Origins of the Wine Industry

During the mid-1800s the majority of agricultural land was used for alfalfa, which fattened the cattle passing through from the provinces of Cordoba and Santa Fe en route to Chile. Yet, by the mid 1880s Mendoza found itself in the midst of an economic transformation due to the arrival of the railroad, rising agricultural production, and a steady influx of European immigrants (Scobie, p. 132). Winemaking technology was improving to extent that the same amount of acreage that produced 46 kg of wine in 1870 yielded 250 kg at the end of 1880. The acreage in vines also increased six fold between 1893 and 1913 and by World War I, vine acreage exceeded that of Chile and California (Sawer, p. 82). The improvement in technology and increase in overall acreage was able to meet a surging demand for wine from the growing immigrant population in the pampas region.

Government intervention in the wine industry virtually began at its inception. As a general rule, agricultural-based sectors were heavily influenced during the latter part of the nineteenth century, as the government pursued a liberal, export-oriented economy. The wine industry in Mendoza and the sugar industry in Tucumán seemed to parallel one another in their rapid growth at the end of the 19th century. Both involved heavy state intervention which led to multiple overproduction crises during the 20th century (Balan and Lopez, p. 392).
In Mendoza’s case, the national government built the Andes Railroad in 1885, connecting Villa Mercedes (San Luis), Mendoza and San Juan with Buenos Aires, coastal markets, and the northern part of the country. In addition to infrastructure, provincial laws in 1889, 1895, and 1902 exempted all grape production from taxes for the first five years of production. The province understood that the demand for wine would one day yield high tax gains, and indeed, in 1907 over 60% of provincial revenue originated in the wine sector (Richard-Jorba, p. 119).

On top of favorable subsidies, the federal government offered generous protection to the wine sector by imposing high import tariffs. Transport by ship from Europe to Buenos Aires was still cheaper than railroad transport from Mendoza, so the young wine industry sought protection from the well established industries in Europe (Sawer, p. 82). By 1914, the wine tariff had reached 80%. The federal government even erected barriers to trade ensuring no foreign wine could enter Argentina. Specifically, no wine could be imported from countries in which sugar was added to grape juice to increase the alcoholic content of the wine, even if the particular wine that was sent to Argentina didn’t use this technique. Since this method was used in at the least one instance in every wine producing country, foreign wine was effectively prohibited from entering the market (Sawer, p. 83).

After thirty years of remarkable growth, the national government created the Junta Reguladora de Viños (Wine Regulating Committee) in 1935 which would later become the Instituto Nacional de Vitivinicultura (INV) in 1959 (Footnote: The government did the same with the sugar and yerba mate industries). The state attempted to deal with overproduction, especially during the Great Depression when wine consumption fell dramatically. The INV regulated when and how much the growers could plant, when the harvest was to occur and how much the grapes would sell for. On the production side, INV monitored quality and encouraged diversification. The state’s role in the wine industry in Mendoza would undergo dramatic changes in the 1980s in the midst of an oversupply crisis.

Sorting Through the Vines: The Growth of the Mendoza, Argentina Wine Industry, Part I

In 1835, Charles Darwin laid eyes upon the spectacular Andes Mountains that lay before him. At the foot of the jagged, snow-capped ridges lay a small town called Mendoza. To many travelers, Mendoza looked like a paradise after the rugged two-week trek across the pampas from the European metropolis of Buenos Aires. But experienced explorer Darwin thought otherwise, “To my mind the town has a stupid, forlorn aspect to it…but, to those who, coming from Buenos Ayres, have just crossed the unvaried pampas, the gardens and orchards must appear delightful.” Those very gardens and orchards that Darwin observed were fed by carefully constructed canals designed to carry the melting snow water from the mountains, which fifty years later would serve the wine industry.

The canals and the contrast in fauna are some of the only aspects that remain in present-day Mendoza. Twenty-first century Mendoza is home to multi-billion dollar wine industry that is world renowned for its Malbec red wine. This paper will explore the evolution of the wine industry since its initial growth in 1880, with a special emphasis on the past 15 years. Although special attention will be paid to the impact of political institutions in the province of Mendoza, economic and historical factors will be explored as well.

In 1861, an earthquake leveled Mendoza killing over 8,000 people. At the time, the majority of agricultural land was used for alfalfa, which fattened the cattle passing through from the provinces of Cordoba and Santa Fe en route to Chile. Yet, by the mid 1880s Mendoza found itself in the midst of an economic transformation due to the arrival of the railroad, rising agricultural production, and a steady influx of European immigrants. Winemaking technology was improving and demand for wine was increasing due to the growing number of immigrants who created the demand. In fact, acreage in vines increased sixfold between 1893 and 1913. By World War I, vine acreage exceeded that of Chile and California.

During the latter part of the nineteenth century, agrarian provincial economies greatly benefited from government intervention. In Mendoza’s case, the Andes Railroad was built in 1885, connecting Villa Mercedes (San Luis), Mendoza and San Juan with Buenos Aires, coastal markets, and the northern part of the country. In addition to infrastructure, provincial laws were passed in 1881 exempting grape production from taxes. Laws in 1889, 1895, and 1902 exempted all grape production from taxes for the first five years of production. The province understood that the demand for wine would one day yield high tax gains, and indeed, in 1907 over 60% of state revenue originated in the wine sector.

In addition to subsidies, the federal government offered generous protection to the wine sector, by imposing high import tariffs, much like other agricultural sectors in Argentina. Transport by ship from Europe to Buenos Aires was still cheaper than railroad transportation from Mendoza, so the infant wine industry needed protection from the well established industries in Europe. By 1914, the wine tariff had reached 80%. The federal government even erected barriers to trade ensuring no foreign wine could enter Argentina. For instance, no wine could be imported from countries in which sugar was added to grape juice to increase the alcoholic content of the wine, even if the particular wine that was sent to Argentina didn’t use this technique. Since this method was used in at the least one instance in every wine producing country, foreign wine was effectively prohibited from entering the market.

More to come later...

Sources:
Charles Darwin, Journal of Researches, new ed. (London: John Murray, 1890), p. 353.
James R. Scobie. “Argentina: Patterns of Urbanization in Argentina, 1869-1914” in Latin American Research Review, Vol. 10, No. 2. (Summer, 1975), p. 132.
Sawers, Larry. The Other Argentina. Boulder: Westview Press, 1996, p. 82
Rodolfo Richard-Jorba, “Modelos vitivinicolas en Mendoza”. In Historia Economica & Historia de Empresas III. (2000), p. 119.