PANNON UNIVERSITY Doctoral School of Management Sciences and Business Administration Impact of external sources of capital investment on the development of the established Hungarian wine industry Thesis of Doctoral (Ph.D.) Dissertation Written by: Dávid Brazsil Consultant: Dr. Habil. Tibor Pupos Keszthely 2013.
Table of contents 1 The defined research area... 2 2 Research Hypotheses... 2 3 Research Methodology... 3 4 Research Results... 5 5 New scientific results... 6 6 Further directions of the research... 8 8 List of Publications... 10 1
1 The defined research area After the Second World War, the agro-food trade liberalization and concentration processes took place within the agricultural production system having a strong influence on the development of the wine industry. New world wine production centres were established, and for the expansion of global trade networks on all continents a strong concentration in the supply side of the wine industry became recognisable. In order to accelerate the structural transformation of the global equity market movements: the traditional family wineries and cooperatives based production structures, the wineries set up external sources of capital, which have boosted the millennium development of the sector. Therefore, new types of wine investor groups have appeared within the sector. In other words, the grape and wine industry is a sufficiently attractive form of investment in the global capital markets, which raises new types of coordination problems within the industry. It was observed within the wine industry that concentration processes affected the development of the Hungarian wine sector, although the events of special historical circumstances influenced by these processes are closely related to economic transition and privatization concepts. The publications related to this subject notify that the concentration is primarily a result of the privatization period which took place in our country through foreign direct investors. Overall, the thesis examines the impact of external sources of capital investments realized in wine business for the coordination processes through two examples of Hungarian wine regions (Tokaj and Villany), highlighting the economic, technical and social aspects. 2 Research Hypotheses The research proving or disproving the proof of the following are scheduled for: Hypothesis 1: The appearance of external sources of capital investment in the Hungarian wine business bound to the privatization, and the investments are foreign direct investments (FDI). 2
Hypothesis 2: Recognizes the development of the Hungarian wine regions production structure, clearly boosted by the external sources of capital investment. Hypothesis 3: Recognizes the impact of externally sourced investment, leading to positive developments of the local sectorial operators. 3 Research Methodology The dissertation represents the research in theoretical background of the theory of foreign direct investment and sectorial studies. In the latter respect it is important to point out that the theoretical approach is too important a methodological foundation for production districts of wine with protected designation of origin and geographical indication during the analysis: Descriptions of the sectorial study are aimed at a definable product in a dynamic system, which takes into account the economic, technological, historical and organizational aspects. The thesis research encompasses on two issues: The study of the market environment of the Hungarian grape and wine industry, and the impact of the external sources of capital investment in the Hungarian wine business. Due to the nature of the topics other data sources and analysis methods are applied to the candidates, which are summarized in the first Table. The research hypothesis replies are fundamentally based on and formulated by sectorial case studies. The case studies are based on accumulated non-quantitative measurements, however the data collection (primarily guided interviews) are based on qualitative analysis of unknown materials. The point is that not only is it important to verify the numbers and assumptions of statistical analysis, but also to gain a deeper understanding of the phenomena. In this case, the sample size is not regarded as a focal point. However, the results of the case studies can be limited to formulate a general statement, as in the case of econometric tests. The sectorial case study investigating the same phenomenon with the environment and a relatively large number of variables is highlighted within the results. 3
Analysed topics Sub-Topics Research Analysis of the market environment of the Hungarian grape and wine industry External investors in the Hungarian grape and wine industry Table 1: Testing Materials and Methods The EU and world wine market analysis Domestic wine market analysis from the perspective of economic transition External investments through the global grape Malbec and Rioja wine sector as an example External investment Villany wine region Outside investors Tokaj Methods Secondary data OIV, FAO, collection Central Statistical Office, Eurostat, HNT data; professional publications Both primary and HNT, KSH, secondary data Customs data collection Academic and professional journals Guided interviews with experts Secondary data Academic and collection professional journals, professional organizations, publications, Secondary and Academic and primary data professional collection journals; KIM annual reports Opten database; Guided interview (15 wineries) Secondary and Academic and primary data professional collection journals; KIM annual reports, Opten database; Guided interviews (21 wineries) Source: Our own results Source Methods of Analysis Descriptive statistics, comparative analysis Descriptive statistics, comparative analysis, content analysis Content Analysis, Comparative Analysis Content Analysis, Comparative Analysis Content Analysis, Comparative Analysis Sidlovits (2008) found that, sectorial case studies are often criticized due to the investigator subjectivity, and the possible distortion of the results, and the test s difficulty in reproducing the changeable factors. At the same time the guided interviews allow the researcher to obtain a holistic picture of the subject of research. From other sources in support of the results and discussion of the different interpretations of the interview subjects, the use of different sources of 4
information (eg annual reports, press releases) significantly reduced the distortion of research results. Following the identification and classification of the sector operators the guided interviews with selected wineries were so determined that all types of industry participants (investor-owned wineries, family wineries, coordinators, wine producers) gained access to research opinion. 4 Research Results This thesis will offer examples of how, through two different structures, Hungarian wine production may be problematic and the answers may be formulated through the following hypotheses. Hypothesis 1: The hypothesis must be partially answered negatively. There were a substantial number of external sector investors, at the time of privatization, but these were not exclusively associated with establishing themselves in the short period. Foreign direct investment appears to be essentially bonded to privatization, but its presence does not affect any Hungarian wine region. Several state-owned wineries and cooperative cellars became the property of the Hungarian investor groups or individuals. The number of companies set up by external capital, established after the turn of the century, was greatly increased in the studied wine regions. Hypothesis 2: Taking into account the different historical traditions of the two wine regions we found that the role in the region's modernization by the externally sourced capital established wineries is greatly affected the appearance date. Further amendments have affected how the investors currently view the family wineries economic activity and competitiveness. Based on these results it can be stated that the financially strong liquid investor wineries have a positive effect on the modernisation of the sales system of the given wine region in all cases. Hypothesis 3: 5
It is possible to declare that the two Hungarian examples, and the shortly presented Spanish tendencies, show that since the externally sourced capital wine-cellars came into existence, despite many positive effects more negative impacts are also exerted by some of these economic operators in the wine-growing region. These negative effects are more likely to be found in developing family wineries, local vine growers, whose ancestors created the image of the wine region. The latter fact can significantly reduce investors' social standing. 5 New scientific results Through national and international case studies, the following sub independent research is formulated. 1-Thesis Compared to the other sectors of agribusiness industry it is concluded that in the wine business concentration processes were involved in the initial stage. On the demand side (distribution channels) the effects of competition in the vine and wine production can be observed, and we can calculate with further concentration. 2-Thesis In Hungary, the concentration process fell under special circumstances, as the concentration of wine production on the socialist market economy emerged, which is conserved under the process of privatization, to which foreign direct investment in Hungary was closely welded. The amount and proportion of investment capital from external sources is expected to rise in Hungary over the next decade. The decrease in the wine business income-generating capacity - particularly the loss of vine growing profitability - could also accelerate the outlined concentration processes. 6
3-Thesis In contrast to the professional judgment of the wine business investor, private investments did not exclude capital brought in from investor s private properties and sharp differences were observed between the vine and wine investments. The winery business is primarily founded by capital contributions of their companies in other sector, sometimes even offshore companies. Due to strict laws governing land ownership, typically reserved for those with Hungarian citizenship, vineyards are commonly purchased from personal taxed income payments, by investors posing as private Hungarian citizens. 4-Thesis Investments of externally sourced capital established the foundations of many subjective and difficult to interpret economically measurable factors. The economic return on wine business investments is not a profitable business in terms of accounting for investors. However it establishes the expected future increase in the value and reputation of the winery. The reputation of the wine region as well as the development potential of its products are crucial points when choosing the investment location. Winery investments are inspired by positive social perception, and the celebrity obtained through investment in the "wine culture." Independent and new results listed above should not be considered as general findings. The extensive studies of the dissertation are intended to document that the economic and social status of the discussed problems raises different conclusion of each wine region. This formulation is in line with Rastoin (2006) findings that in each case a sectorial study of agribusiness must take into account the study area due to its geographical situation, economic history, technology (including product structure) and its organizational aspects. My research results are clearly applicable in the quantitative analysis of the socialist market economy countries in transition to a capitalist market economy, in terms of agriculture and food investment. The range of values is limited to the agribusiness products with protected designation of origin and the geographical indication. 7
6 Further directions of the research A wide range of the interpretation of the conclusions and findings is used to formulate appropriate testing of the validity of research results through sector studies of other Hungarian wine regions focussing as a priority on the assessment of externally sourced capital investments and their impact on the Balaton and the Danube wine regions. The importance of this latter study is justified by the fact that a significant capacity of the Hungary s wine industry is concentrated in the area between the Danube and Tisza. The results of the investigations of international dissemination would be significantly improved if the studies are extended to wine countries that joined the EU after 2004, especially Bulgaria, Romania and the Czech Republic. Due to the different socialist market economic models and policies on economic modernization following the change of regime and the volume of externally sourced funding, the economic roles and effects of established wine investment may vary in each countries. Qualitative analysis methods should be implemented in order to develop the study methodology, primarily focusing on the financial analysis of the business operations of the companies examined, particularly with regard to returns calculations on investment. In this case, however, further directed interviews or secondary sources of data are required to establish if they provide sufficient information for qualitative analysis. Based on the new institutional economics theory a new research direction may be a study about the effect of the changes in the regulatory environment on wine investment. The land purchasing moratorium which expires in 1 st May 2014 and the new law of the land could induce significant changes in the Hungarian sector. A further research opportunity would be a sociological analysis of the results of the guided interviews. Social relationships and human emotions (faith, love, hate, trust, suspicion, interest groups) are subjective and economically difficult to define developmental factors that influence the direction and pace of the development of a wine region in the long run. 8
7 References: SIDLOVITS Diána (2008), Vertikális koordináció a szőlő- és borágazatban, A magyar és a francia gyakorlat összehasonlítása, Doktori értekezés, Budapesti Corvinus Egyetem, Budapest RASTOIN Jean-Louis (2006), Economie et Stratégie Agro-Industrielle : Le système alimentaire, Document pédagogique, Agro-Montpellier, 219 p. 9
8 List of Publications FOREIGN LANGUAGE PUBLICATIONS: Publications in international journals: CIOLOS-VILLEMIN Valérie BRAZSIL David (2013), Les ressorts du renouveau dans les secteurs vitivinicoles hongrois et roumains, POUR 217, GREP, Paris, pp. 165-174. ISSN 0245-9442 Foreign-language journal publications: KATOR Zoltán BRAZSIL Dávid SIDLOVITS Diána (2010), Preparing product specification of PDO and PGI wines according to the new Community reguations. Hungarian trademark news, Hungarian Trademark Assocaition, Budapest, pp. 31-38. International conference proceedings published in publications: BRAZSIL József BRAZSIL Dávid (2006), Die Problematik der ungarischen Weinbaubranche im Anschluss an der EU, WITHIN THE EUROPEAN UNION III. Internationales Konferenz, WESTUNGARISCHE UNIVERSITÄT Fakultät für Landwirtschafts- und Lebensmittelwissenschaften, Mosonmagyaróvár, Ungarn, 2006. CD kiadvány BRAZSIL József KOVÁCS Attila BRAZSIL Dávid (2007), Le changement du système de production dans une zone viticole importante en Hongrie à partir des années, 90. XXX th OIV World Congress. Budapest, 10-16 juin 2007, CD kiadvány BRAZSIL David (2011), Un secteur viti-vinicole au développement contrasté. Colloque à la découverte du monde du vin, Zoom sur l Europe Centrale et Orientale. Béziers, 22 novembre 2011, pp. 17-22. Internet alapú kiadvány www.obs-viti-cg34.com, 10
HUNGARIAN publications: Hungarian journal publications: BRAZSIL Dávid BRAZSIL József KOVÁCS Attila (2002), A mezőgazdasági munkaszervezés információigénye és a triádmodell alkalmazhatósága, Informatika, 5. évfolyam, 2. szám, pp. 35-38. BRAZSIL Dávid SIDLOVITS Diána (2009), Az eredetmegjelölés koncepcionális kérdései a Balatoni Borrégióban; Gazdálkodás ; 53 (4) pp. 376-384. HU ISSN 0046-5518 BRAZSIL Dávid (2009): A bortermelés struktúrájának változásai ; Gazdálkodás; 53 (5) pp. 452-455 HU ISSN 0046-5518 SIDLOVITS Diána KATOR Zoltán BRAZSIL Dávid (2012): Borpiaci tendenciák a harmadik évezred elején, Borászati füzetek, (6) pp. 1-6. HU ISSN 1217-9337 Hungarian-language publications published in the conference proceedings: BRAZSIL Dávid BRAZSIL. József (2005), Eredetvédett bor termelésében rejlő lehetőségek a Tagyoni Hegyközség példáján bemutatva, Gazdálkodás Klnsz., 49 (14) HU ISSN 0046-5518 BRAZSIL József BRAZSIL Dávid (2005), A magyar bor eredetvédelmének jelentősége az uniós versenyben, Verseny élesben Európa-napi Nemzetközi Konferencia, Nyugat-Magyarországi Egyetem, Mezőgazdaság- és Élelmiszertudományi Kar, Mosonmagyaróvár, CD kiadvány 11
BRAZSIL Dávid BRAZSIL. József (2005), A bor eredetvédelmi rendszerében rejlő lehetőségek a Tagyoni Hegyközség példáján bemutatva, XLVII. Georgikon Napok, Közép Európa mezőgazdasága lehetőségek és kockázatok Veszprémi Egyetem Georgikon Mezőgazdaságtudományi Kar, Keszthely, 2005. szeptember 29-30. BRAZSIL Dávid BRAZSIL József MÁJER János LAKATOS Anita (2006), Borszőlőtermesztés gazdaságossága a Balatoni Borrégióban, X. Nemzetközi Agrárökonómiai Tudományos Napok, Károly Róbert Főiskola FAO, Gyöngyös 2006. március 30-31. CD kiadvány, BRAZSIL Dávid (2008), Eredetvédelem és borkategóriák változása a Közösségi Borpiaci Szabályozás reformjának hatására, Ifjúsági Tudományos Fórum, Keszthely, 2008. április 3. CD kiadvány BRAZSIL Dávid SIDLOVITS Diána (2008), Eredetmegjelölés mint bormarketing eszköz a Balatoni borrégióban Kultúraközi párbeszéd az üzleti világban, Tudományos konferencia a Magyar Tudomány Napja 2008 tiszteletére, Kereskedelem és Marketing Szekció, Budapesti Gazdálkodási Főiskola, Budapest, 2008. november 6-7. Electronic textbooks BRAZSIL Dávid (2010), Borpiaci ismeretek ; ÚMVP; 139/2008 FVM rendelet szerinti Képzés, Lajstromszám: an 18, VKSZI, Budapest, 86 p., Elektronikus tankönyv, elérhető: www.nakvi.hu 12
FOREIGN LANGUAGE CONFERENCE PRESENTATIONS BRAZSIL József BRAZSIL Dávid (2006), Die Problematik der ungarischen Weinbaubranche im Anschluss an der EU, WITHIN THE EUROPEAN UNION III. Internationales Konferenz, WESTUNGARISCHE UNIVERSITÄT Fakultät für Landwirtschafts- und Lebensmittelwissenschaften, Mosonmagyaróvár, Ungarn, BRAZSIL David (2010), La nécessité et des outils de gestion de la production des produits d AOP et IGP l exemple du vin, Round table on the evolution of the European quality policy, European Parliament, 28 septembre 2010. BRAZSIL David (2011), Die Wirkungen der Einführung der gemeinsamen Martorganisation für Wein in Ungarn, Intervitis Interfructa, Mitteleuropäisches Weinforum: 2013 und dann?, Wien 10 April 2011. BRAZSIL David (2011), Un secteur viti-vinicole au développement contrasté, Colloque à la découverte du monde du vin, Zoom sur l Europe Centrale et Orientale. Béziers, 22 novembre 2011, HUNGARIAN CONFERENCE PRESENTATIONS: BRAZSIL József BRAZSIL Dávid (2005), A magyar bor eredetvédelmének jelentősége az uniós versenyben, Verseny élesben Európa-napi Nemzetközi Konferencia, Nyugat-Magyarországi Egyetem, Mezőgazdaság- és Élelmiszertudományi Kar, Mosonmagyaróvár, BRAZSIL Dávid BRAZSIL. József (2005), A bor eredetvédelmi rendszerében rejlő lehetőségek a Tagyoni Hegyközség példáján bemutatva, XLVII. Georgikon Napok, Közép Európa mezőgazdasága lehetőségek és kockázatok Veszprémi 13
Egyetem Georgikon Mezőgazdaságtudományi Kar, Keszthely, 2005. szeptember 29-30. BRAZSIL Dávid BRAZSIL József MÁJER János LAKATOS Anita (2006), Borszőlőtermesztés gazdaságossága a Balatoni Borrégióban, X. Nemzetközi Agrárökonómiai Tudományos Napok, Károly Róbert Főiskola FAO, Gyöngyös 2006. BRAZSIL Dávid (2008), Eredetvédelem, borkategóriák, eljárási szabályok az EU borreform kapcsán", IX. Szőlészeti Borászati Konferencia, Eger, 2008 január 16-19. BRAZSIL Dávid (2008), Eredetvédelem és borkategóriák változása a Közösségi Borpiaci Szabályozás reformjának hatására, Ifjúsági Tudományos Fórum, Keszthely, 2008. április 3. BRAZSIL Dávid (2010), Tőkés befektetők és a termőföld kapcsolata a szőlő-bor vertikumban, MTA - Jövőkutatási Bizottság tudományos ülése, Budapest, 2010. február 12. BRAZSIL Dávid (2012), Globalizáció, lokalizáció, eltérő fejlődési alternatívák, A Világ agrár-élelmiszeriparának kihívásai 2050-ig, MTA Statisztikai és Jövőkutatási Tudományos Bizottság, Jövőkutatási Tudományos Albizottságának tudományos ülése, Budapest, 2012 április 13. Professional journals in Hungarian-language publications: BRAZSIL Dávid (2009), Globalizálódó borpiac, Bor és Piac, (5-6) pp. 32-34. ISSN 1586-6688 BRAZSIL Dávid (2010), Szövetkezés, avagy kincs ami nincs, Bor és Piac, (1-2) pp. 17-19 ISSN 1586-6688 14
BRAZSIL Dávid (2010), Liberalizáció?! Milyen áron!? ; Bor és Piac, (3-4) pp. 16-19 ISSN 1586-6688 SIDLOVITS Diána KATOR Zoltán - BRAZSIL Dávid (2012), A legújabb tendenciák a világ borpiacán, Agrofórum, (12) pp. 6-10. ISSN 1215-4911 15