Definition: Chile

Following the example of the alliance between Rothschild (Mouton) and Concha y Toro for the production of Almaviva, similar ventures have multiplied over the last ten years, and not least because they involve the biggest names in French and world wine production (Lafite-Rothschild for France, Torres for Spain, Mondavi for California, etc.).

There are six defined wine-growing regions in Chile: - Aconcagua - Casablanca - Maipo - Rappel - Maule - Bio-Bio.

The total wine-growing area is 164,770 hectares, mainly divided between regions IV and VIII, including the metropolitan area. The regions with the largest concentration of vineyards are VII (45,050 hectares), followed by VI (29,041 hectares) and IV (20,600 hectares).

Wine-growing regions:

The Aconcagua Valley

The area under vine is 214 hectares. The Aconcagua Valley is flat, stretching from the Andes Mountains to the Pacific Ocean. The average altitude is 1,500 metres. The climate is Mediterranean, with maximum temperatures of 30°C in summer and an average of 14°C throughout the year, while during summer the temperature range varies between 15°C and 20°C, promoting sugar accumulation in the grapes. There is plenty of sunshine, with between 240 and 300 days of sunshine per year. Rainfall is 250 mm, with November to April being the driest months.

The Casablanca Valley

This area is mainly characterised by its large production of Chardonnay. In recent years, the development of wine production in this area has been remarkable. The area under vine is 1,593 hectares. This valley is located on the Pacific coast, at an altitude never exceeding 400 metres, with a few gently sloping hills. The oceanic influence is very marked (sea breezes), with temperatures around 25°C in summer and 14°C for the rest of the year. Annual rainfall is 450 mm, with November to April considered the driest months.

The Maipo Valley

Following the Maipo River, we find Chile's oldest wine-growing region. The cultivated area covers 5,904 hectares. The Maipo is a transverse valley stretching from the Andes to the Pacific Ocean, with an average altitude of 1,000 metres in the east and 500 metres in the west. This slope allows for the cultivation of different grape varieties. The climate is Mediterranean, with a dry summer from December to March and average rainfall of around 330 mm.

The Limari Valley

The Limari Valley is located in the Coquimbo region, not far from the Atacama Desert. It has nearly 110 hectares of vineyards and shows the greatest potential for wine development in the country, although it is located in an area where fishing is currently the most important industry.

The Rapel Valley

It is located in Chile's central valley and has 9,138 hectares of vineyards. It is one of the most diverse regions in terms of vineyard plantations. The climate is Mediterranean, influenced by the Pacific anticyclone. Rainfall averages 710 mm per year and falls mainly during the winter months. The average annual temperature is 14 degrees and in summer the maximum temperature is 32 degrees.

The Curico Valley

Located 200 km south of Santiago, the Curico Valley includes the Lontue and Teno valleys. It has 10,198 hectares of vineyards, mainly in the central plain. With a humid Mediterranean climate, this region offers good conditions for growing traditional grape varieties. The influence of the Pacific anticyclone means that rainfall is concentrated in winter, leaving a dry summer.

The Maule Valley

This is the largest wine-growing region in the country. The cultivated areas cover 15,812 hectares, with nearly 9,000 hectares of white grape varieties. The rest is made up of indigenous red grape varieties and international red grape varieties. These account for around 30% of Chile's total grape varieties.

This valley is long and narrow, with the Coastal Mountains to the west and the Andes to the east. With an average of 700 mm of rainfall per year, night-time temperatures are low and the temperature range reaches 18°C.

The Itata Valley

Most of the vineyards in this region are planted with indigenous grape varieties, intended for the production of table wine. Recently, however, more traditional grape varieties have begun to be harvested. In this region, there are also plantations of grape varieties that are less common in Chile, such as Cabernet Franc and Syrah. The climate of the region is similar to that of the Maule area.

Chile and Argentina

Two contrasting wine cultures! Everything sets these two countries apart, separated as they are by the Andes mountain range. The Chilean people are very mixed, while Argentina is a nation of European immigrants. Their approach to wine is therefore completely opposite. Argentinians, with their European, Italian, Spanish and French culture, consume wine regularly (45 litres per person per year). As a result, Argentina is now the world's sixth largest wine producer. This vineyard was able to flourish at the end of the^19th century and the beginning of^{the 20th}, thanks in particular to the arrival of the railway in Mendoza and San Juan. These two provinces then had easier access to the huge markets of Buenos Aires. However, Argentine vineyards are mass-produced and have long been content with the domestic market. The focus on quality is only recent, with some producers realising the need to export to compensate for the decline in local consumption.

In contrast, Chileans are not big wine consumers (17 litres per person per year). Wine consumption is often reserved for certain wealthy classes. Therefore, Chilean producers realised very early on that they needed to focus on quality in order to open up foreign markets.

Legislation:

In Chile, wine production is regulated by Law 18.455 of 1985, which sets out the rules for the production, processing and marketing of alcoholic beverages, and Decree 464 of 1994, implemented by the Ministry of Agriculture.

The latter establishes wine-growing areas, standards for "designations of origin", indications of grape variety and vintage year, as well as aspects of wine marketing and nomenclature. Chile has developed a strategy based on a geographical designation of origin that is intermediate between European appellations and North American indications of origin. This, combined with the indication of grape variety, allows Chile to compete on the international market with guarantees of reliability and quality. The Chilean wine industry has undergone profound changes in its production methods and has sought diversity by incorporating new production areas such as Ovalle in the north, Casablanca in the centre and Apalta in the Colchaga Valley. It continues to seek temperate climates by moving closer to the ocean or the Cordillera.

Legislation on "designations of origin"

1. Areas

Decree No. 464 of 14 December 1994 establishes wine zoning and designations of origin: 'denominacion de origen'. The country is divided into five wine regions, three sub-regions and seven zones, which are made up of 44 areas. The appellation zones, identified in this way, are clearly defined using administrative divisions and are also closely linked to the topography (valleys and rivers).

2. Conditions of use

Designations of origin may be mentioned on labels when at least 75% of the wine comes from the place indicated.

3. Other information

Grape variety: the variety is indicated on the label when it represents at least 75% of the wine produced and if it is mentioned in the decree. Harvest year: at least 75% of the wine must come from the harvest year for the date to be mentioned on the label. "Bottled on the estate" will be indicated on the label if the wine has been bottled in the same geographical area as the appellation. Control and certification: standards are controlled by the Ministry's Department of Agriculture and Livestock (SAG). Public or private "authorised certification companies" may carry out control activities in agreement with the SAG.

Customs duties and taxes on wines and spirits from Chile:

Customs duties

Wines, vermouths and spirits are subject to a uniform duty on CIF in 2001. This rate will fall by 1 point per year, reaching a floor rate of 6% on 1 January 2003.

General taxes

VAT is 18% on the CIF value, plus customs duties.

Taxes in addition to customs duties

On 23 January 2001, the Senate approved the new law on alcoholic beverages, which aims to bring the country into line with WTO directives. A single tax of 27% (currently up to 47%) will be applied from 21 March 2003 to whisky, brandy (including Pisco), wine liqueurs and flavoured liqueurs such as vermouth. This tax applies regardless of the origin of the beverages on the CIF value, plus customs duties.

Summary table of taxes

Beverages 09/02/01 20/03/01 21/03/02 21/02/03

Beers, wines, champagnes,

ciders, spirits

of less than 35° 15% 15% 15% 15%

Grape brandy (Pisco) 27% 27% 27% 27%

Whisky 47% 35% 30% 27%

Other liqueurs from 35°:

Spirits, distilled alcohols,

Vermouth 30% 30% 28% 27%

Source: PEE Chile

Investments:

Chilean wine companies, regardless of their size, have invested in both technology and new plantations. Certain areas of the country still offer opportunities for new terroirs with favourable microclimates and soil conditions. Viña Francisco de Aguirre, for example, has established itself in the Ovalle region of northern Chile, which has a unique climate, soil and light conditions.

The wine industry is expected to invest nearly £400 million over the next few years, not only in new plantations but also in infrastructure to process and store the expected production by 2002. Including the latest plantations, wine supply will increase by around 70%, which is more than the exports in 1998.

Details of investments by the country's largest wine companies:

Investments New plantations Infrastructure Sales/marketing

Viña Concha y Toro 7 $M x x

Viña Santa Rita $15 million 1997 x x 2 new brands x 600 ha

Santa Carolina $8 million

over 15 years

Errazuriz $13 million x (50%) x (50%)

Viña Francisco de Aguirre 5 $M x

Viña Mont Gras £7 million x

Viña Vial

(Agrosuper Holding) $40 million x 1,500 ha x

capacity

26 million litres

Santa Inés $3 million x

Source: SAG in millions of dollars

Small and medium-sized companies such as Cousiño Macul, Undurraga and others are focusing their investments on the production of fine wines, most of which are destined for export.

Foreign investment:

The potential of Chilean viticulture has not gone unnoticed by foreign investors. Between 1974 and 2000, $114.1 million was invested by foreigners, either individually or in partnership with Chilean capital. The first investor was Miguel Torres in 1979, with a project to acquire 100 hectares in the Curico region. French investors also established themselves in the country, mostly in joint ventures with local producers.

Investments:

Chilean wine companies, regardless of their size, have invested in both technology and new plantations. The country still offers opportunities for new terroirs in certain areas with favourable microclimates and soil conditions. Viña Francisco de Aguirre, for example, has established itself in the Ovalle region in northern Chile, which has a unique climate, soil and light conditions. The wine industry is expected to invest nearly $600 million over the next few years, not only in new plantations, but also in infrastructure to process and store the expected production by 2002. Including the latest plantations, wine production will increase by around 70%, which is more than the exports for 1998.

Vineyard area, grape varieties and farming structures:

While the total area under vines exceeded 160,000 hectares in 2000, the area under wine grapes was 103,876 hectares, an increase of nearly 22% compared to 1999.

Evolution of wine and pisco production over the last 10 years in thousands of hectolitres:

Total ha - Wine grapes - Pisco

1994 nc 53,093 9,087

1995 113,581 54,393 9,385

1996 116,165 56,004 9,726

1997 123,200 63,550 10,009

1998 135,775 75,388 10,187

1999 146,562 85,357 10,379

2000 164,770 103,876 10,076

Pisco is a flavoured brandy, consumed as a liqueur after meals, but also as an aperitif.

Source: SAG, in hectares

From 1981 to 1994, the vineyard area was reduced by almost 50%, from 100,000 hectares to 53,093 hectares in 1994. From this period onwards, the evolution of the vineyard was accompanied by restructuring, with ordinary grape varieties being uprooted and replaced by finer varieties.

Grape varieties: red grape varieties are in the spotlight. Nationally, the vineyard area dedicated to wine production covers 103,876 hectares, which represents an increase of 21.7% compared to the previous year, equivalent to 18,519 hectares of new plantings. This increase is mainly due to the growth of red grape varieties such as Cabernet Sauvignon, Merlot, Carmenère and Pinot Noir. There is also greater diversity in the vineyards, with significant areas planted with Syrah (2,039 hectares, an increase of 100.1% since 1999) and Cabernet Franc (+118% between 1999 and 2000). The area under red grape varieties has doubled in three years, while the total area under vines has increased by nearly 35%.

Production:

Chile: 10th largest producer in the world. Chile accounts for 2.5% of global production. There have been variations in wine production over the last 10 years. The year 2000 saw record overproduction, but overall, the trend in production reflects the sharp increase in the area planted with vines. 88% of production is appellation d'origine wines. The appellation wine harvest in 2001 amounted to 446,039,707 litres.

The Chilean speciality: Pisco

This is a spirit from Latin America (Peru, Chile). The base wine is made from Moscatel, a local variety of Muscat of Alexandria (nine Muscat hybrids are in fact authorised for distillation). The wine undergoes a slight ageing process before distillation: it is stored in small vats or terracotta containers. The traditional still is known as a repasse, as in Cognac. Well known in the United States, it was almost impossible to find in France 20 years ago. It is consumed neat or in cocktails.

Summary table of wine and Pisco production over the last 10 years

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Wine 2,374 2,127 2,240 2,766 2,909 3,372 3,816 4,440 3,714 5,704 5,043

Pisco 731,950 1,082 1,216 1,295 1,436 1,317 1,595 1,575 1,708 1,439

Source: SAG in thousands of hectolitres

Technical progress:

Since 1985, significant technological investments have been made to improve quality and production methods. Over the last 10 years, winemaking and production equipment has been completely renovated. Chile's growing economy has enabled producers to invest in new plantations and equipment, particularly for production. Total fermentation capacity has increased from 855 million litres to 1,263 million litres. This difference includes the elimination of large wooden vats, which have been replaced by stainless steel vats. The number of North American and French fermentation and ageing barrels and stainless steel vats has doubled over the last two years. The presence of highly trained Chilean oenologists who are well versed in the realities of the wine world has contributed enormously to these transformations, both technically and commercially.

There have been variations in wine production over the last 10 years. The year 2000 saw record overproduction, but overall, the trend in production reflects the sharp increase in the area planted with vines.

Domestic consumption: Domestic consumption is on a downward trend. The latest data on apparent domestic consumption in Chile for 2000 is 14 litres per capita, representing a 21.5% decrease compared to 1999. Consumption in the country has been on a downward trend since the 1960s, when consumption stood at around 60 litres per capita per year. Looking at the average consumption between 1976 and 1985 (around 42 litres per capita), we can see a 60% decline over the last decade, with average per capita consumption now standing at 17 litres per year. This drop in consumption is due to strong competition from beer on the domestic market. Indeed, beer consumption has risen from less than 12 litres per capita in the 1970s to nearly 30 litres today. This decline in consumption means a decrease in the total quantity consumed in the country. It is estimated at 227.1 million litres in 2000 compared to 285.3 million in 1999, a loss of 60 million. However, the forecasts for domestic consumption are optimistic, with a predicted consumption of 21 litres per capita per year in 2005. Domestic consumption is still geared towards mass consumption. According to SAG estimates, only 7% of consumption corresponds to appellation wines and 4% to bottled table wines. Wines packaged in Tetra Paks have grown by 31%. These figures are coupled with the fact that 58% of consumption is focused on bulk and other packaging. This shows that the Chilean domestic market is still oriented towards mass consumption of low quality.

Exports – the primary outlet for Chilean wines

Due to limited opportunities on the domestic market, the sales forces of wine companies have developed a highly aggressive export strategy in order to sell off stocks. Wine exports have increased dramatically over the last 10 years. The growth in exports from the Chilean wine industry is impressive. From $51.5 million in 1990 and 430,500 hectolitres, the country recorded nearly $570 million in 2000 and 2,647,000 hectolitres in volume. Exports accounted for more than 45% of production in 2000. In terms of value, wine exports accounted for 3% of Chile's total exports across all sectors.

The surge in exports is mainly due to three reasons:

climatic conditions that allow for the production of quality wines; the opening up of international markets; and consumers who are increasingly sensitive to value for money.

Europe: Chile's largest trading partner. Chilean wine is the third most imported wine in the United States after French and Italian wines. Chile exports to nearly 100 countries on five continents. In 1980, 88% of exports went to Latin American countries, 10% to the United States, Mexico and Canada, and only 2% to Europe. In 2001, Europe accounted for more than 50% of exports, North America 30%, the Asian market grew to 7% of the market, and only 7.5% for South America. After a sudden increase in Chilean wine imports in 1998 and 1999, the Asian market remained at a fairly high level (6%). It is difficult to determine future consumption patterns with any certainty, but Chilean exporters are continuing their commercial efforts in order to maintain the progress they have made.

2001: growth slows down:

In 2001, exports grew by 3.3% in value to $587.8 million compared to 2000 ($568.9 million). In volume, they reached 308.9 million litres, an increase of 16.7%. The price per litre fell from US$2.15 to US$1.90: this decrease can be explained by the significant impact of bulk wines. The figure generated by bottled wine shipments increased by 3.4% and the number of cases (9 litres) rose from 20.9 in 2000 to 21.86, an increase of 4.5%. In this segment, the average price per litre remained between US$23.76 and US$23.49. Sales of bulk wine also increased by 5.5% in value, but the average price fell from US$0.90 to US$0.63.

Trends by market:

North America: -1.34% in value and +1.60% in volume

Europe: +7.6% in value and +25.64% in volume, including:

England: +7.8% in value

Germany: +34.8% in value

Ireland: +26.3% in value

Russia: +246.08% in value

Asia: +9.9% in value and +50% in volume

Players in the wine industry:

The "Servicio Agricola Ganadero" (SAG)

Ministry of Agriculture

The law of 11 November 1985, which regulates the production and marketing of alcoholic beverages, gave the SAG the task of establishing and updating a register of Chilean vineyards. The first register was established in 1985 and updated in 1993. Since then, it has been updated annually. The information compiled by this service is used to establish statistical records in order to develop policies adapted to the evolution of the sector, as well as to monitor the wine-growing area and designations of origin.

The national wine sector is divided into two associations: Chilevid, which brings together emerging producers, and Viñas de Chile A.G., which brings together the country's traditional companies. Their members represent 90% of wine production and 80% of bottled wine exports. Their actions are closely linked to producers, the primary source of statistical information, and the government, which often draws on their sources. Their activities are technical in nature for member companies. Their role is also to advise and invest in marketing, communication and export assistance.

Chilean wine is now the third most imported wine in the United States, behind French and Italian wines. This is no mean feat when you consider that Chilean production is lower than that of Bordeaux! However, things are changing in Argentina, and we can be sure that this country also has great things in store for us in the years to come!

Chilevid

Association of fine wine exporters. This corporate association, created in 1992, brings together fine wine producers who vinify, produce and bottle their own wine and market it mainly for export.

Actions:

Carrying out all kinds of association activities with the financial collaboration of its members and with the financial resources that can be obtained nationally or internationally.

Direct action with members:

Projects to assist viticulture in terms of technique, economics or marketing, advising association members on export matters.

Communication and promotion of Chilean vineyards:

Dissemination of information, presence at trade fairs and exhibitions, monitoring of statistics on exporting companies, organisation of services on international markets.

Contact details:

Av. Providentia 2330 Of. 63, Providentia Santiago

Tel.: 56 2 232 98 49

Fax: 56 2 232 77 43

List of wine companies that are members of the association:

Viñas de Chile A.G.

On 11 November 1949, the leading Chilean wine producers formed the Chilean Wine Bottlers Association in order to develop the industry. In 1968, the association merged with the wine exporters' consortium. Today, these producers are united under Viñas de Chile A.G., which brings together 37 viñas ranging from the largest (Concha y Toro, San Pedro, Santa Rita) to the smallest, some of which do not yet sell to the general public.

Contact details:

Edificio WTC, Torre Sur, Av Nueva Tajamar 481, Of. 804

Tel: 56 2 203 63 53

Fax: 56 2 203 63 56