All millionaire families have commonalities; but each millionaire family is challenged in its own way. You might, for example, be a millionaire’s son, working independently in something steady, like banking. Then one day, your dad goes and buys a tumbledown winery and the next thing you know, you’re running the place.
“I looked at it and thought, you have got to be kidding. It looked like a pile of rubble,” said Pavel Titov, remembering his first glimpse of Russia’s Abrau-Durso winery. Founded in 1870 to make ‘champagne’ for Czar Alexander II, it was bought by Boris Titov in 2006. Following a €130m ($161m) restoration, Abrau-Durso is now the second- biggest sparkling producer in Russia by value, turning over €95m and producing 23.5m bottles in 2013.
This year, it was the venue for the fourth Russian Winemakers Summit and Vintners’ Cup Award, which included – for the first time – winemakers from the newly annexed Crimea. Themes on and off the agenda included proposed changes to laws governing Russia’s wine sector, Crimean support for those changes, the effect of sanctions and counter-sanctions, plus grape shortages.
Many changes
“The biggest problem is, we don’t have enough raw material. That’s why we are outsourcing,” Titov said. “If I had the opportunity to make the wines with only Russian grapes I would.” For Titov and other quality Russian winemakers, the grape shortage is linked to two broader problems: a difficult regulatory environment and paltry government support. Currently, wine and spirits are lumped into the same legal basket under Federal Law 171. “This means we are over-regulated because we fall under the same rules as vodka.” Nor are there financial incentives for winemakers. “In any other country the development of the wine business has been supported by the government.”
Support might be on the horizon. Firstly, in the form of political backing at the highest possible level – as witnessed by recent visits to Abrau-Durso by both President Vladimir Putin and Prime Minister Dmitry Medvedev. To say nothing of national pride, a crucial element of most things Russian.
Other, more surprising drivers for wine industry changes include Crimea, Ukraine and oil industry fragility. The most obvious was the unexpected annexation of Crimea in March. Although not, on the official face of it, apparently unhappy about their sudden change of nationality, Crimea’s producers have been shocked by Russian wine industry regulations. “Welcome to our reality,” is how Titov puts it. “It’s been a very difficult year for them. They are screaming for a change.”
Yanina Pavlenko, director of Crimea’s Bureau of Grapes and Wine, who spoke at the summit, says the differences between Russian and Crimean regulations are notable. “In Crimea wine is treated separately from spirits. And there is a fund for wine development for new vineyards that receives 1.5% of all sales on wine, cigarettes, beer and spirits.” She is now working with Russian winemakers to demand regulatory changes. Her other priority is ensuring that the drop in Crimean sales in Ukraine – about 20% by volume since the annexation – is replaced by increased demand from Russia. “Due to politics, our relationship with Ukraine is ruined,” she said, and wouldn’t be drawn further.
“But the Russian market is four times that of Crimea and there’s been a rise in Russian sales since March. We sell about 1.5m bottles in total a year. We think that can go to 2m or more in the next two years.”
Wine sanctions?
Pavlenko has been credited with suggesting Russia add European wines to their list of ‘counter-sanctioned’ imports from countries it blames for the Ukraine crisis. The move would have dovetailed with Putin’s policy of substituting domestic goods for foreign ones to reduce Russia’s dependency on imports – the result of a period when robust oil industry revenues made it easier to buy things than make them. Not so now, with oil revenues looking less reliable.
Imports of items such as French cheese and Italian ham have already been replaced by home-grown versions. European oysters are another item on the counter-sanctions list and, whether by accident or design, the Black Sea version featured at the formal dinner to honour the Vintners Cup winners.
Russian Parliamentary Minister and Deputy Chairman of the Economic Policy, Business and Innovation Development Committee, Victor Zvagelsky, who attended the awards and ate the oysters, said wine imports will remained unbanned. Asked why, Zvagelsky would only say he is not a fan of sanctions in general. Other explanations for the preservation of wine imports include suggestions it would upset those who are making good money importing wine.
There’s also a feeling that well-off Russians might take it badly if they were deprived of their evening Bordeaux. And, say commentators, there simply isn’t yet enough Russian wine to replace imports.
Zvagelsky has promised to lift some of the regulatory burden imposed on the wine sector, by overseeing an amendment to Law 171 that will separate wine from spirits. One of the most immediate effects of that would be lower costs.
Estimates vary, but Frank Duseigneur, a Frenchman who’s worked in Russia’s wine sector for the last decade, said if the amendment came into force, costs for a winery with an annual production of about 700,000 bottles would drop by as much as €16,000.00 a month.
Zvagelsky has additionally promised that, over the next 12 months, Russian winemakers – meaning specifically those that use Russian grapes rather than imported bulk wine – will be allowed to skirt the current ban on alcohol advertising, giving them a huge competitive edge over foreign imports. He also wants them to sell their wines via the web, another channel currently closed to alcoholic beverages. Beyond that, Zvagelsky plans to teach Russians more about Russian wines. “Changing the mentality is a big problem. People think foreign wines are better.”
Despite Zvagelsky’s upbeat assurances of changes to come, Duseigneur and others say they doubt it will happen. There are also questions over what winemakers fear could be ‘special treatment’ for Crimea, with reports that Russia plans to invest up to €250m in Crimea’s wine sector. Even prior to that announcement, one winemaker at the summit made reference in her speech to such fears, by likening Russia to a family that has three children but which adopts three more, and then proceeds to pay more attention to the adopted ones. “It’s not right. The new children are the centre of attention,” said chairman of the board of directors at Château Le Grand Vostock and this year’s winner of the Vintners Cup for white wine, Elena Denisova. Asked about the proposed investment in Crimea, Denisova said nothing had been finally decided as yet and that the probability of it happening was low. She also pointed out that Russia’s economy is not as strong as it once was and that such funds would likely be corrupted and therefore have little real effect.
Nor did Denisova support the annexation in the first place and, indeed, was one of the few at the summit who would even discuss it. “We need people, not land. We could have offered special subsidies to the Ukrainians who wanted to come here,” she said.
Quality challenges
What she does support is Zvagelsky’s initiatives, having been instrumental in both drafting the proposed amendment and developing a new wine law. But there is another difficulty. “The main enemy of good Russian wine, is bad Russian wine,” she said. “We need to control the very bad wines that are being made using cheap bulk from all over the world. Then they add colourings and alcohol and make a sort of fake wine.”
Foreign imports are an additional challenge. Denisova, who produces about 800,000 bottles a year, says foreign importers have penetrated the market at every level. “They are in supermarkets, restaurants, night clubs, and the wines cost €1.00 or €2.00 and sell for €25.00. It’s killing the market.” On the back of poor demand come time-to-market issues “We are now selling our 2011/2012 wines. By the time we get there, we’ve lost all the freshness and fruit and our wines are not so attractive.”
Figures crunched by International Wine and Spirits Research (IWSR) senior analyst Helen Windle back up Denisova’s views. “The imported wine market has seen strong growth in recent years,” said Windle in an e-mail, with IWSR figures showing a rise of 5% in 2013 compared to 2012 for imported still, light (non-fortified) wine sales by volume. On a more positive note, Windle sees the drop of 1.5% last year in the consumption of local wine volumes as driven by attempts to clean up the fake or bad wine sector.
Back at the coalface, Denisova sighs. She could mention a few other issues, but instead she takes a deep breath and smiles. “Even if we just get the amendment and the right to advertise, that will have a very positive effect for many years,” she said.
