Chilean Wine Industry to Recover Well After Earthquake – Rabobank

According to the report, “Chilean Wine Industry After the Earthquake,” damages from the earthquake were kept to a minimum with wine losses estimated at 125 million liters, and infrastructure damages at approximately $430 million.

8 Apr 2010 --- A new Rabobank report finds that damage from the February earthquake in Chile was uneven across the wineries, but nearly 90 percent of the industry will recover relatively well.

“The earthquake’s impact reverberated in the heart of Chile’s wine production region, and raised fear that damage could be widespread,” said Rabobank Food & Agribusiness Research and Advisory Executive Director Stephen Rannekleiv. “However, damage appears to have been minimal and the industry is experiencing a setback rather than a crisis.”

According to the report, “Chilean Wine Industry After the Earthquake,” damages from the earthquake were kept to a minimum with wine losses estimated at 125 million liters, and infrastructure damages at approximately $430 million.

“The greatest damage to the industry was the loss of wine stocks valued at $200 million,” said Rannekleiv. “Considering that last year the industry exported nearly 695 million liters valued at $1.4 billion, the numbers represent 18 percent of last year’s total exports.”

However, even before the earthquake, a 15 percent decrease in wine production driven by spring freezes and a cooler summer was forecast for 2010 when compared to 2009. While the earthquake did not have a significant impact on this year’s harvest, it did have two adverse impacts on the wine sector: irrigation problems and labor availability, which will increase costs for wine growers.

Collapsed canals and damaged irrigation systems at vineyards have reduced the flow of water. This raises questions about how much additional investment in irrigation will be needed for the next harvest. Additionally, there is some concern over the availability of labor. Men are tied up in the reconstruction effort, while women who typically work during grape harvest season are taking care of children displaced due to collapsed schools.

Further, cellars, tanks, stainless steel vats and oak barrels also suffered material damage from the earthquake. The industry estimates infrastructure losses at $160 million plus an additional $20 million in oak barrels. Although there are some winemakers without earthquake insurance, it is estimated that insurance will cover 90 percent of industry losses.

Finally, while there have been no reports of distribution difficulties, damage to road infrastructure presents some increased transport costs largely due to additional distances and/or longer time required to cover most routes. Despite current challenges in the Chilean wine industry, Rannekleiv said, “the industry as a whole seems optimistic and firm in its decision to continue on the road to strengthening its presence in world markets.”

With damage from the earthquake and lower production expected not only from Chile, but generally a light crop across the Southern Hemisphere, there will be less bulk wine in the market place, which may be good news for U.S. producers.

“We expect there to be less downward pressure on prices from New World suppliers, which may allow U.S. wineries to regain some of their price footing,” said Rannekleiv. Additionally, Rannekleiv said, “the current situation in Chile alone would have a negligible effect on the U.S. market, but when coupled with Australia’s lighter harvest and a light crop in Argentina, U.S. producers may feel some price pressure relief.”

Source: Rabobank