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Bienvenidos a Argentina!

Bienvenidos a la tierra del vino! Argentina is wine country. Let’s start with a few facts. Depending on whose statistics you use, Argentina ranks as either the fourth or fifth largest wine-producing country in the world: it produces five times what Chile does . . . in fact, it produces more than all the other southern hemisphere wine countries combined.

Again depending on which set of statistics are in play, Argentines are either the third- or fourth-largest per capita wine consumers in the world. It is hardly surprising that theirs is a wine-drinking culture, since the grape arrived here back in 1556, when a Spanish priest made the arduous trip across the Andes from Chile bearing cotton and grain seeds and vine cuttings. Then in 1561 Pedro del Castillo and Juan Jufre established the first vineyards in Mendoza, the country’s premium wine region. Waves of immigration throughout the 19th and early 20th centuries brought people almost exclusively from wine-oriented cultures - Spain, Italy, Germany, France - and in fact today nearly 98% of the country’s population can prove European ancestry.

Following the lead of Castillo and Jufre, virtually all the new arrivals with wine on their minds made their way to Mendoza, the huge central-western province that backs smack up against the Andes. They liked what they found: warm sunny days, cool nights, low humidity, and well-drained soils that are inhospitable to phylloxera and other vine diseases. True, rainfall was relatively scarce, but there was ample compensation in the form of snow runoff from the mountains, which the native Indians had already learned how to channel for irrigation purposes. Thus, in 1885, when the British opened the railway they had constructed from Mendoza to Buenos Aires, producers were already well situated to supply the thirsty capital market.

The question then arises: If Argentina is so richly “wine country,” why are the wines only now achieving some small position in the international market? There are some relevant economic and political factors (see next page), but let’s stick to the social and cultural ones here. The fact is that up until a decade or so ago, Argentine wine producers had all they could do to supply the domestic market and the word “export” wasn’t in their vocabulary. This meant that they were far more interested in quantity than quality. Also, the Argentines had developed a rather idiosyncratic palate: their taste ran to thin, rough, and dusty wines low in tannin, fruit, and acidity, with extended barrel aging.

Change came in the early ‘90s: the younger generation discovered soft drinks, premium beers, and designer cocktails, and domestic wine consumption dropped by more than 50%. The new motto was export or die… but the new problem was that the traditionally made wines were not right for the international market. In the last decade winemakers here have had to turn on the proverbial dime, but the good ones have done so gracefully, pointing the way to the high quality level they are clearly capable of.

As James Carville Once Famously Said . . .

Remember that line from the first Clinton campaign? “It’s the economy, stupid!” Well, that’s the story here, with a healthy dose of politics thrown in, of course.

The blunt truth is that for the better part of my lifetime Argentina has not been a very hospitable place. To the younger generations Juan and Eva may be compelling characters in a glossy Broadway musical; to those of us who remember the real thing, however, the Perons were a self-aggrandizing, near-megalomaniacal couple that held a country and its people in thrall, together and separately, for nearly three decades. And the military dictatorships that followed were, if anything, even worse.

In 1945 Argentina was the fifth-richest country in the world, but decades of political and economic instability and misguided government policies have taken a heavy toll. Peron’s emphasis on “self-production” made importing virtually impossible and pushed the country into isolation, a position intensified by the generals who established a closed economy with no imports or exports, effectively shutting the door to modernization. By 1989 the country had a huge external debt and an inflation rate of 200% a month.

The return to democracy in 1991 brought with it numerous changes -trade liberalization, deregulation, privatization, radical monetary reforms -all of which encouraged entrepreneurs to court the outside world. International investors responded -from the U.S., France, Portugal, Austria, and elsewhere -pouring millions into the local wine scene, establishing new vineyards and wineries and bringing in new equipment and technology.

But the country remains saddled with a state sector bloated far beyond the ability of its people to pay for it. Since 1945, successive governments have exhausted the country’s reserves, taxed industry beyond its capacity to compete, taxed the people beyond their capacity to pay, and borrowed from foreign banks until the banks woke up to the fact that they would never be repaid.

What looked to be the start of economic recovery went into reverse gear a year ago. Since December 2001 the country has defaulted on public debts of more than $141 billion and devalued its currency by 29%. The banking system has virtually disintegrated, unemployment is over 20%, and investors are fleeing the country. The current sick joke is that the military won’t mount a coup this time because they can’t afford bullets.

Amidst this chaos the wine business is a source of (qualified) optimism, as well as of foreign currency and continued investment. Wineries that have continued to focus on providing for the domestic market are coming on hard times, as Argentines have been forced to economize on life’s luxuries; but those who have cultivated the international market will almost surely weather the storm. How stormy is it? Carlos Tizio, technical director of Bodega Norton, explains: “The price of corks has risen 150%, bottles by 40%, cartons by 80 to 90%, and barrels by much more than that. We have to pay the [5%] export tax three days after we ship our wines, and we may not get paid for 90 days. The Central Bank takes our dollars and gives us the lowest possible peso exchange rate.” Jose-Alberto Zuccardi of La Agricola likens running a winery today to a high wire act: “We’re trying to be very careful to balance the effects of the devaluation, of inflation, and the export tax we have to pay. It’s very difficult when the banking system doesn’t work at all.”

Will the situation improve soon, or is the country locked in a steep downward spiral? Winemakers are determined to battle through the crisis, but their fear is that before things can get better they will have to get a whole lot worse.

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