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The crisis fosters the development of regional markets

October 14, 2008 by Ma. Soledad Gonzalez | in Business

The rise in the price of oil and the geographic location of Argentina are rendering nearby markets more attractive. Brazil, Mexico and the United States are still the first ones in the list, as seen by exporters.

Exporters have their sights set on the United States, the United Kingdom and Canada, but Brazil and many other markets in South and Central America are starting to attract the attention of small and large exporters. Although exports to these destinations are still marginal, the rising cost of logistics could position them as attractive markets.  

Regional markets are strengthening. Data released by MRT reveal that in the  January-August 2008 period, a total of FOB u$s 24,760,160 in bottled wines (including bottle, tetra brick and bag in box) have been sent to Brazil, implying 39.81% more than in the same period of 2007. With regard to Paraguay, wine exports have added up to FOB u$s 13,934,155, accounting for a 22.4% increase; México received wines for FOB u$s 8,094,534, which implies a rise by 13.01%. These are the three major destinations of wine exports in Latin America.

One of the reasons why near markets are becoming attractive is the cost of logistics, which are ravaging maritime freights. The Bunker Surcharge item, applied to the basic rate as a result of variations in fuel prices is one of the causes behind cost increases. Freight companies claim that at the beginning of the year this item amounted to around 250 dollars, and now it has gone up to 800 dollars per 20-feet container. According to OPEC (Organization of the Petroleum Exporting Countries) data, the average price of an oil barrel oscillated around 74.18 dollars in September 2007, reaching up to 96.85 dollars in September 2008, with peaks of monthly average prices in May (119.39 dollars) and June (128.33 dollars), and reached its highest peak in July (131.22 dollars). At the closing of this edition, the price of the oil barrel was 89.9 dollars.

Moreover, a study conducted by Javier Merino, director of Área del Vino, about the distances and cost of world transport, indicated that the average course of a liter of wine from Germany, for instance, amounts to 2,100 kilometers. For Argentina it amounts to 11,300 kilometers and for Australia it is 15.200 kilometers.

Brazil first

Brazil is in the first place in the region, when it comes to exports by value. It is one of the markets where Argentina competes strongly with Chile to become a leader. Nevertheless, the non-tariff barriers that the neighboring country is trying to impose on Argentinian wines seem to threaten the local industry (they are demanding the rise of the average export case, from 8 to 15 dollars).

"We believe that Brazil has to grow as long as we do not have too many tariff obstacles for entering our wines in the market," claimed Heriberto Leitner, from Bodega Eclipse.

In 2007, a total of 38,292,580 million FOB dollars were exported to Brazil, while in terms of volume, they represented 163,996.04 hectoliters. In this scenario, it occupies the sixth place in terms of volume and the fourth in terms of value, after the United States, the United Kingdom and Canada.

Is there life after Brazil?

The answer is yes, certainly. There are wineries -both small and large- that have obtained good results in countries like Paraguay, Venezuela, Colombia and México, to name just a few.

Julián Gómez, comercial manager of Foster and Mauricio Lorca wineries pointed out that "the truth is that the nearest markets offer advantages, but many of them have very low per capita wine consumption. Mexico is the winery’s third market, after the US and Canada. Premium wines have a great potential because they have become socially fashionable and drinking good wines has become a sign of prestige," Gómez pointed out. His winery exports around 15,000 cases every year, at an average 60 FOB dollars per case.

México is a very attractive market. In fact, the information submitted by MRT regarding bottled wines in the January-August period shows that Malbec is the most exported wine, representing 40.3% of total volume, followed by Cabernet Sauvignon with 15.1% of the total.
"Besides their proximity, some of the advantages of these markets are that they do not pose language barriers and the fact that Argentina and its wines are renowned and attractive both at the cultural and touristic levels," commented Andrés Belinsky, export manager of Terrazas de los Andes, Cheval des Andes and Chandon.

Ricardo Puebla, export manager at Bodegas Lávaque, said that "there was a moment of euphoria regarding Colombia and Venezuela and these markets are already consolidated for Argentina. Today, I could say that Peru is one of the markets growing the most. In Central America, there are operations in El Salvador, Honduras and the Dominican Republic, although Mexico is certainly the diva."

In terms of bottled wines, total exports to Peru amounted to u$s 3,890,700 between January and August 2008, representing 32.36% more than in the same period of 2007. As for Venezuela, it received wines for u$s 4,874,483, representing a rise by 140.77%. Finally, Colombia experienced a drop in Argentinian wine imports (17.50% less in value and 26.22% in volume).

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