To Georgia, wine war with Russia a question of national security

Molly Corso 4/13/06

Three weeks into Russia's embargo on Georgian wine, the Georgian government is scrambling to find new markets for one of the country's most lucrative export commodities. In a surprise move, President Mikheil Saakashvili has appointed Defense Minister Irakli Okruashvili to lead the development of a new wine export strategy, stressing that all government ministers must now promote Georgia's economic interests. Meanwhile, some local analysts question why the administration did not earlier anticipate Russia's wine ban.

Russian officials have claimed that the ban, which means the loss of Georgian vinters' largest market, is due to "unacceptable" levels of dangerous chemicals in Georgian wines. The Georgian government has labeled the embargo a political act, retaliation for ongoing squabbles over the breakaway territories of South Ossetia and Abkhazia, among other disputes. [For background see the Eurasia Insight archive].

Since the March 27 announcement of the ban, the Georgian government has engaged in a frenzied attempt to head off a potential catastrophe for the Georgian wine industry. In appointing Okruashvili on April 12 to head the crisis-management effort, Saakashvili cited the defense minister's previous business experience as the motivation for his choice. Before beginning his government career in 2000 as deputy minister of justice, Okruashvili was a partner in a private law firm.

"Okruashvili has always been successful in everything he has done," Kavkaz Press reported Saakashvili as saying at a Georgian-Chinese Business Forum in Beijing, where the Georgian leader was on a state visit. "All of us, including myself, are commercial agents of our country. We should promote Georgian products. For the next three months, Irakli Okruashvili, as a successful business manager, will be busy promoting Georgian wine."

The defense minister, currently in Brussels for talks with the North Atlantic Treaty Organization, will begin his wine duties with trips to Ukraine, the Baltics "and other European countries," the president said.

The opposition has ridiculed the appointment. "So, what tasks should the agriculture minister be given now? Maybe repairing howitzers?" asked New Rights Party member of parliament Irakli Iashvili, Rustavi-2 reported. Others have characterized the assignment as another example of Okruashvili's alleged ambition to become prime minister.

Okruashvili, however, has downplayed the criticism. "We discussed the issue before the president's departure to China and my proposals regarding [the embargo] were welcomed [by government members].... Many Georgian wine producing companies are very bad in marketing and management and I think the government should help them in this regard," Imedi TV reported Okruashvili as saying on April 12.

Prime Minister Zurab Noghaideli, who will handle promotion of Georgian wines domestically and within the Commonwealth of Independent States, has dismissed as "absurd" allegations that Okruashvili intends to use his wine portfolio as a springboard to the premiership. Okruashvili's wine assignment is "a very important instruction from the president and I am certain Irakli will do it very well," the prime minister told Imedi TV on April 12.

Other ministers argue that Okruashvili's task is linked to Georgia's general security. The minister's wine mission will send "a message to all of Europe that our country does not just focus on the use of force and that the main emphasis is on our society feeling secure and, above all, on the development of the economy," State Minister for Euro-Atlantic Integration Giorgi Baramidze told Imedi.

Local analysts, however, have criticized the government for not being better prepared for the Russian embargo. "Everyone in Georgia expected Russia to do something like this," said Tariel Giorgadze, vice president of the Center for Economic Education and Development in Georgia. After Georgia blocked Russia's entrance into the World Trade Organization in March, Giorgadze continued, it was just a matter of time before Moscow would respond. "You should expect this sort of aggression. There was no way to avoid this. We had to expect it would happen. It is not an economic act that affects the economy."

Although estimates vary, Georgian economists generally say that Russia accounts for 60 percent of Georgian wine exports, making the embargo a potential disaster for the national economy as well as for wine factories and grape producers.

The administration has tried to put a positive spin on the embargo, calling it an "opportunity" for Georgia to enter new markets. Days after the embargo was announced, President Saakashvili traveled to eastern Georgia's Kakheti region, which produces most of the county's wine. The government has also announced tax breaks and plans to produce more "European" style wines with non-traditional types of grapes.

However, Kakha Gogolashvili, the director of European Union studies at the Georgian Foundation for Strategic and International Studies in Tbilisi, believes it will be "very difficult" for Georgia to enter the European market. In the Russian market, Georgia's wines enjoy instant name recognition, but "[t]here is no name recognition for Georgian wine in Europe," he said.

Konstantin Zaldastanishvili, director of the European Union-Georgian Business Council, agreed that it will take years for Georgian wine to develop a large customer base in Europe. And even then, Europe will not take the place of the Russian market, he added. "There are already some sales of Georgian wine in Europe, but Georgia needs more promotion," he said, speaking from Brussels.

According to the Georgian Department of Statistics, in 2005 Georgia exported nearly 40 million liters of wine to Russia, shipments valued at over $60 million.

Georgian wine merchants fear that if the embargo continues, it could set the country's wine industry back by two or three years. "If this problem will be solved over the next month, I don't think it will be a big danger [for the wine industry]," said Levan Koberidze, commercial director of Georgian Wine and Spirits Company and a senior figure in the Georgian Wine Producers Union. "We will push toward other markets and expand sales."

Okruashvili has not yet specified the target foreign markets for Georgian wine, though has stated that Georgia should avoid entry into France and Italy's highly competitive wine markets.

Meanwhile, the government is pressing on with attempts to get Russia to reconsider its ban. A delegation from Georgia, including Agriculture Minister Mikheil Svimonishvili, is in Moscow now to discuss the issue. On April 12, Parliamentary Speaker Nino Burjanadze also met with Russian Ambassador to Georgia Vladimir Chkhikvishvili.

Chkhivishvili denied that Russia's embargo is politically motivated, but the ban could still have a long-term effect on Georgian-Russian relations. On April 11, Burjanadze, repeating earlier suggestions, called for the government to consider pulling out of the Commonwealth of Independent States.

"[E]conomic aspects have always been major arguments in favor of our CIS membership. We still adhere to this position, but at the same time we ask one very serious question: if we are the only CIS country with whom Russia has visa requirements; if we are the only country from where imports of wine, citrus fruits, tea and maybe, tomorrow, Borjomi [mineral water] as well are banned, then why should we remain in this organization?" Burjanadze was reported as saying.

Noghaideli, however, has denied that the government is considering pulling out of the CIS, noting that such a move is currently "not on the agenda."

Editor's Note: Molly Corso is a freelance reporter and photojournalist based in Tbilisi.

Posted April 13, 2006 © Eurasianet