Select Committee on European Scrutiny Thirty-Sixth Report

14 Reform of the European wine sector



COM(06) 319

+ ADDs 1 & 2

Commission Communication: Towards a sustainable European wine sector

Legal base
Document originated22 June 2006
Deposited in Parliament29 June 2006
DepartmentEnvironment, Food and Rural Affairs
Basis of considerationEM of 10 July 2006
Previous Committee ReportNone, but see footnote
To be discussed in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared


14.1 The Community's common market organisation for wine was introduced in 1970, and, since then, there have been a number of reforms, most recently in 1999.[46] Despite this, the regime remains complex, comprising measures to reduce production potential (such as a ban on new plantings, premia for the abandonment of wine-growing areas, and the restructuring and conversion of vineyards); market measures (notably compulsory and voluntary distillation into alcohol, private storage aid, aids for enrichment,[47] and export refunds) and regulatory measures (governing wine-making practices, provisions on quality and the protection of geographical indications, and labelling), supplemented by national and regional rules. It is also costly, with expenditure varying from year to year between 2.5% and 5.5% of the total budget for the Guarantee Section of the European Agricultural Guarantee and Guidance Fund (EAGGF), and amounting in 2005 to €1,269 million (of which 40% related to distillation, 35% to restructuring, and 16% to enrichment). In view of this, and the changes which now have taken place in most other commodity sectors as a result of the Agenda 2000 reforms of the Common Agricultural Policy (CAP), the Commission has now put forward this Communication indicating ways in which the European wine sector can be made more sustainable.

The current document

14.2 The Commission points out that the Community is the world's leading producer, consumer, exporter and importer of wine, and that the sector's economic activity is vital, with more than 1.5 million holdings accounting for 5.4% of overall agricultural output (and double that figure in a number of Member States). The Commission also notes that, despite the changes made in 1999, production (particularly of quality wines) has been increasing at a time when consumption has been declining "steadily and significantly", and that, although both exports and imports have been rising, with the Community still being a net exporter, the rate of increase in the latter has been much quicker. This in turn has led to an increase in surplus production, which it is now estimated will be equivalent to 15% of output in 2010-11 (or about 8.4%, after distillation measures), and the Commission comments that the need for Community wine producers to become more competitive is further highlighted by the surge in "new world" production and sales.

14.3 The Commission identifies a number of other aspects of the current regime which have created problems. These include:

  • the extent to which the current ban on planting rights has been offset by increases in yields and the extent to which Member States have used the provision allowing the granting of additional rights under certain conditions;
  • the extent to which distillation — including measures intended to be used only in a crisis — has become a permanent outlet sustaining an unsaleable surplus, covering not just table wines, but quality wines as well;
  • the adverse effect on competitiveness of the rigid procedures for adopting and adapting rules on wine making practices, and the complexity of the various regulations;
  • the complexity of the labelling provisions, and the confusion this creates for consumers; and
  • the extent to which the inflexibility of those provisions hampers the marketing of European wines.

The Commission adds that independent analysis has suggested that a liberalisation of wine-making practices in line with internationally established rules and more consumer-oriented labelling would enable Community wine producers to expand their outlets and reduce the structural imbalance.

14.4 Against this background, it says that the regime should be amended to ensure that the sector's "huge potential" can be further developed in a sustainable manner, to make provision for the smooth integration of Bulgaria and Romania, and to enable the Community to respect fully its international obligations. In particular, it should seek to:

  • increase the competitiveness of the Community's wine producers, strengthen the reputation of its quality wines, and recover old markets and win new ones both within the Community and worldwide;
  • create a regime which operates through clear, simple and effective rules, which balance supply and demand;
  • create a regime which also preserves the best traditions of Community wine production, reinforces the social fabric of many rural areas, and respects the environment;
  • take due consideration of increased concerns over health and consumer protection.

14.5 The Commission says that it has accordingly considered four possible approaches. The first would be to maintain the status quo, with some limited adjustments. However, it suggests that, in view of the serious difficulties arising from the current arrangements, such an approach would not be sustainable economically or politically, and that major changes are necessary. The second approach would be the amend the regime along the lines of the reforms introduced since 1999 for most other commodities, by shifting support to direct payments, which would be decoupled from production and included in the Single Payment Scheme. It notes that this would increase flexibility and market orientation, and would also be more likely to be compatible with the rules of the World Trade Organisation (WTO). On the other hand, it says that the potential amount of any decoupled payment would probably not compensate many growers for the loss of market support, and that, although it should be possible to achieve a balanced market in the medium to long term, this would likely to entail a major crisis in the sector leading to a "massive" adjustment process. The third approach would be complete deregulation of the wine market, but the Commission says that the harsh adjustment which this would entail, and the lack of accompanying structural measures would produce severe negative economic social impacts on the regions concerned.

14.6 The Commission has therefore opted for what it describes as a "profound" reform of the present market organisation, where it has put forward two variants, aimed at achieving the same result, but over different time scales. Thus, one approach would aim to achieve reform in a single step by lifting immediately the ban on new plantings and abolishing the grubbing up premium, whereas the other would first seek to restore market balance by extending the ban on new plantings for a period (until 2013), strengthening the grubbing up premium, and continuing the arrangements for restructuring and reconversion.

14.7 Otherwise, each approach would be similar, in that it involve abolishing market management measures; greater integration between measures in this sector and Member States' rural development plans, for example by strengthening early retirement or agri-environment measures; a substantial revision of the current regulatory framework governing quality and geographical indications; a simplification of procedures relating to wine-making practices, including a recognition of those established internationally; amending the rules on enrichment; simplifying the labelling provisions and increasing their flexibility; pursuing a vigorous promotional and information policy; and the introduction of minimum environmental requirements, covering such aspects as soil erosion and contamination, the use of pesticides, and waste management. In these respects, the approach would be broadly similar to amending the regime along the lines of the Agenda 2000 reforms, except that the funds released by abolishing the current market management measures would be re-directed, not to the Single Payment Scheme, but to a newly established budget envelope for each wine-producing Member State from which it would be allowed to finance measures chosen from a given list.[48]

The Government's view

14.8 In his Explanatory Memorandum of 10 July 2006, the Minister for Sustainable Farming and Food at the Department of Environment, Food and Rural Affairs (Lord Rooker) says that the Government will be evaluating this Communication in the light of overall CAP reform policy and general liberalisation, adding that key issues for the UK are that the status quo is not an option; the need for a more sustainable regime, preferably at a lower budgetary cost; the need to address simplification, competitiveness and the balance of supply and demand; the provision of flexible market instruments and an end to the institutional support for over-production; and the need for production controls and aided storage to be replaced in favour of industry bearing the costs of surplus in order to force re-structuring.

14.9 The Minister also notes that the UK has a small domestic production concentrated in southern England and Wales, with 388 vineyards currently registered, comprising 761 hectares, though only 295 of these (comprising 722 hectares) are in commercial production. Production amounted to about 19,000 hl in 2004 and 13,000 hl in 2005, of which about 85% was white wine, and, because of its relatively small size, the UK does not benefit from the full range of current support measures (though it is still required to comply with the rules on wine-making practices and labelling).

14.10 The Minister says that there are several issues of importance to UK producers, which the Government will need to take into consideration during discussions on the Communication. In particular, UK producers are currently exempt from the planting ban, which applies only to Member States where annual average production over the last five years exceeds 25,000 hl, but the indications from new plantings are that the UK could reach this ceiling within the next few years. It will therefore be necessary to ensure that the ceiling is increased if the planting ban is not abolished. Secondly, due to climate considerations, UK producers often need to enrich with sugar to aid fermentation and achieve satisfactory alcohol levels: the Government will therefore aim to ensure that the current enrichment levels for Member States in the same zone as the UK remain.


14.11 Though clearly increasing, the UK's production of wine remains relatively small, and consequently its main interest in this regime arises from a consumer and budgetary perspective. To the extent that wine is now one of the two major sectors of the Common Agricultural Policy which has not been subject to reform in recent years, this Communication is to be welcomed, not simply for stimulating debate, but for pointing the way towards reforms which will no doubt be seen as fairly radical by the powerful wine interests which exist in a substantial number of other Member States. This is therefore an important document, which we are drawing to the attention of the House, but which we are clearing on the basis that further consideration can be given to this issue when the Commission produces formal legislative proposals early next year.

46   Council Regulation 1493/1999 OJ No. L 179, 14.7.1999, p.1. (19365) 9624/98; see HC 155-xxxix (1997-98), para 2 (4 November 1998) and HC 34-xiv (1998-99), para 6 (24 March 1999). Back

47   This increases the natural alcoholic strength of wine by adding either sucrose or concentrated grape must. Back

48   The Commission suggests that this might include restructuring and re-conversion, support for safety net mechanisms, and support for green harvesting. Back

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