The Country’s Political and Economic Guiding Lines Should Be Compatible

Paata Koghuashvili, Doctor of Economic Sciences, Professor Giorgi Zibzibadze, Candidate of Economic Sciences, Assistant Professor

It has been said many times that viticulturewine making in Georgia dates back to as early as the beginning of the III millennium B.C., the evidence of which is a lot of cultural monuments and the ancient articles necessary for wine making discovered in the course of archeological excavations on the country’s territory.

Wine was exported from Georgia to European, Central Asian and other countries. According to the data of a famous French traveler Charden (who traveled to Georgia in the XVII century), it was Georgia where the largest amount of top quality wine was produced.
Besides the aforementioned, the fact that more then 500 sorts of endemic vine were grown by means of artificial selection and several tens of kinds of wines are produced in Georgia (out of grapes grown in different natural-climatic zones and by means of different technological methods, including Kakhetian, Imeretian, European, Meskhian and other ones) surely confirms a continuous historical connection between Georgia, vine and wine.
We needed this short introduction so that everybody (including the authorities, wine-growers and wine-makers) should understand it well what branches we deal with, in particular, what vine and wine used to represent for the country in the historical past and what they represent now, that is what was the role of these branches in the past, what role should they have now and what kind of tasks we should set to it now.
In the Georgian history the year 1991 was fixed as the reference point of reestablishment of independent statehood. That is why it is not accidental that when we speak of achievements or failures in some branches or fields of activity in the past period, we always draw parallels and make comparisons to the state of affairs in these branches before gaining independence. In particular, according to the State Statistics Department of Georgia, 691 thousand tons of grapes (on average 67.6 centners per hectare) was produced on the total area of fructiferous vine (104 thousand hectares) in 1990, out of which 443 thousand tons, or 64% of the total amount of produced grapes, was directed to industrial processing.
According to the data of the same Department, in 1992-1997 the area of fructiferous vine was reduced to 81.5 thousand hectares (in 2002 it made up 62 thousand hectares). Average annual grapes production made up 336 thousand tons (40 centners per hectare on average), and industrial processing – 67 thousand tons (that is 20%). In 1998-2004 the situation in this respect deteriorated still more, 184 thousand tons was produced on average, the yield per hectare made up 37 centners, and 35 thousand tons of grapes (19%) was subjected to industrial processing.
The dynamics of the branch’s development shows that after reestablishment of independence, for well known reasons, a serious damage was inflicted to viticulture-wine making branches along with other branches of the national economy. They have been gradually becoming degraded and the authorities just had no time to pay attention to them. However, in all fairness it should be noted that during this period a number of measures were taken that were aimed at the state regulation of the development of viticulture-wine making branches, in particular, a famous organization “Samtrest” was transformed into the state viticulture-wine making regulative service. Georgia’s “Law on Vine and Wine”, which is mainly based on French legislation, was adopted, a treasury enterprise “Nergi” was established, etc. As the facts show us, the aforementioned measures have had no substantial effect and it is not surprising since just passing of decisions and standard acts means nothing if they are not realized in real life. Georgia’s “Law on Vine and Wine” are among them, since its requirements and norms concerning choosing a place and soil for a vineyard, placing of vine sorts, cultivation, growing agrotechnics and other important issues have not been implemented so far. Viticulture-wine regulative organization “Samtrest” failed to fulfill the task assigned to it in view of lack of corresponding regulative possibilities and levers. Now viticulture-wine branches are left to their own and no substantial measures are taken for their development at the modern level. On the contrary, the area of vineyards has been catastrophically reduced (in accordance with the data of the agricultural inventory made in 2004-2005 by the State Statistics Department of Georgia, by 2004 the total area of vineyards, including young plants, made up 37.7 thousand hectares instead of 117.7 thousand hectares in 1988), the scale of production and selling of falsified wine increased both inside the country and on the foreign markets, a conflict between wine-growers and wine-makers was designated, etc.
In conditions of this kind of considerable reduction of vineyard areas, total grapes production and the volume of industrial processing, increasing of wine export in 1999-2004 both in natural and cost expression raises a doubt. In particular, according to the official data, wine export increased from 1.9 million deciliters in 1999 to 2.4 million deciliters in 2003 (including that of of sparkling wines – from 66.9 to 164.3 thousand deciliters), and in value terms, correspondingly, from 14.6 million USD to 36.3 million USD.
All the above stated is the evidence of the fact that the potential of the branches having very old history in our country is not used even at a minimal level, that is, voluntarily or not, we gave up using a comparative advantage that Georgia has in comparison with other countries of the region. Here we mainly imply natural-climatic conditions, the population’s traditions and skills in vine growing. The comparative advantage is stipulated by different viticulture-wine making zones characterized by different soil, climatic and other conditions (which gives an opportunity to produce wines of different kind, purpose and quality), as well as by a possibility to cultivate up to 30 sorts of vine envisaged by Georgia’s “Law on Vine and Wine”, most of which are Georgian local sorts capable of competing with other countries’ wines on the international market.
Besides, there is a number of factors that can be considered as strong incentives for the development of the viticulture-wine making complex. In particular, vineyard areas and grapes processing plants (both primary and secondary) are mainly in private ownership, which makes favorable conditions for formation and realization of mutual interests of wine-growers and wine makers related to production and processing of grapes with the purpose of formation and functioning of enterprises having different organizational-legal forms. As a substantial incentive can also be considered the fact that Georgian wines already have their own place among the wine producing countries, they systematically participate in international exhibitions, competitions, tastings and have the appropriate reputation (image). In short, among eastern wine producing countries, Georgia is a country that has wonderful conditions for wine production (soil, climate, sorts of grapes, traditions, etc,) and a lawful right to recognition on the international wine market. At the same take, one should also take into accounts the weak points that inhibit full utilization of the potential existing in viticulture-wine making. In this respect, the current unfavorable situation in the development of the production basis (viticulture) should be pointed out in the first place. In particular, a lot of areas divided into a great number of plots as a result of reformation, nonoptimal sort and age structure of vineyards. More than 80% of vine is represented by comparatively high-yield sorts of white grapes, which has been an obstacle for the development viticulture. We imply the circumstance that in the wake of gradual increasing of demand for red wine on the international market, the price of grapes of white sorts considerably falls behind the price of grapes of red sorts, as result of which producers of grapes of white sorts confronted two problems – selling of grapes and compensation of expenses incurred in relation to production of grapes. The mentioned problem gives rise to another serious problem that consists in the fact that most part of the produced grapes is not supplied to wineries because of monopolistically low prices offered by the wineries, that is they do not go through industrial processing (in the recent year this indicator does not exceed 25% of the total volume of grapes), as a result of which losses are suffered not only by a producer (who has to independently process, sell or use the product), and also the state budget (in view of not getting the surplus value, profit and taxes from wineries).
The main reason for the above stated is a monopoly position of wineries and lack of any levers of grapes price formation (including state, producers’ associations, unions, etc.). A large part of wine makers is not interested in grapes as a raw material since it is not the only means of “wine” making. The existing technologies give an opportunity to make a falsified wine with minimal costs and without any problems by means of using various concentrates, sugar and sweeteners (sucrose).
As to the another weak point of wine growing – age structure, it should be pointed out that the average age of vineyards existing in the country ranges from 30 to 35 years and is characterized by the growth tendency. Besides, the rate of creation of new vineyards is increasingly falls behind the rate of going out of exploitation, as a result of which averaging of vineyards and the tendency of area’s reduction s on hand.
Because of lack of state support in any form, unavailability of commercial credits, insufficient provision with material and technical means necessary for reproduction and other problems, a wine-grower cannot cultivate new vineyards, change the sort structure of vine in accordance with market requirements, inculcate a new and more progressive technology (we did not even manage even to exempt the newly cultivated vineyards from the land tax for three years till their full fructification). He has to prolong exploitation of the vineyards whose optimal exploitation term has already expired because of which his marginal income is decreasing year by year.
The problem of development of young vine plants’ farming is of the same rank. In particular, by the end of 1980s the country’s young vine plants’ farming had the area of up to 1000 hectares, out of which 15-18 million engrafted young vine plants were produced. There used to be approved planting stock of various sorts of vine which, with few exceptions, practically does not exist. Private nurseries, most of which work completely disregarding the requirements of Georgia’s “Law on Vine and Wine”, mainly supply to the market certificateless young vine plants, which represents a serious danger and risk to cultivation of new vineyards by low-grade and virus infected saplings. In future this may become a serious obstacle for the development of the branch.
And finally, referred to specific number of problems is falsification of Georgian wines both inside the country and outside it, use without permission of registered trade marks and Georgian place-names, as a result of which the prestige of Georgian wine falls, the traditional market is being lost and millions of consumers of Georgian wine suffer losses. All the above stated has a negative effect not only on wine-making but also on its basis – the development of viticulture.
The evidence of it is the recent phenomena taking place on the wine market which, in our opinion, are mainly stipulated by involuntary initiation by the Georgian part. We imply the circumstance that most of Georgian wines both on the internal and foreign market are sold with labels that express the name of a district, region or village. These labels (names) do not represent individual property of some separate winery (enterprise), which primarily gives beneficial grounds for counterfeiting of labels and falsification of wine. The state is obliged to provide for use and protection of original place names by means of standard acts.
The example of it is given by the EU’s legislation for the wine sector, in which it is pointed out that quality protection and control regulation of the main categories of wines (quality wines of definite geographical origin and table wines) represents the function of the national legislation.
Legislation of separate countries of the EU (Germany, Austria, Luxemburg) classifies almost all wines having place-names (that indicate geographical place of origin) as high quality wines, while in other countries there are stricter criteria of wine classification. Proceeding from the above stated, the EU’s corresponding decision determines some obligatory requirements, which high quality wine should meet. In particular, five climatic zones are marked off where different conditions were determined that are related to adding of sugar to grape juice (in view of the fact that grapes do not accumulate a sufficient amount of sugar on the spot) and the content of alcohol in wine. At the same time, all high quality wines are liable to obligatory analytical and organoleptic testing.
Another measure of common wine policy is represented by the EU’s decision that envisages the rules of classification of grapes’ sorts. Here grapes’ sorts are divided into three main groups: recommended, accepted and according to geographical place of origin (that is sorts, the production of which is permitted in concrete places only). Grapes’ sorts that are used for making high quality wines should be by all means included in one of the mentioned groups.
The corresponding decision regulates similar methods and procedures according to which making of wine out of imported grape juice and mixing of imported wine with the wines of the EU countries is prohibited. Special decision also determines the product’s characteristic, labeling, presentation and obligatoriness of fulfilling of instructions aimed at protection of interests of consumers and producers with the purpose of ensuring of unhampered trade on the internal market and improving of products’ quality. At the same time, determined is the unity of the rules that are applied in production of high quality wines according to geographical place of origin and also the procedure based on which a concrete wine can be deprived of the label indicating geographical origin of a high quality wine.
Also noteworthy are the rules of wine trading with third countries, in particular, only importers having a license have the right to importing wine, and the aforementioned license is valid on the territory of all EU countries.
It is known that wine-making is more developed in the EU countries than in the countries whishing to enter it. This fact is stipulated by the fact that in these countries are oriented for increasing of grapes production and not for improving qualitative indicators of wine and grapes. There is also a considerable backlog from the viewpoint of technological modernization of wine-making, there are no sufficient investments for increasing of sort specialization of vine and improving of quality of wine, etc. Proceeding from the above stated, for the present moment distinguished are the basic tasks that are set to the counties wishing to enter the EU. In particular, it envisages modernization of the informational system having to do with agricultural land; promotion of modernization of vine sort structure taking into account the EU’s instructions, methods and main trends existing on the world market; application of the legislation that corresponds to EU’s legislation in the sphere of organization of common market of wine; reduction and cancellation of import’s direct subsidizing; inculcation and application of the EU’s wine quality control system.
We considered it necessary to set forth the aforementioned in order to show the extent to which the development normative base of our viticulture-wine making branches does not correspond to the EU’s legislation in wine sector, how inaccessible is European market now for Georgian wines and how necessary it is to make more active the state’s role in the matter of a real regulation of the branches that are most important for the country, how necessary it is to struggle against falsification of wine and take care of increasing of its quality, and what should be done in this direction in the country that aspires for integration into Euro-Atlantic space.
They say that every cloud has a silver lining. Today this proverb is associated with so called Russian-Georgian “cold war” (we shall touch upon this issue later on). It has shown all of us (including the authorities) how necessary it is to activate the state support policy not only in viticulture-wine making, but in all export-oriented branches.
In our opinion, the current dismal situation in viticulture-wine making is stipulated by many reasons, but the main thing is the lack of a single state policy of this sector’s development. The country does not have a single export-oriented branch, including a complex program of development of viticulture-wine making that would be based not on one segment, but on settlement of problems (licensing, certification, application of place of origin and place-name) related to grapes production, its processing, wine selling.
We can read it in any macroeconomics text-book, how risk increases when all the eggs are placed in the same basket. That is, we want to say that when 85-90% of Georgian export wine is oriented for Russian market, it is one of the simplest carelessness in business (for which we have been punished). Who should have calculated the results of the expected risk taking the necessary measures for diversification of the market, is not it the government, the Chamber of Commerce and Industry or the legal entity of public law – “Samtrest” existing under the Ministry of Agriculture and other interested organizations? It is a fact that the mentioned departments became active only when the war had already been lost.
There is no need in a big investigation in order to establish that falsification has become a large-scale one in the recent years. This can be well seen from the relations between wine-growers and wine-makers. In this connection, it is worth pointing out that most of the wineries existing in Georgia are joint Georgian-Russian enterprises. Among them there are ones that are owned by Russian entrepreneurs only. Almost a half of wineries located in Russia use Georgian wine raw material. It turns out that first we create problems and then try to solve them. We imply liquidation of production licensing and certification service, disregarding of the corresponding laws and norms, liquidation of the phyto-sanitary service, etc., and by doing so we practically gave up fulfilling the function of a buffer for Europe. It is natural that in this situation the neighboring states will toughen requirements to import from our country, which will be motivated not only by political reasons but also by the reasons related to safety of their population and protection against hazardous diseases.
The fact that Russian wine market is gorged with falsified wines made both in Russia and other countries (Ukraine, Moldova, Bulgaria, etc.) with indicated Georgian geographical place of origin, is mainly stipulated by our “deafness”. If our wine-makers are provided with corresponding legislation and national system of controlling geographical place of origin, then they will have an opportunity to fairly punish wine-makers from other counties producing wine under the same name and even get a corresponding compensation for the inflicted losses. A typical example of it is a much-talked-of legal process in 1960s that was initiated by the French against British importers that produced their products under the label of “Spanish Champaign”. It is noteworthy that at the first process a penalty was not imposed upon the defendant since at that time France itself did not have the system controlling geographical origin. One year later, when producers of French Champaign brought a suit against the same importer again, the court admitted that only the French had the exclusive right to use the name of “Champaign”, and the defendant it was prohibited for the defendant to produce any products having the name of “Champaign”. This process had a positive effect on the wine market and the number of similar case considerably decreased.
It is noteworthy that in the recent years the pivotal goal of the EU has been a steady increasing of wine quality, which is stipulated by growing competition on the world wine market. This issue will become more relevant in future in relation to the pronounced tendency of table wines’ consumption and the increasing demand for wines having the name of geographical origin. Some useful conclusions can be drawn from all the above stated.
In particular, as it is known, one of long-term tasks of our country is joining the EU (for the present moment and the nearest future – the so called good neighborly status), which requires not only the fulfillment of social-economic requirements envisaged by Maastricht Treaty but also unswerving mastering and protection of the “game rules” existing in different spheres of material production. Here, first of all, we imply the circumstance that:
1) The areas of vineyards and quotas for wine production have already been established for the member states, and it is practically impossible to increase them. Proceeding from the above stated, our immediate task before joining the EU is achieving optimization of vineyard areas as well as sort and age structure. For this purpose, cultivation of new vineyards should take place at the expense of the sorts of grapes having the increasing demand on the world market.
2) In wine producing countries the leading role in development, regulation and control over viticulture-wine making branch is, as a rule, played by the state. Proceeding from the above-stated, during the period of modernization and institutional establishment of this sector, it is necessary to take into account, along with Georgian specificity, the experience of France, Italy, Switzerland, Germany and other countries, and also of new wine-making countries that managed to overcome the barriers existing on different markets: Argentine, Chile, South Africa, Australia.
3) There is no doubt that without active state support of viticulture-wine making branch, the development of this sector at modern level is practically impossible. The formation of the state regulative body controlling vine and wine is necessary. In our opinion, the mechanisms of state support should be aimed not only at increasing of production of white and red grapes but also at technical re-equipment of the grapes processing facilities, creation of a network of quality control laboratories with the purpose of stimulating of production of high quality export products. Only the wines that meet the international standards should be allowed for exporting.
4) State support of the wine sector should be also aimed at enlargement of sales geography of quality wine. For this purpose it is necessary to use advertisement, participate in international exhibitions, competitions, etc. Differentiation of the export market should contribute to raising of wine’s reputation, which is possible only by means of production of high quality wine and its selling.
5) The requirements of Georgia’s “Law on Vine and Wine” concerning organization of nurseries, certification, vine cultivation, growing as well as other rules envisaged by agrotechnics and protection methods and procedures of grapes’ processing and wine making should be practically fulfilled.
6) Struggle against wine falsification should be declared as a matter of state importance, and all legal and administrative-economic mechanisms possessed by the state should be applied with the purpose of its eradication both inside the country and outside it.
7) A wine-grower should receive an income from the grown grapes that will provide his family with an acceptable living standard and give him an opportunity for reproduction.
The “game rules” on the modern European wine market require the aforementioned, and we shall have to protect them sooner or later. Our country’s striving for integration into Euro-Atlantic space should be expressed not only by a political vector but an economic one as well, since complete integration by means of political unity only, in spite of a great wish, may remain an unrealizable illusion.

The used literature:
1. Milko Blesich – Food Policy and Legislation of the European Union. Tb., 2005
2. Paata Koghuashvili – Georgia’s Food Security: Reality and Forecasts. “Color” Publishers, Tb., 2004
3. Georgian Agriculture, Statistical Compilation 2004, Tb., 2005
4. Georgia’s Agricultural Inventory of 2004. The Statistics Department, Tb., 2005
5. Georgian Statistical Year-Book 2004, Tb., 2004