Voluntary Report - public distribution

**Date:** 1/24/2006

**GAIN Report Number:** AR6004

AR6004

**Argentina**

**Concentrated Grape Juice**

**Voluntary**

**2006**

**Approved by:**

![](media/image1.wmf)Kari Rojas

U.S. Embassy

**Prepared by:**

Francisco Pirovano

**Report Highlights:**

Argentine Concentrated Grape Juice (CGJ) production is forecast to
increase 14 percent in calendar year (CY) 2006 to 180,000 metric tons
(MT) as grape crop is expected to yield 10 percent more than in CY 2005,
or 3,000,000 MT. CGJ exports are expected to increase 16 percent to
160,000 MT. The United States will continue to be the main buyer,
accounting for at least 50 percent of Argentine CGJ exports. Domestic
consumption is expected to remain at similar levels as in CY 2005 at
20,000 MT.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Buenos Aires \[AR1\]

\[AR\]

Table of Contents

[Section I. Situation and Outlook 3](#section-i.-situation-and-outlook)

[Legal Framework 3](#legal-framework)

[**The Argentine National Wine Institute (INV)
3**](#the-argentine-national-wine-institute-inv)

[Production 4](#production)

[**The Production Process 5**](#the-production-process)

[Trade 6](#trade)

[Prices 6](#prices)

[Section II. Statistical Tables 7](#section-ii.-statistical-tables)

[Argentina 7](#argentina)

# Section I. Situation and Outlook

This report refers to the production and use of Concentrated Grape Juice
68-70 degrees Brix (CGJ) also known in Argentina as Concentrated Grape
Must (CGM). This product is utilized as a natural sweetener. Its
principal components, fructose and glucose, make this product an
alternative to sugar cane as a sweetener. CGM is used in the preparation
of marmalades and jams.

# Legal Framework

According to the Argentine National Wine law §14878, grape juice is the
outcome of the grape crushing/processing before the fermentation process
takes place. This juice must be filtered and stabilized by the addition
of additives/ingredients approved by the Argentine Government (GOA) and
according to specifications established by the Argentine National Food
Code establishes.

There are different types of grape juice all of which are called Grape
Must according to the aforementioned law:

1.  Virgin Grape Must (VGM) is the outcome of the crushing process
    before the fermentation can take place.

2.  Grape Must in fermentation is the one that is fermenting and will
    become wine.

3.  Sulfated Grape Most (SGM) is the product that has been stabilized by
    means of adding sulfur dioxide (SO2) as established by the
    regulation. This can be turned into Concentrated Grape Must (CGM)
    with different degrees of concentration and acidity.

## The Argentine National Wine Institute (INV)

# 

# The INV is an autonomous government agency with headquarters in Mendoza province that is under the Secretariat of Agriculture of Argentina. Through the issuance of regulations, it enforces the Argentine Wine laws §14878 and §25163, and the National Alcohols law §24566. The INV main functions are:

-   It approves and coordinates programs aimed at controlling the
    authenticity and quality of the wine and other grape products
    produces in Argentina. This control/verification is done in every
    stage of the production cycle, from the farm to the shelf. This
    involves 26,000 vineyards and 1,200 wineries.

-   According to the National Alcohols law §24566, the INV approves and
    coordinates the programs aimed at verifying the production, transit
    and trade of all alcoholic beverages in Argentina. It inspects more
    than 750 distributors in the country.

-   It is the technical and administrative agency that acts as the
    National authority on the recognition, protection, and registration
    of Geographic Names (Indicators).

-   It encourages the development of new techniques that could make
    verification methods more efficient and up-to-date according to the
    international standards.

-   It acts as a negotiator in issues that have to do with export
    certification of wines. It promotes measures that help increase wine
    exports.

-   Updates the National Statistic Database on wine and alcohols. It is
    responsible for forwarding the data to the National Statistic
    System.

-   It represents Argentina before the International Wine Organization
    participating in its expert groups, commissions, and sub
    commissions.

Registration: Every link in the production cycle must be registered with
the INV: vineyards, wineries, grape juice concentrators, distributors,
transportation companies, exporters, importers, dryers, breweries
(except for beer breweries), and other alcohol producers.

Verification: technicians with expertise in every field are assigned to
audit every stage of the production cycle and trade process.

See www.inv.gov.ar for further information.

# 

# Production

CY 2006 grape crop is forecast to yield 10 percent more than the
previous year, or 3,000,000 MT. The INV has announced that if this
forecast is met, 30-32 percent of the grape production will go to SGM.
This means that CGM production in CY 2006 is expected to be 14 percent
higher than in CY 2005 at 180,000 MT.

Argentine grape plantations are located throughout the country. However,
Mendoza and San Juan provinces produce 67 and 27 percent of the
Argentine grapes respectively. The table 1 in the section II of this
report shows the area planted to grapes from 2002 to 2005.

Argentine grape production is mainly focused on the wine industry. In
order to avoid high wine stocks, the INV sets the percentage of the
grapes that will go to produce SGM every year. In CY 2006 this figure
has not been announced yet, but unofficially it is said that it will be
30 percent, depending on the 2006 crop yield.

Ninety-four percent of the planted area to grapes is dedicated to the
production of wine and grape juice. Therefore, CGM production is in
intimately related to the wine industry and in a way, it is a by-product
of the wine industry. Up until the 1990's, table wine used to be popular
among the Argentine working class. Throughout the years, habits changed
and table wine consumption declined from 42 liters per capita per year
in 1990 to the current 22 liters. Currently, the estimated grape surplus
is calculated at the beginning of the season and is turned into must in
its different kinds and concentrations.

Also, keeping a share of the grapes for the production of SGM is a way
of controlling the cyclic annual wine surpluses. Argentina is
characterized by its cyclic economy. Thus, purchasing power of its
population can vary from year to year or even within the year. Despite
the record high in wine exports, in CY 2005 wine domestic consumption
fell 15 percent due to increases in wine prices in the domestic market
in an environment of frozen salaries.

As mentioned before, the GOA tells all the wineries in Argentina to keep
a share of the grape production to produce must. The wineries produce
the SGM, which goes to the concentration plants and then is marketed in
different concentrations and presentations. The concentration plants
have the technology needed to process the SGM and turn it into
concentrated must. There are 20 companies that process and export CGM.
They also provide services to other producers/exporters. There are 36
exporters in Argentina.

There are 19 firms that contract the concentration plants' services. In
this business the producers take the SGM to the concentration plant that
complete the process and sometimes, even export the product. For this
service the producer/exporter pays US\$150 per MT of CGM produced, which
can be paid in cash or by the product. The concentration plants can,
upon customer request, produce a diversity of CGM. Therefore, CGM can be
Kosher, organic, of high acid content, rectified, and variety
identified, in which case some countries as Japan use to produce wine.

## The Production Process

CGM is produced mainly with white grapes. Therefore, 95 percent of the
6,100,00 hectoliters (hl) of must produced in 2006 is derived from white
varieties of grape.

Still in the winery, the grapes are crushed and SO~2~ is added. The
outcome will be SGM. This is done in order to stop the fermentation
process and protect the juice against the development of fungi and
others microorganisms. Sulfur also helps to stop some enzymatic activity
that may alter the color and dissolves minerals and colorants contained
in the grape juice.

The SGM is sent to the concentration plants. Upon receipt they filter
and clarify the SGM. Then the SGM is heated to 100.4°, which
concentrates it from 22° Brix to 68° Brix to yield a honey-like product.
In the end, the pasteurization process takes place by heating the
concentrated must at 176° during one minute. The outcome is a
golden-yellowish, clean, and shinny product.

Market Technical Specifications of the CGM

-   Virgin Concentrated Must: It is concentrated grape juice that has
    SO2 added.

-   Regular Concentrated Must: It is the outcome of the Sulfated Must
    that has been concentrated and which has not undergone any
    correction process (color, Ph, etc).

-   Clarified Concentrated Must: It is the Regular Concentrated Must
    that has been treated by means of activated carbon or in Cationic
    Exchanging Units until it reaches the characteristics requested by
    the customer.

-   Acid Clarified Concentrated Must: It is similar to the above but
    more acid.

-   Rectified Concentrated Must: It is the outcome of the concentration
    of the Sulfated Grape Juice that has been de ionized and
    decolorized. The outcome is a mix of natural sugars.

-   Red Concentrated: It is the outcome of the crushing of any variety
    of red grapes.

#  

# Trade

CY 2006 grape must exports are expected to increase 16 percent to
160,000 MT. Exports of CGM in CY 2002 were US\$46 million, in CY 2003
US\$51 million, in CY 2004 US\$70 million, and in the period
January-November 2005 US\$110 million.

Currently, 36 companies export grape must. Ninety percent of the
production of CGM is exported. The United States takes 50 percent of the
Argentine CGM exports. Japan, Canada, The Russian Federation, Chile, and
South Africa follow. Due to high import tariffs only a few exports of
CGM have been made to the European Union.

+---------------------------------------+------------------------------+
| **Import and Export Duties**          |                              |
|                                       |                              |
| **Grape Must (2009.69)**              |                              |
+---------------------------------------+------------------------------+
| Outside MERCOSUR area                 |                              |
+---------------------------------------+------------------------------+
| Import tariff (%)                     | 14.00                        |
+---------------------------------------+------------------------------+
| Statistical tax (%)                   | 0.50                         |
+---------------------------------------+------------------------------+
| Export tax (%)                        | 5.00                         |
+---------------------------------------+------------------------------+
| Rebate (%)                            | 5.00                         |
+---------------------------------------+------------------------------+
| Inside MERCOSUR area                  |                              |
+---------------------------------------+------------------------------+
| Import tariff (%)                     | 0.00                         |
+---------------------------------------+------------------------------+
| Export tax (%)                        | 5.00                         |
+---------------------------------------+------------------------------+
| Rebate (%)                            | 5.00                         |
+---------------------------------------+------------------------------+

# Prices

Discussions around the price that the concentration plants will pay to
the farmers in CY 2006 are on the table right now. The concentration
plants are willing to pay US\$0.11 per liter of SGM while the farmers
want at least US\$0.15 per liter of SGM. Those 4 cents per liter of SGM
that are on dispute make the whole difference in terms of the farmer's
profitability.

In CY 2004 the SGM had an average price paid to the farmer of US\$0.19
per liter. This fall in the prices in CY 2005 seem to stem from the
concentration plants agreement with each other to keep the price down.
According to the farmers association, the percentage of grape kept for
the production of CGM set by the GOA is too high and therefore the grape
market is oversupplied. To offset this negative effect created by the
GOA intervention in the grape market, in CY 2006 the GOA will create a
trust fund for small and medium size farmers. This fund will purchase up
to 100,000 MT of grapes at minimum price of U\$110 per MT. The annual
rate of interest will be 6.9 percent for a period of 180 days.

# Section II. Statistical Tables

+----------------------+--------+--------+--------+--------+---------+
| Table 1 Concentrated |        |        |        |        |         |
| Grape Must (2009.69) |        |        |        |        |         |
| \>31 Brix            |        |        |        |        |         |
+----------------------+--------+--------+--------+--------+---------+
| Country              | # Arg  |        |        |        |         |
|                      | entina |        |        |        |         |
+----------------------+--------+--------+--------+--------+---------+
| Calendar Year        | 2002   | 2003   | 2004   | 2005   | 2006    |
+----------------------+--------+--------+--------+--------+---------+
| Total area planted   | 2      | 2      | 2      | 2      | 215,000 |
| to grapes            | 08,000 | 11,000 | 13,000 | 14,000 |         |
+----------------------+--------+--------+--------+--------+---------+
| Planted Area to      | 1      | 1      | 1      | 1      | 155,000 |
| grapes for crushing  | 43,000 | 44,000 | 47,000 | 50,000 |         |
+----------------------+--------+--------+--------+--------+---------+
| Production of grape  | 2,2    | 2,2    | 2,6    | 2,7    | 3,      |
| for crushing         | 00,000 | 30,000 | 00,000 | 00,000 | 000,000 |
+----------------------+--------+--------+--------+--------+---------+
| Total VGM Production | 17,1   | 17,6   | 20,2   | 21,3   | 23,     |
|                      | 00,000 | 00,000 | 00,000 | 00,000 | 100,000 |
+----------------------+--------+--------+--------+--------+---------+
| Total SGM production | 4,4    | 4,3    | 4,6    | 6,1    | 7,      |
|                      | 00,000 | 00,000 | 00,000 | 00,000 | 200,000 |
+----------------------+--------+--------+--------+--------+---------+
| Beginning stocks     | 0      | 12,100 | 2,100  | 2,100  | 2,100   |
+----------------------+--------+--------+--------+--------+---------+
| Total CGM production | 1      | 1      | 1      | 1      | 180,000 |
|                      | 10,000 | 10,000 | 17,000 | 55,000 |         |
+----------------------+--------+--------+--------+--------+---------+
| Total CGM exports    | 77,900 | 97,000 | 97,000 | 1      | 160,000 |
|                      |        |        |        | 35,000 |         |
+----------------------+--------+--------+--------+--------+---------+
| Total CGM Imports    | 0      | 0      | 0      | 0      | 0       |
+----------------------+--------+--------+--------+--------+---------+
| Total CGM domestic   | 20,000 | 20,000 | 20,000 | 20,000 | 20,000  |
| consumption          |        |        |        |        |         |
+----------------------+--------+--------+--------+--------+---------+
| Ending stocks        | 12,100 | 2,100  | 2,100  | 2,100  | 2,100   |
+----------------------+--------+--------+--------+--------+---------+

  ------------ ------- -------- ------- ------- ------- ------- ------- -------
  **Table 2.                                                            
  CGM FOB                                                               
  prices in                                                             
  US\$/Kg.**                                                            

               CY 2002          CY 2003         CY 2004         CY 2005 

               World   U.S.     World   U.S.    World   U.S.    World   U.S.

  January      0.64    0.63     0.52    0.52    0.72    0.74    0.95    0.95

  Feb          0.60    0.64     0.53    0.56    0.75    0.77    0.96    0.95

  Mar          0.60    0.62     0.51    0.52    0.76    0.8     0.94    0.94

  Apr          0.54    0.58     0.56    0.55    0.8     0.83    0.94    0.93

  May          0.55    0.57     0.55    0.55    0.85    0.88    0.92    0.91

  Jun          0.52    0.54     0.57    0.55    0.94    0.94    0.93    0.93

  Jul          0.50    0.49     0.59    0.58    0.92    0.94    0.92    0.94

  Aug          0.42    0.54     0.59    0.6     0.93    0.94    0.92    0.94

  Spt          0.45    0.52     0.6     0.61    0.92    0.95    0.91    0.93

  Oct          0.52    0.52     0.62    0.65    0.94    0.97    0.9     0.91

  Nov          0.48    0.53     0.62    0.65    0.95    0.97    0.89    0.91

  Dec          0.46    0.50     0.64    0.64    0.95    0.96            
  ------------ ------- -------- ------- ------- ------- ------- ------- -------