- Vladimir Putin has a personal interest in wine – and his own vineyards and winery.
- His close ally, Yuri Kovalchuk, controls major wine businesses in annexed Crimea and elsewhere.
- Subventions are being given to support the planting of vines from Russian nurseries.
- But these cannot supply the volumes that are required.
- Russian sparkling wine production is falling because of a shortage of grapes.
- Seedlings from Italian and other nurseries are being banned on questionable grounds.
- The Magarach Institute of Winegrowing and Winemaking has been under the control of an atomic research centre linked to an oligarch.
Last week Russia hosted the St. Petersburg Economic Forum, an event that formerly sought to be Russia’s answer to Davos. Unsurprisingly, given recent events, this year’s forum is a less international event than in the past and the wine list reflected this change. France and Italy have been replaced by Crimea and Krasnodar. A well-informed observant reader may also have noticed that almost all the wines on the list – Inkerman, Divnomorskoe, Novy Svet – were produced by wineries belonging to or closely associated with Yuri Kovalchuk a key ally of Vladimir Putin.
One of the speakers on the second day of the forum was Dmitriy Kiselev host of a TV politics programme, but here in his new role as head of the Federal Self-Regulatory Organization of the Association of Winegrowers and Winemakers of Russia (FSRO AWWR).
Russia is unashamedly aiming to replace imported wines with its own.
Russia is unashamedly aiming to replace imported wines with its own. Since 2020 producers of wines made from Russian grapes have benefitted from tax deductions. Now it is going further, with the announcement by Kiselev that the government will only subsidize grape growers using vines of Russian origin. Those who plant imported ones will not receive any compensation for increased planting material costs.
According to the Russian publication, Simple Wine News, the cost of planting one hectare currently stands at 1-2m rubles ($18,400-$36,800). This figure needs to be set against subsidies of 375,000 rubles ($6,900)/ha in Krasnodar Krai and 700,000 Rubles ($12,900)/ha in Crimea.
Imported vines make up a significant portion of the plantings. Approximately 25m seedlings were needed for the 6,950 ha of new vineyards planted in 2019. Of these, Russian nurseries were only able to provide 5.7m (in the southern region of Krasnodar, the Krai Rentop-Agro nursery produces one million seedlings per year; its competitors Ariant and Fanagoria produce 3m and 0.7m respectively. In Crimea Alma Velli and Kachinsky produce roughly half a million each.
2020 legislation requiring Russian wine to be produced from domestically-grown grapes and banning the use of bulk imports for this purpose has led to a reduction in volumes. In early 2021, according to local reports production of sparkling wine fell by a third. Vadim Drobiz, director of the Center for Research on Federal and Regional Alcohol Markets was quoted as saying that production over the year would fall by 40% and that “at best, it will be possible to eliminate this shortage in 10-15 years.”
Yuri Kovalchuk: Media Mogul...
If restricting the use of imported vines seems to slow this process even further, it is explained by the relationship between Vladimir Putin and one of his closest allies: Yuri Kovalchuk. As Forbes reported in a piece about Kovalchuk headlined “Meet the oligarch who whispers in Putin’s ear” he has done spectacularly well out of the current regime.
“Over $60 billion worth of state-owned assets were funneled through Gazprom to Kovalchuk’s Rossiya Bank and entities owned by other Putin allies… between 2004 and the end of 2007”. These figures came from a 2008 investigation by Vladimir Milov, and former deputy prime minister Boris Nemtsov who was assassinated on the Bolshoi Moskvoretsky bridge at night on Feb. 27, 2015.
Apart from his banking interests, crucially, Kovalchuk controls a significant part of the Russian media. A complete list of the assets associated with his National Media Group and Sogaz, the state-run insurance company in which he and his wine have a significant shareholding. would take several pages. It includes seven of the ten most popular TV channels and the social networks Vkontakte and Odnoklassniki, with a monthly audience of 72m and 23m users respectively. He is, as Forbes put it, “on the frontlines of the disinformation war, managing the party line”. He was placed on the U.S. sanctions list in 2014 at the time of the annexation of Crimea, along with the Rossiya Bank of which he is the largest shareholder.
While talking of shareholding and ownership in Russia, it is important not to imagine that these terms carry the same meaning as in the US or Europe, for example. Under President Putin, a system dubbed ‘crony capitalism’ by Sergey Guriev, Professor of Economics and former head of the European Bank for Reconstruction and Development, prevails. Proximity to power has replaced traditional concepts of acquisition and ownership.
And, when it comes to power, in the words of Russian journalist Mikhail Zygar, Kovalchuk “established himself as the de facto second man in Russia, the most influential among the president’s entourage”
…and Russia’s largest Winegrower
Kovalchuk is also important to the Russian wine industry. It is widely known that two Crimea wineries, Massandra (4,000 ha) and Inkerman (2,700 ha) are owned or managed by structures related to Kovalchuk. Massandra is famous for having been founded with the support of the Russian imperial family in 1894 and boasting a cellar containing a million bottles including some that survived the 1917 revolution.
Prior to the annexation, Massandra belonged to the Autonomous Republic of Crimea. In 2014, the arrival of Russian army special forces led to the ‘election’ of a new director followed, six years later, by the winery’s ‘acquisition’ by Yuzhny Project, a Rossiya Bank subsidiary.
Before the arrival of those Russian troops, Inkerman which produced 11.5m bottles in 2019 belonged to Ukrainian businessman Valery Shamotiy and two overseas investors, the Finnish Hartwall Capital fund and a Chinese counterpart, Pan Chang. As reported by Meininger’s in 2020, it was then acquired by Kovalchuk and another billionaire Putin associate, Gennady Timchenko and placed under the control of a business called Moey Vino - My Wine – launched jointly by the two businessmen in 2019 ‘for the development of the agricultural industry: viticulture, winemaking’
Moey Vino also runs the historic Novy Svet (‘New World’) winery which was founded in 1878 by Prince Lev Golitsyn, In 2019, it produced 1.7 million bottles of wine - roughly 2.5% of Russia’s sparkling wine according to the Russian publisher Vedomosti.
Finally, there’s Divnomorskoye, informally known, since the publication of imprisoned opposition politician Aleksey Navalny’s ‘Palace For Putin’ exposé, as Putin’s Vineyard. As Navaly explained “For starters, winemaking was just a chic, status-promoting hobby for Putin. But the desire of others to curry favour, and over time, an unlimited amount of money led to the inevitable - the hobby got out of control. The second vineyards were planted, which turned out to be even larger and even more expensive.” By the time Navalny published his report, Putin’s vineyards were said to cover 530ha, with a “huge, ultramodern winery” being built.
"Vine is a generous plant that knows how to adapt to the territory… a plant that pushes borders away and unites us.”
In 2017 the leading Italian wine consultant Riccardo Cotarella was appointed to provide viticultural and winemaking advice and, according to Jacopo Iacoboni in a piece for Pledge Times, to help with international distribution. The winery management stated that “we are the Russian winery that makes the most ‘Italian’ Russian wine”. Cotarella was quoted as saying that “It is the umpteenth experience that tells us that the vine is a generous plant that knows how to adapt to the territory… a plant that pushes borders away and unites us.”
To return to Kovalchuk, other Crimean companies allegedly associated with him include Wine and Cognac House Bakhchisaraias well as Zavetnoe (511 ha) and Burlyuk (90 ha), The last three companies were registered by Valery Zakharyn a former military colonel, who is also described as owner of Inkerman.
Of the 20,800 ha of Crimean vineyards, Kovalchuk is in some way linked to 5,950 ha, making him one of the largest winegrowers in Russia – though only if one accepts that Crimea is part of that country.
Mikhail, the Other Kovalchuk: the Nuclear Physicist with an interest in Vine Nurseries
Three weeks ago, the Russian government decided to place the Magarach Institute of Winegrowing and Winemaking - originally founded in 1828 in Imperial Russia - under the control of the Kurchatov Institute.
This research centre, widely known as Kurchatnik, specializes in nuclear energy. The logic behind the decision to link these apparently incompatible sectors is again provided by the last name of the institute’s president: Mikhail Kovalchuk is Yuri Kovalchuk’s older brother.
While the younger sibling collected Crimean vineyards, the older one was looking for vine nurseries. After the annexation of Crimea, Magarach has been actively fueled by private and state assets. In 2020, the Crimean prosecutor's office seized 1000 ha of vineyards from a private company called Zhemchuzhina and transferred it into state ownership - or more precisely, under the control of the Magarach Institute. The institute is said to have received billion-ruble investments for the new 200 ha nursery garden and buildings.
A Perfect Match
Mikhail Kovalchuk is getting other kinds of official help against competition.
Russia has a recent history of using questionable ‘health concerns’ to justify bans on imports, In 2013, shipments of wine and brandy from Moldova were blocked because of alleged ‘impurities’. In 2018, Rosselkhoznadzor (agriculture regulation body) burned 160,000 vines from Vivai Cooperativi Rauscedo, the world’s largest nursery, because of bacterial wilt, it claimed to have detected in the grapes. Now, that same enterprise and a number of other suppliers are facing a ban because of alleged incidence of virus. History suggests that the new measures may not affect all wineries equally. Despite the earlier ban, when Mikhail Kovalchuk purchased Merlot and Pinot Noir vines from Rauscedo for Inkerman, Rosselkhoznadzor authorized their importation.
This kind of official assistance appears to have helped Kovalchuk build an impressive set of wine businesses that include vineyards and wineries in Crimea and a distribution company called Express-Vin. A large nursery would complement this business model extremely well.
A return of Crimea to Ukraine at the end of the current hostilities as Volodymyr Zelenskyy is demanding, would, of course, be rather less welcome. But if that were to be the outcome, however passionate his enthusiasm for wine, the loss of his cronys’ wine interests would probably not be Vladimir Putin’s greatest concern.