Tuesday , November 24 2020

After devaluation, the wine sector's strategies change | Diary of Cuyo

From the distant year of 2011, the sector has lost sales for more than 19 billion pesos (in constant currency in June 2018). I mean a collapse of 26%. Otherwise, if you take into account its status as a long-term sector with large investments in fixed assets.

After crisis that began in May this year and its impact on relative pricess, especially in the exchange rate, The trend can be reversed in 2019 and this would mean a change of character after 7 years.

Everything seems to indicate it Turnover in the domestic market continues to decline and the decrease of almost 10% as it will have 2018 will add another probable 4% in 2019, so that it is placed in the lowest number in the last 20 or 30 years. Lower consumption per capita, changes in consumer habits that drove other wine styles, aggressive competition from other drinks and, of course, real wages fall due to poor performance.

It's still a question Price policy on basvins and its impact on beer consumption. We can also expect that the recession in the domestic market will be transferred to demand for raw materials, especially for wines with lower prices.

Different are outlook for the export sector even though it represents slightly less than a quarter of the total commercialized volume contributes 34% of sales and is now expected to reach 39% in 2019, the highest participation of the decade.

A significant increase in the exchange rate, high relative export prices and a reaction in sales volumes for 2019 constitute a suitable combination to think of this jump that will have the features, as it did before, to change the trend of total sales we expect to increase above 4% in real currency due to an increase of more than 20% in sales of exports after completed a year 2018 by 7% compared with the previous year.

World economic forecasts for the coming years are quite moderate in economic growth, the volume and increase in commodity prices. The interest rate triggering the current Argentinian situation is expected to increase in the United States, with which "fly to quality" continues and delaying funds shortage for countries with macroeconomic weaknesses like Argentina.

The biggest issue now for exporters is how long this type of change will last before inflation worsens it again.

In this regard, it can be said that We witness a change in economic policy, not just a devaluation, and the story of rapid decline after depreciation can not be extrapolated. If internal and external confidence is recovering in the coming years, inflation and trade balance will decline, pressure will begin with a lower exchange rate due to a larger amount of dollars. However, it is reasonable to expect that there will be a period of 18 to 36 months where a significantly higher exchange rate prevails than we had since 2013.

  • A very different world wine market

from In 1990, the world's wine trade grew at an annual rate of 5.4% and 3.7% in volume while the world economy was expanding at an annual rate of 4.8%. It is clear that the last variable is the main reason for the other two.

The changes in three decades have been very profound And beyond, income is the most important variable in demand, just to predict that an amendment to this is no longer enough to predict an expansive wine market. In fact, in recent years there has been some stagnation in the total market value.

In addition to the commercial war that has been installed in the world, The expansion of wine exports has meant that the proportion of foreign wine in relation to consumption amounts to almost 46%. This can undoubtedly constitute an important obstacle to the expansion of the coming years.

while A decade ago, the increase in consumption of non-traditional countries compensates for traditional cases Now only a few grow, and two in particular contribute to an important volume: the United States and China.

A worldwide expansion consumption of 0.3% per annum In view of the 1.3% increase in world population, it is clear that per capita wine consumption is less than thirty years ago when the world average exceeded 4 liters while it currently stands at 3.2 liters.

Although Consumption volume is lower, the value of what is consumed is larger and especially of imported wines.

In 1990, the world's imports per capita were 1.6 USD, the figure is 4.6 US dollars, which has become the main incentive for world trade growth.

Not only does the Argentinean currency have movements (although none of this scope) but the volatility of the exchange rate has become a rule in recent years. By 2018, the euro has become more expensive in dollars and this will benefit Argentinian wines in the United States while the pound has grown against the euro and this will benefit European wines in Britain without affecting the consequences of Brexit. These changes should be taken into account in particular by exporters beyond the depreciation of the local currency.

If we break down the silent fractionated wines, sparkling wines and bulk deliveries, 2013 marked a turning point. While the volume of the fractions stagnated, the foamers continued a soft expansionary tendency with the domination of wines of lower prices, and the bulks turned to the possibility of reducing logistics costs before compensating for surpluses or deficiencies in the harvest. These trends transform the strategies of exporting companies, especially the larger ones.

World wine exporters today export their shares to three markets: the United States, China and the United Kingdom.

The environment, which meets household consumption by most, is one of strong rivalries. In the United States, which increases consumption, the proportion of imported wine is significant, but the rivalry of local wines is also very acute. Due to its high average import price, it is a very attractive market for all countries and the items win those who show differentiation, contributions from market funds and lanes. China is also going to all, as prospects for expansion continue, but the territorial dimension and low consumption culture are obstacles to be overcome, and finding the right channels is still the big challenge.

Australian and Chilean wines, using highly favorable trade agreements, quickly penetrate and it is convenient to observe their strategies. Finally, the English market reduces its consumption and has an abundance of winnings, which makes it very competitive, with lower prices, it assumes innovations quickly and staying there paying special attention to customer requirements.

  • A few challenges for Argentinian wine exporters

It is obvious that the new exchange situation represents an opportunity for Argentinian exporters that can be maintained for a longer period than the previous two devaluations.

In recent years, exports of Argentinean wines decreased in volumes and were redirected to markets and higher price bands as a mechanism for maintaining profitability. During that period, the world market was completely reconfigured and restart of exports will find a market with high competition rivalry where the match is the proportion in higher price bands.

Here, it is a big difficulty because the efforts for proximity to customers should be greater, advertising costs should also grow at the expense of a better exchange rate and channel loyalty will be a mandate for the first size of the strategic goals.

In recent years there has been a significant reduction in investments in vineyards, and supply policies should be consistent with export targets. The reliability of having the right grapes may be translated into better prices for some grapes, which will reduce the gross margin but strengthen international penetration.

Last but not least, productivity should be taken into account throughout the business, unlike other times where a good exchange rate retrieved jobs within companies.

Source: Javier Merino for the wine area

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