Tuesday, April 16, 2013

Georgian water flows again in Russia

by Molly Corso

16.04.2013. After a six-year hiatus, Georgia's famous sparkling mineral water Borjomi is heading back onto Russian supermarket shelves. But a new tax levied by the Georgian government could make the return bittersweet.

Moscow announced it was lifting the 2006 ban on the iconic Georgian mineral water on April 11. Borjomi, long popular in the former Soviet Union as a cure-all for everything from morning sickness to a hangover, was banned when relations between Russia and Georgia deteriorated six years ago due to Tbilisi's deepening relations with NATO and a Russian spy scandal.

Russia's decision over Borjomi has been widely anticipated since billionaire Bidzina Ivanishvili came to power after Georgia's October 2012 parliamentary elections. Prime Minister Ivanishvili, who made his fortune in Russia, has prioritized normalizing trade relations with Moscow and, over the past six months, Tbilisi has worked closely with the head of Russian consumer protection agency Rospotrebnadzor, Gennady Onishchenko, to end the embargo and return Georgian wine, mineral water, and other products to the Russian market.

Onishchenko has signed all the paperwork needed to allow Borjomi and three other Georgian mineral water producers to resume exports to Russia, putting an end to the "health concerns" that Russian officials claim originally led to the 2006 embargo. No proof of any health dangers presented by Georgian mineral water or other products has ever been produced by the Russian side.

In addition, the January sale of a majority share of the IDS Borjomi company to Alfa Group, an influential Russian investment holding, was also perceived as a strategic move to smooth the mineral water's return to the Russian market. Borjomi did not respond to bne's request for comment on the Alfa Group investment or the return to the Russian market. But Vladimir Ashurov, CEO of IDS Borjomi, told Russian daily Kommersant that the company plans to regain the 3.5% market share that it enjoyed before the Russian embargo. "In 2005, Borjomi held 3.5% share [of the Russian market] in volume and 13% of the monetary worth,” he was quoted as saying by Kommersant. "We plan on returning to that position."


In order to do regain its position in the Russian market, however, Borjomi has its work cut out.

Bojormi will have to compete with the full range of European mineral water – and Russian mineral water – that is now available on the Russian market. Furthermore, IDS Borjomi press warns that the Georgian government's decision to triple mineral water extraction tax could cripple Borjomi's ability to compete on the Russian market – and indeed the other 40 markets worldwide where Borjomi is sold. "IDS Borjomi has a negative position on the government's decision to triple the fee for the extraction of [mineral water]," the company said in a statement. "The increased fee will have a negative impact on production, particularly for Borjomi mineral water's competiveness in Russian, Ukraine, and other export markets."

The new fees, according to Borjomi, will make Georgian mineral water extraction the most expensive in the Commonwealth of Independent States and Europe. Prior to the increase, Borjomi paid €5.90 per cubic metre – reportedly at least €1.00 higher than its competitors in Georgia; after the increase, Borjomi will have to pay €13.90/cm. "We regret the decision because… [it poses] a serious threat to [Borjomi mineral water's] future development prospects,” the company said.

Regardless of its competitiveness, however, the simple return of Borjomi mineral water to the Russian market is a success for Ivanishvili and his new government. The prime minister's Georgian Dream coalition came to power on a platform of returning Georgian products to the Russian market – and thousands of farmers and manufacturers are waiting for the government to make good on their promises. After a February visit to Georgia, Rosprotrebnadzor short-listed 17 brands of Georgia wine and five brandies for import to the Russian market. Another trip to Georgia is planned in April.


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