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THE
Td TNE I
NIE)I.JS TfrtY AI\II} THE tjf]hrsur{EFt
A studv of the production. drstributrs;r
and consunptron of wine in New iealand
A thesis presented in partial futfilment of the .equr.e,nents
for the degree of Ph.D. in Econornics at f,lassev University
Josephine Serrallach
1984
II
AETS'TRAE-T
This thesis is an investigation into production, distributionr and
consumption of xine in Ne* Zealand, rith particular constderation of the effects of the nine industry's structure and behaviour on consuoer
interest.
Government protection policies have greatly influenced expansion and
structural development of the industry. Protection of the existing local industry was mainly effected by reducing opportunities for conpetition in txo Hayst irnplementation of irnport control regulations nhrch have restricted conpetition from overseas wines, and introduction of licensing laws which have favotrred control of the wine trade by a lirnited nur$er o{
licence holders.
Investigation into industry onnership patterns showed the presence of
vertical and horizontal integration at various stages of the narketing system. l'lergers and takeovers have resulted in the foroation of a poner-
ful grotrp of cornpanies nhich control nine narketing. These conpanies are
usually associated xith breweries, Iarge distribution coapanies, and
conpanies nith overseas connections. In addition, concentration ratios calculated at the production level provided evidence that the rine industry is highly concentrated. In 1981 six firos controlled about BT1C
of the narket.
The degree of concentration and the onnership patterns of the l,len Zealand
nine industry are indicators of its oligopolistic structure and narket
pol€r. This narket poner is not altered by the presence sf overseas nines
in Nen Zealand as the voluoe of inports is very snall (52 of total sales in 1978-1979r. Limited conpetition and oligopolistic industry structure
have contributed to the industry's betraviour in deteroining quality of products, prices and output. Lenient regulations governing nine'naking have also affected nine quality. Adulteration of soee Nen Zealand tinest evident froa statistical data, rrs subsequently substantiated by the Consuoer Institute analysis of locel rines. Statistical data on iqdustry production indicated that r*ren the industry faced over-supPly, output ras redrrced and prices Here oaintained.
III
Legislation for the protection of ccrrtsuner interest in Nen Zealand has been nainly directed at prevention of malpractice that nay result fron nonopolies, nergers and takeoversr trrd at control of certain trade
practices judged to be against the public interest (Commerce Act 19751.
Legislation has also airned to inprove the availability of infornation to
consumers and to regulate quality standards (Food and [hug Regulations 1973, Amendnent No. 5, tqB0/7s).
A consumer study Has carried out in Palmerston l.lorth to relate the
effects of industry structure and government intervention to actual
consuoer requirements and consumer perceptions of the products available
in the New Zealand narket. A survey, nhich involved a randomly selected sarnple of 257 respondents, helped to identify three naln groups'. 327. ol the adult population surveyed rere regular consumers of nine, 382 used
nine occasionally, and the reanining 5t17. did not drink. Survey results indicated a reduction in the growth of nine consumption. Consuoer
preferences and consuner satisfaction with quality and prices of Ner
Zealand rines, nere also evaluated frorn survey results.
Findings froo the consuoer Euryey shoned that a group of ning users rith sinilar socio-econoaic status (nainly professional peqle) nas responsi- ble for more than half of the total nine consunption. To provide an in-
depth analysis of the perceptions and preferences of this particular
group of regular consumers, a pilot study based on the application of oultidinensional scaling nas carried out. Results of this study indicated
that consuners considered sone New Zealand rines to be close substitutes for sone overseas nines (e.g., a l'len Zealand Riesling for the Gernan rine
"Blue Nun'I. Nen Zealand sparkling rines, honever, rere not considered to be good substitutes for overseas sparkling wines. l{o rines in the sacale
ulere closely identified nith any pf the c(xlsuoer preferences (expressed as ideal points in a nultidicensional scaling representation). This indicated that the nines included in the saople did not totally fulfil the reqrrirenents of the selected group of regular cqlstJmrsr either in terns of quality or price.
Research findings froa both industry and consuner studies suggested that
consuoers had been deprived of the benefits o{ coagetition' Furtherroret
if consuner interest is to be protectede a rnr€ corryetitive systen has to
IV and licensing be developed through
IanE.
I iberalisation of iaprt policies
V
ec}<llcrwtEE (=EtlE]{Ts
I nould like to thank ny supervisors, Professr t{. Cartnright and
Professor J. Rone {or their suggestions and criticisns and Or. A. Lenis
for his encouragement.
Dr A. Anderson, Dr R. Brook, llr R. l,lcCooish, t{r H. Clark, ttr. D.
Esslemont ,and lk l'1. Reeves helped at different stages of this thesis. Dr
R. Eschenbruch and Dr Sheat froc the Ruakura Agricultural Research
Station and other people related to the rine industry cooperated in providing i n{ormation.
I nould also like to thank f'lrs Rowe for her help at the initial phases of
this rork, llr Sinclair for his assistance nith editing of the first version of the thesis and specially Dr. N. l{atts for his patience in reading several drafts and helping ne overcome language problens. I also thank Dr. R. Falloon for his help in editing the final copy of this
thesi s.
Finally, I an grateful to ry husband, nho, with the help of a nord
processcr, typed the final copy and to ay children r*to have shared nith
ote all the ups and donns of the past several years.
Josephine Serrallach Palmerstm t{orth Ner Zealand i,loveober l?84
TeEltE_ClE_EgllTEl{TS
ABSTRACTS
ACKMII{LEDGE}fNTS TABLE IF CTT{TENTS
TAH-ES IN TEXT
TAH.ES IN APPENDIX A
TAH-ES tI{ APPEI{DIX H
FIGIJRES IN TEXT
IT{TRODI.ETIOII
CHAPTER I - TIfORETICAI- BACKGRTXJND
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VI
Page
II
v VI IX XI XI
XIII
3 3 5 5 6 10
t5 l4 l4
14 20
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t.ol.l r.z
1.5
1.{
1.5
- Introduction
- Theoretical approach to perfect conpetition
- t{elfare economics
- fheoretical approach to inperfect - Research procedure
- Sunnary
cocpetitiori ..
/,-CHAPTER 2 - HISTORICAT_ BACKGRflJND
2.O - Introduction
2.1 - Historical developnent of the rine industry in i{etr Zealand
Developaents in xine consunption in Ner Sumnary
TRENDS OF SUPPLY AND DEI1AND
Introduction 2.2
2.3
CHAPTER
5.O 3.1 s.2s.s 5.4
CHAPTER
4.O 4.1 4.2 4.3
CHAPTER
5.O 5.1 5.2 5.5 5.4 5,5
CHAPTER
6.t6.O 6.2 6.3
6.f
6.5 6.6
CTIPIER 7.O 7.1 7.2 7.3 7.4 7.3 7.6 7.7
:(
4
q
6
7
Theoretical approach to supply
Trends of supply
Zeal and
and decand analysis ....
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of concentration ..
24
?4 24 27 38 42 44
Trends in rine consulption and sales
Sumeary
PROIXJCTTON ff{D Ilffi<ETIilG SYSTETI
Introduction
l{odel of the rine narketing systea
Vertical integration
Sunnary
CONCENTRATItr{ IN PRODIITI(I{
Introduction
Theoretical approach to the concept
44 45 58 61 62 62 62 63 65 lleasurecents of cqrcentrati on
Cqrcentration in Nen Zealand industries Cmcentration ratios ln the rine industry Surnary
INI}IJSTRY CONI}I.ET
Introduction
Froduct
diffrentiatiqr
in koduct accessibility andSurmry
qT,ENilCilT PTI.ICIES Introdrrction
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the ring industry ... r....
the present distributiqr syster
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66 69 7L 7L 7L 72 78 7?
8l
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st st
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Theaetical approach to industry conduct ... ..., Price and otrtput detemination in the rine industry ...
Product quality
Iinerekm -
Legislativtfrarcwk
S:les licen:ing lars Tatatim
Ipct
cqrtrol reguletianrExprt
incentivcrThr IIE
rccmrdatiqrt
end$nry
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gov':rn*nt
legtslatict ....
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VII
Page . . . . . . i . . . .. f Ol .... t... l0l
CHAPTER
8.0g. 1
9.29.5 8.4 8.5 8.6 8.7 8.8 8.98.lo
CHAPTER
9.0 9.1 9.2 9.S
?.4 9.5 9.6i.7
9.8
CHAPTER 10. o 10. t
LO.2to.3
10.4 LO.5 10.6 10.7 10.8 r0,9 lo. lo lo. l1 10.12
CHAPTER 11. O
11.
t lt.2
1t.s11.4 11.5
I1.6 I1.7
Il.g
CHRPIER
l2.o12.l
12.2 12.s 12.1
12.l
B
9
lo
cnr{sr,.rfR }ELFARE
Introduction
Theoreticel apFroach
to
cmsuner interestarid cqrsun€r protectiorl Antitrust policies
Inf rnatian
&ral ity
Price policies and consurner interests
The situation in l{er Zealand
Trade practices in the nine industry Producers' interest versus consuners' Proposed consumer analysis
Surnnary
CONStJI1ER SURVEY
lntroduct i on
Area and population fr the survey Sanple size
l'lethodology Objectives
The questionnaire
Conposition of the sample
Analysis and interpretation of survey Sunnary of findings
IIULTIDtTlENSIONAL SCALINE - TI-TEORETICAL
Introduction
Theory
AppLicatians
Types of nrltidinensional scaling
Linitations and diff iculties
Advantages
interest
data .
BACKGROUND ...
...
172... ...
...
172...
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20
srbjrctr ...
171...
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101 104 104 105 105 106 L07
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tL2 t14 114 115 116 116 r45 148
r48 148 149 151
lst
152 152 155 r56 157 r59 r59 162 163 165 165 164
t6/t
165 167 L67 168t7l
t72 Alternative approaches
Conputatianal aspects Data collection nethods
Optinal dimensionality and interpretation
The concept of the ideal point
Alternative coaFuter-based algorithr fr nultidinensional scal ing
Sunaary
RESEARCTI D€SI${
Introduction Objectives
Research procedures
Selectisr of itens
Nuober cf iters and nethod of Selection of resfdrdents lfunber of respondents
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11
t2
Appl
icatiqr
of rultidicensional scaling SunraryRELIABILTW TF OBTAII€D DATA AI{D
trg-YSIS TF DIRECT SITILMITIES
Introductiqr
Reliability ratio
of
Kudr{icherdssrCefflcicltt
af cqrcrdancr(Il
ltrltidi-rrrimtl
Ecrling an.lysir trf directrirl lerity
Judge*ntrftrelyrlr
o'f dircctsirilrrlty
detefa
Clustrrr
VIIT
12.6 12.7
[2.8
CHAPTER
13.O 15.1
ls.2
[5. S
13.4
CHAPTER
t4.ot4.l
14.2 14.5
t 4.4
CHAPTER
15.0 r5.1 r5.2 15.5
C1{APTER
ls
l4
15
16
Analysis qf direct
sinil,arity
datrfr
l0 subjectgrith
corplete respd.tses-
Grq,rp A...
Analysis of direct
sinilarities
datafr
the 1O subjectsxith
inco@lete re€ponses-
6roup BSunrary
Pagr
179
r8ll8l
r84 184 r85 t85
185 193 195 195 196 198 201 205
?o6
?o6
?o6 208
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2ro 2ro 2t2
215 213 215
2r5 2t6
221 232 zsz 2s8 240 244 246 258 265
?67 271
?,76 281
zgt
AiIALYSIS TT D€RIVED SIIIILARITY I}ATA
Introduction
Eoodness of fit Input data
Interpretation of axes
with the help of the vectorial model Sunnary
ANALYSIS OF PREFERENCE DATA
Introduction
lleasureoents of subjects, agreenrent and goodness of fit for ranking data
External non-rnetric analysis of
scenario-dependent preferences for 2O subjects ..
External non-netric analysis of scenario-dependent preferences split in tno groups of ten subjects ...
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aatataaaaatl
aat.ratr
Sunnary
UT.IFOLDTN6 ANALYSIS
lntroduction Perceptual map
Evaluative nap Suarary
SI,.IIIIARY TF CTh{SIJIIER STUDY AND SUBSESI..ENT IIARIGTIT{G INNOVATIThFi
Sunaary of f indings - tfultidicensional
Changing consuaption patterns Packaging innovations
Sunnary
sut{ilARy AND Cot{CLtEiltltttfi
6eneral
Industry protectian versus consuner
Tables
Grape varieties
&mership
ef
nine corpanies The Herf indahl approxicaticr&restiqrnaire to cqtsuters
Instructims to the intervierers ef the Conpositist
of
thc sargleCrosstabulation tabtes
-
Consuner surveyPerfmencr
cf
KySTlh
to nrn PREFilJF2 at ttesseyPopulr iler Zeeland and
iqrted rinel List of
quelityrinet
Instnrctidrt
fr nltidimricrrl
rcrllngintrvielrrr
Perart:rr
of PREFIS'2 KYSTcmtrol crdr
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scal ing
16.O 16. t t6.?
16.5
CHAPTER 17 17. O
t7.L
BIH-IOGRAPHY APPENDICES
A B
c
D E F 6
H
I-
J
K
L
|l
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protecti,on ...
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cqlsuc€r survey
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t{
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e
1... ffi
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..-...r. ?frl r. . ... .. Vll ... A6 lnput dete
fc
PREFtfffCqutr
lnputfr thr
unfoldtngmelytlr
afrid,lrity
detr-r_AEtl_E=SIt\tTEX-r
Page
?5 2A 52 32 46 57 60 67 68 68
IX
120 r25 r23 2.1
3.1s.2 s.3 4.1 4.2 4.5 5.1 5.2 5.S 6.1 6.2 6.3 6.4 7.1 9.1 9.2 9.3
Area in vines and nuatber o{ groners ...
YieIds and ratios
Grape prices
Onnership of the liquor outlets in Price movements for 1973, 1976 and
Concentration of industry,s output Approxination to Herfindahl lndex l'larket share
List of government legislation nentioned in Chapter 2
Eronth rates
Beverages consumed each day
List of selected wines
Coordinates in 5 dirmnsions of the
sinilarity space for 2O subjects Coordinates in 2 dinensions of the
similarity space Igr 20 subjects
and subnissions to governoent
araa.
.raaaaaaaa
Nex Zealand .,.
anticipated t977
Riesling table wine - private trade prices Z4
Percentage increases in retail prices of wine and the cpl.... 74
lrlholesale liquor store price list - 1973 . BO
Price margins in the distributron of h,lne . gz List of government legisration and submissions to governrnent
mentioned in Chapter 7 . lOO
Number of Palnerston North households ll3
Groups of non-wine users . IZO
Drinking frequency at different
occasions for regular rine users Percentage of nine users for every
l{ine attributes type of nine .
0rigin of xine preferred by consurners . 126
Brand pre{erences for sherry . lZ7
Brand preferences for still rhite table nines l?l
Erand preferences for still red table wines ... lZ7 Brand preferences for rose tine ...., . 1SO
Brand preferences for sparkling rine ISO
Purchasing patterns .. !.. . 1Sz
ltonthly average expenditure (xl alcoholic drinks ... lS4 Changes in consurnption over previous year lS/t
Consumption in restaurants . fS7
Types of overseas wines present in Nen Zealand households ... 14o
Percentage of imported bottles by types of nines 14O
llarket's share of several i,ler Zealand brands ..,... 14O
Brands present in Paloerston North houselrolds ... 142
9.4 9.5 9.6 9.7g.B 9.9 9.10 - 9.11 - 9.L2 - 9.15 - 9.14 - 9.15 - 9.16 - 9.t7 - 9.18 - 9.19 - 9.20 -
11.1 12. 1
L2.2 12.3 12.4 13. r 15.2 13.S
ls.{
Coordinates in 3 dinensions of the rines'
sioilarity sFace for lo subjects rith conplete scale values . lgo Coordinates in 3 dimensions of the rines'
sioilarity Epace fr 1o subjects rith inco4lete scale values lgz Correlation coefficients coarputed for trlo dieensions across
subjects and average subject for each of the lo bipolar scales lg6
correlation coefficients cosrputed for three dinensions across subjects and average subject for each of the lo bipotar scales 186
Coordinates of vectors representing bipolar scares ... tBg
Eipolar scaling directions ...r... l8g
x
Page
15.5 - Eoordinates of vectors in three dinensists
representing bipolar scales ...,... . lB9
14.1 - Correlation coefficients conputed for tno dinensions across subjects and average subject {or each one of the scenarlos
of preferences L97
L4.2 - Correlation coefficients coaputed for three dinensions across subjects and average subject for each one of the four
scenarios of preferences
.
t9714.3 - Coordinates of four average ideal points of scenario -
dependent preference in two dinensists ... t?9
14.4 - Coordinates of four average ideal points of scenarro -
dependent preference in three dinensions ... ?OO 14.5 - Ideal points for 10 subjects ni.th complete responses 2Oz 14.6 - Ideal points {or 1O srbjects nith oissing values ZOs
XI
TAEII-ES IN APPENDI X A
A.l - Hine productiqr4.2 - Laal vineyard area in l{er
4.3 - 6rape producti.cr and other
4.4 - Stocks
4.5 - Sales of ttls Zealand xines
4.6 - Irprts of wine
4.7 - Exports of Ner Zealand rine 4.8 - l{ine consuapticr
4.9 - Consuqtiqr per cagita
A. [O - Grorth rates fror t96O to
a r a a a a a a aaa a a a a a aa a a a t r a al a a a f a a l a a a a a a aaa aa a a a a aa aa a a a a a a taa a a a a a a a aa r r a a a t aa
Zealand
inputs
1980
Page 2St 25:t?g
234 2:Hi 235 256 236 256
?'7
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araa. aaara aaraaa
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- TAEII-E=I IN APPEND I X
(al l{ine users - Suburban ereas
(bl l{ine users - Age
(cl t{ine users - t{ationality (dl t{ine users - Education (el lfine users - 0ccupation (f) Uine users - lncome
H.2 - (a) Non-rine users - Number of children - (b) Nqr-rine users - Household size - (c) Nqr-nine users - Age of children
H.3 - Crosstabulation of drinking frequency by types of rines rcst consueed fl.,
Cooking habits (?l
Crosstabulation of types of wines Crosstabulation of types of rines Crosstabulatisr of types of xines Brands consuned in restaurants
(al Crosstabulation of nuaber of
(b) ttunber of f lagons by area
(cl !tu6er af bottles - Age (Z)
bottles at hoce by area (Z)
(dl l{urber of bottles - Education (Z) (el lfui$er of bottles - Occupatian (T.l (f I Nurber of bottles - Incoi€ grqlp (Z)
(gl tfu-er qf bottles at hom - l,lurber of children
H
".t
_H.4 -
H.5 -
H.6 -
H.7 -
H.8 - t.t :
?&
26ft 268
28
?68
?.6f3
?.69
?6i
269
26i 26i
270 270
27t
27L 272 777 272 272 273 by
by by
qrburbs (7.)
age
acupation
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...
273,(zt ...
275,XII
F 6_g_Fr_E_=___ r _N___T_E x T
Thc equilibriur of a aonopotist ...,...
Productian of grape rine - Table and dessert ....,...
Vineyard area .r...
6rape productior ... ...
Sales of nine - Table and dessert ...t...,...
Consunption of nine - Table and dessert ... ...
l{ine narketing syster ...r,... ...
Ornrship of the nine industry ... r r.. , . .,..
The existing liqur distributim nrchanisor by sales volune ...
Concentration curve ..., r.
Infornation flows and signals Suburbs of Palmerston North
Brand preferences fr different types of wine
Distribution of nurnber of bottles bought per nonth ....r Distribution of nunber of ftagons bought per nonth ...
Frequency distributim - No. of bottles of rine at hone...
Plot of stress versus dinension .,...
(al configuratisr of rines' sinilarities in three dioensions
for 2O subjects
I
l.l
s. I
5.2s.s
3.f
s.5 4.1 1.2{.s
5. I
8.1 9.1 9.2 9.3 9.49.5
L2. t L2,2 L2.2 12.3 LZ.4
r2.5
13.1 15.2 14.1
t4.2
14.3
14.l
15.1 15.2
Pagr
zi
7 31 54 s9 41 465t
60 67 L02
lls
t26
132 152 r37 175
(bl Configuratiqr of rines' similarities 177
three-dimensional space for lO subjects Configuration of wine similarities in a
two-dirnensional space 178
Configuration of rine sinilarities in a three-dinensional
space fr 1O sub jects rith corylete scale values .. r...,.. 1gO configuration of rine sinilarities in a threedinensional
spece f or 1o sub jects rith incorylete scale values .. t. .. . r... l8z Bipolar scales in tno dinensions - 20 subjects... 1Bg
Bipolar scales in three dioensians - ZO subjects l?t Ideal points of 2O subjects in trrc diaensions ...r...r.. lg9
Ideal points of fotrr scenariedependent preferences
of 2O subjects in three dinensians .. r... !. ZOO Ideal points of four scenario-dependent preferences of 1O
subjects rith coaplete responses, in three diaensions
-
6rc4 A ...a...a.r...-. mzIdeal points
of
fotrr scenariedepetrdent prefrencesof
lOsubjects
nith
cissing values,in
three dinensions-
Gror.rp8..
zos Perceptual oagof
20 subjectsin
threc dicensions... ....
NT Evaluetive oaPof
20 subjectgin
threr dioensiqrg...
Zelina
177
