Monday, May 12, 2014

Georgian winemakers still depend on Russian market

12.05.2014. Georgian winemakers are feeling the impact of the Ukrainian crisis. Exports of Georgian wine to Ukraine have dropped by almost 40% in Q1 2014, compared to the same period last year. The entire share of wine exports has shown an unprecedented increase in 2014. After a year since the Russian embargo, that lasted over seven years, was lifted Georgian winemakers have become completely dependent on the Russian market. With 81%, Russia became the top market for Georgian exporters. The EU and US sanctions on Russia and their expected results has delivered a warning message to winemakers.

A total of 5,169,236 litres (worth USD 23,513,800) of Georgian wine has been exported in the first quarter of 2014, up from 1,393,731 litres (worth USD 5,442,000) from the same period in the previous year. The Russian Federation that imported only 23 litres of Georgian wine in Q1 2013 has this year imported 4,185,964 litres, worth USD 18,839,100.

Georgia exported about 60 million bottles of wine annually before the 2006 embargo, 50 million of which went to Russia.

The ban left winemakers in a difficult financial situation, though they were eventually able to introduce their products into a number of European and Asian markets. Producers took steps to modernize their production cycles, which sommeliers said has led to big improvements in flavor.

The EU and US sanctions on Russia and the inevitable economic impact is another situation that may return Georgian exporters to conditions similar to the 2006 difficulties.

“Imposing sanctions will have an impact on the economy. Economic instability will affect exports and volumes of sales. Wine is not an essential good, it is more of a luxury product.  However, as it is an alcoholic drink, sometimes consumption of it can peak during stressful situations. Therefore Georgian exports might face large fluctuations if Russia faces economic problems,” said Levan Davitashvili, Chairman of the Board at Georgian Wine Association.

Georgia exported 392,205 litres of wine to Ukraine in Q1 2014, down from 650,169 litres. Ukraine’s imports represent 10% of the total wine export of Georgia.

“Finding markets that can replace Russia and Ukraine is the most difficult task. Due to historic, geographic and many other factors, Russian and Ukrainian markets have been the primary markets for Georgian exporters.  So it's definitely a risky and problematic situation for us. In the short term it would be naive to think that a single market would take the entire market share of Ukraine and Russia. However, we should not be pessimistic and we should hope that the situation within those markets would more or less regulate itself,” said Davitashvili.

In his words, as currently products are exported on both markets, there may be some delays but that does not mean the suspension of exports.

“We have a strategy to find alternative markets and not be dependent on these two markets. According to the strategic plan of the agency it is mainly Eastern European markets being focused on. Poland has the biggest potential. There has been a significant increase in Kazakhstan, which has been performing as a substitute market and is likely to continue doing so. There is also China and the United States to consider – these are very large markets and the customers are not very conservative. However, we need to increase awareness of our products in these markets. It will take at least 2-3 years to get initial results,” said Davitashvili.

Ukraine shared 38% of the total export volume of Teliani Valley, one of the leading Georgian wine companies, in 2013. The export to Russia was only 3%.

“We annually monitor our sales plan and make changes to it accordingly. We are limiting exports to the Russian market. The Russian market is not stable yet and the risk factor is high as a result. As the current Russian demand for our product is higher than the supply, we do not think that the sanctions will have any impact on our sales,” said Tea Kikvadze, Sales and Marketing Director at Teliani Valley.

Ukraine is one of the leading markets for Schuchmann Wines Georgia. It shares approximately 15% of the entire export. The company is exporting its products in more than 15 countries.

“Currently Georgian winemakers are witnessing reduced demand. Lifting the Russian embargo caused a big stir among Georgian companies. Companies were not ready to supply and satisfy such high demand which followed the lift. In our case it was our first entrance onto the Russian market, not a return to the market, as we started operating from 2010. Market diversification is our company’s main strategy in order to divide risks proportionally,” said Nutsa Abramishvili, Managing Director at Schuchmann Wines Georgia.

“Ukrainian events have shadowed the Russian market, therefore we currently are not taking any risks in it. However, in the long run, we must act more delicately in this market as there was already a precedent in 2006. We should not be dependent on any one market but it is difficult not to respond to the demand there. The Georgian economy received huge benefits after the re-opening of the Russian market, however the existing share of the Russian market is just a short-term boom and, due to economic principles, it will decrease again in around two year’s time,” said Ms. Abramishvili.


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