January 21, 2018
Sunday, March 22, 2015

Wine sector under pressure

Grape crops are a common sight in Mendoza, one of Argentina’s leading wine producing provinces.
Grape crops are a common sight in Mendoza, one of Argentina’s leading wine producing provinces.
Grape crops are a common sight in Mendoza, one of Argentina’s leading wine producing provinces.
By Fermín Koop
Herald Staff
Producers point to lack of competitiveness, gov’t says devaluation isn’t the answer

Lower consumption, fewer exports, higher production costs and an excess supply have led the wine sector to go through a harsh period in the last year, depriving producers of reasons to fill their glasses for a celebratory toast. While the government claims devaluation isn’t the answer and has unveiled a set of measures to aid producers, the sector is sounding the alarm over a steep crisis and a loss of competitiveness.

Wine sales dropped 7.3 percent last year, according to the Argentine Wine Institute (INV). Exports fell 17 percent and sales in the domestic market decreased 4.15 percent.The drop comes as a consequence of a lower wine consumption, a trend seen worldwide to which Argentina isn’t the exception. Argentines used to drink 77.2 litres of wine per person per year in 1974 but now the average was set last year at 23.6 litres, a 69 percent plunge over the last four decades. Higher competition from other markets and new products are some of the reasons behind the drop, producers said.

“We need to be more competitive but with a high inflation and a low exchange rate that’s hard to achieve. At the same time, the devaluation of several currencies such as the real and the euro makes us less competitive,” José Alberto Zuccardi, CEO of Familia Zuccardi winery and head of the producers association UVA, told the Herald “We need more tools from the state that allow us to maintain our sales levels.”

Following a record harvest last year, the INV expects this year 200,000 more quintals (9,200 tons) than 2013. That means an estimated production of 26.5 million quintals (1.2 million tons) of fruit. The higher production, amid a lower domestic and foreign demand, lowers the price producers get from selling the grape and creates excess production, estimated now at 200,000 litres of white wine.

“Wine producers are going through a crisis. Argentines have less purchasing power so sales have dropped and a low exchange rate has made us less competitive in foreign markets,” Susana Balbo, head of Wines of Argentina, an agency that promotes Argentine wine abroad, and CEO of Dominio del Plata winery, told the Herald. “We used to be competitive abroad with cheaper wines but that’s long gone.”

Such a large production of wine would suggest a large number of wineries involved in the production of wine. However, the figures show a different scene. Only 414 wineries have registered at the INV to participate in this year’s harvest, 55 percent fewer than the 918 registered in 2014 and 56 percent fewer than the 950 seen in 2013. At the same time, 52 wineries were closed down between June and February due to infractions over lack of maintenance.

“We are facing a production crisis as wineries aren’t carrying out the necessary investments, leading to a drop in quality. Grapes have had the same price over the last three years and producers can’t cover their costs, which are high and in dollars,” Guillermo Barbier, head of 1924 De Angeles winery, told the Herald. “Exports should have kept growing as markets demand Argentine wine but we stopped being competitive.”

State support

More than 500 million pesos will be destined this year by the federal government to aid wine producers, followed by an extra 200 million pesos distributed by San Juan and Mendoza, the two main wine producing provinces in the country. Exporters will get a subsidy of one peso per kilogramme of harvested grape, now sold between 1.60 pesos and 1.85 pesos, while producers who sell their grape for must juice will also be given 0.75 pesos per kilogramme of grapes.

Up to 35 percent of this year’s production will be destined for must juice, according to an agreement signed between San Juan and Mendoza, seeking to avoid an overstock of wine. At the same time, Mendoza unveiled a 13-measures plan to help producers, including loans at subsidized rates, more trade missions abroad and limit the establishment of wineries.

“We aren’t asking for more subsidies, we want real measures to restart the market and allow us to compete,” Carlos Lannizotto, head of the Wineries Cooperatives Association (ACOVI), told the Herald. “We want refunds to be increased and get help with the increasing costs of transportation.”

Lannizotto, as well as other producers, questioned the deeply concentrated wine market and the low income producers get, with retailers receiving most of the money. They asked for more state controls to equally distribute the funds and more controls on retailers, who “set the prices in the stores and get all the money,” Lannizotto said.

The Herald contacted the INV but no response was given. Sources at the Trade Secretariat told the Herald that “more than enough” has been done for the wine sector, mentioning the 500 million pesos given for this year. A devaluation and lower export taxes were ruled out, saying that wasn’t the solution. The crisis is part of a world trend of a lower consumption of wine and innovation of the sector is needed, the sources said.

“Argentina is now facing the challenge of producing new grape varieties. People are getting tired of Malbec and we need to try new things. Wineries have to work a lot on innovation as we probably will never see again a boom like the one we experienced with Malbec,” Sebastián Salas, exports director of Durigutti winery, concluded.


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