Quality Choice and Market Access: Evidence from Chilean Wine Grape Production

This paper examines the determinants of becoming a producer of high-quality wine grapes. We explore the case of wine-grape farmers in Chile where we observe a bifurcation of farmer types.“Quasi-subsistence” farmers produce traditional wine-grape varieties and complement their subsistence income with cash coming from wine-grape sale. On the other hand, we observe “entrepreneurial” farmers who produce classic varieties that have the potential to produce high-quality wines. We study this bifurcation empirically using primary data collected during the 2011–2012 growing season. We find that wealth and cultivation ability provide economically and statistically significant explanatory power, but that buyer characteristics also matter. Our results suggest that a farmer's entry into the supply chain for high-quality production is not an individual's choice. Rather it is a joint decision that cannot be fully understood without considering the objectives, incentives, and information of supplier and buyer. [EconLit citations: O14; Q140; L26].