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Argentina's wine production costs continue to soar

What effect will Argentina’s credit default have on its wine industry and the bulk-shipping of wines from the country?

Justin Knock Encirc Wines

Last Friday saw Argentina officially default following a ruling by the International Swaps and Derivatives Association that its failure to pay US$539m to its creditors signified a ‘credit event’. The recent uncertainty around the default has seen the peso devalued by a fifth since January and, as a result, decreased levels of activity from Argentine wine producers.

Argentina has had a tough time in recent years, as high inflation levels of between 20 and 30 per cent have caused the local cost of wine production to soar – a trend that, following last Friday’s events, looks set to continue.

As a result, there are considerably fewer entry-level wines being produced – the kinds that would typically be suitable for bulk shipping and destination bottling – while the country’s top-end Malbecs are better placed to use manageable price increases to cope with inflation pressures.

Although Argentina’s 2014 harvest was good quality and bountiful, the other factors affecting the market, such as poor internal demand and strong competition from other new world nations, as well as the default, mean the outlook for Argentine wine producers is uncertain.

Although fewer wines are being produced that may have traditionally been considered for bulk shipping, an increase in the cost of importing and the subsequent impact on dry goods means we can expect to see more of an interest from Argentine producers in packaging their products in the UK. By using specialist packers in the UK and Europe, where costs for dry goods can be fixed, producers can alleviate some of the inflation pressures they are under.

11 August 2014