Examination of Witnesses (Questions 280
- 299)
MONDAY 7 MARCH 2007
MR LARS HOELGAARD, MS LENE NAESAGER, MR EMMANUEL
JACQUIN AND MR DOOLEY
Q280 Chairman:
That is the lees and the marcs?
Mr Jacquin: In Germany they do that, but in
most Member States there is this obligatory distillation which
produces alcohol and also by-products. From these by-products
you can extract a lot of interesting things but at the end you
have some waste which can be put on the fields. This is a compulsory
one, which costs a lot of money. Then we have another small compulsory
distillation, which is called the double-purpose distillation.
It is a distillation which is specific to the Charente region
in France and to very tiny other regions in Italy and Greece,
and the purpose is mainly to get rid of the wine which is produced
above the quantity which is used for cognac. The producers have
to put this surplus quantity to distillation. It is a small one
and represents more or less €15 million, so it is not so
important. Then we have two other so-called optional distillations.
A very well-known one is the distillation for potable alcohol.
This is a distillation which is optional for producers, so they
may sell wine to distillers at a warranted price and then the
distiller gets Community money. He distils the wine and then he
transforms it into brandy, and so this goes into distilled drinks,
mainly brandies but the alcohol extracted can also go into different
wines, such as port. The aim is to produce wine alcohol from wine.
The last distillation is called crisis distillation and is also
optional for Member States. This is a distillation which is not
open every year. It can be opened at the request of a Member State
if the Commission so agrees when there is a surplus situation
in a particular region for a particular wine category. Recently
it has been triggered in 2004-05 and 2005-06. It has been used
to eliminate difficult quantities of surplus wines in different
Member States, like Italy, Spain, France and Greece.
Q281 Viscount Brookeborough:
So it is becoming the norm, not necessarily a crisis, because
it is continuous?
Mr Jacquin: The present regime was adopted in
1999 and so it has been valid since 2000: crisis distillation
has been in existence since 2000. It was used at the very beginning,
in 2000-01, and then a little bit in 2001-02, and then it jumped
to 2004-05 and 2005-06, so it has been very significantly used
but not every year. It is a problem that we have highlighted in
our Communication, that these distillations have now become so
very often used. In total the distillations represent more than
€500 million a year on average.
Q282 Viscount Brookeborough:
Who gets the receipted money for potable alcohol and the fuel
market? At the end of the day are we just subsidising the production
of cognac and fuel?
Mr Jacquin: This money is paid to the distillers
but it is paid for the benefit of the wine producers, because
with this they buy the wine and they pay a price.
Mr Hoelgaard: I think we have to make a clear
distinction here. The potable alcohol is the one which is destined
for human consumption. All the rest should not go into disturbing
the alcohol market. It has to go to other outlets, the chemical
industry or for fuel purposes or whatever, and that is in an attempt
to avoid having a wine surplus overloading the alcohol market
consumption. What we did do in the past was to sell considerable
quantities of alcohol in excess at very low prices. Basically,
we only obtained maybe one tenth of the value of the product compared
to the cost of distillation. Now what we have done is that we
are trying to get rid of those and concentrate it, so that even
if it is still at a loss it is at least not a loss as exorbitant
as getting one tenth of the cost. Now we are getting something
like between one third and 40% of the cost.
Q283 Viscount Brookeborough:
Presumably at certain times of the year there is a great deal
of wine to be stored. Is there a business in storing this? Who
is storing? And who is paying for it?
Mr Jacquin: Apart from the distillations there
is also a support measure for private storage, so that people
having stocks of wine can make a contract with the Administration
and they get a per diem subsidy to store these wines—for
example, between December or January of one year during 10 or
12 months, and this is used every year.
Q284 Chairman:
These are wines designed to be sold as wine?
Mr Jacquin: Yes, then they have to sell this
wine.
Q285 Chairman:
Staying with the distillation business for a moment, there are
certain businesses presumably that exist to make a profit out
of the process of distilling this wine and certain businesses
that require inputs which come to them more cheaply because this
distilled wine is available. In other words, you are depressing
their input costs as well, so there is a chance for the subsidy
in a sense through the system to go to a variety of people, not
only to the grower?
Mr Hoelgaard: That is true. What we are saying
is that we may experience having some of the distillers kept alive
artificially, not totally—because, after all, the aid they
are getting is not necessarily that big. But certainly they are
having a permanent outlet and therefore permanently something
to process. If we do away with this systematic type of distillation,
there will only be those who are able on the one hand to process
it efficiently and on the other hand can obtain a market. We believe
that there is a market out there for potable alcohol- certainly
there is. But in terms of using alcohol from wine to fuel our
cars it is not very rational.
Q286 Viscount Ullswater:
It is not very rational but can you explain whether there is a
market there for it?
Mr Hoelgaard: There is a limitless market. As
long as the Commission and the Community taxpayer are willing
to finance and subsidise it, there is no limit, but we cannot
continue to go down that road.
Q287 Viscount Ullswater:
So there is not a natural market for bio-ethanol production from
distilled wine?
Mr Hoelgaard: Not other than there is as bio-ethanol
from maize or from wheat or from biomass in general.
Q288 Viscount Ullswater:
Does it rank the same?
Mr Hoelgaard: Oh, yes. Alcohol is alcohol.
Q289 Chairman:
But it is the production costs.
Mr Hoelgaard: The loss in terms of producing
alcohol from wine and using it for fuel is clearly a loss compared
to other raw materials.
Q290 Chairman:
You said in your Communication that you had emphasised the problem
of distillation. What has been the general reaction to what you
say in your Communication? What we picked up, if we can share
it with you, is people initially saying to us, "Oh, yes,
this crisis distillation, we cannot carry on like this. It must
come to an end", and then about 10 minutes later saying,
"But we still need some crisis distillation when it is a
real crisis".
Ms Naesager: There are a lot of different comments
sometimes and, as you rightly mention, some contradictory comments
as well. There is an understanding that we cannot continue with
the systems as they are today, but on the other hand sometimes
the willingness that we need to go down the road and say "OK,
we take the consequences of abolishing crisis distillation, by-product
distillation", is not so apparent. However, so far we are
aiming at pursuing the line that we have put down in the Communication
because we think this is important, to be able to defend our wine
system in WTO terms as well. Coming back to the potable alcohol,
I think I should indicate that for our producers of port and sherry,
which are also part of our wine Common Market Organisation, it
is important to have access to the potable alcohol. They have
an implicit subsidy because the potable alcohol that they buy
from the distilleries is a bit cheaper than what they would see
without the subsidy.
Q291 Viscount Brookeborough:
And what is that percentage? Do you have a figure of the percentage
by which it is cheaper than it would otherwise be? How much would
it affect them if they paid for it?
Ms Naesager: We have made some rough calculations.
If we look at the price of a bottle of port, for instance, at
the selling level, then the price increase would be less than
10 cents a bottle. It is extremely low, but of course our calculations
are not always taken for granted and are contested sometimes by
the sector. In any case, what we have seen when we have done calculations
is that there would not be a tremendous increase if we abolished
the subsidy to the potable alcohol.
Lord Cameron of Dillington: In 1974 Portuguese
port growers were sold coal alcohol to add to their wine and the
man from the Communist regime—it was the year of the Portuguese
revolution, you may remember—is now living in Rio de Janeiro.
But the whole of the 1974 harvest of port was made from coal alcohol
and not from distilled wine at all; one of those interesting pieces
of information.
Chairman: Thank you very much for that.
That leads on nicely to your question on restructuring.
Q292 Lord Cameron of Dillington:
I want to ask a series of questions—and, my Lord Chairman,
you will stop me if I am asking too many—on the whole question
of rural development and restructuring. In addition to the major
grubbing-up scheme that you have put forward in your Communication,
400,000 hectares, there are quite generous pre-retirement grants
for wine growers who are willing to cease production. I think
the pre-retirement grants come to some €2.4 billion over
five years. How do those two marry up? If someone retires without
having grubbed up, can some of them carry on? The other question
is—what criteria are you going to put in place for the grubbing-up?
Can everyone apply? We have just heard from the parliamentary
representations that there should be a whole lot of criteria applied
to the grubbing-up process?
Ms Naesager: With regard to grubbing-up, we
have put an estimate in our Communication which, as I mentioned,
is one of the issues that has been contested by Member States,
by the European Parliament and by many stakeholders. We are looking
into the figures at the moment, but we believe, and our Commissioner
believes, that it is important to have a grubbing-up scheme. The
basis of this grubbing-up scheme, to decide whether or not to
grub up, is the wine grower's own decision. We know as well that
there could be some areas where it could be difficult to grub
up; we have been told that—steep wine slopes, mountain regions
and so on. We have also been told that there could be other regions
that could have arguments not to grub up. All that you can find
in the report of the European Parliament. We are looking into
that to see how we should make a kind of framework for the grubbing-up
and we are also looking into the estimates. That being said, when
we talk about grubbing-up the idea is that it is the wine grower
himself who decides whether or not to grub up. He will receive
a premium for grubbing up. After he has grubbed up, the areas
that have been grubbed up will go into the Single Payment Scheme
and will receive the single payment. The early retirement is a
tool that comes from the Rural Development Regulation. Early retirement
is something that has been decided by the Member State. We hope,
of course, that Member States have put into their national programmes
on rural development the early retirement tool. The Member State
can, of course, decide to link the grubbing-up to the early retirement
premium. Or the Member State can decide that now there is a wine
grower who wants to transfer his vineyard to a younger person
and the transferer will then receive the early retirement premium.
This is possible as well. It can be linked to the grubbing-up
but it can also be applied separately from grubbing-up because
it is a tool of the rural development system.
Q293 Chairman:
But it does not help your policy objective?
Ms Naesager: It does help to the extent that
the Member States decide to combine the two of them.
Q294 Chairman:
If they combine the two, but what if they do not?
Mr Hoelgaard: No, but I think we have to keep
in mind that the whole thrust of the reform is market orientation,
which is what the CAP reform has been about for the last 12-15
years and is still going down that road. The proposal on fruit
and vegetables which has come out of this is exactly in that line.
Sugar we have talked about. Wine is trying to get into that mode.
In terms of retirement, either you take out an area which is considered
to be surplus and is overhanging the market, creating difficulties
for the whole group of producers and depressing prices, or you
can consider this as a farmer who does not apply modern techniques.
We know that this is the case. Any time you are talking about
a younger new farmer coming in, he will be applying more efficient
methods and, as such, will be able to survive on the basis of
a price which the farmer who is retiring is not able to, so that
fits well together. Either it is balancing the market contribution
or it is efficiency and productivity.
Q295 Lord Cameron of Dillington:
Can I go on to ask about the restructuring programme? You have
already got a restructuring scheme in place and it has been going
since 2002, and I think some 37% of the budget goes into that.
Perhaps you could explain to me how that works. It would seem
to me logical, and I think consistent also with the Communication,
that where you have got quite a lot of grubbing-up going on in
a particular area, you should probably put some money into Pillar
2 and therefore have some kind of rural development schemes going
on there to try to create new forms of business enterprise that
can exist in the countryside outside the wine sector. However,
that does not seem to be very popular, because people are not
very keen on moving money from the wine regime in Pillar 1 into
anything to do with rural development. Can you explain (a) how
the existing schemes work and (b) how you see that going forward
into the future?
Mr Jacquin: In the present Common Market Organisation
we have a restructuring and reconversion scheme. It costs each
year around €450 million and with this money we have financed
varietal reconversion or restructuring of about 150,000 hectares.
This represents around five% of the EU vineyard.
Q296 Lord Cameron of Dillington:
So what is the money going for? I did not quite hear?
Mr Jacquin: It is a subsidy paid by the Community
budget to the wine producer who is restructuring or reconverting
the vineyard. It is not for normal renewal of vineyards. It should
mean a significant effort to improve methods of growing—for
example, land consolidation or varietal reconversion to varieties
which find a market more easily.
Q297 Chairman:
Does this sort of thing go into increasing the scale of operation?
You said wine growers get together and set up a joint activity.
Would they qualify for this sort of funding?
Mr Jacquin: Yes, it is an individual subsidy
which is paid by the Member States from the Community budget.
But they can bring plots together, so it is often combined with
land consolidation.
Q298 Chairman:
Restructuring has several dimensions to it. One of them is scale,
because we are frequently told that people abroad have larger
scale and are therefore more competitive. Another one is a sort
of chain linkage between the wine grower and the final wine consumer.
Do you think of restructuring affecting both those dimensions,
as it were?
Mr Jacquin: The restructuring scheme as set
up in 1999 was to improve the competitiveness of wine growers.
Q299 Lord Cameron of Dillington:
It is only the grower who gets the money?
Mr Jacquin: Yes, so they can grow varieties
which are better adapted to the market instead of continuing producing
wine for distillation.
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