‘Cinderella’ Valley Vintners May Go Broke After Quake (Update3)
March 09, 2010, 3:37 PM EST(Adds earthquake costs in final paragraph.)
By Matt Craze and Rodrigo Orihuela
March 9 (Bloomberg) -- Chile’s strongest earthquake in 50 years may bankrupt smaller winemakers after vines collapsed, casks broke apart and millions of liters were spilled, a former Goldman Sachs Group Inc. banker-turned-winemaker said.
The O. Fournier winery, located in the south-central Maule Valley region about 100 kilometers (62 miles) from the quake’s epicenter, lost 35 feet (10.7 meters) of vines to the Loncomilla River, owner Jose Manuel Ortega said. While O. Fournier is set to recover and the industry “will bounce back quickly,” Ortega said, some wineries are likely to fold as the quake’s damage compounds a slump in sales caused by the global economic crisis.
“One-hundred and fifty years of history and it’s gone,” Ortega said March 5 as he surveyed the ruins of the main house on the Valley’s Gillmore estate, toppled by the 8.8-magnitude temblor that struck Feb. 27. “We are coming from a financial earthquake to a real one. Some wineries will disappear.”
Wine is the fifth-largest export product for Chile, the world’s 10th biggest producer, according to the California-based Wine Institute. In 2008, the most recent year with official data, exports rose 9.6 percent to $1.4 billion, according to the nation’s export promotion agency ProChile.
Chile, the world’s biggest copper producer, may also be hit by another “large” temblor in the copper-rich North, said Jaime Campos, director of the International Center to Investigate Earthquakes Montessus de Ballore. An earthquake as strong as magnitude 8.5 may strike along a 670-kilometer (416- mile) stretch that runs from Mejillones to Arica, he said. The forecast doesn’t include a specific timeframe.
‘Cinderella Valley’
Unlike most Maule Valley producers, Ortega says he uses centuries-old vines instead of planting new ones. Partly because of this, he calls his farms there “My Cinderella Valley.”
“We moved those grapes that everyone thought was the cleaning lady, and turned them into a princess,” he said.
Damage from the earthquake to wine vats caused losses of 125 million liters (33 million gallons), or an estimated $250 million, Chile’s association of winemakers said March 3. Concha y Toro SA, the nation’s largest producer, suspended harvesting and bottling operations after the temblor struck, the company said in a March 3 statement filed with the securities regulator.
“It is total destruction here,” Renato Guerra, who owns two wineries in the Maule Valley, said in a telephone interview. “All our 2009 harvest was in steel tanks and it represented the entire 2010 production. It is all lost.”
Balduzzi Winery
At the Balduzzi winery in San Javier, 275 kilometers (171 miles) south of Santiago, four 15-foot high stainless-steel tanks lay on their sides, crumpled like beer cans. Full of wine when the quake hit, they burst and sent a river of wine, some waiting since 2005 to be bottled, cascading into the streets.
The company, founded in 1906, lost about 600,000 bottles that day, or more than half its annual production. “All of it is gone,” operations manager Jorge Eduardo Balduzzi said.
Spain’s Miguel Torres SA, which has made wine for 140 years, said 300 of its casks, a 100,000-liter stainless steel tank, machinery and bottles were damaged at its Curico vineyard.
Ortega, originally from Spain, started producing wine in Chile in 2007, seven years after he founded O. Fournier in Spain’s Ribera del Duero region. The company also bottles wine in Argentina and Portugal.
The risk of not supplying wine after the quake is that foreign clients will turn elsewhere for supplies, according to Ortega.
“See You Later”
“Your importers will say: ‘See you later,’” he said.
Before becoming a winemaker, Ortega worked for Goldman Sachs in London from 1990 to 1995, first in the mergers-and- acquisition office and later in corporate finance. He then moved to Banco Santander SA, whose private-equity fund he started.
“We are certain that in the short term, shipments and meeting orders will return to normal without major problems,” Rene Merino, president of the Wines of Chile, an industry association, said at a March 3 press conference in Santiago.
The wine harvest, which traditionally begins March 1, will proceed normally, Eduardo Silva, vice president of Chile’s Wine Corporation, another industry association, said at the same conference.
Still, a bad year for Chilean wine producers won’t affect world markets, Jon Fredrikson, a wine researcher at San Francisco-based Gomberg, Fredrikson & Associates, said in a March 5 telephone interview.
Bulk Wine
“Fifty percent of Chile’s exports are bulk wine, which is relatively easy to replace because there’s so much wine out there this year,” Fredrikson said.
Rebuilding in Chile will require at least $4.8 billion, including $3.6 billion for hospitals and $1.2 billion for roads, bridges and ports, government officials said yesterday. Costs may reach as much as $30 billion, according to estimates by disaster-scenario modeler Eqecat Inc. PartnerpartnRe Ltd., the Bermuda- based reinsurer, said insured losses will be as much as $10 billion.
--With assistance from Eduardo Thomson Correa, Michael Smith, Ivan Weissman and James Attwood in Santiago. Editors: Joe Sabo, Dale Crofts.
To contact the reporters on this story: Matthew Craze in Talca at mcraze@bloomberg.net; Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net
To contact the editor responsible for this story Dale Crofts at dcrofts@bloomberg.net
