Memorandum by the New Zealand High Commission
The New Zealand High Commission welcomes the
opportunity to provide input into the Committee's review of the
EU wine regime. This submission provides information about New
Zealand's experience and current policy regime. In New Zealand
producers being free to produce what customers want has created
a wine industry that is market-oriented and innovative. Regulation
guards consumers' rights and safety through consumer protection
and food safety laws.
BACKGROUND
New Zealand has a small but vibrant wine industry,
which despite having its origins in the late 19th century has
developed as a significant industry only over the past three decades.
The industry has focused on ensuring high quality levels, and
as such has been able to enjoy sustained high returns for its
product on the global market—for instance in the UK, New
Zealand's biggest single export market for wine, New Zealand product
attracts a higher average retail price than wine from any other
country.
Because the New Zealand wine industry had never
been subsidised in the same way as pastoral farming, it was not
affected by the removal of production-linked government subsidies
that formed the core of New Zealand's well-known agricultural
policy reforms of the 1980s, which brought significant change
to the agricultural sector. These reforms did, however, contribute
indirectly to the growth of the industry, as farmers were motivated
by market forces to maximise the return from their land. Dry and
stony land ill-suited to its historical sheep grazing usage was
planted with new vineyards as demand for New Zealand wine grew.
The New Zealand wine story is not entirely positive—the
sector has had difficulties, and in the past the government intervened
to assist when those reached crisis point, as is the situation
in the EU today. In the mid-1980s the sector was burdened with
a large oversupply of sweet wine types, which consumers no longer
favoured. The government funded a short, sharp structural adjustment
in the form of a vine-pull programme. Some producers chose to
plant new varieties of grape vines that were in greater demand,
while others left the industry.
Today New Zealand has 530 vineyards, covering
a total area of 22,616 hectares, nearly 3.5 times the area covered
10 years ago (figures as at June 2006).
A. THE NEED
FOR A
REGULATION
1. What is the nature of the case for having
a wine regime at all—ie as distinct from allowing the industry
to adjust itself to competitive pressures (eg via increased efficiency,
rationalisation, diversification, etc)?
2. Why should wine
quality—eg relating to Geographical Indication—be
regulated? Why cannot consumers choose between wines as they do
between other products—eg on the basis of brand names or
other information which might provide a guide to quality?
New Zealand's wine regulatory regime is very
different from that of the EU. The wine industry in New Zealand
developed largely without government intervention or subsidies,
which has made grape-growers and winemakers responsive to market
forces and has promoted innovation. New Zealand, along with other
members of the World Wine Trade Group, believes that the global
wine industry should be treated like any other economic sector
and allowed to develop and evolve to meet consumer preferences.
For this to be possible, the wine regime should be designed to
avoid distorting the market or artificially encouraging production
in certain directions. Government intervention must support basic
requirements such as product safety and consumer protection, but
regulation should not stifle producer (or consumer) choice.
In New Zealand wine is subject to a few concentric
layers of regulation. First, there is wine industry-specific legislation:
the Wine Act 2003. This legislation requires winemakers to apply
hazard analysis and critical control point (HACCP) principles
to manage food safety risks, provide standards for identity and
truthfulness of labelling, ensure that importing country requirements
are met, and deal effectively with fraud should this arise. The
HACCP regime is consistent with current EU legislation for foodstuffs
and affirms the obligation of wine business operators to produce
and sell wine that is fit for purpose. Second, as a foodstuff,
wine is subject to broader food regulation, including the Australia-New
Zealand Joint Food Standards Code, which includes standards of
identity and additive labelling. Finally, as consumer goods, wine
is also subject to even wider consumer rights law, including the
Fair Trading Act and common law torts such as "passing off".
New Zealand sees wine quality as a subjective
issue for consumers, and as such one where regulation is generally
inappropriate. Like other new world producers, New Zealand's wine
industry labels its wines primarily on the basis of varietals,
vintages, and brand names. This labelling approach has been highly
successful in many markets including in the UK. Consumers appear
to have found varietal labelling easier to understand than geographical
indications (GIs). GIs have a role; Champagne and Marlborough
are both examples of regions from which wines enjoy an excellent
reputation thanks to high-quality production. But GIs should not
be privileged over other labelling options. New Zealand believes
that the "decoupling" of the current regulatory link
between GIs and the ability to include certain terms and factual
information on labels would be a major positive step from the
proposed EU reform, that would likely be of significant benefit
to British wine consumers and producers.
Given the complexity and inconsistency of the
EU's GI regime, it remains to be seen what will result from the
Commission's proposal to introduce an EU level of consideration
for registration of GI applications for wines. This should enable
the Commission to ensure that only wines that fully meet requirements
under TRIPS (WTO agreement on trade-related aspects of intellectual
property rights) are registered as GIs. The EU's GI system for
wine with that of other products (PGI/PDO) has apparently shown
little selectivity in ascertaining if products conform to TRIPS
article 22.1, and it is unclear what the implications of the proposal
to harmonise the systems for wine and other products will be.
B. THE MARKET
3. Given the existence of a wine regime, how
might a better balance be achieved between the supply of and demand
for wine and wine products produced within the EU?
4. Is the EU wine
industry, within the current regime, sufficiently competitive
within the global wine market? How can it be made more so?
5. Is it to be expected that barriers to trade
in wine will continue to diminish as the result of WTO negotiations?
If so, what impact can this be expected to have on the cost of
the EU wine regime and/or on its effectiveness in protecting farm
incomes?
New Zealand wines have benefited from the dynamic
global wine market in recent years, and are a good example of
how a competitive industry can exist with minimal government intervention.
The demand for New Zealand wines continues to grow rapidly, and
production is continuing to expand to take advantage of this demand.
The industry's focus, however, remains on high-quality wines to
maintain good returns. In New Zealand's experience letting the
industry respond to market demand is a good way of balancing supply
and demand. While preserving their reputation for top quality
wines, New Zealand's winegrowers have responded to market signals
by expanding production of wines with a proven reputation (eg
Marlborough sauvignon blanc), as well as experimenting in new
winegrowing areas where different varieties have been found to
succeed (eg over the past decade Central Otago has emerged as
one of the world's pre-eminent growing areas for pinot noir).
It is worth noting that imported product makes
up around 45 per cent of the wine consumed in New Zealand—import
tariffs are only 5 per cent (zero on wine from Australia—by
far the most important source of imports—and champagne).
Our experience is that a healthy industry producing quality wines
and a relatively unprotected market can co-exist well, maximising
consumer choice.
There is clearly a problem of structural oversupply
within the EU. The current market management measures are too
effective at isolating producers from the full effects of the
market, and thus block the most fundamental incentives for supply
to be reoriented to meet consumer demands. There is no doubt that
some EU wines are among the best in the world, and benefit from
a strong traditional reputation. The volume of low-quality wine
is however, eroding this reputation in the eyes of some consumers,
opening market opportunities for more innovative new world producers.
A greater ability for wine producers to respond
to market signals, rather than conflicting government incentive
measures, would foster the competitiveness of the European wine
sector. However, the magnitude of the proposed future levels of
expenditure on the sector, despite the emphasis on less trade-distorting
forms of support, could still have a distorting effect. Ensuring
a high level of transparency in wine support will also be important
to the EU's trading partners. A useful step, in designing the
final suite of measures, would be to encourage subsequent review
of the consistency of the signals that the total package sends
to producers.
The EU, as the world's largest net exporter
of wine, stands to gain when the World Trade Organization negotiations
achieve their mandated goal of "substantial improvements
in market access". Current tariffs on wine in developed countries
offer little real protection for domestic markets, but do act
as "nuisance tariffs" adding unnecessary costs to major
wine exporters. Major gains should also be possible in emerging
markets where the current tariff levels are higher.
New Zealand respects the EU's goal of ensuring
that wine producers have adequate incomes, as for all other residents.
We do not consider that it is necessary or desirable, however,
for this very broad and important social objective to be pursued
through sector-specific legislation. Best policy practice, as
recommended by the OECD, is for policy measures to be focused
on single objectives—which would point to wine sector legislation
focused on winemaking, with household income objectives implemented
through horizontal social welfare schemes. That is the situation
in New Zealand.
C. STRUCTURAL
MEASURES
6. Are current measures (eg grubbing up, restrictions
of planting rights) an appropriate means of bringing supply and
demand into balance? What further measures need to be taken in
these or other areas?
7. How significant
an issue is illicit planting for the supply situation?
8. Is there a case for the continuance of
remedial measures ("crisis distillation") to deal with
exceptional market conditions?
9. What alternative
outlets (ie other than wine sales) exist for excess production?
10. What is the potential impact on wine producing
areas of liberalisation of the market? How sensitive are these
economies to change?
11. How effective
have current arrangements been in supporting diversification of
rural economies away from the wine sector? What contribution will
the European Agricultural Fund for Rural Development make, post
1 January 2007, to development of the rural economies of wine-producing
regions? What further measures might need to be taken?
New Zealand sees the overall direction of the
Commission's "profound reform" reform option as a very
positive one. It carries on the fundamental shift in policy toward
market orientation that was such an important part of the recent
years" reforms to the wider EU common agricultural policy,
which started with the "mid-term review" package in
2003. New Zealand fully supported that policy direction—not
only in principle, but based on our own experience. In our view,
if the final suite of wine reforms that is agreed is similar to
the Commission's proposals, there is the potential to enhance
significantly the position of the EU wine industry within the
global wine market.
New Zealand supports the Commission's desire
to reorient the wine regime towards non-trade distorting support
measures, such as structural adjustment through removal of excess
production to address the unsustainable surplus of wine. As noted
above, the New Zealand government funded a vine-pull programme
in the mid-1980s when our wine industry had reached a similar
crisis point, which helped the industry to transition to a more
sustainable basis. A grubbing-up programme in the EU would help
to counteract the effects of previous years of production-linked
subsidies. However, supply and demand can only be brought fully
into balance by removing artificial incentive measures that increase
production above the level that is demanded by consumers. We acknowledge
that there are societal concerns associated with the reduction
of winemaking in particular regions, and note that it is the intention
of the Commission to address these issues. Decoupled income support
through a transition period, for example, might be appropriate
as a temporary measure. We would in any event encourage the EU
to focus on targeted, "green box" type measures that
interfere with market signals as little as possible, consistent
with the broader CAP reform direction.
The EU's fundamental reforms to other aspects
of the CAP recognised the importance of ensuring that producers
are oriented to respond to consumer demand. The freedom to innovate
and to maximise their incomes are no doubt also important objectives
for EU winemakers.
New Zealand's economic policy reforms of the
1980s forced rural communities to diversify away from traditional
farming activities. Food and wine tourism is an example of a new
activity that has grown in popularity over the past two decades,
helping to boost rural incomes. We understand that this has also
been the experience in some parts of the EU (eg Provence, Tuscany).
D. MARKETING
12. Given continuance of an EU wine regime,
what are your views on labelling and quality issues? Are current
arrangements conducive to consumers understanding what they are
buying? Is there scope for rationalisation and simplification?
13. What part has
marketing played in the rise in sales within the EU of wine produced
outside the Community?
14. What lessons might be learned from the
penetration of non-EU wines into the EU market?
New Zealand's approach to the regulation of
wine labelling is far less prescriptive than that of the EU, and
allows greater flexibility for producers to label and market their
wines. Consumer protection and industry-specific legislation,
of course, prevents producers from providing misleading information
to consumers about their product, but producers can choose whether
they want to promote the origin of the product, the variety, the
specific brand, or a mixture of the above. New Zealand's philosophy
is that any information that helps consumers to make an informed
choice when buying wine should be allowed on wine labels.
Our experience has been that consumers, particularly
those new to drinking wine, find the varietal labelling approach
easier to understand. For example, if they know that their preference
is for a sauvignon blanc, then a wine labelled with that variety
is easier to identify than having to know which particular GIs
are generally produced from the sauvignon blanc grape. For many
consumers, GIs hold meaning that informs their decision-making.
However, for a large category of worldwide wine consumers, a GI
is less meaningful than is a variety. An ongoing emphasis on GIs
as the main (or sole) identifier of a wine is unlikely to support
improved competitiveness of EU wines in the long term, particularly
in third-country markets.
The proposed reform presents the opportunity
to break the linkage that currently exists between GIs and the
ability to include varietals (and other identifiers such as vintage)
on a label. Giving all wine producers the choice of what to include
on their label should help to encourage innovation in the sector,
and break down the artificial barrier between "quality produced
in a specific region" wines and table wines. This current
categorisation of EU wines suggests that table wines are not quality
products, and therefore limits their value. A more flexible labelling
system with truth in labelling as its core objective would benefit
both EU consumers and producers.
In this regard we would like to highlight our
positive experience in regard to labelling within the WWTG (World
Wine Trade Group). The active members of the WWTG are currently
Argentina, Australia, Canada, Chile, New Zealand and the United
States. These countries are important for New Zealand's wine trade,
accounting for just under half of New Zealand's total wine exports,
and around three-quarters of total wine imported into New Zealand.
In January 2007 the group signed a labelling agreement (World
Wine Trade Group Agreement on Requirements for Wine Labelling),
which gives exporters common wine label options that can be used
in all WWTG markets. It is expected to help facilitate trade between
the members, as well as reduce labelling costs for wine producers.
The WWTG has also signed a mutual acceptance
agreement in relation to wine-making practices, detail of which
is included in the following section of this paper.
E. WINE-MAKING
PRACTICES (WMPS)
15. How suited are current regulations on
WMP to a competitive global market in wine? What changes would
you like to see?
16. How should enrichment
(with sugar or must) be regulated? Should there be financial aid
for enrichment?
As outlined above, New Zealand does not impose
heavy regulations on WMPs, but focuses on ensuring that wine is
safe for human consumption (eg through regulation of additive
levels and labelling) and consumers are not deceived. This is
in contrast with the prescriptive EU approach, which we believe
significantly limits the ability for winemakers to develop new
techniques, given the lengthy approval process for a new WMP to
be approved. An emphasis on product safety and truth in labelling
would better allow for innovation in winemaking. We would expect
simplification of the rules to be welcomed by both producers and
consumers.
New Zealand thinks it is inappropriate for any
production-linked financial aid to be given to producers, such
as aid for enrichment. Enrichment is just one of many legitimate
WMPs.
In terms of international cooperation on WMP
another key achievement of the WWTG (World Wine Trade Group) has
been the Mutual Acceptance Agreement on Oenological Practices
(MAA), which entered into force in New Zealand on 1 March 2005.
The objective of the MAA is to ensure that WWTG markets cannot
be closed on the basis of objections to winemaking practices of
a WWTG member, unless there are legitimate human health and safety
concerns. The MAA recognises that uniform oenological practices
cannot take account of all local conditions, climatic variations
and traditions that exist amongst the parties. It further recognises
that parties have established acceptable mechanisms for regulating
wine-making practices and that grape growing and wine-making practices
will continue to evolve. The MAA is open to signature and adherence
by other wine producing countries.
F. ENVIRONMENTAL
AND SOCIAL
IMPACT
17. To what extent does the wine sector have
an impact—favourable and unfavourable—on the EU environment?
Are measures needed to support good environmental impact? Should
they be selective?
18. To what extent
and how should reform of the EU wine regime take into account
concerns over the potential for alcohol abuse?
As with any land-based business, wine production
has the potential to have positive and negative impacts on the
environment. New Zealand does not distinguish between types of
business activity when applying its environmental management regulations,
which apply to all activities that use natural resources (ie soil
and water).
The New Zealand wine industry is a good example
of how an industry can act together to make a positive contribution
to the environment. The industry developed a set of sustainable
wine growing standards in 1995 (known as Sustainable Winegrowing
New Zealand), and is currently looking to develop these further.
There is also considerable interest among wine producers in seeking
certification as carbon-neutral (with one winery having achieved
this status so far).
New Zealand has a range of health regulations,
policies and programmes to minimise, and deal with the consequences
of, abuse of alcoholic beverages (not only wine). The wine industry
is also active to ensure that wine is consumed in a responsible
fashion. Because of the lack of government financial support for
the wine industry, New Zealand does not face a dilemma about the
appropriateness of supporting an industry that some consider to
be harmful, and the government does not seek to deal with alcohol
abuse by regulating the grape-growing and wine-making industries.
June 2007
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