3 Reform of the European wine sector
| (28776)
11361/07
+ ADDs 1-2
COM(07) 372
| Draft Council Regulation on the common organisation of the market in wine and amending certain Regulations
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| Legal base | Articles 36 and 37EC; consultation; QMV
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| Document originated | 4 July 2007
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| Deposited in Parliament | 11 July 2007
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| Department | Environment, Food and Rural Affairs
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| Basis of consideration | EM of 18 July 2007 and SEM of 21 September 2007
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| Previous Committee Report | None, but see footnote
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| To be discussed in Council | By December 2007
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information awaited
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Background
3.1 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.[12]
Despite this, the regime remains complex, and it is also costly,
with annual expenditure having varied 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 currently running at about €1.3
billion.
3.2 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 put forward in June 2006 a Communication[13]
indicating ways in which the sector can be made more sustainable.
This pointed out that, despite the changes made in 1999, production
(particularly of quality wines) had been increasing at a time
when consumption had been declining, and that the Community's
imports were rising more quickly than its exports, leading to
an increase in surplus production, likely to be equivalent to
15% of output in 2010-11.
3.3 The Communication also identified a number of
other aspects of the current regime which have created problems,
including a ban on planting rights, the extent to which distillation
has become a permanent outlet, the adverse effect of the rules
on wine making practices (and their complexity), and the labelling
provisions. It therefore concluded that the regime should be amended
to ensure that the sector's potential can be further developed
in a sustainable manner and by establishing clear, simple and
effective rules which balance supply and demand, whilst respecting
the environment, and taking due consideration of health and consumer
protection.
3.4 After considering a number of possible approaches,[14]
the Commission opted for what it described as a "profound"
reform, involving the abolition of market management measures;
greater integration between measures in this sector and Member
States' rural development plans; the introduction of minimum environmental
requirements; and changes in the regulations governing quality
and geographical indications, wine-making practices, and labelling.
The approach would thus be broadly similar to 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.[15]
3.5 In our Report of 19 July 2006, we noted that,
although UK production of wine is clearly increasing, it remains
relatively small, and that consequently the main interest in this
regime arises from a consumer and budgetary perspective. We welcomed
the Communication as pointing the way towards reforms which would
no doubt be seen as fairly radical by the powerful wine interests
which exist in other Member States. However, whilst we concluded
that this was an important document, we decided to clear it on
the basis that the Commission would be producing formal legislative
proposals in 2007.
The current document
3.6 The Commission has now done so in this proposal,
the most significant elements of which are as follows:
— Market support
The immediate abolition of the existing market arrangements
supporting uncompetitive production, including the schemes providing
for the storage of wine, the distillation of wine and its by-products,
aid for the use of grape must, and refunds for the export of wine
to third country markets. In addition, the use of so called "crisis"
distillation — intended to operate as a safety valve to
deal with periods of significant market disturbance but now increasingly
a permanent feature of the regime — would end.
— National envelopes
National envelopes would be established under which
producer Member States would be able to cushion the impact of
the withdrawal of direct market support by financing support programmes
on a regional level, covering such measures as vineyard restructuring/conversion
schemes; the costs of setting up funds to provide assistance to
producers against market fluctuations; support for harvest insurance
against natural disasters; and support for green harvesting[16]
of grapes, in order to reduce yields. In addition, each national
envelope programme would have to include the promotion of Community
wine on third country markets. After a transition period, two
thirds of the existing budget (around €860
million a year) would be allocated to national envelope measures.
— Grubbing-up
In order to try and re-balance the market, the grubbing-up
scheme would be strengthened covering up to 200,000 hectares of
vines, and offering higher payments at the start of its 5 year
life in order to encourage early uptake, but it would be more
limited than the one envisaged in last year's Communication because
of the slight improvement in the wine market and a greater focus
on expanding commercial outlets. Also, the grubbing-up scheme
would not be applied in Member States, such as the UK, where the
5-year average production is below 25,000 hl per year.
— Planting rights
The system of planting rights which has existed for
many years would be extended from 31 December 2010 until 31 December
2013, in order to provide a breathing space for the sector to
achieve a balance in conjunction with the grubbing-up scheme.
In addition, the ban on new plantings in Member States where the
5-year average production is above 25,000 hl per year would be
maintained until the start of 2014.
— Rural Development
Part of the existing financial resources used for
wine would be transferred to the Rural Development (RD) Programme
to fund measures of interest to the sector in wine producing regions.
This would require an adaptation of existing programmes for the
period 2007-2013, and the Commission proposes that funding should
be increased from €100
million in 2009 to €400
million from 2014. In addition, Member States would be required
to co-finance the new measures.
— Wine making practices
Authorised Community wine making practices would
be based on those laid down internationally by the OIV (International
Organisation of Vine
and Wine) and responsibility transferred from the Council to the
Commission, so as to provide
for the faster acceptance of new practices and a greater alignment
of Community standards with those used elsewhere. The rules on
the enrichment of wine (used in northern Member States, to increase
natural alcohol content) would
remain the responsibility
of the Council (although the Commission is
proposing to prohibit the
use of sugar as an enriching agent and to reduce the maximum level
of permissible enrichment).
— Quality policy and labelling
Quality policy would be made simpler and more transparent
by establishing a framework for wines with Geographical Indications
(GI) consistent with the quality policy for other foodstuffs.
Wines with a GI would be further divided into those with a Protected
Geographical Indication (PGI) and those with a Protected Designation
of Origin (PDO). It is also intended to simplify the existing,
restrictive labelling provisions, for example by allowing all
wines to be labelled with the grape variety and vintage, thereby
providing consumers with clearer information than is often the
case currently.
— Single Payment Scheme (SPS)
Vineyards would be included within the SPS, following
the precedent set in the recent reform of the fruit and vegetables
regime. Thus, areas under vines would become eligible land, and
so could be used to support claims for payment against existing
entitlements. In addition, areas grubbed-up under the new scheme
would be able to attract new entitlements, with the value set
at the relevant regional rate.
— Cross compliance
Whilst the existing regime contains few explicit
references to environmental concerns, the Commission estimates
that 57% of the total vine area in the Community of 15 is, as
a consequence of other activities on vine farms, subject to cross-compliance
obligations. Under the current proposal, farmers who receive grubbing-up
aid will be subject to cross-compliance on their whole holding,
and those who receive funding under the national envelope for
restructuring/conversion or green harvesting will be subject to
cross compliance during the 5 years following the date of payment
(1 year for green harvesting).
— Information campaigns
The Commission intends to fund information campaigns
for consumers by making available a further €3
million a
year.
3.7 In cost terms, the Commission estimates that
the proposals would be broadly neutral, but would involve a substantial
reduction in expenditure on market support, and a corresponding
increase in the amounts devoted to rural development and measures
to be funded under the national envelopes.
The Government's view
3.8 In his Explanatory Memorandum of 18 July 2007,
the Minister for Sustainable Farming and Food at the Department
for Environment, Food and Rural Affairs (Lord Rooker) says that
the Government agrees with the Commission's analysis of the problems
facing the wine sector and that fundamental reform of the regime
is necessary to secure the long term sustainability. The UK therefore
welcomes the proposal as providing a good basis for discussion.
In particular,
it supports the early abolition of market intervention measures
and the grubbing-up scheme, the partial realignment of the budget
to provide for funding of rural development measures, the simplification
and increased transparency of the labelling rules, and the inclusion
of the sector within the Single Payment Scheme and cross compliance.
The UK will, however,
argue that a greater proportion of the funding of the new regime
should be through Pillar II rural development measures and that
the measures included in the proposed national envelopes should
not be market distorting.
3.9 The Minister also recalls that, in its Explanatory
Memorandum on last year's Communication, the Government commented
on two issues of specific importance to English and Welsh producers
— the planting ban and the possible tightening of the restrictions
on enrichment. He says it is clear that both issues remain a concern
under the current proposal. In particular, whilst the system of
planting rights and planting ban do not apply in Member States
where the 5-year average production is less than 25,000 hl per
year, it is likely that UK production will exceed this level between
2010 and 2013. The Government will therefore argue that UK producers
should remain outside the proposed planting restrictions during
the transition period up to 31 December 2013. Also, the proposed
restriction on the optional level of enrichment in northern Member
States to 2%, and the ban on the use of sugar as an enriching
agent, would increase the cost of making wine there, and the Government
will therefore argue that the proposals impact disproportionately
on the countries concerned.
3.10 The Minister also said that an initial Regulatory
Impact Assessment was being prepared, and would be submitted "before
October" with a supplementary Explanatory Memorandum.
Supplementary Explanatory Memorandum of 21 September
2007
3.11 We have now received the promised Assessment
under cover of the Minister's supplementary Explanatory Memorandum
of 21 September 2007. This points out that the UK has a small
domestic industry concentrated in southern England and Wales,
which currently has 362 registered vineyards comprising 923 hectares,
and that production in 2006 amounted to just over 25,000 hl, having
risen from only 13,000 hl in 2005. On the other hand, the UK is
the largest wine importer in the Community (by value), and the
Assessment says that it is often considered to be the hub of the
international trade in wine, with many thousands of wine traders,
ranging from large multinational businesses to single importers.
3.12 As regards the impact of the proposed reforms,
the Assessment suggests that, although the abolition of distillation
and other market support measures will increase the imbalance
of the market (and put further downward pressure on prices) in
the short term, this will eventually lead to a more market-orientated
and competitive European wine industry. It points out that, although
the extension of the planting ban until 2013 will limit the expansion
of successful producers, it is intended to provide a period of
adjustment whilst productive capacity is reduced.
3.13 However, it adds that this would have significant
adverse implications for the UK, since the industry has made investment
decisions on the basis that the ban would end by 2010, and it
is thus likely that production will exceed the 25,000 hl threshold
by the later date: this would now mean that the UK would become
subject to the ban, and would thus have to incur the cost of introducing
it for what would be a temporary period. The Government therefore
intends to argue in principle against the extension of the planting
ban to 2013, but, since it recognises that a number of producer
countries may press for the ban to be extended beyond then, it
would in that event seek a substantial increase in the 25,000
hl threshold, so as to limit the impact of such a step on the
UK.
Conclusion
3.14 Although we note that the proposals in this
document would leave expenditure on the Community wine regime
at current levels, we share the Minister's view that much of these
long overdue reforms are welcome, notably the intention to make
a substantial reduction in expenditure on market support, and
a corresponding increase in the amounts devoted to rural development
and measures to be funded under the national envelopes. Moreover,
to the extent that the wine producing industry in this country
is currently below the threshold at which most of the current
measures apply, the UK's principal interest lies in the proposal's
consumer and budgetary aspects.
3.15 Having said that, we also note that, as it
is currently drafted, the UK industry could find itself affected
for the first time by the ban on new plantings, and that the Government
will be seeking to address this concern, as well as those raised
by the proposed changes to the rules on enrichment. Consequently,
although we do not believe that the main thrust of the proposals
gives rise to any major issues which require further consideration
by the House, we think it right to withhold clearance, pending
further information about the outcome of discussions on these
two points. In the meantime, we are drawing the document to the
attention of the House.
12 Council Regulation 1493/1999 OJ No. L 179, 14.7.99,
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
13
(27621) 10851/06: see HC 34-xxxvi (2005-06), para 14 (19 July
2006). Back
14
Including maintenance of the status quo, with some limited adjustments;
amending the regime along the lines of the reforms introduced
since 1999 for most other commodities; and complete deregulation
of the wine market. Back
15
The Commission suggests that this might include restructuring
and re-conversion, support for safety net mechanisms, and support
for green harvesting. Back
16
This involves the destruction or removal of grape bunches whilst
still in their immature stage. Back
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