At the Parliament of Georgia, during the joint session of several Parliamentary Committees, MPs debated the price of grapes. A member of the United National Movement, Giorgi Kandelaki, addressed the Minister of Agriculture of Georgia, Otar Danelia, with the following question: "How is it that today, when the Russian market is open, the price of grapes is lower than in 2012 when the Russian market was closed."FactCheck
verified the accuracy of the fact stated by Giorgi Kandelaki.
On 9 September 2015, the Minister of Agricultural of Georgia, Otar Danelia, held a special briefing with regard to the grape harvest and said: "It is very important to avoid price fixing and not dictate market prices. Each price, which will be named by the state, will be based upon market calculations. In regard to selling grapes, the state will purchase only that amount of grapes which private companies are unwilling to buy. The price for white grapes will be GEL 0.6 and for red grapes, Saperavi, the price will be GEL 0.85."
The state has been subsidising the production of grapes in Georgia since 2008. The decision to subsidise grapes was made to alleviate the negative consequences of Russia’s trade ban and encourage both grape and wine production. The table below shows the prices of grapes in the period of 2010-2015, including the subsidy.
Price of Red and White Grapes (in GEL) including Subsidy in 2010-2015
|White||GEL 0.6||GEL 0.7||GEL 1||GEL 1||GEL 1||GEL 0.6|
|Red||GEL 0.8||GEL 1||GEL 1||GEL 1.3||GEL 1.95||GEL 0.85|
|Racha (red)||GEL 3||GEL 3||GEL 4||GEL 8||GEL 8||GEL 8|
There were 54,000 tonnes of grapes processed in Georgia in 2012. The price of grapes (both red and white) was GEL 1 including the subsidy. In 2012, the Government of Georgia allocated GEL 14.8 million to subsidise the grape industry. The subsidy per one kilo of white grapes was GEL 0.25 and per one kilo of red grapes was GEL 0.35. In 2012, two state companies – LTD Gruzwinprom and JSC Akura – purchased a large portion of processed grapes (34,000 tonnes) which comprised 65% of the total amount.
As of 2015, 118,486 tonnes of grapes have been processed. GEL 30 million is allocated from the state budget for the grape subsidy. The subsidy per one kilo of white grapes is GEL 0.35 and per one kilo of red grapes (Saperavi) is GEL 0.15. There are 74 wine producing companies involved in the processing of grapes. Of this amount, the state has hired 18 wine producing companies (the number of companies might increase during the grape harvest).
In a market economy, the price of a product is determined by the balance between supply and demand. In 2015, the supply (harvest) of grapes increased as compared to the previous year (approximately by 30,000 tonnes) whilst demand, due to falling wine export, dropped. The data of the first six months of 2015 indicate that Georgian wine export has dropped by 49% as compared to the previous year. Even though Russia’s trade ban has now been revoked and the Russian market is open, because of Russia’s present economic difficulties the volume of Georgian wine exported to Russia decreased by 63% as compared to the previous year. In 2015 (according to the data of the first six months) a total of 6,555,183 bottles of wine have been exported to Russia which is 47% of the total wine export. For comparison, a total of 23 million bottles of Georgian wine were exported worldwide in 2012 (according to the data of the first six months of 2015, 13,706,653 bottles of wine have been exported so far). In general, due to the circumstances on the ground, the price of grapes was poised to fall. However, the promises made by politicians and the policy of subsidisation for years (this policy has been carried out by both the former and current governments) generated unrealistic expectations among grape farmers. For example, the former Prime Minister of Georgia, Bidzina Ivanishvili, declared before the 2012 elections that: "The price of grapes should not be less than GEL 1." Such populist promises resulted in tense demonstrations organised by grape farmers to protest the low grape prices.
In 2012, when the Russian market was closed to Georgian wine, the price of grapes (both red and white) was indeed GEL 1. Of note is that the share of state-owned enterprises in purchasing processed wine was very high in 2012 (65%) and this will probably happen again this year as well. In 2015, when the Russian market opened, the price of white grapes is GEL 0.6 and price of red grapes is GEL 0.85. This means that as compared to 2012, the price of white grapes has decreased by 40% and the price of red grapes has decreased by 15%.FactCheck concludes that MP Giorgi Kandelaki’s statement is TRUE.