1. Market Overview and Legal Framework
The national wine industry originated in the XIX century and is one of the oldest in Ukraine. Today approximately 200 enterprises handle the processing of grapes and manufacturing of wine, champagne and cognac. Two large groups can be singled out from them: traditional companies with their own vineyards and new companies dealing exclusively with bottling of wine. Current wine production is much lower than the pre-1985 level (that year a massive anti-alcohol campaign was begun which resulted in cutting of vineyards, drop in wine production volume, etc.). Vineyards in 2009 covered 93,300 hectares, which is three times less than in 1990. In 2008 the volume of wine production amounted to 20408,5 million dal. Compared with 1990, the index fell by 35%. Meanwhile, manufacturing of sparkling wines rose by 41.5% (90% of output is produced by the accelerated method and only 3 companies from 12 apply classic French technology). Wine products in Ukraine are manufactured foremost in Odessa, Nikolayev, Kherson and Zakarpattya Region, and in the Autonomous Republic of Crimea (ARC). The companies from these regions produce from 92% to 97% of all national grapes. In the last few years Ukraine has signifcantly lowered volume of export in the feld and turned into a big importer of wine products. The volume of Ukrainian export constitutes only 4%. At the same time, neighboring Poland exports about 60% of its products.
In general the following are the basic features of Ukrainian winemaking in 1992-2009: reduction of vineyards; dominance of imports over export; lowering of wine and cognac quality; lack of government control and regulation of production; rise in fake wine; loss of traditional wine and cognac markets (Russian Federation, Belorussia, Kazakhstan, etc.). Ukrainian experts believe that the national wine industry has great potential for growth and development but lacks proper government support.
The basic law governing processing of grapes and manufacturing of wine products in Ukraine is the On Grapes and Wine Act of Ukraine of 16 June 2005.. Chapter 2 of the said Act regulates winemaking (grapes planting, harvest collection, etc.) and Chapter 3 covers manufacturing of wine products (cognac, wine, etc.). This Act establishes general requirements for looking afer vineyards, manufacturing wine materials and wines, vermouths, cognac and brandy. In addition, the production of wine, wholesale and retail trade matters are governed by the On State Regulation of Production and Circulation of Ethyl Alcohol, Cognac and Fruit Alcohol, Alcohol Beverages and Tobacco Goods Act of Ukraine of 19 December 1995, No.481/95-BP.. Under this Act winemakers must have their production attested, certify their products and obtain the required licenses (for wholesale and retail sale). The main laws in the feld do not provide measures to support the industry although they are contained in other legislation.
2. Government Support for the Industry
The necessity for government support of the industry has not only economic but also crucial social grounds. Winema-king is a socially oriented sector of the economy and makes a substantial contribution to budget formation in many regions. If winemaking companies seize to exist, the government will have to spend signifcant funds to support these regions, create new jobs, and eliminate economic difculties therein.
On 21 July 2008 the Cabinet of Ministers of Ukraine (CMU) approved the Program of winegrowing and winemaking development in Ukraine for the period till 2025. In accordance with this Program investment in the sum of UAH 11 billion (USD 1.375 billion) will be assigned from the state budget for developing the sector.
Under the On the Development of Winegrowing, Gardening and Hop-growing Act of Ukraine of 1999 a duty in the amount of 1% is levied on income received from wholesale and retail sale of alcoholic beverages. The funds accumulated are directed at advancement of winegrowing, gardening, and hop-growing. Thanks to these funds thousands of hectares of new vineyards were planted in Ukraine. On 5 March 2009 the said Act was extended till 2014.
3. Winemaking and WTO Membership
Ukraine's WTO membership has had a negative infuence on the national wine industry. Membership terms do not refect the peculiarities of the national economy and are unfavorable for winegrowers and winemakers. Afer import duty rates were reduced (as required under the terms of the WTO membership) traders from Moldova, Georgia, Turkey, Azerbaijan and other countries flled Ukraine with cheap grape juice and wine materials. Meanwhile, the quality of imported products is very low in most cases. In addition, by entering the WTO Ukraine actually reversed state control over the quality of imported wine and wine materials which had been introduced by the On Grapes and Wine Act of Ukraine. The next step in WTO membership is the customs-free regime of international trade.
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