Examination of Witnesses (Questions 906-919)
Lord Rooker and Mr Robin Manning
25 JULY 2007
Q906 Chairman:
Thank you very much, Minister, for coming along. It is always
a delight to have you before this Committee. It is good value
for money—which is more than can be said for the wine regime!
This is a formal session; the evidence is being taken and you
will get the transcript and be able to have a look. I wonder if
we could start, really, by inviting you to give us your general
overview of where we are on the wine reform, which bits you support
in the Commission's proposals, which bits you query and where
you think the difficulties are going to be—in about 30 seconds.
Lord Rooker: Can I say
at the outset we think the Commission's proposals are very positive.
I have to say, looking at the summary of your interim report's
conclusions—13 of them—that in principle we agree
with all of them. There are probably a couple of them to a lesser
or greater extent, so we are on the same track. We think they
have been very bold. There are some very strong points, really:
to get rid of all this artificial market support and try and get,
if you like, the French, the Spanish and the Italians to grow
up and realise they are in a market with customers and not, therefore,
the producer. There are some areas of concern, of course. I suppose,
in some ways—it is not "nimbyism"—there
are two areas of concern as far as the English wine industry is
concerned, which, of course, is the issue of the enrichment and
the issue of the ban on the planting of vines. By and large, we
think they are very bold and we want to give them maximum support
for the issues that are really serious—i.e. that artificial
market support should cease. In doing that, I have to say in conclusion
that we will have to negotiate, maybe, some areas in order to
achieve our overall objective to support the Commission. We are
going to have to give on a few things, probably.
Q907 Chairman: Where do you think
the real difficulties are going to be for the Commission?
Lord Rooker: Frankly—and Robin can give
you a more stark update than myself—if it was up to some
of the Member States, I have to say, the Commission would not
be doing anything anyway. Let us get this clear: some of the Member
States do not want to move; they are living in the past. They
would like to carry on with all the market support to control
over who can grub-up and who cannot, to do things on labels that
are still meaningless to consumers while allowing the competition
from the New World to sweep the board. So it is going to be very
difficult. In fact, if you take the planting ban, for example,
which is due to lift in 2010 but there is a rearguard action is
extend it to 2013, the English system is planned on 2010 not 2013
but they want that extended; 2013 is no good for them. That is
a sticking point. We will support the Commission root and branch—and
vine, if I can put it that way—on that. That is important.
We want to get out of that, if we can, get an uplift of the 25,000
hectore-litre limit, because obviously we are not included in
the ban because of our production, but we are getting close to
the limit, as you appreciate.
Chairman: I wonder if we could go to
the critical point of distillation.
Q908 Lord Moynihan: My Lord
Chairman, I will keep my question very short to assist the Minister.
The Commission, as you know, Minister, has proposed the ending
of all subsidised distillation. Are you content that no scope
has been left for similar subsidies to be reintroduced through
the back door—for example, through the "crisis management"
and "green harvest" measures provided for in the national
envelopes?
Lord Rooker: We want to avoid that. Certainly,
as far as the distillation is concerned, it has had virtually
no effect on production. They have just carried on producing.
You cannot think of a less value-for-money arrangement—it
is taxpayers' money, let us face it. The green harvest would be
a way through if they do something to destroy the grapes, if you
like, or pick them and destroy them before they make the wine
that has to be distilled. That would be an advantage in some ways;
you have stopped doing some of the process. However, we wish to
avoid back door subsidies. We must not give them a route that
still encourages them to over-produce, which is the issue here.
The immediate abolition of distillation is something that is a
sticking point for us because it is that which brings in the culture
change for the rest—
Q909 Chairman: In a way, if you just
did the distillation that would affect everything else, would
it not?
Lord Rooker: Yes, it would.
Q910 Lord Moynihan: Fighting
back-door subsidies in the negotiations is an issue that is coming
up, I assume, at the moment?
Mr Manning: Absolutely. There is quite a lot
of scepticism around the Commission, on the one hand, saying that
they are going to abolish all subsidies but, at the same time,
provide an opportunity, maybe, for Member States to have a green
harvest scheme, because the green harvest scheme is a form of
market support. I think it is fair to say that it is probably
less damaging than the support systems we have at the moment,
which are encouraging wine to be produced, so you go through the
process of producing wine only for that to distort the market
and then very expensive measures have to be introduced in order
to clear the market ready for next year's harvest. So the green
harvest is a less distortive way of dealing with that. We certainly
believe that it should not form part of the regime for ever and
a day, and it is, of course, optional on Member States whether
or not they wish to introduce a green harvest scheme. It is one
of the closed menu of measures that they can introduce, and it
was quite informative that on Day Two of the Working Group the
Cypriots said that they ran a green harvesting scheme in 2002,
I think it was, before they joined the community, and based on
their experience of running a scheme like that they would not
recommend it to any other Member State because it is just so difficult
to control to make sure that it is done properly. In terms of
market impact it had very limited impact whatsoever. We need to
see the National Envelopes being a suite of things which Member
States may choose or not choose to introduce, but I do not think,
at the end of the day, it will have a major impact on the situation.
The most important thing, as we have already said, is that from
Day One the lifeblood of the uncompetitive industry is withdrawn
so they have to face market reality because distillation goes.
Q911 Viscount Ullswater: Of course,
we have touched on national envelopes. Most of the money is going
to be allocated to the national envelopes. I would like to have
your comments on the proposed formula for dividing this up between
the Member States. Do you feel that the Commission will be able
to hold on to its criteria for the use of the money in the national
envelopes? Or do you think that, once it gets into the Member
States' hands, they will just do exactly what they want with it?
I know that the Commission want to try and hold on to the criteria
but in negotiation I wonder whether they are going to be able
to hang on to that. If there is another formula that you think
would work? Could you suggest one?
Lord Rooker: First of all, we support the concept
of the national envelopes, and there is an inevitability as I
hinted at in my opening remarks—the three major producers
have had most of the money and that will probably continue while
we go through a transitional period. Robin explained to me this
morning some of the mystique about the formula and some of the
figures that we do not know as well, in the sense that we do not
know the precise way that things will be carved up. It is quite
clear, on what figures we have seen, that France, Italy and Spain
will be the recipients of most of the support, however that is
driven through the system. I think that is something we have got
to live with because it is part of the price of stopping the thing
we have just touched on, of the crude market support of distillation.
That is part of where we are going to have to negotiate, I think.
The concept we can agree with. We want, frankly, as much of the
money as we can get swapped over to Pillar 2, for obvious reasons.
They want it kept in Pillar 1 for the reasons we understand.
Mr Manning: Maybe I can add one further thing
to that. It is important to note that the proposal that the Commission
has made for national envelopes is for a closed list, so there
are only specific things that Member States can spend money on.
As I said earlier on, we are not over-enthusiastic about any of
them, but it could be worse; there could be much more distorting
things in the national envelopes, which comes back to the earlier
question about green harvesting. What we want to do most of all
is to avoid measures coming into the national envelopes which
try and perpetuate the lack of market focus that we see at the
moment. So as far as we are concerned, we can probably live with
the measures which are in the national envelopes; we would not
be keen about adding to them. What we have said through the negotiation
so far is that we can understand a lot of money going to the countries
who have to make the biggest adaptations at the start of the transition
period, but that, as you get more into a steady state, it would
make much more sense in many ways to start reducing the amount
of money which is being spent on the wine regime both in terms
of saving money but, also, maybe, spending money more sensibly
through RDR because I think there is a greater range of programmes
that can be introduced to address Member States' concerns.
Q912 Lord Plumb: Interestingly, you
said that you would welcome that money going to Pillar 2. Is there
not a danger that Pillar 2 then would be used for other purposes?
If the principle is established, then some countries may start
using the money from Pillar 2 for growth and for some of the things
that they are already doing.
Lord Rooker: It would give more flexibility
but they would have to match the spending. There would be a difference
in that respect. There is a principle issue here. The details
are going to be very awkward and we are going to have to live
with what is some uncomfortable detail. Splitting up the money
based on former production and former subsidy—the amount
of acreage under growth—obviously disadvantages the UK.
The three large producers would receive over €200 million
each and we would get about €180,000 to €200,000—it
is that kind of scale. We are just not on the radar. There would
be more flexibility in the Member States not to be doing crude
subsidies. Also, they would have to pay more themselves. That
is the thing that may stop them of course; the idea they would
have to match funding. There would be pressure on the Member States
not to do silly things.
Q913 Lord Plumb: My fear was that
there might be too much flexibility and, therefore, it could be
used for other purposes. We have seen it happen in the past in
other areas. Anyway, I take your point. You say you support the
Commission's proposals, and we are relieved to hear that you support
the majority of our proposals so far. The Commissioner, Mrs. Fischer-Boel,
has said that she sees this as budget neutral. Is it not your
intention to try to cut the budget to use money for other purposes
rather than continue the expenditure of €1.3 billion, which
is the expenditure at the moment on the whole thing? What steps
do you have in mind to achieve this? Might I say, my Lord Chairman,
that in our meetings with a number of people in France, when we
went down to Languedoc and to Bordeaux, I felt—and I am
sure we felt as a group—that the majority of growers there
are prepared to accept change. In fact, I heard a Frenchman say
that he did not want subsidies. That is the first time in my 40
years of involvement that I have ever heard a Frenchman say he
did not want subsidies! So they are prepared to accept change.
Yet we met one Senator who said: "We will not accept any
changes at all until Italy agrees that they planted, I think it
was, 20,000 hectares illegally last year." If this goes on,
it will go on for ever and a day. It is really the budget issue.
How do you see this? Should there not be savings there if the
Commission's proposals go through?
Lord Rooker: I think the answer to your question
is yes, there should be savings but they are not going to be immediate.
As part of the price, I think, for getting what is a fairly large
cultural change, as well as economic and management change, we
are starting off with this new regime, as it were, budget-neutral,
is a way to try and win support. In other words, the arguments
can be made that these things are not being done necessarily to
save money. Obviously, it is our intention to move away completely
from subsidies long term on all production in the EU, but to get
the changes we have to pay a price. This is a substantial change.
The budget is the maximum spend—there cannot be any increase
on that. It would be nice if one could say there would be substantial
cuts now, but that would probably negate the negotiating position
of trying to get the change in. The answer to your question is
yes, we do want savings, and in the long term we would expect
to get them.
Q914 Chairman: Will we have a chance
of looking at that when the new financial perspective comes up?
Lord Rooker: Yes, but we need to get this change
under our belt first.
Q915 Lord Plumb: I think, my Lord
Chairman, certainly in the Languedoc region there was much talk
of, say, the £5 bottle. When we get to the Bordeaux region,
of course, they quite arrogantly say: "There is nobody who
can compete with us for the quality wines we produce", and
nobody argues with that. However, they realise they are up against
it and, when we see the graph of the import now of New World wines,
they know very well they are out of business before long if they
do not accept change. That is a very strong argument we have got
for bringing about that change for that type of wine, which is
a popular wine—the sort of lunchtime or evening drinkable
wine—which they have gone off in France, according to the
figures, but it is being drunk elsewhere.
Chairman: We did come across quite a lot of
entrepreneurial wine makers, but very conservative wine politicians.
Lord Rooker: There is inevitability, in some
ways; you do find areas where the industry has seen the writing
on the wall because they have seen their balance sheets. Sometimes
the industry does lead the politicians. I can give you examples
but I do not dare give them at the moment here—home-grown
examples—which I am currently dealing with, where it is
quite clear the industry is somewhat ahead of the politicians.
So that is not unusual. Therefore, that is good because it is
better if it is that way round. That way you can see a possibility
of progress.
Q916 Chairman: Can we go on to promotion.
When we were taking evidence, everybody was saying that support
for marketing was very important. Then, when we asked and probed
a little bit about what "marketing" meant, it turned
into "promotion"; and then, when we asked what "promotion"
meant, it meant advertising in non-EU countries. I do not think
that is going to deliver much benefit. The crying need is to improve
marketing in the proper and full sense of getting the producer
closer to the consumer and those sorts of connections. What is
your view on giving over a tenth of national envelope money to,
basically, advertising in non-EU countries?
Lord Rooker: If they thought promotion was just
advertising EU wines, let us say, in Third Countries, and they
do, let us say, keep the labelling the same as they do now, it
is not going to sell anything. It does not matter how much they
advertise, if you put labels on bottles that people cannot understand,
which is almost the exact opposite of what they have been doing
in Australia and New Zealand and the others—South Africa
and Chile: they have learnt their lesson. In other words, they
have got to be consumer-orientated; so it cannot be just advertising
EU wines in Third Countries. I think promotional money is probably
quite useful; it could assist in some ways, probably, in some
aspects of the way their own internal market is organised. The
advertising is appalling in getting issues on the labelling and
explaining what the wines are like, and doing the brands, as it
were. I am afraid the variety of brands and labels, particularly
in France (which are the wines I know better than the other two,
I have to say) are enormously complicated. I do not think just
advertising European wine is going to work; they have got to do
a lot more than that to get across to the consumer. They have
to realise that they are advertising to consumers and individual
people—not industries. If they do not make that breakthrough,
however much is spent on promotion, it is not going to work. If
the money can be used also to help with the integration of companies
and producers, and maybe put more vertical integration into their
production methods, that would be of assistance. I would look
on that as promotion. Promotion is not necessarily advertising.
Lord Plumb: €120 million of European
money every year for promotion.
Q917 Lord Palmer: Minister, I would
like to ask you about the ban on new plantings. Are you able to
shed more light on the Commission's proposals? It looks as though,
even after the ban on plantings is lifted, Member States will
still be able to prohibit new plantings in areas which produce
GI wines. In reality, is this simply not giving the whip hand
to the producers in these areas, so that they can keep out new
competition? How do you envisage you are going to play this?
Lord Rooker: That is where I invite Robin to
expand on the details, but that is obviously an area of concern.
The way that they have argued the ban on new plantings, it has
been an economic fiddle, in some ways, of trying to manipulate
the market, and it has not been very successful. From our point
of view, this is an area where we are concerned because the English
wine industry is growing. As you know from your researches, we
are on the borderline of the 25,000 hectore-litre over the five
year average, and we will certainly break that during the period
of 2010-2013. With the ban on plantings extended to 2013, it causes
difficulty and, therefore, we need an increase on that 25,000
hectore-litre, and we will seek to negotiate that. We may have
to by supporting the Commission's 2013 figure in order to stop
the other Member States extending to 2015 or 2016, which is what
they intend to try and do, according to what has been said in
the last few days. I think we need the market. If someone is going
to plant a vineyard, they ought to do it in the knowledge that
they think they can sell and market the product. That is the point.
There should not be a ban on plantings. They take the risk of
planting; it should not be for the individual producers to say:
"Ah, we are going to ban so-and-so planting extra, because
that protects our little empire". That is quite unacceptable—quite
unacceptable. We want the issue to be consumer-orientated: farmers
take the risk of planting; they know their market—or one
has to assume they do but they obviously do not know much about
the market because they have been so protected from it in many
ways. We cannot possibly countenance a system of having bans on
plantings, then trying to extend it and then individuals trying
to decide who can plant what and where. That has got to be down
to the individual producer. That is our view and that is the view
we will take to the negotiations.
Mr Manning: It is very hard, coming from the
UK, to understand why the producer Member States attach so much
significance to the planting rights scheme and consider it a success,
when you consider the problems facing the wine sector at the moment.
The problems facing the wine sector are due to a complete disconnect
between the production decisions in many circumstances and the
wishes of consumers. We are only going to get that market focus
as a consequence of, as we said earlier on, removing the market
intervention measures, but also freeing up the industry to be
able to react to market signals. We are quite concerned about
the proposal for an extension to the planting ban when the English
industry has been working on the basis that they can carry on
planting and responding to market demand on the basis that the
ban would end at the end of 2010.
Q918 Chairman: You seem to be saying
that, although the Commission is proposing an extension, the real
fight is going to be on preventing that extension going even further?
Lord Rooker: Absolutely, yes, which is why,
as I said, in supporting the Commission, because we think they
have been quite brave and bold, as their original plan in supporting
that, we may have to have some give and take on other issues,
because to keep to 2013 is pretty important, as far as we are
concerned. According to the reports I have received they are going
to be under enormous pressure from some of what I might call the
old-fashioned producers to extend that date.
Chairman: Let us look at one of the other
areas: enrichment.
Q919 Viscount Ullswater: Minister,
you mentioned enrichment as being one of the particular aspects
which you thought was a difficult one, especially for the Northern
European wine producers—the use of sucrose has been commonplace.
Enrichment through the use of must has been supported financially,
and I notice, also, that it seems that—and I do not quite
understand what it means—under Rural Development Member
States will be able to provide investment support to wine producers
who have to change their use of sugar for enrichment to the use
of must, which seems to be a subsidy in another form—under
a different heading. Can you tell us your view about enrichment?
What do you feel the British position would be about it? And anything
else?
Lord Rooker: I have to say that I know nothing
about wine production—consumption yes, but not production!
I have visited one English vineyard in Kent, a very modern, private
sector, investment winery. I did not know about enrichment until
I went there; I did not know about sugar. I suppose, as an ordinary
layperson in this respect, I was a bit surprised until it was
explained to me in terms of low sugars and higher acids in the
northern part of Europe. It is not just an English issue, obviously;
it is a particular issue in Germany. The fact of the matter is
that it would be very costly on our industry—an increase
in production costs of 10 to 20%. The northern Member States are
the ones that currently use it, and, of course, we would have
to import the must. Apparently, there is only one producer of
that and it so happens it is in Germany.
Mr Manning: Traditionally, as we understand
it, English producers have imported German must, where they have
used must instead of sugar. But effectively, if the ban came in,
then it would mean that, instead of being able to use sugar as
the enrichment agent, which you do need in the north of the community
because we get less sun, particularly in years like this, they
would have to use grape juice, and the grape juice would be obtained
from an existing producer Member State—like Spain or Portugal.
Lord Rooker: And it would lower the quality
because they want to limit it, so it has an effect on the wine
strength of 2%, whereas at the moment it is 3.5%. One of the reasons
for this, allegedly, is to reduce production overall. We do not
want to reduce production; our industry is growing. It is tiny—tiny—but,
to their credit, they are winning gold medals in Paris and flourishing.
With climate change it is one that will be expanding—it
will never be massive. I do not know where we are on the negotiation,
but the effect of this change, which will sharpen the negotiation,
is disproportionate on northern European Member States. It is
not going to affect the Spanish, the Portuguese, the Italians,
probably the French—certainly not the southern French—so
it is disproportionate if we do not negotiate our way out of this
issue.
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