Coronavirus battering Armenia’s wine industry – and what’s being done to stop it
The coronavirus pandemic has also hit Armenian wine producers. Official data shows that 7,000,000 liters of wine are sold annually on the domestic market of Armenia, while another 3-4,000,000 are exported.
This year, consumption of wine and brandy fell both on the domestic and foreign markets. Armenian wine and brandy companies are currently operating at half capacity. Experts believe that the situation will not improve until next summer.
And this worries the farmers who have grown large vineyards in recent years. The harvest this year is good, but they will face big losses if wine and cognac producers accept only a small part of the harvest or buy it at a low price.
What’s going on in Armenia and how they are trying to neutralize the crisis – more details below.
Hopes and risks for farmers
Manvel Sargsyan, who has been working as a wine producer for 14 years, is worried that the coronavirus pandemic will prevent him from being able to sell his large, quality harvests.
“I have five hectares of grape vines, and a harvest of over 100 tonnes. The Yerevan Brandy Factory has already cut their purchases in half, and have changed their preliminary contracts with farmers. We also had contracts, but they have already reported that they were denied a loan, and they might not be able to pay us either. Soon we will harvest our crop, and we will have to face the facts”, says Manvel Sargsyan from Armavir region.
Vanush Fakhuryan, a resident of the village of Kakhtsrashen in the Ararat region, expects 12-15 tonnes of Kakheti grapes. Moreover, this year he hopes to charge even more than last year, given the high quality of the crop.
“This type of grape is permitted to be exported and is intended specifically for wine production. If winemakers who buy grapes from companies are facing problems, it means that we have problems as well. I think the government should help winemakers and provide them with loans. This will help us too,” says Vanush.
Zaruhi Muradyan, executive director of the Armenian Winemaking and Viticulture Foundation and head of the Wine Academy, is worried that winemakers will not be able to purchase the entire harvest of wine grape varieties.
“To solve the problem, the government, with the help of the fund, is monitoring the projected volumes of crops and purchases in order to understand how much of the expected harvest may remain unused. The government is doing its best to help both producers and farmers,” says Zaruhi Muradyan.
At a meeting with representatives of large wine-producing companies, Minister of Economics Tigran Khachatryan said that the government intends to do everything to ensure that the good harvest of grapes will not go to waste, so that it does not remain in the hands of farmers, but so that the businesses also emerge with no losses:
“We need to find balance and compromise in our solutions. We recently made changes to the program to subsidize interest for loans to agricultural businesses.
Thanks to government subsidies, zero-interest loans will be available until the end of the year, and the repayment period will be extended from one year to two years. This year, additional loans will also be provided for purchasing containers for storing raw materials for wine production. The government intends to help both winemakers and winegrowers to get out of the crisis without any major shocks.”
Only softening the blow
Avag Harutyunyan, the head of the Union of Winemakers of Armenia, believes that the government cannot stop the crisis, and that these measures will only soften the blow:
“These programs are aimed at mitigating the impact of the crisis for 3-4 months. These are local, topical measures, and the government is unable to do anything more. These are programs, some of which are socially oriented, some of which are focused on transferring credit resources or credit burden. A little here, a little there, everything in order to avoid total collapse.”
The head of the Union of Winemakers says that the demand for wine in Armenia comes from three different groups: the locals, tourists and exports.
“Residents buy wines for weddings, christenings, birthdays, drinks in pubs and restaurants. This is not the case now. In the coming year, people will still buy wine out of stress. And they will come out of it impoverished, they will not have the means and opportunities to buy as much alcohol as they consumed before. And there will be no tourists until next May.
For a month now, Russia has been buying wine and brandy, but at a very low price. Prices for French wines dropped to the level of Armenian wines. Our prices have also dropped to make up for this difference, but in the end, we have nothing left. There is no hope for the United States, they will buy for maybe another six months. In the best case scenario, we will reach net zero by next May,” says Avag Harutyunyan.
Hartunyan says that 90% of grapes purchases go to the production of cognac, and 10% to the production of wine. And the reduction in this 90% is what leads to the general economic crisis:
“As for the profitability of exports, in particular, to the Russian market, the profitability of cognac, which covers 80-90% of our total exports, fell by about 15% due to fluctuations in the exchange rate. Overall, profitability fell by 30% in all foreign markets. And the volume of exports to Russia, which is a key market for us, have been cut almost in half.”
Due to the fact that the sale of these products have dropped to almost nothing, only 30% of the barrels and other containers for storing wine at factories are being used. And this creates additional difficulties when purchasing grapes from farmers.
Avag Harutyunyan says that winemakers faced this problem back in April, and the government was asked to provide interest-free loans for the purchase of containers, exempting them from VAT:
“The government did this only a month ago, and the decision came too late. Grapes are harvested starting on August 20, but orders at the factories producing containers must be made in January-February. It’s too late now. I am sure that the entire grape harvest will be purchased, but at a very low price. This is the only way that the factories in their current position can purchase the entire crop.”
Overcoming the crisis
The head of the Union of Winemakers says that during the years of Armenia’s independence, the sector has gone through five crises. This one is both similar and dissimilar to the previous ones. All crises have political and economic elements.
“The way in which it is similar to previous crises is that the same mechanisms are being put into action, and they lead to the same consequences. Markets are closed, grapes are not being sold, barrels are not empty, money is not coming in, salaries are not paid. The situation is the same everywhere. In contrast to previous crises, the political background has changed.
During previous crises, international organizations and the state budget provided funding. But due to systemic corruption, the money flowed into the pockets of the oligarchs in the industry. Now, unlike those crises, money is spent in a targeted way, it is not embezzled, it is spent in accordance with the program. And this inspires hope that we will quickly overcome the crisis. But we will overcome it quickly, not in terms of growth and takeoff, but in order to reach a net zero profit,” says Avag Harutyunyan.