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How Winegrowers and Houses do business together

The story of a win-win partnership

On the face of it, the seller and buyer of a product always have opposing interests. The first wants to sell their product on the terms that are best for them, especially for the highest possible price. The second wants to buy for the lowest possible price, at the time that best suits them, in line with their needs at any one moment. Buyers and sellers are by nature rivals ... unless some common interest draws them into a partnership approach.

In the course of the 20th Century, the buyers and sellers of Champagne grapes came to understand that their interest lay more in setting aside their personal viewpoint and working together to regulate their market than in trying to win at the expense of the other. Not an easy proposition given the difficulty of overcoming short-term thinking, but one that so far at least has been shown to work.

The co-management of the appellation by the negoce (merchants) and the vignoble (winegrowers) has been a gradual process, set against a difficult background. Historically, there was an irregular grape supply in Champagne grapes due to the region’s uncertain weather. Until the end of the ’eighties, small harvests were a regular occurrence. While they are less common these days, Nature remains no less treacherous, ever capable of halving a potential harvest from one day to the next. And just as the weather can be unpredictable, so too can the markets. Sales sometimes boom, and sometimes they recede. When sales are out of step with production, you get violent oscillations between gluts and shortages. In the short term, market gluts favour the buyer who can force down the price. Shortages on the other hand favour the seller, who can drive up bid prices when supply falls short of demand. But looked at from a medium to long-term perspective, it is clear that alternating gluts and shortages are in nobody’s interest: you win one day, you lose the next.

All businesses do in any case seek to guarantee the regularity of their income, outgoings and supplies. Margin squeezes are always painful.

The harvest is the culminating point of the seller-buyer relationship

In 1911, the Champenois established a joint dialogue and developed the necessary regulatory instruments

From the beginning of the 20th Century, Champagne winegrowers and merchants, faced with production uncertainty at one moment, economic uncertainty the next, worked together to develop instruments to regulate their market — and that required a level of collective decision-making. The first stage was achieved in 1911 with the agreement to hold an annual meeting between representatives of the négoce and the vignoble. The objective of this first cross-group dialogue was to set the price of grapes by commune, and an instrument was developed to simplify the discussion: the échelle des crus (scale of growths).

The came the Crash of 1929, which interrupted these first attempts at collaboration and required the Prefect to fix a minimum price for grapes. The year 1935 then saw the establishment of the Châlons committee, an authority composed of representatives of the négoce and the vignoble whose mission was to fix a minimum price for grapes and base wines (vins clairs). These prices were then enforced by prefectoral decree. In 1938, when the harvest exceeded the requirements of the négoce, the committee passed the first measures relating to blocage: the setting aside of part of the crop in good years, to cushion the effects of a subsequent poor harvest.

Between the two wars, the Champagne business had faced serious economic crisis, brought about by the combined effects of a slowdown in sales and increased yields. Looking to re-energize the market, in 1922, the Champenois established the Comité de Propagande des Vins de Champagne (committee of Champagne wine propaganda), which was tasked with organising sales events, distributing advertising posters and entertaining journalists.

Under the Occupation, in 1940 representatives of the négoce and the vignoble managed to establish a national agency for the distribution of Champagne wines: the Bureau National de Répartition des Vins de Champagne, whose decisions were binding on all stakeholders (winegrowers, co-operatives, merchants, pressing centres and brokers). A year later, the CIVC was established, serving notably to apportion harvests between the merchants and to set the price of grapes. Since the LIberation, the CIVC (now known as the Comité Champagne) has provided a permanent framework for collaboration between the négoce and the vignoble.

From a managed economy to a semi-liberal economy

At the end of the ’fifties, Champagne put in place the contrat interprofessionnel (cross-industry contract): a highly original mechanism to regulate its internal market by:

  • guaranteeing outlets for the producers;
  • guaranteeing supplies to the merchants;
  • preventing the yo-yoing of Champagne prices, which were damaging to seller, buyer and consumer alike.

The contrat interprofessionnel was a joint contract, set up by the CIVC, to which merchants and winegrowers could subscribe on an individual basis. By signing, the parties committed themselves to the performance of the contract.

  • Merchants committed to buy each year, for a period covering several harvests, a certain quantity of grapes or a volume of wine corresponding to a freely chosen percentage of their sales volume. Their level of commitment could be as high as 120%.
  • Winegrowers meanwhile committed to sell the merchants some or all of their crop.
  • The price and conditions of sale (price, payment dates, blocage, déblocage ...) were set by the CIVC, which divided the "contracted" crop between the contracted merchants.
  • The balance of the harvest (that percentage that exceeded the merchants’ commitment) was bought by a limited liability company named the Société d’Intervention de la Champagne Viticole, which resold the balance when there was market demand. Since the ’eighties, this function has been fulfilled by the blocage system.
  • A method was put in place to set the price of grapes every year, calculated as a certain percentage of the price of the bottle sold by the merchants (28% in the first edition of the contract, 32% in the second, 36% in the third and fourth, 34% in the fifth) and factored up to allow for seasonal variations.

The following three decades saw five successive editions of the contract, each one increasingly complex in a bid to favour the contracted parties over those who preferred to "speculate". With this in mind, the interprofession (Champagne cross-industry body) set up a commitment bonus scheme (prime d’engagement), funded by a fee charged on grape purchases and a tax on purchases of base wines and vins sur lattes (wines stacked in the cellars for aging).

In 1990, the CIVC went to work on a sixth edition of the contract ... before eventually deciding to scrap it altogether due to an evident desire to return to individual contractual relationships. The apportioning of the crop by the interprofession (and not on a person-to-person basis) was a particular bone of contention.

So the CIVC replaced the joint contract with a semi-liberal system of governance known at the time as the organisation semi-libérale. Henceforth the CIVC would set market conduct rules that were binding on buyers and sellers who concluded direct contracts with one another.

1990 to 2004: regulation in an increasingly liberal market

The first organisation interprofessionnelle (1990, 1991 and 1992 seasons) strongly resembled the now defunct contrats interprofessionnels.
Henri Macquart et Jean-Michel DucellierParticular features included:

  • the setting by the interprofession of an indicative price to be paid by contracted parties;
  • the payment of grapes in four installments;
  • the capping of the amount of grapes that could be supplied to merchants in order to reduce competition between buyers;
  • the recording of transactions by the CIVC, based on transaction counterfoils;
  • "mini-commitments" for those who wanted them.

This system was largely overhauled in 1993, against a background of crisis that sent grape prices tumbling. Drastic blocage became the order of the day.

In 1996, the two co-presidents of the CIVC spearheaded the industry’s commitment to a partnership for reconstruction and development. Henceforth the object was to focus on crisis recovery and prepare for the expected market rebound with the arrival of the millennium. The blocage system morphed into what was then officially known as the "Champagne qualitative reserve". The négoce then agreed to provide the SGV with a forecasted revaluation of the indicative price in exchange for the vignoble agreeing to restrict any overbidding prompted by the upswing in the new millennium.

In 2000, under pressure from a free-trade Europe, (which outlawed the setting of "indicative" prices) the interprofession abandoned indicative prices in favour of observed prices ... Little by little however, faced with a proliferation of bonuses, premiums and perks that were not declared to the CIVC, it became increasingly difficult to observe price patterns.

In 2004, the brokers were put in charge of observing prices. Henceforth their union would produce an annual price list, which was based on invoices and issued several months after the harvest. Looking to acquire a better understanding of the market, the CIVC insisted on the submission of all individual contracts (including any amendments). It also drafted a model for cross-industry (but not collective) agreements, incorporating those standard clauses that were mandatory for inclusion in individual contracts.

In 2008: keeping the peace in Champagne

For several years now, to meet ever expanding demand, every harvest has concluded with déblocage — the ad hoc releasing of wine kept in reserve, to avoid a price explosion due to soaring demand. In 2007, the blocage system was further refined by replacing the qualitative reserve with an individual reserve. This allowed growers more flexibility by enabling them to set aside reserve stocks of wines in vintages of excellent quality — a move that greatly facilitated the collective management of the Champagne market.
The 2008 harvest was the last vintage covered by the cross-industry approach that had been agreed four years earlier by the vignoble and the négoce. With production expected to remain within predicted limits for the next 10 years and the market for Champagne extremely buoyant, the Champagne industry had then to decide how best to balance the individual requirements of businesses eager for growth with the need to keep the peace in Champagne.

La Champagne Viticole n° 730, December 2007
Report by Catherine Chamourin