Firm Creation, Firm Evolution and Clusters in Chile’s Dynamic Wine Sector: Evidence from the Colchagua and Casablanca Regions



27

considerably, and the Merlot grape in particular began to shrivel. This is an added
problem for access to water in parts of the Casablanca valley and near the coast in
Colchagua.

One form of upgrading to have taken place has been vertical integration of wine firms to
increase their number of grapes coming from their own vineyards. This means that there
can be more control on production processes and quality can increase. Some
interviewees, for example Carlos Serrano from Montes, also complained about the
unreliability of contract farmers so integration decreases these problems. Colchagua
valley has 7,774 hectares of land planted and 80% of this land belongs to wineries, 11%
is rented land from farmers and 9% of land is farmers land but which is supervised by the
wineries buying the grapes (Olavarria et al, 2008).

A case study of upstream integration is Montes winery. Serrano (2008) talks about when
the winery was set up in 1988 all grapes came from farmers, and in 1991 the company
bought its first property in Apalta and started producing its own grapes. Montes later
increased its vertical integration even more when a plot of land was bought in Marchihue.
Now, in 2008, Montes has gone from 100% outsourcing of grapes to only 30%. Chilean
firms have been able to do this because there is less state control in the agro- industry
sector, meaning there are no restrictions on wineries buying land from farmers (Arnold et
al, 2002).

It is interesting to note that Montes is not planning to integrate themselves further
upstream and have 100% grapes produced as they will use this 30% contract farming to



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