Initial Assessment of the European Commission’s Communiqué Regarding the Reform of the Common Market Organization (CMO) for Wine by the Deutscher Weinbauverband (DWV)/ German Wine-growers’ Associationv
The DWV welcomes the fact that the Commission has issued a communiqué about the reform of the Common Market Organization (CMO) for wine.
Because European wines have lost market share to wines from third countries, particularly the New World, in the internal market as well as in important export markets, a change in the legal framework is necessary in order to improve the competitiveness of European wines and regain market share.
Taking into account the following framework, the DWV’s initial assessment of the Commission’s communiqué is outlined below.
• With 20 million hl, Germany is the world’s largest sales market for wine.
• With 9 million hl, Germany is the fourth largest wine producer in the European Union.
• With 13 million hl, Germany is the world’s largest wine importer.
• With 2 million hl, Germany is an important wine exporter.
• Germany considers itself to be an important constituent of the European Union. As such, the DWV has been very active in supplying input that would help shape the position of COPA/COGECA (the European trade associations of wine producers) and AREV (Assembly of European Viticultural Regions).
Goals of the reform
The Commission has identified the following objectives of the reform:
• Increase the EU’s ability to compete with wines from third countries
• Strengthen the image of European wines
• Regain market share in old markets and develop new markets
• Rules that are as simple as possible
• Take into consideration the social and political roles of the wine-growing regions.
The DWV supports the objectives of the reform. From the DWV ’s point of view, the most important prerequisite for winning market share in the internal market and in export markets is increased competitiveness. Precisely because there are differences in the basic understanding of wine as a product in Europe and in the New World, there is a need to underscore the significance of viticulture as the basis for cultural and recreational landscapes, as well as wine tourism and other trade branches.
As an additional goal, the Commission seeks to establish a balanced market. As such, it feels that certain measures are called for, such as the need for a comprehensive program of abandoning/clearing vineyards (also known as the “grubbing-up scheme”).
The DWV questions the merits of this goal. Given the globalized wine market and the lack of effective protective measures, it is virtually impossible to establish a balanced market if native producers are placed at a disadvantage by restrictive measures, while imports continue to grow. For this reason, increased competitiveness deserves special attention.
The current CMO for wine
In its communiqué, the Commission analyzes the current market situation, describes the problems with the current CMO, and suggests measures to regulate the market.
The DWV notes that the analysis of those who are active in the market and independent organizations have been challenged. Because the EU market is open to all third countries, it functions like a system of communicating tubes, so that focus on the real issue – competitiveness – is diverted to the issue of structural surpluses.
In its analysis, the Commission considered four possible options for a reform of the CMO for wine:
Option 1: Retention of the status quo with a few changes here and there.
Option 2: Incorporation of the reform of the CMO for wine into the general agricultural reform (GAP).
Option 3: Complete deregulation of the wine market.
Option 4: Fundamental reform of the CMO for wine.
Based on its assessment, the Commission has come to the conclusion that a fundamental reform offers the most advantages among the four options, and that the retention of a CMO specific to the wine sector is necessary.
The DWV basically agrees with the Commision’s choice, yet feels that its proposals need considerable changes.
Fundamental reform of the CMO for wine
The Commission has suggested a one-step or a two-step reform. The main difference between the two lies in the implementation of a EU grubbing-up scheme, i.e. regulation of production potential.
Under the one-step model, the regulations regarding restrictions on planting rights would be abolished immediately (or would expire on 1 August 2010) without a transitional arrangement. Under the two-step model, a comprehensive grubbing-up scheme would take place prior to abolishing the current regulations in order to effect a structural adjustment.
The most critical point with the latter proposal is the total liberalization of planting rights. The DWV fears major upheavals in the producer market if current regulations are abolilshed. The potential economic consequences for producers need to be carefully examined. In any case, Member States should be authorized to continue to regulate planting rights as they have in the past.
The DWV feels that it is absolutely necessary to develop alternatives to both variants proposed by the EU Commission.
The DWV rejects a comprehensive grubbing-up scheme at a cost of 2.4 billion Euros. This would devour more than one third of the budget available for the next five years, and not accomplish the objective of improving competitiveness.
The means on hand should be used for developing new markets and consumer information, and not invested in disposing of surpluses – some of which are created by market intervention (distillation encourages production).
Abolishment of market mechanisms and introduction of future-oriented measures
The EU Commission suggests the immediate abolishment of the following measures:
• Subsidies for the distillation of by-products
• Subsidies for the distillation of potable alcohol and crisis distillation
• Subsidies for private storage
• Subsidies for grape must in conjunction with chaptalization and the production of grape juice
From a German point of view, the DWV is in agreement with these proposals with one decisive reservation: the linking of grape must subsidies with the prohibition of chaptalization (see below). Although not directly affected, the association is, however, also willing to consider the possibility of a “phasing out” or having these measures financed by the national budgets.
Financial framework on a national level
The Commission suggests that each wine-producing Member State be given a budget calculated according to objective criteria. With these means, each state can finance the measures best suited to its needs and circumstances – to be selected from an overall package of measures.
The DWV welcomes this proposal since it is in line with the association’s call for increased consideration of regional differences and is consistent with the implementation of subsidiarity in the wine sector.
It also supports the view that Member States should have the authority to select from a EU package of measures those that will contribute to increasing the competitiveness of its wine producers.
The DWV is in favor of financing a restructuring/conversion program from the budget for subsidiary matters, as in the past. However, it calls for a considerable expansion of the program to improve the structures for data acquisition and marketing, as well as quality management concepts.
The DWV is of the opinion that the majority of the budget should be made available to the Member States for subsidiary measures, to be allocated according to the surface area devoted to vines – as it is in the case of restructuring.
A reminder from the DWV: the association calls for a special program to promote viticulture in sloping and steep sites.
Rural development (Axis II of the Common Agricultural Policy)
The EU Commission proposes the implementation of many conversion/restructuring measures within the framework of rural development and that the funding to do so be created through a transfer of funds to Axis II from the budget for the wine sector.
The DWV rejects the integration of conversion measures into the horizontal measures of Axis II, so that the financial means for these measures remain specifically for the wine sector. Furthermore, there would also be the problem – particularly for poorer wine-growing regions in Europe – of claims for EU co-financing the measures for rural development.
Quality policy and geographical indications
The Commission proposes a substantialrevision of the current quality regulatory framework in order for EU quality policy to betterconform with international rules, particularly the provisions of the TRIPs Agreement.
These suggestions come as a surprise and have far-reaching implications. For this reason, they can only be assessed after they have been examined in light of their consequences for the goals of the wine market reform.
This raises the question of how relevant it is to make reference to the TRIPs Agreement at all, since New World wine-producing countries are blocking provisions to create a multilateral register of protected geographical indications for wines and spirits.
The Commission proposes a liberalization of oenological practices, bearing in mind the norms of the international wine organization, OIV,in particular.
The DWV views these suggestions as contradictory. Permitting every practice that is accepted somewhere in the world is at variance with an increased alignment with OIV norms. The division into rules for “wine exports to certain countries” and “wines sold within the internal market and wine exports to other countries” is not feasible.
With regard to bilateral or internatonal trade agreements, the DWV finds that the Commission’s proposals lack a strategic position on oenological practices.
The Commission proposes to prohibit chaptalization with sucrose, and justifies doing so as a consequence of abolishing subsidies for rectified, concentrated grape juice, among other things. Furthermore, the Commission suggests a considerable reduction in the maximum levels of chaptalization, particularly for northerly wine-growing regions.
The DWV points out that despite a uniform EU market, there are differences in location, climate and weather within the European Union – and these are the basis of varying production regulations within the EU. The Commission is denying these facts by proposing to even out the permitted levels of chaptalization.
The DWV points out that this subject is quite a sensitive issue and it should not be permitted to lead to a rift within the European wine industry or a blockade of the proposed reforms in general.
The DWV flatly refuses to accept the ban on sucrose. The Commission itself states that the problem with (excess) volume is not due to chaptalization, but rather to subsidies for rectified, concentrated grape juice.
A ban on chaptalization is not in line with the proposed “liberalization of oenological practices.”
A ban on chaptalization in the EU is unacceptable, not least because the EU Commission recognizes the practice in bilateral agreements with third countries.
The call for increasing competitiveness and reducing production costs are also not in line with a ban on chaptalization, with a more expensive practice as an alternative.
The Commission proposes to simplify labeling regulations and to introduce a single legal framework that would be applicable to all categories of wine and their respective specifications.
The DWV will examine the proposals – they are quite complex and need considerable explanation. In any case, the association points out that labeling laws were just recently changed – after years of discussion – and therefore, queries what new factors have cropped up that weren’t already addressed in the most recent discussions.
Promotion and information
The Commission plans to pursue a responsible promotion and information policy. All available opportunities in existing EU legislation should be used to this end.
The DWV welcomes this position, regards it, though, as half-hearted and in need of more depth. The association feels that information about the healthful benefits of moderate wine consumption and the dangers of abuse should be a major pillar of the CMO. The measures need to be specified and a financial framework needs to be worked out – as already suggested in 1999 by the European Parliament (ca. 150 million Euros).
The Commission plans to ensure that the reform of the wine sector contributes to minimalizing environmental impact due to viticulture and winemaking.
The DWV calls for a more comprehensive approach. As a rule, wine-growing regions are unique cultural landscapes that wine-growers must treat in an environmentally-friendly manner. Viticulture is an integral part of life in many regions – their economical, social and cultural existence depends on viticulture. Therefore, a reform must take into consideration the environment, social fabric, infrastructure, economy and quality of life.
The Commission feels it is important that the new CMO (wine reform) is compatible with the WTO (World Trade Organization). This means an abolition of current intervention measures and permission to produce wines in the EU from imported musts and blending of third-country wines with EU wines.
The DWV rejects such an admission due to the disadvantages it poses for European producers and consumers.
The DWV regrets that many of the Commission’s proposals would improve conditions for third-country imports, but do not offer concrete suggestions on how to improve/strengthen EU competitiveness in international trade – particularly in export markets.