The press release begins this way:

MENDOZA, Argentina – February 8, 2022 – Dr. Nicolás Catena Zapata of Catena Zapata winery received the Lifetime Achievement Award at the 22nd Annual Wine Enthusiast Wine Star Awards held last night at the Eden Roc Hotel in Miami. This prestigious industry event recognizes individuals and companies for their exceptional contributions to the success of the wine and beverage alcohol industry.

Dr. Catena’s life in wine is indeed worth celebrating. He was a leading protagonist in what I call the Argentina wine miracle. An economist by training, Dr. Catena was a visiting professor at UC Berkeley in the early 1980s when he was inspired by what he saw happening in California. These were the exciting days that followed the 1976 Judgement of Paris, so there was energy and confidence in the air.

California Lessons in Argentina

Catena took this vision back to Argentina, where he exchanged academic tweeds for vineyard and winery clothes. The family firm, Bodega Catena Zapata, and Argentina’s wine industry in general, faced a dire crisis.

Sue and I visited the Catena Zapa “Pyramid” winery a few years ago and, because I am an economist like Dr. Catena, we were ushered into his personal library. I recognized many of the books because they were the same ones that I was studying in the 1970s and 1980s, when stagflation was a global problem, and the debt crisis was on everyone’s minds.

These were more than academic issues for the wine business in Argentina at the time. Having evolved in the “old world” style to make inexpensive commodity wine for the domestic market, Argentina wineries were caught in a squeeze when inflation pumped up costs at the same time that domestic recession caused demand to slump. Could the surplus wine be diverted to export? Not likely, because the quality of much of the wine was below international standards. Argentina’s economic crisis was a wine crisis, too.

That Argentina wine found the energy and confidence to turn the corner, to make wines of constantly rising quality in the face of daunting headwinds, is noteworthy indeed and Dr. Catena more than deserves his lifetime achievement award for his role in making Argentina a world-class wine producing nation. A miracle? I don’t think it is wrong to apply this term to Argentina’s dramatic transformation.

I think it is important to keep these past achievements in our minds today because the challenges that wine faces, while different from the past, are not so different that important lessons cannot be gleaned. History may not repeat itself but sometimes, as Mark Twain observed, it rhymes.

Dividends from the Argentina Wine Miracle

Argentina is experiencing economic crisis again today, overwhelmed by external debt and internal inflation. Perhaps the single best indicator of the depth of the crisis is this graph of the Argentina peso against the US dollar for the decade 2011 to 2021. Fewer than 5 pesos were needed to purchase a dollar in 2011. The rate was about 15 pesos per dollar when we visited five years later in 2016 — that’s a very substantial decrease in the currency’s value in such a short period of time.

But the exchange rate today is much worse — it takes more than 100 pesos to buy a dollar now. And that’s the official exchange rate. I’m guessing that the peso is much cheaper on the unofficial market. This is what an (official) inflation rate of over 50% a year (even higher than inflation in Turkey!) will do.

Although Argentina’s economy is bouncing back from its covid-induced decline, domestic economic conditions are very challenging — not as bad as in the 1980s perhaps, but difficult indeed.  The uncertainty about what policies will be result from continuing debt negotiations with the IMF cloud the horizon. Argentina wine is not immune to these problems, but it is much better positioned today to ride out the storm. Exports were up in 2021. The miracle continues to pay dividends.

Lessons for the U.S. and Beyond

But the lessons don’t end there. I think it is important for wine business leaders in the United States and elsewhere to study Argentina’s wine history and remember that sometimes it is necessary to radically re-think arrangements to adapt to changing circumstances. “They say that time changes things,” according to one of my favorite maxims, “but sometimes you have to change them yourself.”

In the US, for example, inflation has returned as an economic concern and, for the wine industry, the fact of stagnant demand cannot be ignored. There is no debt crisis at present, but with gross debt levels at record highs and rising interest rates on the horizon, it is foolish to think that cracks in debt markets will not eventually appear. Small increases in interest rates can translate into trillions of dollars of additional interest obligation very quickly with so much public and private debt in play at high levels of risk.

Foreign debt is especially vulnerable because so much of it is denominated in dollars and the dollar is likely to appreciate as U.S. interest rates rise. That’s double jeopardy.

For the wine industry, stagnant demand is a problem that is on the minds of many, just as it was in Argentina four decades ago. The Argentina miracle was to shift from low- to high-quality to escape a race-to-the-bottom scenario. For the U.S., the challenge may well be to produce good quality but more affordable wines to appeal to potential consumers who are put off by wine’s relatively high price compared with other beverages.

I note without comment that Wall Street Journal wine columnist Lettie Teague’s recent column on good $10 wines did not include any U.S. product recommendation. “Sadly,” Teague writes, “I couldn’t find any wines made in the U.S. that fit all my criteria.” That’s pretty much the flip side of Argentina back in the day.

I believe in miracles and in wine’s ability to transform itself without losing its soul. And so I offer a toast to Dr. Nicolás Catena Zapata, the economics professor who became a transformational winemaker and whose miracle offers lessons that are relevant today.