Annex I
ECONOMIC IMPACT
The following notes summarise the Commission's
view of the likely economic impact of reform on the wine sector,
and include some preliminary comments from the WSTA.
OPTION 1 (STATUS
QUO):
The WSTA notes the Commission's estimates that
the structural surplus in an average year would be 15 million
hl, excluding wine withdrawn for distillation into potable alcohol,
or 27 million hl if wine withdrawn for distillation into potable
alcohol is included. After application of market measures, and
taking into account the remaining stocks, the remaining surplus
is estimated to be 9 m hl with a resultant downward pressure on
prices of 6% annually.
The WSTA shares the view of the UK government
that under this option, it is inevitable that EU wine will continue
to lose market share to new world wines. Moreover, the present
system of market support measures is environmentally unfriendly,
is wasteful and is hugely expensive. Moreover, it is likely to
come under pressure in WTO negotiations.
OPTION 2 (PROFOUND
REFORM):
The Commission estimates that oversupply would
be 8.2m hl in year 1 but reduce to 4.2m hl in year 2. Thus the
oversupply is expected to be substantially lower than option 1.
Consequently, the impact on stocks, prices and incomes is also
expected to be more moderate.
This option shows a 5% fall in the first year
and a further, but smaller drop in process in the second year.
For incomes the Commission's model shows a 7% to 26% fall in incomes
in the three main wine producing countries after two years. The
magnitude of the reduction in income depends on the region and
the type of vineyard. After year two, prices and incomes are expected
to slowly recover because of a tendency towards balance between
supply and demand.
One eighth (12.5%) of jobs in the sector is
expected to be lost under this option as less efficient enterprises
go out of business.
OPTION 3 (REFORM
ON CAP REFORM
LINES):
As in option 2, in the short term, the imbalance
between supply and demand is likely to persist but in the medium
to long term the market will be in balance: thus incomes and prices
will reach satisfactory levels. The level of income could be higher
in the long term than under option 2 due to the single payment.
However, this would depend on how the funds are used under option
2.
According to the Commission, adjustment would
be slower under option 3 due to the lack of a grubbing up scheme.
It estimates an increase in stocks over the first two years of
12.2m hl annually. The results of the Commission's prices and
income model are for prices to fall by 16% over the first two
years. Incomes (including the decoupled payment) are projected
to increase for some producers but to fall for most producers
by between 5% and 17%.
The impact of the ban on Chaptalisation and
a maximum enrichment of 2% could lead to an increase in production
costs of 15% to 25%.
OPTION 4 (COMPLETE
DEREGULATION):
In the short term complete deregulation would
lead to severe imbalances in the market which could have severe
long term human costs. The Commission estimates that stocks would
increase initially by 19m hl annually—more than under the
status quo (Option 1). Based on this assumption, prices are projected
to fall by 23% over the first two years—the largest projected
fall among the four options. The Commission's model also suggests
the largest impact on farm income under option 4 with falls between
21% and 74% in the first two years.
The elimination of market support measures would
make the system WTO compatible.
The WSTA acknowledges the merits of the following
measures falling under Option 4: these should not be discounted
as long term objectives:
— The immediate elimination of the
planting ban would eliminate barriers to entering the market.
It would allow more efficient producers to expand at a lower cost
and be more competitive in the market.
— The WSTA believes that there should
be sufficient flexibility in any system governing planting rights
to enable competent growers to expand their holdings should the
market require it.
— Complete harmonisation of EU oenological
practices with OIV rules should be a long term objective and would
put EU producers on a level playing field with other Third Country
producers, allowing them to produce products demanded by consumers.
All these measures would help drive up efficiency
and improve the competitiveness of EU producers.
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