Politics and wine are a bad mix

An impending agreement with the EU is intended to push Ukrainian producers towards higher-quality production. But Eugene Gerden finds that the local wine industry is worried that they are going to be subject to competitive conditions they are not equipped to meet.

The Kremlin in Moscow
The Kremlin in Moscow

The EU has no immediate plans to ­impose restrictions on wine imports to Russia, in response to the recent ­annexation of the Crimean Peninsula, ­according to a spokesperson for the ­European Commission, but are instead awaiting further developments in the situation.

The restriction of wine exports to ­Russia, as well as other foods, is expected to be ­considered as part of a package of sanctions which may be imposed against Russia, in the event of further aggression against Ukraine.

The decision was taken after the calculation of all possible risks associated with the restriction of exports, including possible losses to EU wine producers, especially small ones, many of whom are currently experien­cing tough times. In any case, the impact of any sanctions against Russia may be smaller than expected.

Adverse effects

“The EU needs to remember that ­sanctions may become a two-edged sword. This also ­applies to the wine market,” said Sergei ­Artemiev, deputy head of the Russian Association of Producers of Sparkling Wines. He ­added that Russia has become one of the largest ­importers of European wines in recent years, with Russia being a key destination for manufacturers. The majority of European exporters have no desire to lose this market, especially given the stagnation of their own. “Also, there is a need to remember that in recent years the Russian investment business in the ­European wine ­industry has significantly accelerated, which was reflected by the purchase of assets of local wineries by Russian businessmen.”

A spokesperson for the Italian winemaker Contarini, recently acquired by Igristye Vina, Russia’s largest sparkling wine producer, said the imposition of restrictions could adversely affect all the sectors of the European wine ­industry.

According to Vasily Dragan, chairman­ of Igristye Vina, Contarini currently is one of the largest producers of Prosecco, with an annual­ production of around 20m bottles. Of this, the Russian market accounts for some 500,000 bottles. The company predicts significant ­export increases this year – unless sanctions against Russia are imposed.

Other voices raised against sanctions and other restrictions include EU wine producers such as Fruko-Schulz in the Czech Republic,­ Spain’s Bodegas El Cidacos and Bodegas ­Camino Real, as well as France’s Les Vignobles Réunis (EARL).

A thirst for EU wines

Imported wines, particularly from ­Europe, are currently in great demand in Russia. ­According to the Russian Association of ­Producers of Sparkling Wines, at present the share of wines consumed in Russia from the EU represents 25% of the total. Most wines are imported from France, Italy and Spain, and in recent years the annual export growth rates have been between 20% to 25%, with Spain ­enjoying an export growth of 35%. This has largely been driven by the changes in ­consumption in ­Russia, as consumers shift from strong alcoholic beverages to wine.

If sanctions were to be imposed, Spanish ­exports would be most affected. According to the economic department of the Embassy of Spain in Russia, the imposition of restrictions would negatively affect a significant number of Spanish wine producers which supply their products to Russia, particularly producers­ from Valencia, La Mancha and Jerez. Sixty percent of total Spanish wine imports are sold in Moscow. 

Meanwhile, representatives of the Russian Ministry of Agriculture have already said that the restriction of wine imports from the EU would not only not lead to catastrophic consequences for the Russian wine market, but would instead stimulate local production. And, in any case, the potential shortage of wine in Russia can be solved by the increase of production and supplies of Crimean wines to Russia. According to the Russian Ministry and Trade, the government has already recommended leading national retail chains reserve space on their shelves to Crimean wine, which are expected to be supplied from more than 40 wineries ­located in the Peninsula.

Market snapshot

According to Vadim Drobiz, head of the Centre of Research of the Russian Federal and Regional Alcohol Markets, the total volume of consumption of wine in Russia last year amounted to 400-420m L, of which 250m L were imports. Drobiz says that wine imports are growing steadily. In 2012 imported wines represented 32% of the market, and have since risen to approximately 60%. The remaining wine is Russian, half of which, however, is produced using imported wine. 

Analysts from Simple Group, one of Russia’s leading wine and drinks agencies, believe that Russian consumers will not face a wine shortage, regardless of any sanctions that might be imposed, and that the market will continue to grow at an annual pace of 10% to 12%.

They believe the average ­Russian consumer will continue to consumer between 7.5 and 8 L, but the average retail price will ­decline significantly.

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