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Monday, October 15, 2012

Future of Georgian wine remains at the mercy of politics

by Madona Gasanova

15.10.2012. Since billionaire Ivanishvili came to power by a majority of seats in parliament, the stakes of returning to the Russian market have increased. The embargo imposed by the Russian Government in 2006 can be lifted if political links between Tbilisi and Moscow are restored. For Russian leaders such fundamental change is possible if the new Georgian Government says “No” to NATO integration.

The Georgian-born billionaire, who built his business empire in Russia but sold his assets before the election to focus on his bid to oust President Mikheil Saakashvili ’s ruling party in the October parliamentary poll, earlier said that Georgian businessmen should return to the Russian market as they were unprepared to export their products to the United States and the European Union.

Russia banned imports of Georgian wines and two popular brands of mineral water in 2006 citing the poor quality of the products, a move widely condemned in Georgia as politically motivated. Georgian wine has been replaced by French, Italian, Chilean, South Korean and Australian wine in Russia that produce products of the same price segment that Georgians did.

Relations between Georgia and Russia worsened after the five day war in August 2008 over the breakaway regions of Abkhazia and South Ossetia.

“NATO remained ready to further assist Georgia in defence and security sector reforms and the Alliance was looking forward to making “the close partnership with Georgia even stronger”,” NATO Secretary General, Anders Fogh Rasmussen, told Georgian Dream leader Bidzina Ivanishvili on 12 October during a telephone conversation.

“We are striving towards Europe and Georgia will definitely be able to become a member of NATO soon,” Mr Ivanishvili said after talks with President Saakashvili on 9 October. Political opponents of Ivanishvili believe that there are people in the ruling party who are impeding NATO integration.

75% of the Georgian population voted for NATO membership during the referendum held on 5 January 2008.

On 4 October, Belarus President Alexander Lukashenko stated that Georgia can return to the Commonwealth of Independent States (CIS). “I think that next year’s summit of the CIS is likely to meet in Minsk. Therefore, I will initiate it by all means, and this will be my function (if the summit will be hosted in Minsk), to return Georgia to the CIS,” said Lukashenko.

Ivanishvili prioritized western partnership and promised that his official visit to Washington will be first. US Ambassador Richard Norland attended a consultation on the formation of the new government last Saturday.

“The US takes a wait-and-see approach to Georgia’s Ivanishvili,” Christian Science Monitor described the situation last week.

“If under Ivanishvili Georgia’s relations with the U.S. remain just as strong as they were under Saakashvili and if Ivanishvili supports a gradual integration with NATO , then Georgia’s thaw with Russia will end before it ever begins,” Georgy Bovt, a political analyst from Moscow wrote in The Moscow Times last Friday.

Meanwhile JSC Tbilvino plans to start re-export to the Russian market, when the corresponding departments of Russia make the decision. “Currently it is difficult to determine the volume of export. Re-export to the Russian market is associated with financial risks for us,” said Zurab Margvelashvili, Executive Director at JSC Tbilvino.

Winemakers were criticizing President Saakashvili for worsening relations with Russia which caused the restriction of export. Since 2006 winemakers and the Georgian Government did a lot in order to explore new markets for Georgian wine in the EU and Asia. For example Georgia recently registered the brand name Cradle of Wine in the EU.

“The main risks that Georgian companies will face in Russia are associated with a bureaucratic system of custom-houses and licensing organizations. The autocratic decisions of Russian officials also play a big role. Unfortunately we are already familiar with such experience,” Zurab Ramazashvili, Chairman of the Supervisory Board of Telavi Wine Cellar, told The Financial.

Ramazashvili said that attentive observation, calculations, finding proper partners and ensuring against risks are all connected to a return to the Russian market.

Russian media has claimed many times that the young generation do not know Georgian products and demand no longer exists for them. Georgian winemakers target the older generation however, and are sure that with the high quality of the product they will soon gain popularity.

“Russian youngsters might not know Georgian wine although after presenting such high quality products we can gain their interest. Anyway, the majority of wine consumers in Russia know Georgian wine well enough and anticipate its return,” Margvelashvili said.

Ramazashvili also agreed that Russian consumers might have switched to other countries’ products as a result of the political hostility between Russia and Georgia over the past seven years. “This is a natural process,” he added.

Georgian wine company Wine Man LTD is the exception, which claims that they do not plan to start export to Russia yet. “Return to the Russian market is connected with financial risks. Dependence on one market is incorrect. Diversification always gives better options. In accordance with the big demand the largest amount of Georgian wine was exported to the Russian market before the 2006 embargo,” said Koba Mikava, sales and marketing manager at Wine Man.

Like the majority of Georgian wine companies, leading Georgian mineral water producing company JSC Healthy Water is also eager to return to the market of its northern neighbours. “As soon as we get juridical permission to enter the Russian market we will resume export. Our expectation of re-export appeared after Russia became a member of the WTO. We are working on this direction but I think it will take us around six months before we finally enter the Russian market,” said David Ebanoidze, assistant export manager at JSC Healthy Water.

Ebanoidze said that the company does not plan to make big investments. “The risk that this market will close again remains a possibility. The situation is unstable. The processes develop without our participation or control,” he said.

“Georgian mineral waters have been replaced in Russia by Armenian and North Caucasian products. Nabeglavi is exported to 17 countries. Ukraine, Kazakhstan and Baltic states are our main markets,” Ebanoidze told The Financial.

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