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Malbec Drinkers in Brazil Use Real Rally to Buy Argentine Cases

Source: Bloomberg
By: Bill Faries and Maria Luiza Rabello
08.05.2010

Argentine wineries are boosting sales to Brazil faster than to any other market after the real’s 31 percent rally against the peso since May 2009.

Exports to South America’s most-populous country rose 49 percent in the first five months of this year from a year earlier to a record $15.8 million, according to a July report from Caucasia Wine Thinking, a research company based in Mendoza, the center of Argentina’s wine region. Sales to the U.S., the biggest importer, rose 19 percent to $97 million over the same period.

Argentine winemakers benefitted from the real’s appreciation, said Jose Manuel Ortega, founder of the Mendoza- based O. Fournier winery. Sales will increase as the peso weakens past 4 per dollar by the end of this year from yesterday’s close of 3.93, according to the estimate of 13 economists in a Bloomberg survey.

The strength of Brazil’s currency against the peso means that a bottle of Argentine wine worth the equivalent of $15 in May 2009 has dropped from 32.6 reais to 24.8 reais.

“The economic situation in Brazil is creating a much bigger and sophisticated middle class,” said Ortega, a former Goldman Sachs Group Inc. and Banco Santander SA banker who now owns wineries in Chile and Spain as well as Mendoza’s Uco Valley. “Wine lovers in Brazil are passionate about wine, and wine sales in volume continue to grow in a significant way.”

Brazil’s economy will grow 7.2 percent this year, the fastest in more than two decades, according to a weekly central bank survey of about 100 economists published Aug. 2. Yesterday, Argentina’s Economy Minister Amado Boudou said his country would grow 7 percent this year, up from 0.9 percent in 2009.

Malbec-Led Growth

Exports are led by wines made from malbec, a grape that originated in France and has become Argentina’s trademark varietal. Malbec shipments accounted for about half of all sales abroad in the first five months of 2010, rising 39% from a year earlier to $121 million, according to Caucasia. Exports of cabernet sauvignon wines were second at $26 million.

Malbec thrives in the arid soil of vineyards more than 1,000 meters (3,280 feet) above sea level in Mendoza and the northern province of Salta. Bodega Colome’s malbec from Salta’s Calchaqui Valley came 32nd on Wine Spectator’s list of the top 100 wines of 2009. The magazine gave the $25 bottle a score of 92 out of 100.

Rising sales from Argentina to Brazil are helping Vina Concha y Toro SA, Chile’s biggest wine producer, boost sales and diversify away from Europe and the U.S., research company Banchile Inversiones said in a July 15 report. Exports from the Santiago-based company’s Argentine wineries will rise 4.5 percent this year to 13 million liters, compared with a 4.2 percent increase in shipments from Chile, Banchile said.

‘Important Market’

“Brazil is going to be an important market,” said Barbara Angerstein, an analyst at Celfin Services Financieros in Santiago. “The exchange rate is a benefit for exporters.”

Angerstein, the top-ranked analyst on Concha y Toro according to data compiled by Bloomberg, reiterated her “buy” rating on the stock last month with a price target of 1,380 Chilean pesos ($2.67) compared with a record 1,349.08 pesos in June 2007. The winemaker’s shares fell 0.32 percent yesterday to 1,265 pesos, trimming their gain this year to 14.4 percent.

For Anna Rita Zanier, the chief sommelier of Expand, a Brazilian importer that distributes wine to 2,000 supermarkets and 1,500 restaurants, Argentine wines give better value for money than those from Chile.

Price, Quality Ratio

“The ratio between quality and price is very good,” Zanier said in a July 28 interview in Sao Paulo. “A 29-real Argentine wine has the quality of a 50-real Chilean one.”

Expand spent 40 percent more on Argentine wine in the first half of 2010 than a year earlier, Zanier said.

Brazilians are developing a taste for Argentine wines while they vacation in their southern neighbor, said Rodrigo Obregon, 29, manager of the Winery store in the heart of Buenos Aires’s financial district.

“The number of Brazilians coming here is growing rapidly -- it’s up 300 percent or 400 percent from five years ago,” Obregon said. “They don’t come here to buy one or two bottles. They buy one, two or three cases to take back to Brazil.”

About one-fourth of the 613,333 foreign tourists arriving at Argentina’s main international airport in the first quarter were from Brazil, up 50 percent from a year before, according to the government’s national statistics institute in Buenos Aires.

The Patagonian town of Bariloche has been dubbed “Brasiloche” by locals because of the flood of visitors from Brazil to the lakeside ski resort.

Customs Allowances

Brazil is making it easier for all these travelers to bring Argentine wine back home. The customs service is raising the number of 750-milliliter bottles that can be brought into the country to 16 from 12 beginning in October.

Yet some Brazilians are working to ensure supplies by buying their own vineyard.

At Vines of Mendoza, a company that sells and manages vineyards for private buyers in the Uco Valley, staff are studying Portuguese, Brazil’s official language, after the number of Brazilians visiting its two tasting rooms rose three- fold from 2008, company president Michael Evans said. Five of the company’s 79 landowners are from Brazil, up from one a year ago, he said.

“It’s become our second most important market in just the last year,” Evans said via e-mail. “We are seeing a huge influx of Brazilians.”

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