Since the creation of MERCOSUR, trade opportunities between various South American Countries have flourished. This FTA has facilitated the trade between Bolivia, Chile, Peru, Colombia, Ecuador and Suriname with Mexico and New Zealand having been included through observer statuses.
Latin American economies have recently shown a great deal of potential with stable politics and a rapid sustained growth during the last decades. These strong and diversified economies are now home to low trade barriers which has given way to many trading opportunities. This article will focus on the benefits and opportunities present in the trading opportunity of Import and Export of wine from Chile
Importing and Exporting Chilean Wines
Since the fall of the USSR in 1990, the world has witnessed the clear victory of Capitalism over Communism. Today money overpowers ideology. The large increase in consumerism is symptomatic of Capitalism, especially in Latin America as countries shy away from last century’s pink tides (leftward turns). More recently in Colombia, Mexico, and Peru, the poor seem to be getting richer, enabling the formation of a large middle class. On the other end of the spectrum of wealth, the rich are also getting richer, possibly even at a faster rate due to strong competitive advantages. It is also important to note the influence of self-entitled and consumerist generations such as the “millennials”, as lazy as their reputation suggests, many of these 21 to 29-year-olds are getting into well-paid jobs. The combination of a stimulus in their disposable income, their consumerist culture and their expertise in online price comparison all contribute to making them more prone to buy “New World” wines. This is largely due to them being attracted by competitive prices, making them more likely to buy Chilean wine rather than overpriced French wines.
The Growing Reputation and Consumption of Chilean Wine
In the recent decades, Chilean Wine has gained in quality and reputation. Chile also shares borders with powerful MERCOSUR economies such as Peru, Bolivia, and Argentina. Although China is actually the biggest consumer of Chilean imports (51.1% of Chile’s exports of goods in 2015), there is no need to look further than it’s fast developing neighbours which are currently welcoming 14.1% of Chile’s total exports (2015). These figures are on a steady rise due to countries such as Colombia, Peru, and Mexico witnessing sustained and fruitful growth.
Why is Chilean Wine Special?
Chile benefits from a unique location with ideal weather conditions for producing wine. With a length of 4,270 km and never being more than 200km wide, Chilean vines benefit from a constant breeze from both sea and the Andes mountains This means that although the grapes receive plentiful sun, temperatures are never too high and frost in close to nonexistent. Many professionals qualify Chilean wines as tasting like a midway between Californian and Bordeaux wines. The El Niño and La Niña affect (ENSO) are also recent game changers and some claim the 2017 vintage is going taste more like a high-quality Bordeaux. This comparison is due to Chile producing earthy, peppery and dark red Cabernet Sauvignon with flavors of dark fruits such as black currant, raspberries, olives and smoke. These wines have recently been crowned with many prizes such as during the Berlin Wine Tasting of 2004 when 36 European experts gave Viñedo Chadwick 2000 and Sena 2001 first and second place in a blind tasting. This also happened in Brazil in the same year as we saw five out of the top seven wines being Chilean Cabernet Sauvignons.
These competitions show the growing popularity of these wines mirrored with a steady rise in their price and reputation. This means the exporter can choose between an inelastic luxury good (Cabernet Sauvignon) and the elastic inferior good usually referred to as a New World Chardonnay. This gives the trader more flexibility when selecting a target market and audience.
The primary wine consuming countries are France, the US, Germany, and Italy yet as people start to watch their diets and push towards a healthier lifestyle there is a decreasing trend in the importing of new world wines. To import to the EU involves meeting many regulations and transport costs aren’t to be neglected. Other strong markets such as China (largest global wine importer) and Latin America are expanding rapidly, which as mentioned before is largely due to a rise (or appearance) of a middle class which is rapidly stimulating the per capita rate of wine consumption.
The rising middle class of Mexico is typically formed of young intelligent millennials who are ready to carry out extensive research in order to find a high cost benefit. Research shows that wine consumers tend to be the self-teaching and educated types (usually using online sources). This means they have the capacity to access a much larger range of products through distribution platforms and online shops which means the modern exporter delivers to doors rather than welcoming clients to his shop. This represents a substantial decrease in overheads especially with the availability of social media which is a low cost way of carrying out high frequency marketing. Essentially Chilean wines tend to have a good cost benefit ratio and this is going to become essential in the near future due to the increase of price competitiveness.
Wine also has a surprisingly good ratio of price to volume which makes it an interesting product to trade. Another point to take into account is that investing in alcohol trade is fairly safe. This is due to the fact people drink to celebrate during economic booms yet often drink more when they are faced with the reality of recession. As said above Chilean wine can also be considered an inferior good to the rich of LATAM who are used to drinking more expensive European or Californian wines. These factors contribute to giving it a fairly stable consumption.
Chile and Mexico, Countries Open to Imports and Promoting Exports
Chile has gained a reputation for it’s low barriers to trade. These have largely contributed to helping it join the top ten trading economies in the world (World Economic Forum’s Enabling Trade Report 2014.) With an Import tariff set at 3.5%, Chile officially has the lowest protectionist measures worldwide.
Another very large trader in the southern part of the continent is Mexico which has ranked 16th globally on market access due to a majority of its imports entering free of duty. Even though key infrastructure is lacking its international placement on the Pacific and Atlantic as well as seperating the America’s which give it an important trading advantage.
Mexico is one of the greatest importers of consumer goods in the southern part of the continent and as stated above is far from having protectionism as part of its economic strategy. Latin American countries accounted for 14.1% of Chile’s exports compared to 14.9% for Europe. When comparing these figures with GDP per capita of both unions of states one can fully appreciate the potential and benefits of trading within the MERCOSUR FTA.
Trading between countries which are part of this free trade agreement can be a fruitful and sustainable way of doing business in Latin America. Chilean wine offers great benefits due to its large range of different prices and qualities. When starting a business venture it is always better to put your money on a young promising horse which is growing into a winner rather than one which has seen its heyday. Latin American countries are on the rise and business opportunities are multiplying.
The Biz Latin Hub group has offices in Colombia, Mexico, Peru and Chile. With experienced teams of lawyers and accountants, we offer a range of back office services including company formation as well as advice and support for Import/Export between Latin American countries and beyond. If you want to learn more about investing and doing business in Latin America the Biz Latin Hub team can help. Feel free to contact Craig here.