Neither economic gloom nor the presence of an illustrious neighbour appear to be overshadowing Armagnac, France's less well known brandy denomination. Chris Losh found the region's producers to be in an upbeat mood on the back of growing sales and an optimistic outlook for the future.

At a time when big brands, big retailers and big drinks categories are regarding the future with all the enthusiasm of a bunch of turkeys eyeing the imminent arrival of Christmas, it's easy to assume that the picture is unremittingly gloomy.

Not necessarily so. Two weeks ago, I was in Armagnac. Somewhat in the shadow of Cognac, France's largest and best known brandy denomination, Armagnac is the kind of small, niche product that is of little interest to the mass market, and might therefore be expected to be in terrible trouble.

Only it isn't. In fact, in its own quiet way Armagnac is doing rather well for itself. Exports rose by 8% in volume and, significantly, 13% in value over the year to August 2008. And there's more room for improvement. "Even within the niche market where we operate, we're far from fulfilling our potential," says Thomas Guasch of Baron de Sigognac.

The last two decades have, to be fair, not been all plain sailing for Armagnac distillers. The area under vine is the same as it always has been, but market forces thousands of miles away are having an effect. South West France is one of the few areas left in the world that is able to supply half-decent entry-level table wine, and with the move from bulk to bottle, grape prices have risen accordingly.

Wine grapes now fetch a 20% higher price than those for distillation, meaning more wine and less brandy. The example of the Comte de Cazaubon co-operative is illustrative: 50 years ago, its entire production was Armagnac; 20 years ago, it was 80%. Now, table wine accounts for all but 5%. Moreover, awkward grapes like the hybrid Baco (which is the best grape for long-lived as opposed to young Armagnacs) are finding themselves out of favour.

This isn't necessarily bad news, though. Those growers who are left tend to be both specialised and committed.

Increasingly, the Armagnac market is splitting into two: cheap (often bulk-shipped) three-star, and much more expensive, artisanal XO or 'hors d'age'.

Much of the cheapest stuff stays in France, where it is drunk neat as an aperitif. Sales at this level though are in decline. "It's like the wine market: people are drinking less but better," says Michel Palacin of Cave de Cazaubon. "It's becoming a deluxe product."

Not merely 'premium', notice, but 'deluxe'. While the mid-price VSOPs have found it hard to compete with the marketing muscle of the (pricier) competition from Cognac, the top end, from XO upwards, is seeing impressive growth.

However, Armagnac producers are the first to admit that the region's size - and the long shadow cast by its powerful neighbour to the north - makes it a long slog. "The problem is always the same," says Florence Castarede from Armagnac Castarede, "No-one knows what Armagnac is. The only way is to do tastings to let people see that it's a good product and good value."

Since this is a time-consuming way of spreading the message and most producers are small, family concerns, progress for the category as a whole is slow.

This situation has not been helped by the goings-on at one of its largest producers, Janneau. When owned by Seagram, it was producing 1m bottles a year; now it's barely 10% of that. Indeed, Janneau didn't distil at all between 1994 and 1997.

Yet while progress is hardly break-neck, something solid, interesting and potentially long-lasting is being built. This is particularly apparent at the top end, where Armagnac can offer high-quality, often very old spirits at a good price. Moreover, it can do so in a way that non-experts can understand.

A growing number of producers are dispensing with the arcane VS, VSOP and XO classifications, in favour of a simple minimum age statement for their blends, while the tradition of selling vintaged spirits is a marketer's dream.

No wonder, perhaps, that sales in Russia have more than tripled in the last three years, when, practically alone in the drinks world, Armagnac offers the chance to buy really old vintages in practically any year. As an anniversary-drinking category, it's unsurpassed, particularly if money is not an issue.

"Even in the financial crisis, we're not suffering; demand is the same as before," says Bruno Gazaniol of Marquis de Montesquiou. "If you had the money for something at GBP200 a glass before, you've probably still got it now."

Besides Russia, Italy, too, has seen impressive growth, while the UK is also on a solid upward curve. In the pancake-flat US, some producers see Armagnac as possibly offering a high-quality brandy alternative for drinkers who now view XO Cognac as having been claimed by the African-American market.

Either way, vintage is increasingly crucial. "That side of things is increasing," says Gazaniol. "It's part of the artisanal side of production that we have in Armagnac, and it's a good point of difference."

Other innovations in the region are less successful, however. Some of the more modernist bottles clash with a drink that isn't really geared up to competing with vodka or Jack Daniels, while the controversial 'blanches' or white Armagnacs have failed to have much impact.

That aside, Armagnac is looking strong. Indeed, there is only one short-term cloud on the horizon. Hit by frost, 2008 is half the size of a normal vintage, which, 30 years down the line, could be bad news for anyone born in the last 12 months…