Argentina introduces “Malbec-dollar” exchange rate to boost wine exports

Argentine wine producers will be granted a preferential “Malbec-dollar” exchange rate as the government seeks to boost exports and replenish its dwindling central bank reserves.

Ministers said they would roll out the rate from April to help vineyards grappling with an annual inflation rate approaching 100 percent, along with extreme weather conditions affecting harvests.

Enrique Vaquie, Minister of Energy and Economy in the province of Mendoza, told the Financial Times that trying to export Argentine wine was like “rowing through a river of dulce de leche,” referring to the wine’s signature sticky caramel sauce country related.

The exchange rate plan follows a “soy dollar” policy introduced in September to boost exports of the crop, allowing farmers to sell at a premium rate of 200 pesos per dollar, compared to an official rate of about 150 pesos at this point Time.

Finance Minister Sergio Massa said this month that the more generous exchange rate for wine – the exact level of which has not yet been announced – aims to “help restore export competitiveness and consolidate Argentina’s reserves”.

The rate, quickly dubbed the “Malbec dollar,” would be followed by other preferential rates for local produce, Massa said. Other regional products are lemons and cotton.

Extreme climatic conditions have damaged crops, reduced exports and thus foreign exchange inflows as farmers struggled with late frosts and severe drought last year.

Argentina is among the world’s top 10 wine exporters in dollar terms, but total production fell by a fifth in 2022 from the previous year, while bulk wine exports fell by 20 percent by value. According to experts, the 2023 harvest, which ends at the end of April, is likely to be one of the worst in ten years.

High costs, export taxes and the exchange rate — which Argentina is artificially pegged to the dollar — have hurt profitability and created “urgent” problems for the industry, said Patricia Ortiz, president of the Bodegas de Argentina winegrowers’ association.

“There is another one for higher quality wines [profit] Marge,” said Ortiz, who owns seven Mendoza vineyards in the foothills of the Andes and produces several varietals, including Malbec. “Where we lose out to other markets like Chile and Spain are our cask wines.”

The value of each bottle shipped overseas for growers has fallen by half since the end of 2021, mostly due to inflation, Ortiz estimated.

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The latest currency scheme follows at least 10 different preferred exchange rates applied to various sectors during President Alberto Fernández’s first three years in office. Critics say this is a way to avoid currency devaluation.

Buenos Aires-based economist Fernando Marengo said the ruling Peronist government “doesn’t want to shoulder the cost of a devaluation in an election year” because it would lead to higher inflation, rising poverty and the risk of social unrest. Parliamentary elections are scheduled for October.

Argentina was largely isolated from international markets after its ninth debt default of 2020. Net foreign exchange reserves were about $4.4 billion in February, private analysts said. Without a fresh inflow of dollars, reserves this year could fall below targets set by the IMF in a $44 billion debt deal reached last year.

Ortiz said the government will struggle to replicate the boost the soy crop is getting from its favorable exchange rate given longer production times for wine.

Vaquie said the rate would not be enough to help growers, who were also facing yeast and cork shortages due to import restrictions.

Ortiz added that one positive result of Mendoza’s exceptionally high summer temperatures is an increase in wine quality as producers diversify their crops to produce Chardonnays and Cabernets.

“The wine isn’t the problem, the problem is how we can export our premium products,” she said. “If they help us, we’ll bring in more dollars.”