Chilean Wine Exports Up 17% – Rabobank

Chilean bottled wine export volumes were up nearly 17% and pricing was up nearly 7% in the first four months of 2011 compared to the same period in 2010 according to  Rabobank’s Wine Quarterly for Q2 2011.

The following comes from Stephen Rannekleiv, Rabobank’s Executive Director, Food & Agribusiness Research and Advisory.

“While there has been some good news, the Chilean wine sector still faces a number of major challenges:

• The UK, Chile’s second largest market, is becoming increasingly unprofitable, and many Chilean companies are retreating from this market.
• The improving global supply/demand balance in wine is driving up prices of bulk wine, a major cost for many export-oriented wine companies.
• The Chilean peso has been appreciating, and as of April 2011 it was 19% above its ten-year average rate against the US dollar and 27% above its lows of November 2008.

“As a result, in spite of improving pricing as measured in US dollars, export pricing measured in Chilean pesos has been flat, even as production costs are rising, which has resulted in margin pressure

“Chilean exporters are under increasing pressure to seek new products and new markets that allow for better pricing in real terms (Chilean pesos). For Chile, there does not appear to be a simple solution to achieving better pricing in international markets.

“Rather, pricing power will be achieved through a range of initiatives, many of which are already being implemented. These include development of new markets, improving wine quality and expanding production of higher-value varietals. As Chile continues to attain success in these areas, the challenge will be to limit the growth of vineyard area or risk further pricing pressure from oversupply.

“Beyond Chile, the global wine market is showing strong signs of recovery. Most major exporters (France, Spain, Italy, the US, Argentina and Chile) are showing significant improvements in wine exports by volume and/or value. The major exceptions have been Australia and South Africa, which have experienced notable declines, largely as a result of their appreciating currencies.

“With notable improvements in global trade and light recent harvests in most parts of the world, wine stocks are beginning to tighten up. Bulk wine prices have been climbing steadily since September 2010 for many major varietals across a wide range of geographies. This bodes well for the industry in general and for growers in particular, but in the short term, rising bulk prices have added to margin pressure for many wine companies.”

For a full copy of the report, email: Stephen.Rannekleiv@Rabobank.com.