The subsidisation of grape prices in Georgia began in 2008 when Russia imposed an economic embargo on Georgian wine. The embargo inflicted significant social and economic harm on the Georgian wine industry due to the Russian Federation being the primary export market for Georgian wine at that time. Grape price subsidies became necessary to mitigate the aforementioned negative effects and ensure the profitability of winegrowers’ operations. The grape subsidy programme had a relatively smaller scale from 2008 to 2012. Particularly, the Georgian government allocated GEL 0.15 per kilogram of Rkatsiteli grapes, GEL 0.25 per kilogram of Saperavi and GEL 1 per kilogram of Mujuretuli/Aleksandrouli. An average of GEL 6-7 million per year from the state budget was allocated to the harvest support measures during this period.
The situation shifted in 2013 following the change in government as there was a rise in subsidies of several grape varieties; specifically, the subsidy for Rkatsiteli and Saperavi grapes increased to GEL 0.40 and GEL 0.35 per kilogram, respectively, whilst the subsidy for Mujuretuli/Aleksandrouli remained at GEL 1 per kilogram. Consequently, the total budget allocation for grape subsidies increased substantially, reaching GEL 32 million in 2013.
The subsidy structure underwent a drastic shift in 2017 as the government halted directly subsidising grape prices but continued to allocate funds to state-owned enterprises for purchasing surplus grapes left on the market. Subsequently, no subsidies were provided for quality white grapes under this altered arrangement. Subsidy support was maintained only for the Aleksandrouli and Mujuretuli varieties and an additional amount was allocated to some companies for the purchase of surplus grapes. The recipients eligible for the aforementioned sum were those wine companies that purchased at least one kilogram of grapes (Rkatsiteli or Kakhetian Mtsvane) for a minimum of GEL 0.70 to produce brandy or concentrated grape juice. The compensation amount was set at GEL 0.35 per kilogram of grapes.
Whilst the government discontinued direct subsidies for grape prices in 2018-2019, it purchased surplus grapes from the market, allocating GEL 10 million annually to the state enterprise, Akura, suggesting an indirect subsidy for supporting the harvest. However, the GEL 10 million proved insufficient in 2019 and the total funds allocated for this purpose eventually reached GEL 80 million.
The Georgian government resumed grape price subsidies, allocating GEL 40 million for this purpose from the state budget in 2020, amidst the challenges posed by the COVID-19 pandemic. Furthermore, additional funds were also provided for the purchase of surplus grapes on the market, bringing the total vintage subsidy to GEL 87.1 million. The government purchased a total of 95,000 tonnes of grapes that year.
A total of GEL 138 million was allocated for grape harvest subsidies in 2021. The majority of the aforementioned amount (GEL 107 million) was transferred to the state-owned Harvest Management Company tasked with accepting both quality and hail-damaged grapes and processing the harvest.
The government allocated GEL 150 million for grape harvest subsidies in 2022 (covering both white grapes and black grapes in Racha as well as purchasing surplus grapes from the market). Subsequently, GEL 90 million was spent on grape harvest support measures in 2023. The allocated amount for this purpose in the current year constitutes GEL 85 million, including GEL 35 million for grape price subsidies and GEL 50 million for purchasing surplus grapes on the market.
Table 1: Subsidies for Several Grape Varieties and Total Expenditures from 2008 to 2024 (GEL)
Statistical data indicate that subsidy amounts have been rising since 2013 with a notable decline in 2016-2018. Although the government decided to halt subsidies in 2018, it eventually decided to purchase surplus grapes from the market. Vintage subsidy amounts have increased significant in recent years, mainly due to the government purchasing surplus grapes, in addition to subsidising grape prices. The government is prompted to purchase more surplus grapes each year, as the grape harvest increases annually.
Generally, subsidisation is a globally recognised method for saving and developing industries as well as attracting investments. However, the situation in Georgia is different. Subsidies were justified as a measure for supporting the industry in their initial phase when Georgian wine lost its primary market due to the Russian embargo. However, the purpose of harvest subsidies has shifted since 2018.
Grape price subsidies have increasingly become a form of social aid rather than a tool for supporting the development of the industry and have even had negative effects on the sector in recent years The price of a product is determined by the balance between demand and supply in a market economy. However, many farmers who have become accustomed to subsidies remain dissatisfied with the price of grapes each year in Georgia. This dissatisfaction primarily stems from the excessive promises and subsidy policies over the years which raised unrealistic expectations amongst winegrowers. Furthermore, farmers may pay less attention to quality of their vintage as they anticipate that the government will buy surplus and low-quality grapes. Additionally, grape subsidies create an advantageous environment for the viticulture sector, making it more attractive and prompting farmers to grow vineyards, which has resulted in overproduction.
Notably, subsidies are often received by individuals and donors (large-scale companies and their owners) closely aligned with the ruling party which creates an uncompetitive environment for small wineries.
As mentioned above, surplus grapes on the market are purchased by the Harvest Management Company which then signs contracts with various companies for processing the grapes and distilling alcohol. Analysing the purchases made by the Harvest Management Company this year makes it evident that contracts were primarily awarded to companies whose directors or owners are donors to the Georgian Dream or individuals with close ties to the party within the framework of 35 simplified procurement processes.
The Harvest Management Company signed three contracts with JSC Telavi Wine Cellar (CMR240138444, CMR240138438, CMR240128335) totalling GEL 178,000. The director of the company is Zurab Ramazashvili according to an extract from the Register of Entrepreneurs and Non-Entrepreneurial (Non-Commercial) Legal Entities. He donated a total of GEL 150,000 to the Georgian Dream between 2017 and 2023.
The Harvest Management Company signed a contract worth GEL 1,460,000 with Kvareli Sardapi LLC (CMR240137291, CMR240131242, CMR240122877, CMR240115411). The director of the company, Vazha Ghvaladze, donated GEL 60,000 to the Georgian Dream in 2020.
The owners of Berika LLC, Mamuka Gvalia and Lasha Revazishvili, are also donors of the Georgian Dream (with a total of GEL 61,400 donated, including GEL 40,000 in 2024). Berika LLC signed a contract worth GEL 180,000 with the Harvest Management Company.
The owners of the company Barakoni, Vazha Ghvaladze and Davit Topuridze, are donors of the Georgian Dream, with the latter donating a total of GEL 110,000 to the party and their presidential candidate Salome Zourabichvili. LLC Barakoni signed a contract worth GEL 35,000 with the Harvest Management Company.
Zaza Bakhturidze, the owner of LLC Tsinandali – XXI Century Best Wines, is a donor of the Georgian Dream, having donated GEL 40,000 to the party. The LLC signed a contract with the Harvest Management Company for a total of GEL 771,000 (CMR240128330, CMR240124339, CMR240121406).
The largest sum was received by Universal Spirit LLC (CMR240138420, CMR240118053), totalling GEL 1.7 million. This company is 100% owned by the United Distilleries of Georgia LLC, whose owners are Vakhtang Karichashvili (80%) and Giorgi Gambashidze (20%), both of whom are citizens of both Russia and Georgia. Vakhtang Karichashvili is a business partner of Ucha Mamatashvili, a cousin of Bidzina Ivanishvili, according to Squander Detector.
In conclusion, it is important to note that grape production and wine exports have been increasing in recent years. It seems to be more beneficial for the state to phase out grape subsidies and allow the sector to develop independently. The resources currently allocated to subsidies, part of which benefit companies that donate to the Georgian Dream, as mentioned earlier, should instead be redirected towards promoting Georgian wine and diversifying markets which would be a more strategic and efficient use of state funds.
