**3. Background information: Armenian wine industry**

During the communist era, the satellite countries were divided to focus on the production of particular products. Therefore, Armenian table wine production was shifted mainly to brandy production, which led to a significant change in the Armenian wine culture. Other countries, such as Georgia and Moldova, were focusing on wine production, which preserved the wine culture within these countries [30].

The production area has gone through a tremendous decline after a very peak in 1985 with 35,000 ha (~88.4 million litres). During the Soviet times, Armenia processed more than 200,000 tons of grapes mostly for brandy, a little bit of wine and sparkling wine. The major part of the production was consumed in Russia and the empire of the Soviet Union. Especially the anti-alcohol campaign in 1985 initiated by Michail Gorbatschow had an enormous influence on the area until the collapse of the Soviet Union in 1991 [31]. His goal was to improve the Soviet morale, to reduce the expenses and deaths due to high alcohol consumption. Many old vineyards were cut off or removed to reduce the production of alcoholic beverages [32]. **Figure 3** gives an overview of the wine production from 1971 to 2017.

In the post-Soviet period, the grape-growing industry declined heavily in Armenia and other Soviet countries, and so did the wine sector due to changes in

**Figure 3.**

*Wine production (incl. base wine for brandy) in million litres in Armenia from 1971 to 2017 annually (based upon [33, 34]).*

#### *Including Smallholders with Vertical Coordination DOI: http://dx.doi.org/10.5772/intechopen.92395*

land privatisation. Other influencing factors were the absence of replantation of vineyards and the shift of some farmers to other more profitable crops [1]. Triggered by the lack of productivity, outdated machinery and issues in bulk purchasing systems, problems of adaption to new emerging markets occurred. All these issues led to a drastic rise in terms of vine cultivation costs [31, 35]. Some producers terminated their production ultimately or shifted to new industries. Since the early 1990s (with an interruption due to the financial crisis), the grape-growing sector slowly has recovered in terms of production numbers, mainly because of an upswing in the brandy sector.

For brandy production, mainly white grape varieties, which can deliver higher yields and sugar levels (to obtain higher alcohol content for brandy making), are cultivated. Those varieties are less suitable for table wine production. Red varieties are mostly used for table wine production, where, in addition to sugar level, healthiness and other quality aspects such as ripeness, acidity and pH level are more important. Therefore, prices between red and white grapes are tremendously different—white grapes receive overall lower payments [1].

Producers purchase mostly grapes from small rural households with small average sizes of grape-growing units leaving the grape growers in a weak spot for bargaining. According to Hanf et al., most of the grape-buying agreements (besides YBC contracts) in the wine and brandy industry are based on quantity and trust [10]. They do not include quality criteria. Currently, informal, 1-year oral agreements are usually closed before harvest, but mostly repetitive during the years. The case of not observed contracts was also found in Armenia and has led to mistrust [10].

In 2017, overall, 66,544 farmers cultivated grapes in an average plot size of 0.23 ha [36]. Due to their plot sizes, many smallholders cannot manage to finance their winemaking facilities and/or get access to the market to sell the high-valued final product. That is why farmers are heavily dependent on their grape sales to a few operating production plants such as wineries or brandy factories [1]. The dependence on grape sale for smallholders is still high, as it is the primary source of rural income.
