A Proposed Tax Is Dropped and Argentine Wineries Breathe a Sigh of Relief

In December 2023, Reuters reported that Argentina was in a technical recession, meaning two straight quarters of economic contraction.

The picture painted by Reuters is a grim one, saying the country is likely facing stagflation — “a toxic mix of triple-digit inflation and recession that will likely squeeze people and push up the poverty rate, already at over 40% — while a drought had caused grain exports to fall, and an inflation rate of around 160%.

There has also been political uncertainty surrounding the elections in late 2023, which ushered in the government of radical libertarian President Javier Milei, who warned, “The challenge before us is titanic … I’d rather tell you an uncomfortable truth than a comfortable lie.”
 

No tariff increase

The recent decision of the government of President Javier Milei not to increase export tariffs by 8%, however, offered some respite to Argentina's wineries. A bill had been proposed which would have seen taxes added to wine exports, from 0% to 8%.

Walter Pavón of Bodegas de Argentina, which represents more than 250 wineries and suppliers, played a pivotal role in advocating against the bill, saying that it would have given ”away our markets to our competitor, which is Chile."

Pavón argued that "wine growing covers 200,000 hectares throughout Argentina with 17,000 producers." Not only that but "we generate genuine foreign exchange because we export more than we import."

But while winemakers faced a reprieve on that front, they were still confronted by Milei’s December decision to devalue the peso, which effectively doubled the cost of imported goods, including corks and bottles.

Argentine also wineries have a difficult time in the global wine market, as they face tough competition from countries like Chile and Spain, which offer cheaper alternatives. This has meant a loss of shelf space across key export markets, which is driving Argentina’s wineries to focus on the medium- and higher-priced categories in order to maintain profitability and remain financially sustainable.
 

Difficult times ahead

Over the past year, the Argentine wine industry encountered significant obstacles in both the domestic and global markets. Many of the major producers have focused on consolidating existing markets, rather than venturing into new markets. The Asian economies, particularly China, remain challenging markets.

Although they are investing selectively and sparingly to maintain their current business, smaller wineries are facing even greater difficulties due to these difficulties.

But now that the export tax increase has been discarded, the industry can refocus on pressing challenges, including the 29.6% drop in exports during the first nine months of last year.

As Pavón said in his presentation against the proposed tax: “12 years ago we exported more than a billion dollars [worth of wine]. Today, we are below 800 [million].”