 2022). Nonetheless, the Soviet legacy made Georgians distrustful of cooperatives, with some fearing the return of the Soviet-era kolkhoz (free-rider) problem (Kvariani and Ghvanidze, 2015). The grape farmers’ motivation to operate in cooperatives is often limited to receiving government benefits, such as mini tractors at subsidised prices, with only a fraction of them planning on expanding from grape to wine production, to capture the additional value created through the processing stage.…”