After 3 tough years, Argentine winemakers look to turn the corner.
In Mendoza, Argentina, 58 top international sommeliers will get together starting Friday to compete in the A.S.I. Best Sommelier of the World Contest, where they will spend five days sniffing, swirling and spitting in a quest to clinch the title of the world’s most perceptive wine snout.
As the winerati attend tastings and fancy dinners at Pharaonic wineries during the 2016 version of the triennial competition, Argentina’s wine industry will be putting on a positive face after stomaching several years of stunted growth in an unfriendly business environment.
It has been a trying period for the country’s winemakers—after peaking at $921 million in 2012, Argentine wine exports fell to $819 million in 2015 according to the country’s INV national wine institute —but following last year’s change of government in the capital of Buenos Aires, the timing is propitious for producers to not only showcase their finest malbecs and other oenological wares, but also to demonstrate that they are very much open for business.
A new leader in the form of right-leaning President Mauricio Macri, elected last November, has already proved to be an ally of the wineries that make Argentina the world’s fifth-largest wine producer. His stated goals of staunching high domestic inflation, calming an ever-weakening peso, and eliminating a hefty wine export duty implemented during former president Cristina Fernández de Kirchner’s term in office are all on the local wine industry’s Christmas list.
When President Macri moved into the Casa Rosada presidential offices, he fulfilled one election promise by immediately dumping a 5% export tax, a move that gave the industry a potential $50 million windfall. And winemakers surely cracked open some sparkling wine when he followed up that measure by devaluing the peso a few weeks later. Argentina’s currency quickly dropped from its ‘official’ rate of 9.83 pesos to the U.S. dollar to its parallel or ‘blue’ market rate of 13.95 pesos. This lowered the international price of Argentine wine exports, allowing them to compete on the global stage, says José Alberto Zuccardi, director of the Familia Zuccardi winery.
“Argentina’s last big devaluation was in 2002, which was followed by a period of growth until 2012. That’s when our competitiveness started to weaken,” says Zuccardi, who, at 62, is no stranger to Argentina’s boom-and-bust cycles. “The problem became even greater in 2014 because domestic costs were rising while the exchange rate wasn’t reflecting a true situation.”
During years of high inflation and an artificially strong peso, many Argentine winery owners concentrated on the local market, where it was easier to raise price. But with the devaluation and the removal of the export tax creating a more positive export climate for winemakers, it’s time to move from a survivalist mentality to action, says Pedro Soraire, commercial director of Bodega Del Fin Del Mundo.
“Importers bought Chilean or Australian wine, so we resigned from certain export markets, knowing we could sell merchandise domestically,” he says. “Now that we have a competitive exchange rate, we can offer discounts and new products, and travel to wine fairs. Even though we’ve lost five years, we have to be able to show we can offer a difference and be competitive now.”
After the wilderness years, the challenge for Argentina’s wineries is to return to growth, says Susana Balbo, the founder and oenologist for her Mendoza winery, Susana Balbo Wines. Balbo, who was elected to Argentina’s lower congressional house representing Macri’s PRO party last year, says sales at her winery used to grow 20-30% annually, but that rate has fallen to between 5% and 9% for each of the last three years. Getting back to high growth will take time, she says.
“The ability to recuperate market share will take a year. Deals for 2016 had already been made with buyers and importers [before the devaluation] so there’s a possibility that we might recuperate competitiveness in the last quarter of this year. But for the most part, we already missed on that opportunity,” she says.
Indeed, January’s wine exports were down 13% from the same month in 2015, to $54.6 million, according to the INV.
Besides pushing their salespeople to flex their muscles in crucial export markets like the U.S., the U.K., and Europe, Argentine wineries also will need to tackle an issue closer to home: inflation. With the world’s third-highest rate in 2015—26.9% according to the IMF—Argentina’s business environment is still challenging for winemakers who need to plan and budget for upcoming years.
“Inflation is still a problem. It needs to be controlled so we can maintain an aggressive position. But the devaluation happened very recently [in December 2015] and a new balance hasn’t established itself yet,” Zuccardi says.
High inflation is especially hard on Argentine consumers, whose real wages drop as prices rise, and this makes it tough to raise prices in the domestic market.
“The local market is suffering, though, and it’s hard to translate costs to the consumer,” Zuccardi says.
Unlikely to notice much other than bouquets and tannins, the world’s top sommeliers probably will be blissfully unaware of Argentina’s changing economic terroir during their visit to Mendoza, the country’s main wine-producing province. But beneath the glitter of the wine contest, Argentina’s winemakers will be nervously hoping that the event marks an economic turning point for an industry tired from years of instability.
The A.S.I.’s Concours du Meilleur Sommelier du Monde begins April 15.