Wine Policy and Trade in Eastern Europe and the Former Soviet Union

Political and social reforms across Central Europe, Eastern Europe, and the former Soviet Union have impacted wine production, consumption, pricing, and regulations. This article examines the impact of recent reforms on the consumption and production of wine, as well as how those reforms may or may not last. This article also discusses the effects of the restructuring of wine production and supply chains. “Eastern EU enlargement,” or the integration of central European countries into the EU, is also addressed.

Eastern Europe

Figure 1. The former Soviet Union and Control of Eastern Europe. Source: mrallsophistory

Production Levels

The majority of the global wine industry comprises the marketplaces of transitional countries. The ten countries in Central and Eastern Europe that have signed association agreements with the EU produce more than 1.3 million tons of wine, accounting for 4.6% of global wine output. It is estimated that the current level of wine production in Central and Eastern European Countries (CEEC) nations is around 25% lower than the average between 1984 and 1988. Because production in 1999 was greater than in 1989, most of this decline occurred before 1990[1].

Eastern Europe, Wine Policy and Trade in Eastern Europe and the Former Soviet Union

Figure 2. Production and exports of the European wine-producing regions, 1999. Source: FAO and own calculations

As a result of communism, the wine sector, particularly grape growers, was awarded government support. Then, as economies opened up, governments’ level of protection decreased. Nevertheless, in the second half of the 1990s, governments’ participation in the number of Eastern European countries increased again. To comprehend the transitory changes in both consumption and production, it is crucial to evaluate the effects of such reforms on both consumption and production.

Consumption

Consumption across Europe varies widely, from over 40 liters per capita in Slovenia and over 30 liters in Hungary and Romania to less than 10 liters in Bulgaria and other Eastern European countries. Slovenians actually drink the most wine per capita in the world! The wine consumption habits of transitional countries have changed significantly over time, although these changes vary from country to country and throughout time, of course.

Most countries saw a significant decrease in consumption at the outset. Many countries that used to produce the most wine experienced a decrease in their actual wages once reforms began, which, in turn, resulted in a significant decline in consumption (e.g., Bulgaria, Ukraine, and Russia). The GDP of these countries fell the most rapidly and persisted in their decline for most of the decade from 1988 to 1998[2].

Eastern Europe

Figure 3. Table: Consumption of Wine in Some World Regions. Source: FAO[3]

After these changes were implemented, the average consumption of wine per person in Europe’s transitional nations declined, but has since returned to pre-transition levels.

According to the data, even in countries with a long history of wine drinking, such as Bulgaria, there is a high-income elasticity of wine consumption. In homes with the highest incomes, the consumption of wine per person is more than two times that of a household with an average income and seven times that of a household with the lowest income.

Reform Impacts on Wine Trade and World Markets

Wine is mainly exported from Moldova, Bulgaria, Hungary, Romania, and Macedonia, with Russia, Poland, and the Czech Republic constituting the top importing nations. Russia has long been the world’s largest importer of wine and wine supplies. Over 130 million US dollars worth of wine had been imported into Russia by 1992. According to government statistics, between 1990 and 1998, wine production decreased by almost 55%.

It is possible that a shift in the market for wine products is to blame for the rise in the price of imports. Ukraine and Moldova were significant wine exporters to Russia in the former Soviet Union. Approximately 110 million US dollars worth of Moldovan wine was also shipped to Russia in 1992.

Eastern Europe, Wine Policy and Trade in Eastern Europe and the Former Soviet Union

Figure 4. Graph: Change in the Export of Wine (in Volume) by Regions. Source: FAO[4].

A spike in FSU-bound bottled wine exports began in 1992. It lasted until 1998, when Russia’s financial crisis effectively shut down that market for Bulgarian exports, resulting in considerable domestic market difficulties. Exports of Bulgarian wine to non-EU nations, particularly Japan, increased. Progress in grape processing and distribution helped raise the quality of Hungary’s and Bulgaria’s wines.

Wine Policies

The wine sector has a diverse range of government participation. Several countries, notably Bulgaria, Romania, and Hungary, have no government subsidies for grape producers or wine manufacturers. Therefore, market requirements are the only form of regulation in these countries. Direct payments for grapes have been adopted in Slovenia since 2000 to comply with the EU’s Common Agricultural Policy. Due to administrative limitations, a register of grape and winegrowers has been created. Grape and wine farmers, vine acreage, grape and wine yields, and more are all recorded[5].

According to EU norms, the Czech Republic’s legal system has been modified. Import regulations, vineyard registration, criteria for creating outstanding wines, and several forms of wine labels have all been added to the Viticulture Act in anticipation of new viticulture legislation, known as The Viticulture Act of 2013. There has long been a lack of clarity regarding land ownership rights and property fragmentation in Slovakia, which has impeded vineyard recordkeeping. Bulgaria approved new rules concerning wines and spirits and vineyard cadaster in 2000, and the government is presently working on secondary regulations. However, little progress has been made in passing laws or forging better relationships between local food producers and the institutions that support them. Hungary eventually enacted its cellar recordkeeping law in 2000, more than a decade after the nation first passed laws establishing a vineyard register[6].

Import licenses were removed, and non-tariff obstacles were lowered due to the tariffication process. Due to its status as a “developing nation,” Romania was permitted to establish binding tariff limits that were far lower than those allowed for other CEEC countries. Hungary’s food sector has seen its level of protection climb dramatically as a result of higher tariffs and greater export subsidies for processed items rather than food staples. The wine sector was a significant beneficiary of such export refunds.

Waivers for Hungary were agreed upon by a WTO body established in February 1997. This agreement did not alter existing restrictions on wine and alcoholic beverages. Hungarian officials said they would not use the waiver to enhance exports to non-traditional markets, including North and South America, the Pacific Region, and East and Southeast Asia[7].

Privatization and restructuring of Vineyards in Eastern Europe and the former Soviet Union

Eastern EU Enlargement and its Expected Effects on Wine Markets and Policies

Consider, for starters, the effect on price. Producer prices in CEECs are much lower than in the EU for various reasons, including government subsidies, inefficiencies in the downstream sector, and net exports. The current cost disparity is caused by many variables, one of which is the EU’s relatively high price level compared to the rest of the world. This gap has been shrinking for all CEECs since the early 1990s. Since the economies of Central and Eastern Europe have expanded at varying rates, this has resulted in a wide range of prices.

Price disparities may be due to variances in quality and governing policies. Because of CEEC real exchange rate revaluations, agricultural commodity nominal price differences have narrowed[8].

ON THIS DAY

December 25, 1991: The Soviet Union disintegrated, which had a significant influence on the wine business, taking it to new, inconceivable dimensions and shedding fresh light on the process of Russian wine manufacturing. However, due to the structure that Russia’s winemaking sector had inherited from the Soviet Union, Russian winemaking is distinct from that of the vast majority of other countries. The “main” and “secondary” wineries are the ones responsible for different stages of the production process. The production of vast quantities of wine for the population of the Soviet Union was the primary objective of Soviet winemaking[9].

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References

[1] Burrell, A., 2000, “The World Trade Organisation and EU Agricultural Policy” in Burrell, A. and A. Oskam (eds.) Agricultural Policy and Enlargement of the European Union, Wageningen Pers, Wageningen.

[2] Djankov, S., 1999, Ownership Structure and Enterprise Restructuring in Six Newly Independent States, Comparative Economics Studies, 41(1): 75-96.

[3] FAO, production and trade statistics, various issues.

[4] FAO, production and trade statistics, various issues.

[5] Gow, H., 2000, “Restructuring the agribusiness sector and the role of foreign direct investment” in Burrell, A. and A. Oskam (eds.) Agricultural Policy and Enlargement of the European Union, Wageningen Pers, Wageningen.

[6] OECD, 1999a, Agricultural Policies in Emerging and Transition Economies, OECD, Paris

[7] Rusu, M., 2000, “State and Prospects of Horticulturi in Romania”, paper presented at the international conference ,,Managing the Quality Chain: Environment, Production, Distribution and Marketing”, Guernsey, UK, September 12-15, 2000.

[8] Swinnen J., Liesbeth Dries and Hamish Gow, 2001, “Dairy Markets, Policies, and Trade in Eastern Europe and the former Soviet Union”, PRG Working Paper No. 26, Department of Agrikultural and Environmental Economics, K.U. Leuven

[9] Swinnen, J., 2002, Transition and Integration in Europe: Implications for Agri-Food Markets and Policy, World Economy, forthcoming.

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