Unintended Consequences: Impact of Putin’s Invasion of Ukraine on the Wine Sector

 This article provides background information on Ukraine’s wine sector, and initial thoughts on the impact of the Russian invasion. It has been compiled mainly from Ukrainian web sources and international data, and it will be updated as more information becomes available. As many Ukrainian government websites are currently not available, presumably because of disruption caused by the war, I have used older published statistics where necessary. I have also contacted people involved in the wine industry in Ukraine, but it seems wiser at this stage not to identify individuals.

 A comments box is placed at the end of this article, and readers are encouraged to pass on their own analysis and recent data where possible.

 Ukraine’s wine sector is likely to be significantly affected by Russian president Putin’s decision to invade the country. Immediately after the first attacks on 24^th February, the Russian army was reported to be fighting Ukrainian forces around the capital Kiev, around the second city of Kharkiv and in the south near Odessa. The country’s vineyards are concentrated in the Tisza valley south of the capital Kiev, and near the Black Sea coast around Odessa in the south.

 The Tisza Valley is located in the administrative district (oblast) of Zakarpattia in the Carpathian Ruthenia region. Southern Ukraine wine growing regions include Mykolaiv, Kherson, Dnipropetrovsk, and the key region around Odessa.

 The Crimean vineyards include Balaklava, Massandra and Bessarabia (Budjak). These regions were annexed by Russia in 2013 and the Crimean region has been used as the launch pad for the southern prong of the Russian invasion.

Of course, the human conseqeunces of war are uppermost in our mind; the invasion is a tragedy for Ukraine and its people. But the agricultural sector employs around a fifth of the country’s working population, . Disruption to the agricultural sector is likely to have international consequences; French President Emmanuel Macron has already warned French farmers that they will be affected by the war in Ukraine.  

The chief impacts of the Russian invasion on the wine sector are likely to include:

•  Potential lack of fuel availability for new vine plantings and for the operation of equipment during the early stages of the growing season;
• Potential for damage to vineyards and wineries, although there is no sign as yet that these are deliberately being targeted;
• Lack of state support for the country’s wine transition plan, as Russia will seek to completely dismantle Ukraine’s government after the invasion;
• Lack of funding to deal with the problem of climate change, which is already affecting crop yields around Odessa and elsewhere in the south;
• International disinvestment from Ukraine, resulting in continued poor quality equipment being used, further stymying wine transition plans.

 There are likely to be other consequences, intended and unintended, from the Russian invasion, for the wine sector in particular, and agriculture generally.

Ukraine’s Wine Sector

Despite its huge agricultural sector, Ukraine is a relatively minor producer of wine for the international market, although several brands are exported to neighbouring countries and smaller volumes find their way to the European Union and North America. Recent harvests have been affected by climate change in the south of the country. The Organisation Internationale de Vins et Vignes (OIVV) estimated in its 2021 “First Estimates” report that Ukrainian production had declined to just 0.7 million hectoliters, compared to 1.2 million hectoliters in 2016.

This decline appears to be due to regional climate change. Neighbouring Moldova was estimated to have suffered a similar drop, while other nearby countries such as Georgia nearly doubled their production in the period. OIVV does not yet have an estimate for Ukrainian production in 2021.

The latest annual issue of the Ukrainian wine journal Viticulture and Winemaking (Odessa, 2020) said that the gross grape harvest had declined to 97,600 tons in 2019 compared to 167,800 tons in 2018, and that “due to the drought” this was likely to be halved again in 2020. The Odessa region, which has been most affected by low rainfall, has held the top position in wine production for years, producing nearly half of the entire Ukrainian wine crop. Odessa has around 46% of the country’s vineyard area, equivalent to an estimated 38,950 hectares. The Crimean Peninsula, best known for its sparkling wine, is the second largest wine-growing region (37%) with around 31,000 hectares of vineyards. Other vineyards are located in the Kherson Oblast (7.2%) and in the Mykolaiv Oblast (7.1%) as well as in the Zakarpattia Oblast (2.7%) and Zaporizhia (0.4%).

The vineyards of these six wine-growing regions are cultivated by around 450 companies. Of these, more than 90% are privately owned, although there are also more than 40 large state-owned companies. The wine-making is typically concentrated and large-scale, with the average area under vines in a Ukrainian winery being 173 hectares, many times the European average.

Around 175 different grape varieties are grown in Ukraine, although some of these are only experimental crops at the several Ukrainian wine institutes that have been established for scientific research.

The main varietals in producing vineyards include Aligote, Muscat, Isabella, Traminer, Cabernet Sauvignon, Chardonnay, Pinot noir, Pinot gris, Rkatsiteli and Feteasca.

The most important white grape varieties are Rkaziteli, Aligote, Chardonnay, Sauvignon Vert and Rheinriesling. Telti Kuruk is a white grape variety specific to Ukraine that the government has recently been promoting.  It has good acidity and floral flavours. The government has also supported Sukholimansky, an aromatic grape variety. 

The main red grape varieties are Cabernet Sauvignon, Merlot, Odessa Black and Isabella. Odessa Black is the same variety as the Aliberne grape and is locally referred to as ‘mustang’ . It has a rich colour and spicy flavours, and was seen as “the future identity” of Ukrainian wine. 

In the past, some of these grapes have been dedicated to producing large volumes of sweet and sparkling wine. Known as ‘Soviet Champagne’ (Sovetskoye Shampanskoye ) the volumes of these low quality bubblies have increased while consumption has increasingly moved towards higher-quality Champagne grapes. Most of the generic sparkling wine is produced around large cities like Kiev, Bakhmut, Lviv, Odessa and Kharkiv, and is based mainly on Pinot Blanc, Aligote, Riesling and Feteasca grapes.

The Country’s Wine Transition

Ukraine’s wine sector has a long history, dating back to the 11th century when monks grew vines in the north of the country, around Kiev and Chernihiv. The history of wine in the Crimean region, which was annexed by Russia in 2013, is even more ancient. Wine presses and amphorae (known as Kvevri in Georgia) have been found that date back to the 4th century BC.

The recent decline in production from the Odessa region followed what had promised to be a boom in the country’s wine-making a decade ago, when the government embarked on a program to modernize the country’s wine-making equipment and replant vineyards with grape varieties more in line with contemporary consumption trends.

Under a comprehensive plan introduced in 2011, the government committed to increase the share of table wines to 65% of total wine production by 2025, with the share of red wines targeted to rise to 30% and wines from local grape varieties to 10%. This would have required substantial replanting of vineyards, as the structure of cultivated varietals at the time did not match consumer needs. To eliminate the deficit of red wine and champagne grape varieties, the government targeted that 30% of the entire vineyard area should be planted with red grape varieties and 12% with champagne grape varieties (Pinot, Chardonnay) by 2025 under the plan. Qualitatively mediocre grape varieties were to be replaced by high-quality ones.

The development program for viticulture and wine production established by the government targeted a total area under vines of 167,600 ha by 2025, which would roughly correspond to the 1990 level. According to a 2008 survey, the total area under vines in Ukraine was just 84,610 hectares, 139,700 hectares less than in 1980 when 224,317 hectares was under vines.

Under the government’s plan, the expansion of viticultural companies’ raw material base was to be promoted and an increase in efficiency sought through the use of the most modern winegrowing technologies. Furthermore, 80% of vineyards were to be renewed and optimized, with special consideration given to the frost resistance of individual grape varieties and the soil conditions of vineyards. The annual need for new plantings just to maintain the vine areas was estimated by the Ukraine Ministry of Agriculture at around 20 million plants. An investment requirement of € 1.8 billion was projected, of which € 1.1 billion was to be financed by the state budget.

This program showed initial successes, but the momentum for change appears to have waned in recent years.

Under the Influence: Russia’s Colonial Legacy

Russia’s influence on the Ukrainian wine sector has been extremely damaging in the past, particularly under the Communist regime. Ukraine was a major supplier of wine and grapes during Soviet times, when the country formed part of the Soviet Union. But when Moscow tried to control the drinking habits of its population in the late 1980s, the sector was nearly destroyed. After the boom years of the early 1980s. the destruction of vines following President Gorbachev’s major anti-alcohol campaign set the industry back decades. After the dissolution of the Soviet Union, the increasing deterioration in the economic situation prevented the industry from recovering.

The Russian invasion is likely to further erode the appetite for change in the wine sector, as investment will be discouraged by political instability. It seems highly unlikely that the Russian government will allocate funding for vineyards when Ukraine’s wine competes with its own brands, which it is trying to promote despite the growing appeal of imports. Even if the Russian state were to invest in upgrading Ukraine’s wine-making capability, which may happen if the country is completely annexed, as seems to be the current intention, it seems unlikely local wine-makers would cooperate with the occupying forces, and that the wines would find a market.

Earlier, Russian colonialism in the 18th and 19th century saw the establishment of a number of wine regions that are still in existence today. Crimea became part of the Russian empire in 1783, and a large winery was established by Count Mikhail Vorontsov near Yalta in 1820. Prince Lev Golitsyn owned a property at Novyi Svet near Yalta, and the first Russian “Champagner” sparkling wine was manufactured there after the 1854 to 1856 Crimean War. The state winery at Massandra in the Crimea was founded under Tsar Nicholas II, whose reign ended in 1918 with the Russian revolution. The viticulture research institute Magarach near Yalta was founded then in 1828; before the region was annexed, this held a selection of 20,000 different wines derived from 3,200 vine species.

Ukraine’s wine industry has also benefited in the past from European investment. Viticulturalists from Switzerland set up the Shabo winery near Odessa ( also known as Chabaq) and related wineries were established on the river Dnieper and in the Crimea. The Shabo region outside Odessa remains a key production center.

Domestic consumption

The need for current investment in the sector is pressing, not only because of the threat of climate change, but also because consumer tastes are changing. In recent years, Ukrainians have been drinking more, and drinking better.

While worldwide consumption of wine per capita has generally been declining, Ukraine’s domestic consumption of wine has grown, and there has been a discernible shift to higher quality which has resulted in rising net imports of international wine brands. Currently, almost 90% of all wines imported into Ukraine come from Georgia and Moldova but the trend towards low alcohol content, different wine preferences and growing incomes of Ukrainians have also increased the demand for wines from further afield in recent years.

The lion’s share of the wines imported from Western Europe comes from France and Italy. Wines from Argentina, Chile, South Africa and Australia are also very popular with Ukrainian consumers. Higher-income Ukrainians prefer wines of foreign origin, mainly for reasons of quality.

The WTO shows that Ukrainians imported $231 million worth of alcoholic products in 2020, whereas exports of wine did not make it into the top 5 categories of agricultural exports, which are dominated by sunflower oil and wheat.

Ukrainian consumption of wine per capita remains below the European average. According to the estimates from 2010, annual per capita wine consumption in Ukraine rose to 7.4 liters in 2010, but this was still well short of the Germans, who drink an average of 24 liters of wine per capita per year, and even further behind the French and Italians who drank over 50 liters per capita per annum. The enormous growth potential in the \Ukrainian domestic wine market is therefore clear.

Ukrainian consumers have also seen a definite shift towards quality. In the past, many wines and wine products produced in the country had significant shortcomings and some did not even meet local quality criteria. The share of these so-called “pseudo wines” and fakes was estimated at about 50% of all Ukrainian wine production just a decade ago. The high share of pseudo wines on the Ukrainian market is mainly due to the shortage of raw materials for better quality production, and only part of this deficit is covered by imports.

A change in the style preferences among Ukrainian wine drinkers can also be observed. The traditional preference for sweet and smooth dessert wines and fortified wines has slowly faded, and Ukrainians have increasingly been discovering dry wines. According to the development program for viticulture and wine production of the Ukrainian government, the share of table wines is projected to increase to 65% of the total wine production by 2025, and that of red wines to 30%, to meet the rising demand for quality dry wines.

Institutional Strengthening

In the aftermath of Russia’s decline in the 1980s, the Ukrainian wine industry has suffered from a shortage of raw materials that was largely covered by imports. This required financing and was addressed by a strengthening of the state regulatory and fiscal instititions. The government has also contributed towards the country’s various wine research institutes, founded as far back as the early 1900s.

The State Tax Administration was formed in 1996, when the President signed a decree that moved the State Tax Inspectorate from under the wing of the Ministry of Finance. This recognised the importance of taxation collection in supporting the national finances. (The Decree of the President of Ukraine No 760/96 of 22 August 1996) As of 25^th February, 2022, the STA’s website was not available: https://tax.gov.ua/

The Ukraine Now website has been used to promote Ukrainian wines internationally. It is still available and is a useful resource, though content is mainly promotional: https://ukraine.ua/explore/ukrainian-wine/

Meanwhile, a number of wine bodies have worked to develop the quality and commercial appeal of Ukrainian wines. UkrVinProm, the association of the Ukrainian wine industry, represents the interests of Ukrainian wine producers and takes an active part in the annual industry meeting in Odessa. https://www.ukrvinprom.ua/home

Note also that the Wine Research Institute Tairov provides a monthly update on the weather and its impact on vines in Ukraine. This is accessible to all at https://www.tairov.org.ua/en/publichna-informatsiya/

Sources: Organisation internationale de Vins et Vignes (OIVV); Wikipedia (Ukrainian Wine) ; WTO World Trade Statistics ; Збiрник–Виноградарство-i-виноробство-№57 ; Bougie Marketing in Галузі і ринки | Branchen und Märkte; Ukraine State Tax Administration.

Please click on the link below for information on potential ways to help Ukraine during its existential crisis:

Russia’s war against Ukraine. What can you do to support Ukraine & Ukrainians? ‣ Ukrainian Institute London