Argentina has a long wine making history, longer than many other producing countries in the New World. In the course of this long history, technology, people, the political, economic and social environment have played a major role in shaping what is now the current state of the Argentine wine industry. When favorable conditions are fulfilled, the mindset within the industry evolves, new markets are opened and international recognition arrives.
The production side
In order to produce wine, the first thing needed is physical and technological means. In dry regions like Mendoza, water (irrigation) is essential. Inca technology, later improved by Europeans, consisting in a gravity-fed irrigation system. Drip-irrigation brought during the early 1980’s from Israel to Argentina allowed to irrigate high altitude vineyards.
Then qualitative planting material is another factor. Even though cuttings from Spain, Chile and other origins were brought to Argentina during the XVth and XVIth centuries, a real improvement was introduced by Michel Aimé Pouget, a French agronomist, who in the second half of the XIXth century planted cuttings of Cabernet Sauvignon, Merlot, Chardonnay and Malbec and also taught viticulture and winemaking techniques to local growers.
As far as the Malbec grape is concerned, since there was no selection of clones for Malbec, the country had to do its own, a task that Nicolas Catena and his team had embarked in. The experiment that was performed changed the wine industry. Finally, the building of winemaking facilities in the vineyard and the gradual introduction of mechanical harvesting have been the main viticultural developments of the early XXIst century.
People was required to work on the vineyards and develop the industry. Two waves of immigration fulfilled this condition. One in the 1820’s following the freeing of Argentina from Spanish colonial rule by General San Martín and the second one between 1847 and 1939, period during which seven million immigrants came to Argentina.
Political events have shaped Argentina wine history in different ways. Civil war contributed to the decline of the Argentina wine industry during part of the XIXth century. During the XXth century, the succeeding governments could not avoid the effects of the 1929 crisis to hit the wine industry, which declined until General Perón came to power (1943 – 1950) and domestic consumption was revamped. His measures in favor of the working class had a direct impact on the vineyard surface, which spread from 450.000 acres in 1950 to almost 900.000 acres in 1977. But the succession of military governments until 1983 ended in economic decline, bureaucracy, corruption, social and political unrest and a general isolation of the country on the global political scene.
Economic events have also shaped the Argentine wine industry. With Buenos Aires as the main domestic market, the industry developed quickly during the XVIIIth century. From 1778, as a result of the free-trade law, Buenos Aires – until then the natural market for Mendoza wines, was flooded with Spanish wines and could not stand the competition: Iberian wines were cheaper and better. Only when ships could not reach Buenos Aires, could Mendoza wine be sold in the capital.
In 1885, the cross-country train linked Mendoza and San Juan to Buenos Aires. Besides from bringing producers closer to their customers, this situation helped immigrants settle in Mendoza.
During the dictatorship (1976 – 1983), the Argentinian monetary system was not working properly. Annual inflation was over 1000% / year, the peso was getting stronger against the US dollar in real terms, which had a direct impact on export, falling from 67 million liters in 1978 to 9 million in 1979 and 7 million in 1980.
Hyperinflation in the late 1980s – early 1990s, prevented many wineries from buying stainless steel tanks, making them use cement pools. Even when the economy stabilized in 1991, banks lent at 25% interest. Because of this, many bodegas did not invest or changed hands.
Things changed with the arrival of Carlos Menem in 1989 to the Casa Rosada. He pegged the peso to the dollar in a system called convertibilidad, lowered trade barriers and launched a wholesale privatization program. As a result, inflation fell to the single digit by 1993 and foreign investment flooded into Argentina. During the decade beginning in 1991, 1,5 $ billion was invested in the Argentine wine industry. The devaluation of the peso in 2001, which lost 65% of its value against the dollar attracted many foreign investors, launching projects, most of which geared towards quality.
The demand side
The behavior of the consumer is a key factor to understand the history of Argentina wine.
European immigrants were wine drinkers. During immigration period, per capita consumption rose from 23 liters / year in the late 1870s to 62 liters / year in 1914. However, with the economic crisis of 1929, per capita consumption fell to 33 liters in 1932. With Perón measures in favor of the wine industry, per capita wine consumption rose from 66 liters in 1950 to 80 liters in 1960 and 92 liters in 1970. By 1975, per capita consumption had slid to 84 liters in 1975 and 76 liters in 1980. In 1985, consumption was 59 liters. By 1996, that figure dropped to 41 l per capita and to 30 l in 2004. During the 1970s and 80s, Argentine wine drinkers switched from 75% red to 75% whites. As a result, between 1970 and 1990, Malbec surface decreased by 80%, to just 25.000 acres.
Mndsets and their evolution also played a rule in Argentina wine industry. Nicolas Catena realized that he had to enter modern wine production using up-to-date technology and reducing contact with oxygen at every step in order to seduce international consumers. With the help of US wine consultant Paul Hobbs, he changed everything in his winery. New modern technologies were also introduced by Arnaldo Etchart with the help of Michel Roland: yields were decreased, irrigation was reduced, new pruning methods were also tested, hang time in the vineyards was extended, stainless steel tanks with temperature control were used in order to improve taste, color, mouth feel and ageability, moving away from oxidized, astringent wines with too much sulfur in them.
With all these changes, the conquest of new markets begun, after decades of only serving the captive domestic market. And it wasn’t until 2002 – following the devaluation of the Argentine peso which lost 65% of its value against the dollar and a shrinking domestic market – that exporting became substantially more profitable. The devaluation of the peso had lowered the wine industry’s costs and made winemaking incredibly lucrative. After five years of exports in the range of 150 million $, exports jumped to 231 million $ in 2004 to 379 million $ in 2006. At the time, Argentina exported modern style, fruity, straightforward wines which resulted of the country making its wine revolution and modernizing itself from 1993 onwards. In 2010, Argentina exported 222 $ million to the US, 12 $ million more than Chile.
As an example of this success, the Zuccardi case can be mentioned. Familia Zuccardi began to export an entry level Malbec – Syrah blend called Fuzion which did not achieve great success in Europe but took off in Canada. In 2009, the Fuzion was the top seller for the LCBO (Ontario’s monopoly). The government controlled stores sold 419.000 cases in the Ontario province alone, more than the total sales of the thirteen Yellow Tail products.
The future of the industry: bright to shining if conditions are gathered
The future of the Argentine wine industry will depend upon how many key success factors will be fulfilled and to what extent. The main drivers that will contribute to the evolution of the industry are:
- Having a wine industry with a story to tell: the Andes and the altitude vineyard are both a marketing and quality argument. The Andes mountain range is a unique selling proposition. As far as quality is concerned, altitude brings two key components: thermal amplitude and powerful UV rays. Thermal amplitude produces richer aromas, tannins, flavor and color. Stronger UV rays mean thicker grape skins, less alcohol, more acidity and concentration resulting in big but round and velvety wines.
- Having a strong brand identity: two main elements make the brand: the icon wines that are arriving to the market and the malbec grape. Icon wines are generally expensive and receive the awards of the critics. Catena Alta Malbec, Cobos Malbec, Achával-Ferrer’s Malbec, Finca Altamira Malbec all have scores of over 90 points given both by the Wine Spectator and the Wine Advocate. On the other hand, Malbec is the grape closely associated with Argentina (even though Bonarda and Torrontés are gaining momentum). These elements definitely act as brand builders. To add to these, it can be mentioned that wine tourism is booming as well. During the first half of 2010, 769.000 visitors toured Argentine wineries, up almost 58% from the previous year;
- Having a faithful customer: The success of Malbec in the US and other market is due to the fact that the straightforward, fruity character of the grape is very consistent with what the consumer is looking for. It is the perfect variety for countries that are new to wine. In many cases, Malbec has entered the subconscious of the consumer and is probably there to stay. That is why people like Jay Miller – a former Wine Advocate correspondent – says that “Malbec is not a fad. Right now and for the foreseeable future, Malbec looks great. I don’t think Malbec will disappear.”
- Having a market big enough to sell the current production: the US, Canada and the UK – ranked among the main markets for Argentina exports – are markets which have a considerable size and offer great potential for development;
- Having a consolidated industry structure: a considerable part of the Argentine wine industry is dominated by big players. Constellation Brands signed deals with O. Fournier and Carlos Pulenta to produce Diseño, an under ten dollar mass-market Malbec. Pernod Ricard, Allied Domecq and Diageo all bought Argentine wineries. Catena signed deals in 2007 and 2008 with E&J Gallo Winery to distribute several brands in the US. In April 2011, SPI Group, the spirits company that owns Stolichnaya vodka, bought a majority share in Achával-Ferrer. As long as these players stay, the future of the industry seems guaranteed;
- Being easily available worldwide and benefiting from a good distribution network: as mentioned above, big players have the capability of distributing the wines produced and through their international presence, ease the way for smaller producers;
- Offer diversity: not only does Malbec offer different aromatic profiles depending on altitude (going from violets in the higher altitudes to black cherries, blackberry then plum, cherries, strawberry in the lower terrains) but producers also explore new regions like Río Negro in Patagonia which has been planted with Pinot Noir grapes – among others; besides, organic farming is starting to be on the scene, with players like Ojo de Agua bodega in Mendoza at the forefront of this movement;
- Benefiting from a general global environment: the current political and economic situation of Argentina, lead by weak governments, is here the problematic point of the equation. The popularity of the country abroad is at stake and many investors might as well postpone their decision or simply invest some place else. Lately, inflation has reached 38% in 2014 and 26% in 2015. Between 2009 and 2010, the prices that bodegas paid to buy grapes and wine rose between 40 and 100% and still today those prices have remained high. With these inflation rates, margins are always shrinking. The problem is that Argentine wineries rarely can transfer higher costs to international consumers from countries accustomed to stable prices. Even if 75% of the wine produced is sold domestically, a large number of wineries depend on the export market for growth and see it as the key to the future.
As a whole, Argentina has a long wine producing history, a strong international recognition and its wine is appreciated by a growing number of amateurs worldwide. It would be surprising if Argentina lose its position on the global wine scene. The last two decades of work put in by Argentina’s bodegueros, winemakers and viticulturalists and the flying winemakers they hired have so radically improved the industry that it is now in a consolidated position. As the recently tasted wines from the Fabre Montmayou domaine show, Argentina wines can reach Grand Cru Classé level and directly compete with the best Bordeaux wines. As long as these wines are present on the international wine scene, the future of Argentinian wines will undoubtedly be bright.