Russian Market - Enticing but Tricky
19 September, 2013
Russian Market - Enticing but Tricky
While Russia lifts a six-year trade embargo on Georgian agricultural product step-wise and volumes of Georgian wine export are on the significant rise, the Kremlin imposed a ban on Ukrainian Roshen branded chocolate starting last August and move to penalize the Moldavian wines this September for alleged harmful effects for health. Critics believe Moscow punishes and banishes its neighboring post-Soviet states for their EU affinities.
The Russia’s main sanitary body RosPotrebNadzor also threatened to ban Belarusian and Polish meat and
dairy products this month. The recent scenario makes Georgian wine and water producers nervous as they have just reappeared on the Russian market and enjoy increasing sales. Everybody remembers the collapse they faced in 2006 when they lost 70% of their sales overnight after the Russian sanitary body banned Georgian agricultural products. Gradually the industry diversified its export markets and recovered but the biggest wine export figure approaching 22 million bottles past year is just 38% of pre-embargo data that accounted to around 57 million bottles in 2005. As wine export to Russia was renewed starting June, Georgian wine export already exceeded its yearly record of 22 million bottles and 7 million out of this figure fell on Russia. Now Russian veterinary and phyto-sanitary inspectors are studying Georgian agricultural industry in order to decide whether or not Georgian fruit and vegetables may reappear on Russian market. But Georgian exporters as well as the Authorities are pretty wary of the enticing but tricky Russian market where Georgian entrepreneurs enjoy biggest sales for less advertisement thanks to the popularity of Georgian products, which was gained during the Soviet time. However, it is often used as a political tool by the Kremlin when it decides to play political games.
Moscow did not hide its discontent at Ukraine and Moldova who turned their heads towards European integration while negotiating customs union with Russia. Georgia is obviously in the same boat with Ukraine and Moldova: all of them are looking forward to signing EU association agreements at the summit in Vilnius in November this year. Besides, official Tbilisi has successfully completed negotiations over the free trade with the EU and nurtures the hope to step into this market soon. Although political tension between Tbilisi and Moscow is somewhat mitigated after the power shift, Georgian market analysts believe risks did not fade away and exporters should think of effective economic tools to minimize risks. Some wine exporters, such as Tbilvino for example, think to keep Russian market share within 10-25% to reduce risks or ensure preliminary payment for their products.
“The most effective way to reduce risks is to contract distribution companies in Russia and secure beforehand payments for the exported products within the company bounds. Once distributors pay for the bulk product, the ban threats will be no problem to Georgian producers anymore. Most Georgian exporters are working out this mechanism now,” Irakli Lekvinadze, market analyst and spokesperson of the Sale Management Company that handles marketing of Georgian soft drinks and water, told Georgian Journal.
Demur Girorkhelidze, economic analyst, counters that since Russia became the member of the World Trade Organization that prohibits any trade barriers between its member states, the problem with Russian market is not linked to its political will but the quality of exported products.
“It is an open secret that all post-Soviet countries have quality problems that give grounds to Russia to ban the products whenever it finds it necessary. It is certainly true respective to Georgian or Moldavian wines. If Russia bans a high quality product, then we should turn to WTO and act within its regulations to settle the problem – this is the best but ignored way so far,” he said.

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