Reuters | 9 Augsut 2019

In Argentina’s wine country, vintners worry about recession - and trade deal

by Cassandra Garrison

MENDOZA PROVINCE, Argentina (Reuters) - Argentine wineries, already grappling with an economic downturn that has cut deeply into domestic sales of their Malbecs and Bonardas, are now trying to figure out whether a blockbuster trade deal with Europe will prove a boom or a bust to their vineyards.

The Mercosur customs union, of which Argentina is a key member, recently struck a trade deal with the European Union that potentially could propel a growing export market for the country’s famed robust red wines.

The deal, however, is under the shadow of Britain’s impending withdrawal from the EU, as soon as Oct. 31. With the exit will go virtually half of Mercosur’s EU wine exports, according to the Argentine Wine Observatory.

Argentine vintners will still sell their wines to Britain, but without the tariff-cutting agreement that the EU will enjoy. To make matters worse, the EU gives subsidies to its vineyards for marketing and advertising, a benefit not available to Mercosur producers, including Brazil’s more domestically oriented vineyards.

“Business with the European Union, when it includes the UK, is one thing, said Jose Alberto Zuccardi of Zuccardi wines, whose vineyards, now bare for the winter, are surrounded by snow-capped mountains.

“Without the UK, though, it’s something else,” Zuccardi added.

“So the concern is that EU countries have a very aggressive subsidy policy for wine, so we are in a dilemma,” said Zuccardi.

Carlos Fiochetta, general manager of Coviar, an Argentine wine industry body, added, “The European Union allocates around 300 million euros per year per country to subsidize wine,” Fiochetta said. “Clearly in Argentina we do not have these funds.”

Argentine vineyards are already suffering through a slowdown in the domestic market, which drinks nearly 75% of the sector’s output but has been slammed by a steep recession.

Consumption is down 29% to 18.9 liters per person from 26.7 liters 10 years ago, according to government data. Wine exports, meanwhile, have gradually increased by 32% in the last decade, hitting $821 million in 2018.

‘BAD NEWS’

Some producers said they were particularly wary of the Brexit factor.

“Seeing that Brexit is practically a reality because everything indicates that the United Kingdom is going to leave the European community, we would be staying with the countries that sell, and the country that is buying is leaving,” said Fiochetta.

Others argued, though, that even without Britain, the EU still offers hundreds of millions of potential consumers, with some seeing possibility of a future deal with the UK.

“Brexit or not, the market with the UK will continue as is,” said Patricia Ortiz, president of Bodegas de Argentina, another industry group, adding that informal discussions with UK officials were already in progress.

She compared the trade deal with Chile’s agreement with the EU signed in 2002, which nearly doubled the country’s EU wine and alcohol sales to more than $400 million within two years.

AMPLE SUBSIDIES

“If there is a change, our job will be to continue to have trade agreements with as many countries and trade blocs as possible,” Etchevehere told reporters last month.

Esteban Baigun, director general of Raventos Codorniu Group in Latin America, which controls high-end winery Bodega Septima in Mendoza, predicts the agreement will mean double-digit growth for Argentine wines within a couple of years.

WORRIES IN BRAZIL

The EU’s subsidies are an even greater worry for Brazil’s long-protected wine industry, which is already seeking compensatory measures from the government of President Jair Bolsonaro.

“We are worried about the deal because the Europeans are very competitive and their wineries heavily subsidized, while here our tax burden is very high,” Oscar Lo, president of Brazilian wine institute Ibravin, said in an interview.

Orlando Leite Ribeiro, secretary of trade and international relations at the Ministry of Agriculture, said the government is mulling the creation of a fund to support the industry through a presidential decree.

Argentine wineries mostly sounded more confident about holding their internal market.

“Argentinians will always love Malbec, as France loves champagne, as Spanish people love Rioja,” Baigun said as he sipped a glass of sparkling wine from his company’s Mendoza-based vineyard.