Memorandum by the New Zealand Winegrowers
A. THE NEED
FOR A
REGULATION
1. What is the nature of the case for having
a wine regime at all—ie as distinct from allowing the industry
to adjust itself to competitive pressures (eg via increased efficiency,
rationalisation, diversification, etc)?
There is always a need for some level of wine-specific
regulation to recognise and govern the particular characteristics
of the sector for the benefit of consumers and producers. Whether
a wine regime such as exists in Europe at present, with elaborate
controls on the market and the commercial freedom of producers,
is needed is entirely dependant upon what the objectives of that
regime are. If the objective of the regime is to pursue social
policy objectives, then there is a justification for its continuation
provided that it complies with WTO obligations. If the objective
is to facilitate a commercially viable, consumer-oriented wine
sector, then there is not.
From a New Zealand perspective, the EU wine
regime as it is presently structured appears to go far beyond
what is necessary to protect the interests of consumers. It also
tends to undercut the competitiveness of those EU producers who
wish to operate on a purely commercial basis in favour of those
whose operations are partially or wholly dependent upon market
intervention for their survival. It does this first by perpetuating
a structural surplus that acts as a dead weight upon both the
EU and the international wine market. Second, it weaves an incredibly
dense and complex web of bureaucracy around producers, stultifying
their innovation and ability to adapt to changing market conditions
and consumer preferences. Indeed, a vast and deeply entrenched
bureaucracy that has little reason to be connected to market realities
would appear to be one of the principal products of the wine regime
and one of the main barriers to its reform.
The principal thrust of regulation governing
the New Zealand wine sector is consumer, rather than producer,
oriented. The sector is not subject to any of the controls of
production potential or market interventions that are found in
the EU wine regime. Nor are there qualitative controls on wines
bearing a geographical indication, as there are in Europe. This
comparatively light-handed approach has facilitated the rapid
development of the New Zealand wine sector, by allowing producers
to innovate with techniques, grape varieties and regions and to
respond rapidly to the market. For New Zealand, the result has
been for the sector to structure itself around high-quality production,
which is where it has been most successful.
Given the long history of wine in Europe and
the embeddedness of its wine regime, we could not speculate on
whether a comparable system would have similar results in Europe.
However, in our view it is clear that there is much in the existing
European wine regime that impedes the commercial success of European
wine producers.
2. Why should wine quality—eg relating
to Geographical Indication—be regulated? Why cannot consumers
choose between wines as they do between other products—eg
on the basis of brand names or other information which might provide
a guide to quality?
We note that regulation of GIs does not necessarily
equate to regulation of quality. Within Europe, quality factors
for GIs are regulated, such as the conditions of production for
quality wines produced in a specified region. This is not the
case in many other countries. In New Zealand, the wine sector
has never sought government control over quality factors, as it
has been felt that producers are best placed to create and determine
the quality of their products. Our industry is acutely aware that
if quality standards were to fall, consumers and consumer gatekeepers
(media, wholesale buyers etc) would pick this up very quickly
and we would lose our place in the market. We acknowledge that
the situation may well be different in the unique historical and
geographical contexts of European wine production, particularly
where production and marketing structures are highly dependant
upon the existence of formal quality controls.
We do not believe that the regulation of geographical
indications inherently conflicts with the development of brands
or other information. Geographical indications (GIs) are one of
a number of factors that consumers take into account in purchasing
wine, and controls on GIs serve to protect consumers from misleading
information as to the origin of wines. GIs also create and protect
a form of collective intellectual property right that can be of
value for producers.
However, the wine regime privileges GIs over
all other information on the label, for example by preventing
some producers from indicating the origin of a wine; by restricting
label information for wines that do not have a GI; or by restricting
information such as grape variety names on labels that do bear
a GI. This tends to distort the messages that consumers receive
and, in many instances, creates confusion.
B. THE MARKET
3. Given the existence of a wine regime, how
might a better balance be achieved between the supply of and demand
for wine and wine products produced within the EU?
Since wine is an agricultural industry, the
balance between supply and demand will always fluctuate. Nevertheless,
within Europe oversupply is endemic. This is directly related
to the fact that the EU wine regime is premised upon intervention
in the market to maintain the incomes of wine producers. Interventions
in the market such as distillation and private storage aids perpetuate
overproduction by providing an economic incentive for the continued
production of wine that would otherwise have no market. Such interventions
have been applied in various EU wine countries for over a century,
and their major achievement appears to have been the carrying
over of the problems of the late 19th century through to the present
day.
The promotion of overproduction has never been
effectively curbed by measures to control production potential
such as controls on planting or "premiums" for grubbing
up grapevines. Indeed, controls on production potential, no matter
how sweeping, are never likely to achieve long-term equilibrium
between supply and demand while producers continue to receive
incentives to produce wine for which no market exists.
Conversely, if market interventions were removed,
then equally controls on production potential could be removed.
Producers would be left to produce wine as they liked and to succeed
or fail on their own merit. This might eventually achieve a more
"natural" relationship between supply and demand. This
approach is, or course, premised on a policy objective of achieving
a commercially viable, consumer-led industry rather than using
the wine regime as a social policy tool.
4. Is the EU wine industry, within the current
regime, sufficiently competitive within the global wine market?
How can it be made more so?
No comment.
5. Is it to be expected that barriers to trade
in wine will continue to diminish as the result of WTO negotiations?
If so, what impact can this be expected to have on the cost of
the EU wine regime and/or on its effectiveness in protecting farm
incomes?
Approaching this question from the perspective
of a country exporting to the EU, we believe that many market
distortions and barriers to trade remain within the EU wine regime.
We are not optimistic that there will be a significant improvement
in this situation as a result of the current round of WTO negotiations.
C. STRUCTURAL
MEASURES
6. Are current measures (eg grubbing up, restrictions
of planting rights) an appropriate means of bringing supply and
demand into balance? What further measures need to be taken in
these or other areas?
See above.
7. How significant an issue is illicit planting
for the supply situation?
We are not in a position to comment on the significance
of illicit planting. However, we note that the notion of illicit
planting does not exist in any other part of the wine-producing
world. It is purely an artifice of the EU wine regime. If there
were no market interventions, and consequently no need for controls
on production potential, the issue of illicit planting would not
exist.
8. Is there a case for the continuance of
remedial measures ("crisis distillation") to deal with
exceptional market conditions?
The perception from outside the EU is that "exceptional"
market conditions giving rise to crisis distillation are in fact
the norm for some sectors of the EU wine industry. Certainly,
the existence of such measures (and the funding to support such
measures) presumes that "exceptional" conditions will
occur on a regular basis and that producers will be supported
whenever a case for the existence of such circumstances can be
made. From this viewpoint, the "safety net" provided
by crisis distillation in fact acts as another incentive towards
production of wine without a market and the creation of business
models premised upon EC largesse rather than commercial saleability.
In New Zealand, dealing with unforeseen market
conditions is a risk of doing business, and an economically sustainable
business model should take account of such risks. New Zealand
wine producers do not expect or seek assistance from the Government
to save them from fluctuations in the market.
9. What alternative outlets (ie other than
wine sales) exist for excess production?
With respect, we believe that the question of
disposing of excess production addresses the result of the EU
wine regime, rather than the causes of its problems.
10. What is the potential impact on wine producing
areas of liberalisation of the market? How sensitive are these
economies to change?
No comment.
11. How effective have current arrangements
been in supporting diversification of rural economies away from
the wine sector? What contribution will the European Agricultural
Fund for Rural Development make, post 1 January 2007, to development
of the rural economies of wine-producing regions? What further
measures might need to be taken?
No comment.
D. MARKETING
12. Given continuance of an EU wine regime,
what are your views on labelling and quality issues? Are current
arrangements conducive to consumers understanding what they are
buying? Is there scope for rationalisation and simplification?
All Governments mandate certain items of label
information for public health reasons and as a baseline for consumer
choice. In our view, above that baseline, a producer should be
able to freely use any information they like on a wine label provided
that is it not misleading to the consumer, detrimental to public
health or in breach of intellectual property rights. This is not
the approach taken in the EU wine regime, where all important
label information must be specifically regulated. We find it difficult
to understand why marketing-based decisions must be passed through
a filter of bureaucracy, nor can we discern any benefit to the
consumer from this requirement. This view applies to the control
of quality issues on labels in particular. Regulatory controls
above this baseline simply create unnecessary bureaucracy and
restrict the information that is available to the consumer.
13. What part has marketing played in the
rise in sales within the EU of wine produced outside the Community?
Marketing has played a crucial role in the success
of the New Zealand wine industry. However, this marketing is only
one factor in the success of New Zealand wine, and of non-EU wine
sales within the EU generally. In this regard, it is pertinent
to note the disparity between the modest marketing budget available
to a very small and unsubsidised wine country such as New Zealand
and the vast marketing resources that can and have been mobilised
by EU wine producers and regions to market their products or assist
their entry into overseas markets.
14. What lessons might be learned from the
penetration of non-EU wines into the EU market?
The key lesson in our view is the importance
of listening to consumers and providing them with what they want.
This has been crucial to the success of non-EU wine producers
in the past 30 years. Being consumer-led does not mean that wine
will inevitably become a commodity catering to the lowest common
denominator. In fact, the international wine market is highly
sophisticated and there is strong consumer demand for products
at all quality levels.
E. WINE MAKING
PRACTICES (WMP)
15. How suited are current regulations on
WMP to a competitive global market in wine? What changes would
you like to see?
From a New Zealand exporter's perspective, the
EU wine regime in respect of winemaking practices is unduly restrictive.
For example, New Zealand wines with a total alcohol content (ie
actual alcohol plus the potential alcohol content of unfermented
sugars) of more than 15% are not permitted to be sold in Europe.
This restricts sales sweet wines and wines with naturally high
alcohol content, for no discernable reason. European wines with
more than 15% total alcohol content are permitted for sale in
Europe.
The EU wine regime is also not well adapted
to react to innovative winemaking practices in a timely manner.
This perhaps reflects, and to some extent perpetuates, a certain
degree of unease regarding new practices among certain sectors
of the EU wine industry; for example towards oak chips which,
while not commonly used in New Zealand, is a legitimate and widely
used winemaking practice in other parts of the world.
16. How should enrichment (with sugar or must)
be regulated? Should there be financial aid for enrichment?
Enrichment with sugar or must are legitimate
and long-standing winemaking practices. As such, in our view they
should be regulated like any other winemaking practice in accordance
with the requirements of the Codex Alimentarius. From the perspective
of a country where no financial aid is made available for winemaking
inputs, it is extremely difficult to understand what justification
there could be for providing financial aid for enrichment of any
sort.
F. ENVIRONMENTAL
AND SOCIAL
IMPACT
17. To what extent does the wine sector have
an impact—favourable and unfavourable—on the EU environment?
Are measures needed to support good environmental impact? Should
they be selective?
The wine sector in general has an impact on
the environment that can be both favourable and unfavourable.
Unfavourable impacts include production of waste materials, carbon
emissions, noise and landscape effects. Favourable impacts include
preventing erosion, promoting regional development and sequestering
carbon by planting grapevines. While it is important that unfavourable
effects are managed and favourable effects promoted, regulatory
measures are not the only, or necessarily the most effective way
of achieving these objectives.
The New Zealand wine industry's successful environmental
sustainability programme, Sustainable Winegrowing New Zealand,
has been developed on a voluntary basis and driven by producers
who truly believe in the value of environmental sustainability.
We believe that an industry-based approach has been far more effective
than a regulatory programme because it has allowed the programme
to evolve rapidly and adapt to the particular demands of different
regions.
One of the key environmental issues inherent
in the EU wine regime that does not exist elsewhere is the impact
in terms of carbon emissions of systematically providing financial
aid to support the distillation of many billions of litres each
year of wine that has no market and would probably not have been
made without the existence of such aid.
18. To what extent and how should reform of
the EU wine regime take into account concerns over the potential
for alcohol abuse?
Harmful use of alcohol is a serious issue, and
regulatory measures are an important mechanism for addressing
this issue. However, whether or not the EU wine regime is the
most effective vehicle for such measures is not a matter upon
which we are qualified to comment.
June 2007
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