Category Archives: Hong Kong

Argentinean Wine: Striking a Balance

March 28, 2011 By in Argentina, China wine, economic crisis, Economic impact, Flying Winemakers, globalization, history, Hong Kong, wine awards 1 Comment

Old and New at Mendel Wines

Balance is the key to great wine (and profitable wine business, too). I was reminded of this truth many times during our visit to Mendoza, where wine makers are trying to chart a course between and among several extremes:

  • Competitive export sales versus the challenging domestic market;
  • Reliable value wine sales versus potentially more profitable premium products;
  • Popular and successful Malbec versus TNGT — The (speculative and uncertain) Next Big Thing.

The key to long term success involves finding the right balance in this complex economic environment.

Thinking Global: Anabelle Sielecki

I want to use this post to consider three types of balance that I think are particularly interesting in Mendoza – the balance between crisis and opportunity,  local and international winemaking influences and the simple tension between the old and the new.  We learned about all three dimensions during our brief visit to Mendel Wines in Lujan de Cuyo.

Crisis and Opportunity

Mendel is both very old and quite new.  The vineyards are old, planted in 1928. Somehow these Malbec vines survived the ups and downs of the Argentinean economy. The winery is almost as old and has a certain decaying charm. It stands in stark contrast to Salentein, O. Fournier, the Catena Zapata pyramid and the many other starkly modernist structures that have sprung up in this part of the world.

The winery project is quite new. Mendel is a partnership between Anabelle Sielecki and Roberto de la Mota and is the result of a balance between crisis and opportunity. When economic crisis struck Argentina ten years ago, opportunities were created for those with vision and entrepreneurial spirit. Anabelle and Roberto seized the moment and purchased these old vines and well-worn structures for their new super premium winery project.

That their impulse was timely and wise may not have been obvious at the time (crises are like that), but it is perfectly clear now. Wine Advocate named Mendel one of nine “Best of the Best” Argentinean wineries in a recent issue.[1]

Old and New

The winemaking that goes on in Mendel is also a combination of old and new. The technology is modern, of course, with stainless steel and French oak very visible. The setting, however, constantly reminds you of the past and the vineyard’s and winery’s history. Walking through the winery, for example, I was struck by the big concrete (or were they adobe?) fermenting tanks – a blast from the past for sure.

No, we don’t use them to ferment the wines anymore, Cecilia Albino told us, but we put them to good use. Peek inside. Sure enough, the tanks were filled with oak barrels full of wine aging quietly in the cool environment.

[Interestingly, I saw concrete tanks again during our visit to Achaval Ferrer.  Roberto Cipresso, the winemaker there, built the tanks because he uses them at his winery in Montalcino.]

Mendel also illustrates the balance between local and global that characterizes wine in Argentina, where much of the capital and many of the winemakers come from abroad.  Roberto de la Mota, partner and chief winemaker at Mendel, personifies this balance. Roberto is the son of  Raúl de la Mota, who is sometimes said to be Argentina’s “winemaker of the century” so important was his work in developing quality wine in this country.

Roberto naturally grew up in the wine business both here and in France, where he sought advanced training on the advice of Emile Peynaud. He was the winemaker at Terrazas, Chandon’s still wine project in Mendoza, and then at Cheval des Andes, a winery with connections to Château Cheval Blanc. I think it is fair to say that Roberto’s resume represents a balance between local and global, between deep understanding of Mendoza terroir and knowledge that perhaps only international influences can provide.

Acting Local: Roberto de la Mota

Local and Global

I asked Roberto if it was important that Mendel is an Argentinean project and not owned by a foreign multinational. Yes of course, he said, but he hesitated a bit and I think I see why. Many of the influences and markets are international, but people, vines and inspiration are  purely local. Not one or another, but intertwined, balanced.

And this thirst for a complex balance defines the future. Talking with Anabelle over coffee in Buenos Aires, she was ambitious to break into new markets – Hong Kong, China, and so forth. Anabelle is an architect — another field where global and local intersect.  She is married to Héctor Timmerman, Argentina’s Foreign Minister and former Ambassador to the United States, so her international interest comes naturally.

Meeting with Roberto at the winery in Mendoza, he was interested in learning even more about his vines and terroir so as to better develop their potential. And to bring more of the classic Bordeaux grape varieties (like Petit Verdot) into the mix.

Mendel has charted its balanced course quickly, purposefully and well.  It is a perfect illustration of both the tensions that define wine in Argentina and the potential for success if a clear but balanced path is boldly taken.

[1] The other “Best of the Best” wineries in Wine Advocate issue 192 are Achaval Ferrer, Alta Vista, Catena Zapata, Viña Cobos, Colomé Reserva, Luca, Tikal and Yacochuya.

Hong Kong Wine Taxes: The Papillon Effect

March 1, 2008 By in China wine, Hong Kong, wine auctions, wine taxes 1 Comment

How Tax Cuts in Hong Kong May Create a Tornado in Bordeaux

everwise-poster.jpgWine prices are dropping in Hong Kong (click on the image to see one merchant’s sale announcement). The reason is that Hong Kong has abolished taxes on beer and wine. The tariff on wine was an incredible 80% until a few years ago, when it fell to a still hefty 40%. So the drop to a zero rate and the price reductions that should follow will be welcome news indeed for wine-drinkers in this prosperous Asian hub.

What prompted the HK government to take such an action, which cost the city over $70 million in lost tax revenue? One factor was a budget surplus, which made tax cuts possible. But why cut wine taxes? Imported wine in Asia is often an expensive luxury sold to well-heeled buyers who may not be very sensitive to price — just the kind of product that makes a logical target for tax policy. If the government can afford to cut taxes, why not target a tax that would provide more general benefit?

The answer, according to published accounts, is that Hong Kong’s policy isn’t about wine, it’s about money. By cutting wine taxes, the Hong Kong authorities hope to bring in more money, not less.

The world auction market for wine is large and growing. London (with annual wine auction sales of $1.2 billion) and New York are at the center of this market, but as much as 40 percent of the expensive auction wine is sold to Hong Kong residents. The high taxes on wine discourage HK buyers from bringing auction purchases home to drink or to re-sell, so the wine is held in foreign warehouses (or sometimes in bonded warehouses in HK).

Much of the world’s supply of great wine and demand for it too resides in Hong Kong, but the wine itself lives elsewhere. By abolishing the wine tax, the Hong Kong government hopes to exploit this fact and turn Hong Kong into Asia’s wine market center. Look for the big auction houses to organize HK wine practices to take advantage of the new market environment. And look for HK government revenues on the resulting auction enterprises to rise, perhaps enough to compensate for the initial tax cut.

The Papillon Effect

The impact of Hong Kong’s auctions are likely to be felt well beyond Asia and well outside the gilded halls of the auction houses. Have you heard of the Butterfly Effect? It is the idea that small changes in complex interconnected systems can sometimes produce large effects. The name, coined by Edward Lorenz in 1961, comes from the idea that a butterfly beating its wings in Brazil, by disturbing air flows in ways that compound and multiply, can theoretically cause a hurricane in Texas. It is a famous concept in the field of non-linear dynamics.

Natural systems are obviously complex and interdependent and sensitive to initial conditions. Tipping points, butterfly effects and the like are both theoretically possible and empirically observable. Economic systems can have these same properties. (I wrote a book a few years ago that examined the turbulent flows and non-linear dynamics of foreign exchange markets, for example.) This is perhaps especially true for complex global markets, like the market for wine.

The shift in the wine market to Hong Kong should have fairly significant effects on wine flows and prices — especially for trophy French and especially Bordeaux wines, the object of much London and soon Hong Kong auction activity. So I’m calling the effect of the HK wine tax cut the Papillon Effect (papillion is French for butterfly — if the HK buyers were focused on Italian wines it would be the Farfalle Effect). I will be interested to see just how much market turbulence the HK tax change creates.

Will the HK butterfly’s wings cause a tornado in Bordeaux? Yes, I think it will, although it might be difficult to tell how large the effect is because of the boom already in progress, both in the auction and en primeur markets, for these wines. Prices are already staggeringly high for the most famous and highly-rated products.

But the really interesting question concerns the side effects in other markets. How will surging Bordeaux prices affect the rest of the wine world? Will the object of speculation remain fairly narrowly focused or will the boom’s domain expand to include investment-grade wines from around the world? How far will the Papillon Effect extend?

And then there is the question of stability. The clear message of the Butterfly Effect is that the compoud effects of small changes may not be sustainable — they can be disruptive and even explosive, like a tornado.

Will the HK tax changes merely shift the wine market centers and expand demand and supply, or will it blow up a bubble, as often happens in financial markets? This is a question that Hong Kong financiers should consider as they raise their bidding paddles at the great wine auctions that seem sure to be coming their way soon!