Banned by Russia, welcomed in Europe, Moldovan wines follow the same pattern their people would wish. In this context, Moldovan wines may soon travel without limit to Europe, while their producers are still stuck at the EU border.

Razvan Hoinaru

By Razvan HOINARU, for  CartierEuropean.com

One Member of the European Parliament, John Agnew Stuart, once addressed a rather special question to the Commission, “does water hydrate?”. He never really got a straight answer. Since we are all still waiting for the Member to clarify this question[1], popular culture suggests that wine definitely hydrates, especially Moldavian wines.

This article analyses the most recent trade and social indicators concerning the EU-Moldova relationships with a case study focusing on how the Moldovan wine hydrates the Moldovan economy, in the light of Russian embargo on them, set up on 10 September 2013. First, the article presents the legislative framework 2012-2013, then the economic assumptions and aspirations and finally some social implications.

“Parlons du vin, donc de culture et de politique”, N.Demorant, Libération

The Partnership and Cooperation Agreement between Moldova and the European Union was signed back in November 1994. The negotiations developed in a slow manner, and it was only in December 2010 that the EU and Moldova agreed on an Action Plan concerning visa liberalization. Recently, the discussions were focused on the Deep and Comprehensive Free Trade Agreement (DCFTA) and the Association Agreement.[2] This article covers this DCFTA. First, let us understand some basic aspects of the Moldavian economy.

CartierEuropean.com: Vineyards of the “Ampelos” company, (wine “Etcetera”), in the South of the Republic of Moldova, in Crocmaz.

With a GDP per capita just slightly under 2.000 USD per year, the Moldovan economy is based mainly on agriculture. In spite of an absolutely amazing 6.4% economic growth in 2011, 2012 proved to be rather challenging. World Bank data on Moldova suggests a 3% growth for 2013, essentially due to a good year in agriculture. As it can be seen, agriculture is the driving force behind this small national economy.  Statistics from the Moldovan government state that 25.2% of the population is employed in agriculture and agriculture related sectors (7,000 people directly employed in about 200 companies providing income to about 50,000 grape growing farmers), 19.4% in catering and hotels,  13.1% in industry, etc.  In this respect, grapes/wine, tobacco/cigars and textiles are valuable products for export. [3]

Against all odds, Moldova’s Economy Complexity Index (ECI) is 0.24 points, placing Moldova in an impressive 50th position in the world.[4] The ECI has some limitations though. It looks only at the diversification of products in relative percentages and not in actual monetary value. Moldova may score well on paper; concerning the actual size of exports and money matters, the reality however is somewhat different. Further on, this paper focuses on a key export product in political and economic terms, namely wine.

What products does Moldova export? 

The following table shows the shares of different economic sectors in the Moldovan economy.

Table I[5]

In other words, Moldova exports agricultural, fresh and processed products, textiles, clothing and some medication. Their main destination of export is the 27 EU countries, now 28 (Romania being the first trading partner, with 409 million USD), accounting for 24.8%, then comes Russia with 10% (306 million in total, of which 135 million USD only in alcoholic drinks)[6], followed by Turkey with 5.2%, Ukraine with 2.8% and then Belarus with 1.7%. The EU exported in 2012 products to Moldova worth nearly 2bn (in 2012) and this is, to the a great extent, comprised of technology, transport equipment, chemicals and mining products.[7]

Table II[8]

Playing the Moldovans at Wine

Wine is one of Moldova’s currencies and one of the few sources of foreign currency for the country. With a broad surface area of 140,000 ha (about 346, 000 acres) of grape vineyards, Moldova is capable of producing about 1.6 million hectolitres of wine each year.[9] With such a performance Moldova appears to be the 22nd largest wine making country in the world. A current trade deal between the EU and Moldova restricts Moldovan wine imports to 240,000 hl per year.[10] What was understood as a relaxation of this policy is just about to happen within months.  In June 2013 the Association Agreement (AA) negotiations between Moldova and the EU reached a fruitful conclusion and the AA is due to be initialled in November this year, at the Vilnius Summit. The European Parliament and Council have also to ratify the agreement. Moldova should finally get its free access to the European Markets after a second ban imposed by the Russian Federation.

Since the Russian ban on wine (2007), Moldovan producers have lost about 105 million USD and due to bank debt their wine producing estates have reduced in size. This ban forced the Moldovan producers to look for other markets. Eventually, Moldovan wine export has grown by about 10%, reaching countries like Japan and China. One official report states that “major wineries are undergoing a painful restructuring process to develop products that are more suitable for Western markets.”[11]

Playing Moldovans at wine, it is not one of Tony Hawk’s new books or bet; it is unfortunately a reality.  When Moldova started to be a player in the European Union market, in the same way that Tony Hawk knows tennis, they knew how to produce wine. In spite of this, just like a footballer would be lost on a tennis court, Moldovans would have little knowledge on how to market their wine. The “Moldovan Wine Guild” recognises that “the country still lacks a consistent approach to wine sector promotion and branding”.[12]

The authorities started to address this problem by creating and appropriately funding the National Agency of Grape Vines and Wine (Oficiului Naţional al Viei şi Vinului). It rests within the scope of this agency to create a brand, promote the wine and establish rules within the industry. [13] This could also be an occasion of finding new ways of exporting and promoting it, just to make a difference. Creative promotion could help, but this asks energy and a thorough approach.

On European side, at least the political signals are encouraging regarding Moldova and even its wine industry. The European Commissioner for Agriculture Dacian Cioloş declared last week that: “The European Union market is a sustainable alternative and a viable pole of stability for the Moldovan wine sector. A fully opened EU market for Moldovan wines in a time when Moldovan farmers are in difficulty, reflects that, beyond a very successful economic integration project, the EU is also a [place] of solidarity.(…) This means that for Moldovan wines there will be no restriction at the European market in either volume of supply or in tariffs. As for wine quality, there are standards, which all wines must meet. Moldovan wines correspond to these requirements”.[14]

How much wine and how much money?

The EU as a whole produces about 175 million hl every year. This accounts for 65% of world’s production and 57% of global consumption. Up to this level, the entire wine produced in Moldova represents less than 0.1% of the total quantity of wine produced in the EU.[15] From this point of view, no EU wine maker should feel threatened by the presence of such a small quantity of foreign wine on the market. For the moment, the total level of exports of Moldovan wine is worth about 140 million USD.  Due to market liberalization, a couple of millions more should generally add up to this amount.

CartierEuropean.com: Musée du Vin, Beaune, France, Bourgoundy, Bessarabia mentioned on it as wine producing region long ago

As mentioned before, Moldovan wine producers tried to adapt themselves to Western ways. However, the Moldovan Wine Guild appropriately identified one major problem:  no branding. In spite of historical records mentioning the existence of wine in this area as far back as the Middle Ages, most probably Moldovan wine would be understood as a new school/newcomer, competing namely with oversees wines, such as Chilean, Argentinian, African, etc. As Ludmila Bulgar, editor of the CartierEuropean.com appropriately mention, “without Communist regime, we would have had AOCs (Controlled Designation of Origine) and castles today in Moldova”[16]. Given the situation, geographical position may be a friend or a foe. Many Wasteners do not even know where Moldova is on the map, a point mentioned by Alexandru Luchianov, a leading wine producer of the wine “EtCetera” from Moldova[17]. That is generally not the case with Latin American countries and their wines. The only advantage Moldova has, for the time being, is lower transportation costs.

Moldovan wine in the Guinness Book of Records

With one of the most amazing wine cellars in the world, if not the most amazing, Mileştii Mici maze hosts 1.5 million bottles housed in 55km of underground gallery.[18] In addition, at Cricova, another wine producer, there is a 60km underground labyrinth of wine cellar roads.[19] This suggests that wine tourism could be an asset to Moldova. Recently, the Wine Road concept started to redevelop. It would actually be good to connect to other European Wine roads.[20] This would mean foreign people being able to buy wine in the country and getting used to it and taking it back to their countries afterwards.  Market segmentation, could be another entrance strategy on the EU market, as well as establishing a proper school of wines.

Social implications?

What is apparent is that wine is a product that got a free entry visa into EU, before Moldovan people did. What about the people who are producing the wine? Can they travel as freely as their wine does? We live in an time where a product, namely wine, has obtained a bio-metric passport before people. As Olga Shumylo-Tapiola so rightly put it  “the least the EU can do immediately on the visa front is [to] push its member states [into] implementing visa facilitation agreements, where relevant, to allow more flexible visas to wider circles of [Eastern Partnership] citizens”[21] and especially for Moldovan citizens.

On a balance, banned from a big, already established market like Russia, a red ocean, the Moldovan wine heads towards a blue ocean called the EU.  In such a sharp framework, with an agreement that seems to be rather inky, a good Moldavian wine industry it slowly making its way to a balanced, deep, comprehensive and, let us hope, sustainable market. Wine will finally open the EU gates for its producers, to Moldovan people.

Mr Razvan Hoinaru is a junior Policy Adviser, European Parliament.  Hereafter, CV. Razvan Hoinaru.EN

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