1. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Efficiency drivers of the New Wine World
József Tóth – Péter Gál
Corvinus University of Budapest
József Tóth

2. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

3. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

4. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Mariani et al. (2012)
emergence of new wine markets
competitive performance of main suppliers in the period of
growth of wine trade was caused by the wine consumption increase in Northern Europe and North America during the 1990s
recently increasing demand in Asian countries
József Tóth

5. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Fleming et al. (2014)
compared the largest 10 wine exporting countries: France, Germany, Italy, Portugal and Spain from the Old Wine World and the Southern Hemisphere New World (SHNW) wine-producing countries (Australia, Argentina, Chile, New Zealand and South Africa)
during the final two decades of the 20th century, the internationalisation of wine production and consumption continued to accelerate
József Tóth

6. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Fleming et al. (2014)
market fragmentation between the old- and new wine world has been eroding
new markets have emerged, “traditional markets diversified and the mapping of the international wine trade became increasingly routinized”
they concluded that change to high-price strategy may help in coping with increased competition for all countries
József Tóth

7. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Sottini et al. (2016)
Spanish and Italian wineries experienced a rather low level of technical efficiency between 2005 and 2013, which might the reason behind their relative poor performance in their trade (export) competitiveness
four factors account for the difference between the two countries’ efficiency, namely i) gross domestic product; ii) employment rate; iii) volume of wine production, and iv) domestic wine consumption
József Tóth

8. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Tóth and Gál (2014)
there is a significant difference between the major Old and New Wine World countries in terms of technical efficiency in favour of the latter group
more efficient functioning of the sector in the New Wine World can be one of the motors of their success
inefficiency is related to some macroeconomic factors such as the development of the financial system, quality of human capital and per capita wine consumption
József Tóth

9. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

10. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Bos et al. (2010) – factors determining growth by affecting factor accumulation, efficiency change and technical change
Openness to international trade
countries that are more open to international trade are more competitive and thus more efficient
several studies (Tybout et al. (1991), Chile; Gökçekuş (1995), Turkey; Alam and Morrison (2000), Peru; Hossain and Karunaratne (2004), Bangladesh; Sotnikov (1998), Russia) proved the validity of this hypothesis
József Tóth

11. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Development of the financial system
the more developed the financial system is, the more efficient the allocation and use of capital will be
two reasons:
the evaluation of investment decisions
the increase of risk sharing (thus allowing the investment in riskier yet more productive technologies)
a more efficient allocation of capital presumes an efficient use of this input
József Tóth

12. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Quality of human capital
the more educated people are, the better they will perform
this factor sums the potential effectiveness and learning abilities of the workforce of a given population
can affect efficiency through absorption of existing advance technologies
József Tóth

13. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
The tradition of wine
is measured by the per capita consumption of wine
traditionally, wine has mostly been consumed relatively close to its place of origin
the place of origin may have a significant effect on wine quality
if the consumption of wine is high, so is the supply ⟹ competition is high, which results in low marginal costs and higher efficiency
József Tóth

14. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

15. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
H1: openness
H2: financial system
H3: development of human capital
H4: wine tradition
H5: belonging to NWW
POSITIVE IMPACT ON EFFICIENCY
József Tóth

16. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

17. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
NWW
Argentina, Australia, Chile, New-Zeeland, South-Africa, USA
OWW
Austria, Bulgaria, Croatia, France, Germany, Greece, Hungary, Italy, Moldavia, Portuguese, Romania, Russia, Spain, Suisse
József Tóth

18. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
data coverage: , unbalanced
wine quantity, vine area, employed labour, total capital, trade, financial system, human capital, wine consumption, Old/New Wine World
SFA, simultaneous estimation of C-D production frontier and inefficiency (log-log spec.)
truncated normal and exponential u-distribution is assumed and tested
idiosyncratic error is tested for heteroskedasticity
József Tóth

19. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
NWW
Variable
Obs
Mean
Std. Dev.
Min
Max
Wine production, th hl/yr 73
6606.0
458
22888
Vine area, th ha
178.2
118.9 8
426
Investment, 2005$
2135.1
Labor, head
951174
69978
Openness, % ((Exp+Imp)/GDP)
45.4
14.3
20.0
80.1
Fin_sys, % (Total deposit/ GDP)
69.8
27.8
22.6
132.3
Barro-Lee school attainment, yr
10.5
2.0
13.2
Wine consumption (l/head/yr)
14.9
10.7
0.8
39.9
József Tóth

20. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
OWW
Variable
Obs
Mean
Std. Dev.
Min
Max
Wine production, th hl/yr
174
967
60535
Vine area, th ha
312.3
377.5 15
1229
Investment, 2005$
88.6
Labor, head
Openness, % ((Exp+Imp)/GDP)
70.5
25.5
32.7
169.9
Fin_sys, % (Total deposit/ GDP)
84.0
50.4
11.0
182.1
Barro-Lee school attainment, yr
9.5
1.2
6.5
Wine consumption (l/head/yr)
31.4
16.0
1.3
63.1
József Tóth

21. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

22. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Homoskedastic, v(vineyard)
Homoskedastic, v(quantity)
Heteroskedastic
Exponential
Truncated
Frontier
Log vine
0.818***
0,791***
0.844***
0.828***
0.782***
0.774***
Log cap.
0.246***
0.206***
0.233***
0.178***
0.166***
0.187***
Log labor
-0.061**
-0.024
-0.058*
-0.052*
-0.049
-0.039
_cons
3.509***
3.415***
3.417***
3.768***
4.259***
3.880***
Usigma
Openness
-0.021**
-0.018**
-0.016**
-0.016*
-0.009
Fin_sys
-0.002
-0.006
-0.003
-0.004
Hcap
-0.607***
-0.853***
-0.572**
-0.862**
-0.507***
-0.336**
Wcons
-0.124***
-0.107***
-0.106***
-0.118***
-0.079***
Oldw
2.870***
4.970**
2.838***
4.696**
2.384***
1.611***
4.029*
4.692*
3.68
5.147*
3.258
2.573*
Vsigma
Vine area
-0.001**
-0.002***
-0.000***
-4.053***
-3.725***
-4.010***
-3.746***
-4.483***
-4.531***
Theta
0.249***
0.225***
0.267***
0.248***
0.306***
0.257*** N
248
legend: * p<.1; ** p<.05; *** p<.01
József Tóth

23. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Motivation Theoretical considerations Hypotheses Data & Methodology Results Discussion and conclusions
József Tóth

24. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Vine area and capital plays positive and significant role in production technology
Labour is overemployed
Openness, development of the financial system and human capital, wine consumption and belonging to the NWW positively influence technical efficiency, however financial system is not significant
József Tóth

25. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Idiosyncratic error is better explained if using vine area as explanatory variable. The error declines with area increase. The reason behind might be that on bigger area more homogenous and more developed technology can be applied.
Inefficiency is overestimated by 10-20% in case of heteroskedastic estimation
József Tóth

26. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Two totally different path of production fundamentals ( )
NWW
OWW
Growth rate of quantity
6,52%
Growth rate of vineyard
4,68%
Growth rate of capital
0,11%
Growth rate of labor
0,06%
Growth rate of quantity
1,88%
Growth rate of vineyard
-1,35%
Growth rate of capital
-0,28%
Growth rate of labor
-2,46%
József Tóth

27. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
H1: openness
H2: financial system
H3: development of human capital
H4: wine tradition
H5: belonging to NWW
All of them are confirmed, however financial system not significant
József Tóth

28. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
OWW
was not able to cop with new trade and consumption patterns
production fundamentals ought to be reconfigured
NWW
successful utilization of new chances
efficient answers to trade and consumption challanges
József Tóth

29. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
“Old World Charm; New World Efficiency”
(valuation of InterContinental New York Barclay)
József Tóth

30. 11th Annual AAWE Conference
Padua, Italy, June 28 – July 2, 2017
Thank you!
József Tóth