THE INTEGRATION OF WINE CHAIN GROWING FACTOR OF THE SPECIFIC

PRODUCTS COMPETITIVENESS AND SAFETY

Dan BOBOC
Victor MANOLE
Raluca LDARU
Bucharest Academy of Economic Studies
E-mail: bobocdan@gmail.com
ABSTRACT
Romanian ine sector efficiency decreased in the last years! in com"arison ith de#elo"ed countries$ %i&h le#el of self'
consum"tion! hy(rid #arieties! fra&mentation "henomena are some of the sector)s "ro(lems that ma*e it less com"etiti#e than
Euro"ean ones$ +he inte&ration of ine chain is one of the solution for &roin& the com"etiti#eness and safety of s"ecific
"roducts$
KEY WORDS
inte&ration! ine chain! com"etiti#eness! safety
In economical terms, the integration appoints to a process or a result in the companys economical strategy.
Its purpose is to benefit with the economic advantages generated by a bigger scale business. The integration term is
used to appoint concentration process. oncentration can be achieved following a hori!ontal or a vertical process. In
the vertical integration case, industry tends to control the production process from upstream and downstream. The
integration will be so much stronger as the control is more important.
" particular case is agricultural integration. The owners in this field remain independent, from #uridical
point of view. "ll in all, they are often bounded by the contracts with the agro-industrial companies which impose a
certain $uality standard and sometimes even production techni$ues.
The integration in agriculture is a necessity which results from the structural problems of agriculture and
from the characteristics of agricultural production which definitely differentiates it by other sectors of activity, li%e:
a& In mar%et economy conditions, agriculture is structural drawbac%. This means that agricultural production
is achieved by a very large number of economical agents, approaching the conditions of perfect competition, while
the inputs mar%et and the agro food products are often oligopolistic.
b& The dependence from the natural conditions and seasonal character stimulate a grater ris% and uncertainty
coefficient than in other domains of economic activity.
c& The necessity to remediate rapidly the temporary difficulties, and also a decrease and protection in front
of the ris% ma%e from integration an ob#ective process for agriculture. 'y administrating a random activities palette
whose probability laws are independent it will be obtained an income, whose variation coefficient will be smaller
that in case when spread an alone activity. This is why usually afew agricultural e(ploitation are speciali!ed, but the
agricultural integration level is high.
d& The reduced demand elasticity of agricultural products necessity supply diversification through primary
agricultural products which suppose integration with activities from downstream agriculture.
e& The last cause mentions that agricultural field cant #oin a raising economy only by the integration
process.
Integration as an economic phenomenon re$uires simultaneously the e(istence of three components:
integrator firms, integrate firms and integration relations between the first two components. In accordance with the
nature of the integrate and integrator firms, relations which are established between integrator firm and integrate
firms are determined by:
-the national economic reports system)
-the #uridical institutional frame settled through laws and other normative acts)
- the purpose, the means and the integration form)
- the real situation of the competition concerning intern and international mar%et factors and products)
-traditions, resentments* abhorrence, culture and managerial practice from locality, region or country where
is wanted to be reali!ed the agricultural integration, etc.
The initiative of the agricultural integration can begin from agriculture to other activities from upstream or
downstream or conversely. +hile the first favour the industry, the services or the trade and leaves agriculture in state
of ,purveyor branch of raw material-, the second solution enable agriculture to impose as a modern branch of
national economy assumes initiative in integration process, becomes the integrator pole and transformed in
generating focus of raised economic, induced complementary economic activities and assimilated add value of
agroalimentar products, which nowadays e(ceed in developed countries with much agricultural add value
.agriculture contributes only with /0-102 at the final products value in west Europe countries&. 'y assuming
integration initiative by agriculture it can be guaranteed the rural development of unfavorable !ones and regions also.
In this way it is preserved the rural community and the rural-town balance is maintained.
Economic integration phenomenon is achieved in practice through industrial agencies which are unfolded to
their activity in different lin%s of economic chain. It generates different types of integration. In economic theory and
practice two forms of integration become evidently, concentration or hori!ontal integration and vertical integration.
Concentration refers to production or sale proportion control by a firm or a group of firms which owns the
largest part on the product mar%et. 3rom economic perspective, concentration is important through potential impact
which the firm or the group of firms can have over the products price. oncentration or hori!ontal integration in
agriculture put on three si!e:
i& production concentration)
ii& concentration in buying of the inputs)
iii& concentration for the products sales.
Pro!ction concentration refers to economic advantages which results from scale economy. In developed
countries with mar%et economy, production concentration in agriculture average dont touch a high level, but
registers important variations from a product to other. " general trend which is registered since the +orld +ar Two
and which continues nowadays concerns the decreasing number of farms simultaneous with the increasing of their
si!e. If the economic advantages of production concentration in agriculture are obvious at a first view, the e(tension
of the production concentration over a certain level leads to appearance scale diseconomy. This results by raised
commercial e(pense, raised agricultural salary through agricultural wor% force concentration and loose effective
competition . 'reymer and 'arr, 456/&. 3oundations that conclusion are found in economic theory of imperfect
competition.
7egarding the increased concentration in the agricultural sector is e(pected that the tight competition
between firms to lead to a costs raise, set as a conse$uence achieved on uncompetitive mar%et price and the increase
profit variation. This conclusion supposes the fact that over a certain concentration level, the economic advantages
decreased or even disappeared.
oncentration in input ac$uisition used in agricultural production is generally very increased both in
absolute and relative terms in all countries with mar%et economy. "ssociation under different forms for common
input ac$uisition .cars, seeds, fertili!ers, credit contracts etc& is #ustified from the economic point of view by money
economy. 8oney economy is the advantage resulted from the input demand concentration and in a form of
organi!ation so that through negotiation force raised on inputs mar%et and through demand in big matches will obtain
a cost reduction on unit of buying products. "lso, transport costs are distributed on big inputs matches resulted
reduction on unit of buying input. " study effected by 9rause and 9yle .4564& reflects that firms which concentrated
over /:00 acres ground can buy inputs .as fertili!ers& with /02 cheaper.
The most e(tended type of concentration in input buying is represented by the co-operatives. In last
decades in developed country, co-operative for inputs buying have obtained remar%able success through penetrated
and strength which owned to input mar%et.
Concentration "or #a$e present obvious advantages which result from money economy, obtained through
the negotiation force on the mar%et. "nd in this case co-operatives constitute a base lin% in hori!ontal integration in
ma#ority developed countries with mar%et economy. o-operatives for commerciali!ation agricultural products
owned important positions on sale agricultural products mar%ets. 3or instance we can mention the case of "merican
co-operatives for agricultural products sale which in 45;0 sold /12 of "merican agricultural production.
Vertica$ inte%ration
3irms are vertical integrated when they control two or more levels of production commerciali!ation systems
for one product. The control can be practiced either through contract or through property agencies.
The contract integration e(ists when a firm establishes a legal obligation which creates a lin% between the
producer and a certain production or a certain commercial practice. The integration contract establishes the
producers obligation to sale his product to the contract partner. <uch a contract is %nown as straight commercial
contract. "dditional obligations can stipulate adoption of producer an certain productive practice or condition using
certain supply sources with inputs.
'esides the commercial contracts in vertical integration, agricultural practices use other types of contracts
also. ontracts which contain both production and commercial obligations are %nown under the name of production
contracts.
"lthough all the forms of integration contracts generated a large number problems, the biggest controversy
e(ists concerning the production contracts, because through their agency, the integrator becomes to control both
production and commercial decisions of producer. 8ore than that, in a legal point of view, under foresights of a
production contract producer isnt even the owner of the production which he achieved.
Integration contract can be used both by co-operative and law*suit companies and agribusiness firms. In
integration practice in =<", 1/2 from sale ware agroalimentar volume are achieved on the base of a contract. +hile
private corporations and agribusiness firms usually use integration form based on production contracts, associative
forms .co-operative& usually use commercial contracts which put on always commercial contract integration forms.
Integration based on practice e(ists when interests single property e(tends about two or many levels of the
production > commerciali!ation system. Integration based on property can be practiced both in co-operatives and in
corporation and private firms of agribusiness.
Integration based on practice property at co-operatives is wide spread in the developed countries as the
practice by corporatist or private individual of business forms.
?o matter what the means used for the achievement are, vertical integration, consist in partial or total
integration of the lin%s of the economic chain which bound the channel elements from the beginning of the economic
process until the product is used by the consumer. In this integration form e(ists one integrator firm and one or more
integrates. @epending on the lin% where is situated the integrator industry and one or many industries may have
upstream integration, where integrator pole situated in upstream, or downstream integration, where integrator pole
situated in downstream. "s an integrator unit may be a co-operative of wine grower which can as well integrate from
upstream or downstream wine production.
A%rin!# represents a combined integration of agricultural activities with those industrial in rural areas.
This type of integration can be accomplished using both hori!ontal integration and vertical. It sustains both economic
advantages at integration between activities sector and balanced rural development. This type of integration is based
on the development of the rural !one where agriculture represents the most important activity. It then, becomes an
integration pole and a source of local economic development. This form of integration represents one of the
foundations of the urbani!ation of the rural medium in economic developed countries.
'asic principles of agrindus may be summed in: wine integration with the services and the industry from
upstream and downstream and using the cooperation between wine e(ploitation from communal and village which
e(ist in that wine !one. This form of integration includes in its system both hori,ontal inte&ration - wine e(ploitation
from villages may be associated with economic sectors from place towns, which guarantee production means and
can develop other unagricultural sectors and #ertical inte&ration, which consist in the integration of the wine
e(ploitation with manufacture industry, conditioning and depositing, distribution and commerciali!ation .The
agrindus guarantees indirectly generates unemployment. The rural families from the wine producing area are large
and due to the technical progress registered by wine technology, the necessity of wor% force for wine producing
sector decreases.
ontracts constitute particular forms of wine integration, which are based on concluding agreements
concerning buying or selling between wine producers and the processing and distribution industry. The most %nown
and used type of contract is the pattern agreement found under public supervision. This system performs with pattern
contracts, which are the result of the negotiation between professional nongovernmental organi!ations from wine
domain. These negotiations are supervised by the public authorities. The pattern contracts established in concordance
with sanction e(emplary by the public authority, guarantee in official manner the laws and duties of the parts.
CONC&USION
7egarding these integration forms, the wine growers can establish a force mar%et balance only by adopting
one of the integration strategies. Thus, association in different forms appear as a protection against both economic
strength of industry and commercial capital, but also over the control of the demand and supply proceed from
downstream associates e(ploitation which use in common product factors.
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