Wine Exports and Brexit; Does This Create Opportunities for Georgia?

While perusing Mike Veseth’s excellent US-based blog, The Wine Economist, I stumbled upon his review of a scholarly paper published by Australian economists Kym Anderson from the University of Adelaide and Glyn Wittwer  from Victoria University regarding Brexit and the wine market.

KA

Kym Anderson is Executive Director of the Wine Economics Research centre at University of Adelaide, the premier wine economics facility in the Southern Hemisphere, and having spent some time here in Georgia, has written extensively on trade blocs and technology uptake, and their likely impact on Georgian wine exports.

The UK imports over 1.8 billion bottles of wine a year; less than 1% of consumption is satisfied by domestic wine production. Existing free-trade arrangements with the EU are coupled with concessional market access for South African and Chilean wine at present.

UK

FIGURE 1: WINE’S SHARES OF UK MERCHANDISE IMPORT VALUE SINCE 1800 AND OF VOLUME AND VALUE OF UK ALCOHOL CONSUMPTION,a 1950 TO 2015 (%)

 

The chart is taken from Anderson and Wittwer‘s paper. While the UK has been importing table wines and fortified wines from France, Spain and Portugal for over 500 years, the chart above shows that wine consumption is a comparatively recent phenomenon amongst the masses, with wine now making up around a third of all alcohol consumed in the UK by volume, and almost a half of all alcohol consumed by value.

This has relevance to Georgia as, unlike France, Italy, Spain, or Portugal, the vast majority of British wine consumers are only first- or second-generation wine drinkers. The willingness to try something novel or exotic is more developed amongst such consumers, which creates opportunities for up-and-coming wine regions.

The “Free Trade” scenario put forward by the authors could put Georgia, and possibly Armenia, in a more advantageous position. Tariff treatment of wines from the Caucasus would be identical to that of European, Australian, South African or South American wines.

The “Large Brexit” would see Georgian wines facing a higher level of tariff than South African and Chilean wines. However, tariffs are rather small compared to domestic UK excise tax.

There is a third option not considered, of the UK negotiating a FTA with Australia, New Zealand, USA and Canada, while retaining tariffs on EU and Caucasus wines. The tariff situation does not favour Georgian exports. However, more robust trade and investment between the four Anglophone economies would likely add 10-20% to the GDP growth figures of the participants in this FTA, which would likely increase demand for wine, including that from Georgia. Much the the academic establishment would disagree with me on that claim, but my guess is that the UK’s economy 5 years after Brexit will be a great deal more robust than most project.

Overall, a thought provoking and interesting article with relevance for wine producers in this region.

 

 

 

Cancellation of SOCAR’s Urea Plant in Kulevi; Conflicting Narratives

This week, Azerbaijan state-owned oil and gas company SOCAR announced that it was cancelling its construction of a urea plant at its Kulevi Free Zone on the Georgian Black Sea coast. The cancellation of this $700 million project, agreed with the previous government in 2012, has come as a blow to investor sentiment.

SOCAR’s local management claim that the reasons for cancellation are complex,  but they have ruled out corruption as a factor in the cancellation. From Commersant.ge

A cancellation  of the construction of a carbamide plant in Georgia by SOCAR (State Oil Company of Azerbaijan) is associated in particular with fluctuations in the energy market, long-term gas supply and other issues, Vagif Aliyev,  head of Investments Department of  SOCAR, told Trend.

According to him, SOCAR with the full responsibility declares that ” no other subjective factors have effect  on the  adoption of this decision.”

Aliyev also says  that in recent days the media and social networks spread unjustified and  untrue speculative information about stopping the project.

As the head of the Investment Department at SOCAR adds, a  serious work has been carried out on this project for a considerable amount of time, but after these issues arose,  the project was revised which led to the project’s cancellation.

Meanwhile, the Georgian Ministry of Energy, has a different take on the issue;

In particular, the Georgian Energy Minister Kakha Kaladze said that the reason for the suspension of the project was the disadvantage of the project for the Georgian side, as well as for Azerbaijani.

Deputy Energy Minister Mariam Valishvili told  “Commersant” that negotiations are continuing at this stage, and the project is not derailed, but just delayed.

“We had to supply gas for the needs of the enterprise that we get at the social cost. It is a 20-30% increase in consumption, as the production of carbamide  is a  very energy-intensive project. We can assume that the problem is in the supply of gas – about 1 billion cubic meters per year, “- she notes.

According to her, this is due to the fact that the opening of the Kulevi free industrial zone was delayed which had to include a carbamide factory construction.

It is interesting that SOCAR declare the project to be cancelled, while the Ministry declare it to be simply postponed. Given that SOCAR supply the vast majority of Georgia’s gas for residential and industrial use, it seems odd that a lack of gas supply would cause the project to stumble; SOCAR’s gas pipelines have substantial capacity and are well engineered.

In exchange for gas transit through Georgian territory, SOCAR is obliged to provide gas to Georgia at a very concessional rate for domestic use. To what extent the Energy Ministry was concerned that a billion cubic metres of gas annually for urea manufacture would disrupt this concessional residential supply is not known to the public.

The implications for Georgia’s agricultural sector are significant. Around half of Georgian farmers use fertiliser presently. Of those, more than 90% solely use nitrogen fertiliser rather than blends such as NPK or other products. Currently, Rustavi Azot , owned by entrepreneur Roman Pipia, and supplied with gas from Russia, has a dominating position in the Georgian market, being the sole local manufacturer of nitrogenous fertiliser in the country. Rustavi Azot produces ammonium nitrate as well as anhydrous ammonia. While SOCAR’s urea plant at Kulevi was aimed largely at the export market, domestic sales would have stimulated some price competition in the market from which farmers could have benefited. Urea is more amenable to use in solution than ammonium nitrate and has fewer compatibility problems when mixing with other fertilisers.

It is to be hoped that this project can go ahead at some time in the future. Substantial construction projects like this one help stabilise the local currency and create rural jobs in an area where many IDP’s have been settled.

UPDATE:

SOCAR Georgia’s General Director confirms that the Kulevi urea plant project is postponed, not cancelled. From Commersant.ge

The carbamide plant project in Georgia was temporarily postponed, but not closed –  Director General  of SOCAR Petrolium Georgia Mahir Mammadov states.

According to him, various speculations appeared in the media in this regard  that do not correspond to reality – the factory cannot be built until the completion of the Shah Deniz project, which is why the project was simply postponed until the appropriate time.

“We had some problems in connection with the project due to the economic situation in Azerbaijan. Therefore, the construction of the plant has been delayed, but we will definitely return to this project. It was our decision and the government of Georgia agreed with it. So the project is postponed, but not cancelled, “- says  Mahir Mammadov.”

Chemigation

Chemigation is the practice of applying chemical to a field through the irrigation system. As centre pivots and laterals apply water very evenly over the field compared to rain guns or stationary sprinklers, they are an ideal conduit for chemicals such as fertiliser, herbicide, fungicide and insecticide to be applied at very consistent rates. Not all chemicals are suitable for this purpose, but there are hundreds of brand-name pesticides and fertilisers from the US that are specifically registered for use via centre pivots.

Advantages of chemigation over boom-sprays mounted on tractors are:

*No need to book spraying contractors such as Meqanizatori

*No fuel costs.

*Only one operator needed

*No risk of a tractor accidentally damaging potato beds

*No risk of soil compaction due to a tractor operating on a wet field.

*Speed of operation and accuracy of application rate.

* Much less exposure of labour to chemical

Our fertigation mixers from INTA are ideally suited to this purpose, capable of injecting up to eight different chemicals in precise amounts into the irrigation main line, and capable of handling a wide range of fertilisers and pesticides.