Of the specialized economic activities that the 10 members of the steering committee for the project on private sector employment creation and productivity – organized by Executive Magazine in partnership with the United States Agency for International Development (USAID) – agreed on when determining the five industries that would be the focus of the roundtable series and report, the activity of wine and spirits production as sub-sector of the food processing and agro-industrial sector, is perhaps the most consistent and at the same time a most ambivalent choice.
The latter appears to apply in the cultural context that this activity is not accepted unequivocally as constituent of a desirable national economy of Lebanon but also in the sense that it relates to some products that are strongly established on domestic and export markets and some products, such as liquors made from domestically produced ingredients, that arrived on the market just a few years ago. It is certainly a convincing proposition from the perspective of a taste shared by many and one that is easily memorable.
When compared with niches such as content production in the media sector or the digital outsourcing proposition in the tech entrepreneurship and knowledge enterprises sector, Lebanese wine making is an established cultural good. From the agro-economic development perspective, it has, together with olive oil production, since the 1990s commanded attention by international development advocates as one of the economically “low-hanging fruits” in the country’s most traditional sector of agricultural production.
Production of flavorful spirits, firstly the distilling of Arak from grapes and aniseed, is just as traditional an activity as cultivation of wine in Lebanon and the Eastern Mediterranean but not one that has been able to break reputation barriers that kept Arak confined to a niche of connoisseurs. Thus distilling of liquor from local ingredients, and notably the production of gin, is a recent and more promising niche of spirits production. A “2020 Factbook” published by the Investment and Development Authority of Lebanon (IDAL) names two spirits ventures (gin and vodka) among a short list of nine announced investment projects in the agro-food sector for 2018-19, albeit without citing investment amounts. Surprisingly the changing economic conditions and social trends of Lebanon appear to have boosted this promise.
The wine industry in Lebanon does not only have roots dating back millennia, its modern incarnation is highly mature by comparison to other real economy niches under discussion at the five roundtables. Put in numbers, the industry has a total output of 9 million bottles per year according to Zafer Chaoui, current president of industry body Union Vinicole du Liban (UVL) and chairman of leading winery Chateau Ksara. In terms of registered enterprises, the industry advanced from five wineries in the early 1990s to 56 registered at the Ministry of Agriculture, Chaoui informed his fellow participants in the Executive roundtable on food processing and agro-industry.
According to numbers which IDAL cited from Lebanese customs, wine exports have grown annually from 2010 to 2019 to reach a total of $21.3 million – an increase of 71 percent over the decade. Newer figures cited by Chaoui put wine exports for 2020 up to the month of November at $14.5 million. The wine sector has also increased in geographical diversity and sophistication when comparing the early 2020s to the early 1990s. There have been even a few forays into development of building a wine making ecosystem from biologically responsible and chemicals-free cultivation of grapes to programs that were brought into the country some six years ago under a collaboration of Chateau Ksara and the UK-based Wine and Spirits Education Trust (WSET), a specialized education and certification provider.
Notwithstanding the fact that wine making in some form is one of the oldest human preoccupations practiced in the hill country of the eastern Mediterranean and has seen an economic rise over the past 30 years, it would be difficult or even preposterous to claim that local wine culture is firmly on the way of fulfilling its utmost potential and reaching superior maturity. Its market power in terms of per capita wine consumption is minuscule by comparison with the old-established European wine countries but also by lateral comparison to production and per capita consumption in up-and-coming wine making and exporting countries of the 21st century like Argentina, Chile, Australia, or South Africa.
Furthermore, noting a data deficiency on wine and spirits as part of what still appears as an endemic data gathering weakness of the Lebanese economy, it would be an illusion to think that this sector is fully transparent in terms of its economic role. This opacity unfortunately extends to absence of knowledge on the number of viable enterprises and their output capacity as well as the number of sustainable jobs that are created by the sector directly and indirectly. Lastly, from the supply chain and talent perspective, wineries and their non-viticulture input needs, appear to be hardly integrated with either the manufacturing industry or native vocational or university education.
On both wine and spirits, it is notably easier to find information on the participation of Lebanese producers in foreign trade and taste fairs and the accolades that they received at those occasions than to find economically relevant data. Chaoui discloses to Executive that Chateau Ksara as the largest single producer in the wine sector has 160 permanent employees but cannot provide granular information on either permanent or seasonal employment figures for the Lebanese wine industry. Compared with estimates on the wine industry, however, the annual performance of the country’s new spirits, such as vodka and gin, seems still invisible even to analysts and industry insiders. When Executive inquired with the owners of the Three Brothers gin brand about the total domestic market in terms of production and their share in the market, Ralph Malak, chief taste developer and partner in the enterprise, said it was too soon to have studies on this market niche.
With data on wine often being estimations and data on gin barely on the radar, the non-existence of a local supply chain even as a manufacture of suitable bottles, and with neither oenology nor viticulture visibly entrenched in the education sector, the potential of the wine and spirits sub-sector is a proposition that has yet to be amplified.
The year that reshuffled all cards
No person even most fleetingly informed about the recent economic fortunes of Lebanon should be surprised to hear that the 2020 crisis brought immense disruption to the wine and spirits sector. “What happened in Lebanon consequent to the devaluation of the Lebanese pound is terrible,” Ksara’s Chaoui confirms to Executive in a follow-up conversation to the agro-industry roundtable. “Wine, gin, whatever, will become luxury products. And the poorer we will become, the more they will become luxury products,” he warns ominously.
“2020 [has been] a life-changing year,” summarily sighs Three Brothers’ Malak, who was not a roundtable invitee, when asked by Executive about last year in an interview on the situation of the spirits niche.
While by Chaoui’s expectation the crisis on one hand will open development opportunities for national industries, the flipside of this coin and driver of domestic wine prices to him will be higher cost for producers that rely on imported materials. “In the wine industry, what we call habillage, meaning the bottle, label, capsule and cork, are imported. Also 90 percent of the equipment, which has to be kept at the highest level, has to be imported. These inputs will follow the price logic of the devaluation and lead to substantial price increases,” he reasons.
From the perspective of Malak, whose gin making interest is part of a group that includes wine making, distilling of gin and arak, as well as operations of nightlife venues and resorts, the most direct expression of last year’s malaise was the closure of the group’s hospitality venues that in his assessment annihilated business for six to eight months of 2020.
In the same breath with which he reminisces on the pain of 2020, however, Malak adds an interestingly upbeat twist to the story of the forced inactivity of their pubs. “We took this time to focus on alcohol production. We doubled the production of the Three Brothers, doubled the production of our wine, and we limited our production of arak,” he says, explaining that a target line for restricted monthly output of arak was set in connection with the group’s aims to approach markets mainly with socially accessible wine and gin.
The counter experience to the closure of Lebanon’s nightlife and its severe repercussions for the so-called on-trade of Three Brothers gin within bars and pubs was a huge boost of demand in the digital off-trade. Simply said, the nightlife clientele’s thirst for this local gin found its expression in a spike of e-commerce and delivery business. “The demand for Lebanese products and especially the Three Brothers [gin] went up so much. We focused on delivery and on the people who deliver,” Malak says. According to him the spike in demand was entirely unexpected but a group-owned alcohol sales outlet, “The Bottle Shop,” with a proprietary e-commerce platform as well as distribution via third-party ecommerce platforms helped to sweeten the pain of the on-trade slump.
This explains why the course of the gin maker over the past months has included new investments in semi-automatic machinery and production venues (Malak declined to name the size of the investment) and new product development of a dry gin – that he says is soon to be brought to market – and also of another liquor product distilled from a local agricultural produce that is often going to partial waste. This is without even mentioning the ambition of the enterprise to access export markets in Dubai, Germany, and North America where certifications for Three Brothers have already been obtained. “The plan is to take it abroad while keeping base and operations in Lebanon. We want all the world to know about the brand,” Malak says. However, the changes for the outlook in both niches, like the situation of wine and spirits in overall societal context, are not lacking ambiguity.
Seeking the truth in exports
If you want to forget all about the Latin “in vino veritas” phrase (suggesting that wine consumption makes you speak the truth), it certainly appears as if it is the shared truism of the day of most if not all Lebanon’s wine and spirits producers that their future is in exports.
“Exports are the main guarantee of the future of the wine industry,” emphasizes Chaoui. In his view, one major barrier to improvement of exports for members of the industry is the reliance of most wineries on diaspora connections as an export channel. It would be better for the industry to penetrate national markets in export destinations and transcend the niche of an ethnic product found in a Lebanese restaurant. However, while exports would secure winemakers’ ability to pay for imported inputs and maintain their equipment at high output – quite the rationale for focusing on exports even if this comes at the expense of local affordability of Lebanese wines – Chaoui notes that export potential is over-hyped and restricted by the smallness of the supply that producers can bring to export markets. “In my opinion the whole sector sells in value between $50 and $60 million annually,” he says.
His bigger fear for the wine industry is the emigration of qualified employees, he adds, before mentioning fear factors that range from bureaucratic and political barriers at regulatory body Institut National de la Vigne et du Vin (INVV) to reputation risks for Lebanese wine in case any producer starts to peddle a fake or unhealthy product.
In collaborative potentials with adjacent industries, Chaoui cites the capacity of chocolate makers that he saw at the Executive agro-industry roundtable, because the combination of wine and chocolate is a culinary theme that has been explored elsewhere but not yet in Lebanon. He disapproves of persistent barriers against effective collaboration among wine makers in the UVL where “many of my colleagues have opinions that are opposed to the ideas of some other colleagues.” He also mentions “terrible individualism” that can obstruct progress through collaboration at a time when the greater good might be the industry’s better interest. “It is high time that we believe that we can do better together than each one individually,” he says.
For Malak, the question of the pricing of and demand for Lebanese products in the pressure cooker-scenario of the Lebanese crisis entails significant positive experiences of seeing solidarity-driven demand, where people voted with their purchases to help one another. When asked if the enterprise has become an economically serious business after all partners contributed to an increase in capital, he says that the idea of the company is that of a brotherhood of bartenders and that “We never want to be serious” – sounding more like a social entrepreneur of the Ben & Jerry type than a ruthless profit maximizer. As to the pricing policy of the venture, he says enthusiastically: “We have settled on a strategy that will be good for us and for the people. All the people in what I call the tribe understand why prices have to be a little higher. At the end of the day, we are more than fair with our prices.”
The anecdotal impression of price developments in the off-trade of Lebanese wine and spirits since the beginning of the lira crisis is one of shrunken imports and growing retail prices. These accelerating retail prices might only very imperfectly reflect the fact that, as noted by Chaoui, producers since the start of the crisis had advantages in costs of grapes and labor. It has to be acknowledged that, as Chaoui further notes, these temporary advantages will erode and disappear with time, but the price trajectories of Lebanese wine look uncertain from a consumer perspective.
The wider cost-benefit computation of wine and spirits might indeed benefit from stakeholder considerations that include more than export-import equations. Street wines of local vintage that, as Malak puts it, one can enjoy without consuming a steak or shrimp dinner are not only appealing from the perspective of being generally preferable over questionable hard liquors that pretend to be whiskeys or Lebanese vintages that have crossed price thresholds of becoming prohibitive for all local earners. Also importantly for the consideration of a future national wine market, these local street or table wines are starting to meet on supermarket shelves with imported table wines in similar price categories. To be sure, some imported wines have even more mind-blowing price tags for a local earner than the priciest local name but it could be a shaky move for Lebanese producers to set price points in disregard of the fact that by far not all of their needs are focused in importation of bottles and ink to print labels.
The trajectory of prices for wine and spirits, which appear to intersect with divergent economic and social narratives in the significant Lebanese communities of wine drinkers and nightlife aficionados, thus hints that the potential of this industry is yet undecided from a job creation, social development and communal cohesion perspective. There are signs, however, that development of this sub-sector could be beneficial beyond aspirations of job creation and economic productivity.