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Equitability

© British Library Board
© British Library Board

Equitability refers to the principle of fairness in the social and economic relations embedded in a product’s value chain, from the original supplier or suppliers to the end-consumer. As discussed in the earlier text on quality, one way to provide an ethical foundation for the concept of fairness is through the principle of empathy, which asserts that we ourselves feel and will therefore logically seek to reduce the suffering of others. Another approach is to apply a rationalist perspective, an example of which is John Rawls’ principle of the ‘veil of ignorance’, which asserts that if people did not know what gender, race, abilities, tastes, wealth, or position in society they would have, they would design a society free of oppression and exploitation. In any case, the notion of fairness is deeply rooted in our culture. Furthermore, it is generally accepted, and indeed codified in terms of Corporate Social Responsibility, that companies are obliged to ensure, as far as this is possible, the fair treatment of every person connected with the value chains of their products. This responsibility obviously applies to the protection of the rights of vulnerable workers, but it also involves attention to the physical and mental well-being of all employees and to the fostering of equitable relationships between the various actors in the specific industry, whether suppliers, customers or competitors.

It is therefore somewhat surprising that while many wine producers and resellers trumpet their commitment to product quality, excellence of service, and even environmental standards, very few, and almost none of the most successful among them, address the question of equitability. However, if we examine more closely the structure of the wine industry, and specifically consider its elite level, this silence becomes less mysterious. The most exclusive estates produce prestige wines that are sold with astronomical margins, sometimes from the winemaker to resellers, sometimes from resellers to consumers, sometimes both. Wealthy consumers have become accustomed to paying up to several hundred euros for a single bottle of wine. What many of them do not realize, or perhaps do not care about, is that their ability to pay such prices encourages greed and a proliferation of profiteers in the value chain, furthers speculation in wine as an investment object rather than its enjoyment as a beverage, and takes the product out of the reach of less wealthy consumers. In this way, not only money, but also quality becomes concentrated in a few hands. Furthermore, less and less of the wine itself is consumed, because its investment value transforms it into a financial product. Perverted from its original purpose of providing sensory pleasure, it ends up in ‘wine vaults’, perhaps never to be uncorked and enjoyed.

In this respect, elite producers are to a certain extent victims of their own success. They have limited control over the final market price of their wines, and nor is it their fault that the ability of their product to increase in both rarity and quality with age makes it so appealing to financial investors. Nevertheless, they are complicit in this fate so long as they are willing to benefit from it. Furthermore, prestige producers and the resellers who play this game place themselves in an ethically problematic position with regard to the source of their customers’ wealth. The margins that they charge on exclusive wines can only be realized in a global economy that systematically distributes economic surpluses, themselves the product of environmentally unsustainable practices, to a small group of privileged economic actors. Wine critics go into raptures over the investments in quality at the most famous domains, and star architects are commissioned to design and build new cellars and visitor centres, but nobody asks where the money is coming from, or rather how the financial surpluses that allow these investments were created. In other words, global economic inequality and environmental degradation are the foundations for the success of the elite wine industry.

Elite wine culture thus suppresses the social and environmental price of its success, but not only the producers and sellers of prestige wines benefit from unfair practices. The agricultural, logistics and retail sectors, which are the primary employers in the wine value chain, have large numbers of low-qualified worker on their payrolls, some of whom are especially vulnerable immigrant or itinerant labourers, and most of whom have very little power to influence their working conditions and remuneration. This situation facilitates the exploitation of workers by unscrupulous or themselves financially precarious employers, which then compromises the ethical integrity of the wine industry as a whole. Regulatory institutions obviously seek to limit these abuses, but the mere existence of a minimum wage or legally prescribed working conditions is no guarantee that these rights will be enforced.

There is thus a huge amount of work to be done with regard to the elaboration of ethically grounded standards of equitability, the implementation of such standards, and the transparent communication of equitability policies and measures. As such, it is almost impossible at this point for any producer or reseller to make a commitment to only work with partners who operate in a verifiably equitable manner. However, it is possible to set out a manifesto for the development of standards of equitability in the wine industry, and individual organisations such as our own can report on their contribution to this project. Such a manifesto might look something like the following:

  1. Producers and resellers should apply no more and no less than a responsible margin to their products, one that neither exploits imbalances in the global economy nor unfairly undermines the ability of other producers and resellers to earn a living from their activities (price dumping).
  2. Producers and resellers should reflect critically on the value that they extract from the value chain, and on the ways in which they can contribute to a fair distribution of this value to all actors in the chain. Furthermore, they should reflect on the equitability of the whole value chain in relation to its broader economic context and seek to contribute to the elimination of unfair economic inequalities through donations or other investments in projects that increase the level of local and/or global economic justice.
  3. All employers in the wine industry should adhere to both the letter and the spirit of minimum national legal obligations or, where these are higher, generally accepted international standards with regard to working conditions and remuneration.
  4. Above and beyond their commitment to objective employment standards, employers in the wine industry should place the physical and psychological welfare of their employees at the centre of their organisational philosophy.
  5. Producers and resellers should communicate their equitability policies and the results of their efforts towards realizing them in a regular and transparent manner.
  6. Producers and resellers should seek to work as far as possible with partners committed to the principle of equitability, and they should promote the development and implementation of equitability standards throughout the industry.
  7. Producers should seek to continuously improve the quality to cost ratio of their products, and together with resellers should work towards optimizing resource and cost efficiency in the value chain, as far as this is compatible with the principles stated above, in order to provide end-consumers with the best possible quality to price ratio.

Our commitment to equitability

Like most organizations in the wine industry, we are only at the beginning of our equitability journey. However, we can set out our initial goals and the specific measures that we are taking with regard to the seven principles described above:

  1. Our margins are calculated to provide a reasonable return on our investment of human resources. They are competitive, as those of a purely online retailer must be, but not aggressively low. We believe that a healthy amount of market competition is an important driver of both quality and resource efficiency. We therefore aim to set a fair lower limit to our margins. With regard to the upper limit, we are committed to making no ethically problematic profits from prestige wines, and we do this by setting an upper limit to the monetary value of the margin that we in practice apply. This upper limit is €15 gross margin per 750ml bottle, which corresponds roughly to what would be generated from a wine that sells for €50 excluding VAT. Any profit that we make above this limit is reinvested in social and environmental projects. In other words, our profitability is based on the basic concept that we would ideally sell no wines at a price higher than €58.00 incl. VAT in Germany (with 16% VAT).

This is obviously an arbitrary figure, but given that it is very unusual at even the highest quality levels for a bottle of wine to cost more than €20 to produce (unless the owners of the domain have borrowed huge amounts of money to buy it, in which case the financial benefits of the excessive price of the wine will in effect be going to their lenders), an upper final retail price of €50 excl. VAT in fact leaves room for a generous margin for both producer and reseller, as long as there are not too many middlemen in the value chain. Of course, we have ignored the pernicious concept of opportunity cost in this calculation, which is the money that the owners of the estate could earn if they sold it at its current market value and reinvested these proceeds elsewhere. The simple reason for this omission is that a significantly higher ex cellar door price based on the inclusion of opportunity cost would indicate that the value of the estate is the result of precisely the economic imbalances that we are seeking to reduce. In other words, inflated product prices lead to high capital opportunity costs. Therefore, where the former is unjustified, the latter must be as well.

Here is an example of how this policy works in practice, assuming a pre-tax resale price of 100/70 of the purchase price and a retail price of €116 per 750ml bottle incl. VAT.

Retail price €116
Retail price excl. VAT €100
Purchase price €70
Margin €30
Margin at €50 retail price excl. VAT kept as gross profit €15
Excess margin invested in projects €15

At this point our customers might wonder why we do not simply sell our wines at a lower price, thereby giving the end-consumer more value. The answer is firstly that in doing so we would be undermining the ability of our competitors to make a living from their activities, and secondly that many prestige domains do not allow resellers to sell their wines under the market price.

We might then be asked why we do not restrict our portfolio to wines that do not cost more than €50 excluding VAT. The answer to this question is that in doing so we would relinquish the opportunity not only of making a fair profit on these highly desirable wines, but also, and more importantly, of redressing in a very small way imbalances in the global economy by redistributing excess profits to the benefit of both underprivileged fellow humans and the planet. We therefore hope to sell as many expensive wines as possible, as the more we sell, the more excess profits that would have been channelled into the bank accounts of the rich we can invest in social and environmental projects.

Of course, this system of redistribution ultimately robs Peter to pay Paul, in the sense that it presupposes the original injustice that we seek in part to correct, but that is still better than leaving the total sum of the prestige wine trade’s ill-gotten gains in the hands of the global elite. When a bottle of Lafite Rothschild costs €50 excl. VAT retail en primeur, our policy will have become superfluous, not least because this situation would be one of the most reliable indicators of a radical reduction in global economic equality. Until then, we will continue to pursue it.

  1. We strive towards a fair distribution of the value created in the product supply chain. We seek to create long-term relationships with all our partners, and we rely on the strength of this relationship and of our shared principles to create a fair distribution of the benefits of our business interactions. We provide our customers with the best possible quality to price ratio without compromising our agreements with and responsibilities towards other actors in the value chain.

With regard to the wider economic context of the industry that we are working in, through our policy of redirecting excessive profits to social and environmental projects, we acknowledge the unfair share of wealth that the prestige wine sector captures, and we seek to reduce this imbalance. Furthermore, we fund these projects not only with the excessive profits from prestige wines, but with all the profits that our company makes above and beyond a modest remuneration for the hours worked by the owners of the business plus any necessary contributions to the company’s financial reserves. No return is taken on the private capital invested by the owners in the business. We thus in effect run Wein Werte as a non-profit organisation, and in this respect we have been inspired above all by the example set by Christian Kroll at Ecosia.

  1. and 4. We currently have no employees. As soon as we do, we will establish policies to ensure their loyalty and engagement by providing them with fair remuneration and a working environment in which they are both physically safe and able to gain personal and social fulfilment.
  2. This text sets out our equitability policies and the measures currently in place to fulfil them. On our home page we publish our most recent quarterly accounts and a list of key social and environmental performance indicators. These show how much we have invested in social and environmental projects in the current year and, as an indication of the efficiency of our equitability efforts, what proportion of sales this amount represents.
  3. We are in the process of developing an equitability checklist and a self-declaration form for our partners. We will publish our form on this website, and we will encourage our partners to publish their forms on theirs and/or on ours. The planned date for publication of our self-declaration is the end of December 2020.
  4. We are constantly seeking to make our processes more efficient, without compromising any of our equitability commitments. We also pass on suggestions to our partners for more quality and more efficiency in the services and/or products with which they provide us. A further feedback loop runs through our customers, and we value their suggestions and recommendations very highly. In this way we hope to ensure both the long-term competitiveness of our prices and the satisfaction of our partners and clients.
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