Required Report - public distribution

**Date:** 1/14/2005

**GAIN Report Number:** FR4074

FR4074

**France**

**Wine**

**ANNUAL**

**2004**

**Approved by:**

![](media/image1.wmf)Besa L. Kotati

U.S. Embassy

**Prepared by:**

Roselyne Gauthier

**Report Highlights:**

Frustrated by overproduction, shrinking exports, advertising
restrictions, an aggressive anti-alcohol abuse campaign, and changing
domestic drinking habits, French wine markers are pleading for
government assistance. The wine crop is forecast to increase by 23
percent to 58.5 million hectoliters in 2004. French vintners say
overproduction worldwide has glutted a market where French wines already
face fiercest competition from \"new world\" producers. In 2003,
domestic wine consumption continued to decline except for quality wines.
French wine exports dropped 3.4 percent in volume and France continues
to loose market share in its major markets to the advantage of new world
wines. During Jan-June 2004, exports to the United States, Denmark and
the U.K. decreased while exports increased to Japan. Wine agreement
negotiations between the U.S. and the EU are ongoing; the derogation for
the U.S. on wine-making practices was extended till December 31, 2005.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Paris \[FR1\]

\[FR\]

Table of Contents

[**EXECUTIVE SUMMARY 3**](#executive-summary)

[DEFINITIONS AND PRODUCTION RULES: 4](#definitions-and-production-rules)

[SECTION I. SITUATION AND OUTLOOK 5](#section-i.-situation-and-outlook)

[SECTION II. STATISTICAL TABLES 7](#section-ii.-statistical-tables)

[1. Trade Matrices 7](#trade-matrices)

[2. PSD Table: 8](#psd-table)

[3. Price Table: 9](#price-table)

[4. Tariff Table: 10](#tariff-table)

[SECTION III. NARRATIVE ON SUPPLY, DEMAND, POLICY AND MARKETING
10](#section-iii.-narrative-on-supply-demand-policy-and-marketing)

[Production 10](#production)

[1. General Production 10](#general-production)

[2. Crop Area and Yields 11](#crop-area-and-yields)

[3. Production Policy and Government Support
11](#production-policy-and-government-support)

[Consumption 12](#consumption)

[Trade 13](#trade)

[1. Exports 13](#exports)

[2. Imports 14](#imports)

[3. Domestic Support and Impact on Trade
14](#domestic-support-and-impact-on-trade)

[4. European Community Market Organization (COM) and French Aid for
Vineyard Improvements
14](#european-community-market-organization-com-and-french-aid-for-vineyard-improvements)

[MARKETING 15](#marketing)

[1. Infrastructure and Distribution
15](#infrastructure-and-distribution)

[2. Policy: Safety Laws, Labeling and Restrictions affecting U.S. Wine
Exports
15](#policy-safety-laws-labeling-and-restrictions-affecting-u.s.-wine-exports)

[3. France Market Development Activities
17](#france-market-development-activities)

[4. Competitor Programs/Activities 18](#competitor-programsactivities)

[5. U.S. Market Opportunities 18](#u.s.-market-opportunities)

**Note: Official Exchange Rates used in this report:**

Average exchange rates:

Calendar Year 2002: USD 1.00 = 1.057 Euros

Calendar Year 2003: USD 1.00 = 0.884 Euros

Average Jan-Nov. 2004: USD 1.00 = 0.8073 Euros

(Source: Paris Stock Exchange/European Central Bank)

# EXECUTIVE SUMMARY

France is the world's number one wine producer with 47.5 million
hectoliters (MHL) in 2003 and a 2004 vintage currently estimated at 58.5
million hectoliters (MHL), an increase of 23 percent over the 2003 crop
but down 14 percent compared to the average for 1999-2003. After a dry
and cold winter and vine burgeoning late March, blooming started in May,
warm temperatures during the Summer along with significant rains brought
an early vintage with, however, a reduced expected crop.

One third of French wine production is exported mainly to the European
Union (the United Kingdom, Germany, Belgium and the Netherlands).
Outside the EU, France\'s major clients are the United States, Canada,
Switzerland, and Japan.

The long-term trend toward declining domestic wine consumption continued
last year. Based on a recent study conducted by a French
consumer-polling panel, this trend will continue in the coming years.
Total bottled wine sales in hyper/supermarkets in 2003 dropped 1.4
percent, compared to 2002 to 9.7 MHL. The consumer poll also reported
that volumes purchased by the food service sector (traditional
restaurants, cafeterias and company restaurants) decreased 4 percent in
volume in 2003, although average prices were stagnant. VQPRD wines make
the lion's share of the food service sector purchases.

French wine exports in CY 2003 dropped 3.4 percent, compared to CY 2002,
to about 15.2 MHL or 5.9 billion Euros (\$6.7 billion) in value.
However, France continues to loose market share among its major clients
to the advantage of \"new world wines\". For the period January-June
2004, French wine exports decreased 4.6 percent in volume and 5.2
percent in value to 2.5 billion Euros (\$2.8 billion). During this
period, volume exported to the United States decreased 1.9 percent, 22.3
percent to Denmark and 9.5 percent to the United Kingdom, while volumes
exported to Japan increased 23.7 percent. The United Kingdom, the United
States and Germany alone purchased 234,000 hectoliters less in 2003
representing a loss of 157 million dollars in total French wine exports.

Total Wine imports in CY 2003 increased 6.7 percent in volume to reach
4.9 MHL worth at 478 million Euros (\$541 million). Although the United
States represents only 2 percent of total French wine imports, French
imports of U.S. wines have been growing steadily from 15,000 HL in 1994
to 100,000 HL in 2003. In 2003, French imports from the United States
increased 4.2 percent in volume and decreased 18 percent in value to
reach 14 million Euros (\$16 million).

Growth in trade and the EU\'s expansion to Central and Eastern European
countries intensify competition for exporters to the EU and among
European producers themselves. The Government of France (GOF) urged
European growers to adapt to changing consumer demand in order to better
compete with emerging third-country competitors and in new markets. This
resulted in the creation of the European Community Market Organization
(COM) to coordinate EU wine practices and production. The COM, since its
creation in 1971, has redefined itself to adapt to changes in the world
wine market.

French winemakers pressured by overproduction, shrinking exports,
advertising restrictions, an aggressive anti-alcohol abuse campaign and
changing drinking habits, are pleading for government help at all levels
of the industry.

The budget for financing international promotional campaigns for wines
in 2003 amounted to 10.3 million Euros (\$11.6 million).

On December 17, 2003, the EU Agriculture Council approved a two-year
extension of the U.S. derogation for winemaking practices, until
December 31, 2005 at the latest or until the entry into force of a
bilateral agreement. Two additional derogations on labeling and
documentation were also extended until December 31, 2005. In May 2002,
the European Commission adopted new rules for the labeling of wine.
These rules lay down what information must be shown on wine labels and
regulates the use of certain optional terms such as productions methods,
traditional expressions, names of the vineyard and vintage year. These
rules originally scheduled to enter into force on January 1, 2003, were
postponed until February 1, 2004, and recently amended by Commission
Regulation 1991/2004 to incorporate the provisions on allergen labeling
to enter into force on November 25, 2005.

# DEFINITIONS AND PRODUCTION RULES:

***Wine Definitions:***

1\. Appellation of Origin (AOC) wines: Certifies the wine's regional
origin, manufacturing process, character, and alcoholic content. AOC
wines must undergo taste tests by the French Institute of Appellations
of Origin (INAO). Nearly 45 percent of French wines and spirits are
designated AOC.

2\. Superior Quality Wines (VDQS): Although less restrictive in taste
tests than AOC wines, this also certifies origin, yields, etc. VDQS
wines are also subject to taste tests as well.

3\. VQPRD Wines (Quality Wines Produced in Determined Regions or Areas):
This is a European classification that combines French AOC wines and
VDQS wines.

4\. Table Wines: Wines other than AOC and VDQS. These wines include
country wines (*vins de pays*), which are regionally produced and are
often of higher quality than ordinary table wines. They follow certain
rules including analytical tasting, various specified controls, and no
mixing of wines from different regions.

***Wine Plantations and Production Rules:***

Each of the above wine categories is subject to both, European Union and
French strict planting and production rules.

1\. Planting Rules:

-   Control of vine planting (uprooting, new planting),

-   Ban of new planting, except in case of vineyard restructuring,
    experimentation or family consumption,

-   Possibility of replanting under special conditions to replace old
    vines,

-   Control of vine planting according to wine produced,

-   Control of cultivation practices and treatments of vineyards.

2\. Production Rules:

-   Obligation to declare wine production to the French Customs,

-   Follow specific production criteria,

-   Follow an official procedure of agreement to guarantee wine origin,
    production and organoleptic controls,

-   Tracability control.

*Note: Starting Marketing Year (MY) 2000/2001, the period is
August/July. Thus, MY 2001/2002 is the period August 1, 2001 to July 31,
2002, MY 2002/2003 is the period August 1, 2002 to July 31, 2003, etc.*

# SECTION I. SITUATION AND OUTLOOK 

The 2003 wine crop (MY 2003/2004) amounted to 47.5 million hectoliters
(MHL), 8.4 percent less than the 2002 level (MY 2002/2003). Of the 2003
total production, 21.8 MHL were VQPRD wines, 17.8 MHL table wines, and
7.9 MHL wines for cognac production.

After a cold and dry winter, the bourgeoning appeared at the end of
March, and a mid-April frost touched certain vineyards, particularly in
the Champagne and Beaujolais areas. Blooming started at the end of May
and developed quite rapidly and homogenously thanks to extremely
favorable and even warm temperatures at the beginning of June. Overall
conditions, extreme heat, little significant rains and the exceptional
earliness of the harvest, promised a good vintage, but the size of the
crop decreased with the passing months. Extremely warm temperatures at
the beginning of August resulted in early crops. However, if the dryness
had an immediate impact on the general crop volume, its effect on wine
quality varied from a region to another (type of soil, humidity degree,
etc.).

During MY 2003/2004, total ending stocks reached 33.5 MHL, an increase
of 6 percent, compared to the previous MY. The latest statistics
indicated that as of July 31, 2004, ending stocks were 32.4 MHL, a
decrease of 1.1 MHL, compared to the previous year. VQPRD wines ending
stocks decreased 3.8 percent to reach 25.5 MHL.

During CY 2003, total French wine and spirits exports increased by 0.5
percent in value to 8.0 billion Euros (\$9 billion) compared to CY 2002.
Wine exports increased by 1.7 percent in value, from the 2002 level, to
reach 5.8 billion Euros (\$6.6 billion), with an exported volume of 15.2
million hectoliters. However, even if French exports remain at a high
level, France continues to loose market share among its major clients to
the advantage of new world wines. France\'s traditional export markets
remain the United Kingdom, the United States, and Germany in value and
the United Kingdom, Germany, Belgium, the Netherlands and the United
States in volume. One third of the French wine production is exported to
the European Union (approximately 70 percent of wine exports in volume
and 57 percent in value). The United States represents 6.5 percent of
that export volume.

Total French wine imports during calendar year 2003 increased 6.7
percent in volume to reach 4.9 million hectoliters, valued at 478
million Euros (\$541 million). Table wines represented 83 percent of
total French wine imports in volume, mostly from EU countries. Italy and
Spain remain France\'s leading suppliers. In 2003, imports of U.S. wine
into France increased by 4.2 percent in volume and decreased 18 percent
in value compared to the previous year. Although the total U.S. market
share is only 2 percent in volume, for a value of 14 million Euros (\$16
million), it is interesting to note that French imports of U.S. wines
have been growing steadily from 15,000 HL in 1994 to 100,000 HL in 2003.

French wine consumption in France has been decreasing since 1999. A
study conducted by the French Agricultural Research Center (INRA) and
the French Office for Wines and Vines (ONIVINS) on French wine
consumption indicated that this trend should continue and result in a 25
percent decline in wine consumption by 2010 compared to 1999.

MY 2003/2004 was the third marketing year where the new Common
Organization of the Wine Market (COM) (as defined by the European
Commission regulation 1493/1999) was applied with various technical
adjustments made in the production and market conditions. This marketing
year, the European Union crop low level permitted a decline in the
regulatory distillation process and no crisis distillation was
necessary. However, several subjects were raised during this campaign
such as the labeling in regard to designation, denomination,
presentation and protection of wines, and the possibility of a COM
reform to include priorities raised by a 25 Member States Europe.

In Calendar Year 2003, France (ONIVINS and SOPEXA) had a total budget of
10.3 million Euros (\$11.6 million) for export promotions of French
wines in different countries, including the United States. Domestic
advertising focuses on regional wines, while international advertising
promotes VQPRD wines.

The French Ministry of Agriculture forecasts the 2004 wine crop to be
58.5 MHL, up 23 percent from the 2003 wine crop; a good crop in quantity
and quality for most of the French wine regions and one of the most
abundant in the five last years. However, this is not good news for the
French wine industry that now fears overproduction pushing prices down.
In addition, the French Health Ministry is stepping up enforcement of
labeling requirements warning pregnant women and other consumers about
health side effects of too much consumption. French customs officials
indicated that during the period January-June 2004, total French wine
exports decreased 4.6 percent in volume and 5.2 percent in value,
compared to the same period in 2003. For Jan-June 2004, total French
wine exports amounted to 2.5 billion Euros (\$2.8 billion).

Champagne and sparkling wines are still in demand, while VQPRD and table
wine exports have significantly decreased during the first six months of
2004, compared to the same period in 2003. The French industry is having
a hard time changing marketing practices to face "new world"
competition. It is considered urgent to "rehabilitate" the international
credibility of French wines whose image of quality image is loosing
ground.

During the first six months of 2004, France's major clients remained the
United Kingdom, Germany, Belgium, the Netherlands and the United States,
representing 68 percent of total export volume.

# SECTION II. STATISTICAL TABLES 

## 1. Trade Matrices 

  -------------------- --------- -------------- ----------- ----------------- ---------- -------------- --
  **Export Trade                                                                                        
  Matrix**                                                                                              

  **Country**                    France                                                                 

  **Commodity**                  Wine                                                                   

  Time Period                    Jan-Dec                    Units:            1,000 HL                  

  Exports for:                   2002                                         **2003**                  

  U.S.                           1116                       U.S.              981                       

  Others                                                    Others                                      

  United King.                   3242                       United King.      3293                      

  Germany                        2947                       Germany           2862                      

  Belgium/Lux                    1772                       Belgium/Lux       1723                      

  Netherlands                    1559                       Netherlands       1525                      

  Japan                          636                        Canada            606                       

  Denmark                        621                        Switzerland       597                       

  Switzerland                    603                        Japan             590                       

  Canada                         596                        Denmark           563                       

                                                            Russia            458                       

                                                                                                        

  Total for Others               11976                                        12217                     

  Others not Listed              2384                                         1974                      

  Grand Total                    15476                                        15172                     

                                                                                                        

  **Import Trade                                                                                        
  Matrix**                                                                                              

  **Country**          France                                                                           

  **Commodity**        Wine                                                                             

  Time Period          Jan-Dec                  Units:                                   1,000 HL       

  Imports for:         2002                                                              **2003**       

  U.S.                 96                       U.S.                                     100            

  Others                                        Others                                                  

  Italy                1800                     Spain                                    2120           

  Spain                1411                     Italy                                    980            

  Portugal             565                      Portugal                                 897            

  Chile                154                      Chile                                    165            

  Germany              98                       Germany                                  99             

  Australia            72                       Morocco                                  94             

  South Africa         69                       Australia                                82             

  Morocco              69                       South                                    75             
                                                Africa                                                  

  United King.         46                       United                                   49             
                                                King.                                                   

  Tunisia              32                       Argentina                                34             

  Total for Others     4316                                                              4595           

  Others not Listed    169                                                               197            

  Grand Total          4581                                                              4892           

                                                                                                        
  -------------------- --------- -------------- ----------- ----------------- ---------- -------------- --

## 2. PSD Table:

  -------------------- ------------ ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                                 

  **Country**          **France**                                               

  **Commodity**        **Wine**                                      (1000      
                                                                     MT)(1000   
                                                                     HL)        

                       2002         Revised    2003       Estimate   2004       Forecast

                       USDA         Post       USDA       Post       USDA       Post
                       Official     Estimate   Official   Estimate   Official   Estimate
                       \[Old\]      \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                     08/2002               08/2003               08/2004
  Begin**                                                                       

  TOTAL Grape Crush    6756         6756       6756       6240       6240       7605

  Begin Stock (Ctrl    26219        26219      26219      26545      26545      25542
  App)                                                                          

  Begin Stock (Other)  8520         3589       3589       2751       2751       6818

  TOTAL Beginning      75545        34739      83367      42249      90877      46598
  Stocks                                                                        

  Prod. from Wine      51966        51966      51966      47519      47519      58500
  Grapes                                                                        

  Prod. from Tabl      0            0          0          0          0          
  Grapes                                                                        

  TOTAL PRODUCTION     51966        51966      51966      47519      47519      58500

  Intra-EU Imports     3872         3872       3872       4171       4171       4173

  Other Imports        628          709        709        721        721        723

  TOTAL Imports        4500         4581       4581       4892       4892       4896

  TOTAL SUPPLY         132011       91286      139914     94660      143288     109994

  Intra-EU Exports     10922        10922      10922      10961      10961      10303

  Other Exports        4161         4554       4554       4211       4211       3958

  TOTAL Exports        15083        15476      15476      15172      15172      14261

  Dom.Consump(Cntrl    16144        16144      16144      15821      15821      15505
  App)                                                                          

  Dom.Consump(Other)   17417        17417      17417      17069      17069      16728

  TOTAL                33561        33561      33561      32890      32890      32233
  Dom.Consumption                                                               

  End Stocks (Cntrl    48544        30897      51270      32661      32661      47500
  App)                                                                          

  End Stocks (Other)   34823        11352      39607      13937      13937      16000

  TOTAL Ending Stocks  83367        42249      90877      46598      46598      63500

  TOTAL DISTRIBUTION   132011       91286      139914     94660      94660      109994

                                                                                
  -------------------- ------------ ---------- ---------- ---------- ---------- ----------

## 3. Price Table:

**Wine Price Evolution and Retail Sale Prices**

**From 1999 to 2003**

> Wholesale Prices Index Retail Price
>
> in USD/liter

+---------+---------+---------+---------+---------+---------+---------+
| Years   | Table   | VQPRD   | Sp      | Total   | Al      | Al      |
|         | Wines   | Wines   | arkling |         | coholic | coholic |
|         |         |         | Wines   |         | content | Content |
|         |         |         |         |         | of 11%  | of 12%  |
|         |         |         |         |         | by      | by      |
|         |         |         |         |         | volume  | volume  |
+---------+---------+---------+---------+---------+---------+---------+
| 1999    | 105.9   | 109.6   | 98.8    | 114.5   | 1.30    | N/A     |
|         |         |         |         |         |         |         |
| 2000    | 104.2   | 100.8   | 110.4   | 102.2   | 1.13    | N/A     |
|         |         |         |         |         |         |         |
| 2001    | 105.6   | 102.3   | 112.0   | 103.9   | 1.25    | N/A     |
|         |         |         |         |         |         |         |
| 2002    | 93.4    | 100.6   | 101.3   | 103.9   | 1.25    | N/A     |
|         |         |         |         |         |         |         |
| 2003    | 107.5   | 100.6   | N/A     | 125.8   | 1.27    | N/A     |
+---------+---------+---------+---------+---------+---------+---------+

Note: All above indices are current

N/A = Not Available

Source: French Institute for Statistics (INSEE)

## 4. Tariff Table: 

Taxes on Wines Imported into France from Outside the EU

+-------------+-------------+-------------+-------------+-------------+
| HTS Codes   | Types of    | EU Customs  | French      | French      |
| (\*)        | Wines       | Duties      | Tra         | Value Added |
|             |             | (EURO/HL)   | nsportation | Tax (TVA)   |
|             |             |             | Tax         |             |
|             |             |             | (EURO/HL)   |             |
+-------------+-------------+-------------+-------------+-------------+
| 22 04 10    | Sparkling   | 32.00       | 8.40        | 19.6%       |
|             | wines       |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| 22 04 21    | Volume of   | 13.10       | 3.40        | 19.6%       |
|             | still wines |             |             |             |
|             | with        | 9.90        | 3.40        | 19.6%       |
|             | alcoholic   |             |             |             |
|             | content not |             |             |             |
|             | exceeding   |             |             |             |
|             | 13%: - in   |             |             |             |
|             | containers  |             |             |             |
|             | holding 2   |             |             |             |
|             | liters or   |             |             |             |
|             | less - In   |             |             |             |
|             | containers  |             |             |             |
|             | holding     |             |             |             |
|             | more than 2 |             |             |             |
|             | liters      |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| 22 04 29    | Volume of   | 15.40       | 3.40        | 19.6%       |
|             | still wines |             |             |             |
|             | with        | 12.10       | 3.40        | 19.6%       |
|             | alcoholic   |             |             |             |
|             | content     |             |             |             |
|             | above 13%   |             |             |             |
|             | but not     |             |             |             |
|             | exceeding   |             |             |             |
|             | 15%: - In   |             |             |             |
|             | containers  |             |             |             |
|             | holding 2   |             |             |             |
|             | liters or   |             |             |             |
|             | less - In   |             |             |             |
|             | containers  |             |             |             |
|             | holding     |             |             |             |
|             | more than 2 |             |             |             |
|             | liters      |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

Footnotes: (\*) Harmonized Tariff Schedule

HL = Hectoliters

EU customs duties are calculated as a percentage of the ad valorem value
of the product. The current duty rates are 32 Euros per hectoliters for
sparkling wines, and between 9.90-13.10 Euros per hectoliters for still
wines under 13 percent alcohol content, and 12.10-15.40 Euros per
hectoliters for still wines over 13 percent alcohol content, depending
on how the product is bottled.

# SECTION III. NARRATIVE ON SUPPLY, DEMAND, POLICY AND MARKETING 

## Production

### 1. General Production

Based on most recent data published by the French Ministry of
Agriculture's census (CY 2000), France has 144,000 wine growers
cultivating a total area of 887,200 hectares of vineyards for wine
production. About 63 percent of French vineyards are devoted to VQPRD
wines. France represents 26 percent of the European Union's vineyard
area and 12 percent of the world's vineyard area. In the European Union,
Spain has the largest area under vines, followed by France and Italy.

In 2003, France was the largest European producer immediately followed
by Spain and Italy. France's share of total world wine production is
about 19 percent while the United States represents about 8 percent of
the total world production.

The three largest French wine producing regions\--Languedoc-Roussillon,
Aquitaine, and Provence/Alpes/Cote d'Azur (PACA) -accounted for 62
percent of total French wine production in 2003. French vineyards made
up 17 percent of all harvested agricultural areas, compared to 15.8
percent in Spain and 11.9 percent in Italy.

The 2003 wine crop (MY 2003/2004) amounted to 47.5 MHL, a volume
decrease of

8.4 percent compared to 2002. It is said to lack of flavor, have low
acidity due to the dryness and its early harvest with quality varying
from a region to another depending on the type of soil, humidity degree,
etc.

The GOF used to provide financial assistance to the growers of ordinary
table wine in an effort to improve the quality of their vineyards. As of
MY 2001/2002, this function was taken over by the new European Community
Market Organization (COM). The EU Regulation on wine production was
modified in 2002 by the Commission and implemented by the French
Government (GOF). The new French decrees involve:

-   Vine plantings (the goal being to control new vine plantings)

-   Production condition for table wines (the goal being to control
    production and maintain quality)

-   Assistance in the restructuring of vineyards including bonus for
    uprooting marginal vines.

-   Prevention distillation

> Note that MY 2003/2004 was the third marketing year where new COM was
> applied with various technical adjustments as to production and market
> conditions made. Prevention distillation decreased during that period
> and no crisis distillation was necessary.
>
> With the European Union extension and 25 Member States, a new wine COM
> reform will be necessary with the question for the new Commission to
> determine priorities.

### 2. Crop Area and Yields

In 2003, on a total planted area of 849,400 hectares, the French average
yield was 58 hl/ha, compared to 60.4 hl/ha in 2002, or a decrease of 3.9
percent.

### 3. Production Policy and Government Support 

\- EU Export Subsidies and World Trade Organization (WTO) Agreements on
Wines

Table wines and liquor wines without appellation, as well as
concentrated grape juice, can benefit from EU export subsidies. These
subsidies, however, are granted only for export to certain countries and
the wines involved are subject to specific analyses and agreements.
During CY 2003, the volume of French non-AOC wine exported with EU
export subsidies amounted to 203,941 HL, and the amount paid out by
ONIVINS was 1.59 million Euros (\$1.80 million).

The EU agreements under the WTO implemented on July 1, 1995 called for a
reduction in the volume of subsidized wine exported by 21 percent, and
in the value of wine subsidizes by 36 percent for a period of six years
which has been continued for an indefinite time depending upon future
negotiations. The current duty rates are 32 Euros per hectoliters for
sparkling wines, and between 9.90-13.10 Euros per hectoliters for still
wines fewer than 13 percent alcohol content, and 12.10-15.40 Euros per
hectoliters for still wines over 13 percent alcohol content, depending
on how the product is bottled.

## 

## \--Organic Wines and sustainable agriculture 

## 

## In 2003, ONIVINS renewed its financial support to the French Interprofessional Federation of Organic Wines (FNIVAB) so that this association can continue its development activities for organic wines. In addition, the French Food Labels and Certification Committee authorized use of the "AB" (agriculture biologique) logo on wine labels. The French wine industry has been participated in French's sustainable agriculture push since 1999. These efforts encourage environmental friendly cultivation but not as restrictive as organic cultivation. 

## 

## Consumption 

French Wine Consumption by Category

For Marketing Years 2001/02, 2002/03 and 2003/2004

(In 1,000 HL)

  ------------------------------- ------------ ------------- -------------
  Wine Category                   2001/02      2002/03       2003/04

  VQPRD Wines                     16,834       16,144        15,821

  Table Wines                     17,486       17,417        17,069

  TOTAL                           34,320       33,561        32,890
  ------------------------------- ------------ ------------- -------------

Source: DGI/DGDDI (General Customs Office, Excise Taxes)

Per Capita French Wine Consumption by Category

For Marketing Years 2001/02, 2002/03 and 2003/2004

(liters)

  ------------------------ ------------------- --------------- -----------
  Category of Wines        2001/02             2002/03         2003/04 (F)

  VQPRD Wines              28.3                27.1            26.6

  Table Wines              29.5                29.2            28.6

  TOTAL                    57.8                56.3            55.2
  ------------------------ ------------------- --------------- -----------

(F) Forecast

(G) Source: DGI/DGDDI (General Customs Office, Excise Taxes)

French per capita wine consumption has been decreasing from 103 liters
in 1980 to 56 liters in 2003. French consumers are moving from quantity
to quality. A study commissioned by ONIVINS and conducted by the French
Consumer Panel (SECODIP) indicates that among alcoholic beverages,
seniors prefer wine, while younger drinkers prefer more exotic drinks.

A recent study conducted by ONIVINS and the French Institute for
Agricultural Research (INRA) indicated that consumers under 35 years old
(23 percent of total French households) 88 percent bought at least once
a still wine and 48 percent bought at least once a sparkling wine in the
last year. This age group buys less than the seniors. Consumers from 35
to 49 years old (30 percent of French households) make 25 percent of
wine purchases. They purchase still white and sparkling wines (except
champagne) in larger quantities than any other age group. The 50-64
years old group is the leading buyer of wine in all categories with a
preference for red wines. The 65 years old and over consumer group
represents with the 50-64 years olds 47 percent of the total French
households and are the leading buyers of still wines consisting mostly
of table wines. The 50-64 years old and over consumers are also the
major consumers of champagne consuming 11 percent above the average
consumption level.

The study also forecasts that French wine consumption could decrease
between 5 to 25 percent by 2010.

## Trade

### 1. Exports 

In 2003, the total value of French wine exports increased by 1.7 percent
from 2002 to reach 5.9 billion Euros (\$6.7 billion). French wine
exports for 2003 reached 15.1 MHL, representing 32 percent of the total
French wine production, a decrease of 2.5 percent in export volume
compared to the previous year. The trade surplus in wine for calendar
year 2003 was 5.4 billion Euros (\$6.1 billion), an increase of 1.8
percent over the previous year. The increase in wine exports values is
due to Champagne exports (+5.7 percent) as well as Bordeaux AOC wines.

VQPRD wine exports in 2003 decreased in volume (-8.6 percent) and 0.5
percent in value, compared to 2002. Globally, 2003 French wine exports
decreased 3.4 percent in volume and increased 1.7 percent in value. This
export decrease affected Japan, the United States and Denmark, while
wine exports to Poland and Russia increased significantly.

French wine exports are very concentrated. In value, the three largest
French clients represent 50 percent of the total French exports in value
and 52 percent in volume. Due to one third of French wine production
being exported, economic health of destination markets are very
important to the well being of the French wine industry.

The EU's share of all French exports is 69 percent in volume and 54
percent in value, a decrease of three percent over the last five years.
Within the EU, France's major clients are the United Kingdom, Germany,
Belgium and the Netherlands. Major non-EU export markets for VQPRD wines
are led by the United States followed by Japan, Switzerland and Canada.

During the period January-June 2004, French exports of wines increased
to Japan (23.7 percent in volume and 25.9 percent in value), Italy (7.5
percent in volume and 8.2 percent in value), and Canada (3.4 percent in
volume and 0.1 percent in value), while exports to the United States
decreased 1.9 percent in volume. Within the EU, French wine exports also
decreased to Denmark, the United Kingdom, Germany, Belgium and the
Netherlands (respectively, 22.3 percent, 9.5 percent, 5.8 percent, 0.9
percent and 4 percent in volume). During this period, the value of wine
exports to the United States decreased 15.7 percent, compared to the
first six months of 2003.

Globally, during the first quarter of 2004, French wine exports to
foreign countries decreased 5.2 percent in value and 4.6 percent in
volume; this decrease being more accentuated for VQPRD wines than for
table wines, Champagne and sparkling wines. This is not the first crisis
the French wine industry has gone through, but this time it is hitting
VQPRD wines, the heart of the French industry.

Over six years, French exports have dropped by 12 percent while wine
production by the New World producers increased by 83 percent. France's
wine industry, which employs half a million people, says the value of
its exports was down by 9.6 percent and 3.5 percent in volume at the end
of August 2004. In 2004, French wines became number three in the United
States, with a 14 percent market share, while Australia wines represent
26 percent of U.S. consumption. The French wine industry sees itself in
crisis and is seeking government assistance to restructure its marketing
strategies so that it can meet head on the challenge posed by the new
world wines.

As of December 12, 2003, French exporters of wine and spirits to the
United States should comply with the new U.S. law on the Bioterrorism
Act (BTA). The information on the requirements of the BTA was widely
spread among the French exporters by the former French Center for
Exterior Trade (CFCE) now UBI-France and the French Association of Wine
and Spirits Exporters (FEVS).

### 2. Imports

The value of French wine imports in 2003 amounted to 478 million Euros
(\$541 million). In 2003, total French wine imports increased by 6.7
percent in volume compared to the previous year. France's top EU
suppliers remain Spain, Italy and Portugal. Outside the EU, Chile
(165,000 HL imported), USA (100,000 HL), Morocco (94,000 HL) and
Australia (82,000 HL) are the top suppliers.

In 2003, French imports from the United States reached 100,000 HL, an
increase of 4 percent in volume over calendar year 2002. It is
interesting to note that the French imports of U.S. wines have increased
55 percent in volume over the period 1999-2003. This increase can be
attributed to the presence of Gallo Winery in this market since 1998.
Gallo is very active and winning space on store shelves in the retail
sector and restaurant menus in the food service sector.

## 

### 3. Domestic Support and Impact on Trade 

The GOF subsidizes the wine sector through the French Office for Wines
and Vines (ONIVINS). ONIVINS's total budget in CY 2003 was 67 million
Euros (\$76 million); from this amount 43 million Euros (\$49 million)
went to orientation and intervention expenses; 20 million Euros (\$23
million) to operational expenses, and 4 million Euros (\$4 million) to
working capital.

ONIVINS also administers EU subsidies allocated to the French wine
sector including export refunds and assistance earmarked for vineyard
reconstruction, distillations, and grape juice fortification. For MY
2004/2005, a total European budget of 450 million Euros (\$557 million)
was allocated for the reconstruction of a total of 61,688 Ha throughout
EU. From this amount France will receive 107 million Euros (\$132
million) for 13,541 HA. A total of 14 Member States including new comers
such as Czech Republic, Cyprus, Hungary, Malata, Slovenia and Slovakia
benefited from this support.

### 4. European Community Market Organization (COM) and French Aid for Vineyard Improvements 

The EU Wine Community Market Organization Reform (COM) was authorized by
the European Union Agricultural Ministers in March 1999 under "Agenda
2000\" and implemented by regulation no. 1493/1999 of May 17, 1999. The
current COM coordinates EU wine practices and production and carries out
reforms involving wine to help the EU wine industry adapt to new market
conditions. This project will simplify former legislation by:

\- Replacing current distillations (preventive, mandatory or support)
with a more flexible system that will address such \"crises\" as
overproduction. The preventive distillation will be replaced by a
certain distillation that will supply alcohol and products made from
wine (vinegars and aromatized wines).

\- Modifying the EU's system of planting and uprooting vines.

\- Having the EU reimburse wine growers for losses resulting from
reconstructions, uprooting or planting. However, purchases of new
equipment will be financed both by Brussels and the producer.

The EU Regulation that supports vine uprooting (originally Regulation
1442/88 CEE) has been maintained under certain conditions with no annual
quotas per Member State. As a consequence, each marketing year, France
determines areas and vines which can benefit from the uprooting support.

# MARKETING

## 1. Infrastructure and Distribution

Wholesalers and importers make up France's wine distribution system.
Wholesalers frequently sell to specialized wine stores, food stores,
restaurants and institutions. Importers sell to supermarkets. Mail order
sales are generally made directly by the producer. Supermarket wine
sales in France make up 78 percent of household wine purchases (17
percent for hard discounters), while 22 percent come from specialized
wine sales (wine stores, direct sales, etc.).

According to SECODIP, in 2003, total still wine sales in French
supermarkets, including foreign wine sales, were estimated to be 3.2
billion euros (\$3.6 billion), from which VQPRD wines were 2.4 billion
Euros (\$2.7 billion). Total wine consumption in 2003 reached 36 MHL, of
which restaurants, hotels and cafes accounted for 10.6 MHL, and homes
25.4 MHL. Of the 25.4 MHL of wine consumed in homes, 10 MHL were
purchased in supermarkets and the rest in specialized stores or directly
from wine growers.

As per SECODIP, wines purchased for the food service sector in 2003
decreased 4 percent in volume, with the bulk of purchases for red VQPRD
wines.

In 2003, total sales of foreign wines in super/hypermarkets increased 5
percent compared to 2002. Foreign wine market in France is a branded
market representing sales in supermarkets of over 54 million Euros (\$61
million). Foreign wines selling the best are from North Africa, Spain,
Italy and \"new world\" wines (Chile, Australia, South Africa and U.S.
\--California).

## 2. Policy: Safety Laws, Labeling and Restrictions affecting U.S. Wine Exports

**\-- The Impact on French Wine Consumption of the Evin Law, and other
Regulations Against Alcohol**

In 1992, the GOF instituted regulations that limited radio and TV
advertisements promoting alcohol. These regulations were called Loi Evin
(the name of the French Minister for Social Affairs at that time). These
regulations were followed by two additional decrees in 1993 which
regulate advertising at point of sale and for event sponsorship. These
regulations are still in force and the French wine industry continues to
lobby for modifications to the Evin law. In addition, ONIVINS has
conducted several studies to better understand the effects of moderate
wine consumption on health. These studies show that moderate consumption
has health benefits.

**\-- Import Rules**

The U.S. and the EU are in the process of negotiating a bilateral
agreement on wine. Exports of U.S. wine to the EU continue under
derogations permitting certain U.S. oenological practices, which would
otherwise be prohibited. The current derogation for U.S. wine making
practices and certification has just been extended until December 31,
2005. For more information, visit the following website:
[www.useu.be/agri/usda.html](http://www.useu.be/agri/usda.html).

Commission Regulation 883/2001 lays down detailed rules for implementing
Council Regulation 1493/1999 as regards trade with third countries in
wine, grape juice and grape. All U.S. wine imports must be accompanied
by the certificate and analysis report or VI1-form (Annex VII to
883/2001) that certifies its origin and compliance with EU standards.
Under the current regulation, the producers may issue the certification
themselves if they provide certain assurances. A list of U.S. agencies /
laboratories / wine producers authorized to draw up VI1-forms was
published in Official Journal C 322 of December 21, 2002 or can be
obtained from the Bureau of Alcohol, Tobacco and Firearms
(www.atf.treas.gov).

**\-- Labeling Regulations**

Labels on U.S. wines exported to France must include:

-   Net contents of the bottle, in milliliters, centiliters or liters.

-   Name and address of the French importer preferably printed on the
    main label. However, small stick-on labels can also be applied by
    the French importer.

-   The wine's alcohol content.

-   Indication of manufacturing lot.

-   Indication of country of origin.

EU labeling regulations allow the US government-authorized indication of
two vine varieties for table wines provided the wines are exclusively
from those vines. All varieties should be listed using the same print
and field of vision, the most important variety topping the list. The
label must indicate geographic origin.

**New Labeling Rules**

In May 2002, the European Commission adopted new rules for the labeling
of wine (Commission Regulation 753/2002). The rules lay down what
information must be shown on wine labels and regulates the use of
certain optional terms such as production methods, traditional
expressions, names of the vineyard and vintage year. The new regulation
introduces arrangements for the protection of certain traditional
expressions linked to an EU geographical origin, e.g., \"ruby\" for port
from Portugal. It also reserves certain bottle types for certain types
of wine. Title V of the new regulation outlines provisions applying to
third country wines. Third country wines may include geographical
indications on the label but only under certain conditions.

In August 2002, the U.S. Government commented on the EU\'s notification
of the new rules to the WTO (G/TBT/N/EEC/15). Comments related mainly to
the provisions on geographical indications and traditional terms, which
appear to be in conflict with several articles of the TRIPs Agreement
(Trade-Related Aspects of Intellectual Property Rights).

On February 23, 2004, the European Commission published a set of
amendments (Commission Regulation 316/2004) to respond to a number of
concerns raised by the U.S. and other non-EU wine producing countries.
In an effort to conform with its international commitments under the
TRIPs Agreement, the EU has adopted new conditions for the use of
traditional expressions on wine labels by third countries. Regulation
753/2002 established a system of two categories of traditional
expressions to designate quality wines. The first category contained
expressions that could be used by third countries under certain
conditions while the second category included expressions exclusively
reserved for EU wines. Regulation 316/2004 simplifies this system by
merging the two categories into one single category and third countries
will be allowed to use them under very strict conditions. Requests by
third countries to use traditional expressions will be considered by the
EU and the member states and the right of use will be granted if all the
conditions are fulfilled.

August 10, 2004, the European Commission published an updated list of
vine varieties and their synonyms that include a geographical indication
and that may appear on wine labels in accordance with article 19.2 of
regulation 753./2002.

In November 2003, the EU published Directive 2003/89/EC making the
indication of allergenic substances on food labels mandatory. The EU's
new allergen labeling rules also extend to alcoholic beverages. The
presence of sulphites in wine must be indicated on the label. Alcoholic
beverages not complying with the new rules will be prohibited as of
November 25, 2005.

For more information on new wine rules, please visit:

[www.useu.be/agri](http://www.useu.be/agri)

-   EU Wine Labeling -- Amended Rules -- Report E24043

-   Wine -- EU Import & Labeling Rules -- Report E23180

-   U.S. Wine Derogations Extended -- Report E23247

-   New Allergen Labeling -- Report E23186

## 3. France Market Development Activities 

Public assistance for domestic and international promotion of wines and
spirits comes from the French national market promotion agency (SOPEXA)
which actively promotes French food products and wines in EU and
overseas markets.

During CY 2003, ONIVINS had a budget of 10.3 million Euros, or about US
\$11.6 million for promoting French wines. The GOF and
inter-professional organizations underwrite this budget.

Promotional activities funded by ONIVINS focused on advertising
campaigns, promotional materials, in-store promotions in specialized
outlets, hotels, restaurants, as well as fairs and trade shows. New
promotional activities were also conducted in 2003, including
qualitative studies, reinforcement of advertising campaigns, educational
programs and in-store promotions, not only in the EU (35 percent of the
budget), but also in North America, Japan and in emerging markets
(Eastern Asia and Central and Eastern Europe countries). SOPEXA promotes
the image of the "French Style of Living" and "French Cooking" through
"French weeks" in foreign restaurants, including wine waiter contests.

## 4. Competitor Programs/Activities

Nearly all of the other EU countries conduct some form of market
promotion in France. Wine is commonly promoted through participation in
trade shows as well as public and trade advertising and supermarket
promotions. Countries that do not have export promotion agencies often
use their local embassies or French importers to conduct their
promotion. Non-EU countries promoting wines in France include South
Africa, Chile, Argentina, the United States, Australia, and more
recently New Zealand and Bulgaria.

## 5. U.S. Market Opportunities

Most of the American wines sold in France are Cabernet Sauvignon,
Chardonnay, Zinfandel and Pinot Noir from California. U.S. wines in
France face strong competition from domestic producers, and from
France's leading EU suppliers (Italy, Spain and Portugal), as well as
Australia, South Africa, Argentina and Chile. Central and Far Eastern
wine producers are now emerging and should be considered as future
competitors. However, there are market opportunities for U.S. wines in
France, thanks in part to the "exoticism" and quality of U.S. wines, and
also to the promotional efforts of Office of Agricultural Affairs at the
American Embassy and the many American restaurants in Paris.

E&J Gallo has been present in France since 1998 and has contracts with
most major French retailers (Carrefour, Auchan, etc.). Gallo is also
selling to restaurants in France and Europe as well as in wine stores.
Since May 2000, Mondavi wines were also introduced in France through a
leading importer/distributor.

#