Peso inflation thwarts Argentine wine industry

Despite an increase in sales of Argentine wines during the pandemic, the industry is struggling with the drop in income from wine tourism and the depreciation of the peso.

RIO DE JANEIRO, BRAZIL – It is harvest time in Argentina. In the province of Mendoza, where 70% of the Argentine wine is cultivated with the majestic Andes Mountains as a backdrop, Eduardo Pulenta, owner of 135 hectares of the bodega Pulenta Estate, prefers to see the glass as half full.

Argentine wine is famous worldwide for its quality and reasonable prices.
Argentine wine is famous worldwide for its quality and reasonable prices. (Photo internet reproduction)

“We are happy because the pandemic has increased consumption and local tourism. The effect is felt internationally, we see it in our exports” he says, as the grape pickers are busy in the southern autumn harvesting the fleshy bunches from this arid soil.

However, the outlook is gloomy for the Argentine wine sector. While consumption has indeed increased worldwide and Argentine wine has taken advantage of its competitive price to gain market share, the country’s prolonged economic crisis, high inflation and successive devaluations of the peso (38% in 2019, 28% in 2020) threaten the profitability of the sector, which has just suffered six consecutive years of declining sales. And many wineries fear that they will not be able to hold out much longer.

The highest inflation in Latin America

“We live with a currency, the peso, that is devaluing. If this has made bulk wine more competitive, the imported raw materials that we need (corks, bottles) cost us more pesos. The margins tend to be reduced,” explains Hervé Birnie-Scott, director of the cellars and vineyards of Chandon Argentina. “That’s why almost all Argentine wineries have cash flow problems,” he adds.

According to a report by the National Institute of Viticulture, the year 2020 closed with “a rebound in wine consumption in the domestic market of 6.5% compared to 2019.” In exports, bulk wine has benefited from the devaluation of the peso to increase sales in volume, especially to the huge Chinese market, says a study by the Center for Economic Studies of Wineries of Argentina. However, “it was not the same for the turnover in dollars, which decreased, especially for bottled wines, the lowest since 2013,” says the same source.

With inflation reaching 36% in 2020, the highest in Latin America after Venezuela, “we have to juggle to make the wine merchants understand” that “we can not maintain the same price every year,” says Pulenta.

Soil diversity as an identity mark of Argentine wines

To get ahead, many wineries are betting on higher quality wines, beyond the famous malbec (red). Winemakers agree on the success of the last harvests. With an extremely dry spring and summer, “2020 was warmer, which allowed us to have more concentration, more color, more polyphenols, more tannins,” describes Javier Lo Forte, oenologist at Pulenta Estate.

Hopes are also supported by the continued upward trend in consumption, which “continues to increase in these first months of 2021,” boasts Mariano Di Paola, director of winemaking at Rutini Wines, a 400-hectare estate located between 1,050 and 1,200 meters above sea level.

Hervé Birnie-Scott, a Frenchman who has lived in Argentina for 30 years, believes that the quality of “New World” wines is now recognized, but that wineries still face the challenge of finding their “own identity” by taking advantage of the diversity of soils.

“We must strive for even more quality, for wines that reflect the particularity of the grape varieties and the soil where they were grown. And, little by little, the consumer will look for this typicity, the uniqueness of the variety grown in a particular soil”.

Source: La Revue du Vin de France

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