Examination of Witnesses (Questions 421
- 439)
THURSDAY 8 MARCH 2007
MR DIETRICH GUTH
Q421 Chairman:
Good afternoon. Thank you very much indeed for coming. It is very
good of you to find the time to come and help us with our inquiry.
If I could briefly explain who we are and what we are doing, we
are a Sub-Committee of the House of Lords Select Committee on
the European Union. Our particular sub-committee looks after Agriculture,
the Environment and Fisheries. We represent all political parties,
indeed we have some independents who have no political allegiance;
and we are drawn from all parts of the United Kingdom, so there
is a fair regional representation. I will start by asking you
a general question and my colleagues have particular aspects they
will want to focus on. Germany is an interesting country in terms
of wine production. You are somewhat distinct from some of the
southern European countries in the nature of your industry. The
Commission in their Communication and in discussions have clearly
stated that there is a need for "Profound Reform" of
the wine sector and paint a pretty grim picture of the industry
with falling incomes, decreasing consumption at an EU level (although
not in Germany), structural surpluses and increased third-party
import penetration, which is a pretty desperate situation. What
has been your Government's reaction to the Commission's Communication?
Do you see the analysis as broadly correct? And what do you think
of their policy prescriptions? Are they going the right way or
not?
Mr Guth: We have two main market organisations,
fruit and vegetables and wine, which have to be reformed. As a
whole we are very happy with the proposals of the Commission and
the different options, and we are of the opinion that we should
have a fundamental reform of the wine sector too; that is the
main point. We have several difficulties on detailed points, but
we would like to go on with what the market regulations are. That
means distillation should be abolished, as the Commission proposed
as one option. We can do that very easily because we do not use
distillation.
Q422 Chairman:
You do not use it at all?
Mr Guth: No. We had in the past, 10 years ago
or so, a crisis distillation in one or two regions of Germany,
but in the last eight or 10 years we have not used it because
we have focused more on quality wine. As you said, there is a
structural surplus in certain countries, especially in Italy,
Spain, Greece and Portugal and a little bit in France too. We
think that that wine which is distilled is produced for distillation,
not for wine consumption, and therefore we are spending money
to get rid of surpluses when we think it is better to spend the
money for development in that region to improve quality and invest
in the future, not in the past.
Q423 Lord Plumb:
Grubbing-up is an issue, as we have been receiving evidence on
from so many people, and, of course, meeting with the Commission
and the European Parliament. Some feel it is a very major issue;
others feel it is not such a major issue. We recognise from the
figures that the level of employment related to the volume of
output indicates that there is a degree of efficiency in wine
production in Germany. Grubbing-up is part and parcel of the general
concept in Europe, of course, that if you get a surplus you reduce
it by taking out the product. I would like your views on this.
As far as grubbing-up is concerned, the move is to grub up 400,000
hectares, which is not inconsiderable. And then, of course, the
Commission believe that there should be no replanting until 2013.
One can understand that, but at the same time I do not know how
you feel if growers say "Yes, I am prepared to grub up, but
if we do not see replanting taking place then we know that pressure
will be there from competition and the products will be coming
in and they will take the market and we shall find difficulty
in getting back again, however good the quality of our wine might
be". So it is really the grubbing-up issue, how you see it,
how important it is, where it is in the pecking order in the reform
changes.
Mr Guth: I think that is a question of principle.
If I look at the milk sector or even the sugar sector, where we
got rid of quota systems, the system we have in the wine sector
is more or less the same thing. This was the most difficult thing
I have had to deal with in the last 30 years, and therefore we
should also find here a solution which gives farmers the opportunity
to decide by themselves, without buying quotas or planting rights
or something like that, and develop their farms as they want.
This is my personal view. Grubbing-up is very expensive and this
is not the first grubbing-up we have had. We have had in the past
and we still have a structural surplus. Therefore, I think this
system is not very efficient. Even if we grub up 400,000 hectares,
Member States would like to have the right to decide whether in
certain regions they can grub up or in others not. So they will
choose those regions where the yield per hectare is low and the
conditions are bad for wine production and then we will not have
a big effect on reducing the surpluses. In Germany we do not need
it because we do not have surpluses. From our consumption 40%
is German wine, 40% is EU wine and 20% is from third countries,
so we have a need for imports. My ministry has the problem that,
if the decision to grub up is given to farmers, then we will have
certain small areas in Germany where it is better for farmers
not to produce, especially in the valleys and on the hillside
(because that is a really hard job), although my experts have
told me that we have to look at that because it is not in our
interests to give up wine producing in those areas. However, again
my personal opinion is that we will make up our mind when we have
the Commission proposals how we handle that. In my opinion the
farmer should decide whether it is worthwhile to produce wine
in certain regions or not. On the other hand, as I told you, this
is a very expensive instrument and we feel it would be better
to give that money either back to the net payer in a certain amount
or to the regions where we have to restructure, in other words
the "national envelopes". Then we would have money from
the grubbing-up scheme and from the different distillation schemes,
but we will have enough money to invest in the future and at a
certain stage—let us say five, six or 10 years—to
reduce the amounts. In other words, more or less the solution
we found in the sugar regime could be applied here. When I prepared
myself for the Presidency we expected to have the wine reform
during our Presidency and there we tried to find possible solutions
in advance and we decided that we should look at the principles
of the sugar reform and do the same thing here.
Q424 Lord Plumb:
I am a farmer myself, although I am not a wine grower, and I hear
what you say very clearly. If I were to have the opportunity to
take some land out of production, I certainly would not take my
best land. So it is the same thing in principle. But do you not
think that by continuing the ban and restricting planting there
is a possibility that you are restricting efficiency, because
the planting might be taking place in an area where it would be
better for wine growing?
Mr Guth: Yes, but why should we deny farmers
the opportunity to shift from difficult areas to better areas?
Again, this is my personal opinion, and yet we had the same argument
in the sugar sector, where we said, "OK; sugar should be
produced in regions where it is worthwhile to produce it",
but not in southern Italy. They have not survived by subvention
from the EU at the national top-up for 30 years and, if that argument
on the sugar sector was right, then I think the argument must
be right in this sector. I am not really sure that we can get
rid of the replanting rights because I do not think the Commission
will propose that, but in my opinion it would be logical to do
so.
Q425 Chairman:
You say grubbing up would not have a big effect on the surplus
because people would give up the land that was not very good and
was not producing very much. But this is the sort of land that
is producing the rubbish wine that is a major component of the
surplus. So at least you would be taking out the poor quality
stuff that is a contributor to the surplus. It could serve a purpose
there, could it not, in bringing about a more rational market?
Mr Guth: I am not sure that we can define the
so-called surplus as a surplus because that wine was produced
for distillation and only for distillation. It is round about
200 or 300 hectolitres per hectare, double or three times the
yield in quality wine production. That is because they do not
need to look at the quality. In Germany, if you want to produce
good wine, you have to limit the yield to, let us say, 70-00 or
100 hectolitres per hectare—it depends on the region—and
then you can get a good quality wine. 15 or 20 years before in
our bigger wine-producing regions we had yields of 150 or 180
hectolitres per hectare and that was not good wine. So there was
a change in the mind of the farmers, and now they can sell 95%
of their wine directly to consumers and to the retailers. Another
thing is, if we abolish distillation, do we need the grubbing-up
scheme?
Q426 Lord Plumb:
Absolutely.
Mr Guth: We could give that money, let us say,
as direct payment for restructuring, but that can be decided by
the regions or by the Member States. Then we would have already
an effect on the so-called surplus because it makes no sense to
produce wine for distillation and for burning in motor cars. The
question is: do we need grubbing-up? Or is abolishing distillation
enough? If we then have further surplus, we can give farmers or
the region money to restructure the region. And then we will have
the effect that the Commission is looking for and we do not spend
so much money.
Q427 Chairman:
A brave strategy.
Mr Guth: No. This is my fifth Presidency and
the first Presidency where we have not had a wine market reform.
In 1988 I was the President of the wine group, but I am not a
wine expert.
Chairman: It is better not to be. It
is better just to get the economics right.
Q428 Lord Moynihan:
Labelling rules are, as I am sure you will agree, very complex
in Europe and it is arguable that consumers in general do not
really understand what they are buying. Have you any views on
how labelling of EU wines can be simplified? And are there any
lessons to be learned in this context from New World wines?
Mr Guth: Not really; that was the answer to
the last question.
Q429 Lord Moynihan:
There are no lessons to be learned from new world wines here?
Mr Guth: No.
Q430 Chairman:
They are very successful.
Mr Guth: The labelling is decided by Member
States, so we do not have detailed rules in the wine sector for
labelling, and therefore Member States can more or less decide
what they want to do. As I understand it, the most part of the
labelling is voluntary, so farmers can decide by themselves what
they put on the label, except for some important points.
Q431 Lord Moynihan:
So you are comfortable with Geographical Indications?
Mr Guth: We do not use that in Germany as, for
example, the French do.
Q432 Lord Moynihan:
The French do it?
Mr Guth: Yes, they have a big interest in that.
Q433 Lord Moynihan:
But do you not recognise that, because the French do it and it
is a disadvantage, there are improvements to labelling that can
enhance the market value of European wines, which currently are
restricted by the regulations that apply within Europe, not least
the GI designation?
Mr Guth: If I look at the market or at the consumption
shares in Germany and what the consumer looks for, we have 40%
of German wine, let us say, with German labelling and 40% of EU
wine, especially Italian, Spanish, Greek and French, with the
other labelling system with regional information on. I do not
think that the consumer really recognises what is on the label.
If I a buy a French wine, I am pretty sure that I will get a good
wine but that has nothing to do with the label, and every year
the same taste, the same quality. I normally do not buy German
wine in the retailer's shop. Even if I take the same farm, the
quality differs from year to year and that is a question of how
the production is done. In Germany it is forbidden to mix the
harvest of different years and in France they do it in order to
have always more or less the same taste for the same wine.
Q434 Lord Moynihan:
But the overwhelming growth in the sector in Europe, certainly
in northern Europe and in the United Kingdom, for example, comes
through the supermarkets. I know you do not buy supermarket wines,
as you have just mentioned, but they do and you have a standard
quality and a highly effective New World penetration of this market,
which is in our view very much driven by more effective marketing
and clarity of labelling. You would not agree with that?
Mr Guth: I have told you I am not a wine expert;
I am not even a labelling expert, but this is more or less my
feeling. I think you are right. If they are going to market the
wine in the retail sector, then I think clear labelling is necessary.
But then we also have to change the form of wine production—in
Germany, for example—to have the possibility that every
year the same wine has more or less the same taste. That is not
the case in all countries because it is forbidden to mix them.
This is not only a question of labelling but also a question of
how we can produce wine.
Q435 Viscount Ullswater:
Do you believe that the OIV should be the arbiter of what the
wine-making practices are worldwide and therefore in the European
Union? Or do you think the European Union should be able to impose
its own constraints on some of the practices? We have heard about
adding wood chips and enrichment. I would like to know what your
views are on enrichment. I know you are saying that aid to must
should go, because you are against all forms of distillation and
support in that. What about adding sugar to wines? I would like
to hear your views on oenological practices and who you think
should be the arbiter.
Mr Guth: At the working level of our ministry
we can agree with the Commission proposal to take over the OIV
standard, because we should use more or less the same practices
as our partners in third countries, as we are importing more and
more wine from third countries, and this is something to do with
competitiveness. In my opinion there is no difference. If you
have a parallel which has the same effect as this cheaper possibility
and produces the same quality, why should we stick to the more
costly production methods? That we have to sort out, but in principle
we accept the OIV standards and the OIV methods because we are
in the discussion in OIV on that too and then we can have a more
balanced way to produce high quality wine but not to the highest
cost possible. Turning to must and sugar, in the last few years
we have always had this question on the table. That is normally
a point from the Commission to get the Germans to be a little
bit flexible.
Q436 Chairman:
It is a negotiating ploy, is it? We thought it was.
Mr Guth: We have had it in every wine market
reform and it never resulted in stopping using sugar. Why should
we take must? It is not must; it is concentrate. So that is also
sugar, and this sugar is more expensive than normal sugar from
sugar beet, but the effect on the wine is the same. This was the
gift to the Italians and to the Spanish and the French to reduce
their over-capacity in the vineyards in order to produce expensive
sugar to use for wine production. That is the first point. The
second point is the level of subsidy for that product. In Germany
in the last years we have used must more and more because the
subsidy is higher than the difference between the must and sugar,
so it is cheaper for the farmer to use must, including the subsidy,
than to buy sugar on the market. This is ridiculous but the difference
will be a little bit diminished by reducing the sugar price. We
calculated in Germany that, if we had the same comparable situation,
must and sugar, we would have to reduce the subsidy under German
conditions by 50%.
Q437 Chairman:
We have heard an argument, which I have had some difficulty with
and perhaps I can test it out on you to see what your reaction
is, that if you remove the subsidy from must and do not ban sugar
then you are distorting the market.
Mr Guth: Why? Sugar is there.
Q438 Chairman:
I do not understand it either. It was tried on us and we did not
understand it.
Mr Guth: No. If they cannot produce the must,
then we have bigger quantities of wine on the market; that is
quite clear. But they use sugar in Italy, they use sugar in France,
they use sugar in Spain, not only must, and so do we. We use must
and we use sugar, and that is because of the differences I have
explained to you, but everyone can buy sugar in Europe. They can
use it, so why not?
Q439 Viscount Ullswater:
I think this was a restraint which, I have to say, probably came
from the southern states, that a lot of people in the north would
not be able to produce wine with a sufficient alcohol content
to fulfil the factor that it is wine and, therefore, they would
have to use must from the south to increase the alcohol content
to bring it up to the level. This was the theory.
Mr Guth: No. You can use sugar.
Viscount Ullswater: Well, yes. But they
said "No, you cannot".
Chairman: That is why they want to ban
sugar.
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