From 1998 until the present, the wine industry in Argentina has experienced the greatest growth in its history. Three factors account for this success: a 106% increase in domestic Argentine consumption; an 800% rise in the volume of Argentine wine exports, and investments worth $1.3 billion. Between 1990 and 2000, exports grew from 55,000 hectoliters to 492,000 hectoliters, according to the INV, the national institute of grape-growing and winemaking. At the same time, the number of wine cellars in the country has grown by 13%, from 776 establishments in 1990 to 877 today.


Moreover, all sorts of business services associated with this market have sprouted and today, business volume exceeds $4.8 billion dollars annually. This sector now comprises everything from suppliers to newly trained professionals in oenology and agriculture, logistic services and distribution services – even specialists in packaging, marketing and point-of-sales techniques. Alternative educational programs have sprung up, such as the Masters in Grape and Wine Growing at the National University of Cuyo in Mendoza, the same province that has more than 60% of all Argentine land cultivated for wine production (some 250,000 hectares.)


To discover the reasons behind this growth wave, it’s necessary to look at the good economic conditions of the 1990s, which provided stability to businesspeople, and at the entrepreneurial spirit of Argentines who have developed professional wine cellars, incorporated technology and joined forces to promote exports. Otherwise, Argentina’s grape and wine industry would not now have the reputation and acceptance that it has achieved. For all that, the industry still faces a long road ahead.


Analysts are certain that Argentina’s wines will enjoy a far-reaching run of further economic growth. However, in order to achieve that, an increase in production volume will be necessary, and that will only be possible if businesspeople can acquire new bank loans, frozen after the devaluation of the national currency at the beginning of 2002. “The lack of financing complicates prospects. You have to find a solution to this problem because technology renews itself day by day,” says Alberto Arizu, director of Luigi Bosca, a well known winemaking firm that exports 40% of its production today.


On the other hand, Argentine wine would not be so distinguished if it were not for the country’s huge expanse of fertile land, the kindness of the climate, and the range of different wine-growing altitudes provided by the Andes mountain chain. “The climatic conditions and the use of new techniques have allowed Argentina to become recognized for its capacity to cultivate various varieties, especially the Malbec grape, which is produced by and large in the traditional province of Mendoza,” explains Diego Marcos Salguero, who does institutional promotions for the Argentine winemaker Familia Zuccardi.


According to Wharton management professor Gerald McDermott, “Obviously, Argentine wine has some advantages when it comes to natural resources, and the climate in all regions where grapes are grown, such as Mendoza – the most important – and Salta, San Juan, and la Rioja.”


Golden Decades of the 1990s

The economic factor that made growth in the wine market take off during the decade of the nineties was the system that assured convertibility of the Argentine peso. That provided stability and security in foreign exchange. In fact, it was during that period that the greatest investments were made. “During the 1990s, more than $1.3 billion was injected into the agricultural and winemaking sector. New wine producers were launched. Technology was introduced, and the varieties of grapes were improved and broadened,” notes Sergio Oliveri, an economist at the IERAL, the Institute of Economic Studies on Argentine and Latin American Reality of the Mediterranean Foundation, in Mendoza.


From a legal point of view, “The deregulation that took place during the nineties, because of decree 2.284/91, was a motor of growth. It eliminated regulations that had an impact on development in the sector, such as the production quotas. As a result, in the nineties, the wine producers got busy expanding their businesses,” Oliveri says.


IERAL has also played an important role. From the middle of the eighties, it helped publicize the damaging impact of regulations through numerous reports that it put together in its Mendoza central office. “Nowadays, we can say that Argentina’s grape and wine-growing sector is at the same level as Europe’s, thanks to the incorporation of technology carried out during the last decade. That’s why exports have grown,” notes Arizu.


Change in Consumption Habits

Over the past eight years, the world’s wine consumers have changed their preferences. Earlier on, buying was divided equally between “table wines” and “fine or high-quality wines.” These days, better-quality wines have displaced ordinary wines to a great extent. This is due to effective advertising campaigns, improved awareness on the part of consumers, and new, improved varieties of wine.


Data reported by IERAL show that in Argentina, between 1998 and 2003, the portion of all winegrowing land devoted to “table wines” dropped from 54% to just 39%. Meanwhile, “fine wines” today represent 59% of total production. Moreover, domestic [Argentine] consumption grew by 106%, thanks to a change in wine fashion. Wine stopped being an expensive product, or something associated with high society; instead, it became something consumed by young people as well as a growing number of women.


All these improvements took place even as worldwide demand was changing. “So the improvements and new investments in Argentine wine were ideal for being able to position ourselves in overseas markets,” notes Oliveri. Adds Arizu: “Although we winemakers have thrown ourselves into exports, no one is abandoning our domestic market now that Argentina is among the 10 countries that have the highest wine consumption. This makes it different from other wine-producing nations whose domestic markets consume more beer and other drinks.”


Looking Abroad

When it was time to export, Argentine winemakers – mostly companies that are family-owned – went ahead on their own, venturing forth to find customers. However, in spite of the fact that they are competitors in the domestic market, they are now getting together under the same umbrella to achieve greater a competitive advantage in foreign markets.


The way they organize themselves is by forming “clusters” or “export consortia” – groups of wineries that pool their funds in a private way – in order to finance their business travel and participate in fairs and promotions in other countries.


“An interesting sort of cooperation among wineries and grape-growers was created in order to export,” says Oliveri. “They joined forces in spite of their internal competition and got into new markets as a result. These clusters or export consortia not only brought them together in their export efforts; they also brought them together to pool production volumes. Otherwise, the wineries would not have been able to deal with market demand because they couldn’t manage [individually] to achieve production levels that responded to the growth in demand.”


According to McDermott, another good example of this is Pro Mendoza, which began a source of information about oenological news brought from outside the country to local winemakers.


According to IERAL, only 10% of Argentina’s production goes abroad, which brings Argentina a mere 1% global market share. According to the INV, the national winemaking institute, Argentina’s main markets are in Europe: Italy (more than 25%), France (25%), and Spain (15%). Meanwhile, the country also ships wines to both South Africa and Australia. The United States is another market that is very attractive, getting more than 5% of Argentine exports. In fact, Luigi Bosca is thinking about “increasing our presence in the United States because that is where consumption has grown most,” Arizu says.


Argentina is developing interesting new grapes in order to supply export markets. But this is a young industry and it needs to mature,” McDermott adds.


Luigi Bosca is a member of Wines of Argentina, an export consortium that brings together more than 70 winemakers. Mario Giordano, coordinator of Wines of Argentina, explains that “the way we promote ourselves isn’t just through fairs or international events but, for example, through enormous research projects in several countries around the world in order to find out how people view us: What are our strengths and what are our weaknesses? We want to work in a way that is even more professional so we can sell more in the future.”


However, in order to achieve that goal, Argentina must deal with a group of countries that enjoys similar climates and soils. Among them, Australia, New Zealand, South Africa and Chile stand out. Those countries have years of experience and advantages over Argentina when it comes to commercialization. Moreover, those countries’ winemakers have access to incentives offered by their governments, which consider wine a national attribute.


In fact, one of the big challenges for Argentina is to achieve a greater involvement by its government, which would allow strengthening of the country’s wine brand. “This is happening on the basis of various programs that promote Argentina, whether it’s through the country’s wines, the tango or such marvels of tourism as the Glaciers and the Cataracts of Iguazú,” emphasizes Giordano. Along the same lines, the director of Luigi Bosca notes that “like the rest of the Argentina’s winemakers, we know you can’t sell more unless you have a country brand that helps us. Today, many of us are working to build that country brand from the private sector, in groups like Wines of Argentina.”


“The key is to be efficient at the time you go into other markets,” says McDermott, “and that depends on public policy. INTA, the national institute for agricultural and fishery technology, is the appropriate agency [to do that] but it needs a bigger budget. Moreover, the main thing at the national level is to achieve a country brand, in order to promote wines more effectively abroad.”


In the case of competition from Chile, Giordano emphasizes that “our neighbor is not our competitor, for now. But we will be competitors in the future. I believe that we can compete and, at the same time, occupy different spaces in the marketplace. We can even complement each other. Chile is a country that is well-known in the winemaking world. We are still in the process [of achieving that], and we lack many things.”


Salguero agrees with that approach. Chile is a major competitor because nowadays it enjoys a greater presence in international markets than we do since they began to export their products a lot earlier than we did.”


For McDermott, even if Chile has a greater international presence, with a 10% global market share, “Argentina has very good prospects for growth if it can improve its way of producing. It could be that the pairing of good production – and high volume – can be unbelievable for Argentina. Moreover, Chilean wines are thought of as good but cheap – and that costs Chile market share in the U. S. in the fine wines segment.” Argentina can take advantage of that situation, he adds, “especially if the country can add more value to its fine wines.”