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The Argentinian wine boom has been an impressive story

Innovation and market diversification to drive Argentinian growth. Wine production costs have increased as much as 100% over the last four years

A growing demand for wines at higher price points saw Argentinian exports take off from the early 2000s. However, in 2012 export volumes of Argentinian still bottled wine began to contract, unveiling the challenges the sector is currently facing. According to Rabobank's Wine Quarterly Q3 report, Argentina must find ways to regain competitiveness, while maintaining the country's brand image, through market diversification and innovation to drive growth in the domestic market.

"Wine production costs have increased as much as 100% over the last four years", notes Rabobank analyst Valeria Mutis. "Movements in the exchange rate are also far from being on par with inflation rates. While the industry has little or no capacity to alter the current economic context, there are a number of strategic steps that it can undergo to improve its competitive position."

In 2012 Argentina accounted for more than 3% of world wine exports, heavily weighted towards the US. An expanding community, the US Hispanic segment is a natural niche market for South American and Spanish wine producers. Additionally, opportunity exists in the Mexican market where alcohol consumption is relatively high and a burgeoning middle class exists. According to Rabobank, diversifying to these 'natural' markets presents potential for continued long-term growth. Elsewhere, exports to Canada and China have recorded strong pricing gains, suggesting a growing market appreciation and an attractive target for future promotional efforts.

Argentinian bottled wine can no longer compete profitably in the low-end market segments. According to Rabobank, the industry will need to adapt its wine offering without eroding its strong brand by identifying and adapting to new consumption trends. Though their preferences diverge from the typical wine consumer, the Millennial generation is driving sector growth and brands that have successfully targeted this consumer segment have seen significant sales growth. Argentina's domestic market also presents an opportunity as consumption of higher-end wines has gradually increased. If wine manufacturers can continue to convince the domestic market to trade up in their wine selections, a growing amount of 'exportable' wines could be directed to the domestic market.

Internationally, bulk wine pricing continues to fall across many regions and varietals, with chardonnay and generic white wine pricing remaining more stable than many others in recent months. Cabernet sauvignon and other red varietals have seen some of the most notable pricing declines.

"In the current challenging scenario," said Rabobank analyst Marc Soccio. "All eyes remain fixed on the US Federal Reserve as anticipation grows that it will pare back the level of monetary stimulus in the economy before the end of the year."

by S. C.
04 november 2013, World News > America