Minimal inhibitory concentrations (MIC) (v/v) determined for essential oils of thuya and Atlas cedar woods by bioassay conducted on malt-agar medium on wood-decaying fungi.
\r\n\t
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Coli, Bacillus Subtillis, Gadolinium as Burnable, Selective Separation, F-Block Elements, Adsorption, Kinetics",numberOfDownloads:null,numberOfWosCitations:0,numberOfCrossrefCitations:null,numberOfDimensionsCitations:null,numberOfTotalCitations:null,isAvailableForWebshopOrdering:!0,dateEndFirstStepPublish:"September 16th 2020",dateEndSecondStepPublish:"October 14th 2020",dateEndThirdStepPublish:"December 13th 2020",dateEndFourthStepPublish:"March 3rd 2021",dateEndFifthStepPublish:"May 2nd 2021",remainingDaysToSecondStep:"3 months",secondStepPassed:!0,currentStepOfPublishingProcess:4,editedByType:null,kuFlag:!1,biosketch:"Dr. Awwad edited a book for Lanthanides and published more than 25 papers about the elements at f blook, especially Gadolinium. He is a supervisor for 5 Master thesis in the field of Adsorption, removal, purification, kinetics, and modeling of Gadolinium.",coeditorOneBiosketch:"Dr. Shati has a lot of applications about the utilization of gadolinium enhancement. He has published papers about the inhibition of Gadolinium ion for the giant stretch‐activated channels of E. coli and Bacillus subtillis and in use for Kupffer cell depletion ( inactivation).",coeditorTwoBiosketch:null,coeditorThreeBiosketch:null,coeditorFourBiosketch:null,coeditorFiveBiosketch:null,editors:[{id:"145209",title:"Prof.",name:"Prof Nasser",middleName:"S",surname:"Awwad",slug:"prof-nasser-awwad",fullName:"Prof Nasser Awwad",profilePictureURL:"https://mts.intechopen.com/storage/users/145209/images/system/145209.jpg",biography:"Dr. Nasser S. Awwad has a PhD in inorganic and radiochemistry (2000) from Ain Shams University and a post-doctorate degree at Sandia National Labs, New Mexico, USA, 2004. Nasser Awwad was an Associate Professor of radiochemistry in 2006 and Professor of inorganic and radiochemistry in 2011 at the Egyptian Atomic Energy Authority. He has been a Professor at King Khalid University, Abha, KSA from 2011 to now. He has published two chapters in the following books ”Natural Gas - Extraction to End Use” and 'Advances in Petrochemicals”. He has been the editor for six books about: uranium, new trends in nuclear sciences, dyes in industry and lanthanides, and nuclear power plants. In addition, he has published 94 papers in ISI journals. He supervised 4 PhD and 16 MSc students in the field of radioactive and wastewater treatment. He participated in 25 international conferences in South Korea, USA, Lebanon, KSA, Egypt and India. He participated in 6 large projects with KACST at KSA and Sandia National Labs at USA on the conditioning of radioactive sealed sources and wastewater treatment. He has been the leader of many research groups about the utilization of nanomaterials for treatment of inorganic and organic pollutants and has also been a member of some research groups. He is a member of the Arab Society of Forensic Sciences and Forensic Medicine and is a member of the Egyptian Society for Nuclear Sciences and its applications. He is on the editorial board of the Journal of Energy and Environmental Research and Technology. He is a rapporteur of the Permanent Committee for Nuclear and Radiological Protection at King Khalid University and a member of the Committee for the Development of International Cooperation Management at KKU.",institutionString:"King Khalid University",position:null,outsideEditionCount:0,totalCites:0,totalAuthoredChapters:"4",totalChapterViews:"0",totalEditedBooks:"3",institution:{name:"King Khalid University",institutionURL:null,country:{name:"Saudi Arabia"}}}],coeditorOne:{id:"330586",title:"Dr.",name:"Ali",middleName:"Abdullah",surname:"Shati",slug:"ali-shati",fullName:"Ali Shati",profilePictureURL:"https://intech-files.s3.amazonaws.com/a043Y00000cA8q1QAC/Co2_Profile_Picture-1599648357298",biography:"Prof. Dr. Ali Abdullah Shati, a Saudi Biologist, graduated with BSc in Biology from King Saud University, Kingdom of Saudi Arabia in 1998, and MSc in Environmental Sciences from Essex University, the United Kingdom in 2004. 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His research interests focus on studying the physiological and molecular changes invertebrates as a result of various environmental impacts, in addition to the cytotoxicity of Nano-materials, the therapeutic and protective effect of different bio-extracts, and antioxidant research, He has published more than eighty-seven online papers in international journals indexed in Clarivate Analytics and Scopus, with high impact factor. He has supervised MSc students specialized in the Physiological and Molecular effects of various components on vertebrate's functions. He participated in fourteen international conferences in the United States, United Kingdom, Canada, Australia, New Zealand, and Brazil. In the last ten years, he has awarded several research grants from the deanship of scientific researches at King Khalid University, as a principal investigator. 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Venkateswarlu",coverURL:"https://cdn.intechopen.com/books/images_new/371.jpg",editedByType:"Edited by",editors:[{id:"58592",title:"Dr.",name:"Arun",surname:"Shanker",slug:"arun-shanker",fullName:"Arun Shanker"}],productType:{id:"1",chapterContentType:"chapter",authoredCaption:"Edited by"}}]},chapter:{item:{type:"chapter",id:"67952",title:"Durable Woods and Antifungal Activity of Their Essential Oils: Case of Tetraclinis articulata (Vahl) Masters and Cedrus atlantica Manetti",doi:"10.5772/intechopen.87214",slug:"durable-woods-and-antifungal-activity-of-their-essential-oils-case-of-em-tetraclinis-articulata-em-v",body:'Tetraclinis articulata (Vahl) Masters (Cupressaceae) and Cedrus atlantica Manetti (Pinaceae) are threatened species [1] endemic to the western Mediterranean areas [2]. Moroccan T. articulata and C. atlantica populations occupy an area of about 500,000 and 130,000 ha, respectively, and satisfy many socioeconomic needs of the human riparian populations for various products. But in the last decades, forests of T. articulata were exposed to a significant degradation due to a strong demand by the craft sector for timbers [2, 3]. Even if C. atlantica forest provides approximately annually 90,000 m3 of softwood logs intended for sawing and veneer, they also suffer the same fate [4]. Both species are famous for their durable and noble timbers. T. articulata root burl provides good quality woody material (hard, homogeneous, and fine grained) with remarkable flecks and an aesthetic aspect very appreciated in cabinetry and marquetry uses [3]. Laboratory tests showed that T. articulata trunk wood and its root burl are durable against wood-decaying fungi [5, 6] as well as C. atlantica heartwood [6, 7, 8].
A lot of waste as slabs and sawdust results from wood processing of those species timbers. However, only sawdust accounts for about 8% of C. atlantica sawn timber that contains appreciable amounts of extractives [9, 10, 11, 12]. Many recent works highlighted that essential oils (EOs) extracted from T. articulata and C. atlantica woods possess numerous biocidal activities [12, 13, 14, 15]. Nevertheless, only few attempts to investigate the capability of EOs to protect woods against fungi decay have been previously undertaken [16, 17, 18]. The relationship between natural durability of T. articulata and C. atlantica woods and the bioactivity of their EOs was not yet established. Therefore, the present study is devoted to investigate this relationship.
Trunk wood and root burl samples of T. articulata were collected from sweepings of craft processing workshops in Khemisset Region (central plate of Morocco), while samples of C. atlantica sawdust were collected from wood sawmill in the region of Azrou (Middle Atlas Mountains of Morocco). Sawdust was then sieved into particles of 1 mm size and triplicate samples of 250 g were subjected to hydrodistillation for 4 hours to obtain pure essential oils (EOs).
The chemical analysis and component identification of EOs were performed by gas chromatography (GC-FID) and by gas chromatography coupled with a mass spectroscopy (GC-MS). The identification of EO components was achieved by comparison of their retention indices (RI) relative to (C8-C22) n-alkanes with those of known compounds, and by comparison of similar mass spectra using Wiley/NBS mass spectral library of the GC-MS data system and other published mass spectra [19]. The percentage compositions of samples were calculated according to the area of the chromatographic peaks using the total ion current.
Bioactivity of EOs extracted from T. articulata and C. atlantica woods was assessed in bioassay against the following wood-decaying basidiomycetes fungi: Gloeophyllum trabeum (BAM Ebw.109 strain), Oligoporus placenta (FPRL. 280 strain), Coniophora puteana (BAM Ebw. 15 strain), and Trametes versicolor (CTB 863 A strain). Fungi strains originated from the mycological collection of the Laboratory of Botany, Mycology and Environment, Faculty of Sciences in Rabat, Morocco.
Bioassays of EOs were performed by direct contact of fungi strains on agar medium according to the method reported by Remmal et al. [20]. Oils were first diluted in a sterile solution of tap water-agar at 0.2% in order to obtain a homogeneous mixture, then distributed in test tubes containing 13.5 ml of sterilized malt-agar medium (20 g/l malt extract and 15 g/l agar), and kept at 45°C in a water bath. To obtain the final oil concentrations in the culture medium ranging from 1/250 to 1/5000 v/v, aseptic volumes of 1.5 ml of different dilutions were then added to those tubes before pouring EO-medium mixtures into Petri dishes. Additional control dishes containing only 13.5 ml of culture medium and agar solution at 0.2% (SA) alone were also prepared. Inoculation of Petri dishes was made by two 0.5 cm2 fragments of 10 days old fungal culture in malt-agar. For each treatment, three repetitions were prepared and incubated in the dark for 7 days at 22°C. At the end of each bioassay, minimal inhibitory concentration (MIC) [21] was determined for each fungus.
According to the bioassay conducted on oils extracted from T. articulata and C. atlantica woods, a significant inhibitory effect on the four tested wood-decaying fungi was observed (Table 1) with different levels of inhibition. T. articulata root burl wood EOs showed, however, a strong inhibitory action against those fungi strains with oil dilutions over 1/4000 v/v. G. trabeum fungus was the most sensitive to the inhibitory effect of this essential oil since it was inhibited by concentrations between 1/5000 for T. articulata root burl oil and 1/1000 v/v for Atlas cedar oil. O. placenta was the most resistant strain since its growth inhibition was not reached until 1/400 concentrations for C. atlantica oil and 1/800 for T. articulata trunk wood oil (Table 1).
Essential oils fungal strains | Thuya trunk wood | Thuya root burl | Atlas cedar wood | |
---|---|---|---|---|
Specific MIC | T. versicolor | 1/1000 | 1/4000 | 1/800 |
C. puteana | 1/1000 | 1/4000 | 1/400 | |
G. trabeum | 1/1200 | 1/5000 | 1/1000 | |
O. placenta | 1/800 | 1/5000 | 1/400 | |
Global MIC | 1/800 | 1/4000 | 1/400 |
Minimal inhibitory concentrations (MIC) (v/v) determined for essential oils of thuya and Atlas cedar woods by bioassay conducted on malt-agar medium on wood-decaying fungi.
Previous studies by our team [5, 8] showed that T. articulata and C. atlantica woods were classified as very durable to durable (DC 1 and 2) and means of mass loss of test specimens was below 5.20% compared to those of Scot pine wood (control) (40.70%). According to their durability indexes (X) determined by NF EN 350-1 and CEN/TS 15083-1 standards [22, 23] and the biological risks defined by EN 335-2 standard [24], natural durability levels of those woods against wood-decaying fungi allow them to access high-risk classes of biological attacks 4 and 5 for an end-use without preservative treatment regarding decay fungi [25, 26]. Compared to similar studies on Moroccan coniferous woods (Figure 1), the natural durability of native Atlas cedar wood is similar to that of C. atlantica heartwood (DC 1 and 2) originated from a south Italian plantation [7], whereas Pinus halepensis and P. pinaster woods were considered as less durable (DC 4) [6, 27]. Generally, pine woods contain less active extractives than those of Cupressaceae. Adamopoulos et al. [28] reported that the weakness of natural durability of both heartwood and sapwood of Pinus leucodermis is related to low presence of bioactive extractives that can inhibit the brown-rot fungus, Coniophora puteana.
Natural durability of studied woods against wood-decaying fungi.
In addition, other works by our team [8, 29] revealed that EOs of C. atlantica wood is dominated by ketones (52.05%) and alcohols (26.58%), while those of thuya are dominated by alcohols (about 55–78%) and sesquiterpenes (13–22%) (Table 2). Major components of C. atlantica oil are, respectively, E-γ-atlantone, E-α-atlantone, 5-isocedranol, 9-iso-thujopsanone, cedranone, Z-α-atlantone, cedroxyde, and 14-hydroxy-δ-cadinene [8] (Table 3).
Chemical group | Thuya trunk wood | Thuya root burl | Atlas cedar wood |
---|---|---|---|
Alcohols | 54.80 | 78.50 | 26.60 |
Esters | — | — | 5.70 |
Ketones | 1.40 | 0.30 | 52.00 |
Oxydes | 0.90 | 0.60 | 3.40 |
Terpenes | 31.20 | 14.10 | 8.00 |
Others | 1.75 | 1.15 | — |
Global | 90.04 | 94.65 | 95.69 |
Chemical groups (in%) identified, by GC-MS, in essential oils of Tetraclinis articulata and Cedrus atlantica woods.
Chemical group | Component | KI | TTW | TRB | ACW |
---|---|---|---|---|---|
Alcohols | Thymol | 1290 | 8.20 | 39.80 | — |
3-Tert-butyl-4-methoxyphenol | 1491 | 16.50 | 24.70 | — | |
Turmerol | 1578 | — | — | 3.45 | |
Cedrol | 1596 | 14.80 | 6.35 | 1.90 | |
α-Acorenol | 1633 | 4.20 | 1.10 | — | |
β-Acorenol | 1637 | 4.15 | 1.30 | — | |
Himachalol | 1647 | — | 0.30 | 2.45 | |
5-Isocedranol | 1669 | — | — | 11.70 | |
β-Santalol | 1741 | — | — | 2.00 | |
E-Z-Farnesol | 1742 | — | — | 1.10 | |
Totarol | 2314 | 2.60 | 1.50 | — | |
Esters | Hexyl isobutyrate | 1150 | — | — | 1.38 |
Benzyl benzoate | 1762 | — | — | 1.16 | |
Z-β-Santalol acetate | 1823 | — | — | 1.15 | |
Z-Ternine | 1838 | — | — | 1.25 | |
Ketones | Camphor | 1143 | 0.11 | — | 1.28 |
Cedranone | 1620 | — | — | 4.13 | |
9-Iso-thujopsanone | 1637 | — | — | 4.45 | |
Deodarone (Dihydro-2,2,6-trimethyl-6-(4-methyl-3-cyclohexen-1-yl)-2H-pyran-3(4H)-one) | 1694 | — | — | 1.07 | |
E γ-Atlantone | 1701 | — | — | 19.73 | |
Z α-Atlantone | 1713 | — | — | 4.02 | |
E α-Atlantone | 1773 | 0.74 | — | 16.86 | |
Oxides | italicene oxide | 1538 | 0.91 | 0.59 | — |
Cedroxide | 1704 | — | — | 2.38 | |
Terpenes | α-Cedrene | 1409 | 17.59 | 7.77 | — |
β-Cedrene | 1434 | 4.00 | 1.80 | — | |
α-Himachalene | 1447 | — | 1.07 | — | |
Thujupsadiene | 1462 | — | 1.10 | — | |
α-Acoradiene | 1464 | 2.33 | — | — | |
β-Acoradiene | 1465 | 2.26 | — | — | |
β-Himachalene | 1499 | — | 1.25 | 0.79 | |
α-Dehydro-ar-himachalene | 1511 | — | — | 1.13 | |
γ-Cadinene | 1513 | 1.18 | 0.31 | ||
γ-Dehydro-ar-himachalene | 1529 | — | — | 1.57 | |
14 Hydroxy-murolene | 1775 | — | — | 1.00 | |
14 Hydroxy δ-cadinene | 1799 | 1.21 | 0.24 | 1.94 |
The main components (in%) identified, by GC-MS, in essential oils of Tetraclinis articulata and Cedrus atlantica woods.
KI, Kovàts Index; TTW, Thuya Trunk Wood; TRB, Thuya Root Burl; ACW, Atlas Cedar Wood.
EOs of T. articulata woods are rich in thymol, 3-tert-butyl-4-methoxyphenol, cedrol, and α-cedrene (Table 3). The oil of T. articulata trunk wood contains phenols such as α- and β-acorenol, cedrol, and totarol, along with terpenes as α-cedrene that can protect this wood from fungi decay. The strong inhibitory effect of T. articulata root burl oil is probably due to its oxygenated fraction rich in phenols as thymol, 3-tert-butyl-4-methoxyphenol, and cedrol. A previous work already highlighted this significant antibacterial activity at low concentrations [30]. Abundance of tropolones and phenols in Cupressaceae woods may explain their high natural durability grades against wood-decaying fungi as reported by Haluk and Roussel [16] and by more recent works [13, 30, 31]. Early investigations found that thujaplicines (tropolones) of Thuja plicata possesses strong inhibitory effect against the wood blue stain fungi and many wood-decaying fungi [32].
Natural durability of C. atlantica wood can be correlated to bioactivity of its oils essentially rich in sesquiterpene ketones as atlantones [9, 14]. In the literature, African padauk (Pterocarpus soyauxii) medium-heavy heartwood manifests a remarkable decay resistance attributed to its specific extractive compounds [33]. Moreover, extractive compounds obtained from black locust heartwood were able to increase the native durability of European beech against wood-decaying fungi from class 5 (not durable) to class 3 (moderately durable) [34].
The strong antifungal activity of T. articulata root burl wood EOs is probably related to their alcohol fraction, rich in thymol and 3-tert-butyl-4-methoxyphenol, which confer them this significant bioactivity. The combined action of two phenolic compounds, such as thymol and carvacrol, was previously reported [17, 35]. Action of phenolic compounds on fungi is primarily based on the inhibition of fungal enzymes containing SH group in their active site [36, 37]. The antifungal activity of the EOs of C. atlantica wood can be correlated to its sesquiterpene ketones, which are mainly atlantones (about 40.61%). Bioassays conducted with pure α-atlantones extracted from Decalepis hamiltonii revealed great inhibitory activity against pests and molds [38]. In our study, alcohols present in C. atlantica oil in significant amount (more than 26%), such as isocedranol, tumerol, himachalol, and cedrol, may also be involved in the inhibitory effect of this oil. Other compounds such as cadinenes (monoterpene hydrocarbon) could also have a great antimicrobial property [39]. However, synergistic action of two or more components of essential oils extracted from thuya and Atlas cedar woods can also be involved in the observed bioactivity reported in our study.
Antifungal activity of several thyme species oils was recently tested successfully against wood-decaying fungi especially those of Thymus bleicherianus [17]. Furthermore, EOs of T. articulata root burl showed an antibacterial activity two to six times greater compared to that of reference antibiotic and were more effective on Staphylococcus aureus (Gram+) and Escherichia coli (Gram−) with significant bacteriostatic and bactericidal effects [40]. Regarding inhibition mechanisms of active compounds of EOs, it was reported that volatile alcohols can act on both lytic and synthetic enzyme pathways and growth inhibition consequently occurred after breaking off natural extension hyphae of fungi [41, 42].
Active compounds contained in oils of T. articulata and C. atlantica woods, which were successfully tested against wood-decaying fungi, may protect and ensure good natural durability levels for these woods ranging from very durable (DC1) to durable (DC2) classes.
Findings of this study could allow us to consider recovering wastes from T. articulata and C. atlantica wood processing for the extraction of bioactive oils and use them as biocide especially in preservative treatment of less-durable woods such as those of pines. Also, these results are in favor of more protection for these threatened species and for the rehabilitation in their natural environment. Natural compounds of T. articulata and C. atlantica oils can then replace the use of current petrochemical compounds that are becoming more and more criticized for their harmful effect on human health and the environment.
The present study has clarified the relationship between the natural durability of T. articulata and C. atlantica woods and the antifungal activity of their EOs. According to the bioassay conducted on those oils, a significant inhibitory activity was obtained on the four wood-rotting fungi tested, mainly for oils extracted from T. articulata root burl. Stronger inhibitory effect was then reached by dilutions over 1/5000 v/v for this oil rich in phenols. The durability classes of T. articulata and C. atlantica woods positively correlated with bioactivity of their oils against the three wood-decaying fungi specified by the CEN/TS 15083-1 standard. Active EOs extracted from wastes of these woods can be valorized as wood-preservative treatment.
This project is supported by Forest Research Center in Rabat (High Commission for Water and Forests and Fight against Desertification) in collaboration with Faculty of Sciences in Rabat (Mohammed V University), Morocco.
After the collapse of the Soviet Union in 1991, the whole food chains in Armenia and other Eastern European countries experienced an economic breakdown due to the beginning of the transition process. Problems occurred at the beginning of the transformation process. After land privatisation, and the liberalisation of prices and trades, the prevailing structures did not fit to the open market [1].
\nDisruption and instability in the supply chain from farmers to retailers had a negative impact on qualities and quantities. At the same time, changing consumer demands forced retailers and processors to adjust and improve the structure of the food chains to meet consumer demands and to overcome the supply problems. The agricultural policy could not provide frameworks and institutions fast enough to restructure the food commodity chains to guarantee stable and higher qualities as well as quantities. As a consequence, retailers and processors were engaged mainly in the approach of private-driven vertical coordination with partners along the supply chain to overcome the problems of supply disruption and minor quality [2, 3]. These structural changes and their consequences are still present today.
\nTo adapt to the new environment, the Yerevan Brandy Company (YBC), the producer of Ararat brandies, was acquired by the international Pernod Ricard Group with French origin in 1998, shortly after the collapse of the Soviet Union.
\nInvestments of foreign companies can cause structural changes in the agri-food sector. The requirements of the newly established procurement systems demand that suppliers can guarantee both disruption-free product flows and delivery of products of a certain quality, thus forcing domestic producers to keep up with quantity and quality demands to prevent the import of products [4].
\nLiterature on the influence of foreign direct investment (FDI) on transition economies mentions several positive effects of FDI such as follows: (1) it facilitates economic growth [5, 6], (2) it reduces poverty [7, 8], and (3) it can induce technology transfer, technical innovation as well as enterprise restructuring [7]. Dyker points out that those investing companies have to impose their corporate organisational structures on subsidiaries or partners [9]. Those organisational structures are based on the disposition of hierarchies, lines of responsibility, the use of intra-firm e-mail systems, etc. Hanf et al. show the influence that foreign investors have taken in the development of the Armenian wine and brandy business. They use different Armenian companies, among others, the YBC [10].
\nThis is why we take the YBC as a case study to show exemplarily how an international company manages to integrate local smallholders (grape growers) into their national and international value chains by successfully installing a procurement system by using different measures of vertical coordination.
\nThe case of the YBC in the Armenian brandy industry can be seen as a benchmark example for other countries and their agricultural sectors where the structure of smallholders is still prevailing, too. Based on the case study, we derive implications for the participants.
\nThe chapter is structured as follows. To show the theoretical background on integration of smallholders into value chains, the next chapter gives an overview about vertical coordination, and vertical coordination mechanisms, i.e., contracting in productive partnerships.1 In the third chapter, background information on the Armenian wine industry is provided. The fourth chapter presents the case study results from the Yerevan Brandy Company. Finally, concluding remarks are offered.
\nIn everyday business, companies face decisions about the synchronisation of successive stages in the marketing channel from producers to consumers. Traditionally either spot market transactions or integrated processes in companies have been used. The spot market and vertical integration can be considered as classical modes, which continue to be applied in nowadays businesses.
\nThe spot market represents the classic buy (on the market) decision, where the company organises the transaction directly on the market. That means, the company buys, for example, an input on the market place. In this case, individual economic actors follow their self-interest and focus on short-term, opportunistic exchange relationships, in which the individual actors can preserve their independence and high flexibility [12].
\nVertical integration is considered to be the make (inside the company) decision, which means that a company integrates a successive stage, which can be an upstream or a downstream process. Hence, vertical integration combines different levels of the value chain within one firm [11]. Internal, intra-firm transactions replace various market transactions. This can be achieved either by forming a subsidiary or by a merger or acquisition. In vertically integrated firms, management directives dictate the transfer of resources across stages [2].
\nThe classic make vs. buy decision has been researched quite well. Based on Coase’s work about boundaries of a firm that make the difference whether companies choose to make or buy the product [13], Williamson [14] was one of the first to speak about hybrid governance structures. Based on the previous research made on the topic of hybrid coordination strategies and hybrid governance structures, Peterson et al. have highlighted the hybrid strategies and the nature of the so-called vertical coordination continuum. Depending on the type of vertical transaction, firms decide between the spot market, vertical coordination (productive partnerships) and vertical integration [12, 15] Vertical integration combines different levels of the value chain within one firm [11]. Internal, intra-firm transactions replace various market transactions. This can be achieved either by forming a subsidiary or by a merger or acquisition. In vertically integrated firms, management directives dictate the transfer of resources across stages [2].
\nVertical coordination can be described as the synchronisation of successive stages in the marketing channel from producers to consumers, leaving out spot market transactions, where the commodity exchange is only based on pricing. Productive partnerships, a kind of vertical integration, are characterised by collaborations of independent firms, in which the partners share interests as well as knowledge and resources to improve the outcomes of the supply chain activity. Productive partnerships can be based on specification contracts (production and marketing contracts2), relational-based alliances and equity-based alliances [12]. It can take different organisational forms possible: from loose or tacit agreements to stable, long-term and trust-based cooperation contracts [14, 17].
\nOne can assume that the higher the priority to secure quality and/or quantity of raw materials, the stronger is the shift from spot market transactions towards advanced vertical coordination mechanisms [18]. This is closely related to the intensity of control, which increases along the continuum (Figure 1). With spot markets, the intensity of control is low, as exchange partners decide on whether to realise the transaction or not. With specification contracts, the control increases from that related to spot markets. As in relation-based alliances, involved firms share risks and benefits; coordination control arises from mutual interests and decision-making. In equity-based alliances, the intensity of control is even higher, because partners are key stakeholders and control and decision-making are decentralised among the ownership parties. Examples for equity-based alliances are cooperatives and joint ventures [12, 15].
\nFramework vertical coordination (based upon [12]).
The key for all types of vertical coordination is contracting. Vertical coordination aims to overcome the disruptions in supply and inferior-quality products. However, the key actors (retailers and processors) find themselves constrained not by their capital capacity but by that of other participants along the chains on which they depend for critical inputs. This is because traditional lending institutions such as banks do not give credit to enhance the inter-firm product flow. Contract farming can be defined as an agreement between legally independent firms for the production of a commodity or product for a future market [16]. Götz et al. state: “An essential element of contract farming is the provision of some degree of assistance to the farmers, with the aim of increasing supply quantity or quality, or reducing seasonality” ([19], p. 364). Overall, farm assistance can include input supply programmes, investment assistance, trade credits, bank loan guarantees, extension and management advisory services, etc [4]. Thus, farm assistance programmes must be accompanied by appropriate governance mechanisms.
\nProduction contracts (resource-providing contracts) are predominantly used to address quality concerns [20]. Developed markets have various consumer segments with differentiated demands. In production contracts, the contractor provides, on the one hand, a market for the goods and, on the other hand, engages in many of the producer’s decisions and retains ownership of essential production inputs to secure higher-quality products to attend to the differentiated demands of the consumer segments [21]. However, when the higher-quality products become standardised (e.g. IFS or GlobalGAP certified) and there are no supply difficulties and/or the overall product quality is not complex, mainly marketing contracts will be used.
\nMarketing contracts address only the issue of supply disruptions by private contractual initiatives [22, 23]. The contractor usually provides a market for the goods but—on the contrary to production contracts—engages in few or none of the producer’s decisions. In marketing contracts, the contractor and producer may negotiate the delivery schedule, pricing method and product characteristics.
\nFor both types of contracts, Swinnen states that “these private contract initiatives can be quite substantial” ([2], p. 1). Empirical evidence indicates that they include farm management assistance, extension services, quality controls, farm input assistance programmes, trade credits and even bank loan guarantees. The programmes generate essential improvements in the credit situation of the farms, as they contribute directly to improved access to finance (e.g. through trade credit) and indirectly as they improve contracting farms’ access to loans from banks or external financial institutions (through loan guarantees, enhanced farm profitability and improved future cash flows). Summing up, there are different factors influencing participants towards contract arrangements.
\nThe main reason why processors enter into contracts includes the control over input supply. Further, processors use contracts to achieve uniformity and predictability to suit consumers, but they also benefit from lower costs in processing, packing and grading [24, 25, 26, 27].
\nThe main motivating factors for farmers to enter into contracts are the following, as reported by the USDA (1996): (I) income stability (to reduce risk compared to other ways of selling on traditional marketing channels); (II) improved efficiency (management decisions are transferred to the farmers); (III) market security (entering the contract provides a certain security in that the product will be sold if it meets with the requirements); and (IV) access to capital (contractor often provides inputs for farmers, which reduces the usage of credits) [28].
\nHowever, two reasons for the breaching of contracts have been detected. First, a lack of trust in business relations between producers and their buyers, as in transition countries, many buyers experienced that businesses were not able to pay. According to Ring and Van de Ven, trust is not built based on contracts; it rather emerges over time due to the commitment of assets or satisfactory performance [29].
\nSecond, they may not be able to fulfil a contract because they cannot access basic production factors [23]. Contract enforcement is still an important problem. In the World Bank study, the enforcement problem was regarded as one of the most important barriers for successful vertical coordination [4]. However, in some cases, public enforcement institutions are not fully functioning. Furthermore, since transition countries are often described as having limited social capital, there is also an absence of societal enforcement mechanisms (e.g. peer or community pressure, a sense of mutual obligation and an overall sense of distrust). Thus, to improve the farmer’s access to basic production factors (capital and specific inputs) and know-how/information (knowledge and experience), means have to be worked out and put down in writing, i.e., contracts have to be signed [4].
\nThe change to modern procurement systems is one reason for initiating vertical coordination and, therefore, chain-based financing. The requirements set by these systems favour large-scale farm production for two purposes: (1) significantly fewer large suppliers are needed, and hence the complexity of the system is lowered, which decreases transaction costs, and (2) it is more costly to assist small farms than larger farms [4]. As a result, many retailers and processors would like to see growth in farm size.
\nHowever, retailers and processors are (still) forced to include smallholders. Smallholders are essential for ensuring the required quantities in some countries. Particularly in labour-intensive sectors, small-scale farming has significant cost advantages. If the (farm) suppliers get too large, they begin to recapture some power. Since larger farms have the feeling that they can survive just by themselves, it may be more likely that smaller farmers join horizontal collaborations and ultimately create much larger units. The degree of market development is essential for the degree of vertical coordination. The less a market and its institutional environment are developed, the less likely it is that a complex system of vertical coordination will emerge (where marketing contracts are dominant). The more developed a market (i.e. the greater the demand for higher-quality products), the higher the degree of vertical coordination will be, and production contracts are favoured. These contracts vary in control allocation and risk transformation across stages.
\n\nFigure 2 sums up the elements of contracting in productive partnerships.
\nContracting in productive partnerships.
During the communist era, the satellite countries were divided to focus on the production of particular products. Therefore, Armenian table wine production was shifted mainly to brandy production, which led to a significant change in the Armenian wine culture. Other countries, such as Georgia and Moldova, were focusing on wine production, which preserved the wine culture within these countries [30].
\nThe production area has gone through a tremendous decline after a very peak in 1985 with 35,000 ha (~88.4 million litres). During the Soviet times, Armenia processed more than 200,000 tons of grapes mostly for brandy, a little bit of wine and sparkling wine. The major part of the production was consumed in Russia and the empire of the Soviet Union. Especially the anti-alcohol campaign in 1985 initiated by Michail Gorbatschow had an enormous influence on the area until the collapse of the Soviet Union in 1991 [31]. His goal was to improve the Soviet morale, to reduce the expenses and deaths due to high alcohol consumption. Many old vineyards were cut off or removed to reduce the production of alcoholic beverages [32]. Figure 3 gives an overview of the wine production from 1971 to 2017.
\nWine production (incl. base wine for brandy) in million litres in Armenia from 1971 to 2017 annually (based upon [33, 34]).
In the post-Soviet period, the grape-growing industry declined heavily in Armenia and other Soviet countries, and so did the wine sector due to changes in land privatisation. Other influencing factors were the absence of replantation of vineyards and the shift of some farmers to other more profitable crops [1]. Triggered by the lack of productivity, outdated machinery and issues in bulk purchasing systems, problems of adaption to new emerging markets occurred. All these issues led to a drastic rise in terms of vine cultivation costs [31, 35]. Some producers terminated their production ultimately or shifted to new industries. Since the early 1990s (with an interruption due to the financial crisis), the grape-growing sector slowly has recovered in terms of production numbers, mainly because of an upswing in the brandy sector.
\nFor brandy production, mainly white grape varieties, which can deliver higher yields and sugar levels (to obtain higher alcohol content for brandy making), are cultivated. Those varieties are less suitable for table wine production. Red varieties are mostly used for table wine production, where, in addition to sugar level, healthiness and other quality aspects such as ripeness, acidity and pH level are more important. Therefore, prices between red and white grapes are tremendously different—white grapes receive overall lower payments [1].
\nProducers purchase mostly grapes from small rural households with small average sizes of grape-growing units leaving the grape growers in a weak spot for bargaining. According to Hanf et al., most of the grape-buying agreements (besides YBC contracts) in the wine and brandy industry are based on quantity and trust [10]. They do not include quality criteria. Currently, informal, 1-year oral agreements are usually closed before harvest, but mostly repetitive during the years. The case of not observed contracts was also found in Armenia and has led to mistrust [10].
\nIn 2017, overall, 66,544 farmers cultivated grapes in an average plot size of 0.23 ha [36]. Due to their plot sizes, many smallholders cannot manage to finance their winemaking facilities and/or get access to the market to sell the high-valued final product. That is why farmers are heavily dependent on their grape sales to a few operating production plants such as wineries or brandy factories [1]. The dependence on grape sale for smallholders is still high, as it is the primary source of rural income.
\nThe YBC is (still) the leading brandy-producing enterprise of Armenia. Currently, the YBC has around 2500 private farmers delivering grapes to the company on a contract basis. It produces a range of brandies of different ages. The brand Ararat belongs to the company. The YBC exports up to 90% of the production to 33 countries worldwide. The primary export destination is Russia. The company comprises four production sites, in three grapes are received, the juice is fermented, and the interim product (wine) is distilled. In all four sites, the distillate is aged. The fourth site is in Yerevan, where the ageing, blending and bottling facilities as well as other divisions such as HR, IT, accountancy and administration are situated. The YBC has branches in Ararat, Armavir and Tavush.
\nTo gain insights into the production structures, operational procedures and business relationship to the smallholders which supply grapes to the company, a qualitative research approach was chosen. Qualitative research is dedicated to a limited number of cases that are investigated as precisely as possible. Therefore, face-to-face individual interviews were conducted with different industry participants. Besides representatives of the company itself, we interviewed smallholders (grape producers) and industry experts from politics and education as well as experts from foreign help organisations, e.g. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Center for Agribusiness and Rural Development (CARD), Centre for the Promotion of Imports (CBI) from developing countries, etc. Additionally, we interviewed the director of the Vine and Wine Foundation of Armenia, who represents all grape growers and processors in the industry. Regarding the company’s perspective, we interviewed the heads of grape purchasing and quality control at the YBC and two of the YBC agronomists, who work directly together with the farmers in the vineyards. Moreover, we conducted interviews with 15 smallholders who have a contract with the company. To cover all production sites of the YBC, we have interviewed five farmers from each region. Some of the farmers have worked with the YBC for many years, and others have just recently started the collaboration. Interviews are based on a semi-structured interview guideline and were carried out by the authors personally. The interviews took place between May 2018 and January 2020. The interviews were conducted in Armenian and then translated into English to guarantee full exploitation of information.
\nFor the qualitative analysis of the interviews, the approach of Gläser and Laudel [37] was used. They use a method called extractive qualitative content analysis. It is based on a structuring technique to extract relevant and complex information during the whole process. The process is completely open for new and unexpected information. After the information is extracted from the original text material (transcribed interviews), the information is processed and analysed.
\nThe case study of the YBC shows how an international company manages to integrate local smallholders (grape growers) into their national and international value chains by using means of vertical coordination in the form of contracting. Moreover, the case study demonstrates how a procurement system can be installed successfully in a weak institutional setting. The YBC was the first company in Armenia to introduce the contracting system between the grape growers and processors in 2003. Later it was recognised by the government as an exemplary one.
\nAfter the Yerevan Brandy Company became part of the Pernod Ricard Group in 1998, an internal restructuring process has taken place to tackle the issues of the brandy industry and to align them with the international standards of the markets. Main changes were carried out in infrastructure, refurbishment, huge investments specifically in winemaking facilities and distilleries were made, but the most important changes were made in business management. The introduction of the first written, enforceable and long-term contracts changed the standards of the wine and brandy industry in Armenia.
\nThe main reason why the YBC entered into contracting was to ensure sustainable grape supply in terms of quantity. To secure the needed quantity, the company has to purchase all their grapes from independent grape growers, as the YBC does not possess a large area of own vineyards except for 0.5 ha of trial vineyard. The company is forced to include smallholders to ensure the required quantity.
\nThe contract, which is set up between the company and the grape growers, contains specifically the grape quantity, variety, contract length, characteristics of the plot where the grapes are grown and a few quality criteria such as the healthiness of the grapes and the minimum sugar level. One interviewed grape grower mentioned, for instance: “It is required to deliver healthy grapes. The delivered quantity should contain the smallest possible amount of material other than grapes (e.g. leaves, stones). The contract also includes the grape varieties which can be delivered to the company”. The guaranteed quantity enables grape growers to plan in terms of income, input supplies and production. Through the long-lasting approach (3–5 years of contracting), trust is built between both parties. As one interview partner said: “For me it’s not only the profit that matters. Most important is the long-term collaboration with the YBC, as it gives me a feeling of stability”. The interviewed farmers stated that the duration of the long-term contracts in the past was even 7 years.
\nFurthermore, the contract includes terms of payments and delivery (e.g. number and time of payments). All types of contracts include minimal prices. The company philosophy aims to purchase grapes at a price above the farmer’s production cost, which is company-wide evaluated before harvest.
\nIn general, the price is announced in spring, which gives farmers the possibility to decide what to do. However, in some exceptional years (e.g. 2018) pricing details can vary, so the YBC announces the updated price before the harvest. As prices are included in the contracts and the contracts are legally enforceable, neither the farmer nor the YBC can negotiate on prices after the contract has been set up.
\nAn annex of the contract takes into account the potential deviation from the contractual agreements due to quantity fluctuations. In August, shortly before the harvest starts, the YBC agronomists visit the vineyards and calculate the potential yield. If weather conditions were unfavourable and the farmer could not obtain the required quantity (or, in turn, the yield is higher than expected), the agronomists and farmers can fix the required quantity according to the situation. A grape grower stated: “The yield is always predicted by the agronomists beforehand. Depending on year the quantities can be higher or lower, but it is negotiable by the contract annex”.
\nTen agronomists are working at the YBC doing quality control within the contracted vineyards to provide consultancy to the farmers. One of the farmers, for instance, said: “There was a time we were implementing old cultivation methods damaging our crop. In the beginning it was difficult to change our mind-set and follow the instructions of the YBC agronomists. Time proved the effectiveness of their consultancy so we became more open to their suggestions, even more motivated to find out new information, learn new cultivation technologies”. The consultancy includes good agricultural practices such as pruning, canopy management, spraying times with herbicides/pesticides, greenings, etc. Additionally, the agronomists also conduct monitoring to make sure that the expected grape quality and yield are going to be received. Based on the evaluation of the agronomists, the company subsidises smallholders with farm input assistance—if needed—with pesticides, herbicides and fertilisers. Another grape grower mentioned: “The company provides tools, sprayers, and pesticides at convenient prices. The payment for these inputs is directly taken out from the pay-out we receive for the delivered grapes”.
\nTo provide knowledge and new techniques, the YBC owns 0.5 ha of experimental plots for trials. For instance, in 2006 the company started some trials on their experimental plots together with the Pernod Ricard research centre, to demonstrate their grape suppliers that new cultivation methods in the grape production can be less time-consuming and more profitable.
\nFor smallholders, the main motivating factors to enter into contracts with the YBC are based on the benefits the farmers receive from working with the company. The YBC provides constant market access for grapes and gives the smallholders a guarantee of grape purchase. Farmers who do not breach the contract have a stable, reliable and almost predictable profit/income. The long-term relationship between the company and the farmers offers the opportunity to build trust between the contracting parties. This increases reliability between them and gives income security to the farmers. Besides some 1-year contracts, mostly 3–5 years of contract length (if there is no contract breach), are used. Another advantage is that grape delivery and payments are scheduled ahead; hence, no price negotiations of the YBC are possible if the farmer meets the contract requirement due to legal enforcement. The company provides farm assistance in the form of inputs (chemicals, fertilisers, etc.) and consultancy (pruning, irrigation, spraying times, dosage and frequency, etc.), if necessary. Farmers have access to knowledge and new techniques through the YBC. Grape producers also benefit from working with the YBC because they are delivering high-quality grapes for high-quality brandy production and thus benefit of the company’s reputation.
\nOne of the smallholders, for example, said as a concluding remark: “My father and I were practicing grape cultivation ever since land privatisation in Armenia. We had a small plot and low quantities. Slowly, gaining experience in this field, our expectations rose, and at the same time, the vineyard territories expanded, especially in the period when PR bought the YBC and we started collaboration. The organizational skills of the company positively surprised us from the very beginning. It was the first time in Armenia, when the farmer delivers the grapes without being stuck in huge queue. Everything was planned with a contract”.
\nIf it comes to the credit situation of the smallholders, the YBC is not helping them directly by providing loans, loan guarantees or trade credits. However, smallholders who work with the YBC over a longer period increase their chances to get a credit or loan at external institutions because of the fixed, long-term contracts with the YBC and, hence, a stable and enhanced profitability or improved future cash flows based on their past performances. This provides security to external institutions, improving the probability for smallholders to finance investments. One statement of an interviewed grape grower was: “Having larger vineyards, one always needs financial support to do investments in, for example, the trellising system (metal wires, etc.). Recently I expanded my vineyard and needed a bank loan. When applying for the loan the bank considers your current economic situation as well as where you are trading your product. Seeing our contract with a serious company such as the YBC, the bank never rejects the application”. In this setting, the YBC helps indirectly with access to capital.
\nIn case a farmer cannot deliver the settled quality and/or quantity of grapes to the YBC, the contract is breached. Additionally, the competition among smallholders to work with the YBC is huge, creating societal pressure to follow the restrictions.
\nThe contract design, as mentioned above, shows that the YBC is on the one hand working with marketing contracts to secure grape quantities and qualities for their brandy production. In general, the brandy production itself does not require highly differentiated grapes. Grape quality is mainly defined by a minimum sugar level and a minimum of the healthiness of grapes close to the harvest. However, the YBC sets up higher-quality restrictions. For instance, the company only purchases high-level healthy grapes (pest-free, disease-free, no foreign bodies, etc.) and certain grape varieties. The YBC does not purchase all grape varieties which can be used for brandy production.
\nIn contrast to that, grape production for wine is more differentiated, and quality is also defined by sugar and healthiness, but it includes further grape characteristics such as colour, tannins and sugar and acid ratios. However, if we consider on the other hand the provided farm input assistance in the form of chemicals, fertilisers, etc. and the consultancy, e.g., pruning, irrigation and spraying times, this depicts a high involvement during the production process. The YBC actively engages in many critical decisions within the production process, adding production contract features.
\nFurther interviews with some producers of table wine and experts from related fields such as education, politics and related fields/companies were conducted additionally. The interviews revealed that after the successful implementation of contracts in the brandy sector, many table wine producers followed. One of the experts stated: “Most of the time grape purchases for table wine were based on customary rearrangements. In that area a very well developed relationship, only one company has. This is Yerevan Brandy Company, having written contracts with their farmers. In this sense, Yerevan Brandy was a role model”. Another expert added that within the last years, a steady increase in contracts in the grape purchase was notable. Overall, the influence of the YBC in the brandy and wine sector of Armenia was shown.
\n\nFigure 4 sums up the results of vertical coordination mechanisms used in the productive partnerships of the YBC and the grape growers.
\nResults of vertical coordination in the YBC case study.
As a result of land privatisation which was part of the transition process, the average plot sizes of farmers are small. In 2017, overall, 66,544 farmers cultivated grapes in an average plot size of 0.23 ha. Due to their plot sizes, many smallholders cannot manage to finance their winemaking facilities and/or get access to the market to sell the high-valued final product, resulting in a high dependency of smallholders on grape sales to processors. In this context, the aim was to show how to integrate smallholders into national and international value chains by successfully installing a procurement system in weak institutional environments. In our case study of the Yerevan Brandy Company, we found that the company uses specification contracts as one type of vertical coordination, where independent individuals or firms of different stages in the value chain decide to collaborate. Currently, the YBC has around 2500 private farmers delivering grapes to the company on a contract basis. In order to avoid the disruptions in supply and inferior quality, the company introduced contracting from the early beginning. As a result, major disruptions in quantity and quality never occurred.
\nIn 1998, Pernod Ricard Group bought the Yerevan Brandy Company, the most important Armenian brandy-producing company known by its Ararat brandy. This was when the first contracts between producers and smallholders were introduced. The YBC serves as a role model for other post-Soviet countries with similar issues up to the present.
\nIntroducing the contracting system Yerevan Brandy Company reached a synchronisation of successive stages in the vertical marketing channel from producers to consumers to overcome problems of supply and quality. The YBC is taking different measures regarding vertical coordination. For example, the company uses mostly 3- to 5-year contracts, which include specifications of the grape quantity, variety, contract length, characteristics of the plot where the grapes are grown and a few quality criteria such as the healthiness of the grapes and the minimum sugar level. This shows that the YBC uses production contracts rather than pure marketing contracts. The company also offers farm assistance in the form of consultancy of YBC agronomists who closely work together with the farmers in the vineyards and in the form of input supply. Agronomists provide consultancy for viticultural practices, special viticultural issues, measures to take if yields are lower or higher than expected and input supply. The example of the YBC also shows that foreign direct investment not only brings capital, production facilities and technology transfers but also creates employment, provokes new job skills and offers management expertise.
\nThe business environment in Armenia should embrace and reduce the obstacles for foreign companies to make investments in Armenia. This opens the opportunity for domestic producers to benefit financially, knowledge- and technology-wise, access to export markets as well as in business management from foreign direct investments.
\nIn addition, the legal framework has to be improved to guarantee the enforcement of contracts and oral agreements. Especially grape growers, who are in a weak bargaining spot, would benefit from a legal improvement. Furthermore, NGOs or the ministry of agriculture could provide contract templates to reduce the numbers of oral agreements, as the legal setting for written contracts is more developed and enforcement exists.
\nThe study finds that the institutional arrangements used in Armenia in the form of contract farming as part of vertical coordination are beneficial for both the processing company and the smallholders. In these contracts, the farmers agree to produce and supply agreed quantities of grapes. The study could not find any disadvantage for smallholders in terms of contract farming. In contrast, farmers who have a contract with the YBC benefit of secured market access, secured and stable income, access to bank loans, education, farm assistance in the form of consultancy or input supply.
\nFor farmers who are not working with the YBC, a general recommendation is a higher financial support from the government or other institutions, which would help to ease their situation. The financial support in forms of credits or loans enables the grape growers to invest into more demanded varieties (e.g. red grapes for table winemaking) or even into other crops (e.g. lemons, peaches) which are more profitable.
\nAnother option to support smallholders is the establishment of cooperatives. Cooperatives are beneficial for smallholders, as the bundling of quantities improves their bargain situation and knowledge—as well as investment—sharing is possible. The delivered grapes can be divided into quality categories, which then can be sold in different price segments to different market participants. The offer of differentiated quality levels with different prices leads to higher overall profits. Farmers who produce high-quality grapes gain higher patronage, giving an incentive for high-quality production. If wine or brandy producers need grapes or wine, they can bargain with the cooperative as a single entity for their needed quality category, and they do not have to bargain with many farmers to gain the same quantity.
\nAll in all, the YBC manages to integrate smallholders (grape growers) into their national and international value chains by successfully installing a procurement system by using different measures of vertical coordination. Additionally, the YBC contributed to the development of the sector. Other companies start to adapt and take the YBC as a role model. In future, the standards set by the YBC and the ongoing development (education, knowledge, experience, etc.) will improve the performance of many farmers and equalise the produced qualities on the market. Sugar levels, healthiness of the grapes and usage of certain grape varieties become basic quality requirements. When the higher-quality products become standardised (e.g. IFS or GlobalGAP certified), mainly marketing contracts will be used. Thus, in the long run, it can be assumed that the degree of vertical coordination will decrease and the contracts will further tend towards pure marketing contracts. However, in the short and medium term, the adjustment will assumingly be rather slow.
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