Despite losing their largest market when Russia imposed an export ban in 2006, Georgian wine producers are confidently pursuing other markets. Indeed, the embargo acted as a catalyst for improvements in quality, though informed observers believe Georgian producers may have to be prepared to drop their prices to make further export gains. Mark Godfrey reports from Tbilisi.

Russia may have invaded Georgia this August, but its wine industry seems almost gung-ho about the embargo that the Russian government has imposed on Georgian wines since 2006. It has proven a "huge stimulus" to local winemakers to improve quality, according to the head of a project tasked with opening new markets for the country's wines.

Nikoloz Grdzelidze, general director of the Tbilisi-based AgVantage programme, which is funded by the US government, says that pressure has resulted in a "huge improvement" in the quality of local wines.

Sales to countries other than Russia doubled to 12m bottles in 2007, according to Levan Davitashvili, head of sales strategy at AgVantage. He predicts that figure will hit 20m by the end of this year.

Ukraine accounts for half of Georgia's wine exports, with the second largest destination, Kazakhstan, taking 15%, slightly more than Poland in third place. Over 10% goes to the US, while Western Europe accounts for 10% of the country's exports, says AgVantage.

Prior to Russia's Federal Inspectorate for Consumer Protection imposing a ban in 2006, alleging excessive pesticide and heavy metals in the Georgian wines, Georgia sent more than 80% of its wine exports, and 9% of its total exports, to Russia. That ban remains in place. Curiously, other countries don't appear quite as concerned about these supposed claims.

The American Chamber of Commerce in Georgia (AmCham) is trying to add some of America's bigger wine distributors to a US trade mission set to visit Tbilisi from 26 to 28 October. Georgian wine will have a "significant competitive advantage" in the US market when a 14% import duty is taken off in February, says Sarah Williamson, vice-president of AmCham.

The US Congress, Williamson explains, is soon expected to approve the inclusion of Georgian wine in the American Generalised System of Preferences which allows privileged access to the US market. That said, there is no specific support for the Georgian wine industry earmarked in a promised US$1bn aid package.

American drinkers may not be ready to pay for Georgian wine, however. Negotiations between Badagoni, one of the country's top three winemakers, and a major US distributor collapsed last year over price. The Americans wanted an initial shipment of 40,000 bottles at $3 per bottle, explains Badagoni communications manager Mari Liparteliani, a "fairytale price" she says, considering the company's cheapest bottle retails at EUR8 (US$10.24). "Our wine is not so cheap," Liparteliani adds. "We are making brands."

Badagoni is looking to add Japan to its list of export markets which already includes Ukraine, Kazakhstan and Poland. Badagoni's Khvanchkara, a semi-sweet red, has proven particularly popular in Japan, says Liparteliani, while Kazakhstani buyers "are not price sensitive and take big quantities".

Grdzelidze sees the US as more open to Georgian wines than Western Europe. He believes local wine companies need to invest more in marketing and move away from a focus on high prices. "Georgian winemakers were spoilt," he says. "There's no way you can sell a bottle of relatively unknown wine in the US ex-works at US$20." Similarly, Georgian winemakers "can't expect to penetrate new markets with unknown wine varieties".

Davitashvili reports that local firms are adjusting slowly but many "remain stuck in a Soviet mentality when sales and prices to Russia were guaranteed". Larger firms who have brought in European professionals have quickly seen improvements in taste. "Previously the only requirement was to ferment, there was no aroma or body… the local wine industry had hence become uncompetitive."

Betsy Heskell, a Tbilisi-based American businesswoman who has organised several Georgian wine promotion events, says local producers suffer from a superiority complex: "They're artisans rather than businesspeople," she says. Local winemakers are unwilling to give control of their companies to more savvy foreign investors, Heskell says. While Pernod Ricard has taken control of Georgian Wines & Spirits, a recent joint venture between locals and a Californian winemaker collapsed, Heskell points out.

Georgian wine is expensive partly because of the relatively high price of local grapes. At EUR0.35 per kilo, prices are above a European average of EUR0.25. And they could be higher: state subsidies account for 30% of prices. Georgian winemakers' suffer from a lack of co-operation in marketing and shipping, says Heskell. "Winemakers are also reluctant to lower prices while they recoup investments in new technology and processes following the Russian ban," she adds.

However, damage to local infrastructure from Russia's August invasion of Georgia has had minimal affect on winemakers, says Liparteliani. Badagoni ships its wine by sea to its European logistics centre in Poland. Georgia's role as a transport corridor means money from the Arab emirates has been pouring into the country's two Black Sea ports, explains Williamson, while US investors are mulling involvement in the country's rail and road infrastructure.

Knut Gerber, Tbilisi-based director of a wine promotion project funded by the German government aid agency, GTZ, thinks development of Georgia's tourism industry will also get the word out about the country's wine. "Georgians should promote their wine within the country through wine tourism and externally via a good country brand," he says. More networking with the international wine industry and between its own companies is also vital, he adds. Ultimately, says Grdzelidze, the Russian market was too easy. "It's dangerous to be too dependent on a single market."