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Friday, August 14, 2015

Is Russia making Georgian wine embargo-proof?

14.08.2015. If Russia imposes an embargo on the import of Georgian wine, how will it affect the development of the Georgian economy?

Russia is threatening the Georgian wine industry with a new embargo, but many experts think that unlike in 2006, closure of the Russian market won’t change much not only for wine production, but also for the Georgian economy at large.

“A Georgian eyeing the Russian market simply cannot avoid the Soviet culture still permeating it. This creates hindrances for the Georgian economy.”- Demur Giorkhelidze, economic expert.

At the moment, the economy of Georgia is in shock. The scale of our wine export to Russia is relatively small so its cessation will only harm several particular producers. It isn’t of vital importance for the economy. However, in case of a repeated embargo, Georgian wine producers will have to return to high standards.

A Georgian eyeing the Russian market simply cannot avoid the Soviet culture still permeating it. This creates hindrances for the Georgian economy.

Even if the Russian market is closed, I see no tragedy in it. If the Russian market is closed, the solution would be to develop our competitive fields, gradually phase out all of the imports and make our way to the world market.”

“Wine is a brand-based production and its sales depend on many emotional factors. The success of Georgian wine in Russia is based upon a 200-year-old reputation and recognition, while other countries are just getting acquainted with it.”- Levan Davitashvili, deputy minister of agriculture.

“We’ve been trying to find alternative markets, but when it comes to Georgian wine and the Russian market, “alternative market” is the wrong term because whatever replaces Russia does not represent an alternative. Wine is a brand-based production and its sales depend on many emotional factors. The success of Georgian wine in Russia is based upon a 200-year-old reputation and recognition, while other countries are just getting acquainted with it. Consequently, the result won’t be attained in a week, a month or even a year. But the progress is evident. We’ve achieved results in Eastern Europe, Baltic countries and Kazakhstan. In China, for example, we have sold a million bottles.”

“In case Russia imposes an embargo after all, the only companies that will suffer will be those that were oriented exclusively towards the Russian market.”- Giorgi Tevzadze, advisor to the chairman of the National Wine Agency.

In 2013, when the embargo was lifted, many companies tailored themselves solely to serving the recently opened Russian market. They chose an improper strategy. Such companies don’t put an emphasis on high-quality wines. They bottle ordinary wines that are not of much value and sell them. Big companies such as Telavi Wine Cellar, Teliani Valley, GWS and Tbilvino long ago managed to diversify their products and do not depend on the Russian market anymore.

Diversification will only yield results if making wine from different brands of grapes is emphasized. This is especially true for kvevri wine, the demand for which exceeds supply. And yet, producers of kvevri wine don’t even enter the Russian and Ukrainian markets. They receive commissions for their products, which are later sold in London, Tokyo and other large cities. They don’t manufacture millions of bottles, but their businesses are profitable nevertheless.

In the case of a repeated embargo, the crisis won’t be severe, but there will no longer be any doubt that those who want to stay in this business will need to start caring about diversification and quality control. Many businessmen will give up wine production as a result.”

In 2013, Russia’s share in Georgia’s total exports comprised 6.5 percent. In 2014 it increased to 9.6 percent, and in 2015 shrunk again, currently comprising 6.5 percent. If Russia implements an embargo on Georgian goods, Georgia will suffer $280 million in financial losses.

After wine, the second largest Georgian export to Russia is mineral water and soft drinks. In 2013, their share in the total exports comprised $33,751 million; in 2014 this figure grew to $66,381 million, while this year it has amounted only to $17,393 million so far.


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