Weekly analytical column of Vadim Drobiz
Week April, 25 2016 – May, 01 2016
Vadim Drobiz – Head of the Center for Federal and Regional Alcohol Market Research (CFRAMR)
The most quoted in the Russian media expert on the alcohol market of Russia, former Soviet republics and Eastern Europe. The latest news, detailed analysis, commentary, statistical databases on the alcohol market since 2002.
Full versions of the materials published in Russian on the website Vadim Drobiz http://cifrra.info/
Email: alko-pr59@yandex.ru
Wine wars or how much need to Russia bulk wine?
Recently, a hundred and fifty French farmers blocked the road, stopped a convoy of huge five tanker trucks with Spanish wine. Threatening violence to drivers, they poured more than 30 thousand liters of the product on the ground. In two cars entirely no remained wine and three other vehicles allowed the attackers to leave half empty, writing on the sides of the tanks warning that wine was substandard. It happened in the area of Languedoc-Roussillon, 10 km from the border with Spain.
French winemakers thus protesting against the rapidly increasing imports of cheap wine in their country. They are outraged that the draft table wine from Spain is sold for 30-40 euros per hectoliter (100 liters), while similar French wine is worth twice the price – 70-80 euros. Spain called on the French authorities to find a way to make their farmers to stop such actions, and ensure the smooth and safe movement of goods between EU member states. French winemakers suspect that the relative cheapness of Spanish wines occurs because during they manufacture used the South American bulk wine. (In Russia such bulk wine belongs to the category of wine materials.) The French blamed the Spaniards that they are mixed bulk cheap wine from South America with their wines and sold under the more expensive brands.
In recent years, France increased imports of wine from Italy and Spain, rather than to develop its own production. Thanks to low taxes and the absence of customs barriers within the EU Spanish and Italian wine producers displace competitors from the French market.
In France itself, the area wineries, purchased by foreign investors, mostly British and Chinese, reached 12 thousand hectares, accounting for nearly 2 percent of the total vineyards area. These figures only cover the wineries, which produced red wine, and did not take into account the production of cognac and champagne. 30 years ago, French wines in restaurants all over the world held about 80% of the wine list, they now account for about 40%. And this is one of the reasons for the disturbance of French winemakers.
Spain is in the lead on deliveries of wine, not only in France but also in Russia, where about a third of the total volume of wine produced from imported bulk, another third – of Russian grapes, the rest – from wine material unaccounted by statistics. But according to some expert estimates, the share wine from foreign bulk is about 70% of the Russian wine market. Official statistics in Russia winemaking gives the figures of total production, with no separation of the wine produced from grapes of the Russian or imported wine.
Foreign wines shipped in large containers (tanks or tankers) from abroad in bulk, get to Russian manufacturers, which are then manipulated with them: can add (or not add) different flavors, juices, sugar, alcohol, dyes, flavor enhancers, preservatives, etc., which allowed the Russian legislation. Then the wine is bottled or in bags, glue labels. At the same time on ones, especially for sweet and semi-sweet wines, it is written “Made in Russia”, on other may be specified producing countries of bulk wine.
According recently published of OIV data Russia in volume of imported wine is in seventh place (fell from the fifth).
The volume of wine by countries:
| Country | The volume units,billion liters | In money terms,€ billion | ||
| 2014 | 2015 | 2014 | 2015 | |
| Germany | 1,54 | 1,51 | 2,56 | 2,47 |
| United Kingdom | 1,36 | 1,36 | 3,6 | 3,92 |
| USA | 1,07 | 1,1 | 4,04 | 4,86 |
| France | 0,69 | 0,78 | 0,62 | 0,67 |
| China | 0,39 | 0,56 | 1,15 | 1,84 |
| Canada | 0,38 | 0,41 | 1,47 | 1,62 |
| Russia | 0,47 | 0,4 | 0,87 | 0,63 |
| Netherlands | 0,38 | 0,35 | 0,95 | 0,87 |
| Belgium | 0,31 | 0,32 | 1 | 0,93 |
| Japan | 0,27 | 0,28 | 1,21 | 1,32 |
Wine imports to Russia by the end of 2015 decreased by 14.5% in volume terms to 400 million liters, and – 27.7% – in terms of money, up to €625 million. “The reason for decline was the sanctions and the related economic crisis in the country”, – stated in the report of the OIV. These are the official figures, excluding smuggling and “gray” imports.
Last summer, Minister of Agriculture of Russia Alexander Tkachev proposed a ban on the importation of foreign wine or significantly increase on them duties, to make imports of wine in Russia unprofitable. He also said that “Our factories are in fact only shops for bottling wine. If today a farmer or a large cooperative begins to build a new winery, it will be repaid no earlier than in 15 years. In such circumstances, it is easier to bring the tank or a ship from South Africa or any other country, delivering just 100 or even 1,000 tons of raw wine, and bottling and selling it under the Russian brand. This option the use of someone else’s wine is easier. It is unacceptable!”
Some Russian winemakers supported Minister of Agriculture. In particular, the Crimean wine producers. And who wants to have a competition? Monopolist always be easier! Besides Mr. Tkachev before being appointed to the post of Minister of agriculture was the governor of Krasnodar region – a region which produces most of Russian wine, and he has there for certain commercial interests.
But the majority of Russian winemakers have opposed the ban on the import of wine materials. So, the president of the Union of Winegrowers and Winemakers of Russia, Leonid Popovich, said that at present the Ministry of Agriculture proposed a ban on the importation of foreign wine can not be implemented as soon be lost third of the total wine production in the country (according to other estimates, much more). Detailed analysis of the problems of the Russian winemaking shows that a total ban on imports of the bulk is not beneficial to anyone – neither the producers nor the consumers nor the state.
Thus, the area of cultivated vineyards in Russia are today about 100 000 ha, which is almost an order of magnitude less than in Europe or the US. Expansion of areas, if there is money (!), will take years because from the planting of young vines and to produce a first enough quality wine is need for at least five to seven years. In addition, if to prohibit the foreign bulk, just created a deficit of wine, prices will rise and the people will switch to a liquor, which will hit the health of the population.
And if you go back to the title of this article, Russia also participated in the “Wine Wars” but not about the price. 10 years ago, the chief sanitary doctor of Russia, Gennady Onishchenko, has banned the import of Georgian and Moldovan wines, which allegedly hade pesticides (?) (Most experts believe that the motive for such bans were political factors.) As a result, the quality of now supplied wine from Georgia and Moldova improved markedly, which can not be said about their prices.
From my point of view, the growth in production volumes of Russian wine will begin no earlier than in 5-10 years. I can confidently say that most of the wine, which buys in the shop Russian consumers, will be from imported bulk. I believe that this is not a bad option. The more Russia will import wine materials in the coming years, the smaller among the Russian wine will be counterfeit.
I want to give the following statistics: last year Russia produced 400 million liters of still wine; Champagne and sparkling wines – 161 million liters; wine drinks – at least 200 million liters. Total about 760 million liters. At the same time the Russian wine materials for this products have produced about 310 million liters, of which about 65 million liters sent to the production of brandy spirits. Officially, 204 million liters of wine materials purchased abroad. The result is that of the 760 million liters of wine production excluding cognac and brandy, only about 250 million (310-65=245) made on the Russian wine materials.
Am getting up: produced in Russia in 2015 year 760 million liters of wine production from about 450 million liters of wine materials (total Russian and foreign). What is it like? And where have the remaining 310 million liters? And this is a small (or maybe big?) tricks of Russian statistics! Or is it the number of smuggled wine material?
Its own wine material to take nowhere, either now or in the near future – it is necessary to wait for many years. While there is only one way – increasing purchases of imported raw wine materials under the appeals of head of the Ministry of Agriculture to close the supply of imported raw wine!
My conclusion – this is an extremely dangerous political slogan! I thus constantly repeat – it is necessary to plant, planting and again to plant new vineyards every year to the maximum. According to my forecast within the next 5 years growth of the Russian wine materials will be a maximum of 10-15 per cent. Last year new vineyards planted in the country is small, this year the situation is very similar, so the scale of the quantitative growth of the Russian wine from domestic wine material is expected not earlier than in 10 or even 15 years.
Some more statistics:
– in 2014 Russia imported 232.4 million liters of still wine + 47.2 million liters of sparkling + 168.5 million liters of wine materials. Total imports 448,1 million liters;
– in 2015 Russia imported 162.0 million liters of still wine + 33.3 million liters of sparkling wine + 203.5 million liters of wine materials. Total = 399.0 million liters;
– total difference of 49.1 million liters or 11% of imports fell. But it is not so! I want to recall that in 2015 in Russia began to arrive wine from the Crimea which became part of Russia. 2014 was in the Crimea very difficult but the grape harvest collected and in the same year made no less than 40-50 million liters of wine material, which was used in 2015. That’s the missing imports. And although the Russian annexation of the Crimea the Western countries did not recognize, but Crimean wine material go to Russia and Russian statistics is taken it into account!
This article contains material from the site
www.stoletie.ru/rossiya_i_mir/vinnaja_vojna_308.htm
Armenian cognac is losing ground in Russia
The devaluation of the Russian ruble and reduced incomes of Russians to cause serious damage to many producers in the former Soviet Union, which has long been focused on the Russian market. One of the most affected products is Armenian cognac: in last year its exports to Russia fell to 39.6%. The situation is exacerbated by the fact that the Armenian cognac producers have not yet found an adequate substitute for the Russian market and in the near future most likely will not.
In 2014, Armenia released 18.725 million liters of brandy, or 8.1% less than a year earlier, while exports declined from 18.3 to 18.1 million liters. Last year, the decline in production continued: in the country issued a total 16.948 million liters of cognac (decline by 9.4%). The main reason for this situation – the economic crisis in Russia, which accounts for about 75% of export of Armenian cognac. It is an expensive product. On the store shelf the price difference between the Armenian and French cognac is not too much for the majority of the Russian population, so it is not surprising that in a situation of falling consumer demand in the country its sales are down.
A similar situation exists in other segments of the Armenian alcohol. According to the Customs Service of the country, Armenian wine exports fell by 31.5% in 2015, from 2.12 to 1.45 million liters, and the cost – from 6.3 to 4.1 million dollars. As in the case of brandy, the main volume of export of Armenian wines (79%) are in Russia.
Significantly (by 19.3%) decreased Armenian export of beer, which at the current rate of the ruble forced to compete on the shelf not with Russian but European brands of beer (0.5 liter bottle of beer well-known Armenian “Cilicia” in the Russian retail market is now worth about 110 rubles – $1.64). Accordingly, the beer production in Armenia decreased by 12.8% last year.
In general, the alcohol industry of Armenia is almost entirely export-oriented. Drink all your own alcohol Armenians can not in principle – a very small domestic market (in the Armenian population of only 3 million people) and the purchasing power of the population is very low.
Among the representatives of Armenian business, which are engaged in exports, it is now more insistently promoted the idea of the need to find new markets for their products. However cognac producers to take advantage of this recipe will be difficult, given the long-standing problem with the use of the name “Armenian cognac” outside the CIS market. And this despite the fact that the legendary Yerevan Brandy Factory, which produces the brand “Ararat”, owned by the French corporation Pernod Ricard. The problem of the use of the name “cognac” – one of the most painful topics in the negotiations with the European Union. In this regard, the EU has a tough position. Supporters of the EU concessions on this issue in Armenia is. They believe that the refusal of the name “cognac” is inevitable, but it is necessary to find an adequate replacement for it. However, the fact that the Armenian cult drink can win the hearts of lovers of distillate outside the CIS, there are big doubts.
Export market of Armenian brandy is almost monopolized by Russia. However, the Armenian manufacturers in recent years have made a significant step to diversify its exports and the Armenian cognac was able to gain a foothold in other markets, but mostly CIS countries. 95% of Armenian brandy exports account for only four countries – Russia, Ukraine, Kazakhstan and Belarus. But in all these countries the economic crisis. On the world market, outside the CIS, cognac can only be French, and even if Armenian cognac to sell under the name “Armenian brandy”, I believe that it still will not buy. Due to the crisis the current situation will last for a long time. The only way for Armenian producers – severely reduce production, as is already done Moldovans, and wait until the crisis is over in the CIS countries. Perhaps it will take twenty years!
Experience of Ukrainian, Georgian and Moldovan food and drink producers indicated that to gain a foothold in the European market is rather difficult for the post-Soviet companies. Their brands are unfamiliar in Europe, and the market is very saturated. Even the Association Agreement between Armenia and the EU does not guarantee new markets.
Errors of Western beer companies in the Russian market …
Major Western beer companies, initially began working in the Russian market, miscalculated their growth in the years 2000- 2007. Subsequent developments showed that it was necessary to slowly increase their production. It is well known the market principle: the rapid growth is inevitably followed by the fall, and sometimes rapid. You just need to predict it in advance. I think that in any country of the world is difficult to find a similar example where beer production and consumption has grown for 12 years, as in Russia, 5.5 times! And at the same time, this growth did not start from scratch. How is this possible in a country with a stable number of potential drinkers by age?
Western brewers by their advertising managed in Russia be ahead of time! Such growth may be possible, for example, at least 30 years … Suppose that in the best form – for 25 years. There must be a change of at least one generation of people! From 1995 to 1999 there was a doubling of the production of beer in Russia and came to 31 liters of beer per capita per year consumption. And then it was necessary caution and correct calculation of future actions. But the thirst for big profits hampered show common sense. Would grow by 10% a year – and all would be well. But their continued to produce more and more beer. In 2005, there was a doubling of the following index of 1999. And then all the exact same picture: in 2006 (+ 15.6%), and in 2007 another +135 million dal.
Western beer companies since 1999 should be quietly growing by 4%-5% per year. This is the normal growth rate for any civilized system. And then would come out in 2013-2014 on the output of 830-840 million decaliters. These beer volumes are about today. And here also the demographic crisis in the country.
What it was sold in Russia in the years beyond the 4%-5% growth – this was a bonus, an extra profit of western beer giants. They have earned big money. But time caught up them.
Today, beer consumption decline is observed throughout the civilized world. And there is also to a large extent reason – the demographic character.
Volumes of beer consumption in Russia in different years in million decaliters:
| Year | Beer consumption
in million decaliters |
| 1984 | 350 |
| 1993 | 238 |
| 1995 | 213 |
| 1996 | 208 |
| 1997 | 252 |
| 1998 | 336 |
| 1999 | 445 |
| 2000 | 540 |
| 2001 | 638 |
| 2002 | 703 |
| 2003 | 730 |
| 2004 | 850 |
| 2005 | 895 |
| 2006 | 1035 |
| 2007 | 1160 |
| 2008 | 1140 |
| 2009 | 1035 |
| 2010 | 1015 |
| 2011 | 981 |
| 2012 | 955 |
Georgia
But what about the export of Georgian wine to the Russian market: The attached table are taken to compare the volume of Georgian wine export to Russia in the first quarters 2014, 2015 and 2016. Given also the share of Georgian wine in total volume of imported wines in Russia.
| Exports to Russia in the 1st quarter of 2014, in liters | 7 397 930 |
| The share in total Russian wine import in the 1st quarter 2014 in % | 14.08 |
| Exports to Russia in the 1st quarter of 2015, in liters | 1 807 362 |
| The share in total Russian wine import in the 1st quarter 2015 in % | 6.54 |
| Exports to Russia in the 1st quarter of 2016, in liters | 3 066 982 |
| The share in total Russian wine import in the 1st quarter 2016 in % | 10.62 |
| The share of the entire Russian wine market in the 1st quarter of 2016, in% | 2.98 |
As the table shows the volume of export of Georgian wines in the 1st quarter of 2016 + 70% to the results in 2015, but almost 2.5 times lower than in 2014.
Moldovan “divin”
According to the agreement signed between Moldova and the EU, by 2016 the country should cease to mark their alcoholic beverages as “cognac” and go to another alternative name – “divin”. Thus “divin” is Moldovan grape brandy, prepared according to the classic French “cognac” technology. The following table shows the production “divin” over the past 16 years, in millions of decalitres (dal).
| Year | Volume of production,in million decaliters |
| 2005 | 4.781 |
| 2006 | 2.245 |
| 2007 | 2.022 |
| 2008 | 2.815 |
| 2009 | 1.785 |
| 2010 | 1.766 |
| 2011 | 2.395 |
| 2012 | 3.064 |
| 2013 | 3.451 |
| 2014 | 2.762 |
| 2015 | 2.176 |
Briefly…
Whiskey production – a primitive process, but all sorts of myths and legends around it. It’s no more complicated than the production of cognac. Currently, 50 countries produce whiskey – the most famous, of course, Scottish, American, there is a certain fame in Japanese. 30 years ago, no one knew that in Japan there are whiskey and that it can ever be popular even in Japan. Today, this whiskey win at many competitions, even a Scottish single malt whiskey.
A little official statistics…
Imports of whiskey in Russia and sales through retail, million decaliters (dal) by year:
| Year | The volume of imports,in million decaliters | Sales in the retail,in million decaliters |
| 2000 | 0.042 | |
| 2004 | 0.164 | |
| 2005 | 0.381 | |
| 2006 | 0.663 | |
| 2007 | 1.39 | |
| 2008 | 1.58 | |
| 2009 | 1.42 | |
| 2010 | 1.92 | 4.20 |
| 2011 | 3.33 | 3.94 |
| 2012 | 4.22 | 4.98 |
| 2013 | 4.11 | 5.37 |
| 2014 | 4.13 | 6.27 |
| 2015 | 3.36 | 5.69 |
I can not reasonably explain why the amounts of whiskey sales in retail so much greater than the volume of its imports, especially in 2010, 2013-2015. This is a question to Rosstat!
The situation in the alcohol market in Russia in January-February 2016 compared with January-February 2015:
| The name ofthe drink | ProductionJanuary-February2016 to
January-February 2015 |
ImportJanuary-February2016 to
January-February 2015 |
Retail salesJanuary-February2016 to
January-February 2015 |
| Vodka | -17.2% | -66% | -3.1% |
| Cognac | -4.4% | -29% | - |
| Cognac+ brandy | -0.5% | -29% | -4% |
| Whiskey | -29% | - | |
| Rum | -13% | - | |
| Tequila | -39% | - | |
| Gin | -5% | - | |
| Absinthe | -86% | - | |
| Still wines | -12% | -6% | +0.1% |
| Champagne and sparkling | -23.4% | -12% | -2.3% |
| Wine materials | +200% | - | |
| Wine beverages | +51% | -17% | +6% |
| Vermouth | -17% | - | |
| Beer | +1.7% | +7% | -2.65% |