Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. Moldova Competitiveness Assessment: The Wine Cluster
By 2003, Russian wine imports had recovered almost to 1998 levels, but the expansion of the
market has been accompanied by significant structural shifts. Over the last three years, 2001-
2003, Moldovan wines have lost almost 8 percent of the market; their market share dropped
from 53.5 to 45.7 percent. The countries that gained at Moldova’s expense include Bulgaria,
Argentina, Chile, and Italy, as illustrated in Figure 11. A major reason for these shifts is the
evolving market architecture, together with changing preferences. At the same time, the
capacity constraints in Moldova’s wine sector have also played a role.
One indication that capacity constraints affect Moldova’s wine exports to Russia is the rising
level of wine imports from Romania to Moldova; according to Romanian customs data, wine
exports to Moldova rose from 1.4 million liters in 2000, to 16.3 million liters by 2003 (2001:
5.0 million liters; 2002: 21.9 million liters). In other words, over the last two years imports
from Romania were close to 10 percent of wine exports to Russia in volume terms. While
there are other factors at work, especially the preferential (duty-free) access of Moldovan
wines to the Russian market, this pattern does suggest a need to source wine from Romania,
since domestic production appears inadequate to keep pace with the surging Russian market.
Raising Quality and Consistency, Moving to a “New World” Style
Yet the fundamental challenge lies in changing consumer preferences and market architecture
for wine (and spirits) in Russia. Overall, tastes for types of wine are changing slowly. The
most important categories are still semisweet and semidry wines, with an alcohol percentage
of 9 percent, although interest in dry wines is growing. Red wine accounts for 71 percent of
sales in Moscow and 64 percent in other regions of the country. All signs point to the notion
that the Russian wine market, at least in the urban centers, is converging with markets in
Western Europe and the U.S. As incomes are rising and exposure to different types of wine is
increasing, Russian consumers increasingly have the same expectations regarding wine
quality and wine style. In effect, wine in Russia is currently undergoing the transition from a
commodity to a fashion item. Moldovan wines tend to be associated with the old style, and
are effectively shunned by the fastest growing segments of the Russian wine market,
consumers who are becoming more sophisticated in their wine preferences. (See Annex A for
a discussion of qualitative aspects and trends in the Russian wine market.)
Moldovan exporters understand the need to move up the quality chain to recapture market
share, or at least arrest the decline. Increased competition in their traditional, low-price
(US$1.80–2.20/bottle) market segment—for example from Argentina, whose exporters took
advantage of the devaluation of the peso—have lowered margins. Many of the larger
Moldovan exporters are therefore beginning to target the medium-price markets,
US$3.00/bottle and upwards.
Maintaining or regaining market share in the low-price market segment, or expanding in the
medium-price markets, will demand efforts to improve quality and consistency. Moldova’s
winemakers and exporters will need to move away from traditional wine styles toward “New
World” styles. Moving to higher quality wines would also affect Moldova’s position in the
EU market, where consumers prefer dry wines with 12 percent alcohol, since a higher value
July 2004 • DRAFT Page 8