The Losh Cause – Uncharted Chile offers premium potential

The news that a Chilean winery is acquiring a huge amount of land for vineyard cultivation in areas less well known for winegrowing has caught Chris Losh's attention. But he believes such developments could offer Chile the chance to compete in higher price echelons where it has so far failed to convince.

As the northern hemisphere enjoys the summer sun and Europeans either disappear on holiday or steam grumpily in offices, it's easy to forget that there are other parts of the world that are beavering away diligently through the middle of winter.

In fact, one southern hemisphere story on just-drinks a few weeks ago had me blinking in astonishment at the screen, so extraordinary were the numbers involved.

I am referring to the news that Chilean winery Santa Rita is to buy 1,600 hectares of land, practically doubling its already substantial vineyard area. OK, so it's not vineyard yet, and it'll take them a few years to get the new vines up and running. But once planted these purchases will catapult them to being the second biggest vineyard owner in Chile.

For me, there are two particularly significant elements to the deal. The first is that at US$35m over five years, this massive investment, which also includes the purchase of a further 250ha in Argentina, is the kind of land-grab that we haven't seen for a good few years, as wineries generally indulge in belt-tightening rather than expansion.

It helps, of course, that Santa Rita is owned by the Claro Group, one of the most powerful conglomerates in Chile, with market-leading companies in everything from shipping, steel, mining and construction through to media and communication.

Yet it would be wrong to see this purely as a rich man's toy. Ricardo Claro Valdes didn't get to his position of pre-eminent Chilean industrialist by throwing large sums of money away on faux aristocratic status symbols, and Santa Rita has always had to make money.

The company maintains a strong line on price, doesn't do huge discounts, and as a result has an average per-litre price that's higher not just than its other big competitors, but than most wineries in Chile. In short, it makes money. Not enough, perhaps, entirely to bankroll such a huge land acquisition, but certainly enough to justify the extra volume that nearly 2,000 extra hectares in South America will provide.

And that brings me to the second point of major interest: where Santa Rita has chosen to buy. Or, more accurately perhaps, where it hasn't. These new plantings are not in the heart of the Central Valley, home to the overwhelming majority of Chile's vines. They are in Pumanque, at the more or less unplanted western edge of the Colchagua Valley, and in the semi-desert of the Limarí Valley, 400km north of Santiago.

Neither of these places will be cheap to cultivate successfully, with irrigation in particular costing a small fortune. But it is the very fact that the company has chosen to plant in these out-of-the-way places, rather than the easily-irrigated Central Valley that is significant.

A couple of years ago, a Chilean admitted to me that if the wine industry were starting up now, it would not be based where it is. Convenience for the capital, ease of melt-water irrigation from the Andes and regularity of ripening were as much factors as the ability to make great wine.

But as Chile's industry has developed, more companies are realising that they can't round out their portfolio with genuinely top-class wines from where they've always been based. Few critics have ever really been convinced of Chile's ability to deliver $30-plus bottles, and companies like Concha y Toro, Cono Sur, San Pedro and Montes have already bought vineyards in more remote or marginal places like Marchigue, Leyda and Limarí; Casablanca is full to bursting.

But Santa Rita's massive purchase is the clearest proof yet of where the country's main players see the long-term future of their industry. We are talking cooler climate, lower yields, and a genuine search for places that will make wines at the $20+ level.

This July news story may not have registered with winemakers in Bordeaux and Burgundy who were probably dreaming of their three weeks on the beach at the time. But make no mistake, they'll start to see the effects ten years from now, and they could be justified in feeling just a little bit nervous.