Earthquake Effects Chilean Wine Market

On the morning of Saturday, February 27th a devastating earthquake shook Chile. Recorded as an 8.8 on the Richter scale, it shook so hard that reports are saying that the quake knocked the earth off of its axis by up to three inches making the days 1.26 milliseconds shorter. This tragedy reportedly displaced up to two million people. Buildings and bridges collapsed, homes were lost, millions without power. This event is truly a devastating disaster. After the quake I was online reading about the event and I began thinking in terms of my industry. With Chilean wine imports in the United States accounting for almost $200 million, what changes does this bring for the wine industry here in the US?

Wine production has taken a pivotal role in the Chilean economy over the last 20 years. Chile has over 500,000 acres of land under vine and they produce more than 300 million gallons of wine each year. A catastrophe like this is certain to have an effect on their wine industry.

Chilean wine imports are a fairly new addition to the United States wine market. In the 90's large producers like Robert Mondavi played an important role in the Chilean wine market. The Mondavi team spent millions of dollars to help build a wine scene in Chile. Many of the initial concerns with the wine was that it was unclean, usually smelling of barnyard and vegetables, quality that are a sign of poor production. It didn't take long for the country to fix the problems and quickly it became known as a value oriented wine producing region.

The Southern Hemisphere growing season is opposite of the United States or more importantly the Northern Hemisphere. March in Chile is the time to assemble staff and begin harvesting grapes. Just as hard wind, rain, insects and other factors influence a vintage, devastating natural disasters like earthquakes will most certainly be a factor in the 2010 vintage in Chile. Major wine growing regions like Maipo and Rapel reported some damage but regions further south like Curico and Maule took a bigger hit.

Producers like Montes, Miguel Torres and Calina set up shop in Curico and Maule. Further North producers like Montgras and Los Vascos are close to the shore and in turn received more damage. Reports indicate that major wine producer Concha Y Toro sustained a considerable amount of damage. The damage was spread all over the industry. Wine barrels and bottles were broken, electricity and water were lost. Even just trying to assemble a team to pick grapes has become a challenge with people being stranded or worse, missing. A natural disaster like this can take years for wineries to get back on their feet. Reserves, equipment, and even the vineyards are effected by a devastating event like this.

So what does this mean for the wine industry in the US? I think it is safe to say than an Act of God like this will most certainly effect pricing, beyond simply Chilean imports. The United States is the number one consumer of wine in the world, by volume, drinking more than 750 million gallons of wine each year. That is more than 2.5 gallons for every man, woman and child. We consume a lot of our own wines made here in the United States but we are large wine importers from countries like Australia, Chile and Argentina.

Chile as I mention is known for its ability to produce quality wine at an affordable price. They were able to do this because labor is inexpensive, water is abundant and the conditions are ideal. With the economic recession steering the wine market people are purchasing their every day wines in the $6-$20 price point, a 'sweet spot' for the Chilean's. With 2009 reserves being destroyed and 2010 looking bleak this could cause a greater demand for existing products in the market. As we know, if the demand for a product, or in this case a price point, is higher and a supply is limited, the price of the product will go up. We may see a jump in retail prices in order to meet the demands of the consumer.

As you may have realized by the staggering figures above, the US is not going to stop drinking wine. I would argue that this may result in America seeking for another value oriented wine producing region. We are one of the largest importers of Australian wine in the world right behind the UK. I would not assume we would import more Aussie wines to quench our thirst. Many people believed in 2002-2008 that perhaps South Africa would be the next 'Australia'. Perhaps this is where we will see a market shift to more imports from South Africa. Or maybe a new player will join the list. I am not certain exactly how this will all unfold. But I imagine there will be lasting effects not only to the Chilean market, but also here in the US.

My heart goes out to the people of Chile and the families that have been effected by this disaster. You are in my prayers.