Memorandum by the Department for Environment,
Food and Rural Affairs
GENERAL INTRODUCTION
The EU is the world's major wine producer, with
over 45% of total growing area and 60% of production. This represents
around 10% of the value of agricultural production in about a
quarter of Member States, with as many again having an active
industry interest. The EU also accounts for 60% of global consumption
and is the leading exporter and largest import market.
The EU wine regime was first established in
the 1960s. Its aims are consistent with the objectives of the
Common Agricultural Policy, in particular, to stabilise markets,
ensure a fair standard of living for agricultural communities,
and ensure fair competition within the Single Market. The regime
contains all of the basic components of classic CAP support measures,
including:
— support of internal prices through
planting restrictions, storage and distillation arrangements;
— protection from low priced imports
through a duty system; and
— export refunds to facilitate external
sales into markets with lower prevailing prices.
In addition, the regime includes a complex set
of rules on wine-making practices and labelling.
The regime has been adapted several times since
it was first introduced. For example, during the 1980s, the response
to budgetary pressures and concerns about structural surpluses
was a modification away from intervention by price support towards
measures to better balance production and use, via the introduction
of compulsory distillation and a ban on the planting of new vines.
The most recent modification was brought about in 1999—and
it is clear that substantial further reform is needed now in order
to improve the sustainability of the sector. The relative competitiveness
of the sector has been steadily eroding under strong price and
quality pressure, particularly from so-called "New World"
wines. EU stocks are now equal to a year's consumption, despite
"crisis" action in four of the last six years to aid
disposal. Such actions serve to disguise but fail to address the
underlying problems and the wine sector is now seriously out of
line with other already reformed CAP sectors. The latest Commission
forecasts put the budgetary cost of the present arrangements in
2007 at 1.5 billion euros, of which 500 million euros would be
for further "crisis" measures.
On 22 June 2006, the Commission set out its
options for the reform of the European wine regime in a paper
entitled "Towards a sustainable European wine sector".[1]
The Commission intends that this consultation paper will form
the first stage of the policy making process. The objectives of
reform are to bring into being a wine regime that:
— increases the competitiveness of
the EU's wine producers; strengthens the reputation of EU quality
wine as the best in the world; recovers old markets and wins new
ones in the EU and worldwide;
— operates through clear, simple and
effective rules that ensure balance between supply and demand;
and
— preserves the best traditions of
EU wine production and reinforces the social and environmental
fabric of many rural areas, and ensures that all wine production
respects the environment.
We expect that the Commission will present formal
proposals for the reform of the wine regime this spring, 2007.
Defra's response appears in bold beneath each
question
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)?
A wine regime has existed within the CAP
since the 1960s, and producers have adapted to the current regime.
However, the Government set out its overall position on the CAP
in the 2005 document "A Vision for the Common Agricultural
Policy",[2]
including the elements which would need to be in place to comprise
a sustainable CAP, and this applies as much to the wine production
sector as to any other. It is clear that the existing support
arrangements for wine do not deliver value for money to taxpayers,
nor do they act to improve the sustainability of the sector.
In discussions on the Commission's options
paper, Defra has argued that in order to achieve the long-term
sustainability of the sector, a deregulatory approach along the
lines of Options 3 or 4 should be the aim. However, we recognise
that a rapid switch to one of these options carries certain risks
and that there may be a need to continue to provide a regulatory
framework, but one which will allow the market to operate freely
and indeed encourage and facilitate it to do so more effectively
than might otherwise be the case. In the longer term we consider
that farm incomes will be best maintained by the existence of
a competitive, sustainable and subsidy free EU wine industry.
Defra believes that there is a case for laying
down rules on labelling and wine-making practices at an EU level
to ensure the provision of consumer information and fair competition.
But such rules should be aimed at the consumer, and wine making
practices should be aligned with those set down at an international
level through the OIV (International Organisation of Vine and
Wine).
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?
Defra believes that EU wine making practices
should be aligned with the OIV, thereby establishing a baseline
that meets international standards. This will allow producers
the maximum opportunity and flexibility to adjust production to
meet changing consumer demands and export opportunities. In order
to allow EU producers to compete more effectively with third country
wines, arbitrary quality-related provisions must be eliminated
eg the measures under current rules which permit reference to
the vine variety on the label only of quality and table wine with
a geographical indication (GI).
The use of geographical indications in the
wine sector is widespread and can certainly represent an asset
in an overall food and drink market place in which consumers are
increasingly interested in provenance and quality and in information
to inform their choice. Indeed, the use and success of GIs in
the food sector is widely acknowledged to be based on the example
of Appellation Controlee. Some GIs, such as Champagne or Port,
are widely recognised as representing a good quality product from
a particular region, and use of the term is conditional on producers
maintaining defined higher standards. Defra strongly supports
the concept of marketing products based on quality, local reputation
or other specific consumer-targeted characteristics which serve
to distinguish them from other products on the market, so long
as they do actually relate to attributes that add value in the
mind of the consumer and inform choice. GIs can help in this;
but if, on the other hand, they serve to insulate the producer
from the market, for example by encouraging the continuing production
of a wine that the market does not value, they not only harm the
producer, but also devalue the concept in the mind of the consumer—even
if the prescribed standards are maintained. We are concerned that
the underlying driver for the proliferation of GIs in the wine
sector, where there are over 10,000, appears to be a producer—rather
than a consumer—or market-focus. We feel that use of a GI
in the European wine sector may have become a matter of formula
when in reality many such wines lack the key qualifying criteria
to set them apart from other products. We therefore support the
Commission's view that wine should be brought within horizontal
quality policy governing Protected Geographical Indications (PGIs)
and Protected Designations of Origin (PGOs). We also recognise
there is a strong case for other approaches to marketing to be
considered, for instance linking style, quality and distinctiveness
with a strong brand or trademark.
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?
EU wine production significantly exceeds
market needs, and with imports taking an increasing share of a
decreasing market, this situation can be expected to deteriorate
unless remedial action is taken. In its impact assessment attached
to the options paper, the Commission forecasts that on the basis
of expected trends, excess wine production will increase to 27
million hl (15% of production) by 2010-11.[3]
The current regime protects inefficient and poor quality producers
and prevents producers who have developed strong market demand
for their wine from expanding.
Defra believes that it is important to remove
the incentives that currently exist to over produce, and to establish
a framework under which the sector is better able to respond to
the demands of consumers and compete more effectively on the EU
and world market. The Commission's recent communication identified
a number of options to achieve this. Defra is looking forward
to seeing the Commission's proposals, which are now expected in
spring 2007.
4. Is the EU wine
industry, within the current regime, sufficiently competitive
within the global wine market? How can it be made more so?
On the basis of the analysis attached to
the Commission's options paper of last year, the answer, at a
general level, is clearly, no. The EU wine regime costs EU taxpayers
€1.5 billion a year, of which €600m is earmarked to
store and dispose of surplus production. However, the picture
is a very varied one, with some producers in all wine-producing
countries demonstrating marked success in traditional and new
market segments. The English wine industry, whilst small in global
terms, is enjoying a period of sustained growth and has achieved
success in international wine competitions.
Defra believes that in order for the EU wine
industry to become more competitive, it will be necessary to establish
a framework which facilitates the greater market orientation of
EU wine production, for example through:
— better understanding of the market
and greater responsiveness to it;
— greater capacity and willingness
to adapt supply to demand;
— building on the sector's heritage
and other competitive advantages including its skills and technological
capacity;
— removal of the link between production
and the payment of aid;
— clearing the way for efficient,
market-focused producers to expand and re-capture market share
from third country wines —for example by providing for simpler
and clearer labelling and delivering a consistent product to meet
consumer wishes;
— aligning EU wine making practices
with international minimum requirements through the OIV; and
— establishing more collaborative
supply chains.
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?
The Government strongly supports the successful
conclusion of the Doha Development Agenda (DDA). Specific agreements
cover trade with most suppliers to the EU market, and on wine
these serve to offer a good level of protection to established
EU names, terms and GIs. The major impact of a successful DDA
agreement on the wine sector is likely to result from changes
to domestic support arrangements, such as crisis distillation,
which we expect will be addressed in the Commission's wine reform
proposals anyway.
In the longer term, we consider that farm
incomes will be best protected by the existence of a competitive
and sustainable EU wine industry, whilst protection of GIs etc
should be made more consistent with international agreements under
WTO-TRIPs.
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?
As indicated in our answer to Question 4,
the current measures are ineffective at balancing supply and demand,
and planting restrictions hamper the efficiency and adaptability
of the sector. Defra believes that the design of rural development
measures should be undertaken by individual Member States in order
to find the best solutions for local environmental and social
concerns. However, it is important that such measures do not perpetuate
the current market instruments (such as crisis distillation),
and we believe it would be appropriate to establish a list of
possible measures that can be applied for example relating to
agri-environment or early retirement.
7. How significant
an issue is illicit planting for the supply situation?
Defra is unable to comment on how significant
an issue illicit planting is. However, we expect the Member States
concerned and the Commission to ensure that CAP rules are applied
in order to ensure fair competition.
8. Is there a case
for the continuance of remedial measures ("crisis distillation")
to deal with exceptional market conditions?
Defra is not convinced there is a case for
Community measures once the regime is fully reformed. Indeed,
we believe that their provision would risk hampering efforts to
establish a competitive and sustainable wine sector and put pressure
on the Commission to intervene in the market. This would not preclude
Member States from taking nationally funded measures in exceptional
circumstances in compliance with state aid rules.
9. What alternative
outlets (ie other than wine sales) exist for excess production?
Defra is not aware of any significant alternative
outlets. The commercial distillation of some wine will continue
to be necessary for the production of certain wine spirits (such
as Cognac) and food products, but its use as a method for controlling
structural surplus is not sustainable. Alcohol production for
industrial or fuel uses can be derived more efficiently from other
agricultural sources.
10. What is the
potential impact on wine producing areas of liberalisation of
the market? How sensitive are these economies to change?
Defra recognises that there are socio-economic
and environmental concerns about the liberalisation of the wine
sector in certain parts of the Community. The Commission identified
these issues as a concern in its wine reform options paper last
year and, as indicated in our answer to Question 6, Defra supports
the Commission's view that they are best addressed through rural
development measures.
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?
Defra believes that because of the nature
of the current wine support arrangements in protecting incomes
even when there is massive surplus production, the impact of rural
development measures has been limited. Defra believes that this
picture is unlikely to change very much in advance of a radical
reform of the wine regime.
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?
Defra believes that recent successes of third
country producers in capturing market share in an established
market needs to be carefully considered. We are aware that clear,
effective labelling based around promotion of brands and varieties,
consistent quality and competitive pricing based on target price
bands has proved to be successful. Some EU producers are adopting
similar approaches and proving that they work for them also.
We do not however feel that this will be
the case for all. Some producers who operate under a strong GI
will continue to see benefits from this, provided quality is maintained
and prices remain competitive in relation to the value perceived
by the customer. A reformed regime should not seek to compromise
any legitimate marketing tactics employed by producers.
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?
Australia is now the major supplier of wine
to the UK market, recently overtaking France. Other southern hemisphere
producers are also increasing their penetration in northern European
countries. Defra believes that other respondents to the House
of Lords questionnaire will be better able to comment on the role
that marketing has played in this success. But, the policy of
many third country producers to label and promote their wines
through brand and vine variety, with a good reputation for ensuring
consistent quality, continuity of supply, strong pricing and promotional
activities with the retailers has enabled many producers to become
household names in the UK.
E. WINE MAKING
PRACTICES (WMP)
15. How suited are current regulations on
WMP to a competitive global market in wine? What changes would
you like to see?
Defra's position on wine-making practices
is set out in our answer to Question 2. We believe that this is
important in order to establish a level playing field for EU wine
producers with those in third countries. Wine making standards
set by the OIV are the benchmark for wine production worldwide,
yet the EU still seeks to filter these practices on the grounds
of maintaining traditional wine production. Furthermore, the current
process for the inclusion of OIV methods into EU legislation is
slow and cumbersome and we support the idea outlined in the Commission's
options paper of streamlining the system.
16. How should
enrichment (with sugar or must) be regulated? Should there be
financial aid for enrichment?
Enrichment of wines with sugar or grape must
(juice) is important in northern countries, which do not receive
as much sunshine during the ripening period as countries in the
south of the Community. Wine makers therefore need the possibility
of enrichment in order for their wines to achieve the necessary
alcohol levels. Indeed the opposite happens in the south of the
Community where the possibility exists of acidifying wines when
sugar levels are too high.
Defra does not agree with the ideas outlined
in the Commission's options paper, either to reduce the level
of enrichment that is possible, or to ban the use of sugar as
an enriching agent. Both ideas would increase costs of production
and the limitation on enrichment could affect the viability of
production in northern countries. Furthermore, both suggestions
are inconsistent with the overall objective of achieving a competitive,
market oriented wine regime. Subject to the achievement of this
objective, Defra does not see a need for any financial aid for
enrichment.
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?
One of our aims for wine reform is that it
should provide a framework in which wine producers deliver a net
positive contribution to the environment, and that any public
support should be directed towards this—rather than assisting
in the production or disposal of produce.
In our initial Regulatory Impact Assessment,[4]
we drew attention to the fact that the main potential negative
impacts of wine production are soil erosion, compaction of soil,
water pollution through the use of fungicides, impacts on biodiversity
through the use of plant protection products and waste disposal.
However, wine growing can also have a positive impact in terms
of absorbing carbon dioxide and countering the effects of desertification.
The overall environmental impact will often depend on the area
and intensity of production and the competence of the grower.
The Commission believes that around 57% of the area under vine
is already subject to some form of cross compliance requirements,
as a consequence of other agricultural activities on the farms.
We are aware that organic production has
been steadily increasing in response to growing consumer demand
for a more environmentally and ecologically sound product. While
grape production can be classed as organic, wine made from them
cannot, as all production methods fall outside the scope of the
EU organic standards. The EU organic standards are currently being
reviewed and wine making practices will be brought within its
scope, though it will take a little while to put in place detailed
measures. As production of "organic wine" becomes possible,
it should serve to encourage more producers to convert to organic
production methods, with benefits to the environment and further
market orientation of the sector.
18. To what extent
and how should reform of the EU wine regime take into account
concerns over the potential for alcohol abuse?
The Government is working closely with the
Commission on its alcohol strategy to ensure that the harm caused
by excessive alcohol consumption is reduced. The main aim of the
wine reform is to improve the sustainability of the sector and
pave the way for EU producers to win a greater share of the EU
wine market, rather than to increase the size of that market.
The Commission in its Impact Assessment indicates that the abolition
of the subsidised potable alcohol distillation and, more generally,
the aim of reducing surpluses through a better market orientation
of the production, are likely to have a positive rather than negative
impact on public health. The Government is not currently in a
position to assess any impact or its scale.
February 2007
1 http://ec.europa.eu/agriculture/capreform/wine/index-en.htm Back
2
http://www.defra.gov.uk/farm/capreform/vision.htm Back
3
Includes quantities distilled with aid to the potable alcohol
sector. Back
4
http://www.defra.gov.uk/corporate/consult/wine-reform/defra-initialria.pdf Back
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