CHILE: Peso pushes Chile's wineries to breaking point

• Small wineries face ruin - Rabobank
• Predicts industry consolidation
• Wines of Chile says situation not dire

Many small Chilean wineries are struggling to survive the country's strong peso currency, which has damaged the value of exports, according to Rabobank.
 
Chileans may have brushed aside the established world wine order in the last few years, but the country's strong peso currency is threatening to undo some of the good work. Almost a year after Chile's wine sector lost US$430m in stock and infrastructure to an earthquake, smaller wineries are reportedly under threat from financial tremors.

"There is increasing speculation that a number of smaller Chilean wineries may be forced to exit the market if the exchange rate does not improve in the near term," said investment bank Rabobank in its quarterly wine review, published last week. It said that many of Chile's small wineries are reported to be seeking joint ventures and partnerships "in order to survive".

The Chilean peso strengthened by around 10% against the US$ and GBP sterling in the first nine months of 2010, according to Rabobank. This has given rivals, such as neighbouring Argentina, the opportunity to steal a march on Chile in key export markets, particularly the US.

Wines of Chile president René Merino confirmed to just-drinks yesterday (25 January) that many small wineries "are in financial stress". However, while he "does not rule out the possibility of some going down", he said that many wineries have become accustomed to dealing with volatile currencies.

"Many of them have somehow adjusted via price increases," he said. "Don't forget that a majority of the small wineries in Chile have owners who don't 'live' out of the wine business, but have other core activities," Merino added.

Michael Cox, head of Wines of Chile for the UK and who has spent the last two weeks touring Chilean vineyards, said that many producers are "taking a pragmatic, long-term view". He said that the 2010 harvest is turning out to be "exceptionally good quality and 2011 looks similar".

Consumer demand for Chilean wine, at least, has remained strong.

Rabobank figures show that Chile's wine exports for the first ten months of 2010 rose by 10% volume and 12% in value, albeit in local currency. Earlier this month, meanwhile, industry leader Vina Concha y Toro reported a 6% rise in net sales for 2010. Volumes climbed by 4%, although the company has yet to release profit details.