History: Improvements in marketing
In the period immediately after the Revolution in Portugal which brought with it the introduction of a multi‑party system (1974–1984), the wine industry still had old institutional structures in the form of State marketing boards which still regulated the matching of production to demand. In those days market partners were commercial wineries and cooperative wineries and hardly any independent small estate wineries. Production surpluses were absorbed in Portugal’s own network of regional wineries affiliated to the national wine board, the Junta Nacional do Vinho (JNV).
The advantages of the system at the time included:
- Higher consumption at 100 litres per capita per annum
- Export of some branded rosé wine, mainly to North America and English‑speaking countries
- Good exports figures in respect of port wines, thanks to its own consistent marketing strategy
- Monopoly on wine imports into Portuguese colonies
- The “garantie de bonne fin” system of guaranteed distillation at fixed prices
- Wine imports were not permitted
After considerable problems with the political understanding of economic issues which characterised this period, Portugal joined the European Economic Community (1984– 1990).
The new paradigm of a market economy coincided with changes in the geopolitical situation and the opening up of borders. A new solution had to be found for this new situation.
Main changes in market data:
- Reduction in wine to 50 litres per capita per annum
- Slump in rosé wine consumption
- Cessation of trade with the former colonies
- Coming to an end of the “garantie de bonne fin” (system of guaranteed distillation) and the decommissioning of the JNV (Junta Nacional do Vinho, the IVV’s predecessor) warehouses
These shifts in market data meant that quality wine merited fresh attention. But the basic prerequisite for quality wine in the form of modern cellar technology was lacking. The majority of wine producer cooperatives, responsible for more than 50% of grape collection, were not competitively positioned in the market, neither were the majority of private cellars. Most companies did not have money for investment. There were hardly any no wine estates marketing under their own label, and marketing strategy
lay in the hands of the State (Investimento e Comércio Externo de Portugal, I. P. – ICEP, the investment and foreign trade bureau). As a result, the situation had fallen into crisis by the 1990s because there was a huge gap between the volume of wine being produced and the marketing opportunities available. While in the middle of the 20th century the total area under vineyard cultivation was 380,000 hectares, this has declined to a current figure of 240,000 hectares. Many cooperative wineries and wine estates were thus deprived of their livelihood and the wine industry as a whole entered into a precarious socio‑‐economic phase.
Structural renovation was made possible only after responsibility for business decisions was withdrawn from many of the State agencies, and this has involved a reorganisation of the administrative structure and marketing coordination aspects. The Board will therefore be transformed into a wine institute to be named the Instituto da Vinha e Vinho in terms of Decree Law No. 304/86 of 22 September. The formation of the Institute, therefore, is an acknowledgement of the importance which should be accorded viticulture within the broader sphere of agriculture in general, and owes its creation to the very many requests received for an umbrella organisation to deal with viticultural and vinicultural issues specifically.” IVV I.P. website, history page (Portuguese only), http://www.ivv.min‑agricultura.pt/np4/272
Based on an initiative by the Minister for the Economy (Mira Amaral), 1992 saw an attempt to move the essentially different economic groups and administrative structures into one concerted action in the interests of forming a cohesive economic policy. To this end, the Portuguese government enlisted the services of Professor Michael E Porter (head of the Institute for Strategy and Competitiveness at the Harvard Business School). Porter very quickly recognised the fragility of the individual economic groups or “clusters”. One of the main reasons for the lack of collaborative strategic planning in the wine sector was the State’s centralised decision‑‐making authority over the industry, as evidenced by the complete lack of specialist and regional professional associations. Control of the wine sector was therefore in the hands of administrative officials who had little knowledge of the dynamics involved in a market economy. This was one impediments to a swift resolution of the crisis affecting the wine sector. The wine industry therefore had to form its own organisations within which various private sector opinions could be discussed, and which could come to its own decisions on economic and economic policy issues. There. A significant initial step towards structural change was made by bringing together previously autonomous offices under a single administration, the Institute of Vine and Wine (Instituto da Vinha e do Vinho ‑‐ IVV): “The accession of Portugal to the European Union on 1 January 1986 has heralded perspectives for the Portuguese economy. The JNV has been restructured to accommodate the new circumstances and the tasks it needs to perform within the European Community
was considerable pressure to determine what the strategic priorities were. As a result of the Wine Cluster workshops facilitated by Michael Porter, the official opinion of the administration on economic matters was challenged for the first time. The various regional and sectoral organisations within the wine industry were asked to relinquish their autonomy in favour of a common policy which aligned itself with the strategies proposed by the Wine Cluster.