ARGENTINA'S SOARING INFLATION, exchange rate and protectionist policies are shaping the future of the country’s wine industry, both domestically and internationally.
Under the leadership of President Cristina Fernández de Kirchner, now two years into her second term, inflation has reached 25%, according to private sector analysts, spiralling living costs and, consequently, the expense of labour.
“The salaries of workers increase with inflation, which was up 25% up this year, as does the cost of gas, electric, oil, taxes, interest,” says Carlos Pulenta, CEO of Bodega Vistalba in Mendoza.
In the space of 15 years Argentina has been transformed from a traditional wine culture to an international industry – now the fifth-largest producer in the world.
But, where investors were once flocking, heralding the discovery of a grape-growing utopia, they are now looking elsewhere. “Inflation is a problem because it increases uncertainty and reduces investment, but you cannot separate the Argentinian wine business from the economy,” says Pulenta.
When production costs go up, so should the price of the product. Domestically – where an estimated 90% of Argentinian wine is consumed – this is what has happened. In international markets, however, the price is the price – and to many buyers, wine is wine.
“In Argentina people accept that the price has increased but importers say they will go to Chile or South Africa if we increase the price,” says David Bonomi, winemaker at Doña Paula. “We are not growing our exports – it’s a lot of effort just to maintain them.”
Kirchner has fixed the exchange rate at around 5.5 peso to the dollar – a far lower rate than can be found in the Argentinian ‘blue’ market.
“If the official rate is 5.5 pesos to the dollar and the blue market is theoretically about 9.0, a good rate would be 7.0 pesos to the dollar,” says Pulenta.
Pulenta explains how export revenues are processed in Argentina: “I pay the Argentinian central bank in dollars and it keeps them and pays me in pesos. All transactions – imports and exports – are at the official rate.”
With, in effect, two rates – the lower official rate exporters are paid in, and the actual market rate costs are paid in – some producers have naturally started to look for alternative routes.
An Argentinian wine retailer, who asked to remain anonymous, has observed the practices of some exporters. “Some exporters tried to take the dollars from exports and unofficially transfer the money in the blue market. The government tried to stop the blue market but it’s complicated, nobody knows how it works. There are tricks to keep the money outside of the country too, in off-shore accounts, to be protected against inflation.”
Buenos Aires drinks journalists Rodolfo Reich and Martin Auzmendi are agreed on the solution. “Everyone thinks we have to devalue the currency,” says Reich. “Wineries are praying that the government devalues,” Auzmendi chips in: “The problem is political. They think if they bow to the pressure they will look weak.”
