Argentina faces rising costs for wine production

14 August, 2014

The cost of wine production will continue to soar in Argentina after the South American nation defaulted this month, according to a leading wine consultant.

Argentina officially defaulted after failing to pay creditors £320 million, the second time in 13 years the beleaguered nation has defaulted on outstanding debt.

Inflation has been high for many years, causing the nation’s winemakers to be faced with spiralling outgoings.

Justin Knock MW, winemaking consultant at Encirc, believes this will continue and urged the winemakers to use specialist UK packagers to continue building up exports to our market.

He said: “The recent uncertainty around the default has seen the peso devalued by a fifth since January and, as a result, decreased levels of activity from Argentine wine producers.

“Argentina has had a tough time in recent years, as high inflation levels of between 20% and 30% have caused the local cost of wine production to soar – a trend that, following last Friday’s events looks set to continue.

“As a result there are considerably fewer entry-level wines being produced – the kinds that would typically be suitable for bulk shipping and destination bottling – while the country’s top-end Malbecs are better placed to use manageable price increases to cope with inflation pressures.”

A growing thirst for Malbec among British drinkers has seen Argentina emerge as one of the best-performing nations on UK shelves, with volume sales up 21% and value sales up 24% (Nielsen, year to April 24).

“Wine from Argentina enjoyed strong growth in the latest 12 weeks, up 21% and 14% respectively, reflecting strong consumer demand for Malbec,” added Nielsen.

Knock believes Argentina will continue to target the UK with premium wines, although the outlook for the nation’s winegrowers is uncertain.

 “Although Argentina’s 2014 harvest was good quality and bountiful, the other factors affecting the market, such as poor internal demand and strong competition from other new world nations, as well as the default, mean the outlook for Argentine wine producers is uncertain,” he said.

“Although fewer wines are being produced that may have traditionally been considered for bulk shipping, an increase in the cost of importing and the subsequent impact on dry goods means we can expect to see more of an interest from Argentine producers in packaging their products in the UK. By using specialist packers in the UK and Europe, where costs for dry goods can be fixed, producers can alleviate some of the inflation pressures they are under.” 

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