Whither Argentine Wine Exports?

04/16/2015 01:44 pm ET | Updated Jun 16, 2015

Whither Argentine Wine Exports?Argentines must have looked on in dismay when, last year, Chile eclipsed Australia to become the world's fourth-biggest wine exporter in dollar terms. Every year, Argentina produces more wine than Chile, but Chile's smaller population consumes much less at home. Yet Argentina long ago surpassed Chile as an exporter to the United States - why couldn't it do so elsewhere as well?

Chile was the trailblazer for South American wine exports, starting in the early 1990s after the end of its military dictatorship. With low prices, aggressive marketing, and a transparent export regime, the country pushed its wines into markets around the world. But to this day, Chilean wines on shelves abroad are mostly cheap and undistinguished. Moreover, most come from just a handful of producers. For them, quantity has often overshadowed quality.

Argentine wineries have aspirations to do better, and to some degree they have in the United States. Once viewed merely as an alternative to cheap Chilean plonk, Argentina's wines have managed to climb the ladder and obtain higher prices. In 2013, wine imports from Argentina averaged $3.05 per liter versus $2.19 per liter for Chile. Part of the difference had to do with changes in taxes and exchange rates, but the gap was still strikingly large.

At least some of it must have had to do with quality. But this quality hasn't made a difference in the European Union, which imports six times as much wine from Chile as from Argentina. What can explain the discrepancy?

It may have to do with the clientele. Argentina has a leg up in the United States when it comes to exporting high-end wines, thanks to a big and often financially successful population of Argentine expatriates, roughly a quarter million strong. These people might be more likely to pull a $25 or $40 bottle of Argentine wine off the shelf than a generic American consumer. There are Argentines scattered across Europe, too, but not necessarily in such great numbers in a single market.

Another factor may be nationalism in the wine market. Americans are fairly open to drinking wine from anywhere, and spent many decades looking up to European producers before local wines attained the same recognition. But when a French, Italian, or Spanish consumer is looking to spend a little more for a special bottle, they're probably going to reach for a representative of their national heritage rather than a premium Argentine label. To them, Argentina and Chile may still be in the same cheap-wine boat, and Chile has always had the best seat.

For several years now, production and exports in Argentina have been stifled by the policies of the Kirchner governments, which have wreaked havoc with exchange rates, financing, and imports of raw materials. This year, when a new government will be elected, things could well change. But at best, Argentina will draw level with Chile in the ease of exportation.

To win in Europe and elsewhere, Argentina has two choices. One is to try beating Chile at its own game, perhaps by flooding the market in an effort to gain share; this would be costly in the short term and not guaranteed to work in the long term. The other is to start taking home the trophies as the United States did beginning in the 1970s. That's not easy, either, but at least the investment in progress would pay off for years to come. Salud!