Wine Industry Report

The Commission has adopted a communication with a view to carrying out a major reform of the common market organisation in wine. Implementation of the reform will help balance the wine sector, boost competitiveness and preserve rural areas. In addition, the reform should promote simplification and better regulation of the wine sector for producers and consumers. Member States will have a greater role given the high level of subsidiarity and the scope for taking measures reflecting their specific situations. It would also boost the European Union’s position on the international stage.

ACT

Communication from the Commission to the Council and the European Parliament “Towards a sustainable European wine sector” [COM(2006) 319 final - Not published in the Official Journal].
SUMMARY

This Communication marks the launch by the Commission of the debate on the future common market organisation (CMO) in wine, which will form the basis for making legislative proposals by the end of the year.

BACKGROUND

At present, the aim of the CMO in wine is to manage production potential by means of comprehensive policy tools, which, however, have also created problems. These tools include:

* limiting planting rights, the benefits of which have been reduced by the granting of additional rights and by increased yield in certain Member States;
* permanent grubbing-up, which has almost ceased since 1996;
* restructuring and reconversion programmes focusing on adapting quality and quantity to consumer demand. These programmes encourage the production of quality wine, but may also trigger an increase in overall production.

There are also other brakes on competitiveness, in particular:

* crisis distillation of wine surpluses, now used as a structural measure, also covering quality wines. This procedure does not guarantee wine growers an adequate income and at the same time fails to limit the production of unmarketable surpluses;
* private storage aid, which has become a structural measure. These costs should be borne by the industry;
* the rigidity of procedures for adopting and adapting wine-making practices;
* consumer confusion caused by wine labels resulting from a complex legal system that differs from international classifications;
* additional national and regional regulations which make the situation even more complex.

THE EU’S NEW WINE POLICY

The aim of new European guidelines in the wine sector is to make the most of the EU’s huge potential and to react to the changes to the situation in Europe and worldwide.

Potential and weaknesses at European level

The European Union is the world’s leading producer, exporter, consumer and importer of wine. Moreover, in terms of quality, the EU’s reputation is recognised worldwide. The wine sector therefore represents a vital economic activity for employment and export revenue.

However, wine imports into the EU are now growing faster than exports, so much so that they may soon overtake exports. Due to the increase in production and sales of new world wine, European producers must boost their competitiveness.

Objectives

The EU aims to improve the competitiveness of its wine producers and the reputation of its wine to recover old markets and win new ones. To this end, wine policy must be underpinned by clear, effective rules that balance supply and demand. In addition, it should preserve the best traditions of EU wine production, reinforce the social fabric of many rural areas and ensure that all production respects the environment.

Options for reforming the CMO in wine

The Commission has examined the following possible options for reforming the CMO in wine:

* maintaining the status quo, possibly with some limited adjustments;
* reforming the CMO in wine along the lines of the general reform of the CAP;
* completely deregulating the wine sector.

It concluded that none of these options would provide adequate answers to the problems, needs and the particularities of the wine sector.

THE ONLY POSSIBLE OPTION: MAJOR REFORM OF THE CMO IN WINE

The Commission considers this option as the most appropriate response given the particularities of the sector in terms of its problems and its potential. The regulatory framework and the production structure will be adapted in order to give the EU a sustainable and competitive wine sector.

TWO VARIANTS

This process could be rolled out either in one or two steps:

* Variant A (one-step). In this case planting rights and the grubbing-up scheme would be abolished at the same time, either immediately or on 1 August 2010 at the latest. This would provide quick answers to the present difficulties but would require a rapid and demanding adjustment of the sector.
* Variant B (two-step). This approach is based on a period of structural adjustment, including temporarily reactivating the grubbing-up scheme. The first stage would restore the market balance and the second stage would increase competitiveness, in particular by abolishing planting rights. The system of restrictions on planting rights would be extended until 2013. The least competitive producers would be encouraged to sell their planting rights swiftly, since the grubbing-up premium would be set at an attractive level for the first year and a decreasing scale would be set for following years. Competitive producers would be able to extend their production.

The agricultural area formerly used for wine production, once grubbed up, would qualify as an eligible area under the single payment scheme (SPS) and, under variant B, would be granted the average regional decoupled direct payment.

COMMON FEATURES OF VARIANTS A AND B

Abolishing market management measures

Market management measures such as distillation, private storage aid and must aid would be abolished. The crisis distillation measure would be abolished or replaced by an alternative safety net mechanism using the national envelope and more forward-looking measures.

Budget envelope for wine-producing Member States

Member States would be able to use the funds granted to finance measures selected from a given menu, for example to implement certain crisis management measures such as insurance against natural disasters or to provide basic cover against income crises.

Rural development

Preferably structural initiatives should be encouraged in the wine sector. To this end, a transfer of funds to rural development would be earmarked for the wine producing regions. Early retirement and agri-environment support schemes are examples of the many measures that could be part of rural development plans adopted by the Member States and that could benefit the wine sector.

Quality policy/geographical indications

The following measures should be taken to make the quality policy clearer, simpler and more transparent:

* substantially revising the current regulatory framework to align it with international rules, in particular the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The Commission proposes to establish two categories of wines: wine without a geographical indication (GI) and wine with a GI, further divided into two sub-categories: wine with a protected geographical indication (PGI) and wine with a protected designation of origin (PDO);
* the concept of quality wine based on a geographical origin should be confirmed, adapted, promoted and enhanced worldwide;
* the role of interbranch organisations must be expanded to enable them to control and manage the quality of the wine produced in their territories.

Wine-making practices

In terms of wine-making practices, the Commission proposes:

* to take on the responsibility, hitherto the task of the Council, for approving new or modifying existing wine-making practices;
* to recognise International Organisation of Vine and Wine (OIV) wine-making practices and to assess how they can be incorporated into a Commission regulation;
* to authorise use in the EU of wine-making practices already agreed internationally for making wine to export;
* to abolish the minimum natural alcohol requirement of wine which becomes redundant due to the proposed limitation on enrichment;
* to ensure a minimum level of environmental protection in the wine-making process.

Enrichment

Following the recent reform of the sugar sector, which accentuates the problem of using sugar instead of must to increase the alcohol content of wine, a decision has be taken on must aid. Completely abolishing the aid whilst banning the use of sucrose appears to be the best solution.

Labelling

The Commission proposes to simplify the labelling provisions by setting up a single legal framework for all the different categories of wine and the particulars relating to them. In particular, it would be possible, even for table wines without GIs, to indicate the name of the variety and the year of production on the label. This framework would be tailored to the expressed needs of consumers and be more consistent with the wine quality policy.

Promotion and information

The Commission is committed to a promotion and information policy for European wine in third country markets. Information campaigns on responsible/moderate wine consumption could also be considered within the EU.

Environment

The Commission intends to include basic environmental requirements for the wine sector. Vine growing and wine-making practices can pose problems regarding soil erosion and contamination, the use of plant health products and waste management.

WTO

The new CMO in wine should be compatible with World Trade Organisation (WTO) rules. Thus, current trade-distorting (”Amber Box”) intervention measures will be eliminated and preference will be given to “Green Box” measures. The present ban on vinification of imported must and blending of Community wines with non-EU wines will be examined in the same spirit.

The Commission plans to submit legislative proposals in 2007 after an in-depth debate.

[Source European Commission — updated: 17.7.2006]