Argentina’s peso has suffered its biggest one-day fall in value since the country’s 2002 financial crisis, slipping by 11% against the dollar in just a few hours late last week.
Its slide has intensified concerns over Argentina’s domestic economy. But an ongoing weak peso might aid wine exporters, and especially those focused on the US, which accounts for 50% of Argentinian wine shipments.
According to Juan Carlos Pina, Bodegas de Argentina’s manager, there were two clear situations. The first one, until last Wednesday, with rising costs, delays in exchange rate adjustments, etc., all of which reduced competitiveness to export wine and must. “The other context arose on last Thursday, with a dollar at ARS 8. At this point, the situation changed, as we can talk about exports of bulk and wine cases at USD 28 (FOB), improving our competitiveness,” explained Pina, who added that with a dollar under USD 8, Argentina shipped cases at USD 35 (FOB).
In addition, the professional spotlighted that input suppliers announced an increase from 25% to 30%, “if we generalized, we go back to the past, when we sold the wine case at USD 35 FOB or more, losing competitiveness,” detailed Pina
“At first, devaluation is good news for the wine industry, especially for products with low added value, such as concentrated grape juice and bulk wine, because there is a considerable stock coming from previous harvests, which will be more competitive in foreign markets (cheaper in USD) and should be exported in higher volumes. So, this helps the wine sector in general,” commented Alfredo Aciar, economist at “Ideal” foundation.
‘It will definitely help exports,’ said Marcelo Waldheim, president of Mendoza-based Casarena, told decanter.com. ‘This will help the wineries cover inflation, and stay profitable and competitive, without having to increase prices.’
On the other hand, Juan Carlos Muñoz, president and winemaker at Las Perdices, highlighted: “we need to know how we will end in this situation; what the new balance is; and then we will be able to say whether this situation improves or not competitiveness”.
Besides, he added that exporting wineries will have to know what costs will be, and what the increase will hit inputs, “with peso drop, everything would seem that most of this dollar appreciation will be squeezed by inflation,” pointed out the businessman.
According to Domaine Bousquet’s CEO, Labid Al Ameri, this devaluation was unexpected, “I thought it would be more gradual. We expect exports to grow, with more dollars in the country to ease the situation”. To Al Ameri, if input costs will increase as a result of this devaluation, “this advantage for exporters will not last for a long time.”
Inflation, trade restrictions and red tape have doubled production costs at Argentina’s wineries in the past four years, according to Rabobank analysts. Most wineries exporting at less than $30-a-case are likely losing money, they said.
Argentina’s national statistics office put domestic inflation at 10.9% for December. But, independent experts surveyed monthly by the University of Torcuato di Tella believe the true figure is around 30%.
At the same time, ‘the US dollar increased by about 10% per year, therefore generating a loss in competitive position which had the Argentine wine industry in a very tight situation’.
Yann Falc’hun, of Bodega Marco Zunino, agreed that the peso’s devaluation could reduce the squeeze on wineries’ income. ‘It will help Argentine producers who export around the world. For example, two days ago, one euro equalled 15 pesos. Today, it’s 17.5 pesos.’
However, he added that it often takes time for exchange rate changes to affect prices.
Aciar maintained that in the case of products with higher added value (bottled wine), the peso drop also makes them more competitiveness, but to a lesser extent, since there are some components of costs subject to devaluation.
A further complication is that some economic experts believe the weaker peso could lead to even higher domestic inflation. Economic deterioration on the home front could put extra pressure on wineries’ costs.
“As in all economic decision, there are winners and losers. In this context, the latter ones are those focused on the domestic market offering high added-value products, since the downturn in the purchasing power due to devaluation will hit negatively the domestic consumption,” agreed Alfredo Aciar.
“Unfortunately, this situation did not arise before, so as to have time to fluidize exports. I said this because we are next to the new harvest and raw material prices may rise along with devaluation, going back to the initial point. Nevertheless, the way this currency drop took place and the lack of an integral and consistent economic plan against inflation, sooner or later, will make this advantage turn into a disadvantage,” detailed the economist of Ideal Foundation.