Publication: Eurasia Daily Monitor Volume: 3 Issue: 77

After banning imports of Georgian wine and some other food products last month (see EDM, March 28), Russian authorities now say the ban might extend to Georgia’s famous “Borjomi” mineral water. Following an order from Gennady Onishchenko, Russian chief sanitary inspector, about 1 billion liters of Georgian and Moldovan wine have been confiscated from retail and wholesale depots throughout Russia.

There are rumors that the deportation of multiple illegal Georgian labor migrants will be Moscow’s next “surprise,” and this move, according to pundits, might trigger large-scale social disturbances in Georgia (Akhali Taoba, April 17).

On April 19, the Russian State Duma overwhelmingly voted for a resolution supporting the ban on the import of Georgian and Moldovan alcoholic beverages. Although the resolution cites health issues, the pronounced anti-Georgian rhetoric accompanying the resolution highlighted the political implications behind this development.

Georgian officials and observers consider the Russian move to be one more politically motivated attempt to punish the Western-leaning government of Georgian President Mikheil Saakashvili. However, other analysts argue that the ban on Georgian wine is part of a clandestine business war, and some Russian companies that own wineries in Latin America are trying to saturate the Russian market with their products and push out foreign competitors.

President Saakashvili has declared that saving the Georgian wine industry must become a top priority. “We all must become publicity agents for Georgian wine,” he said (TV-Rustavi-2, Civil Georgia, April 15).

The “wine war” has increased existing Georgian-Russian political friction. Some top Georgian officials have threatened to take Georgia out of the Commonwealth of Independent States. Georgian Foreign Minister Gela Bezhuashvili pointedly declined to participate in the April 21 meeting of the CIS Ministers’ Council in Moscow (Kavkaz Press, April 17).

With no Georgian wine flowing into the Russian market, other CIS members seized the opportunity. Armenia, Azerbaijan, Tajikistan, and Kazakhstan reportedly hastened to fill the temporary supply gap — about 12% of the Russian market — by offering their own wine products to Russian consumers (Akhali Taoba, April 15).

At a meeting with parliamentarians from the ruling National Movement party on April 17, Saakashvili reiterated his belief that Russia’s import ban is a political move. He reaffirmed his readiness for a “constructive dialogue” with Russia to settle the wine row and reminded members of the government to promote Georgian wine abroad.

The wine war with Russia will not be settled soon, predicted Kakha Bendukidze, Georgian State Minister for Reform Issues. “They want us to pay a political price, which we will not pay” (TV-Imedi, TV-Rustavi-2, Civil Georgia, April 17). Contrary to the gloomy forecasts by some Georgian economic analysts, Bendukidze said that Russia’s ban would have minimal effect on Georgia’s economy and “even in a worst-case scenario the growth rate will decrease by approximately 0.3%.” He said that thanks to high levels of wine consumption in Georgia, producer prices for grapes were unlikely to fall. He acknowledged that local vintners might see their profits drop, but dismissed fears of an impending “catastrophe.” He said that the wine dispute might actually benefit Georgia somewhat, “Because the stronger companies will survive and the wine industry will become much healthier” (Georgian Public TV, April 16).

The Georgian government has already granted wine producers a three-month tax holiday. Despite the optimistic statements from Bendukidze and Saakashvili, who claims that the “wine war” with Russia marks “a new stage for Georgia’s political and economic strengthening” (TV-Rustavi-2, April 17), some Georgian officials and analysts — not to mention vintners — are concerned about the immediate troubles that the dispute could create for the Georgian wine industry, agriculture in general, banking, and the entire national economy. Georgia exports 70% of its agricultural products, 80% of its wine, and 60% of all Borjomi sales to Russia. Some sources say that about 30% of Georgia’s GNP comes from exports of wine and other beverages to Russia. In 2005 Georgia exported 60 million bottles of wine; 40 million of these went to Russia. In 2005 Georgian wine exports to Russia were valued at $63 million, up from $36 million in 2004 and $32 million in 2003, according to the Georgian Department of Statistics.

Some Georgian pundits argue that the Russian restrictions, if continued, will harm Georgian banks, which finance export-import operations and issue credits for the companies in this sector. Taking into account that the Georgian financial sector is very small; downgrading the credit portfolio of many Georgian banking institutions might result in a banking crisis, according to their forecast. Some analysts argue that in the near future Russia might allow some Georgian winemaking companies with 100% Russian capital to resume wine exports to Russia.

Niko Lekishvili, chair of the Georgian Parliamentary Economic Committee, said that the ban would bankrupt most Georgian wine companies, because they owe millions in loans and back taxes. “We will lose approximately $300 million annually if the ban continues,” he said (The Messenger, April 3). The ban will also hurt the many peasants involved with wine production and grape harvesting.

Meanwhile, Georgian media and analysts are guessing about Saakashvili’s surprise decision on April 12 to assign Defense Minister Irakli Okruashvili to find new markets for Georgian wine. Most of them link this move with an anticipated reshuffle in the government (Resonansi, April 17). Okruashvili demonstrated a remarkable familiarity with wine issues when commenting on his new task. He said that many Georgian winemaking firms are weak in marketing and management and several semi-legal wineries in Georgia should be closed immediately (TV-Imedi, TV-Rustavi-2, April 12).

Despite the government’s calls to focus on new markets, Georgian vintners consider restoring the Russian market to be their top priority (Civil Georgia, April 19).