You have to admire the resilience of the Chileans. At the end of February, the country was rocked by the seventh biggest earthquake on record. That, a mere six weeks later, Chris Losh is able to write a column about how this natural disaster has affected the wine industry without it looking grossly inappropriate is testament to the country’s ability first of all to plan for such an eventuality, and secondly to pick up the pieces and soldier on.
That 500 people died is, of course, hugely sad. But, given that the quake was hundreds of times stronger than that which trashed Haiti in January, and which had its epicentre just 100km away from the country’s second city, Concepcion, it could have been far worse.
While wineries did suffer structural damage, it was mostly to outbuildings or workers cottages that tended to be old and made of adobe. The multi-million dollar winemaking facilities have almost all been built in the last ten or 20 years, under stringent building regulations, and damage to these seems to have been minimal.
While this year’s vintage is predicted to be between 10% and 15% lower than last year’s record 986m litres, it is (prosaically) due to spring frosts and a cool summer rather than tectonic plates grinding together. All the grapes grown in 2010, will be vinified. Capacity is not an issue.
What is an issue is the loss of 125m litres of wine, either from storage tanks that split open or smashed bottles that were ageing in cellars. This official figure (released barely a week after the disaster) has not been revised since, and some Chileans I spoke to didn’t want to comment on its accuracy. ‘There’s a lot of hearsay,’ muttered one, which suggests that it might be on the low side.
Even if these early predictions are optimistic, they’re still bad enough. The total damage in terms of lost stock and infrastructure is currently estimated at US$430m. Since the wine industry’s total export income last year was $1.4bn, you get some idea of just what a blow this is.
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By GlobalDataThe immediate damage will, of course, be covered by insurance for most wineries, but there are further, hidden aftershocks, too.
Wineries are having to spend more on transport, both to find routes which are undamaged as well as to truck grapes to wineries that have spare capacity to hold their stock.
There is also some damage to vineyard irrigation systems. In the short term, this will have affected the ability of some growers to water the vines when they want (the quake struck mere weeks before the start of vintage). In the medium term, it means there will also be some fairly hefty repair and replacement bills landing on accountants’ desks over the next six months.
Labour, too, has been affected. Chile’s burgeoning production has already created pressure on acquiring pickers over the last few years. But the situation has been exacerbated because hundreds of manual workers are now engaged on the work of rebuilding the country.
“The earthquake was strong in the Maule and Itata regions,” explains Marcelo Papa, winemaker at Concha y Toro. “Many people from these areas usually harvest the grapes in the Coastal areas and this year they aren’t doing it. Picking in areas like Casablanca and Leyda has been slower than usual.”
The Dutch agri-bank specialist, Rabobank, recently published a brief report into the quake, where it suggested that “90% of the industry might overcome the earthquake relatively well”. Which, even allowing for the spectacularly guarded tone, still implies that one in ten wineries might not.
The issue, of course, is that not all wineries have been equally affected. While some of the large players have lost over 10m to 15m litres of wine, they will be able to absorb this loss and, with much grinding of teeth, work around it. But smaller losses for less powerful competitors could be fatal.
Given that Maule is a centre for the lower reaches of the Chilean wine portfolio, it seems likely that most of what disappeared will be cheap. The bad news is that this is Chile’s export staple. The good news is that it should be easily replaced, albeit with a possible drop in quality, after this vintage.
“The wine that was meant to be sold as bulk, will most likely have to be bottled to make up for the loss of bottled wine,” says Raul Beckdorf, commercial manager at Anakena wines. “This means that there will probably be a shortage in bulk wines, and therefore prices for bulk wine will go up.”
Certainly, there are reports of bulk prices for some varietals rising by up to 80%. Bulk, though, is notoriously volatile, and, once the 2010 grapes are picked and vinified, this situation should ease somewhat.
All of which brings us (no pun intended) to the million dollar question: whether prices will inevitably have to rise across the board to pay for the rebuilding and shortage of stock.
“In an ideal world, when grapes are more expensive, crops smaller and inventories depleted, prices should go up,”’ says Valdivieso’s export manager, Francois Walewski wryly. “But in the real world, where the market price is set by supply and demand, I believe that many wineries will have to maintain prices in order to maintain the position on the markets and absorb the subsequent loss. I am pretty sure that will take a high toll on the Chilean wineries, especially at the entry level.”
It will, in other words, take more than a force 8.8 earthquake for the world’s retailers to consider upping the prices to the consumer. And with the Australians, South Africans et al poised to pounce, the Chileans will be equally wary about cutting back on promotional work too.
“Most wineries link their marketing spend to sales and, provided sales continue to grow, more money will be generated to promote and market the wines,” says Ben Gordon, export manager of Carolina Wine Brands.
In other words, it looks like being an uncomfortable six to 12 months for the country’s wineries. But nowhere near as bad as it could have been. A blip, then, rather than a disaster.
“They just want to get on with it and trade their way through it,” says Michael Cox, director of Wines of Chile’s UK office, “which is very encouraging and, I have to say, very Chilean.”
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