Wednesday, March 21, 2007

Make Mine a Macedonian Wine

No one will ever mistake Kavardaci for Burgundy. About a 90-minute drive south of the capital city of Skopje, Kavardaci might be the heart of Macedonia's wine country, but it's also the site of a communist-era steel mill, surrounded by inexpensive worker housing and weedy open spaces. Yet Kavardaci should be on the radar of anyone looking for the next big thing in European wine. The town is home to the Tikves winery, the largest in southeastern Europe. Tikves is quickly metamorphosing from a socialist-era workhorse into a major producer of high-end wine.

With such reinventions, Tikves and other wineries in the Balkans are running fast to catch up with an industry that left them behind in the 1990s. These days, though, they're competing for gold medals rather than production quotas. From Herzegovina in the west to Macedonia in the east, the territories of the former Yugoslavia are ideal for making wine, with hot, dry summers and rocky slopes where grapevines thrive.

If only Balkan politics and history had been as kind to these vineyards as the soil and the sun. Over the past 15 years, events have dealt blow after blow to a winemaking tradition that goes back thousands of years. "We not only have been through the war, which did a lot of damage, but also through the transition from socialism to capitalism—and this change happened during the war. It wasn't an easy time," says Bruno Saric, executive director of Hepok Ljubuski winery, the second largest in Bosnia and Herzegovina.
White Knights

As a result, wineries in Serbia, Montenegro, Croatia, Macedonia, Slovenia, and Bosnia and Herzegovina face a staggering succession of hurdles. Privatization has splintered collectivized vineyards into hundreds of plots. Consumer tastes have matured beyond the bulk wine that was vintners' communist-era mainstay. Credit for small businesses here still comes mostly in short-term maturities, ill-suited for the kind of long-range planning that winemaking demands, and marketing is a relatively new phenomenon. Many producers lost land, and time, to the Balkan wars of the 1990s. Bosnia alone lost 40% of its vineyard acreage during the 1992-1995 conflict, and many vineyards in Croatia were planted with landmines.

Some wineries, like Tikves and Hepok, have been rescued by white knights. Tikves was scooped up three years ago by a group of shareholders and former managers from Skopje brewery, Macedonia's largest. The consortium, called M6 Investments, has poured $14 million into production in a bid to make wines that can compete on any market. Leading a recent tour of the winery, exports manager Milan Ivanovski pointed proudly to several fermentation vats that cost $265,000 apiece and are used for the company's premium wines. "Someone has called these the Mercedes of tanks," he said.

"For years, Tikves produced average-quality wine, of which the majority was sold as a base for wines in Germany…. It was the biggest mistake," general manager Saso Velkov says. When M6 took over, Tikves headed upmarket. It has reversed its old production ratio of 65% bulk wine to 35% bottled and now offers two tiers of premium wines. It has also scaled back production, using only 35 million liters of its 55 million-liter capacity. Although sales rose by 10% last year, continuing investment means the payoff will be slow in coming. Net profits plunged from $2.2 million in 2005 to $622,000 in 2006.
Government Lends a Hand

Another winemaker that wants to go upscale is Hepok, which was bought two years ago by a Bosnian firm, Nativa, part-owned by a division of Austrian financial house Hypo Group Alpe Adria. The new owners have sunk about $5 million into the business, and Saric said they expect to at least another million this year. One of the new regime's first actions was to replace all its old vines. It also nearly doubled its planting area to 150 hectares, Saric says. As a result, it lost a year of production.

Many small wineries across the Balkans cannot afford such extreme makeovers. They get by with smaller modifications or help from organizations like the U.S. Agency for International Development, the European Bank for Reconstruction & Development, and the European Agency for Reconstruction.

That isn't necessarily a handicap, according to one expert who took part in a USAID-sponsored tour of the region last year. Smaller wineries in tourism-driven markets like Croatia and, increasingly, Herzegovina see most of their produce absorbed locally and face less pressure to expand, says Britt Karlsson of BKWine, a wine-writing and tourism business. "It's a mistake to assume that you must produce larger volumes, and that you must invest substantial capital to be a quality producer," Karlsson says. "It may help to have money, but it isn't a sine qua non to become an excellent winemaker."
New Grapes Needed

Annual wine production in the countries of the former Yugoslavia has averaged about 455 million liters combined in recent years, according to EU and national statistics. By comparison, France produced an average of 5.5 billion liters per year from 2000 to 2005.

The wine market in the former Yugoslavia is worth about $2.2 billion, vs. $32 billion in France, according to Euromonitor International. Winemakers and consultants say the Balkans will likely need public help if they're to challenge the world's established wine industries. They say governments should subsidize planting of newer, more popular grape varieties for the hundreds of small vineyards across the region.

Karlsson says solutions require a broader vision: "Perhaps the overall biggest challenge for wine production in the region is actually the lack of international exchange and influence," to help Balkan vintners better understand foreign markets and modernize winemaking techniques.
Out in the Wine World

There's no question that the region's largest wineries are outward-looking, and hungry for new techniques and foreign customers. And the wine world has started to notice. Tikves scored a coup recently, securing a Russian order for 300,000 bottles, and its wines are now in the Kremlin's cellars.

"We're in the middle of a project that will change Macedonian wine production," general manager Velkov says. "This is a region…unknown to the rest of the wine world, with more than 3,000 years of wine tradition." That being the case, the wine world may soon have to expand its map.

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