FINANCE-URUGUAY: Foreign Investers Move Into Local Wine Industry

By IPS Correspondents Reprint | | Print |

Daniel Gatti

MONTEVIDEO, Dec 5 1999 (IPS) - The fast-growing Uruguayan, wine industry has caught the eye of European investors who are increasingly moving into sector.

The latest deal whas been between the local company Cerros de San Juan, which controls 15 percent of the Uruguayan market, and the Argentine subsidiary of the French firm Moet et Chandon.

Earlier this year, two other Uruguayan wine companies set up joint enterprises with European concerns. Juan Carrau allied with the Spanish-based Freiznet, a world leader in “cava” (the Catalan version of champagne), to produce fine wines destined mainly for export, while Castillo Viejo joined forces with the French firm Jean Lessourges.

In both cases the amount of foreign investment totalled some three million dollars.

Last year, Establecimientos Joanico arrived at an industrial cooperation deal with Chateau Pape Clement of France to produce high quality wines.

The association between Cerros de San Juan and Chandon created a new company, Bodega Chandon Uruguay, S.A. which will produce a line of fine wines – to be distributed first in this country and later in Argentina. At the same time, the products of Chandon Argentina and Moet et Chandon will be marketed in Uruguay.

The Uruguayan house will continue to market its current products independently.

Cerros de San Juan owns 75 hectares of vineyards in the department of Colonia, west of Montevideo, and produces some 720,000 bottles of high quality wine. Its principal markets are Brazil, Germany, Switzerland, Great Britain, Austria and the United States.

According to Ramiro Otano, the trade director of Bodega Chandon of Argentina, the project with the Uruguayan firm marks an expansion of the subsidiary in the Mercosur zone, which includes two River Plate nations, Brazil and Paraguay, and of which Chile – another big wine producer in the region – is an associate member.

During the next four years, Chandon Argentina plans to invest about 30 million dollars in expanding its production capacity, buying more land and updating its technology throughout the region, Otano said.

The Uruguayan wine industry is more than 100 years old, but it did not achieve international recognition or an export capacity until the 1990s, after a restructuring process financed by the state through the National Institute of Viticulture (Inavi).

In 1978, the French oenologist Denis Boubais, who had just completed a tour of various wine houses in Uruguay, passed a death sentence on the viticulture industry here. “The Uruguayan vineyards are a disaster,” he commented.

Twenty years later, the country is successfully developing a variety of red wine called “tannat,” which is only made in Uruguay and a tiny region in France, and which has won an array of prizes at wine fairs throughout the world.

The French expert has now softened his stance. “Uruguayan viticulture has changed greatly in recent years,” he said, after making another trip here in 1993.

“The new vineyards established with virosis-free material imported from France and with noble varieties could be considered among the best in the world and auger a great future for the industry,” he added.

In the first six months of 1999, the country exported 1.2 million litres of wine, compared to just 4,200 in 1998 and 115,000 in 1992 – more than the total sales abroad registered in 1998, which already represented growth of 141 percent with respect to 1997.

The restructuring of the Uruguayan wine industry was possible thanks to subsidies granted to Inavi at the start of the 1990s that were aimed at adapting national production to the new framework of the country’s entrance into Mercosur.

Inavi is composed of representatives of three government ministries and delegates of the industry – from cooperative vineyards to the nation’s biggest wine houses.

“The activities of Inavi are a good example of the role the state can play in supporting the production process in conjunction with the private sector,” commented Francisco Zunino, an oenologist and member of Inavi.

“Back then, the only choice for producers was to adapt or die. They also had to define clear strategies,” said Daniel Pisano, a top executive at Bodegas Pisano, one of the most prominent wine houses in the country.

“It was decided to sacrifice quantity in the interest of quality, and to develop new (grape) stocks. The biggest producers chose to focus on fine red wines because of Uruguay’s comparative advantages over, for example, Argentina and Chile,” he added.

Pisano indicated that “the fact of being located on the Atlantic Ocean and near to great reserves of fresh water, with current conditions in Uruguay not unlike those in the Burdeos region of France, gives Uruguayan vineyards a high quality comparable to some of their French counterparts.”

Pisano emphasised that Chilean and Argentine wines “are similar to those from California and Australia, while Uruguayan wines have a fruitier aroma, similar to ones from Europe.”

The development of the tannat variety was a primary goal for the big national producers, who hoped to achieve a “Uruguayan seal, a variety of wine that would be identified throughout the world with this country.”

The traits of Uruguayan tannat are distinct from French tannat because the first variety is made with a different grape.

“There (in France), the wines are more full-bodied, can (only) be consumed after aging for five years, while Uruguayan tannat can be consumed as a young wine without any problem,” Pisano said.

The improvement of the vines, marked by the production of pure grape stock – compared to Europe, where varieties are cross-bred – investment in new technology and fine-tuning of quality “gave identity to Uruguayan varieties,” said Francisco Zunino.

The restructuring of the 1990s forced many small wine houses out of business and prompted the mergers of others, a trend which, according to the Inavi consultant, will accelerate in the near future.

Today, Uruguay exports slightly less than two percent of its total wine production, but about 20 percent of its fine wines. Some 50,000 people make a living from this industry.