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CULTURE | 19-10-2020 08:00

More sales, less profits: Glass half-full for Argentine wine producers

In the first nine months of 2020, local wine producers boosted exports by 40.57% compared to last year, with domestic consumption also on the rise. But the glass remains half-empty – lower prices, the rise of cheaper labels and economic crisis have all hurt profitability.

The demand for Argentine wine on both international and domestic markets has led to sales rising vigorously so far in a year marked by pandemic – good news for a sector whose profitability has been retreating for the last five years. Climatic factors and political decisions have helped to surmount the challenges of the pandemic, achieving greater shipments.

Covid-19 reached Mendoza, the heart of production and the prized Malbec grape, in March with a virtually complete harvest brought ahead by the higher temperatures this year.

The industry was exempted from the sanitary restrictions to halt a death toll of around 25,000 with confirmed cases of contagion approaching the million mark.

In the first three-quarters of this year the sector boosted its exports by 40.57 percent as against the same period in 2019 with record shipments of over 20 million litres, as registered by the Instituto Nacional de Vitivinicultura.

But the glass remains half-empty. Lower wine prices, the migration of consumers towards cheaper labels and Argentina’s economic crisis have hurt the profitability of a sector in decline for the last five years.

Toasting while they can

"The pandemic has brought us many surprises," Gustavo López, the manager of Fecovita grouping 29 wine cooperatives with over 5,000 vineyards, confessed to AFP.

With restaurants and hotels shut down by the pandemic and the economy in recession since 2018, a rise of over 10 percent in domestic wine consumption in the first half of the year deserves a glass being raised in toast.

"At the start of quarantine consumers changed their habits with the money they could no longer spend, on other things like petrol or outings, luckily available for wine, which translated into greater consumption," explained López.

Domestic market sales enjoyed a fast track to supermarkets, shops and other outlets although with bottles of lower value on average.

 "It’s clearly the pandemic and the quarantine which have permitted more wine consumption in Argentina," López remarked while considering that once the pandemic is over, demand will fall.

Exports have also grown, although above all for bulk or cask wine.

Bottled wine exports rose 2.4 percent in volume between mid-2019 and mid-2020 but in that period the dollar price fell 11.4 percent for an eight percent dip in invoicing, according to Bodegas de Argentina, the chamber’s sector.

The fall in invoicing affects the smaller vineyards with less margin to compensate for the reduced prices in volume.

"The increased exports are linked to the cycle in the exchange rate, today we’re really cheap," Mendoza producer Alejandro Vigil explained to AFP with the parallel  black market 'blue' exchange rate hitting a record 178 pesos this month.

"Today we can export, which does not necessarily suggest that we will have the same situation. Markets are volatile and move according to price," remarked Vigil.

Early in October the government raised export duty refunds at all levels (from grape must to the finished product, including sparkling wines) from three to seven percent, also extending benefits with the aim of raising wine exports from 700 million to a billion bottles annually.

Missing foreign tourism

The Valle de Uco vineyard corridor is a wine-tasting circuit which provides nine percent of the sector’s income but with frontiers closed and circulation restricted, these vineyards only receive local tourism.

In the midst of a mountain landscape and surrounded by vineyards, these centres offer open-air or virtual wine-tasting, the latter by sending bottles to a given address.

"In Mendoza, wine-tasting tourism is designed for a certain public arriving weekly from abroad so that it’s oversized and cannot be covered by domestic Mendoza tourism but, well, we keep it ticking," indicated Vigil.

The industry cannot escape the evolution of the pandemic and the economic context. For some weeks the focus of contagion has been transferring from the Buenos Aires metropolitan area to outlying provinces, including Mendoza.

Argentina ended the first half of the year with the highest unemployment in 15 years (13 percent), 40.9 percent below the poverty line and an economic slump projected at 9.9 percent by the International Monetary Fund (updated this week to 11.8 percent).

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by Maximiliano Ríos, Andrés Larrovere & Sonia Avalos, AFP

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