April 30th 2009
Source: Meininger’s Wine Business International | Daniel López Roca in Argentina.
With only one week left before the official closing date of this year’s harvest, the local press declared that the 2009 grape harvest was almost disastrous. With the global economic crisis in full blossom, some leaders of the industry thought that such announcements are either irresponsible, or they demonstrate a deep ignorance of the intimate structure of the sector.
In terms of volume, it is true that 2009 harvest was around 30% less than what was estimated previously (these are not official figures). But it is also true that the most of the important losses because of climatic contingencies – especially early frosts and big hail storms – affected the grape production mainly assigned to must and bulk wine making. Most of the damaged vineyards are located at the East of Mendoza and in San Juan province, the main production zones.
Although a lower 2009 harvest was expected, now that it’s close to the end of the harvest year, it is possible to conclude that the decrease is major, something that surprised producers as much as the Government. The prognosis presented by the Instituto Nacional de Vitivinicultura (INV) last February announced a loss of near 3.5% in respect of 2008, also a year with low production, but that went up to around 15%, as compared to the normal season of 2007.
Susana Balbo, president of Wines of Argentina (WofA), said in a recent press conference that she hopes that in 2009: “Argentine wine exports will continue to grow in volume and quality, even with the global crisis.” This is not an unrealistic hope, given the growing number of premium wines that are less affected by the fall in production, whose destiny seems guaranteed in many markets.
Nevertheless, the producers who grow grapes for must and bulk wine making are facing real problems. Their vineyards represent half of the surface of Argentina’s producing areas and until the outbreak of the international crisis they were a strong driver of exports. Some of them, such as the producers from Rivadavia – a place 60 kilometers away from Mendoza city- have lost 80% of their grapes.
By March 2009, according to the Instituto Nacional de Vitivinicultura, wine stocks with no varietal label were sufficient for around for four to five months of dispatches. The leaders of the Union Vitivinícola Argentina – the industrialists’ organization tied to the bulk wine business – hopes that a decrease in production will improve the bulk wine price by litre, or at least could help maintain wine prices in a world that will demand less wine. Their wine prices have suffered a permanent decrease since Russia, the main buyer, reopened the doors to Moldavian wines and the economic crisis restricted orders. It had such an impact that must exports fell by 60%, comparing the first quarter of 2009 with 2008, and sales dropped from $19m to $7.7m in the same period.
As far as for bottled wines, winery owners do not dare to make great prognoses, but they observe with delight the currency devaluation that has given them back the competitiveness they lost in 2008, thanks to internal inflation. In the period since the fall of Lehmann Brothers, which marked the beginning of the crisis, the Argentine peso has fallen 8% against the American dollar and winery owners hope this difference will widen even further in the coming months.
While the cold numbers keep wine producers awake in this crisis climate, two things seem to make them smile. First, the warm 2009 harvest, which has made the grapes mature earlier, compared to other years, which has given them plenty of good colour and aromatic expression, two keys factors that are the signature of Argentina in the international market. The other is that, without modifying their FOB prices, new opportunities for sales in the United States and Canada appears like a breath of fresh air. In the range between $10 and $20 retail, producers are assured that Argentina is not facing major competition.
In 2008, Argentina became the fourth major supplier of wine to the USA, with a better performance expected in 2009. This is what the American specialists said, who came to a February seminar in Mendoza about export wine styles: “this year, people will not consume less wine, but will look for a good relationship between price and quality in the range of $10 to $ 20 dollars.” This is the production range, they said, that will not be affected by the decrease of the harvest and in which Argentina has been working hard in the USA.