Once known for their vodka affinity, rising incomes and changing consumer preferences have caused Russians to increasingly embrace wine as their alcoholic beverage of choice. State subsidies and a complex geopolitical climate have moved domestic producers to the forefront, but a turbulent history and concurrent antialcohol campaign are hindering their potential. Russia’s $3bn domestic wine industry is projected to see an explosion in the coming years.

On a balmy August weekend, thousands of enthusiasts and connoisseurs gathered at the wine pavilion of Moscow’s iconic outdoor VDNKhA All-Russian Exhibition Centre to sample locally produced wares and attend master classes. Dozens of wineries from across the country – from Dagestan to the Samara region – were offering varieties of all sorts. One of the lecturers was Igor Serdyuk, world-renowned author, Forbes columnist and former Deputy CEO of Crimea’s Alma Valley winery.

“Historically, Russia has been seen as a vodka consuming country thanks to its vodka lobby, which has maintained considerable state influence going back to Czarist times. It’s as if wine is something new and exotic to Russians. However, this is a complete lie,” he explained in an exclusive interview to bne IntelliNews. “In fact, one could joke wine was invented in Russia, as some of the oldest artefacts related to winemaking from 9,000 years ago were found in modern-day Armenia and Georgia, which were historically part of the Russian Empire. If we’re talking about Russia’s current borders, winemaking goes back to ancient Greek (and later Roman) settlements along the country’s Black Sea coast.”

The numbers back up Serdyuk’s claims: Russia’s total wine market in 2024 is estimated at $5.4bn, or $26.86 per capita. That compares with the world’s largest wine market by revenue, the United States, at $61.2bn and $116.10 respectively, and is considerably smaller than Russia’s total vodka market, which comes in at just $1bn, or $6.27 per capita. However, Serdyuk said that measuring average wine consumption across the entirety of Russia is like taking the average patient temperature in a hospital. “It’s a big country, and while people in Moscow and St. Petersburg have wholeheartedly embraced wine, you’d get a much lower consumption figure somewhere more remote,” he added.

Russia is currently the world’s 11^th largest producer of wines by volume at around 45mn decalitres annually. This is up from 28mn decalitres in 2016. It also ties with India as the world’s third largest alcohol market at around $20bn, behind China and the USA, according to the World Spirits Alliance, and remains the world’s fifth largest importer of alcohol despite sanctions. So far Russia has been bucking a global trend of reduced alcohol consumption and transition to non-alcoholic drinks, along with other outliers like India, Brazil and parts of Africa. However, Russians have gradually transitioned to domestic alcohol consumption and sparkling and still wines.

Emil Omarov, general director of the Derbent Wine Company, estimated that domestic producers currently account for 50-60% of the Russian market, and expects that figure to approach 100% over the next 5-10 years as new investments and production grow in the sector. Exports totalled a paltry $8.9mn in 2022 and are not expected to increase substantially anytime soon.

State support

“The thing about wine production is that it’s a long-term and risky investment, especially for the novice,” explained Serdyuk. “At best you’re looking at 10 years to earn your investment back, and not that long ago few people were interested in that kind of time frame.” He said that a focus by the country’s top leadership on wine making has made all the difference, going back to then-Prime Minister Dmitry Medvedev’s working visit to the iconic Abrau Durso winery in southern Russia’s Krasnodar region in 2014 to encourage domestic wine production. “Since that time anybody who’s anybody – including top businesspeople and bankers – has invested in his own domestic winery,” added Serdyuk. Last year, Abrau Durso boasted $135mn in revenues.

State support has also been a major factor in increasing production. In some regions, like Crimea, the government will reimburse half of your investment into a winery. Since 2014, over RUB4bn ($44mn) in state subsidies have been provided to winemakers in Crimea, the country’s largest producer of wines. As a result, over 9,000 hectares of new vineyards were planted, boosting the region’s production of sparkling, red and white wines.

In 2020, thanks in no small part to the efforts of Boris Titov, Abrau Durso’s owner and then-presidential commissioner for entrepreneurs' rights, major federal regulations of wine production were overhauled and a state support mechanism implemented for the sector. These included simplifying licences for new wineries and over $40mn in mostly federal subsidies for planting new vineyards (1/8 of that sum is to be co-financed by Russia’s regions). On the surface, these measures have seen some success: down from 212,000 hectares of vineyards in 1990, Russia’s total acreage stood at 85,100 in 2015. This figure is projected to reach 111,000 hectares in 2024, just shy of the government’s 125,000-hectare target. The goal is to increase that figure a further 35% by 2030.

“Russian winemaking has really taken off the last 15 years from the ashes,” boasted Serdyuk. “Thanks to state support, financial and promotional, the government has justified Russian wine in the eyes of its own consumers. Today we not only produce nearly every type of wine out there, but we’re already making all the inputs needed for winemaking domestically,” he added. “I’m talking about nurseries for wood that’s made into barrels, concrete eggs, complex fermenters and vinificators. A lot of the process is digitised, with a computer regulating temperature and pressure throughout the winemaking process.”

Industry woes

While the Russian government is pouring millions into domestic wine production, a concurrent anti-alcohol campaign is financially harming those very same wineries. “We have some of the strictest laws on alcohol advertising in the world,” bemoaned Serdyuk. “The latest version of the law lays out very general terms to the kind of ads that are banned, akin to ‘any information generating demand for an alcoholic product.’ Even publishing a column by a wine expert in a magazine can be a problem. Basically, wine tourism is the only type of marketing you can do now; at least they let you put up a billboard directing people to your vineyards.”

The 2020 legal changes also saw amendments that nearly doubled taxes on domestic wines and increased tariffs on imported goods, leading to a substantial rise in wine prices against an already financially strained Russian middle class. “There’s also an asymmetry of information. Growing prices and the lack of information out there mean that producers and consumers often can’t come to a market consensus about what Russian wines should cost,” added Serdyuk.

“Hence we haven’t yet seen a stable picture of the average Russian consumer,” he said. “Last year I would have said Russians prefer red wines; this year more white wines were sold. There’s been a definitive shift toward premium wines since 2020, but right now there are so many new products on the market that consumers are trying everything.”

“Foreign wines still enjoy an unfair advantage on the market: they have a long history, aura and economies of scale in wine clusters,” added Serdyuk. “Plus, the Europeans subsidise their winemakers so much that they arrive in Russia at below-market prices. The increase in tariffs has helped a little with this. Finally, Russia’s interest rate is higher than in the EU, making it more expensive to borrow credit for investments.”

It’s no surprise the Russian consumer is still finding his bearing among domestic wines. Historically, Russian wine comes with a lot of baggage: nationalisation and collectivisation in the first half of the 20^th century took their toll on the country’s agriculture, including vineyards. Later, a planned economy motivated producers to emphasise volumes over quality. Emigration of the country’s best entrepreneurs, including experts on wine production, also took its toll.

In 1985, newly-appointed General Secretary Mikhail Gorbachev signed his famous decree on fighting alcoholism, causing many historical vineyards (including in Crimea) to be bulldozed overnight. The subsequent economic chaos of the 1990s caused wine production to drop fourfold.

Geography

According to RBC, Crimea was Russia’s largest producer of wine in the first have of 2024. Serdyuk emphasises the Krasnodar region’s wine production volumes as second to none. However, the industry has burgeoned across the country’s vast geography. The fastest growing regions by wine production in the first half of 2024 were North Ossetia (a 119% increase over last year) and Dagestan (36%), both located in the North Caucasus. And while the Southern and North Caucasus federal districts accounted for nearly 90%, or 14.2mn decalitres, of all Russian wine production in the first half of 2024, wineries have sprung up all across the country, sometimes in the unlikeliest of places.

Dagestan, an area once referred to by a leading daily as Russia’s “second Chechnya” after the years-long civil conflict there, is now more famous for tourism and winemaking (despite being a conservative, Muslim-majority region). Meanwhile, a group of investors recently set up a winery on the other side of the country near Vladivostok.

Some regions have so many wineries that they’re pooling resources to develop wine tourism, especially given the lack of advertising opportunities. Abrau Durso, a member of the Global Wine Tourism Organization, has developed an entire tourism cluster around its wineries, featuring four hotels, over 15 restaurants, horse-riding lessons, a wedding pavilion, its own brand of cosmetics and tours to adjacent wineries.

Igor Serdyuk’s Guide to Russian Winemaking, which he has co-published with fellow wine aficionado Andrei Grigoriev based on their rating Top100Wines.ru from the last four years in a row, brims with ads offering guided tours of wineries all over the country, especially in the south. “Not all wineries have the resources to develop tourist infrastructure the way Abrau Durso does, but I’d single out Pavel Shvets’ UPPA winery in Crimea as developing a real tourism cluster around itself,” he said.

This summer, the Wine Express launched its first day tours out of Sevastopol by train. The experience includes visiting vineyards across Crimea and sampling their wares. The tour became so popular that Wine Express extended its season up to the end of September. Perhaps there may be a Russian version of the iconic 2004 comedy Sideways coming out in the not-too-distant future.

History repeats itself

“The modern-day geopolitical situation is really not all that different from times past in terms of its impact on wines,” explained Serdyuk. “During the Napoleonic Wars Britain and Russia, which were some of the largest consumers of wine at the time, maintained a universal embargo on all French champagnes, which provided a big impetus for Russian wines to emerge and grab a market share.”

While legendary 18^th century Russian poet Alexander Pushkin made no secret of his affection for Tsymlyanskiye wines from the country’s River Don area, it was not until after the Napoleonic Wars in the 19^th century that Russian wines became world famous. Playwright Anton Chekhov was a fan of Crimean sparkling wines, which won a major prize in Paris, and in 1828 Crimea’s Magarach area became home to one of the world’s oldest wine institutes, which is still in operation to this day.

“There was a wave of patriotic feelings in 19^th century Russia after a series of wars, and Alexander III led the push to prioritise domestic wine consumption. After all, if a country produces popular, quality wine, it reflects well on its government. Today we’re seeing a renaissance of that,” said Serdyuk.

Foreign investment

In a faraway corner of Northwestern Russia outside the city of Pskov, just 20 kilometres from the Estonian border, Greek-born Stavros Trempelis set up a creamery in 2018. “I had been exporting cheese from our family’s farm in Greece to Russia for years, and then the sanctions on EU agricultural products were announced in 2014. My local partners advised me to set up production here, and that’s what I did. Now our cheeses are sold all across Russia!” This summer a fresh herd of goats arrived via ship from Greece so Trempelis can begin the next phase of his endeavour – local goat cheese.

The operation has been such a success that this year he’s planting his first vineyard in the Pskov region to eventually set up wine production, just like back home in Greece. “Our family’s vineyard in Greece was named a Rising Star in Decanter magazine, and we want to bring that success to Russia.”

Trempelis has invested over $1mn thus far into his agricultural projects in Russia.

And despite currently low figures, Serdyuk believes there’s great potential for exports: “[Winemaker] Fanagoria used to export to Europe before sanctions, and even to countries without large Russian diasporas. That’s been closed off now, but at the moment we don’t even have the capacity to meet domestic demand. I think in the future we’ll be able to get better margins with exports as our reputation improves. Maybe we can sell premium Russian wines in big markets like China.”

Meanwhile, back at Moscow's VDNKhA wine pavilion, the mood remains decidedly upbeat as guests can’t get enough of the growing assortment of domestic wines.