AFTER RUSSIA'S BAN: MOLDOVAN WINE FLOWING

UNCLAS CHISINAU 000535

SENSITIVE

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: N/A
TAGS: EINV MD
SUBJECT: AFTER RUSSIA'S BAN: MOLDOVAN WINE FLOWING

SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY


1. (SBU) SUMMARY: Bolstered by the resolution of the Russian wine
ban, Moldovan wine exports were up three-fold in the first quarter
of 2008 compared with 2007. Exports to Ukraine and Belarus, which
increased substantially in 2007, continue to grow. Preferential
trade access granted by the EU provides opportunities for new
markets, albeit extremely competitive ones. Despite the damage
caused by Russia's politically motivated bans, some Moldovan wine
producers have quickly returned to the Russian market. EU trade
preferences will allow some Moldovan wines to be price competitive
on European markets; however, quality remains a concern. END
SUMMARY.

WINE EXPORTS
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2. (U) According to MoldovaVin, the state wine agency, exports of
Moldovan wine totaled USD 44.1 million in the first quarter of 2008.
The CIS countries remained the main consumers of Moldovan wines,
accounting for 85% of total exports. Ukraine (USD 13.2 million) was
the leading importer followed by Belarus (USD 11.4 million) and
Russia (USD 10.7 million). Exports to the EU were USD 5.8 million
(about 13% of total exports),which represents a 55% increase
compared to the first quarter of 2007. Poland, Romania and the
Czech Republic were the leading importers in the EU.


3. (U) Since March 1, Moldovan wines have enjoyed preferential
access to European markets under the autonomous trade preferences
granted by the EU. Moldova received a preferential quota of 6
million liters of wine for 2008. The quota is set to increase to 7
million in 2009; 8 million in 2010; 10 million in 2011; and 12
million in 2012. (NOTE: The quota does not include sparkling wines
or wines with more than 15% alcohol. END NOTE.)

MOLDOVAN WINE: BEFORE AND AFTER THE BAN
--------------


4. (U) In 2005, about 95% of Moldova's wine and brandy exports went
to the CIS with Russia accounting for 70%. Only about 3% of
Moldovan wine exports went to EU markets. Russia banned imports of
Moldovan wine in late March 2006, citing sanitary and phytosanitary
concerns, though most suspected political motivations. Although
Moldovan producers worked to diversify their markets, total wine
exports declined by over 40% (in value) in 2006 compared with 2005
from USD 313 million to USD 180 million.


5. (U) In 2006, pre-ban sales (January - March 2006) to Russia
accounted for about 30% of total exports. Following the ban,
exports to Ukraine and Belarus increased substantially, accounting
for 40% of total exports. Sales to EU countries totaled USD 37.5
million, representing about 21% of total wine exports. Poland,
Romania, Germany and the Czech Republic were major EU importers.


6. (U) In 2007, total wine exports were USD 130 million, a 28%
decrease compared with 2006 and a 58.5% decrease compared with 2005.
Despite the overall decline, exports to Ukraine and Belarus
continued to grow, totaling USD 82 million (about 63% of total
exports). Moldovan exports to the EU declined from USD 37.5 million
in 2006 to USD 19 million in 2007. At the end of October 2007, the
Russian ban was formally lifted, and the first limited shipments of
Moldovan wines reached the Russian market in mid-November.
(COMMENT: Some have speculated that Moldovan wine exports to Ukraine
and Belarus during the ban were actually destined for the Russian
market. However, the positive trend has continued in the first
quarter of 2008. Sales to the EU decreased in 2007, likely once the
sympathy that many felt for Moldova was overcome by the variable
quality of Moldovan wine. END COMMENT.)

COMMENT
--------------


7. (SBU) Following 19 months of disruption, Moldovan wine exports
are recovering. The resolution of the Russian wine ban and the
granting of preferential market access by the EU represent two
positives for the struggling sector. Moldova also managed to
increase exports to Ukraine. However, it remains to be seen how
long domestic Ukrainian producers will tolerate competition.


8. (SBU) Representatives of Moldova's leading wineries have told us
that they must diversify exports if the Moldovan wine sector is to
survive. Our technical assistance helped create the Moldovan Wine
Guild, an organization of leading wineries dedicated to improving
the quality and the image of Moldovan wine. Unfortunately, many
wineries have limited access to credit to fund much-needed
investments, such as planting new grape varieties, acquiring new
processing technology, and improving quality-control measures. Many
wineries will continue to produce low-quality wines destined for the
CIS market. While the CIS market represents opportunity, the 1998
Russian currency crisis and the politically motivated ban of March
2006 demonstrate the precarious nature of this strategy. The EU's
preferential market access provides a more secure future for
Moldovan producers; however, quality and consistency remain a
challenge.

KIRBY