01/05/2002 - Harpers Features

No going back

Embroiled in economic turmoil, winemakers in Argentina are dealing with ever-increasing problems of supply, labour, distribution and revenue. So are they choosing to slash their output, prices or marketing budget, or is there a confidence and determination to battle through the crisis? Tim Atkin travels to Argentina to find out.

The Italian consulate in Mendoza is an unassuming building on the corner of the Plaza de Chile. Were it not for the people queueing outside on the pavement from the early hours, you could drive past the façade without a glance. But those crowds are significant. They are a symbol of Argentina’s current malaise, a reminder that for many Argentines, enough is enough. In a country whose economy shows no sign of stabilising – let alone improving – emigration has become a national obsession. The possession of an Italian relative or ancestor is a potential exit visa; hence those queues.

Argentina has had a terrible last few months. Since December 2001 it has defaulted on public debts of $141 billion (£97 billion), devalued its currency by 29% (abandoning the peso’s ten-year parity with the US dollar in the process) and seen its banking system stumble to the verge of disintegration. President Eduardo Duhalde, the country’s fifth leader in as many months, appears incapable of halting the slide. The peso has dropped to an all-time exchange rate low of 4.27 to the dollar (as of 18 April 2002), unemployment is running at more than 20% and investors are fleeing the country. Ominously, the International Monetary Fund (IMF) seems reluctant to play the role of economic Seventh Cavalry. The fund’s deputy director, Anne Krueger, announced earlier this month that: ‘We can’t lend into anything that does not have the hope that they can come out of it with [the] promise of growth and restoration of normalcy. And that requires some… changes.’

The picture from abroad looks extremely bleak, and it doesn’t look that much brighter on the ground. My taxi driver in Buenos Aires told me that he could no longer afford to buy prescribed (imported) medicines and that his life was in the hands of fate. A joke doing the rounds is that the military won’t mount a coup d’état this time because it can’t afford to buy bullets.

Amid all the doom, corruption and incompetence, the wine business is providing a source of (qualified) optimism, not to mention much-needed foreign currency and investment. Purely in qualitative terms, such optimism is justified, for Argentina is producing better wines at every price point than it was a decade ago.

Dr Nicolás Catena, economist, owner of Catena Zapata and one of Argentina’s leading businessmen, believes that things will get worse before they get better. ‘We are heading for a period of high inflation or recession, depending on how the government manages the money supply.’ In his view, the former is more likely, as a recession would lead to even higher levels of unemployment and the prospect of civil unrest. ‘It will be a slow process to rebuild credibility, but the cycle could last for another three to five years.’

Catena’s response to the crisis is essentially positive. ‘I’ve decreased my FOB prices, I’m going to increase the quality of my wines and I’m investing heavily in promotional efforts, while asking retailers not to lower their prices.’ His sentiments are echoed by José-Alberto Zuccardi of La Agricola, who says that, ‘overseas buyers are asking for reductions in our prices, but we’d rather do more promotion’. Zuccardi concedes that running an Argentinian wine company is something of a high wire act at the moment. ‘We’re trying to be very careful to balance the effects of the devaluation, of inflation and of the 5% export tax we have to pay. It’s very difficult when the banking system doesn’t work at all.’

In theory, the devaluation should make wineries more competitive overseas. Sue Harris of Westbury Communications, who represents Wines of Argentina in the UK, says that the crisis has ‘freed up funds for promotional budgets.I have noticed much more wine in the high street over the last three to four weeks, and although the official AC Nielsen figures for January and February are not yet in, we expect to see a conservative increase in Argentina’s current market share of 1.3% by volume.’ Exporters haven’t had things all their own way, however. Carlos Tizio, technical director of Bodega Norton, explains: ‘The price of corks has risen 150%, bottles by 40%, cartons by 80 to 90% and barrels by much more than that. We have to pay the export tax to the government three days after we ship our wines, but we may not get paid for 90 days. The Central Bank takes our dollars and gives us the lowest possible peso exchange rate.’ Hervé Joyau, owner of Fabre Montmayou, says that Argentine exporters need to survive another six months with a floating exchange rate to ‘benefit from the devaluation. It’s made our prices more competitive, for sure, and we’ve dropped our prices by 25 to 30% in the last two months. But our suppliers want to be paid in cash these days.’

Uncertainty is a huge drawback for a wine producer. ‘The situation is very bad in Argentina,’ according to Alberto Antonini of Altos de Medrano, ‘and the worst thing in many ways is not knowing what is going to happen tomorrow. The worst case scenario is a civil war or a coup, but it’s not that serious yet. People are hungry in the cities, but Argentina isn’t as bad as Peru or Bolivia.’ Guillermo Barzi of H Canale says that ‘everyone is fed up with the current situation. All people want is some security.’ Most wineries seem to agree that a price war will not help Argentina’s cause. ‘I’d hate to see a fire sale,’ says Jeffrey Stambor, winemaker at Navarro Correas. ‘You end up digging yourself a hole with cheap prices and it can be very hard to climb out of there.’ Nevertheless, if the crisis gets worse, a lot of wine previously destined for the domestic market could be dumped overseas. There won’t be much call for the Tetrapak wines that are so popular in Argentina, but that still leaves a lot of unsold bulk and bottled wine. Pedro Yañez of Balbi Vineyard (part of Allied Domecq Argentina) says that the winery’s domestic sales have dropped by 20% since December 2001, as Argentines have been forced to economise on life’s luxuries.

Another major domestic producer, Rufino Baggio, has created a new line called Bodega Privada for export markets, as a ‘reaction to the crisis’, according to export manager Gonzalo Gordillo. ‘We’ve also started selling Tetrapak in Russia,’ he says. David Kingsbury, a Mendoza-based Australian wine consultant, says that producers ‘relying heavily on the domestic market have been the worst affected. The majority of wineries will weather the current situation and they will be stronger in the mid- to long-term. With increased competition for export dollars and lower internal costs, prices could drop by as much as 40% this year. The drop in price will also partly result from excess wine left over from previous vintages. Exact details are unknown, but they are significant. Wineries need to clear stocks rapidly with no government assistance. Most of the wine is poorer quality table wine, normally destined for the domestic market, or possibly for export to other Latin American countries.’ One thing working in Argentina’s favour is the number of overseas drinks companies with investments in the country. The list of foreigners includes Kendall-Jackson (Tapiz), Codorníu (Séptima), Sogrape (Finca Flichman), Pernod Ricard (Etchart), Diageo (Navarro Correas), Allied Domecq (Balbi and Graffigna), Marqués de Griñón (Bodegas Hispano Argentinas), LVMH (Terrazas), Jacques and François Lurton, Concha y Toro (Trivento), San Pedro (Finca La Celia) and Santa Carolina. Then there are the Austrian crystal company Svarovski (owners of Norton), a new French investment headed by Michel Rolland called Clos de Los Siete, and O Fournier, a Spanish-owned winery created by Madrid-based banker, José Manuel Ortega Gil-Fournier. These larger companies can, arguably, afford to take a medium- to long-term view of the crisis. Ricard Raventós, a Catalan who runs Séptima, says that ‘there’s not much worry back in Spain. They know there’s a risk and that there have been some instant losses, but they are still optimistic about the future of the wine industry here.’

Foreign know-how has had a considerable impact on the quality of Argentina’s wines. Figures such as Alberto Antonini (Nieto y Senetiner and Altos de Medrano), Michel Rolland (Trapiche and Yacochuya), Arnaud Meillan (Fabre Montmayou), Robert Pepi (Valentin Bianchi), Jeffrey Stambor (Navarro Correas), Jacques Lurton and Olivier Ruhard (Bodega Lurton), Ricard Raventós (Séptima) and Hans Vinding-Diers (Humberto Canale) have all helped Argentina to raise its game over the last five years.

The improvements Stambor has made at Navarro Correas are typical of a broader trend. He has introduced better hygiene, stainless steel tanks (for certain lines), air-conditioning in the cellars, a greater proportion of new oak and gentler handling of grapes. He says that control in the vineyards is even more important. ‘In the past, winemakers in Argentina tended to have pretty clean hands and shoes, and that’s a bad thing. People like the Catena group have paved the way, but we still need a cultural change in the vineyard. We’ve got to get away from the “it’s Thursday so I should irrigate” mentality. It’s happening, but it’s a slow process.’

Pedro Marchevsky, vineyard manager at Catena Zapata, has arguably had a greater influence on the quality of Argentina’s vineyards than anyone else. ‘I like to work with the vines to produce something that is outstanding, but natural,’ he says. ‘The most important thing in Argentina is understanding water management. Our aim is concentration of flavour, and if you stress a vine too much, you sometimes lose concentration. You get lots of sugar, but no flavour. The plant should be alive, but not too happy.’ Marchevsky’s work with Malbec clones is at the cutting edge of Argentinian viticulture. ‘We started with 135 clones of Malbec, then narrowed them down to ten. We’ve planted them in different places in Mendoza to evaluate their performance.’

Marchevsky isn’t the only local star. Top Argentine winemakers include José Luis Munier at Etchart, Daniel Ekkert at Finca Las Moras, Rodolfo Montenegro at La Agricola, Walter Bressia at Viniterra, Jorge Riccitelli at Norton, Angel Mendoza at Trapiche, Roberto de la Mota at Terrazas, Susana Balbo at Dominio de la Plata, José Galante at Catena Zapata, Laureano Gómez at Salentein, Mauricio Lorca at Finca La Celia and Marcelo Miras at Humberto Canale.

The combination of domestic and overseas talent has resulted in some extremely good wines. With the generally excellent 2002 vintage sitting in tank and barrel, Argentina is better placed than ever to make a serious assault on the UK market, with competitive wines at price points varying from £2.99–25. It can offer Tempranillo, Bonarda, Syrah, Torrontés and (especially) Malbec, as well as usual New World suspects such as Cabernet and Chardonnay. The reds in particular have improved dramatically in the last five years, thanks to the arrival of new players such as Yakochuya, Altos de Medrano, Finca Las Moras, Salentein, Viniterra, Séptima and O Fournier, and ongoing developments at Catena Zapata, Humberto Canale, Fabre Montmayou, Norton, Luigi Bosca, La Agricola, Weinert and Nieto Senetiner.

Alberto Antonini is not alone in his belief that the best is yet to come from Argentina. ‘Chile has a more developed wine industry,’ he says, ‘but there is more potential here. In Chile, the reds are always well made with nice fruit, but there’s a touch of greenness to them. The problem for Argentina is that most of the wines aren’t very well made, so consumers tend to prefer the Chilean style.’ Jorge Riccitelli at Norton argues that, ‘We need more consistency as a wine-producing nation, but you have to remember that we’ve gone from being a country focused on high-yield wines for the domestic market to something very different. We can still improve a lot.’

Sadly for Argentina, the same could be said for the embattled economy. Will things improve this year, or is the country locked into a steep downward spiral? The situation may be good news for UK importers, but for the Argentines themselves, the fear is that before things can get better they will have to get a whole lot worse.