18.Feb .2020 17:27

TBC Capital: production hitting the all time high

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TBC Capital has published a research about wine industry in Georgia. According to the research, Georgian wine industry has progressed through many challenges since 2006. With Russian embargo in place, supply declined sharply in 2006 and continued to weaken for the next three years. Before the embargo, Russia was easily the exclusive importer of Georgian wine, with 87% and 77% shares in export volume and value, respectively. Facing the ban, Georgian producers started targeting alternative markets, refining their production and product quality.

Supply started to pick up from 2010 and skyrocketed in 2014, when the embargo lifted.

Wine production in Georgia is gaining momentum. The volume of wine production surged by 26% in 2018, and is expected to increase by 9% in 2019, reaching 18.4mln decalitres, with total value of GEL 844mln, up 12.0% YoY. This surge is mostly attributable to the fruitful Rtveli. Production of sparkling wine almost doubled in the last two years, but the numbers remain modest. 0.31mln decalitres of sparkling wine was produced in 2018, with a market value of GEL 21mln and the production is expected to increase to 0.32mln decalitres (GEL 24mln) in 2019.

Higher production of wine from large-scale producers will further substitute household production. Household wine production has been decreasing from 7.3mln decalitres to 4.1mln decalitres until 2016, after which the production increased to 5.2mln decalitres in 2018. We expect the household production to reach 5.7mln decalitres in 2019, on the back of increased harvest. In longer term, in line with the increasing purchasing power, the local demand will continue shifting towards better quality, standardized drinks and away from homemade wine. The growing urbanization and decline in self-subsistent agriculture will push the formalization, and people who used to be on the supply side of the market will move to the demand side for bottled wine. The accumulation of harvest-bearing vineyards stock by registered winemakers underpins the trend. Alternatively, former informal wine producers might increasingly act as grapes suppliers for the formal producers, or organize into enterprises themselves.

White grapes represent a bigger chunk of the production. 29% of the total harvest is estimated to be red grapes in 2019, -1 pp compared to 2016. Switching to production of non-common grape species is of a great necessity, as they can produce high quality niche-type wines. More varieties, with small scale production each, can satisfy diverse small-scale markets with distinct tastes worldwide. Past decade witnessed Kisi and Rose entering the market, but the vineyards substitution is a long and expensive process. We expect the proportion to shift further in favor of red wines, as target exporting markets prefer Georgian dry and semi-sweet red wines and the proportion of red wine producing grape varieties is higher in new vineyards, while Rkatsiteli share is rather limited.

Kakheti represents nearly three quarters of Georgia’s total grape production. 73% of Georgian vineyards are concentrated in this region, accounting for 72% of the total harvest in 2018. Imereti constitutes for 12% of the production. Racha-Lechkhumi and Kvemo Svaneti with the scarce vineyard area and smaller share of the harvest (up to 2%), boasts with special micro-zones and high concentration of PDOs.