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Wine: A catch-up game in Argentina
The Miami Herald / June 18, 1995

By Larry Luxner

MENDOZA, Argentina -- As Chilean wines threaten the U.S. wine industry with high quality, low prices and possible duty-free entry into North American markets by year's end, Argentine wineries are still struggling to get their exports off the ground.

The reason: would-be exporters here face an overvalued peso that makes Argentine products prohibitively expensive overseas, and workers more accustomed to producing for the captive internal market than for demanding customers in the United States or Western Europe.

Officials interviewed in Mendoza -- the undisputed capital of Argentina's wine industry -- agree that although things are slowly changing, Argentine vintners still have a lot of catching up to do with their rival to the west.

"The history of Chile's wine exports is much better than ours," concedes Enrique Varela, public-relations chief of Argentina's state-run Instituto Nacional de Vitivinicultura (INV). "Chilean industry is not only well-structured for its internal market, but geared toward exports as well."

Adds Claudia Benegas, an international sales agent at Bodegas Trapiche S.A.: "Before, we didn't care. All the wine produced here was sold here."

That's no longer the case. Argentina's wine consumption --which for years exceeded 90 liters per capita, among the world's highest -- has now dropped below 40 liters, forcing Argentine wineries into the export business in order to stay alive.

"We have a lot of competition from other countries, such as Chile and South Africa, which have good wines at low prices," said Benegas. "We are working with very narrow margins. If we sell our wine abroad, we have to reduce prices. Also, it's difficult to enter into the market, because the normal American or European consumer doesn't know that Argentina produces fine wine."

In 1994, Trapiche exported around 150,000 cases of fine wine, at an average $20.43 per case (compared to an average $15.29 per case for Chilean wine). This year, Trapiche expects to export 180,000 cases, with 30% of that going to the United Kingdom, 25% to the United States, 15% to Germany and the remaining 30% to at least 20 other countries. It is second only to Santa Ana, the country's leading wine export.

Even so, the 105,000 cases of Argentine wine shipped to the United States in 1993 are still a drop in the wine vat compared to the leading Chilean brand, Concha y Toro S.A., which alone exported 695,000 cases to the U.S. market.

Part of the current problem is Argentina's overvalued peso, now on par with the U.S. dollar. While parity has reduced inflation to near-zero and brought renewed confidence in the Argentine economy, it has also made the country outrageously expensive for tourists -- and its exports, including wine, overpriced in the world market.

"Because we were used to a large internal market, we didn't worry about finding other markets," wrote vintner Raúl Castellani in a recent edition of the Mendoza newspaper Septimo Día. "We took our exceptional climate and soil for granted, forgetting the importance of cultivating the best vines, and we sacrificed quality for quantity. Now we must wake up."

Complicating matters is a tradition of state regulation of the wine industry by the INV, which for decades controlled every aspect of winemaking, from planting of grapes to harvesting to distribution. Under President Carlos Menem, who was re-elected in May, bureaucratic entities such as INV are being scaled back or eliminated, and huge state-owned entities are being privatized.

"For years, the INV was the only organism for exporting wines," said Juan Manuel Estrella, an industry expert working with the Argentine government's Proyecto Joven program. "The institute is now disappearing little by little. It continues to oversee quality control, but it's no longer interfering with regulations that have little to do with developing the industry."

Argentina has been producing wine since 1557, when Catholic missionaries set up vineyards around Santiago del Estero to have wine for Mass. Today, however, the lion's share of Argentine grape production goes not for wine but for mosto or grape-juice concentrate. And only 3% of the country's annual wine production is shipped overseas.

Estrella says diminishing demand for common table wines has put many young people out of work, sparking an exodus of job-seekers from rural areas to Mendoza, a city of 600,000. On the other hand, Argentina's growing per-capita income has led to increasing demand for more expensive varietals such as chardonnay and cabernet sauvignon.

"Prices for grapes denominated criollo or inezcla are going down rapidly, because they don't make sense economically, while varietal grapes are earning good prices," said Estrella, explaining that new technologies are being applied to cultivation of varietals.

"In the harvesting process, for example, vintners are planting cloned varieties that have the same maturing period," he said. "This means better control over the grape's alcoholic content. Before, harvesting was done in metal zinc bins which produced oxidation when the metal came into contact with broken grapes. This hurt the quality of the wine. Now, they've been replaced with plastic bins."

Just as vintners are demanding better quality control in the vineyard, improvements are also starting to become apparent at the factory level.

"The wine industry this year has seen a transformation, incorporating new technology in order to be more competitive on the international market," says Daniel Blas Sánchez, president of FeCoVita Cooperativa Ltda., a federation of 37 agricultural cooperatives and 14 branches throughout Mendoza province.

In 1990, the powerful cooperative paid $15 million to acquire the inefficient, state-owned Giol winery. Upon privatization, half of Giol's 3,000 workers lost their jobs; the winery's current workforce stands at 960. During the same time, FeCoVita's production has increased from 1.2 million quintales of grapes to 2.1 million quintales. FeCoVita's bodega -- just down the road from the Trapiche winery -- now represents 20% of the nation's wine sales.

"When this was run by the state, we were losing money, and didn't invest in new technology," Sánchez explained. "This year, the cooperative has invested $10 million in new assembly-line technology from Switzerland, Germany and Italy."

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