Memorandum by The Wine and Spirit Trade
Association
EVIDENCE TO THE HOUSE OF LORDS EUROPEAN UNION
COMMITTEE SUB-COMMITTEE D (ENVIRONMENT AND AGRICULTURE)
The Wine and Spirit Trade Association[1]
thanks the House of Lords European Union Committee (Environment
and Agriculture Sub-Committee, Sub-Committee D) for its kind invitation
to provide evidence in relation to the forthcoming Reform of the
EU Wine Regime, and makes the following comments:
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)?
1.1 The case for a wine regime is that it ensures
that participants abide by the same rules so that goods are produced
and marketed to uniform standards: without a Common Market Organisation
(CMO), the consumer would have little chance of making comparisons
with similar products in an overcrowded market place.
1.2 The wine regime consists of a general Regulation
(1493/99) and a large number of ancillary rules (ie wine making
practices, labelling, market mechanisms etc) which have been developed
over many years: these are designed to prevent barriers to trade
and to enable product to be traded cross-border within the Single
European Market (SEM).
1.3 The wine regime has influenced global standards
for the sector. However, it is the most complex of all CAP regimes,
with many of the provisions having a producer, and not a consumer
focus: this inherent inflexibility restricts the ability of producers
to adjust to changes in consumer preference.
1.4 Although there are many faults with the
present regime including its complexity, which is a deterrent
to new entrants, complete de-regulation would not be acceptable
to the trade and it is highly unlikely that it will be of any
long term benefit to the consumer, see Annex I
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?
2.1 In accordance with the EU wine regime, quality
wines with a Geographical Indication (GI) are only produced in
AOC/DOC regions: many of these were developed more than a century
ago as a means of regulating the trade in specific areas and as
a means of preventing fraud.
2.2 Many EU producers and consumers would now
argue that brands and GIs are synonymous. Over time, AOC regions
have become de facto the intellectual property of producers making
wine to the standards set by the inter-professional bodies whose
purpose is to ensure that wines of quality—and with the
characteristics of a particular region—actually do emerge
from that region (Burgundy, Cahors etc.).
2.3 The controls in place in the AOC/DOC regions
are supposed to ensure that the specificity of the wines of a
particular region are maintained. Abolition of the quality wine
system in favour of branding per se will erode product
specificity which is one of the finest legacies of viniviticultural
Europe: over time this will lead to the homogeneity, and it will
be impossible to tell the difference between wines from specific
regions.
2.4 Branding per se is no guarantee that
a consumer will actually like the wine he or she has bought. Tasting
notes prepared by competent experts are often used as a vehicle
for marketing wines. However, they tend to reflect the quality
of a generic wine made with particular vine varieties from a specified
region. By their nature, the notes are subjective, and a consumer
may not think that a particular wine is of any merit whereas an
expert may take a contrary view,
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?
3.1 The Commission estimates that without reform,
by 2010-11, the EU's annual surplus output may move to 27m hl,
ie 15% of total EU wine production. Clearly, this is untenable
and action will need to be taken to address the imbalance between
supply and demand.
3.2 In seeking a sustainable wine sector, the
Commission has identified the following general objectives to:
— increase the EU's ability to compete
with wines from Third Countries;
— strengthen the image of European
wines;
— regain market share in old markets
and develop new markets;
— develop rules that are as simple
as possible; and which
— take into consideration the social
and political roles of the wine-growing regions.
The WSTA fully supports these objectives.
3.3 In its communiqué to the trade of
20 June 2006, the Commission analyses the current market situation,
describes the problems with the current CMO, and suggests measures
to regulate the market. It cites four options for reform:
— Option 1: Retention of the status
quo;
— Option 2: Profound reform (with fast
and slow variants);
— Option 3: Reform along CAP reform
lines; and
— Option 4: Complete deregulation,
see also para.1 and Annex I.
Based on its own assessment, the Commission
has come to the conclusion that a Profound Reform (Option 2) offers
the most advantages among the four options, and that the retention
of a CMO specific to the wine sector is necessary.
3.4 Profound Reform (Option 2)
Option 2 contains two variants (A & B):
— The main difference between the two
lies in the speed of change but with both reaching the same conclusion.
— Variant A provides quicker answers
to the present difficulties, and Variant B allows the rural economy
and social fabric to adjust more slowly to change.
3.4.1 Common features of Variants A & B:
— Abolition of market measures,
ie support for by-product distillation, potable alcohol and dual
purpose grape distillation, private storage aid, and grape must/juice
aid.
Crisis distillation—originally intended
as a means for special situations—now seems to be in almost
constant use. In June 2006, the Commission granted €131m
to France and Italy for crisis distillation. In 2005, the measure
cost the EU €185m. In addition to being a huge burden on
the EU budget (see Annex 1), crisis distillation is considered
by the WTO as being a trade distorting market mechanism. The WSTA
shares the view of many that the present position is untenable,
and is a gross waste of public money.
— Allocation of a national envelope
to each Member State based on objective criteria, with the possibility
to fund a range of non-trade distorting (green box) measures,
ie restructuring programmes and certain crisis measures.
The WSTA supports this measure, including the
possibility of establishing locally administered mutual funds
to be used to stabilise farm incomes.
— Enhancing rural development policy
in the EU wine regions. For example, increasing support for early
retirement or reinforcing the agri-environmental measures where
recognised landscapes are threatened by a reduction in vineyards.
3.4.2. Differences between Variants A &
B:
The WSTA notes that both variants seek the same
objectives, but that timeframes differ.
This model offers a quick fix. Under the one
step model (Variant A), the regulations regarding restrictions
on planting rights would be abolished immediately without a transitional
arrangement but would lead to greater adaptation problems for
the sector.
— The ban on new plantings would
expire on 1 August 2010, or be lifted immediately with the option
for member states to limit areas producing wine under Geographical
Indication (GI) arrangements.
The WSTA supports the end of the ban on new plantings
for products without a GI as this would encourage innovation to
reflect changes in the market.
The abolition of planting rights would encourage
the allocation of vineyards, the development of large firms skilled
in mobilising capital, ie they would contribute to the creation
of economies of scale which are sorely needed if the EU is to
compete successfully in the same segmented markets with Third
Country producers.
— The grubbing up scheme—which
is subsidised—would be abolished at the same time.
The grubbing up scheme aims to reduce the EU's
wine production capacity to a level which would be viable without
artificial market support (such as crisis distillation). Only
then would new plantings be permitted freely: growers would then
plant only if they were confident of finding buyers for their
wine, so there would be no further need for artificial restraints
in supply.
Note: However, it is important not to constrain
the ability of growers in countries such as the UK, operating
without subsidy, where there is a demand for their products.
— Cultivated areas would enter into
the Single Payment Scheme.
Suggestions have been made—under Option
3—that some payment could be made via a single payment scheme
(SPS). However, this would require a shift of all or part of the
budget to direct payments for vineyards which could then be included
in the SPS.
The WSTA believes that although this would be
advantageous in that it would introduce major simplification and
cross-compliance for all wine growers, the process could lead
to wide spread fraud so proper controls would be necessary. In
contrast to other sectors, there would be no obvious equitable
way of distributing SPS entitlements. Moreover, the available
budget would mean the decoupled payment would be very small and
would probably not compensate for the loss of market support for
many growers.
This model envisages a two staged approach. Initially
the aim would be to restore market balance, with a second stage
building improved competitiveness within the sector.
Extending the EU system of restriction on planting
rights until 2013 when it would expire.
The WSTA's view is that if the sector is in crisis
and that present arrangements are not sustainable, rapid (not
delayed) remedies are necessary.
Temporarily reactivating the grubbing up scheme,
with the premium being set at an appropriate level. To encourage
take-up from year 1, a decreasing scale would be set for the premium
over the remaining period of planting rights. The aim would be
to grub up 40,000 ha in the EU over a five year period, with a
maximum total aid of about €2.4bn.
The areas grubbed up would automatically fall
within the Single Payment Scheme (SPS), see above.
4. Is the EU wine industry, within the current
regime, sufficiently competitive within the global wine market?
How can it be made more so?
4.1 In recent years, the EU has lost significant
market share to Third Countries: for example, Australia is now
the most important supplier to the UK.
4.2 The WSTA (and others) would strongly support
the creation of a comprehensive EU strategy so that a coherent
approach can be taken by the EU in relation to international negotiations.
Funds should be set aside in the EU budget to
support this objective.
Given the inadequacies of Eurostat, funds should
also be set aside by the EU for an "economic observatory"
(Unit) to monitor progress stemming from reform: this would allow
better data to be collected and analysed for the general benefit
of the EU sector with a view to developing sound strategies.
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?
5.1 The development of a WTO GI register for
wine and spirits will reduce barriers to trade (and the risk of
trade wars). Although this is unlikely to have much impact on
the cost of the EU wine regime per se, it is an important
issue when considering brand building and product differentiation,
and therefore, there could be a knock on effect for farm incomes.
5.2 Global technical standards are set by the
OIV (the inter-governmental body for wine). These standards are
a means of preventing technical barriers to trade, and the suggestion
by the Commission that OIV standards should be incorporated into
EU legislation as Commission (not Council) Regulations is to be
applauded.
5.3 The WSTA strongly agrees with the Commission
that it is important that the new CMO for wine is compatible with
WTO standards.
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?
6.1 See para. 3 above.
7. How significant an issue is illicit planting
for the supply situation?
7.1 The Commission's view is that "after
many years, some member states have still not completed the regularisation
of certain so-called irregular vineyards (planted before 1 September
1998) or the grubbing up of certain so-called illicit vineyards
(planted before 1 Sept 1998). The areas for which regularisation
has been refused and which are still under examination amount
to about 68,100 ha or about 2% of the total EU-25 area under vines".
8. Is there a case for the continuance of
remedial measures ("crisis distillation") to deal with
exceptional market conditions?
8.1 No case can be made for the continuation
of Crisis Distillation: experience has shown that the original
purpose for which it was designed has become distorted and is
now a means to an end, ie to guarantee an income to the grower
at the expense of the taxpayer.
9. What alternative outlets (ie other than
wine sales) exist for excess production?
9.1 Alternative outlets for wine products include:
— Vinous alcohol for use in the manufacture
of other beverage alcohol products such as Port and for the manufacture
of Rectified Concentrated Grape Must (RCGM) used for the sweetening
of still wines in some wine growing regions.
— Bio ethanol as a fuel for vehicles
etc.
— The pharmaceutical industry.
10. What is the potential impact on wine producing
areas of liberalisation of the market? How sensitive are these
economies to change?
10.1 Given the economic uncertainties in the
wine sector, there are no easy answers.
According to the Commission:
— With 1.6m vineyards, vines occupy
roughly 3.4m hectares in EU 25. The average size of vineyards
is roughly 2 ha, although the majority of growers actually work
on less than one ha 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.[2]
— In total, vine growing farms employ
more than 1.5 million 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 1.5 million
people corresponds to roughly 15% of the total Annual Labour Units
in the EU for agriculture.
— 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 been substantially
reversed with average revenue per farm having declined by 12%
between 1999 and 2003.
— Europe grubbed up its vineyards in
the 1980s and 1990s whilst at the same time the New World was
busy planting. The new CMO of 1999 reversed this trend but was
quickly confronted with over-production and illicit planting.
Europe embarked on a new wave of grubbing up in response to a
crisis that was partly cyclical.
10.2 Experience has shown that fluctuations
that trigger cyclical crises in the EU can become structural ones,
both as a result of insufficient clearance of markets by crisis
distillation and through lack of growth potential in outlets in
the face of powerful competitors.
10.3 Production has continued to evolve outside
Europe and the present situation remains heavily influenced by
world over-production in 2004. Over and above the cyclical aspects,
the trends of yields vary widely from vineyard to vineyard.2
10.4 In the EU, consumption has stabilised on
average. It continues to decline in the traditional producer countries
and to rise in the non-producer countries. The trend at EU level
is towards virtual stability (no growth) on average, and towards
a slight increase at a world level.
10.5 Vineyard performance makes sense therefore
only in terms of productivity adapted to the dual concept of product/market
segment.
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?
11.1 The WSTA agrees with the Commission that
many measures could be part of the Rural Development plans adopted
by member states. The Commission has suggested that:
— Early retirement and agri-environment
support (see para 15) could provide significant encouragement
and benefit for vine growers. Farmers who decide to stop all commercial
farming activity for the purpose of transferring the holding to
other farmers may benefit from a maximum of €18,000 per year
and a maximum of €180,000 for a maximum of 15 years.
— Agri-environmental measures to cover
additional costs in providing and maintaining vinescapes/cultural
landscapes may amount to a maximum of €900/ha for a period
of between five and seven years.
— As the 2007-13 Rural development
planning processes in progress, and in order to encourage these
measures, a transfer of funds between budget headings (market
and direct payments on the one hand and Rural development on the
other) would be necessary.
— As in the tobacco and cotton sectors,
such development programmes could play an important role in the
economic welfare of wine sector stakeholders in the future.
— Wine producing member states and
wine stakeholders may not have used all the opportunities offered
by RD policy in the past, opting instead to use intervention and
market measures.
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?
12.1 From a EU regulatory perspective, the complexity
of the present régime is excessive by most standards. There
is a bewildering array of Geographic Indications (GIs), which
their owners attempt to link to expressions of quality even though
the wines are of no particular merit; there is a stratum of dedicated
wine labelling arrangements which is incomprehensible to the consumer
outside the region of production; and in many cases these represent
quasi technical barriers to trade.
12.2 On labelling:
— Consumers are often confused by wine
labels resulting from a highly complex legal system consisting
of legal instruments which deal differently with several wine
categories and with some specifics depending on the product.
— Certain inflexible labelling rules
hamper the marketing of European wines. A major drawback is the
limitation of the use of the optional indications, ie vintage
and vine variety (ies) to wines with a GI. This presently prohibits
the indication of a vintage year and the vine variety on a table
wine without a GI. This situation hinders the production, marketing
and export of important volumes of "vin de cépage"
(wines of one or more vine varieties classified as table wine),
whereas there is strong competition on the Community market and
on third countries" markets for this range of product.
— The conformity of labelling rules
with international obligations should be improved, as far as the
sale designation (for example, quality wines psr table wine with
a GI, and table wine), the use of optional indications, the reservation
of bottle shapes, and the policy on traditional terms are concerned.
— To aid new entrants to the sector,
(especially SMEs) the WSTA believes that consideration should
be given to developing a comprehensive sector-specific data base
to assist compliance with EU regulations, particularly those relating
to labelling.
13. What part has marketing played in the
rise in sales within the EU of wine produced outside the Community?
13.1 New World Wine producers have taken
a "holistic" strategic approach to marketing their products
in the EU: marketing should not be seen as a function in isolation.
Their success has largely been achieved by:
— Close cooperation within producer
countries of stakeholder organisations, ie trade associations,
research establishments, universities etc and trade.
— Access to capital and the development
of new production facilities and innovative practices.
— Flexibility of approach, allowing
producers to plant varieties which they know will have a market,
and to grub up as necessary: third country producers of wines
of quality do not have the same constraints put on them as many
producers operating within AOC/DOC regions in Europe.
— Economies of scale which permit large
volumes of branded product to meet the increasing demands of the
multiple grocers in markets such as the UK.
— Protection by government of "Brand
Australia" etc.
— Development by the trade of products
to fit consumer preferences in specific EU target markets.
— Brand consistency and value for money
to the consumer.
— Label designs (plus the use of vine
varieties) which are comprehensible to the consumer.
14. What lessons might be learned from the
penetration of non-EU wines into the EU market?
14.1 European producers need to become far more
flexible, and should not rely so much on "protected"
home markets. In a declining home market, companies should seek
export opportunities and produce only to consumer demand.
They need to understand:
— The market, and respond to consumer
demands.
— That over time, in the Single European
and global markets, market mechanisms are more powerful than attempts
by government (or inter-professional bodies) to protect local
economies.
— That subsidy is a short term solution:
eventually, the tax payer will lose patience. New Zealand—whose
wine producers are not subsidised— competes favourably with
many EU member states on a global market.
14.2 The rules governing the CMO should be liberalised
to enable producers to react to consumer demand.
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?
15.1 The current EU wine regime restricts innovation
and is a disincentive to the production of modestly priced, wines
aspiring to attain higher quality: in addition, EU constraints
on the adoption of oenological practices hands a competitive advantage
to Third Country producers which are permitted to use more wide
ranging (OIV) winemaking practices.
15.2 Current regulations are restrictive; and
the WSTA would support the Commission's proposals for greater
liberalisation regarding wine making practices (WMPs) , as follows:
— Transfer from the Council to the
Commission the responsibility for approving new or modifying existing
WMPs including taking over the "acquis".
— Recognise OIV's WMPs, and filter
at Commission level their incorporation into Commission regulations.
— Authorise use in the EU of WMPs already
agreed internationally for making wine to export to those destinations.
— Abolish the ban on vinification of
imported musts and blending of Community wines with Third Country
wines.
— Delete the minimum natural alcohol
requirement for wine, ie to permit the use of technologies to
reduce alcoholic strength, see para. 18.
16. How should enrichment (with sugar or must)
be regulated? Should there be financial aid for enrichment?
16.1 See Annex II.
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?
17.1 Good Agricultural Practice (GAP) and sustainable
development are deeply engrained in the vine growing (vitivinicultural)
sector, and standards are being set at OIV global level.
17.2 The sector has had a profound effect on
the EU environment for very many years (in some regions for centuries);
it has been responsible for the construction and maintenance of
fine architecture, and interesting landscapes. However, this comes
at a price.
17.3 The Commission has found that reform along
the lines of the general CAP reform would be difficult to apply
to the wine sector. The cornerstone of this type of reform involves
converting past subsidies into de-coupled payments, ie payments
which are not based on production but linked to land area and
disbursed when farmers respect certain conditions of environmental
care, animal welfare and public health.
The WSTA concurs with this assertion.
18. To what extent and how should reform of
the EU wine regime take into account concerns over the potential
for alcohol abuse?
18.1 In its Communication of 22 June 2006 on
the wine reform, the Commission confirmed that "... information
on the advantages and the benefits of moderate and responsible
consumption of wine as well as information related to alcohol
harm has to be provided to all concerned". In later correspondence
with the sector's European trade association (Comité Vins),
the Commission stated that it "encourages initiatives to
inform consumers on responsible patterns of alcohol consumption
by carrying out information and education campaigns".
18.2 For its part, the EU wine sector has developed
a strategic initiative (The EU Wine Plan) as a key education initiative
which it hopes will be incorporated, developed and supported in
the future wine CMO.
DG Sanco has acknowledged that with its plan,
the EU wine sector has made a constructive commitment to contribute
towards moderation and responsibility in the consumption of wine
and other alcoholic beverages as a contribution to the reduction
of irresponsible consumption and related harm.
The EU wine sector hopes that the EU will provide
consistent political and financial support for information and
promotion campaigns aimed at educating consumers in the broader
sense of "life skills", and focusing on moderation and
responsibility in the consumption of wines in particular.
Moreover, it hopes that these EU wine sector
campaigns can be implemented in close partnership between officials
at the EU Commission, and at national and local levels within
the framework of the future EU wine policy.
Wine and Spirit Trade Association
6 February 2007
1 The Wine and Spirit Trade Association (WSTA) represents
the whole of the wine and imported spirit supply chain including
producers, importers, wholesalers, bottlers, warehouse keepers,
freight forwarders, brand owners, licensed retailers and consultants.
The WSTA was established in 1824 and currently has 300 members. Back
2
(i) Extensive vineyards with low yields vary widely. These are
converting to irrigated higher productive vines and improved varieties;
(ii) Highly productive vineyards are converting to improved varieties
with lower yields. Back
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