Feature-Hungary Wine Market Not For Faint Of Heart
"The first time I tasted this wine in Budapest I knew I had to meet the man who made it," Hwang told wine lovers on a tour of his cellars in eastern Hungary, four hours' drive from the capital and near the village which gives the wine its name.
Hwang not only met the winemaker, Istvan Szepsy, he effectively bought the company, putting down millions of forints to create a firm called Kiralyudvar with Szepsy as chief winemaker. Hwang is one of a handful of well-heeled foreign investors, many of them French, who have fallen under the Tokay spell. They are spending millions of dollars on rescuing the wine from the effects of communism and restoring it to its former glory.
Hungarians, a little envious of foreigners who seem to have cash to burn, think the investments are at best long term, at worst money down the drain.
"The question is whether the capital will ever pay off," said Andras Urban, executive secretary of the National Winemakers' Association. "I think not in every location, and not for a very long time."
No matter. Dubbed "the wine of kings...the king of wines" in a comment attributed to France's Louis XIV, Tokay is the stuff of legends and defies the laws of economic gravity.
ROTTEN GRAPES
Fermented from rotten grapes - the rottener the better - to give it its characteristic sweetness, Tokay, correctly called Tokay Aszu, was produced on the estates of noble families like the Eszterhazys and Habsburgs until war and communism turned the social order upside down. Renowned in Europe since the Middle Ages, Tokay was immortalised in song by Schubert and in a folk ditty by Bartok. Voltaire said sweet, syrupy Tokay "kindled words of genius".
Under communism, however, it became a wine for the masses. The state-run Tokay wine collective churned out ever greater quantities, much of it said to have a "boiled, heated" taste but which nevertheless had its years.
Today, Tokay is on the rise again. In trendy Paris, couples pay $30 for a 25cl (half pint) flask. At auction in London, a bottle of 1811 Tokay fetched almost $16,000. And the gold is not just in the bottle but also in the Tokay air.
Industry sources say the wine arm of French insurance company AXA spent $10 million on its Disznoko (Pig Rock) Tokay winery - complete with what one employee described as "the most expensive tractor shed in Central Europe".
Along with Hwang, who said he made his millions in wireless communications and real estate, the Spanish wine-making house Vega Sicilia, a British-led consortium, assorted individuals, several French insurance firms, a French food cooperative and Japan's Suntory Ltd have pumped some $40 million into Tokay.
Their pockets may have to be deeper still.
STATE OF TRANSITION
After years of communist exploitation and with European Union membership around the corner, the Hungarian wine industry is at best in transition, at worst in a state of crisis.
The industry is plagued by low prices, poorly cultivated vineyards and a substantial amount of "fake wine", made with sugar and anything else at hand, dumped on the domestic market. The National Wine Qualification Institute recently reported it has investigated almost 300 such cases this year.
More and more Hungarian wine is shipped in bulk rather than bottles, further depressing prices for growers and wine makers.
Last year, for the first time since 1992-93 when production bottomed out after communism collapsed, more bulk wine than bottled wine was exported, or 541,424 hectolitres versus 450,111 hectolitres, the winemakers' association said. On top of that, the government will impose an excise tax next year which, though only five forints (two U.S. cents) per litre, is sure to have an impact on the extremely price-sensitive domestic market, which already favours beer.
It adds up to a mixed picture for the Hungarian wine trade, where there are as yet almost no big players from the world's wine and beverage industry.
"The problem is that Hungarian wine production is very fragmented," said Viktor Katona, an equities analyst at HSBC James Capel in London who admits to a fondness for the fruits of his native country's vineyards.
Analysts say EU integration could deal a body blow to Hungarian producers who fail to meet EU standards and cater to the European demand for a predictable, homogeneous product. The EU eventually will demand Hungary drop its 40-to-60 percent import duty for wine, which would open the door to competition.
CHOICE AREAS
But on the whole Katona was upbeat, if only because he ranks some Hungarian wine regions as among the world's best.
"The French and the Italians are so good and it is difficult to compete with them. But there are a number of areas like Eger, Tokay and Villanyi which have got a naturally fantastic climate so they have to produce good wines," said Katona, mentioning three of the best known Hungarian wine regions. "I am sure there are a number of Hungarian wine areas that are not going to make it...but there are at least the three of them...which must be successful."
Foreign capital like Hwang's may be the key to unlocking that potential, as in the case of winemaker Szepsy, who is delighted to be bankrolled by his Chinese-American partner.
"Our family always made wines - back in the 16th Century the family were landowners," said Szepsy, 49, as he let wine spurt into glasses from a long-stemmed "wine robber" used to siphon off wine from the wooden barrels in which it ages.
Under communism, Szepsy worked in the wine collective which he said produced for a "market economy, but a cheap market".
"All the wines were made into a big blend - we mixed the good with the bad and it was all supposed to come out tasting the same," he said.
When communism collapsed, Szepsy pieced together a small business with a handful of vineyards and a wine cellar that had not been used since World War Two. Now, with Hwang's backing, he is free to make wines the way he wants to, in a series of old buildings being restored and fitted with the latest equipment.
And Hwang seems quite relaxed about getting a return on his investment. "We're hoping for a cash flow, eventually, maybe in 10 years," he said.
Hwang not only met the winemaker, Istvan Szepsy, he effectively bought the company, putting down millions of forints to create a firm called Kiralyudvar with Szepsy as chief winemaker. Hwang is one of a handful of well-heeled foreign investors, many of them French, who have fallen under the Tokay spell. They are spending millions of dollars on rescuing the wine from the effects of communism and restoring it to its former glory.
Hungarians, a little envious of foreigners who seem to have cash to burn, think the investments are at best long term, at worst money down the drain.
"The question is whether the capital will ever pay off," said Andras Urban, executive secretary of the National Winemakers' Association. "I think not in every location, and not for a very long time."
No matter. Dubbed "the wine of kings...the king of wines" in a comment attributed to France's Louis XIV, Tokay is the stuff of legends and defies the laws of economic gravity.
ROTTEN GRAPES
Fermented from rotten grapes - the rottener the better - to give it its characteristic sweetness, Tokay, correctly called Tokay Aszu, was produced on the estates of noble families like the Eszterhazys and Habsburgs until war and communism turned the social order upside down. Renowned in Europe since the Middle Ages, Tokay was immortalised in song by Schubert and in a folk ditty by Bartok. Voltaire said sweet, syrupy Tokay "kindled words of genius".
Under communism, however, it became a wine for the masses. The state-run Tokay wine collective churned out ever greater quantities, much of it said to have a "boiled, heated" taste but which nevertheless had its years.
Today, Tokay is on the rise again. In trendy Paris, couples pay $30 for a 25cl (half pint) flask. At auction in London, a bottle of 1811 Tokay fetched almost $16,000. And the gold is not just in the bottle but also in the Tokay air.
Industry sources say the wine arm of French insurance company AXA spent $10 million on its Disznoko (Pig Rock) Tokay winery - complete with what one employee described as "the most expensive tractor shed in Central Europe".
Along with Hwang, who said he made his millions in wireless communications and real estate, the Spanish wine-making house Vega Sicilia, a British-led consortium, assorted individuals, several French insurance firms, a French food cooperative and Japan's Suntory Ltd have pumped some $40 million into Tokay.
Their pockets may have to be deeper still.
STATE OF TRANSITION
After years of communist exploitation and with European Union membership around the corner, the Hungarian wine industry is at best in transition, at worst in a state of crisis.
The industry is plagued by low prices, poorly cultivated vineyards and a substantial amount of "fake wine", made with sugar and anything else at hand, dumped on the domestic market. The National Wine Qualification Institute recently reported it has investigated almost 300 such cases this year.
More and more Hungarian wine is shipped in bulk rather than bottles, further depressing prices for growers and wine makers.
Last year, for the first time since 1992-93 when production bottomed out after communism collapsed, more bulk wine than bottled wine was exported, or 541,424 hectolitres versus 450,111 hectolitres, the winemakers' association said. On top of that, the government will impose an excise tax next year which, though only five forints (two U.S. cents) per litre, is sure to have an impact on the extremely price-sensitive domestic market, which already favours beer.
It adds up to a mixed picture for the Hungarian wine trade, where there are as yet almost no big players from the world's wine and beverage industry.
"The problem is that Hungarian wine production is very fragmented," said Viktor Katona, an equities analyst at HSBC James Capel in London who admits to a fondness for the fruits of his native country's vineyards.
Analysts say EU integration could deal a body blow to Hungarian producers who fail to meet EU standards and cater to the European demand for a predictable, homogeneous product. The EU eventually will demand Hungary drop its 40-to-60 percent import duty for wine, which would open the door to competition.
CHOICE AREAS
But on the whole Katona was upbeat, if only because he ranks some Hungarian wine regions as among the world's best.
"The French and the Italians are so good and it is difficult to compete with them. But there are a number of areas like Eger, Tokay and Villanyi which have got a naturally fantastic climate so they have to produce good wines," said Katona, mentioning three of the best known Hungarian wine regions. "I am sure there are a number of Hungarian wine areas that are not going to make it...but there are at least the three of them...which must be successful."
Foreign capital like Hwang's may be the key to unlocking that potential, as in the case of winemaker Szepsy, who is delighted to be bankrolled by his Chinese-American partner.
"Our family always made wines - back in the 16th Century the family were landowners," said Szepsy, 49, as he let wine spurt into glasses from a long-stemmed "wine robber" used to siphon off wine from the wooden barrels in which it ages.
Under communism, Szepsy worked in the wine collective which he said produced for a "market economy, but a cheap market".
"All the wines were made into a big blend - we mixed the good with the bad and it was all supposed to come out tasting the same," he said.
When communism collapsed, Szepsy pieced together a small business with a handful of vineyards and a wine cellar that had not been used since World War Two. Now, with Hwang's backing, he is free to make wines the way he wants to, in a series of old buildings being restored and fitted with the latest equipment.
And Hwang seems quite relaxed about getting a return on his investment. "We're hoping for a cash flow, eventually, maybe in 10 years," he said.
