We’re here with the sad finances of our Argentine ranch, Gualfin, literally at the end of the road, high up in the Andes. In business, as in other things, we are being roughened up… and toughened up.
We promised a grim accounting. So, we visited our accountant – a cheerful young man in the nearest city, Salta – and bothered ourselves with the figures.
‘You have to understand, Señor Bonner, that you can’t expect to be competitive at anything,’ Gerardo concluded. ‘You’re so far from everywhere. Everything costs you more. And, of course, you don’t have much water.’
‘Poco agua’ were practically the first words out of the mouth of our ranch foreman, Jorge, when we arrived in these parts.
‘We only got 90 millimeters of rain this year,’ he reported. ‘We can survive on that amount. But barely.’
Little water. Far away. High in the mountains.
The lack of water keeps us from producing much of anything. The distance makes everything we produce expensive. And the altitude, combined with the lack of water, makes animals – those on two legs as well as those on four – tough.
A business competes either on price or on quality. We’re not able to compete on either.
Everything costs more, because we are farther from the source. Everything takes longer to bring to and take from the ranch, too, for a similar reason. In our recent grape harvest, for example, we had to drive 45 minutes over rocky roads just to get to the vineyards.
Then the supply chain is so long… and so bumpy… that our crew of seven (your editor and his wife included) are only able to put 2,000 kg of grapes in the bins in a typical day. Those need to be hauled by pickup truck and wagon to the bodega – the winery – an hour and a half away.
We had with us a young man, Basilio, who had previously worked in the big vineyards down in the valley.
‘How much more can you harvest in a typical day down there,’ we asked him?
‘About twice as much,’ was the answer.
How much are our grapes worth?
Well, there’s another problem. The going rate this year was only 2 or 3 pesos per kilo. So, with 5 hectares of vines (some recently planted) we got only 11,000 kg – or about 30,000 pesos worth – of grapes.
That’s just $3,000 at present black market exchange rates. When the vines are mature, we’ll get about 20,000 kg… for a grand total of as much as $6,000 worth of grapes!
As you can see, we’re not going to make any money in the grape business.
‘You can’t make any money in grapes,’ says Raul, our more experienced neighbor. ‘You have to make wine. And this has to be very good so you can demand a high price.’
Raul makes some of the best wine in the world – some of it using our grapes. But making it is one thing. Selling it is another.
‘You pay the shipper, the importer, the distributor, the retailer – you’re lucky if you have anything left at all,’ Raul reports.
And yet talk all up and down the valley is that more people are planting more hectares in more vines. Some for pleasure. Some for good wine. Some, smarter or more delusional, for money.
Cattle are the traditional mainstay of our ranch. The Saavedra family came here about a century ago. They laid out the ranch…built the stone walls… planted the rows of trees…and irrigated the grasslands in front of the house. Beef was their product.
People must have had stronger jaws back then. Our cows are as tough as the men who produce them. There is little grass (poco agua)… so they have to wander far and wide to get enough to eat. In the winter they will inevitably go hungry… as well as bear freezing temperatures.
‘Sand-fed beef,’ we tell friends. ‘That’s what we’re producing. Low fat. Low cholesterol.’
‘It’s the eye of the owner that fattens the cattle,’ is a local proverb.
If so, this owner must be blind.
Usually, we have about 300 head per year to sell. Recently, they brought in 14 pesos per kilogram. The average ‘sand fed’ animal only weighed about 100 kg. You can do the math: 1,400 pesos per animal times 300 equals 42,000 pesos.
That gives us total revenue of about 45,000 pesos, which has to cover five full-time employees…and all the operating costs.
for The Daily Reckoning Australia
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