RENCOM – Workpackage 4 – Hungarian case studies: Eger Bull’s blood project Page 1

Eger Bull’s blood project (Heves)

Winegrowers play a major rule in this county. Bull’s blood is one of thetwo most famous wines in Hungary (the other one is the „old Tokay” fromthe county next to Heves) which is grown in Eger, the capital city ofHeves.

After the transition in the early 90’s, many new small farmers haveappeared on the hills of Eger, who try to produce Bull’s blood. At this timethere wasn’t any approving method to control the quality of wines. Thissituation was very harmful for the wine-growers who tried to sell qualitywines with high prices, and of course it was very harmful for the famousbrand, „Bull’s blood”. But many small farmers produced red wine underthe brand’s name “Bull’s blood”, whose quality were not suitable, andbefore the transition, in the foreign markets the brand became the synonymof a “moderate quality” Hungarian red wine, and these bottles abided onthe bottom shelves of the supermarkets. Another problem also arose:Eger’s farmers can’t deal with each other if the Bull’s blood has to becomethe region’s dominant famed high quality wine or it should remain an inquantity produced and within easy reach market-leader red wine.

We try to focus on a special network in which actors try to rebuild thebrand of the wine in the Hungarian market as well as in the world market.The most important step in this process was to create a legal text whichcontrols the winegrower’s method, and ordains some quantitativeindicators (for example: weight of grapes per hectare, the area where thegrapes from etc.). But before this step they had to determine the specialchemical components that can be used in the course of the wine-production, and the weight of these components.

Eventually, in 2003 the authorities modified the “wine-law” which openshence the door to regulate the production and preparation of proprietaryextra fine quality wines. The council of the 15 parishes of the regionsettled down the regulation of the production of a “simpler Bull’s blood”and in the same time they created a new category: “Bull’s blood Superior”,and agreed, that the best quality will be the “Superior Eger”. (Thedifferences result in the permitted volume-crop of grape per hectare, thepermitted types of grapes or the degree of the sugar etc). Naturally the

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strict ordain results high costs, so the small farmers can’t finance thisprocess. Anyway, the result of this project will be lower grapes with higherquality.

There are four major groups of the actors in our case study:

1) the group of farmers with high revenue and good export possibility;2) the group of small farmers who won’t be able to follow the conditions;3) the group of institutions are interested in the research to find the „best

quality”;4) the last one is the group of institutions linked to the big farmers who

help to lobby in all levels of the politic.

The OPP (obligatory passage point) is to safeguard the quality and thenimbus of the wine nevertheless make a deal in favor of smaller farmersalso.

Within the framework of the National Research and Developing Program,Eszterházy Károly College applied for a tender to improve and to amendtechnologically the production of the wine and to finish a marketingstrategy which enhance the competitiveness of the famous Bull’s blood.The essential goal is to ameliorate the qualitative production of the Bull’sblood and other wines of Eger. The project covers four years. Themembers of the consortium are:

the College, the Guild of 9 wine producers (who are the major wine-growers), the Research Institute for Grape and Wine in Eger and some small- and medium farmers who already won at moreinternational competition.

The intellectual basis is the College. They make researches in the field ofbiology, chemistry, viticulture, meteorology, geography, and history too.

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The model

1a The threat of the new entrants: It depends on how opened the marketis, on capital requirement, on resiliency of the market, on governmentpolicy, on the possibility to access to input and to distribution, on Brandidentity, on switching costs, or on proprietary products etc. The possibilitythat new farmers may enter the market also affects competition. But thereare many barriers (modified wine-law, the high cost of suffice thespecialized technological requirement, cost of investment assets, etc)which reduces the number of possible new entrants.

1b The scale of the substitute products: other wines on the market whosequality is pretty much the same. The threat of substitutes depends onswitching costs, on buyer’s inclination to substitute or on price-performance trade-off substitute. In Hungary we can find pretty much kindof (red) wine in the market whose price often lower than the Bull’s blood’sprice, even if they are foreign wines. Nowadays customers can’t trust in

New entrants1a,Substitute Products1b

Project4Bargaining Power Suppliers2 Bargaining Power Buyers3

Local Governments8

National Governments9

Factor Conditions5 Demand Conditions6

Related & SupportingIndustries7

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this brand name because they can’t be sure, if they choose Bull’s blood itmeans that they bought the expected and desirable quality.

2 Bargaining Power Suppliers: It depends on how efficiently organizedthey are, on suppliers concentration, on the importance of volume tosupplier, on presence of substitute inputs or on impact of inputs on cost ordifferentiation. In our case, Bull’s blood has a good position, because inthe region this kind of wine is the most famous, the brand name is alreadyfamiliar, the enhance and the promotion of the product is in the interest ofthe national and regional authorities too. It could lead the market in thefuture, and it would become a luxurious-product, if the low quality wineswere withdraw from circulation of the market.

3 Bargaining Power Buyers: It depends on how efficiently organized theyare, on buyer volume (how much wine they want to buy), if the product isunique (Brand identity; it means less the product is unique, the BPB isbigger), on the cost of the substitute of the product, the price-sensitivity ofthe consumers, or if any substitutes are available. In our case theconsumer’s interest is to get good quality wine in “normal” price. WhereasBull’s blood is a traditionally appreciated Hungarian product, consumerlikely pays the additional price, if the quality of this wine is undeniablyguarantied.

4 Project: The goal of the project is to rebuild the brand of the wine in theHungarian market as well as in the world market, and to make Bull’sblood the region’s dominant and appreciated extra fine quality wine.

5 Factor conditions: The nation’s – or in this case the region’s – positionin factors of production is necessary and essential to compete in a givenindustry. We can rate here for example skill labor or infrastructure. InEger’s wine-country there isn’t any “wine-producer training”, while itshould be indispensable in order to produce Bull’s blood and other wineson high quality. This task waits for the College. In the Research Institutefor Grape and Wine in Eger, the experts make researches and experimentsto improve the wine’s quality, but they don’t have enough informationaland technological background to attain smashing results.

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6 Demand conditions: The home demand for Eger’s products is quietlysufficient, but on the foreign markets the Brand name has already bore lossof face. To add, a more demanding local market leads to nationaladvantage. To improve the export opportunities all the participant shouldmake more efforts.

7 Related and Supporting Industries: It’s evident, that when localsupporting industries are competitive, firms and farmers enjoy more costeffective and innovative inputs. In Eger the wine-producers not only growthe grape but they have their own installation and materials with goodtechnology to bottle the wine. Moreover there are many subcontractor whodoesn’t produce wine, but bottles them. If they establish a goodrelationship whit numerous producers, they can deal in a way, which isfruitful for all of them.

8&9 Local and National Governments: As we analyze on regional orlocal level we have to recognize the role of the regional decision makingcenters. The sub-regional or local authorities can intervene in order tosupport economic as well as socio-cultural activities. To add, it’s necessaryto make the distinction between hard and soft support in this context.Generally, the hard support which refers to physical infrastructural aspects(such as roads, buildings) or favourable monetary conditions (taxationmeasures) is given by the national authorities. The regional or localauthorities or institutes can rather give soft support for example education,consultation for the small- and medium enterprises, or for farmers inEuropean Union’s affaires. In our study the national authority modified thewine-law in order to protect the decent and honest producers. (The role ofgovernment in this case is to encourage companies – and the growers – toraise their performance by enforcing strict product standards.)

The government realized that the project is essential to the whole country,so the Ministry of Education gave 100 million Forint for the Bull’s bloodproject in the framework of National Program for R&D.

The local authorities and institutes – Eszterházy College, Chamber of Commerceand Industry of Heves County – and the Guild of 9 major wine-growers makethe project with an additional 100 million Forint.

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List of the innovating and supporting actors:

Eszterházy Károly College: it’s one of the innovating actors, the notedCollege in Eger. The Institute run for a tender in the framework ofNational Program for R&D invited by the Ministry of Education. Therole of the College is to delegate experts to the project, to build anusable database, to participate in the researches, and to coordinate theproject by its deputy director.

Ministry of Education, who invited the tender and allocated 100 millionForint. The goal of the project is to rebuild the brand of the wine in theHungarian market as well as in the world market, and to make Bull’sblood the region’s dominant and appreciated extra fine quality wine.

Chamber of Commerce and Industry of Heves County (regionalauthority) who participate in the project and provide main information,and also contribute to the cost of the researches.

Guild of 9 wine producers (major wine-growers) who are interested inthe establishment of a database which is necessary to the designation oforigin and the quality assurance of the Bull’s blood of Eger.

The four organization mentioned above finance the project together.

Research Institute for Grape and Wine in Eger, which makes wine-chemical researches in order to identify and confirm the incomparablequalities and flavors of this wine.

Wine community in Eger (managed by the Council of Eger’s wine-country) who elaborated and accepted the regulation about thedesignation of origin and about the quality assurance of the wine. Theyalso make efforts to obtain the right that only this wine-country couldbottle the Bull’s blood.

Small farmers, who can’t adapt easily to the new regulation, because itbrings additional costs to them. Their interest is to go on with growinggrape and producing the wine while they can correspond to the strictand hard quality regulations and specifications.

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Local government of Eger, whose elementary interest to preserve thebrand’s nimbus and position in the market and to save the face of Bull’sblood..

Ministry of Agriculture, who presented the modification of the wine-law which guaranties the quality of the synthesized wine.

The Hungarian Parliament, who voted the modification of the wine-law and determined the conditions of the wine-production.

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Annex

Airports in Hungary