Examination of Witnesses (Questions 180
- 199)
MONDAY 7 MARCH 2007
MR JOSÉ RAMÓN FERNANDEZ
Q180 Lord Cameron of Dillington:
But that is your job, not the Commission's job?
Mr Fernandez: It is our job but what we need
is support from the European Union in order to build up this scheme.
We have to know that there is substantial public support for the
promotion of wines from third countries to come also to the European
Union. We should not prevent ourselves from having this kind of
partnership also with public authorities in promoting this access.
Of course, a big part of the responsibility lies with the industry
and with private initiative but we have also requested the European
Commission to provide some support in developing this. Let me
give you an example. We are not talking just about putting money
into promotion for European wines. We are talking about accompanying
negotiations. We need resources from the European Commission in
order to be a performer in these negotiations. Today there are
some schemes in the European Union. There is a regulation providing
support for the promotion of agricultural products in third countries
but we would like to see something more consistent and coherent
for the interests of the wine sector in international trade.
Q181 Viscount Ullswater:
Do you think that this is something the European Union should
be doing? Or should Member States be doing it? What you were describing
was the sort of promotion , for instance, that Australia does
for Australian wine and New Zealand does for New Zealand wine.
Surely the European Union cannot do it for European Union wine.
It must be individual Member States that are going to promote
French wine or Spanish wine or Italian wine? How do you deal with
that?
Mr Fernandez: The framework for the Member States
to provide this support is also subject to European rules because
there are public support rules in terms of limiting what you can
do as a Member State to provide support to companies, so in any
case we are obliged to have some kind of European Union coverage
for doing that. Of course, we agree with that but we want to have
a global framework which can provide the basis for the sectors
to do that with the Member States. Let me also say that, given
the experience we have had with the existing European regulations
in providing support for the promotion of agricultural products,
we have seen many times that the condition of having the public
support of the Member States is a brake because it becomes a very
bureaucratic system, so we would like to have something more simplified
with clear rules that allows the companies to have this support
directly and improve access to new markets.
Q182 Chairman:
Can I take you up on external trade before handing over to my
colleagues? There are two sorts of questions here. Where is Europe
good at exporting to? Which countries do we export to well. And
what type of wine is best in terms of export? And then there is
the reverse of that almost:—why have some third countries
been so successful in penetrating the European market? What is
the secret of their success?
Mr Fernandez: I guess you already have access
to these but we are happy to provide to you some official statistics
explaining which are the main markets for the export of European
wines. If you take out the internal trade between the Member States
of the European Union the main market for European wines, the
highest value market, is the US. Switzerland is the second one,
Canada is the third, then Russia and Japan. They are the top five.
What is the wine that we are exporting there? That is something
that we can also elaborate on. We have no problem with competitiveness
in the high quality products from certain Geographical Indications,
which are doing very well in these external markets and year by
year are increasing their performance. Where we have rigidities
and a lack of competitiveness is in the medium segment, where
more and more New World wine-producing countries are developing
and coming into this segment. It is not about the low-priced wine
segment. It is about something which is very good value for money,
where consumers appreciate the quality which is there but not
at a high price like having top wines from certain Geographic
Indications that we have in Europe. I would say that the challenge
we have in terms of competitiveness is that there is expanding
consumption of wine at world level but the market share of European
wines is not following this increase. There is an increase but
is a smaller increase than our friends in third countries are
getting. The reasons why our wines in this medium segment are
not performing are very much linked with the regulations that
we have in terms of restrictions and limitations in communicating
with consumers and also the structure of the sector in terms of
not having big players which are able to compete internationally
as our competitors can.
Q183 Viscount Brookeborough:
Looking at prices generally, first of all are there some producers
who are producing wine of such a low quality that (a) they are
fully aware of it and (b) they can only do so because of intervention,
be it crisis distillation or whatever? Or does it occur because
they simply cannot sell it and therefore it goes into crisis distillation?
Are they actively producing wine of that quality knowing that
it will have to go into intervention?
Mr Fernandez: We think that market mechanisms
like crisis distillation are not allowing producers today to take
the right decisions in being competitive. The problem we have
today is that, when producers decide to go ahead with their yearly
production, they do not necessarily take into account whether
that is going to have a proper outlet or not. Of course, this
assertion is not valid for the whole production of the European
Union but a significant part of the production decisions made
do not take into account whether this product is going to be marketable
or not, because in the worst situation I would be able to get
some money which would allow me at least to cover the cost of
production. Even if they intended to produce the wine, the price
for crisis distillation in the European regulation is intended
to have the effect of dissuading people from producing this wine.
However the use of crisis distillation over the last few years
has shown that there is a structural production of wine which
finally goes to crisis distillation, so we definitely feel that
this market mechanism should be reviewed and eliminated and that
we should think on alternatives to it in order to avoid the eventual
conjunctional crisis that we will have in this particular type
of production of wine in the European Union.
Q184 Viscount Brookeborough:
We saw some time ago, when we were looking at soft fruit, that
some fruit was produced without using enough fertiliser knowing
that it would be for intervention and therefore it was being intentionally
grown or produced. Can one say this about the wine?
Mr Fernandez: I know that in some parts of the
fruit and vegetable sector historically there has been this situation.
I would not say that there is ad hoc production of wine for going
to distillation. I would say that it is more subtle than that,
that this mechanism impedes producers from being permeable enough
to market demand. Maybe they produce their wines because it is
their activity, but if you are not confronted with the reality
of the market you cannot just keep doing this. There is something
very important to understand here about the wine sector. The harvest
can vary very much from one year to another. This is a naturally
driven production and it continues to be the case. Wine, fortunately
we say, is not an industrial product. We depend very much on natural
conditions in terms of the volume and the quality of our production
and that is something which also explains why in the current system
we have a strong market mechanism, in order to be able to regulate
the variability of the harvest that we have from one year to another.
Q185 Viscount Brookeborough:
If there was no crisis distillation and if you removed the planting
ban and therefore it was just market-governed, what would you
see happening to prices of wine? And how do you think it would
initially affect them?
Mr Fernandez: I think there are segments of
crisis. There is huge diversity in wine production in the European
Union, and also from a world perspective. In wine there is no
one consumer and there is no one wine. You have different segments
of products, and I think that this diversity we offer is one of
the strengths we have in our sector. I am not just talking about
the European Union; I am talking about the world. For some segments
and some producers a sharp deregulation of the whole system could
lead to some difficulties from a social point of view because
it may be that for this segment, if you have no production one
year, you have some problems. That is why we are supporting very
much the European Commission approach with some criticism of certain
points. We support the idea of having as soon as possible quick
adaptation to market demand but we need to have some kind of tool
in order to prevent crisis while accompanying the restructuring
of the sector. I think that, if we do not provide this tool, from
a political point of view it will be very complicated to have
the in-depth reform we need for sustainable development of the
sector. We want to be realistic also from a political point of
view in that, if we want to perform in the medium term in a competitive
way, we need to go ahead with this reform but also provide some
tools to allow the sector to adapt.
Q186 Lord Cameron of Dillington:
On a temporary basis?
Mr Fernandez: Of course, definitely temporary,
and you should not be able to delay the deadline that we put there.
That is why it was put in the regulation that the ban on planting
rights would stop in 2010. We think it would be a very bad sign
to the sector to once again delay the entry into force of this
which is already in our regulation. That is a very strong sign
to deliver to the sector, that the European Union is serious when
drafting the rules, that there are clear signs that some restrictions
have to stop at a certain deadline and that we should stick to
this deadline.
Q187 Lord Cameron of Dillington:
I want to ask you about labelling. You did mention it before and
I think probably you are going to agree with me. First of all,
let me say that I agree with you that there are going to be social
and economic problems with any wine reform that goes on, and obviously
they will need to be considered. But I come from the perspective
that the best and most sustainable way of reforming the wine regime
is to make it economically sustainable to have liberalisation
in the market, to listen to the consumers. We have a lot of different
labelling rules in Europe and there are over 10,000 geographical
indications, of which probably over 9,000 mean nothing to the
consumer. What is to stop us saying, in order to encourage entrepreneurship,
that anybody can put whatever they want on a label providing it
is accurate and true? That is the only check we need, which after
all is what happens in the rest of the food industry. When Robert
Mondavi in California first put grape varieties on a label, people
thought he was mad but now it is how people recognise wine.
Mr Fernandez: That is one of the most interesting
and challenging parts of this reflection about how things should
change in the European Union system. Let me start with some principles.
The Common Market Organisation for wine is unique historically
because from the very beginning, in order to allow internal market
functioning on the basis of fair competition and to protect consumer
expectations, they decided to incorporate a comprehensive set
of rules about labelling. This principle, we feel, continues to
be valid. There has been some very interesting research done by
SANCO, the Health and Consumer Protection Directorate General,
on food labelling about what are European consumers' expectations
in terms of what information they would like to find on their
food, et cetera. The outcome of this research is that consumers
of wine are interested in the fundamentals of the wine labelling
regime, which are roots, specificities, harvest year, varietals,
the taste, the combination with gastronomy, if it is OK for fish
or if it is OK for beef. This is the kind of information that
consumers want. They have said in this SANCO research, "We
are not that interested in knowing if it has been made with a
clarification agent. We want to know if this product goes with
lamb". This aspect of offering diversity for consumer choice
continues to be very important. We think that is one of the strengths
of the European concept of wine culture. This concept is intended
to be reflected in the labelling rules that we have, so we do
not want to make a revolution in the labelling rules but there
are some things that we definitely want to change, and I come
to your point about Geographical Indications. The best part of
this approach is that the specific qualities of wine are very
much linked to the natural conditions in different parts and the
way in which the wine making is done.
Q188 Lord Cameron of Dillington:
In some cases.
Mr Fernandez: Yes, with this approach. The rules
in the European Union for labelling are that the only wines that
are able to provide interesting information to the consumer are
the wines under the Geographical Indication scheme. You are not
able today to provide information on a table wine. You are not
allowed to inform the consumer that such a wine is from the 2005
harvest or that that is made with Merlot or provide some kind
of explanation about the qualities of the product. With table
wine you have to stick to a very non-attractive communication
for wine, because the policy of the European Union is to give
preference to Geographical Indications. The result of this approach
has been that in order to be able to provide appropriate labelling
information for the consumer, you have to go under a Geographical
Indication scheme. As a result there has been an "inflation"
of Geographical Indications in Europe, which leads to a "banalisation"
of the concept. That is why the label point is so important. I
would say it is not just about the label; it is also about the
communication of the whole product. With table wine you have to
put "table wine", which is a pejorative message, and
the only thing you have there is the brand and whether it is red
or white. That is all you can do with this, so you are not really
stimulating the possibility of valorising this segment of products,
and that is why we say that in the new rules there should be more
flexibility for all wines to provide accurate, objective and verifiable
information to consumers. There is consumer expectation about
the segmentation of the product. We think that in the labelling
rules you should keep some kind of segmentation. There are Geographical
Indications and non-geographical indications but this category
of non-geographical-indication wine should be allowed to communicate
in a more flexible way.
Q189 Lord Cameron of Dillington:
Who should control what is put on the label in your view? It seems
to me that there is room for the existing sellers to keep out
somebody who is being entrepreneurial and innovative by saying,
"No, we do not want you to be able to say that. We do not
want you, Robert Mondavi, to be able to sell your wine in this
way". There is a sort of Mafia element here that could creep
in. Who should control it?
Mr Fernandez: The starting point is that, as
with any other food product, when you make a claim on your label
you should be able to prove that what you are claiming is true.
Q190 Lord Cameron of Dillington:
So I have misunderstood it? What you are saying is that you should
have liberalisation as long as you are saying the truth?
Mr Fernandez: Exactly.
Q191 Viscount Ullswater:
Do the OIV have rules which would apply to both Europe and the
rest of the world that you could go along with?
Mr Fernandez: They are not necessarily leading
a harmonised labelling approach for all wines around the world,
but in terms of oenological practice in wine making.
Q192 Viscount Ullswater:
But not labelling?
Mr Fernandez: They have some projects working
on labelling, but what we would like is just to have the possibility
to do as other parts of the world do in terms of providing accurate
information on what is in the product. Of course, you have to
be absolutely frank. It is quite a sensitive issue at the European
level because, for instance, the varietals in the European Council
are part of the idea of Geographical Indication. That is why there
is this resistance to the liberalisation approach, because the
Geographical Indication in different Member States means also
that you can only use particular varietals. If you allowed the
accent in the communication on any wine to be put on such a particular
varietal, that would be considered by some to be a dilution of
the identity of the Geographical Indication. In fact, that is
the reason why in third countries they have taken the varietal
as a communication vector of quality and significant wines for
the consumer. Because in the US or Australia there was not initially
a Geographical Indication reputation approach—they had no
Geographical Indications they have taken some words with links
to the wine culture—like Merlot, Cabernet Sauvignon, et
cetera—and put those on the label stimulating in the consumer
perception an interest in these characteristic elements of wines.
What we want is not just to prevent our producers from making
a profit but also to lead this trend in providing consumers with
significant wines that are interesting for them because of the
specificity that the varietal, or other specific characteristics
can bring.
Q193 Lord Plumb:
You said that reform is essential and yet you accept that there
would be a pretty substantial socio-economic problem with the
thousands of small businesses there are. Do you do anything as
an organisation in encouraging those small businesses to co-operate
so that, if they got together, they could then be much more competitive?
You are not going to drive them out of business. They are there
and they are established, and they will tighten their belts and
they will live for a very long time and cause problems. But nevertheless
it is going to be, I would submit, a major part of the changes
that take place. One of the things that we would like to ask you
is on the practices of wine making to permit a narrower range
of procedures than those used by non-EU wine producers, and that,
of course, could be a hindrance to growth in the market if they
are working under different standards and there is a limit to
the types of method for producing the wine. Would it be going
too far to say that we could be facing a choice therefore between
traditional wine growing and producing wine for a competitive
market? In that situation, providing the product is safe and everybody
is satisfied that what they read on the label, as you have just
been saying, is correct, why have those restrictions? Why can
we not, as part of the change in the objectives of the future
regime, make it the same in a freer sense as the rest of wine
making elsewhere?
Mr Fernandez: First of all, we talk about wine,
and wine should preserve authenticity as a product. That is a
fundamental starting point for, I would say, the whole wine sector
around the world. One of the strengths that we have is to have
a very specific product which is natural and with a minimum of
human intervention which ameliorates the quality of the product
that has been given by nature. This is a very important concept.
The European Union has a set of strict rules in wine making because
the objective is to keep wine as an authentic agricultural product
which is made from the fermentation of grapes, respecting as much
as possible the nature of the product. That is why we have in
the European Union a positive list of oenological practices which
says how to produce a wine and what standards you have to respect
in order to ensure that the wine stays an authentic product. With
technical development or innovation, of course, there is more
you could do with a wine. But if you allowed wine to lose completely
its natural characteristics which come from the grapes, you could,
from a political point of view and from a perception in society
and a consumer point of view, start having a problem in terms
of saying what the specificities of this wonderful product are
in comparison with others. In the European Union our position
for the industry is that we want to keep a set of rules which
are quite clear for wine making, but at the same time we can accept
that there are other parts of the world where they want to make
wines in a more liberal way. We do not prefer this. We consider
that this is something that you should be able to valorise vis-a"-vis
the consumer, because you preserve a set of rules which fits with
the European traditional concept that we have for wine making.
Oenological practice for us is not just a matter of safety for
the consumer. It is also about preserving the authenticity of
the product for consumers as a whole category.
Q194 Chairman:
Is there a real problem here because, when you spoke about import
penetration, you identified third party countries taking over
the middle range, middle quality wines, not the stuff at the top
and not the stuff at the bottom. Is that not really the area where
European wines are going to have to compete. And, in order to
compete successfully, will they not have to use similar wine-making
practices to their competitors?
Mr Fernandez: Yes, but we do not want that oenological
practices should lead the competition in different segments. For
the time being we want to refuse to go into the game of competition
by diluting the profile of our product. Wine should remain wine;
that is the starting point. What we consider very important is
to have an international reference for defining these wine-making
practices. This for us is OIV, and as proposed by the European
Commission, the OIV standards should also become the reference
for European wines. But we want to define in the OIV the profile
of wine-making that we want. We will also support the proposal
from the European Commission. Today the legislative procedure
is very heavy and very bureaucratic. To allow any new oenological
practices for wine making in Europe you need to go through the
Council and the Parliament in order to have this change, which
makes it become a real political issue at any time. We support
the idea of having a Commission competence. I would very much
like to stress that oenological practice is very much about preserving
the authenticity and the concept of wine, and I think that there
is a common interest in that in the whole world wine community.
Of course we have to be open to technical and commercial innovation.
We should not prevent ourselves from accepting oenological practices.
That goes with this philosophy of ameliorating the natural qualities
of the product. But we do not want to be in the position of explaining
to consumers that they are drinking something which has lost completely
its natural aspect.
Q195 Lord Cameron of Dillington:
But why do you need to have a political filter for the OIV wine-making
processes when all the rest of your argument seems to be about
being competitive and encouraging entrepreneurship? I would have
thought you would want to keep the politics out of wine making
and the business of sustaining the wine industry?
Mr Fernandez: In fact the first political filter
is in the OIV. It is not just an expert body.
Q196 Lord Cameron of Dillington:
OIV has consumers, wine makers and wine sellers, whereas the Commission
is just politics.
Mr Fernandez: OIV is an intergovernmental organisation
of the Member States of the European Union and the Governments
of the other countries (Australia, Chile, et cetera). The sector
is not a "member" of OIV. Some sector representatives
participate as experts as part of the national delegation but
the members are governments, so the OIV is a political body. What
we want is to defend our mode of wine in OIV. I think it is the
right place; it should be the reference also for all wine producing
countries. The United States are not members of OIV today, but
we would very much like them to be members; and also the European
Union should be directly represented in the OIV . Today it is
not the Commission or the European Union which is a member of
the OIV; it is the Member States. Once there is a reference and
an agreement on oenological practice in OIV,—and once again
we want to be able to decide but not in a very heavy and bureaucratic
way—we need to simplify the procedure in order to be able
to incorporate the decisions of OIV into the European Union rules.
But we do not request as a matter of principle, to have for our
production a set of rules which are necessarily the same as in
Australia, Chile or Argentina. There is also another point which
is important . The oenological practices that we can use for European
Union wines are the same notwithstanding whether you market your
product in the European Union or in third countries. We would
like to be able to have some flexibility for oenological practices
on the wines which are exported to the third countries. If you
go to Japan and they are more open on that it is not a problem
for us to fit in with this. Why should we prevent opening the
door to these new oenological practices for the third market countries?
I understand there is a certain degree of complexity in this approach
but the fundamental thing is that we want to preserve the authenticity
of our products. And we want to be able to incorporate in the
most diligent way in the EU rules the innovation that is decided
at the OIV level.
Q197 Viscount Brookeborough:
Can you give us an example of some of the practices, or perhaps
some of the additives or whatever, that are added in New World
wines which you object to or that you feel damage the principles
of wine making? We hear about added sugar but sugar is a natural
product. What is it that really goes against your practice?
Mr Fernandez: There are some oenological practices
which are under discussion today also in OIV which are already
practised. They are not approved by the OIV but they are practised.
Q198 Viscount Brookeborough:
Can you give us some examples?
Mr Fernandez: There is, for example, the ion
exchanger. Which make wine lose their characteristics. I do not
want to be poetic or literary, but wine is a live product. There
is a biological process there. If you "kill" the wine
from an oenological point of view, it loses its very nature.
Q199 Chairman:
That is like pasteurised and non-pasteurised milk.
Mr Fernandez: Afterwards you just start with
another element and you put that in and you continue to call that
wine. I would like to stress that there are some of these practices
in place in some of our partner countries in other parts of the
world but they are not yet agreed by the OIV. That is why we think
that the OIV should be the reference, because it could bring everybody
around the table to decide what is the wine making concept that
we want to have.
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