While hope remains that South America can offer a serious challenge on the global market to Australasia and the South of France, growing concerns over naive forward planning and technology have dampened the hype. Susan Low reports.

The news from South America almost sings with optimism: exports are growing from Chile and Argentina and Uruguay is fighting for a slice of the action. In 1999 exports of Chilean wine to the UK climbed 18% on 1998 figures, while Argentina's exports to the UK soared by 31% year on year.

To add to the frisson, exports of Argentine wine to the UK have risen by 282% since 1997. Uruguay, the latest South American country to enter the fray, has seen its exports to the UK grow from almost 123,000 cases in 1998 to almost 334,000 cases in 1999. Projected UK exports are 180,000 cases by 2002 and 500,000 cases by 2005.

With figures like these, it's easy to get carried away by the momentum and to think that the only way is - and always will be - up. But there are serious challenges currently facing the South American wine industry.

Let's start with Chile, since that's where the wine world's Latin love affair started, back in 1995. That year, exports to the UK alone almost doubled those from the previous year. These wines delivered what was wanted: good, reliable varietal wines from the Big Four (Cabernet Sauvignon, Merlot, Chardonnay and Sauvignon Blanc) at price points people could live with.

"Currently, only about 10% of Argentine wines are exported, which is just the tip of a huge iceberg."

However, Chilean sales to the important UK market dropped by 2% in the first six months of 2000, although industry observers see this as a blip rather than a trend. As Christopher Fielden, director of Winesource, says: "Perhaps this goose that laid the golden eggs may just need a laxative."

Furthermore, reliance on the Big Four is beginning to look short-sighted, particularly in light of 'consumer campaigns' running along the lines of "Anything But Chardonnay/Cabernet". Nonetheless, according to Christian Sotomayor, international business director at Chile's de Martino: Chile has been developing many different grape varieties beyond the Big Four, but the fact is that 90% of the demand from our customers are those four - so I guess we can't go against the flow."

So far, Carmenère has been Chile's main focus outside the big four, although, as Guy Barroilhet, export director at Bisquertt points out: "More and more you see production of Malbec, Syrah, Tempranillo, Pinot Noir, Sangiovese, Petit Verdot, Nebbiolo, Barbera, Viognier, Gewürztraminer, etc." But how successful has Carmenère been?

Viña William Fèvre Vineyard

"Well, it hasn't really, because it's so similar to Merlot," says Dr Arabella Woodrow MW, director of Forth Wines. "No one really knows if they've got it or not - you really have to dig around a bit in Chile." What's more, despite the variety's French heritage, consumer recognition is low. And as one producer said: "Carmenère can be quite harsh and green if you don't make it properly."

Nonetheless, Sotomayor believes that "in 20 years Carmenère will be very much identified with Chile", though he admits that "this is a long job. The consumers do not know the grape and many Chilean producers still do not know how to vinify this grape properly."

Compared to Chile, Argentina's capacity is huge, but the country is much further from realising its vast potential. Interestingly, although several Chilean producers have invested in Argentina (including Conch y Toro and Morandé, Santa Carolina has sold its Argentine holding to Peñaflor), no Argentine producers have invested in Chile.

What's more, Argentina has been a happy hunting ground for multinationals such as Diageo, Pernod-Ricard and Allied Domecq, all of whom have involvements here, but not in Chile. As Fielden points out, this interest is probably due to the fact that "Argentina has got a domestic market that is nine times that of Chile" into which they can sell their spirits - and their wines.

Currently, only about 10% of Argentine wines are exported, which is just the tip of a huge iceberg. But those impressive export statistics need to be tempered by the fact that Argentina started from a low base and, compared to Chile, it's a narrow base, too. The potential, though, is enormous and as Sotomayor says: "[The Argentine producers] are moving fast and they will surpass Chile in some years if they want to."

Argentina has several advantages over Chile, such as a wider range of grape varieties, as well as lower costs in the vineyard. Malbec is a big player here, as are Italian varieties for reds and the aromatic Torrontés for whites. According to Fielden, "Malbec will be a success internationally, although I'm not too sure about Torrontés - it's too way-out". In addition, coming to the market later doesn't necessarily mean a loss of first-mover advantage, as the market has already accepted South American wine.

The long white cloud of South America

"Chile has spent zillions to produce wines and nothing to produce sales."

So, where does Uruguay fit into all this? According to Woodrow: "Uruguay has nothing like the capacity of Argentina." Nor, she says, will the country be able to hit price points set by Chile and Argentina. Fielden's advice to Uruguayan producers is to concentrate on becoming "the New Zealand of South America and go for quality wines", rather than try to meet unrealistic volume and price points.

Uruguay's "secret weapon" is Tannat, which makes wines that are fruitier and less tannic than most French examples. Yet, technologically, Uruguay is far behind both Chile and Argentina. Woodrow says: "There is a learning curve for some producers to get up to speed. There are still some horrors about."

But in an increasingly global market South America's biggest worries will come from outside its own continent. As Benoît Berneron, sales manager of Domaine Oriental, says: "The biggest competition will come from outside South America, such as Australia, South Africa and the south of France."

Australia seems to be causing the most jitters. Most producers agree with Sotomayor that: "The main story is Australia. Their wines are very well-liked all over and they are so well organised as an industry that they can do whatever they want. To prove this, they jumped from fifth or sixth place in the US last year to third, moving us [Chile] down."

The problem, Sotomayor continues, is that, "Chile has spent zillions to produce wines and nothing to produce sales" - an object lesson for the 21st century if ever there was one.