As threat of European wine looms, Brazil industry seeks aid

Brazilian winemakers will receive a hand from the government to face rising international competition as a trade deal between the European Union and Mercosur further opens the door to more traditional producers from the other side of the Atlantic.

Already pressured by Argentine and Chilean wines that come into Brazil free of taxes and are often cheaper than the local product, Brazilian producers say the national industry may not survive when European competitors also benefit from a free trade deal. In a bid to mitigate the potential damage, the government pledged to create a fund to help modernize the local wine industry, according to two government officials familiar with the discussions.

President Jair Bolsonaro’s administration plans to set aside some 130 million reais ($32 million) from taxes on industrialized products to create a fund, called Modervitis, that will be used to support local wineries, the officials said, asking not to be named because details are still being finalized. The strategy is intended to be transitory and not part of the negotiations with the EU, they added.

The fund is likely to be launched in 2020, even before the trade deal with the EU is ratified by Congress, according to one official. National producers want to get ahead of the issue they faced decades ago, when Brazil, Argentina, Uruguay and Paraguay created the Mercosur customs union and a deal with Chile was signed, allowing wines from those countries to flood the local market at low prices.

The Agriculture Ministry said in an emailed response to questions it’s working to make Brazil’s wine industry more competitive before the EU-Mercosur trade deal comes into effect. That includes tackling bottlenecks, taxes, production costs and overhauling regulations within six months, it added. The economy ministry declined to comment for this story.

One in Ten

For every 10 bottles of wine sold in Brazil today, only one is made locally, according to Deunir Argenta, president of the Brazilian winemaker association known as Uvibra. The country imported 110 million liters of wine in 2018, compared with 14 million liters of domestic fine wine sold over the same period. Almost half of the imports came from Chile.

“Wine made in Brazil won’t stand a chance if it doesn’t have help to become more competitive,” Argenta said. “Some of our products, especially sparkling wines, are already among the best in the world. Still, domestic consumers prefer imported wines.”

Uvibra wanted the new fund to last for 15 years and also get money from taxes on consumption, Argenta said, but the government wants a shorter timeframe of five to 10 years. The trade deal between the EU and Mercosur establishes that European wine will enter Brazil free of import taxes in eight years. For sparkling wine, the period is a bit longer: 12 years.

Most Brazilian wine comes from the Southern state of Rio Grande do Sul, which accounts for 90% of the country’s production, according to Uvibra. Cabernet Sauvignon is the most grown variety, followed by Chardonnay and Merlot grapes.