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EU wine reform: Background information on the wine sector

Commission Européenne - MEMO/06/245   22/06/2006

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MEMO/06/245

Brussels, 22 June 2006

EU wine reform: Background information on the wine sector

On 22 June, 2006, the European Commission published a Communication on reform of the EU’s Common Market Organisation for wine. The Communication sets out four options, expressing a clear preference for a profound reform specific to the wine sector. The Commission plans to table legislative proposals in December 2006 or January 2007, following an in-depth debate on its proposals. The reform aims 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; create a wine regime that operates through clear, simple rules – effective rules that balance supply and demand; 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 EU wine sector

Europe is the:

  • leading global producer with over 45% of vines and 60% of production,
  • leading consumer accounting for almost 60% of global consumption,
  • leading exporter and largest import market.

EU production

Over the past 5 years, average production in the EU 25 amounted to 178 million hectolitres (between 166 and 196 million hl) worth around €16.1 billion. With the accession of Romania and Bulgaria, production will increase by roughly 7 million hl.

France is the largest producer, with an average of 55 million hl, representing 30.6% of the EU total. It accounts for half the production of the EU 25 in terms of value - with €7.7 billion.

Italy follows France with roughly 51 million hl (28.5% of the EU) with a value of €4.2 billion (25.8% of the European total).

Spain, the third largest European producer, has an annual production of 43 million hl (23.2%), worth 1.2 billion Euros (7.6%).

Germany’s production in terms of value nearly equals that of Spain (1.1 billion Euros) despite a considerably lower production volume (roughly 10 million hl).

Portugal produces roughly 7.2 Million hl of wine for a value close to 1 billion Euros.

Next come Hungary (4.5 Mio hl for €181 million), Greece (€3.6 Mio hl pour €46 million) and Austria (2.5 Mio hl pour €437 million).

Finally come other small producers such as Slovenia (1 Million hl), the Czech Republic (520.000 hl), Slovakia (440.000 hl), Cyprus (425.000 hl), Luxembourg (140.000 hl) and Malta (67.000 hl).

The mid-term outlook for the EU wine sector until 2010/2011, without reform and on the basis of the expected trends in production, consumption and trade dynamics, is that excess wine production will increase to 27 million hl (15% of production), or to 15 million hl (8.4% of production), if the quantities distilled with aid to the potable alcohol sector are not considered surplus.

Trade

The European Union exports more than €15 billion worth of wine. In terms of volume (excluding intra-EU commerce), exports are roughly +/- 13 million hl.

The EU is beginning to be caught by the new world exporters. The four main producers have seen their exports develop in spectacular fashion: South Africa (+770%), Australia (+500%), Chile (+270%) and the United States (+160%) between 1991/1993 and 2001/2003.

European wine imports in 2005 reached almost 12 million hl, compared to 13 million hl of exports.

The global decline is accounted for by two distinct and contradictory situations: the European Union’s gradual drop, and its main competitors’ staggering development of production capacity: USA: +26%, Chile: +48%, Australia: +169%, New Zealand: +240%.

Vineyard statistics

With 1.6 million vineyards, vines occupy roughly 3.4 million hectares in the EU 25. The average size of vineyards is roughly two hectares, although the majority of growers actually work on less than one hectare of vines.

Wine production in 2004 represented 5.4% of agricultural output. Wine production represents around 10% of the value of agricultural production in France, Italy, Austria, Portugal, Luxembourg and Slovenia, and a little less in Spain.

In total, vine-growing farms employ more than 1,500,000 people full time. When the other actors in the production chain are added, the total employment generated by vine-growing is considerably higher.

The figure of 1,500,000 people corresponds to roughly 15% of the total Annual Labour Units for agriculture.

Italy employs the highest number of workers: 500,000 producers, or 32% of the European total, followed by Portugal (227,000 workers – 18%). Together, these two Member States represent half of the labour force employed in vineyards. France and Spain account for 13% and 10% of European workers respectively.

In the EU, specialised vine-growing farms have had higher revenues than the average farm since 1990. On average, the evolution of revenues made steady progress between 1990 and 1999. However, this positive trend has brutally reversed, with average revenue per farm having declined by 12% between 1999 and 2003.

"Quality wines" and “Table wines”

The wines of the European Union can be divided into two principal categories. Roughly 40% of the land is dedicated to “table wines” and 60% to "quality wines produced in specific regions". This distribution varies enormously between the Member States, notably based on the wine classification system adopted at national level. Certain Member States consider almost all their production as quality wines.

The rigidity of procedures for adopting and adapting wine-making practices hinders competitiveness. EU regulations are too complex, notably on definitions, wine-making practices and classification, i.e. QWpsr, table wine with a GI and table wine.

On QWpsr, there is no ‘quality’ concept at international level and no reference in EU legislation to the concept of ‘geographical indication’ as defined by the WTO’s Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement.

In recent decades, there has been an increase in the number of QWpsr and table wines with GIs, which leads to customer confusion, weakens EU GI policy, and contributes to the decline of the market situation.

Consumers are confused by wine labels resulting from a complex legal system. Inflexible labelling rules hamper the marketing of European wines. A major drawback is the prohibition of the indication of the vintage and the wine variety on table wine without a GI.

The wine CMO today

Measures aim at managing production potential, by limiting planting rights and by supporting structural improvement through (a) permanent grubbing-up and (b) restructuring/reconversion programmes focusing on adapting quality and quantity to consumer demand. The planting rights restrictions, including a ban on new plantings, are valid until 31 July 2010.

The internal market measures include traditional measures such as crisis distillation of surplus wine and distillation of surplus wine from dual purpose grapes. The aim is to limit price decreases. Then there is compulsory distillation of lees and marc, by-products of wine making, to avoid over-pressing of grapes and improve wine quality. Finally, there is the distillation of table wine into potable alcohol for use in the spirit drinks industry.

Aid is also paid for the temporary private storage of wine and grape must. In addition, aid is available to encourage the alternative use of grape must, notably for enrichment and grape juice.

Since 1975/76, overproduction has been addressed by limiting production potential, and encouraging the permanent abandonment of production areas, contributing to a decrease from 4.5 million ha in 1976 to 3.4 million ha in 2005.

Market situation – reform is urgent

EU wine consumption, is declining by about 750 000 hl or 0.65% annually.

Consumption patterns in general and those of wine in particular, are changing, as are lifestyles.

Intervention via distillation is required to remove about 15% of wine production every year.

Wine stocks, which already exceed one year’s production, are increasing, with little prospect of disposing of them. This exerts downward pressure on prices and producers’ incomes.

Imports are increasing at a faster rate than exports, the gap is narrowing and imports may soon exceed exports.

The surge in “new world” wine production and sales highlights the need for EU wine producers to become more competitive.

Crisis distillation, designed to tackle cyclical surpluses, is used as a structural measure and now also covers “quality wines”.

The private storage aid scheme has become a structural measure. Wine storage costs should be borne by the industry.

The wine budget

2005 expenditure amounted to €1269 million, distributed as follows:

  • 35% represented expenditure on the restructuring programme in place since 2000 (€446 million in 2005).
  • 63% have been used for market intervention measures: 40% represented the direct and indirect costs of the various forms of distillation and public storage (€ 506 million), aid for musts used to enrich wine which accounted for 16% (€198 million), aid for private storage of wines and musts (5%, equivalent to €70 million) and export refunds (1%, or €17 million).
  • The definitive grubbing-up of vineyards only amounted to €31 million (in 1993, the figure was in excess of €400 million), less than 2% of the total EU budget for the wine sector.

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