Argentina. What a deal.

pms laflame at aaahawk.com
Tue Aug 27 07:55:00 PDT 2002


Rothschild, Freixenet Look to Argentine Vineyards (Update1) By Alexis Xydias

Buenos Aires, Aug. 27 (Bloomberg) -- France's Rothschild family, Freixenet SA of Spain and Credit Suisse Group share something that's rarer than a cheap bottle of grand cru wine: an eagerness to invest in Argentina.

Companies such as Canada's Bank of Nova Scotia decided to pull out of South America's second-biggest country while France's France Telecom SA opted to write off its investment there as the currency plunged, the economy entered recession and the banking system collapsed. Some international winemakers plan to take advantage of the drop in land and labor costs to buy vineyards.

``Now is the time to enter Argentina,'' said Jose Luis Bonet, chairman of Freixenet, the world's largest sparkling wine producer.

With the peso down more than 72 percent against the dollar this year, the country's already favorable climate and soil have become more attractive to winemakers and investors.

``Nothing beats the quality-price ratio of Argentina these days,'' said Xavier Pages, responsible for international production at Codorniu, Spain's second-biggest sparkling wine producer.

His company may add to the $10 million already spent on buying 300 hectares (741 acres) and building a winery in Argentina. Freixenet, which owns wineries in France, Mexico and the U.S., wants to buy an established winery, said Bonet.

A hectare of land in Mendoza, Argentina's main wine province in the Andes foothills, costs about $10,000, or a 10th of similar land in Spain and a 40th of what it would cost in California's Napa Valley, Pages estimated.

French Investors

A group of investors from some of France's wealthiest families, including Laurent Dassault and Nadine Rothschild, will add to the initial $23 million they spent in Argentina in 1999.

``After the devaluation we decided to accelerate our investment,'' said Philippe Schell, who manages the group's Argentine investments. ``We're building a second winery next year and in 2004 we'll build a third.''

Argentina's climate, scarcity of disease and scant rainfall provide ``the perfect environment to produce wine,'' said Ed McCarthy, a wine writer and co-author of ``Wine for Dummies.''

``Once people try Argentine wines, and later see their prices, they like them a lot,'' said Mark Phillips, executive director of Washington, D.C.-based Wine Tasting Association.

McCarthy said an Argentine Trapiche oak-cask cabernet sauvignon 1999, which retails for $9 to $10 a bottle in the U.S., compares in quality with a Beaulieu Rutherford cabernet sauvignon 1999 from California that sells for $20 to $23.

Drinking the Bulk

For more than a decade, Argentina's wine exports were held back by a currency system that tied the peso to the dollar, making its wines expensive relative to competitors such as Chile, South Africa and Australia. What's more, Argentines used to drink the bulk of production, leaving a small amount for sale abroad.

The world's fifth-largest wine producer, Argentina doesn't even make the list of top 10 exporters. Last year, exports -- mostly to the U.K., the U.S. and Germany -- were 1.8 million hectoliters (46.8 million gallons), or 11 percent of the country's 15.8 million-hectoliter production, the Paris-based Office International de la Vigne et du Vin said. Neighboring Chile ships 3.1 million hectoliters, or two-thirds of its output, annually.

A weak peso and the effect of deepening recession on domestic consumption may lift exports as much as 20 percent in 2002, according to the Argentine Wineries Association.

``We are directing our efforts at exporting wines which, for example, retail at $5 to $10 in the U.S. and in Argentina sell at between 4.5 pesos and 15 pesos ($1.25 and $4.20),'' said Jorge Arpi, manager of the Santa Ana and Michel Torino wineries that belong to Penaflor SA, Latin America's biggest winemaker. Penaflor is owned by Credit Suisse Group unit DLJ Merchant Banking.

Wine experts say Argentina can also compete at a higher level.

Value for Money?

``It's hard to find good, cheap wine below $25 in France or the U.S., while you can get that quality in Argentine wines below $20,'' said McCarthy. ``They even have decent wines below $10 and that's impossible in U.S. wines.''

One hurdle to boosting exports is that the quality of Argentine wine isn't widely recognized.

``There is no image,'' said French wine critic Michel Rolland. ``The goal is to make good wines and to do good marketing. It's a long-term effort and a difficult job, but the potential is there.''

Rolland and other connoisseurs suggest Argentina should concentrate promotion on wines made from malbec, a variety of grape that originated in France's Bordeaux region.

``Argentina is the only country that produces malbec so successfully,'' said McCarthy. ``That's their trump card.''

`Spicy, Rich'

Argentine malbec has ``dark color, density, strong tannins, with a very specific spicy character,'' said Rolland. Phillips describes it as ``spicy, rich, jammy and fruity.''

Other grapes grown in Argentina include the classic French varieties cabernet sauvignon, syrah, merlot and chardonnay.

The prospect of rising exports has encouraged winery owners to expand even as Argentina's economy contracts an estimated 15 to 20 percent this year.

For those with less money, the dream of owning a vineyard may still be unattainable, even after Argentina's devaluation. Gaston Briozzo, who heads a wine producers' group in San Juan province, puts the average cost of planting and equipping a winery, not including the land, at $1.5 million.



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