Examination of Witnesses (Questions 348
- 359)
THURSDAY 8 MARCH 2007
MR ZOLTÁN SOMOGYI
Q348 Chairman:
Good morning. Thank you very much for finding the time to talk
to us. I know it is a particularly busy time for you at the moment
and we are very grateful. Can I explain who and what we are. We
delight in the title Sub-Committee D, which conveys everything
you need to know really! We are a Sub-Committee of our Select
Committee on the European Union. We look after Agriculture, the
Environment and Fisheries, and we are conducting an inquiry into
the reform of the wine regime. We have already collected some
evidence in the United Kingdom but we thought it would be particularly
valuable to come to Brussels and speak to people, like you, who
are much more closely engaged in the policy process. Over the
past day or so we have identified a number of key areas, like
attitudes to distillation, grubbing up, labelling and issues like
that, which my colleagues will be asking you about, but I would
like to start by giving you the opportunity to speak fairly generally.
The Commission have identified the problems with the wine regime,
that incomes of farmers are declining, consumption of wine in
Europe as a whole—although there are differences—is
declining, there is greater import penetration and there is a
structural surplus of wine in Europe. That is a pretty powerful
combination of factors. Do you agree with that analysis? How does
that relate to Hungary's particular problems? And what do you
think is the way to a solution?
Mr Somogyi: Thank you very much. It is my real
pleasure to be here with you this morning. First of all, I have
to convey the apologies of my boss, Mr Vajda, who is the SCA Spokesperson
for Hungary. Since he is based in Budapest, it was impossible
for him to come here. I am the Deputy Spokesman.
Q349 Chairman:
We could always go to Budapest. It is a very nice city.
Mr Somogyi: That is an excellent idea. As you
will see during this one hour, I am not a wine expert but I will
do my best. It is a very good opportunity for me to prepare myself
and dig into the details of this reform. We elaborated our general
position on the Commission document some six months ago, but for
me it was really interesting to see what was behind these nice
statements that we agree with "Profound Reform" and
so on. To answer your first one or two questions, we fully agree
with the Commission's position that the European wine sector is
in deep crisis and we have to find a way out. We are feeling the
effects of some negative circumstances like, as you mentioned,
the decrease in consumption and competition pressure from third
countries. But we are not fully convinced that the measures proposed
by the Commission are the right measures, especially because,
when it comes to decision-making, we have to take into consideration
the specialities of 27 countries. The Hungarian wine sector is
in a very specific situation. We have just survived political
and economic changes. At the end of the eighties we went through
a very tough period, which was also true for the wine sector.
At the end of the eighties we had something like 140,000 hectares
of vineyards in Hungary and now the production area is around
85,000 hectares, so it was quite a big structural change and decrease
in production. Our market completely changed from the previous
economic system. We were targeted then towards the countries of
the east, especially the Soviet Union, where quality was not as
important as the alcohol content of the wine, and obviously it
was a kind of ice-cold shower for us when this good market collapsed
and we had to find some other outlets which were a bit more exigent
on quality. However, we survived and today I can happily tell
you that Hungary is one of those countries where there is no structural
surplus in wine production. I can go further and say there is
a kind of deficiency because for certain categories of wine the
demand is higher than we can produce. Obviously, there are certain
areas where I imagine stakeholders are very keen to see some further
developments, like quality wine production, some restructuring,
renewal of vineyards. But, if you look at the specific situation
of Hungary, not all the statements included in the Commission
paper are true for us. As I have told you, we have no structural
surpluses and this is one of the reasons why, for example, we
are not really keen on this grubbing-up scheme proposed by the
Commission. You know very well that our country is in a very difficult
economic situation, so everyone, including the farmers, would
be happy to see some easy money, so I think that grubbing-up subsidies
would be very good money for some farmers and they would not hesitate
to give up production, even though there is no structural surplus
and there is a good outlet for the raw materials. Those are my
general comments.
Chairman: That is very helpful. Thank
you.
Q350 Viscount Brookeborough:
You said that you do not actually have a surplus of wine produced.
You have a market for everything that you produce?
Mr Somogyi: Yes.
Q351 Viscount Brookeborough:
And therefore presumably you have not used crisis distillation
at all?
Mr Somogyi: That is a very good point. I have
prepared myself in order to give you a broader introduction to
the sector. But, just to answer this question, I have some statistics
with me on the production figures in Hungary and, if you do not
mind, I will read them. In 2001 we produced 5.4 million hectolitres
of wine. The next year it was 3.5 million. After that in 2003
we had 3.9 million. In 2004 again it was more than five million
hectolitres. In 2005 it was 3.1 million, and also in 2006 it was
just three million. So, as you can see, there is quite a big variation
between different vintages. We had a very good harvest in 2004,
which was above five million hectolitres, and we asked the Commission
to provide Hungary with a kind of crisis distillation measure
because we feared that there might be a surplus and it would be
easier to get rid of it by using this crisis distillation. So
we applied for half a million hectolitres and by the time we received
the green light for this distillation it turned out that the next
harvest would be lower, so the uptake of this half a million hectolitres
was something like 8% of the total available distillation quota.
It was the first and last time that we asked the Commission for
this crisis distillation.
Q352 Chairman:
That was the 2004 vintage, which was a heavy one everywhere, was
it not?
Mr Somogyi: Yes, but, as you can see, it was
the same in 2001. After that we had two years of lower harvests.
There is a saying in Hungary that due to this variation, which
cannot really be avoided by technological measures because it
is mainly due to climatic reasons, a good wine producer who really
wants to survive these fluctuations has to have one harvest in
his bank account, one harvest in the cellar and one harvest on
the field. With all these three elements he can survive the different
fluctuations. So, although I think it is a very important element
to see Hungarian production, if you look at the average and then
if you look at the consumption figures and the export and import
figures, you can see that it is quite a balanced situation. From
a market point of view, I am happy to say that we consume a lot
of wine. For health reasons I am not sure that it is very good
data. The per capita consumption is around 34 litres and
we have 10 million inhabitants, so 34 litres per capita
means that we are consuming almost 3.5 million hectolitres. As
I told you, a good average production is around four million,
4.2 million. If we look at the average of these variations and
fluctuations (and we are exporting around 600,000-700,000 tonnes
of wine), the market is really balanced and our imports are below
100,000 tonnes.
Q353 Viscount Brookeborough:
Quite clearly you have managed your recovery and the change of
methods and systems after leaving the Soviet Bloc and you have
managed it incredibly well. But what is your view of how it appears
to be used in some other countries in Europe, not as crisis distillation
but as a normal trade, people producing almost in order that it
should be distilled?
Mr Somogyi: We do not like it, so producing
for distillation as a main outlet is something which is not acceptable
even for us. According to the Hungarian Government's position,
we would like to see this measure phased out as soon as possible
and these funds transferred to restructuring and marketing, but
it still goes for the normal distillation. For crisis distillation
we would like to see measures available for countries and we would
like to see it available in the "national envelopes".
It should be distributed to Member States and the Member States
should be allowed to decide whether to use crisis distillation
if there is really a specific market problem due to climatic reasons
or whatever.
Q354 Viscount Brookeborough:
What is your strategic aim as far as production is concerned?
You have gone down to 85,000 hectares. Are you now going slowly
to increase production in order to increase your exports?
Mr Somogyi: I am afraid that we will not be
able to stay at this production level, so we can expect a further
decrease in the production area. I am grateful that you say we
have managed this transition very well but still there are some
old vineyards and some not very good quality vineyards, and I
am sure that, even though we are making great efforts on restructuring,
some of these vineyards will simply be pulled out from production.
The owners are not interested in replanting or re-cultivating,
so I expect a further decrease in the production area. According
to the strategy elaborated by stakeholders in the sector, they
would like to improve quality wine production. For example, there
is a quite interesting target, in that at the moment the average
export value of Hungarian wine is around one euro and they would
like to double it in 10-15 years, which is a very nice intention
and I support them, but definitely production will be decreased.
It was very interesting for me to see that, for example, in 2005
we imported only 60,000 hectolitres of wine. But yesterday I discussed
it with our expert, who was here for the Wine Management Committee,
and he told me that last year we had almost 100,000 of imports,
so there is quite a significant increase in imports, mainly cheap
table wine from Italy and some other European countries.
Q355 Chairman:
You are importing cheaper wine, are you?
Mr Somogyi: Not cheaper than the Hungarian wine
but still it is relatively cheap. If I look at our trade figures,
we are exporting to the UK wine which has an average value of
€1.5 per litre. We are importing from Italy something like
40,000 hectolitres with an average value of a bit less than one
euro. When I checked the import figures we are not really importing
wine from third countries such as Chile, just some negligable
quantities. We are mainly importing from Spain and especially
from Italy.
Q356 Chairman:
So you are exporting your better wine and importing cheaper wine?
Mr Somogyi: Yes. I have brought with me a bottle
of our wine. You might know this wine. It is called Woodcutters
White, which is quite an interesting name. It is called Woodcutters
White because the variety is a Hungarian variety, Cserszegi Fuszeres,
which is unpronounceable for you! And, as this wine was in 1998
the white wine of the year in London and it had an unpronounceable
name, they called it Woodcutters White.
Q357 Chairman:
But that label is almost a New World label, is it not? It is not
a traditional European-type label.
Mr Somogyi: Yes, but you can see everything.
It is a white quality wine. I will leave it here and maybe you
can taste it. It is a very nice wine. It is a very nice wine but
it is not of great value. You can buy this wine for around two
euros but it is really nice; it is very tasty and spicy. We were
talking about the value of Hungarian wine and the value of our
exports. We are exporting, of course, the higher value products,
but the value of our exports depends very much on the destination
and on the packaging. I have told you the figures which are valid
for the UK, but if we look at our other destinations—for
example, the Ukraine—we are exporting wine to the Ukraine
only in bulk, so it is not bottled, and the average value of these
30,000-40,000 hectolitres of export is €0.3 per litre, so
they are not as choosy as the British. I was a little surprised
to see our exports to Russia. I have told you the Ukrainian figure,
but to Russia we are exporting only good quality bottled wine.
I do not know, maybe it depends on the marketing and on the companies
importing wine. It is also interesting to see the French figures.
We are exporting a negligible quantity to France, but the value
is more than seven euros per litre, so I suppose it is because
of Tokai, and I expect an increase in the value of our export
to the U.K as well because some of your fellow countrymen are
already in Tokai, and I am sure they will do their best to export
more to your country. It was very nice for me to see that now
we are exporting more wine to the UK than to our ex-Soviet market,
which is good news.
Q358 Viscount Brookeborough:
I was in Hungary a few years ago and we visited a vineyard. They
said that the problem they had with their higher quality wines
was because of the history of Hungarian wine, the Hungarian label.
They simply could not sell it in some countries above a certain
value. If you walked into a shop and it was 10 euros, you simply
ignored it because it was Hungarian wine and that was that, although
they do have good quality wine.
Mr Somogyi: Yes, I fully agree with that. This
is one of the reasons why we would like to focus this reform on
two main issues, restructuring and marketing promotion. We have
plenty of things to do in these two areas, and personally I am
disappointed when I see good Hungarian wines not appreciated elsewhere
in the world. Everyone knows about Tokai, but even Tokai's reputation
was a bit destroyed during this Communist period—there is
quite a nice story about that. Tokai has different categories
depending on the special grape content. It is called "puttony",
and it has a category of three, four, five and a maximum six puttony.
The more puttony it has, the higher the value. When I talked to
some people who worked in Tokai those days they told me that sometimes
it happened that—specially when we exported to eastern markets—the
quality or at least the bottle and the labelling, depended on
which label was available in the store.
Q359 Chairman:
One label is as good as another?
Mr Somogyi: Now, especially thanks to some foreign
investors and some marketing people, I think the reputation is
coming back to normal.
|
