Leading Ukrainian wine producers have called on the national government and the country’s president Viktor Yanukovych to refrain from signing the Association Agreement with the EU, currently being discussed by both sides, due to the threat it poses to the country’s wine industry.
On 15 January 2014, the Association of Winegrowers and Winemakers of Ukraine (WWU), the Ukrainian association that unites the country’s leading wine producers, officially announced that the conditions offered by the European Union are unacceptable to their wine industry and may result in its collapse.
In an official letter to Viktor Yanukovych, Sergei Mihaylechko, the head of the WWU, wrote: “Signing an agreement with the EU will mean signing the death sentence of the Ukrainian wine industry, as domestic enterprises will be unprotected against the expansion of EU wine producers. Currently, domestic production does not receive any state support, which results in ever-declining local production. The arrival of EU rivals in such a moment, who have huge financial and organisational assistance from their governments, and strong loyalty of our consumers to imported wine, regardless of its quality, may result in the collapse of the whole industry.”
According to Mihaylechko, the WWU has serious concerns regarding further development of domestic wine production, after the government agreed that Ukrainian winemakers should no longer use such geographical names as Madeira, Port, Sherry, etc. He added that the ban on the use of these names may result in huge losses to Ukrainian winemakers, because of the need to rebrand their wines.
According to the WWU, the EU has already made it clear that it will not provide any financial resources to Ukrainian wine producers to compensate them for their losses. At the same time, the national government likewise has no plans to help. So the costs will be borne by the domestic winemakers themselves, although the majority of them cannot afford to cover such costs.
Analysts believe that signing of an agreement with the EU will result in the consolidation of the Ukrainian wine market and the withdrawal of small producers, as well their acquisition by larger rivals. In this regard, according to the predictions of WWU, during the next few years the list of domestic producers will be limited to two or three large companies.
The country’s leading players agree with this assessment. According to Vladimir Kucherenko, head of Ukraine’s largest wine producer Ukrvinprom corporation, while the company does not fear possible competition with its EU rivals, it opposes the imposition of a ban on the further use of geographic names in its production.
According to Kucherenko, the company signed a number of agreements which legalized the use of these names by Ukrainian winemakers and has no plans to refuse their further use.
“An interdisciplinary protocol which defines the position of Ukrainian and European sides was signed at the international level,” he said. “It clearly states that Ukraine has the full right to use geographical names in the domestic market. At the same time the text of the Association Agreement with the EU contradicts this agreement.”
According to Kucherenko, about 30% of Ukrainian wine is exported, particularly to Russia, where its share of the total exports is estimated at 95%.
Ukrainian producers believe that one of the ways to keep Ukrainian wine producers profitable would be to increase exports to the EU; however this will be associated with serious problems such as high costs, particularly for small wineries.
Yet, according to experts of the Ukrainian Ministry of Agriculture, the complaints of national winemakers are unfounded. The claim is that the association with the EU and the expected increase in wine imports will create more competition in the market and drive improvements in the quality of domestic production, which currently leaves a lot to be desired.
“Despite its generally low quality, prices for Ukrainian wines in local supermarkets are currently comparable with the prices of high-quality French, Chilean and Italian wines,” said a representative of the Ukrainian Ministry of Agriculture. “At present there are a lot of problems associated with domestic production, the best part of which is exported to abroad, while the wine of poorest quality is supplied to the domestic market. If during the Soviet times there were great quality wineries belonging to the state, with products of high quality, at present many large Ukrainian wine producers specialise exclusively in the production of wine from powder, which is supplied to the local market.”