Productive efficiency of wine grape producers in the North of Portugal

From Firenze University Press Journal: Wine Economics and Policy

Micael Santos, University of Trás-os-Montes e Alto Douro (UTAD) and Centre for Transdisciplinary Development Studies (CETRAD)

Xosé Antón Rodríguez, Department of Quantitative Economics, University of Santiago de Compostela (USC)

Ana Marta-Costa, Centre for Transdisciplinary Development Studies (CETRAD); University of Trás-os-Montes e Alto Douro (UTAD)

Portugal is a country traditionally dedicated to viticulture and characterized by the production of wines of high quality. However, although it continues to be a major player in the world, both in the extension of vineyards and in the production of wine, it is certain that in recent years Portugal have lost market share in these areas. In this context, it is interesting to analyze if this situation could be related to the level of productive efficiency of vineyards.

Therefore, the aims of this study are to analyse the farms that are efficiently allocating resources to achieve maximum production and to identify characteristics that make the farm more efficient. In addition, we want to analyse the productive efficiency of the farms from a regional perspective.

To achieve this purpose, we use a database collected by face-to-face surveys from a sample of 154 wine-growing farms with specific input-output information from 2017.

These farms are locating in the three regions of the North of Portugal (Minho, Douro and Trás-os-Montes), which represents more than 40% of the Portuguese vineyard area. To analyse the productive efficiency of the farms, we use the Stochastic Frontier Analysis (SFA).

The results show that the efficiency level in the wine-growing farms from the North of Portugal is arround 67%, but with significant differences at regional level. Many of these discrepancies may be due to structural factors, such as the type of grape produced in each region. In conclusion, the findings make evident that the most efficient farms are not the most profitable due to the structure of the existing value chain.

The wine market is becoming increasingly competitive and is no longer an exclusive sector of the Southern European countries(Fleming et al., 2014; Goncharuk and Figurek, 2017). Literature designates the traditionally wine-producing countries as “Old World” and as “New World” the countries that were colonized by the former group, but the first continue to lead the 2018 market in the following order Italy, France and Spain (OIV, 2019).

Portugal, being the 9th with the largest vineyard area and the 11th largest wine producer on a worldwide level, needs to improve its competitiveness position to get a better podium place in the world market and this can upstream of the sector. Viticulture is an expensive activity in the wine production(Moreira et al., 2011)and therefore it could play an important role to improve the sector competitiveness through its grapes production efficiency. The North of the Portugal has three wine regions –Minho, Douro and Trás-os-Montes –that integrates 42% of the total vine area of the country and corresponds to 35% of the national production of wine in 2019(IVV, 2019).Minho is located in the Northwest of Portugaland integrates Vinho Verderegion (Green Wine, 23.999 ha, 12,5% and 759.757 hl, 12,5%of total national)cradle of the famous Alvarinho variety; in the extreme northeast of the country to the north of the Douro region, there is the wine production region of Trás-os-Montes (TOM, 12.252 ha, 6,4% and 50.670 hl, 0,8%of total national); and the Demarcated Region of Douro (DRD), 43.863 ha, 22,8% and 1.259.683 hl, 20,8%of total national) is considered to be the first demarcated region of the world since 1756(IVV,2019).

Douro is a mountain vineyard region with high slopes, which increases production costs due to the difficulty of mechanization and to the labour intensive activity. Nevertheless, it is a wine region characterized by the production of Port wine, a generous wine known internationally, where the grapes are sold at higher price.Despite the geographical proximity of the three regions, they have very distinct characteristics in terms of climate, soil and types of wines produced. These different structural factors present in these three regions cannot be changed. Thus, the aim of this paper is to estimate the productive efficiency of the three regions of Northern Portugal and to verify if these structural factors are responsible for the different levels of efficiency.


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