Thursday, December 28, 2006

The Crisis of the 1980s

Indeed, several factors contributed to the crisis that the wine industry faced in the 1980s. The most important issue was the dramatic fall in domestic consumption of table wine. Table wine is defined as any wine that falls below the $3 peso retail price (about one US dollar). Oftentimes this wine comes in a cardboard box but can also be packaged in a bottle. Traditionally, Argentines mix this bargain priced wine with carbonated water to dilute the taste. On the production side, table wine is grown by small producers who usually have less than 5 hectares of cultivated land and use much less sophisticated technology in growing the grapes. Higher quality wines use grapes that oftentimes are grown using drip irrigation systems that deliver water directly to the vine using a small pipe. Because the table wine growers were of relatively modest means, the table wine grape growers in Mendoza didn’t have access to necessary capital to upgrade to complicated irrigation systems.

These low-quality wines suffered when beer and soda sales rose in the 1980s. In 1968, Argentines drank on average 86 liters a year of wine, while in 1986 that number had dropped to 60 liters per year. As a result, grape production in Mendoza fell by 60 percent between 1976 and 1993. As a result, during the 1980s one third of all producers went bankrupt and the number of hectares planted fell from 15,000 hectares to 3,000 hectares. This crisis, generated by a drop in domestic demand, created a need for the wine industry to look outside of Argentina for new markets. Capital controls imposed by the state and poor wine quality limited their efforts to sell any considerable amount of wine abroad as their counterparts on the other side of the Andes had been doing successfully. (Figure 1 Source: “Business Trends”. Economic Ministry of the Republic of Argentina. 2005. Soda consumption data found on p. 396. Wine consumption data. p. 401.)

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