The European Commission today called for a root-and-branch reform of the Common Market Organisation for wine. The plan aims to increase the competitiveness of EU wine producers, strengthen the reputation of EU wines, win back market share, balance supply and demand and simplify the rules, while preserving the best traditions of EU wine production and reinforcing the social and environmental fabric of rural areas.
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The Commission considers four options for reform, and comes out clearly in favour of a radical reform model specific to the wine sector. This would involve either a one-step or a two-step approach. The two-step approach would begin with measures to bring supply and demand back into balance before focusing on improving competitiveness, including the abolition of the system of planting rights. Producers would be offered generous incentives to grub up uneconomic vineyards, outdated market support measures such as distillation would be abolished and the systems of labelling and wine-making practices would be updated and simplified.
Money would be redirected towards Rural Development measures tailor-made for the wine sector and Member States would receive a national financial envelope to pay for measures decided at national level. Under the “one-step” variant, the system of planting rights restrictions would be either allowed to expire on 1 August 2010, or be abolished immediately, and the current grubbing-up scheme would also be abolished at the same time. After an in-depth debate on its ideas, the Commission plans to table legislative proposals in December 2006 or January 2007.
“European wines are the best in the world,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development. “Our wine sector has huge potential for further growth, but we need to use this potential actively. Despite our history and the quality of so many EU wines, the sector faces severe problems. Consumption is down, and exports from the New World are making huge inroads into the market. We in Europe are producing too much wine for which there is no market. We spend far too much money disposing of surpluses instead of building our quality and competitiveness. Over-complex rules hold back our producers and confuse our consumers. I am not advocating cutting the budget, of about €1.2 billion a year, but we must use this money more intelligently. This is a great opportunity to put the EU wine sector back at the top where it belongs – we must not waste it.”
The EU wine sector:
The EU has more than 1.5 million holdings producing wine, covering 3.4 million hectares, or 2 percent of EU agricultural area. Wine production in 2004 represented 5.4 percent of EU agricultural output, and more than 10 percent in France, Italy, Austria, Portugal, Luxembourg and Slovenia.
The objectives for a new EU wine policy:
To increase the competitiveness of the EU’s wine producers; strengthen the reputation of EU quality wine as the best in the world; recover old markets and win new ones;
To create a wine regime that operates through clear, simple rules – effective rules that balance supply and demand;
To create a wine regime that preserves the best traditions of EU wine production, reinforces the social fabric of many rural areas, and respects the environment.
EU wine consumption is falling steadily, although sales of quality wines are increasing. Over the last ten years, imports have grown by 10 percent per annum, while exports are only increasing slowly. On current trends, excess wine production will reach 15 percent of annual production by 2010/11.
Market support measures such as distillation offer a permanent outlet for an unsaleable surplus. ‘Crisis distillation’ is being used increasingly for quality wines.
Current rules for adapting winemaking practices are cumbersome and hinder competitiveness.
Labelling rules are complex and inflexible, confusing consumers and hampering the marketing of EU wines.
The preferred option: Profound reform of the wine regime
Reform measures would include:
The grubbing-up scheme would be reactivated, with the grubbing-up premium set at an attractive level to encourage uncompetitive producers to leave the sector. The premium would be reduced annually to encourage take-up from year one.
The aim is to grub up 400,000 hectares over a five-year period, with a maximum aid of €2.4 billion. Grubbing-up would be voluntary.
The system of planting rights would be extended to 2013, when it would expire. The least competitive producers would have a strong incentive to sell their rights, while those staying in the sector would focus more on competitiveness, as the cost of planting rights would no longer hamper their expansion.
Areas formerly under vines would qualify for the Single Farm Payment, and minimum environmental requirements would be attached to the payments.
Market management tools – such as support for by-product distillation, potable alcohol distillation, private storage aid and must aid – would be abolished. Crisis distillation would be abolished or replaced by an alternative safety net using the national financial envelope.
This national envelope would be allocated to each producer country, to finance measures best suited to each national situation.
Money would be transferred to Rural Development for wine-specific measures such as an early retirement scheme worth €18,000 per year and agri-environmental programmes.
A clearer, simpler, more transparent quality policy, establishing two classes of wine: wine with Geographical Indication and wine without GI.
Simpler labelling rules, to help consumers and make it easier for producers to compete. This would include allowing the indication of grape variety and vintage on wines without GI status, which is not possible under current rules.
Transfer of responsibility for approving new wine-making practices to the Commission. Recognition of wine-making practices accepted by the OIV.
A ban on the use of sugar for enriching the alcohol content of wine.
The Communication also considers a “one-step” variant of this profound reform approach, which would require very rapid and demanding adjustments in the wine sector.
Under this scenario, the system of planting rights restrictions would be either allowed to expire on 1 August 2010, or be abolished immediately. The current grubbing-up scheme would also be abolished at the same time. Each hectare of vineyard grubbed-up at the farmer’s expense would become part of the area eligible for the Single Payment Scheme.
Options which do not provide an adequate solution:
The Status Quo: purely cosmetic changes would not be sustainable economically or politically.
Complete deregulation of the market: The harsh adjustments would cause severe negative economic and social impacts on the regions concerned.
Reform along CAP Reform lines: The potential amount of decoupled payment would be very small and would probably not compensate sufficiently the loss of market support for many producers.
For more background information, check here.
EU wine reform: Background information on the wine sector
On 22 June, 2006, the European Commission published a Communication on reform of the EU’s Common Market Organisation for wine. The Communication sets out four options, expressing a clear preference for a profound reform specific to the wine sector. The Commission plans to table legislative proposals in December 2006 or January 2007, following an in-depth debate on its proposals. The reform aims to: increase the competitiveness of the EU’s wine producers; strengthen the reputation of EU quality wine as the best in the world; recover old markets and win new ones; create a wine regime that operates through clear, simple rules – effective rules that balance supply and demand; create a wine regime that preserves the best traditions of EU wine production, reinforces the social fabric of many rural areas, and respects the environment.
The EU wine sector
Europe is the:
- leading global producer with over 45% of vines and 60% of production,
- leading consumer accounting for almost 60% of global consumption,
- leading exporter and largest import market.
Over the past 5 years, average production in the EU 25 amounted to 178 million hectolitres (between 166 and 196 million hl) worth around €16.1 billion. With the accession of Romania and Bulgaria, production will increase by roughly 7 million hl.
France is the largest producer, with an average of 55 million hl, representing 30.6% of the EU total. It accounts for half the production of the EU 25 in terms of value - with €7.7 billion.
Italy follows France with roughly 51 million hl (28.5% of the EU) with a value of €4.2 billion (25.8% of the European total).
Spain, the third largest European producer, has an annual production of 43 million hl (23.2%), worth 1.2 billion Euros (7.6%).
Germany’s production in terms of value nearly equals that of Spain (1.1 billion Euros) despite a considerably lower production volume (roughly 10 million hl).
Portugal produces roughly 7.2 Million hl of wine for a value close to 1 billion Euros.
Next come Hungary (4.5 Mio hl for €181 million), Greece (€3.6 Mio hl pour €46 million) and Austria (2.5 Mio hl pour €437 million).
Finally come other small producers such as Slovenia (1 Million hl), the Czech Republic (520.000 hl), Slovakia (440.000 hl), Cyprus (425.000 hl), Luxembourg (140.000 hl) and Malta (67.000 hl).
The mid-term outlook for the EU wine sector until 2010/2011, without reform and on the basis of the expected trends in production, consumption and trade dynamics, is that excess wine production will increase to 27 million hl (15% of production), or to 15 million hl (8.4% of production), if the quantities distilled with aid to the potable alcohol sector are not considered surplus.
The European Union exports more than €15 billion worth of wine. In terms of volume (excluding intra-EU commerce), exports are roughly +/- 13 million hl.
The EU is beginning to be caught by the new world exporters. The four main producers have seen their exports develop in spectacular fashion: South Africa (+770%), Australia (+500%), Chile (+270%) and the United States (+160%) between 1991/1993 and 2001/2003.
European wine imports in 2005 reached almost 12 million hl, compared to 13 million hl of exports.
The global decline is accounted for by two distinct and contradictory situations: the European Union’s gradual drop, and its main competitors’ staggering development of production capacity: USA: +26%, Chile: +48%, Australia: +169%, New Zealand: +240%.
With 1.6 million vineyards, vines occupy roughly 3.4 million hectares in the EU 25. The average size of vineyards is roughly two hectares, although the majority of growers actually work on less than one hectare of vines.
Wine production in 2004 represented 5.4% of agricultural output. Wine production represents around 10% of the value of agricultural production in France, Italy, Austria, Portugal, Luxembourg and Slovenia, and a little less in Spain.
In total, vine-growing farms employ more than 1,500,000 people full time. When the other actors in the production chain are added, the total employment generated by vine-growing is considerably higher.
The figure of 1,500,000 people corresponds to roughly 15% of the total Annual Labour Units for agriculture.
Italy employs the highest number of workers: 500,000 producers, or 32% of the European total, followed by Portugal (227,000 workers – 18%). Together, these two Member States represent half of the labour force employed in vineyards. France and Spain account for 13% and 10% of European workers respectively.
In the EU, specialised vine-growing farms have had higher revenues than the average farm since 1990. On average, the evolution of revenues made steady progress between 1990 and 1999. However, this positive trend has brutally reversed, with average revenue per farm having declined by 12% between 1999 and 2003.
"Quality wines" and “Table wines”
The wines of the European Union can be divided into two principal categories. Roughly 40% of the land is dedicated to “table wines” and 60% to "quality wines produced in specific regions". This distribution varies enormously between the Member States, notably based on the wine classification system adopted at national level. Certain Member States consider almost all their production as quality wines.
The rigidity of procedures for adopting and adapting wine-making practices hinders competitiveness. EU regulations are too complex, notably on definitions, wine-making practices and classification, i.e. QWpsr, table wine with a GI and table wine.
On QWpsr, there is no ‘quality’ concept at international level and no reference in EU legislation to the concept of ‘geographical indication’ as defined by the WTO’s Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement.
In recent decades, there has been an increase in the number of QWpsr and table wines with GIs, which leads to customer confusion, weakens EU GI policy, and contributes to the decline of the market situation.
Consumers are confused by wine labels resulting from a complex legal system. Inflexible labelling rules hamper the marketing of European wines. A major drawback is the prohibition of the indication of the vintage and the wine variety on table wine without a GI.
The wine CMO today
Measures aim at managing production potential, by limiting planting rights and by supporting structural improvement through (a) permanent grubbing-up and (b) restructuring/reconversion programmes focusing on adapting quality and quantity to consumer demand. The planting rights restrictions, including a ban on new plantings, are valid until 31 July 2010.
The internal market measures include traditional measures such as crisis distillation of surplus wine and distillation of surplus wine from dual purpose grapes. The aim is to limit price decreases. Then there is compulsory distillation of lees and marc, by-products of wine making, to avoid over-pressing of grapes and improve wine quality. Finally, there is the distillation of table wine into potable alcohol for use in the spirit drinks industry.
Aid is also paid for the temporary private storage of wine and grape must. In addition, aid is available to encourage the alternative use of grape must, notably for enrichment and grape juice.
Since 1975/76, overproduction has been addressed by limiting production potential, and encouraging the permanent abandonment of production areas, contributing to a decrease from 4.5 million ha in 1976 to 3.4 million ha in 2005.
Market situation – reform is urgent
EU wine consumption, is declining by about 750 000 hl or 0.65% annually.
Consumption patterns in general and those of wine in particular, are changing, as are lifestyles.
Intervention via distillation is required to remove about 15% of wine production every year.
Wine stocks, which already exceed one year’s production, are increasing, with little prospect of disposing of them. This exerts downward pressure on prices and producers’ incomes.
Imports are increasing at a faster rate than exports, the gap is narrowing and imports may soon exceed exports.
The surge in “new world” wine production and sales highlights the need for EU wine producers to become more competitive.
Crisis distillation, designed to tackle cyclical surpluses, is used as a structural measure and now also covers “quality wines”.
The private storage aid scheme has become a structural measure. Wine storage costs should be borne by the industry.
The wine budget
2005 expenditure amounted to €1269 million, distributed as follows:
- 35% represented expenditure on the restructuring programme in place since 2000 (€446 million in 2005).
- 63% have been used for market intervention measures: 40% represented the direct and indirect costs of the various forms of distillation and public storage (€ 506 million), aid for musts used to enrich wine which accounted for 16% (€198 million), aid for private storage of wines and musts (5%, equivalent to €70 million) and export refunds (1%, or €17 million).
- The definitive grubbing-up of vineyards only amounted to €31 million (in 1993, the figure was in excess of €400 million), less than 2% of the total EU budget for the wine sector.