editorial


if Chile is to focus on increasing profitability, it must have a


strategy to inspire consumers to pay more for its produce


THERE’S A concerning parallel drawn this month between Chile’s current ambitions outlined in its Strategic Plan 2020 and Australia’s Strategy 2025, which was released in 1996 and widely blamed for the oversupply problems experienced there 10 years later. To recap, Australia had set a target to reach AU$4.5 billion in annual sales for 2025, but such was the rush to plant and produce, it was achieved by 2005. At the time the Australia report was written, the country was a global vinous success story, sucking in consumers from the UK, US and Canada with its appealing produce. However, by 2006, excess production had hit 460 million litres – more than the country’s entire annual domestic consumption. And so to Chile today. Such is the growth in global demand for this country’s ever improving produce, a “structural deficit of wine” is estimated at 25,000 hectares, and this is increasing as exports outstrip plantings. The response? A goal of doubling sales to US$3bn over the next 10 years has been set out in a new document. However, as Rabobank warns, comparing Chile’s strategy to Australia’s plans from 15 years earlier, the latter country’s present profitability problems are partly because it “set aggressive targets for export volumes in an industry plan very similar to Chile’s Plan 2020”.


Rabobank believes Chile should instead give priority to raising value in both mature and new markets. For example, the bank identifies UK pricing for Chilean wine at around 20% below the country’s export average, and while many producers


have declared a wish to pull out of the low-margin market, Rabobank stresses that emerging economies are not going to replace the volumes sold in Britain, for the short term at least. This is primarily because there are so many suppliers fighting for a share of the same, small-growth markets such as Scandinavia and Canada, while even within China – seen as an insatiable consumer – there are tales of warehouses filling up with unsold stocks.


But if Chile is to focus on increasing profitability, it must have a strategy to inspire consumers to pay more for its produce. It needs to focus on higher-priced grape varieties allied to high-quality regions, and from this, the creation of inimitable wines. However, this will only improve the country’s image if it is careful to avoid allowing production growth to outpace demand.


As Rabobank sums up, given the pressure on margins from the


growing strength of Chile’s currency, as well as other cost increases, the potential problems from excess supply outweigh any lost sales from a shortage of grapes. If this sounds a little dispassionate, perhaps Chile should learn


from Australia’s struggle to convince consumers of its fine wine credentials before oversupply hangs, like the proverbial millstone, around the country’s neck.


PATRICK SCHMITT EDITOR


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