..
Dreams
and Disappointments: Wine Investing in Argentina
By Tim
Leffel
|
|
September 2006
| “I’m
going to open a winery!”
How many times
have those fateful words been uttered, in English, French, Spanish, or
Italian? Close your eyes and you can almost see the glee on the entrepreneur’s
face as he imagines himself running this new enterprise. “After all, I
know a lot about wine,” he says. “I have the money to make it happen. I
have some good connections.” He kicks back in an easy chair, swirling a
glass of cabernet, picturing days of entertaining buyers, attending awards
banquets, and hobnobbing with restaurant owners.
If you want
to find out where these gleams in the eye have been leading the past few
years, head to the Mendoza region of Argentina, where an exploding wine
industry and bargain prices have brought a flood of new development. There
are supposedly some 16,000 vineyards in Argentina being fed by the runoff
water from the Andes Mountains and depending on whom you talk to, some
1,200 to 1,700 wineries.
“There’s no
way to really know how many wineries are here,” says Charlie O’Malley,
who edits The Grapevine magazine and runs Grapevine
Wine Tours with his partner Kelly Thornhill. “New ones are opening
all the time and there’s always the issue of who has officially filed the
right paperwork or not.” Then there’s the geography. Mendoza is the main
wine province, but good wine is also coming out of Salta Province in the
north and Patagonia in the south.
There’s no
dispute about the growth path, however. Argentina’s wine exports topped
$350 million in 2004 and $400 million in 2005, according to the country's
Institute of Wine. Over the past decade, the industry has collectively
invested some billion and a half dollars in the latest technology and has
been quite successful in marketing their wines, especially their signature
Malbec, to the world. The country’s wines have gone from jug wines mostly
meant for local consumption to ones that are winning awards against the
best from the U.S., France, and Italy.
The new dreamers
are certainly not the first ones to breeze into Mendoza looking to start
a winery. The industry has been in place here since the 19th century, with
immigrants from Spain and Italy applying their knowledge and hard work
in the new world. The Malbec grape was actually brought to Argentina by
European immigrants in the 1860s. It rarely performs as more than a blending
wine elsewhere, but the climate in the new world has served it well.
These days
the immigrants still come from wine-producing countries in Europe, but
others now join them from the U.S., Canada, Chile, and far-flung places
around the globe. They are lured by an exploding growth curve and land
prices that can still be downright cheap. Listings on EscapeArtist.com
often come in under $2,000 an acre.
More than a
few investors have returned home later with their tail between their legs,
however. “Buying a little slice of heaven is the easy part,” says O’Malley.
“To secure the right conditions and then run and manage the place is a
different story.”
One person
playing a big part in improving the odds for newcomers is David English,
president of Mendoza’s expatriate club. His company, English
Associates (), takes potential investors by the hand and not only leads
them through the purchase process, but helps them start and run the actual
vineyard through the start-up and production phase.
Finding
Local Expertise
“We work with
the client to help them find the right property, on a consulting fee basis,”
English says. “But then we continue to work with the client after they
have made the purchase. We look after their investment and develop it,
find the right local people, and become their local eyes and ears on the
ground.”
“The market
here is very hot, with foreign investors taking advantage of the gap in
values,” he adds. “With prices rising dramatically in some areas and no
accurate records of real estate sale prices, it’s easy for someone to get
suckered. By looking at hundreds of properties a year, we have a good feel
for real values. Since we’re not a real estate agency, we can also be impartial
about what’s the best option for the buyer and give the person advice that’s
not tainted by commission considerations.”
English hails
from Nashville, Tennessee, in a region better known for Jack Daniels and
George Dickel American whisky than for wine. There he owned a company that
licensed music industry trademarks (such as Gibson and Steinway) and developed
licensed merchandise for sale in overseas markets.
Ten years ago,
at a Rotary Club meeting in his home town, he found out about a group study
exchange program where participants spend 6 weeks visiting another country,
seeing other businesses and staying in homes of business owners. He followed
up on it and in 1997, was selected for the scholarship and spent a month
and a half in Patagonia. “I fell in love with the country and people,”
English explains, “and I kept coming back on subsequent trips, always looking
for opportunities.” Eventually he fell in love with another aspect of Argentina—his
wife Carolina.
English got
into the wine business by default. He started out offering general business
services to foreign investors and foreign corporations, helping people
set up locally or form partnerships. He dealt with the locals and mitigated
the investment risk. Word soon got out to wine investors and real estate
consulting followed. “Because of where we are in Mendoza, most of the companies
and individuals who came to us were looking to invest in or partner with
the wine business,” he explains.
English sees
his role as helping people find success by keeping them out of trouble.
“The most important offering from us has been in keeping people from totally
messing up. Sometimes we’re successful by telling people not to buy a property.
We keep them from spending $200,000 for something that wouldn’t work out
as a vineyard.”
How NOT
to Buy a Winery
Hubris often
leads to an investor’s downfall in the wine region of Mendoza. The most
famous example in these parts is a failed investment by the Kendall Jackson
company of California. They came down to Argentina in 1996 with their own
staff and an attitude that they knew exactly what it would take to launch
a successful winery in the area. They reportedly spent close to 8 million
dollars. In 2003 they declared the adventure a bust and ended up selling
the winery for $2.5 million. For those not doing the math, that’s a loss
of $5.5 million after 7 years of work.
One of the
most common mistakes wine investors make is not making an attempt to understand
the people, the culture, and the way things work in a foreign country.
“Ideally, you do it methodically and slowly and you don’t need someone
like me so much,” English says. “In the best case you would come down here
and live for a couple of years first. Then buy when you know the country,
the people, the region, and the language. At that point you understand
the culture, what the risks are, and what it is really like to live here.
Most people do tend to jump into things too quickly.”
Another common
mistake is to underestimate the importance of finding the correct site
for a vineyard. Many people don’t learn until after arrival how huge the
Mendoza province really is. The wine-producing area of San Rafael, for
instance, is 150 miles from Mendoza city, but still a part of Mendoza province.
Getting a handle on this vast region is not easy for a newcomer.
“I personally
know several people who purchased property they thought was a great deal
and found out the land was close to worthless,” says English. “They were
over a geological fault, or they didn’t have water rights, so they were
essentially stuck with un-irrigated desert land. People with wine experience
come from a country like Italy and think they know everything. Unfortunately
they don’t know about local microclimates or local soil characteristics.”
Argentina is
in a unique position in both cases. Mendoza vineyards receive plenty of
sunshine, but almost no rain. Instead vines are watered through irrigation,
from water that comes down from the Andes Mountains. Vineyards take this
water and either periodically flood the fields or use drip irrigation systems.
Unfortunately,
this means those without water rights are out of luck from the start. It
also means that more than a few plots of land are unsuitable for growing
grapes, due to salinity levels in the soil. “Historically, there has been
a lot of sharecropping of garlic, onions, and tomatoes in the region,”
English explains. If farmers do not properly irrigate the land—which is
okay for growing onions—it can be a big problem later if someone buys the
land intending to grow grapes. You have to do the proper soil sampling
and analysis to know if the dirt will work or not.”
. |
.
|
RESOURCE
LINKS FOR ARGENTINA
|
|
Government,
Economy & Country Information for Argentina
|
| Country Information
for Argentina. |
|
Books
on Living in Argentina
|
| Expatriate,
Travel, Cultural & Employment Resources Books for Argentina. |
|
Education
& Schools in Argentina
|
| Information
on Schools, Colleges and Universities. |
|
Literature,
Art, Tango, History of Argentina, Sports
|
| Art and Culture
in Argentina. A nation of rich literature, dance, music and the finer arts. |
|
Real
Estate in Argentina
|
| Real Estate In Argentina - Current
real estate listings of properties in Argentina. |
|
Real
Estate in Argentina II
|
| Real Estate
links in Argentina. |
|
Articles
on Living & Investing in Argentina
|
| Articles On Living & Investing
In Argentina - Also Including Articles On Real Estate In Argentina - |
|
Vacation
Rentals In Argentina
|
| Vacation Rentals
worldwide - including Argentina |
|
Vacation
& Travel In Argentina
|
| EscapeArtist
Travel - Our new section providing unique travel to unique locations |
|
Embassy
Resources for Argentina
|
| Embassy Resources
for Argentina - On our sister site EmbassyWorld. |
|
Internet
WWW
|
| The Internet
In República Argentina. |
|
Maps
of Argentina
|
| Maps of Argentina
- Our own Embassy maps plus a large number of differing Argentinian maps,
also including city maps. |
|
Hospitals
in Argentina
|
| A List of
Hospitals in Argentina in our Hospitals section in Latin America. |
|
Argentina
Travel & Tourism
|
| Travel and
Tourism, Resorts, Education Travel Programs to Argentina - |
|
Media
& News In Argentina
|
| News &
Media from Argentina - Organizations - Resources - |
|
Banks
of Argentina
|
| Banks of Argentina
- See Banks of Argentina at our Banks Section. |
|
Search
Engines Of Argentina
|
| Argentine
search engines on the Internet. |
|
Science
& Technology
|
| Education
and Science in Argentina. |
|
|
..
.
..
|
The Friendly
Realtor and Ice From the Sky
Buying real
estate in a foreign country cannot be approached the same way it would
be in a buyer’s home country. As in many developing markets around the
world, Argentina’s real estate system is far from sophisticated. There
is no multiple listing system. Official sale prices recorded in the tax
office rarely reflect what was actually paid for a property. There are
no “comparable sale reports” to pore over when forming an offer.
Real estate
brokers in Argentina are not licensed and some can frankly be described
as shady. More than a few buyers have been burned by property with muddy
titles or land that ended up being saddled with liens.
Now let’s imagine
our dreamy buyer with a gleam in his eye did most everything right. He
got a good property at a good price, hired the right people, and navigated
the local regulatory issues properly. He’s just about to harvest his first
year’s grape crop. Then a hailstorm hits and wipes out his entire field
of what was going to be wine.
Mendoza has
an almost perfect climate for growing grapes. There’s ample sunshine, the
right altitude, cool nights, plenty of water from melting snow, and little
need of chemicals. There’s just one little problem: giant balls of ice
that rain down from the sky at the worst possible time of the year.
On February
15, 2006, a hailstorm that ripped through the area around harvest time
destroyed 4,000 hectares of land, damaged 50 houses, and even killed two
people. Some balls were the size of a baseball and the ice on the ground
stacked up several feet. In the aftermath, some wineries lost a year’s
work and all their money in less than 30 minutes.
Some wineries
can afford to hedge their bets by planting grapes in several different
regions, at different elevations. Smaller upstarts don’t have this option.
“An investor really needs to factor hail nets into the investment,” says
English. The hail nets go over the vines and protect the grapes from falling
hail. Of course an investor wouldn’t need to include this expensive addition
in the budget in Napa Valley, the Loire Valley, or Stellenbosch, but in
Mendoza doing the nets are like a pricey insurance policy.
Doing it
Right
English says
no client of his has met complete disaster yet, but he admits it’s too
soon to really tell. “Often you don’t know until 8 or 10 years out whether
your wines are truly going to be successful or not. Nobody should go into
this unless they have ample capital they won’t need to get to for quite
a while. This is not a quick return investment.”
He’s encouraged
by the early success stories, however. He points to a property buyer from
Bermuda who wanted to buy a vineyard. English found a local who wanted
to sell part of his land, but the seller also wanted to have capital investment
in his own land as part of the deal. So the whole vineyard was developed
as a partnership. The two owners are able to share equipment and expenses,
including a single agronomist, a single viniculturist, and one tractor.
The investors
that are most likely to succeed at owning a winery tend to follow a certain
pattern, however. For one thing, they are seldom mad alchemists with a
dream. “Winemaking is as much a science as an art and requires the cool,
analytical mind of a planner and designer,” says O’Malley. “Your typical
artist on the other hand is more famous for drinking wine than making it.”
David English
adds that clear thinking is also a definitely determinate of success. He
says investors need to clearly define what the objective is. Why are they
doing it? Why now?
Will this
be a hobby? A reason to visit a vacation home? A high-return investment
that is related to a love of wine?
Once the objective
is clear, it is much easier to define what is appropriate and realistic.
“When someone is completely clear about what they are looking for, the
choice comes from within; it is not something they can be pushed into,”
English explains.
If a full-on,
risk-a-fortune investment sounds too daunting, there is a middle ground
for hobbyists. J. Peter Meuli of Finca
Los Amigos has set up a partial ownership program for people who prefer
to just take small steps and let other experts take care of the details.
Buyers can purchase a 10-acre plot of vineyard land and either buy or build
a vacation home on the property. The new owners can tap into the expertise
and equipment already on hand at Finca Los Amigos—for a fee of course.
The developers
have set aside 125 hectares (309 acres) of virgin land that will be transformed
into Argentina’s first “vineyard village.” Some of the individual sites
have been sold, but most are still available. Package prices to get a vineyard
up and running range from $165,000 to just under $300,000, the latter including
a rustic two-bedroom home.
Looking
to the Future
With all the
risks and the time factor, can it be a good investment, from purely a financial
perspective? The basic laws of economics are still favoring Argentina and
will for a while. A vineyard in Napa Valley costs 10 or 15 times what a
comparable one does in Argentina, yet the best Argentine wines are starting
to command respectable prices. “Vineyard prices will never be what they
are in California or Italy,” English says, “but they are certainly moving
up toward a middle ground.” The value of some prime land has doubled in
value in 12 months. That can’t last, but many think that 30% a year is
probably realistic for quite a few years to come—if the buyer’s price was
not inflated to start with.
Many think
that Argentina’s best years are still ahead of it. The overall quality
is still improving, the word is still getting out, and a lot of production
is still tied up in making cheap jug wine and concentrate. Argentina exported
less than 1 percent of its harvest in 1992. In 2005 the percentage was
up to 16 percent—still a low number by international standards. So all
those Argentine wines on store shelves and in restaurants abroad still
represent a very small portion of what’s possible.
In addition,
who around the world has heard of Torrontés? These fragrant and
fruity white wines with crisp acidity are still mostly just known to tourists
who have visited the country. It’s only a matter of time until wine drinkers
looking for the next new thing start discovering this distinctive wine
and importers begin bringing in more stock of Argentine whites to add to
the wide range of reds.
So for all
those wine dreamers with a gleam in the eye, there’s a bright future ahead—if
you take your time and listed to local advice.
.
.
|
The
Portable Professional - Earn A Living Worldwide - It is now possible
to make a living from anywhere you can log on. The technology is
there and the opportunities are there. Mark McMahon has written an
eye-opening report on how to make a living worldwide. Earn US Dollars
and/or EUROS from wherever you are on the planet. The options are
limitless and the time is now. Learn more about how to break free
- learn how you can live your life like it belongs to you - Live Where
You Want To Live! ~ Live How You Want To Live! ~ And Make Money Doing It!
- |
|
|
......
|