Could former USSR be a market for U.S. wine? - Import Export

If you ask a foreign trade representative from the former USSR about the volume of wine, champagne and brandy the U.S. can export to the CIS, the figures would be as follows: wine -- 15.0 million champagne -- 5.0 million, brandy -- 3.0 million (cases). But this is a minimum and only the beginning. In the future, the CIS will need a lot of wine. Then he will sigh and tell you that there are a lot of difficulties, but one is very important -- hard currency, because the ruble is not convertible.

If you want to know about the wine business in the CIS, you should remember the wine history of the former USSR. The grape harvest in the early eighties steadily increased; the USSR was the fourth largest producer in the world, with a total 6.0-7.0 million tons, and a crush of 5.0-5.8 million tons. It was planned to increase it to 10.0 million tons. Average yearly production was: wine -- 1,050 million gallons, fruit wine -- 230 million gallons, champagne -- 57 million gallons, brandy -- 37 million gallons. The country's average yearly import in bottles and bulk was: wine -- 57 million gallons, champagne -- 5.5 million gallons, brandy and wine spirits -- 6.7 million gallons. The main suppliers were Bulgaria, Rumania, Yugoslavia, Hungary, France, Spain, Italy, Cyprus, and Algeria. New port facilities for unloading wine tankers were built in Russia and the Ukraine. The per capita consumption of wine was approximately 4.5 gallons, but 80% was fortified jug wine, which affected the growth of alcoholism in the country.

In May, 1985, Mikhail Gorbachev and the Political Bureau of the CPSU declared an anti-alcohol campaign. The main idea was to lower production of vodka and fortified wines, and increase the output of table wines and juices. However, practical implementation of new laws was distorted from the beginning. The government closed 85% of all the liquor shops, terminated production of fruit wines, ended the importing of wine, and limited the hours of selling wine from 2 to 8 pm. The anti-alcohol campaign in the media and press grew. Wine inventories increased and 550 million gallons of wine, which is roughly one year's worth of U.S. wine output, spoiled and was utilized as a nutrient for producing fodders yeast.

Over five years the bearing acreage decreased from 2.7 to 1.75 million acres, total utilized grape production fell to 4.4 million tons, and wine output was cut in half. The conflict in Armenia, Azerbajian, Georgia, the Crimea, Moldovia, Kirgistan, and the new areas of phylloxera infections are affecting viticulture. The 1991 total quantity of grape production fell below 4 million tons. Russia is in an especially difficult situation. From seven grape-growing areas, now only Dahgestan and Krasnodar are of commercial importance. Wine production and delivery from the other republics only covers 30% of the demand. Many wineries now produce vodka instead of wine.

As a result of the anti-alcohol campaign, per capita wine consumption has decreased from 4.5 to 1.9 gallons. However, this reduction is not related to demand, which is now much more than it was before 1985. Wine, champagne and especially brandy are in great demand and you can only buy it freely in the commercial shops at prices which are 2-3 times more than in the state shops. Thus the prospects for exporting wine to the countries of the former USSR, especially to Russia, Belorus, Kazakhstan, and the Baltic states, are very good. Taking into consideration the climate and people's habits of consumption, champagne and brandy are most important, and secondarily -- jug, dessert and table wines.

The wine countries of Europe, especially Italy, France, and Spain, are opening wine shops in Moscow and St. Petersburg, and selling wine in hard currency restaurants. The only positive experience has been that of Wente Bros., a pioneer in the wine business in Moscow. At the same time, Siberia and the Far East are not far from the U.S. Pacific coast. I believe that in the near future they could become important consumer areas for U.S. wines. The question is as follows: if the U.S. is the main grain exporting country to the CIS, why should it not become a main wine supplier?

On the other hand, the growth of the U.S. wine business is dependent on export, and I hope the CIS would become an important consumer of American wines.

It is necessary to develop a long-term program for wine export to the former USSR, which would include a policy for the period of time before the CIS establishes a convertible currency. The main elements of this program should be:

* Buying and opening liquor shops with the name of U.S. firms in Moscow, St. Petersburg, Riga, Khabarovsk, Sakhalin, Nakhodka, Vladivostok, Ekaterinburg, Alma-Ata, other state capitals, free zones and big cities. These shops could sell wine to customers and to the restaurants, hotels, casinos, and airports.

* The wine should be sold only for hard currency or for the new state currencies, which, I am sure, will be implemented within a year or two, instead of for rubles. Wineries can use the new currencies for buying shops, enterprises, hotels, land, and private flats; sell it to the foreign companies which hire workers from the CIS; and pay them salaries in state currencies.

* Create with the wineries and trade representatives of the CIS, distribution systems for foreign wine and maybe production of bottles, cases, caps, and labels.

* It is very economical and profitable to ship wine from Washington State and California to the Pacific ports of Russia. One should take into account that conditions in the Pacific ports of Russia allow shipping of wine only 6-8 months of the year and brandy year-around. Maybe in one of the East Asian countries, for example in South Korea, a winery could be opened, which would receive bulk wine, bottle and export it.

* Set up an exhibition, "Wine U.S.A.," in several cities; for example, Moscow, Khabarovsk, and Ekaterinburg. In the exhibition we can study the opportunity for selling American wines, problems of currency, and barter deals.

* Publish in the CIS newspapers and magazines articles about the wine business in the U.S., the high quality of American wine, the beneficial effect of moderate wine consumption (for example the "French Paradox"), and U.S. wine guides. It will not be difficult to publish articles if you do not charge hard currency for those articles.

* Collect in a law firm, or in the Wine Institute, all information about legislation in the countries of the CIS which pertain to the wine trade, insurance, and bankruptcy. In the future it might be useful to open a branch of the Wine Institute in Russia.

* Perhaps it would be very useful to set up a joint U.S.-CIS wine society with the goal of promoting contacts, trade, exhibitions, fairs, and auctions.

(Vladimir Litvak is a consultant for Chateau Ste. Michelle in Washington State and lives in Oakland, Calif.)

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