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Last Updated: Thursday, 30 November 2006, 00:11 GMT
Georgia's wine frozen out by Russia
By Kieran Cooke
Tbilisi, Georgia

Shota Kobelia
Mr Kobelia says Russians used to like Georgian wine
Shota Kobelia, chief marketing manager of one of Georgia's biggest wine producing companies, has a problem.

In March this year Russia banned imports of wine from Georgia, citing contamination of some shipments and warning of risks to health.

Mr Kobelia's company, Georgian Wines & Spirits, produces five million bottles of wine a year - and Russia purchased nearly 70% of its output.

"It 's been a big shock for us and for other wine producers in Georgia," says Mr Kobelia.

"We've had to cut production by 20% and might have to lay off some people.

It's very tough, but the ban has had the effect of forcing us away from being overly dependent on Russia. We are now pushing hard to enter other export markets.

"In the long term maybe we can turn this setback to our advantage."

Economic blackmail

Georgia's wine and fine cuisine was much prized in the old days of the Soviet Union.

However, relations between Georgia and Russia have deteriorated in recent years as Georgia, independent from Moscow since 1991, has become increasingly pro western.

Analysts say Russia is particularly irritated by Georgia's stated goal of joining Nato.

Mikhail Saakavshivili, Georgia's president, says Russia's ban on Georgian wine amounts to economic blackmail.

"Russia is trying to strangle our economy," says President Saakashvili.

"We will not give in to such tactics."

Sudden change

Up till earlier this year, most of Georgia's agricultural produce - a major component of the economy - went to Russia.

Anti-Georgian poster
In Russia, drinkers are encouraged to boycott Georgian wine

Russia also imported large amounts of mineral water from Georgia: Borjumi water, from deep spring wells in western Georgia, was long valued by Russian drinkers as a cure for hangovers.

Russia has also banned imports of Georgian mineral water, again citing risks to health.

Nearly 90% of Georgia's annual 60 million litre wine production was destined for the Russian market.

"I don't want to get into the politics of the dispute," says Mr Kobelia

"But for more than 70 years the Russians were drinking our wine and they never complained. Suddenly the officials say they don't like it anymore and we are made to suffer."

Mr Kobelia's company is owned by Pernod Ricard, the French drinks conglomerate.

"We are able to use the marketing resources of our parent company to sell premium wines in the EU, the US and Japan," says Mr Kobelia.

"There is a growing appreciation of the distinctive flavours of what is one of the world's oldest wine making regions. But smaller producers have had a very hard time because of the Russian ban. Many have gone bankrupt."

Remaining dependency

Georgian wine
Many Georgian vintners have gone bust

For Georgia's vintners, the Russian ban could not have come at a worse time.

After years of under-investment, both local and foreign interests had begun to update production procedures and institute internationally recognised quality controls.

Other industries associated with wine production were slowly being established.

"At present, we have to import all our bottles from Italy, our corks from Portugal, our labels from Turkey, but at least our wine is from Georgia" laughs Mr Kobelia.

Georgia, where per capita incomes are only slightly more than $1,000 per year, has made efforts to diversify its trading relations in recent years.

But its population of five million are still heavily dependent on Russia.

In late September the government in Tbilisi accused Moscow of spying activities.

Moscow, angrily dismissing the charges, cut off trade and direct transport links.

Postal services with Georgia were also suspended while some of the estimated 500,000 Georgian nationals living and working in Russia had residence and work permits revoked and were ordered home.

In some parts of the Russian capital posters appeared telling Russians "to support the motherland" and not to touch Georgian produce.

Bully bear

In recent weeks Gazprom, the Russian energy giant, has said it wants to double the price it charges for gas it supplies to Georgia.

Gazprom says the rise merely brings prices into line with those charged in the EU and elsewhere.

It says it will keep charges at present levels if the government in Tbilisi agrees to sell its gas pipeline network to the Russian conglomerate.

The Georgian government says other former Soviet territories, which have remained on relatively good terms with Moscow, such as Georgia's southerly neighbour Armenia, have not been threatened with the rise in energy prices.

Tbilisi has also adamantly refused any deal over selling its gas pipeline network.

Earlier this month, as a sharp drop in temperatures across Georgia heralded the first days of winter in the Caucasus, the lights in Tbilisi flickered.

"It 's Mr Putin turning off the gas tap," said a young city resident. "

The Russian bear is angry, but I would rather freeze to death than give in to its bullying."

As yet, there appears to be no end in sight to the quarrel between Georgia and Russia - and little hope of an upturn in Georgia's economic fortunes.

The government in Tbilisi says the international community must put pressure on Moscow and has vowed to try to block Russia's entry into the World Trade Organization.

"What Russia is doing is against all international rules of trade," says a Georgian government official.

"Moscow is treating us with contempt. We refuse to be give in to such pressure."

Georgia threatens Russia WTO veto
21 Nov 06 |  Business

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