New World Meets the Old in Argentina

The latest news from Argentina is good — exports are up 40%, according to a report on A New World wine success story! Or is it?

Old World versus New World

Everyone who writes about wine ends up talking about Old World versus New World wines at some point. It is convenient shorthand, I guess. The OId World usually refers to the European heartlands of wine, France, Italy, Spain. The New World is pretty much everyplace else, but especially the US, South Africa, Australian and New Zealand, Argentina and Chile.

Simple dichotomies are often problematic and I think Old World versus New World raises some issues. Old World is often code for tradition, terroir and sophisticated taste while simple industrial wines are associated with New World producers. But it is easy to find counterexamples on each side of the divide. It’s hard to think of Beaujolais Nouveau as embodying the three Ts of Old World orthodoxy — Nouveau seems like the classic Chateau Cash Flow McWine. There are many New World producers, on the other hand, who seem to take the traditions of wine very seriously. John Williams at Frog’s Leap comes to mind. So sometimes it is difficult to know where Old World ends and the New one begins

This is particularly true of Argentina. Winegrapes came to Argentina in 1541, a couple of hundred years before vines showed up in Australia and New Zealand. We tend to think of Argentina as a New World producer because it seems like its wines have only appeared on world markets in the last ten years or so. In fact, however, if you look back a few years you find a much different narrative– a classic Old World wine story.

Old World Argentina

Argentina was settled by migrants from the Old World wine countries, especially Spain and Italy, so it is not unexpected that wine has long been part of its culture. But it might surprise you to know how much Argentina reveals its Old World roots. Argentine wine consumption has until quite recently been very high — Old World high. Looking back to the early 1960s, for example, the heaviest wine consumers in the world were the French (122 liters per person per year), Italy (107), Portugal (100) and then Argentina (83). Spain (61 liters per capita) and Chile came next. No other country came even close.

Argentine wine production was necessarily quite high, too. While France and Italy dominated global wine output in the 1960s, producing almost half of all wine between them, Spain (10%) and Argentina (7.5%) came next (followed by the North African countries that exported mainly to France). Argentina was the Australia of the 1960s.

But with one big difference. Australia (and to a lesser extent Chile) are significant wine nations today because of their high export volumes. Argentina, however, has always produced mainly for domestic consumers (it was actually a net importer of wine in the 1960s as near as I can tell). So it is Old World in terms of wine production and consumption, and has only recently become New World in terms of its global export market presence.

Argentina shares two other important wine attributes with its European relations, both of which are related to wine crises. Argentina’s first crisis, from which it is still emerging, was caused by protectionism. Starting in the 1930s, Argentine winemakers sought and received protection from foreign competition and then subsidies to support domestic production. Arthur Morris of the University of Glasgow wrote a good article on this a few years ago in the Journal of Wine Research. Winegrowing in the subsidized, protected market focused on quantity rather than quality and bad but very cheap wine was the result. There was no incentive to favor quality in the vineyard because good grapes and bad grapes were all mixed together in the cheap bulk wines that urban workers gulped down. Argentina made a lot of wine, but didn’t export any. Who would buy it? This produced, predictably, a crisis of over production.

Don’t Cry: Market Reforms

The big change occurred, according to Professor Morris, when Argentina’s economic policies changed course in the 1990s. The subsidies dried up and decent wines began to trickle in from abroad, establishing a higher standard. An aggressive grubbing up program reduced vineyard area by a third.

The game was up for inferior domestic brands. Competition changed the wine market dynamic, shifting it from quantity to quality. It took only a few years for higher quality Argentine wines to reach the world market, where you see them today. That’s when Argentina became a “New World” producer.

The market reforms that the Argentine industry implemented in the 1990s remind me of the EU agricultural market reforms that Old World wine producers will experience in the next few years. The Argentine reforms seem to have worked, which may be a good omen for the Old World producers, but the industry had to live through a deep crisis first.

It is a good thing that Argentina has made the shift to a wine exporter because of the second crisis it shares with the Old World: collapsing domestic demand. Wine consumption has fallen by about half in France since the 1960s, for example, as consumers have shifted from wine to beer, spirits, sodas and now water. Wine demand declined proportionately more in Argentina, from 83 liters per capita in the 1960s to only less than 30 liters today. The article reports that this trend continues. Argentina has dodged this bad news bullet to a certain extent, however, because of its new focus on quality-driven export markets.

The map of world wine consumption is changing fast. You could define the Old World as the part of the map where high consumption rates have collapsed– France, Italy and Argentina are all there. The New World is where wine cultures are actually growing. Wine market reforms, like those that Argentina has taken and the EU now plans, seem necessary to rebalance the map and align global demand and supply.

Older, Newer: The Wine Lexicon Evolves

Pretty soon we are going to have to invent new terms to describe planet wine– Old World and New World have just about run their course. China and India are obviously not Old World wine countries (although China has made wine for nearly 2000 years) and not exactly New World, either. Perhaps, taking a cue from financial markets, which talk about emerging market economies, we will call them Emerging Wine countries.

And then there are countries like Georgia, Romania and Moldova that produce huge amounts of wine, some of which is now finding its way onto global markets. Old World or New? Old World, if you go by history. Georgia is where wine was first made, according to some historians. But the wine industries in these countries are still recovering (emerging) from the dark Soviet years, when quantity ruled and quality pretty much disappeared. Now, as their industries modernize, they are beginning to enter the market, too. So are they the Oldest World — or maybe the Newest one — and confronting the biggest challenges?

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