Wine Sector in Europe - Situation and Outlook
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European vine cultivation and wine production has a world dimension. The European Union (EU) wine sector leads in terms of:
a) production: European vineyards account for approximately 45% of the areas under vines in the world and produces, on average, 60% of world wine production;
b) consumption: the EU accounts for almost 60% of world consumption;
c) the EU is both the leading world exporter and importer.
Wine makes a considerable contribution to the value of final agricultural output in the majority of the producer Member States (in particular, in Spain: 5.4%, Luxemburg: 7,5%, Austria: 6.1%, Italy: 9.8%, France: 14.3%, Portugal: 16.8%). However, it is at the regional and local levels that the wine-growing sector appears to have a decisive role in agricultural activity and the economy. In many regions wine production exceeds 20%, or even 30% of final agricultural final output. In one region, Languedoc Roussillon it amounts to more than 50% of final agricultural output. These percentages are often exceeded at the local level.
European wine-growing varies from one Member State to another, and even from one region to another, not only as regards the degree of specialisation of the wine holdings, but also as regards the size of the vineyard and the type of wine produced. Similarly, the specific oenological practices used in each production region and the close link to the soil contribute to accentuating the regional characteristics of the vines and wine production in Europe.
Vineyards are not only an essential component of the landscape in wine-growing regions, but they also contribute to their conservation, as they prevent soil erosion and ensure the presence of man in areas amongst the most fragile from an environmental point of view and which are often without any real economic alternatives. Wine production can, however, also have harmful effects, in particular as a result of unsuitable machinery, the intensive use of plant health products, the excessive use of fertiliser, etc.
Since 1975/76, following the introduction of a ban on new plantings and abandonment premia, European wine producing areas have gradually decreased. This reduction has accelerated annually since the 90's. From 1976 to 1996, the areas under vines in the EU decreased from 4.5 to 3.4 million ha, which represents an annual decrease rate of 1.4%, i.e. almost 56 000 ha/year. In last few years however, the rate of reduction has clearly slowed down. In addition, the vineyards within the Community have, in general, aged, as they have not been replanted at a sufficient rate, although there are exceptions in certain regions.
With production fluctuating between 152 and 165 million hl during the last five years, the EU is, by far, the world's leading wine producer. Wine production is characterised by very marked annual fluctuations, due, on the one hand, to climatic effects and, on the other hand, to cultivation methods. In spite of yearly fluctuations, a significant negative trend in wine production over the last twenty years has been observed: from a level of 210 million hl in first half of the 1980s , average production has fallen to 155 million hl in recent years.
This downward trend in production is primarily due to the reduction in areas under vines, yields not having recorded significant trends over the years 1977-1997. However, yields have also fluctuated fairly significantly from year to year.
Wine consumption in the EU-15 in 1996 was almost 128 million hectolitres, i.e. an average of slightly more than 34 litres per capita per annum. However, the Community average masks important disparities between Member States: in particular, in wine producing countries of southern Europe, the consumption is more or less double the Community average. Wine consumption has fallen significantly during the last twenty years, notably in the producer Member States where levels of consumption per capita had been the highest. From 1986 to 1996, total wine consumption in the EU 15 decreased by 10 million hl. This fall reflects a significant downward trend connected in particular to changes in life style, in consumer behaviour, the role that wine plays in food, etc.
As for all alcoholic drinks, tax policy in the wine sector shows a great variability from one member State to another. This is despite the adoption of several directives aimed at harmonising tax legislation, in the process of completing the internal market. For instance, according to member State, excise duties on wine vary, between 0 and 320 ECU/hl for still wine (and up to 550 for sparkling wine). Furthermore, VAT rates on wine range from 5% to 25%.
In 1995 and 1996, the EU exported, on average, slightly more than 10 million hl, generating 2.4 billion ECUS'. The provisional figures for 1997 indicate a net increase in exports, both in volume and in value. This confirms the EU as the world's leading exporter of wine. The principal destinations are the United States, Switzerland, Canada and Japan. Most of these quantities (representing more than 75 % for the 1996/97 marketing year) are exported without refunds.
The EU also is the world's premier wine importer, importing on average 5.3 million hl during the period 1995-1997. The principal countries of origin are Australia, Chile, the United States, Hungary, Bulgaria, South Africa and the former Yugoslavia. In addition, imports from Argentina leaped to record levels in 1995 and 1996 in conjunction with a fall of production in Spain and the suppression of the reference price in the European Union after the Uruguay round agreement.
The wine supply balance sheet for the EU-15, excluding stocks, highlights a situation, which has radically changed since 1994/95, in comparison to the previous period. Until 1993/94 the Community wine market was characterised by a permanent surplus. The balance sheet for 1994/95 and 1995/96, however, highlighted a deficit, after the deduction of the quantities used for the potable alcohol sector (primarily for brandy and liqueur wines). In fact, provision of the Community potable alcohol market was primarily met by alcohol stocks accumulated since the eighties, in addition to increased imports.
The common market organisation for wine (CMO) is among the most complex and broadest within common agricultural policy. This is due to the fact that this CMO covers not only the traditional measures within CMOs (prices, intervention, trade, etc.) but also other more technical matters, specific to the wine sector (ie. provisions concerning production, trade and the release to the market of the wine products and oenological practices).
Community legislation classifies wine in two main categories: «quality wines produced in specific regions», also called «quality wines psr» and «table wines». However, the responsibility to classify and control the quality wines psr was left over to Member States. This has given rise to different classification of wines according to the Member State: Germany, Luxembourg, and, partly, the United Kingdom and Austria indicated that almost all of the wines produced were classified as «quality wines», while the other Member States followed a much more restrictive approach. This classification does not necessarily reflect the real quality of the wines. Certain table wines, for example, the table wines identified by a geographical indication (vins de pays, indicazione geografica tipica, Landwein etc.), can compete in price and in quality with the top-of-the-range quality wines, whereas certain quality wines psr can encounter difficulties, fetching lower prices on the market. The majority of market measures within the CMO for wine are restricted to table wines. Quality wines psr do not benefit from price regimes, from direct intervention measures or from export refunds. On the other hand, quality wines benefit from the protection of their appellations (at least within the EU).
Distillation is the instrument used for intervention on the market within the CMO for wine. The objective is to withdraw from the market production surpluses at a guaranteed minimum price; the wine is then transformed into alcohol which is intended, partly, for the potable alcohol market and the remainder, for the fuel market. Community legislation provides for six different forms of distillation, including three obligatory on producers and three voluntary. The purchase price of the wine for distillation varies from one type of distillation to the other. In addition, certain types of distillation have become redundant in recent years. It is the case, in particular, of the obligatory distillation of table wine, which is implemented when the market is a in serious disequilibrium; it is also the case of the distillation applying to wines which have previously been stored for a long time. Preventive distillation, on the other hand, is voluntary and its objective is to withdraw, forecasted wine surplus at the beginning of the marketing year, in order to have a positive impact on prices. The buying-in price of preventive distillation is higher than that of obligatory distillation. Another type of distillation is the distillation of wine by-products, the objective of which is to ensure the quality of wines by avoiding overpressing of the marcs and dregs (wine by-products have to be delivered to distillation with a minimum alcohol content).
The overall assessment of the application of the various forms of distillation is far from being satisfactory. The system was seen to be fairly effective as far as the objective of price support is concerned. However, as is often the case for price support measures, it prevented production from adapting to this fall in demand and therefore contributed to creating a surplus. This is particularly the case for preventive and obligatory distillation of table wines. In the case of preventive distillation its effectiveness as an instrument of market support has been substantially reduced over time. Obligatory distillation has proved to be even less effective in rebalancing the wine market and has even caused certain adverse effects.
The two main measures within the common market organisation to control wine production potential are:
a) a ban on new plantings and limiting the interval of the right to replant (8 years);
b) a permanent vineyard abandonment premium system.
The limitation on new plantings has been contentious, both legally and from an economic point of view. In particular, certain producers favour greater liberalisation of plantings, given that producers in third countries are not subject to these restrictions. In addition, numerous irregularities in applying these planting limitations have been discovered and controlling them has proved to be a problem.
Grubbing-up measures have resulted in the removal of approximately 490 000 hectares of vineyards since 1988/89. This has had a significant impact on the reduction of Community production potential. Since 1996 however, the impact of this measure has been considerably reduced, following the Council decision to enable Member States to exclude a part or all of their territory from the regime.
The Uruguay Round Agreement, which entered into force on 1 July 1995, radically changed the trading system with third countries in the wine sector. Before this date, protection for Community produced wine was ensured by the obligation to respect a minimum price on imports («reference prices»), and by the enforcement of customs duties, or, if necessary, of compensatory taxes. Since the entry into force of the GATT agreement, the reference price has been suppressed, as a protection system at the border, and customs duties have be reduced by 20% over five years. This means that the Community wine market cannot be regarded as more or less isolated from the rest of the world, and that it became, on the contrary, exposed to imports at low prices from the third countries, especially when prices on the Community market are high, as this was the case in 1995/96. A further significant consequence of the entry into force of this Agreement is that, in an open market, which is now the case for the European Union wine market, it is more difficult to improve market conditions and to support prices by a withdrawal mechanism of the surpluses quantities. Indeed, additional quantities are attracted from outside and the prices on this market cannot increase far beyond the price of the imported products.
Enrichment is an oenological process to increase the natural alcohol content in wine. The products which can be used are either non vine-based (sucrose) or vine-based (grape musts). In the case of sucrose, the process is also called «Chaptalisation». Enrichment by sucrose is a technique applied traditionally in a large number of wine-growing regions in the center and north of the Community. The degree of alcohol derived from sucrose costs approximately one third of the cost of the degree of grape-based alcohol. To prevent producers in the South being penalised by this practice, an aid for the use of concentrated grape musts and of rectified concentrated grape musts was introduced in 1982. The availability of sucrose for enrichment at a cost lower than grape musts led, in addition to a direct cost to the EAGGF, to an artificial extension of enrichment (including in regions which had not previously enriched). Furthermore, due to a reduction in the natural alcoholic strength at which it was necessary to obtain wine in these regions, there was a consequent increase in yield and, thereby in production throughout the Community.
Budgetary expenditure on the CMO for wine relates only to table wine; quality wines psr do not benefit directly from intervention measures on the market, nor from export refunds. Expenditure varies appreciably from one year to the next, depending on variations in production and represents, between 2.5 and 5.5% of the total of EAGGF Guarantee Section expenditure. For 1998, budget estimate for total wine sector expenditure is 826 MECU, compared to 970 M ECU in 1997. The various forms of distillation (approximately 264 MECU in 1998) represent the principal area of expenditure, disposal of alcohol 159 MECU and aid for musts 148 MECU. Grubbing-up measures are estimated to cost only 65 MECU in 1998, while costs exceeded 400 MECU in 1993. In addition, it should be noted that the wine sector benefits, similar to other production sectors, from the agri environmental measures, adopted under the accompanying measures of the CAP reform of 1992, as well as from the structural measures allocated for the Objective 1, 5a and 5b, which existed before the 1992 reform.
The medium-term situation and prospects for the wine sector in the European Union are markedly different from those which prevailed until the beginning of the1990s. Indeed, until this period the wine sector was characterised by significant, persistent production surpluses, which were predicted to continue. Since the beginning of the1990s, and on an average multiannual basis, market imbalances have returned to within more sustainable limits; this situation is predicted to continue in the medium term. Based on the assumption that wine production potential will continue to decrease by approximately 5,000 Ha annually (against the 56 000 Ha annually until 1996) and that yields do not increase significantly, as is the case during the last ten years, it is estimated that by the year 2002/03 wine production will stabilise at around 158 million hl in an average year. In addition, internal uses are envisaged at around 148 million hl (including the quantities intended for distillation for the potable alcohol sector), i.e. a fall of approximately 13 million hl in relation to 1996/97, in particular due to the continued reduction in direct human consumption (from 34.3 litres/head in 1996/97 to 30.8 litres/head in 2002/03). Taking account of exports, the average annual supply balance for wine until 2002/03, excluding stock changes, should show a surplus of 5.3 million hl. This could increase to almost 17 million hl if weather conditions are particularly favourable for wine cultivation. On the other hand, there could be a deficit on the Community market of over 6 million hl in the event of a low Community harvest.
In the context of a market characterised by low production surpluses, or in which production could be lower than internal demand, measures to reduce vineyards are expected to be less important in the future, as is generally the case today. On the other hand, in view of the precariousness of this market balance and the inherent possibility of surpluses on a pluriannual basis, a complete relaxation of the ban on new plantings could be questioned. Nevertheless, it might be considered desirable to introduce greater flexibility in the system of planting rights, especially for the production of wines which can find a remunerative outlet on the market.
In the past, Community intervention in the wine sector focussed primarily on reducing production potential (by grubbing up measures and limits on new plantings) and on market measures (distillation). In the context of the situation which will characterise the wine sector in the future, the emphasis should be on improving the competitiveness of Community products, both on the internal and international markets. This implies not only to permit efforts of qualitative adjustment of supply and demand, acceleration of the rate of renewal of the vineyards and rationalisation of production structures, but also for modernisation at all levels of the wine production chain from bottling to sales and marketing, passing through renovated caves, producers organisations and promotion, especially in certain external developing markets.
Finally, wine production plays an essential role in the socio-economic development of the regions involved , which often do not have other viable economic alternatives. Therefore, whilst there will be an inevitable relocation of some production towards areas where wine-growing is more profitable, the pure and simple abandonment of wine-growing in these dependent regions should be avoided. The maintenance of wine production in many traditional regions is, in addition, essential, not only to safeguard the landscape, but also to limit soil erosion in these regions. However, given that wine growing can also cause harmful effects, in particular through the intensive use of plant health products and of fertilisers, it is important to integrate vineyards into the agri-environmental programmes aimed at encouraging the introduction or maintenance of production methods compatible with environmental protection requirements and the maintenance of the countryside.
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