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Brussels, 22 June 2006

Wine: Profound reform will balance market, increase competitiveness, preserve rural areas and simplify rules for producers and consumers

The European Commission today called for a root-and-branch reform of the Common Market Organisation for wine. The plan aims to increase the competitiveness of EU wine producers, strengthen the reputation of EU wines, win back market share, balance supply and demand and simplify the rules, while preserving the best traditions of EU wine production and reinforcing the social and environmental fabric of rural areas. The Commission considers four options for reform, and comes out clearly in favour of a radical reform model specific to the wine sector. This would involve either a one-step or a two-step approach. The two-step approach would begin with measures to bring supply and demand back into balance before focusing on improving competitiveness, including the abolition of the system of planting rights. Producers would be offered generous incentives to grub up uneconomic vineyards, outdated market support measures such as distillation would be abolished and the systems of labelling and wine-making practices would be updated and simplified. Money would be redirected towards Rural Development measures tailor-made for the wine sector and Member States would receive a national financial envelope to pay for measures decided at national level. Under the “one-step” variant, the system of planting rights restrictions would be either allowed to expire on 1 August 2010, or be abolished immediately, and the current grubbing-up scheme would also be abolished at the same time. After an in-depth debate on its ideas, the Commission plans to table legislative proposals in December 2006 or January 2007.

“European wines are the best in the world,” said Mariann Fischer Boel, Commissioner for Agriculture and Rural Development. “Our wine sector has huge potential for further growth, but we need to use this potential actively. Despite our history and the quality of so many EU wines, the sector faces severe problems. Consumption is down, and exports from the New World are making huge inroads into the market. We in Europe are producing too much wine for which there is no market. We spend far too much money disposing of surpluses instead of building our quality and competitiveness. Over-complex rules hold back our producers and confuse our consumers. I am not advocating cutting the budget, of about €1.2 billion a year, but we must use this money more intelligently. This is a great opportunity to put the EU wine sector back at the top where it belongs – we must not waste it.”

The EU wine sector:

The EU has more than 1.5 million holdings producing wine, covering 3.4 million hectares, or 2 percent of EU agricultural area. Wine production in 2004 represented 5.4 percent of EU agricultural output, and more than 10 percent in France, Italy, Austria, Portugal, Luxembourg and Slovenia.

The objectives for a new EU wine policy:

To increase the competitiveness of the EU’s wine producers; strengthen the reputation of EU quality wine as the best in the world; recover old markets and win new ones;

To create a wine regime that operates through clear, simple rules – effective rules that balance supply and demand;

To create a wine regime that preserves the best traditions of EU wine production, reinforces the social fabric of many rural areas, and respects the environment.

The issues:

EU wine consumption is falling steadily, although sales of quality wines are increasing. Over the last ten years, imports have grown by 10 percent per annum, while exports are only increasing slowly. On current trends, excess wine production will reach 15 percent of annual production by 2010/11.

Market support measures such as distillation offer a permanent outlet for an unsaleable surplus. ‘Crisis distillation’ is being used increasingly for quality wines.

Current rules for adapting winemaking practices are cumbersome and hinder competitiveness.

Labelling rules are complex and inflexible, confusing consumers and hampering the marketing of EU wines.

The preferred option: Profound reform of the wine regime

Reform measures would include:

The grubbing-up scheme would be reactivated, with the grubbing-up premium set at an attractive level to encourage uncompetitive producers to leave the sector. The premium would be reduced annually to encourage take-up from year one.

The aim is to grub up 400,000 hectares over a five-year period, with a maximum aid of €2.4 billion. Grubbing-up would be voluntary.

The system of planting rights would be extended to 2013, when it would expire. The least competitive producers would have a strong incentive to sell their rights, while those staying in the sector would focus more on competitiveness, as the cost of planting rights would no longer hamper their expansion.

Areas formerly under vines would qualify for the Single Farm Payment, and minimum environmental requirements would be attached to the payments.

Market management tools – such as support for by-product distillation, potable alcohol distillation, private storage aid and must aid – would be abolished. Crisis distillation would be abolished or replaced by an alternative safety net using the national financial envelope.

This national envelope would be allocated to each producer country, to finance measures best suited to each national situation.

Money would be transferred to Rural Development for wine-specific measures such as an early retirement scheme worth €18,000 per year and agri-environmental programmes.

A clearer, simpler, more transparent quality policy, establishing two classes of wine: wine with Geographical Indication and wine without GI.

Simpler labelling rules, to help consumers and make it easier for producers to compete. This would include allowing the indication of grape variety and vintage on wines without GI status, which is not possible under current rules.

Transfer of responsibility for approving new wine-making practices to the Commission. Recognition of wine-making practices accepted by the OIV.

A ban on the use of sugar for enriching the alcohol content of wine.

The Communication also considers a “one-step” variant of this profound reform approach, which would require very rapid and demanding adjustments in the wine sector.

Under this scenario, the system of planting rights restrictions would be either allowed to expire on 1 August 2010, or be abolished immediately. The current grubbing-up scheme would also be abolished at the same time. Each hectare of vineyard grubbed-up at the farmer’s expense would become part of the area eligible for the Single Payment Scheme.

Options which do not provide an adequate solution:

The Status Quo: purely cosmetic changes would not be sustainable economically or politically.

Complete deregulation of the market: The harsh adjustments would cause severe negative economic and social impacts on the regions concerned.

Reform along CAP Reform lines: The potential amount of decoupled payment would be very small and would probably not compensate sufficiently the loss of market support for many producers.

For more background information, please see MEMO/06/245.

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