Russian government to support domestic wine producers

Russian government to support domestic wine producers
Russia produces a few world class wines. / Ben Aris for bne IntelliNews
By Ben Aris in Berlin July 12, 2018

Maybe you wouldn't believe it but Russia produces some really world class wines, and now the government is intending to promote its viniculture and would like to follow countries like Georgia into the international markets.

The best wine region is around the Anapa lake in Krasnodar that is home to the former imperial vineyards of Abrau-Durso that now belong to presidential Ombudsman for Business Boris Titov. The grapes and the technology were brought back to Russia by Russian Cossacks that chased Napoleon all the way to Paris and there made friends Barbe-Nicole Clicquot, doyen of the French champagne company Veuve Clicquot, the so-called "widow's champagne". She ran the French blockade of Russia during the Napoleonic war to keep the imperial court supplied with bubbly and the Cossacks rode back to Moscow with equipment and grape seeds in their saddlebags to found their own wine industry.

Now Russia wants to follow Georgia in an effort to get more out of its wine industry. (Albania is another viniculture jewel of the former socialist block and has a 6,000 year old wine producing industry that remains totally undiscovered.)

The Ministry of Finance wants to use grape as an instrument of tax support for winemakers by simplifying taxes to a single duty and ending the distinction in the tax code between sparkling and still wines for both domestic and imported wines.

Until now the excise tax on still wine is RUB34 per litre and RUB14 for sparkling. Both Russian and imported wines have been paying the same rates of tax but since May Russian wines have been given preferential rates.

The trouble is the scheme introduced contravenes WTO rules, so tax officials have had to revisit the issue of providing domestic producers with support.

Now the Ministry of Finance is proposing that in 2019, grapes should be attributed to excisable goods onto which they can load tax breaks that obviously will not be applicable to imported finished wines.

Russian wine producers will be granted a tax deduction rising in proportion to the percentage of domestically grown grapes they use in production, although the details of this scheme have yet to be worked out, Vedomosti reported.

Russia still imports a lot of wine. After a fall following the 2014 devaluation of the ruble, in mid-2016 imports began to recover, and in 2017 wine imports almost reached pre-crisis levels and amounted to 24.4mn decaliters.

Currently the Russian state provides RUB1.5bn annually to support of domestic viniculture, and Titov has called on the government to invest RUB50bn into promoting the development of domestic wine. Like the production of other high value foods, the problem Russian producers face is because of the lack of investment in equipment they can’t compete with western imports on price, and because of their lack of experience in the business they can’t compete in terms of quality either: many Russian food products are simply not as tasty and more expensive than their European counterparts.

Undoing this conundrum has been part of the logic behind the Kremlin’s enthusiasm for its sanctions on EU agricultural goods as it creates a space on the domestic market to develop home-grown versions of the more sophisticated produces of which the cheese industry is now the most famous.

The question has further been confused by the public health campaign the government is concurrently pursuing. While the Ministry of Finance wants to cut taxes to promote wine production as a business, the Ministry of Health suggested this week a sharp hike on excise rates for alcohol with an ethyl alcohol content of more than 9%, as part of its campaign to reduce boozing.  

Thanks to the introduction of Russia’s alcohol accounting system and much stricter regulation of sales in recent years the death rate from alcohol poisoning in Russia has decreased, the Ministry of Health says. "However, in order to maintain positive dynamics, implementation of new anti-alcohol measures is required," the ministry’s press service said in a statement.

Now the excise rate for alcohol stronger than 9% is RUB523 per litre, but the plan is to increase it RUB544 by 2020.