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25/06/2018

Russia can't stay away from Spanish wines... for the moment

Áurea Ruiz. @aureolaa16

It's been 4 years since the President of Russia, Vladimir Putin, prohibited the entry of food products from the European Union in response to sanctions imposed in connection with the crisis in Ukraine.

Since then, the sector has been very aware of losses resulting from political tension. According to ICEX Spain Trade and Investment, in 2015 exports tumbled by 758 million euros compared with 2012 data. Prior to the ban, Spain was the third-leading supplier of fruit to Russia and sixth in terms of meat and vegetables.

After the ban, Russia maintained that it was self-sufficient in food and sought out other suppliers in America and Africa. However, one of the products that Russia just can't say no to is wine. The conflict is also affecting Spanish winemakers, but they might be able to leverage the situation to advance their own interests. There's still a rumor that Russia's Ministry of Agriculture might also prohibit bulk wine imports. In that situation, Spain will be the hardest hit. At the moment that's still a rumor, but it's worth noting that bulk imports nosedived in 2017. According to the Spanish Wine Market Observatory (OEMV), imports of bulk and packaged wine of more than 2 liters fell by 20% in volume, to 111 million liters. It's important to note also that consumption in Russia declined last year, by 2.2%.

However, 2017 was a good year for Spain in terms of exports to Russia. Imports there exceeded 300 million liters, 11.6% more than in 2016. That means that Spain earned 37.570 million rubles (494 million euros) between January and September, 20% more in year-on-year terms, despite the setback involving bulk wine which led Spain to lose market share as the leading supplier in terms of volume. Nevertheless, it maintains its leading position.

Broadly speaking, the situation is positive. packaged and sparkling wines are increasingly popular. Packaged wine lead global growth, up 46.2% to 174 million liters. According to the OEMV, that's 57.5% of the total bought by Russia. Sales of sparkling wines increased by 31% to 17.5 million liters.

In global terms, Spain is a leader in exports, with the largest amount of wine sales: 22.1 million hectoliters. If, however, we look at value instead of volume, France and Italy take the lead. Spain sells at an average of 1.25 euros per liter, while French winemakers charge 6 euros and Italian, 2.78.

In Russia, Spain performed much better in value than in volume, and increased the price notably due to the sharp decline in bulk wine and the exception increase in packaged and sparkling wines, products with much more added value. Broadly speaking, those wines drive the average price up by 10%.

It's also worth noting how Russians perceive Spanish wine. Professionals believe it's increasingly interesting commercially since it offers good value for money. Indubitably, this is one of the reasons that imports of bottled Spanish wines has increased in Russia. However, this is a new trend, as wine consumption in Russia has traditionally been something that wealthy people did and the price mattered very little. Spanish wine has been entering the Russian market to meet demand from the middle class, which wanted lower prices.

As a result, Spanish wine has become one of the most popular options in Russia, among both consumers and trade professionals. Wines have become available in Russian supermarkets at reduced prices, which has done little to help its image, especially in Moscow and Saint Petersburg, where it's most popular.

Spain is believed to have less stylistic variety than other countries, which is true in the case of France and Italy, but not compared with other countries. However, in an industry that rewards exclusivity and personality, many Spanish wines lag behind. Wines from La Mancha and Cariñena are sold in Russia at very economical prices. These low prices make it difficult for higher quality wines to enter the market because Russian consumers are not willing to pay a higher price for them.

In short, we are the leading supplier of wine in terms of volume, and on many occasions, with better quality than other wines that cost less. Our wines are not valued highly enough, with the result that prices in shops and restaurants do not align with the product. And that's a vicious circle. How our wines are perceived will depend in the future on whether or not the price reflects reality; this can be achieved by investing in activities to promote its image and strengthening the Spanish wine brand.

It's clear that positioning Spanish wines in Russia as budget wines will continue to generate opportunities in the short term for winemakers in Spain.

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