In this interview, economist Juan José Llach explains how the Argentinian bottled wine industry has managed to consolidate its position in the international market and to generate a social structure that is different from that generated by the production of commodities. Juan José Llach was invited to Mendoza by Estudio Balter y Asociados. He holds Licentiate degrees in Sociology and Economics, and is a lecturer and researcher at the IAE Business School-Universidad Austral.
Prior to his talk, he spoke with Winesur about the economic, social and political situation in Argentina. He highlighted that inflation and public expense have led to industrial decline – the wine industry included.
- What is Argentina’s key economic problem?
Inflation is not an international problem, but a problem of Argentina and Venezuela. No one knows exactly what the true inflation rate is because Argentina’s “official thermometer”, INDEC (the National Institute of Statistics and Censuses), has broken down. Yet consumer inflation this year will probably edge up around 25%. This rate is the second highest in the world, after Venezuela’s. The third country in line has an inflation rate of 15%. So, as I said, inflation is not a problem in the world, but it is a problem for Argentina and Venezuela.
- How do you think this scenario will evolve?
I was expecting the Government to launch an anti-inflation program during the second quarter, but this hasn’t happened. The only way to stop inflation is to implement a more austere fiscal and monetary policy along with a wage and price agreement. Demand is growing right now, so it would be the right moment for the Government to conduct a stricter fiscal policy.
- How do you evaluate the performance of the winemaking industry in relation to currency exchange rates?
On the one hand, the wine sector in Argentina is experiencing a strong recovery in terms of consumption, as well as an important increment in production and exports. It’s also increasing its share in the international market, which is very positive. But, on the other hand, there’s been a reduction of investment in the sector. Businessmen planning future investment decisions may hesitate, as costs in dollars are very high and continue to rise considerably.
Those who sell to Brazil, for example, are not so much affected because the real has not suffered significant depreciation. But those who compete with Europe, where the euro has plummeted, are having a very hard time: not only have they lost competitiveness but they also need to face new European competitors. Let’s not forget that the euro, having reached USD 1.60, started to decline and remained at USD 1.40 for quite a while, and has now come down to USD 1.19. Its devaluation has been around 20%.
- How will the markets respond to the European crisis?
The world has lost coordination. Each country is doing its own thing. After the G20 summit in April 2009, many countries started to work their way out of the crisis. The United States, as well as the emerging countries, reacted faster than Europe. So much so that when the Greek crisis flared up in November-December of last year, Europe found it hard to respond adequately, and now we’re paying the consequences because fear has taken hold of the world financial markets once again. The real economy has not been affected yet, but if a change does not take place soon, it may be. Still, even if a minor incident occurred with some Eurozone country, the region will remain unchanged.
- What is the future of the world economy?
The New Normal in terms of world prospects is for Asia to grow by 7%, Africa by 5%, Latin America by 4%, Canada and Australia by 3%, the United States and Japan by 2.5% and Europe by 1%. The scenario is quite different from that of the past. Emerging countries are here to stay. This is good news for Argentina, since a large part of the increase in the demand for Argentinian products will come from emerging countries.
- Do you believe that emerging countries are Argentina’s strategic partners?
Yes, certainly. Nevertheless, Argentina has not taken full advantage of this opportunity. I think industrial sectors such as the winemaking industry should seek to profit from the boom of these markets. The wine industry should start to think of these markets in strategic terms. However, this should be done in a cooperative way, as it is hard to work on an individual basis from Argentina, because we are so far and need to make the most of our potential. In 10 to 15 years’ time, those will be impressively large markets. The journey ahead is long but promising.
- What is your forecast for the future of Argentinian winemaking?
In my opinion, Argentina’s productive profile in general will need to be defined in terms of two or three main lines: first, natural resources and commodity exports; secondly, industries that are intensive in qualified human resources, and third, the addition of value to commodities, which is a combination of the first and the second. In other words, we should add value to productive clusters based on natural resources by means of knowledge-based innovations.
In this sense, the wine industry is the clearest success story and a model to follow. When you add value, as is the case with the bottled wine industry, you need to employ more qualified workers, thus generating a better developed social structure than you do if you export commodities. Not only does it serve an economic function, but also a social one.
Other examples could have been the beef and the dairy industries, but they have been wrecked by a combination of restrictions and detrimental measures implemented by the Government. The wine industry instead, in spite of inflation and an unfavorable exchange rate, has managed to survive the crisis by growing and consolidating its position in the international market.
Written by Laura Saieg for Winesur.com
Translation: Inglés del Vino
Source: http://www.winesur.com/top-news-2/%E2%80%9Cthe-wine-industry-is-the-clearest-success-story%E2%80%9D
