Russia March 20o8

Leon Bi*gnell MP

My trip to Russia in March 2008 was my first trip to the country on an official Parliament of South Australia mission.

It followed a private trip I undertook and personally funded in 2006 which preceded a massive increase in the export of South Australian wine to Russia .

On my personal trip to Russia in 2006 I met with the head of Australia's Moscow office Dan Tebbutt and arranged a follow up meeting with Mr Tebbutt and about 12 winemakers in McLaren Vale in December 2006.

To return to Moscow and St Petersburg in March 2008 and see shop shelves, that had contained no Australian wine two years earlier, lined with wines from Fox Creek, d'Areneberg, Wirra Wirra and Hardy's was extremely heartening .

Exports of Australian wine to Russia doubled in 2007 over the 2006 results and wines from McLaren Vale, the area I represent in the South Australian Parliament, featured prominently in the Russian market .

Russia has the world's biggest gas reserves and the second biggest oil reserves and has a rapidly expanding middle-class and an ultra-high society.

Since 2006 Moscow has been the most expensive city in the world to live and rich Russians are snapping up all sorts of luxury goods from cars to clothes .

Russians were also keen to pay big money for fine food and wine .

But there was very little Australian wine in the restaurants, bottleshops and supermarkets in 2006 .

When I returned home I wrote to Premier Mike Rann suggesting we look at assisting the South Australian wine industry to break into the Russian market.

The SA Government then sent a representative from Primary Industries, Vic Patrick, and South Australia's Deputy Agent General in London, David Travers, to Russia to kick off the South Australian Government's Russian

Wine Project. As well as exporting our wines to Russia we were also offering our assistance in helping the Russians re-establish their own wine industry .

Last year a delegation of four Russians visited South Australia and stayed in McLaren Vale while visiting several SA wine regions. The delegation included Mr Velery Loginov the President of the Union of Grapegrowers and Wine Makers of Russia.

In September last year I met with the Russian Agriculture Minister, Mr Aleksey Gordeyev, at an agriculture round-table meeting in Queensland.

The Minister was very impressed with the work the South Australian Government had done to assist the Russian wine industry because he thought Australia otherwise enjoyed an unbalanced trade advantage over Russia .

His view was that we wanted to sell all our produce to Russia but not take part in joint projects that could be beneficial to both countries. He saw the wine project as a perfect example of how things could work between the two nations.

In my March 2008 trip to Moscow David Travers and I again met with Mr Loginov as part of the follow-up to his trip to South Australia 12 months earlier .

He was very keen to continue the relationship between South Australia and Russia especially in terms of exchange programs with wine industry representatives .

Unfortunately South Australian viticultural equipment doesn't seem to be on the shopping list of the Russian wine industry at this stage.

Although Mr Loginov was very impressed with the excellent equipment he had seen in South Australia he said it was too expensive for the Russian market at the moment. Russia currently sources most of its equipment from France, Switzerland, Italy and Austria.

We also discussed the possibility of expanding the relationship between South Australia and Russia to reach beyond the wine industry and into the dairy, beef and other agricultural sectors.

Russia is the second largest beef importer in the world and Australia has a great reputation for providing high quality beef which matches perfectly with Russia's growing upper market segment.

The Australian cattle herd is 28.4 million head compared with Russia's 18.3 million head (down by 40 million on 1996 figures) . Australia's human population is 21 million compared with Russia's 141 million.

1n the first three months to March this year Australia exported 4740 tonnes of beef to Russia which was a 12-fold increase on the same trading period of 2007.

Trade restrictions placed on the biggest exporter of beef to Russia South America provided Australia with the opportunity to dramatically increase its slice of the market .

The Australian beef industry is now trying to maintain the gains it has made and prove it is a reliable source of the highest quality beef. The high Australian dollar is not expected to help our cause in the beef and other markets such as wine.

Russia, like the rest of the world has been hit hard in the past couple of years by Agflation where the price of agricultural products is continually climbing .

The frustration for Russia is that is a country with enormous tracts of arable agricultural land but cattle numbers have been steadily declining during the past decade at the same time economic development has caused a sharp increase in demand for beef products .

Russia's current demand for beef is 4.5 million tonnes and current production can be as low as 1 .7 million tonnes .

So, it is clear, there are huge opportunities for South Australia to not only gain from the export of beef but also to become involved in joint ventures with Russia .

In short, they have millions of hectares of great agricultural land but lack the expertise, equipment, and logistics to make farming viable and sustainable .

That is where South Australian companies and individuals, who are prepared to become involved, could become major beneficiaries of the booming Russian economy.

And, while I have stuck to statistics on beef the same could be said about dairy, poultry and pork production in Russia .

In fact there are only enough grapes in Russia to supply 25 per cent of the domestic wine market.

An improvement of farming practices would also help assist ease the global food shortage and hopefully bring relief to consumers struggling with the ever-increasing cost of food .

In 2005 the Russian Government designated agriculture, affordable housing, healthcare and education as the four priorities for national development.

The Russian Government is putting billions of dollars into supporting the agricultural sector and they have started to turn around the declining production figures.

The current situation in Russian is extremely favourable to South Australian companies and individuals looking to export live cattle .

Port Adelaide-based company Expo Trade has been very successful in the area of beef and skin exports to Russia and is now carrying that success into the live-trade market .

With wine, beef and live cattle exports increasing I think we should also be looking at selling South Australia's fish products such as abalone, kingfish and tuna into the Russian market .

I have already introduced some Russian food contacts to aquaculture industry representatives on Eyre Peninsula and I am more than happy to continue to provide introductions that will help boost South Australian exports.

On my March 2008 trip the Australian Ambassador to Russia, Robert Tyson, hosted a dinner at the Ambassador's residence in Moscow attended

by seven of Russia's eight biggest wine importers and journalists from Russia's five biggest wine and gourmet food magazines .

We served South Australian wines, kingfish, lamb and beef and I spoke about the growing relationship between South Australia and Russia in terms of the mutual relationship whereby they buy increased volumes of our wine and we continue to provide industry support.

Five years ago Australia sold virtually no wine to Russia, three years ago it wasn't much higher than zero and now we have one per cent of the market.

One per cent may not seem like much but in a country with a big population that has a drinking culture (albiet spirits) there is plenty of room for growth .

The yield is also very good with South Australian wine fetching an average of $6.29 a litre .

The demand for all sorts of quality items is increasing n Russia and wine is no exception. We are also seeing substantial growth in the middle class as professionals are beginning to earn higher wages .

We intend to go head to head with the French and Italians and really establish Australia as a country that offers great wines that provide consistently high quality.

Breaking into the Russian market is not as easy as it sounds . Those who are doing well in Russia have worked very hard to get shelf space and onto wine lists.

While they are now reaping the rewards they, along with the South Australian Government and Austrade, have also paved the way for others to follow.

But wineries looking to crack the Russian market may have to move quickly with many importers I met in Moscow saying they had room for only one or two more Australian labels at this stage.

The Russian culture seems to revolve around long-term relationships and there is a great deal of emphasis on business being done with the support of Government.

Many of the top Russian business people have very close ties with the Russian Government and they like the fact the South Australian Government is pushing and supporting South Australian wineries .

We will continue to invite delegations of Russians to visit South Australia, we want to show restaurant owners and sommeliers our State and the wonderful wine regions and get them to meet some of the great characters we have in our industry.

To that end we are devising a program of visits and we are also exploring sending some South Australian winemakers to Russia's winegrowing region later this year for the Russian vintage. We will also offer any support we can to South Australian wineries who are hosting their distributors .

From here on in I think it is important we maintain relationships and continue to foster them. We need to keep the quality of our exports as high as possible and really carve out our place in the Russian market where we are defined as providing consistent quality and we back the regional heroes concept and make McLaren Vale and Barossa Valley household names among Russia's wine drinkers .

For those looking to export to Russia contact Austrade or the South Australian Government's Primary Industry Department. Find a distributor in Russia and be prepared to put in a lot of work to convince them to add your wine to their lists. Exporters will need large doses of perseverance and patience . Don't be shy to ask for money up front before you send them your wine.

My recommendation to the South Australian Government is to organise a delegation, led by the Premier or a senior minister, to visit Russia and forge links and relationships with the Russian agriculture and mining sectors .

Former Queensland Premier, Peter Beattie, visited Russia in 2005 and 2006 and sponsored Australia week in Moscow in 2006 and Russia Week in Queensland in 2007.

Western Australian Premier Allan Carpenter visited Russia in April 2008 to look at mining investment opportunities for Western Australia.

I firmly believe South Australia needs to be more engaged with Russia and people in our bureaucracy and the private sector should be doing more to exploit our resources and our intellectual capability in a serious trade relationship with one of the world's strongest and fastest-growing economies.

Our efforts in India and China are reaping results in terms of higher exports but the SA Government should also be seriously engaging with Russia .

In 1998 Russia was in financial crisis after faltering in its early steps after the fall of Communism.

By the Summer of 2006 Russia had moved from a debtor country to a nation that had not only paid off its debts to all other countries but had also become a net lender with a Trillion dollar surplus.

Wine companies I spoke with in 2006 were hesitant about trading with Russia because they thought they may send their wine overseas and never receive payment for it or see the wine again.

At the same time these producers had few problems trusting and agreeing to terms with importers and distributors in the United States .

Two years on and the credit crisis in the US has meant some Australian producers are chasing payments across the US for wine that has long left Australian shores .

In the same period Russia's economy has gone from strength to strength and Russians are paying more for South Australian wine than every other major market other than Singapore .

In June 2007 Penfold's chief winemaker, Peter Gago, conducted the first Penfold's tasting in Moscow and the company's Russian importer says it can't get enough of Penfold's top-shelf wines to meet the demand of Russian consumers.

France and Italy head the premium sector in the Russian wine market and Australia is working on a marketing strategy to ensure we promote our wine as high quality to set ourselves apart from the "New World" category .

PEAKER HOUSE OF ASSEMBLY"

It is the aim of the SA Government and Wine Australia to conduct intelligent marketing to carve out a niche in the market for our wines that delivers the highest price possible for South Australian producers.

In Moscow David Travers and I spoke at a Sommelier School where we promoted South Australian wines and discussed the various wine regions with the students who will soon graduate and be promoting our wines to their customers.

We also took part in a tasting at the independent Academy of Wine and Gastronomy where we showed four South Australian wines and discussed their characteristics and South Australia's wine history .