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Good News From the World Wine Market

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argovinoYou may already have heard about a supposed global shortage of wine, thanks to a report from the investment bank Morgan Stanley that has been making the rounds. In fact, this year's news about wine is good - very good -- and nowhere moreso than in Argentina.

The International Vine and Wine Organization's annual "State of Conditions" report suggests that the world's wine production will rise by as much as 10 percent in 2013 versus 2012. French vineyards are rebounding from last year's small harvest, even despite recent storms and floods in Burgundy and other areas. Spain, Chile, and Australia are expected to have hit record highs this year.

It's true that demand for wine is growing around the world, thanks to the rebound from the global economic crisis (a short-term effect) and the growth of incomes and interest from developing countries like China (a long-term trend). Supply is not always quick to respond, especially since new vineyards can take three years to produce a marketable vintage. And when supply is squeezed, lower quality can be the unfortunate result. Yet right now, such concerns should be ebbing at the global level.

In Argentina, there has been some reason for worry about the supply of malbec, but overall the picture is rosy. Among the world's top 10 wine-producing countries, none registered as big an increase in production between 2012 and 2013 as Argentina, with 27 percent. The country is now the world's fifth-biggest supplier of wine, ahead of Australia, Chile, and South Africa. Among New World countries, Argentina trails only the United States.

Supply is responding to demand, without a doubt. But other factors could help Argentina to sell even more in the future. The peso, whose black-market exchange rate against the dollar was 40 percent lower than the official rate at the time of this writing, is poised for a deep devaluation. All other things equal, a drop in the peso will make Argentine wines cheaper for foreigners.

In addition, a new government seems likely to replace Cristina Fernandez de Kirchner's Front for Victory party in 2015. Many wineries, having suffered under her mandate, will welcome the change. Fernandez's battles with foreign investors isolated Argentina from global financial markets, making commerce more difficult. Her government also imposed controls and taxes on wine exports. Most of her possible successors seem likely to simplify and reform the customs regime.

Overall, the outlook is bright for wine consumers in the next several years. If the world ever does run into supply problems, Argentina will be in a good position to ride to the rescue. Salud!