Required Report - public distribution

**Date:** 12/9/2004

**GAIN Report Number:** SP4031

PO4031

**Spain**

**Wine**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Stephen Hammond

U.S. Embassy

**Prepared by:**

Diego Perez

**Report Highlights:** Two consecutive large vintages coupled with
declining domestic consumption have facilitated Spain's wine producers
to achieve record exports, 14 million hectoliters in 2003/04, and about
the same level for 2004/05. Even with the record exports, producers are
building stocks, resulting in depressed wine prices. DPA30SH3.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Madrid \[SP1\]

\[PO\]

#  

[Executive Summary 3](#executive-summary)

[Production Narrative 5](#production-narrative)

[CONSUMPTION 8](#consumption)

[MARKETING 11](#marketing)

[Market Opportunities 11](#market-opportunities)

#   {#section-1 .unnumbered}

# Executive Summary

Spanish wine exports in MY 2003/04 reached a 14 million hectoliters
(hls) record level, 3 milllion hls, more than in the preceding year. In
terms of value, however they only increased moderately, reflecting
increased bulk table wine exports to other EU countries, France, Italy
and Portugal in particular.

Despite the increasing exportable supply, we are not forecasting a large
increase in wine exports during MY 2004/05 due to increased competition
from other producing regions. EU wine production is up this year, for
the first time since 2001. EU Member States account for about 80 percent
of Spain's wine exports. Consequently, local producers will need to
build inventories to an estimated 36 million hls. by the beginning of MY
2005/06. While this level is very high, it is inferior to stocks held
during the early nineties.

Spanish production of two, back-to-back large vintages of about 40
million hectoliters each are mostly responsible for the record exports
and building stocks. For 2005, we are forecasting a more average vintage
of about 36.6 million hectoliters. As we have seen in the past two
years, however, production can vary dramatically depending upon weather
conditions.

Increased domestic sales of quality and sparking wines that are taking
place during 2004 will not be sufficient to reverse persistent downward
total wine consumption, because table-wine sales continue to decline.

Although still small, wine imports into Spain continue to grow,
amounting to 289,000 hls, worth €91 million last year. French champagne,
table, quality and Port wines are the main wine types imported. U.S.
wine imports into Spain amounted to 300 hls, worth €386,000 last year.

The vineyard restructuring, distillation, and marketing programs are the
main components of the EU wine support scheme. The restructuring
program, which will be in place until 2006, has so far permitted the
planting of more profitable varieties on 113,000 hectares, representing
10 percent of total vineyards, most of which are in central Spain.

The EU Agriculture Council approved a two-year extension to the U.S.
derogation on winemaking practices, until December 31, 2005, or until a
bilateral agreement is achieved. U.S. wines can still be sold in Spain
during the period of the derogation.

FYI\--We have added an additional out-year to this report's PSD table.

![](media/image2.wmf)

# Production Narrative

Favorable weather has led to the production of large vintages in both
years 2003 and 2004. A breakdown of \"wine and must\" production by
areas in the last two years follows:

![](media/image3.wmf)

Of the total production, must/grape juice ranges between 6 and 7 million
hls.

The area planted to vineyards in Spain, about 1.1 million hectares, is
the largest in the EU.

Quality wines are primarily produced under the so-called appellations of
origins (AOs), which accounts for over a half of the total vineyard
area. There are over 60 different AOs throughout the country. AOs
control both vineyards and wines produced in their particular region.
"Table" wine is, however, the main wine type produced. Below is a
Spanish Wine Appellation of Origin Map.

> ![](media/image4.bmp)

The EU's wine program (EU Regulation 1493/99) aims to enhance wine
quality, to provide a greater market orientation and to renew old
vineyards.

The EU wine regime includes a special distillation scheme to secure
alcohol to producers of fortified wines and brandy. During MY 2003/04,
about 7.5 million hectoliters of \"table\" wine were used in Spain for
the production of the so-called \"edible\" alcohol. The regime also
includes the so-called "crisis" distillation" for years with surges in
wine stocks or severe quality reductions. Subsidies paid for crisis
distillation are very low, generally well under wine market prices. As
was the case in the two preceding years, no crisis distillation was done
in Spain in MY 2003/04.

EU regulation 493/99 sets the scheme for the restructuring of vineyards.
Below are data on the restructuring (change to more
commercially-oriented red grapes or to more modern prunning systems)
since the beginning of the program in MY 2000/01. Restructing is mainly
taking place in central Spain, Castilla-La Mancha and Extremadura in
particular. Local high yielding white varieties are being converted into
less productive but more market-oriented varieties such as native red
Tempranillo in particular, but also to other Spanish varieties and
foreign varieties such as Carbernet Sauvignon and Merlot.

In MY 2004/05, six new member states are for the first time entitled to
receive EU subsidies for vineyard restructuring.

+--------------+------------+-----------+--------------+-------------+
|              | Indicative |           | Cumulated    |             |
|              |            |           |              |             |
|              | ####       |           | MY           |             |
|              | MY 2004/05 |           | 200          |             |
|              |            |           | 0/01-2003/04 |             |
+--------------+------------+-----------+--------------+-------------+
|              | Hectares   | ∈Million  | Hectares     | ∈Million    |
+--------------+------------+-----------+--------------+-------------+
| Spain        | 19,379     | 145       | 112,700      | 667         |
+--------------+------------+-----------+--------------+-------------+
| TOTAL EU     | 61,688     | 450       | 279,071      | 1,705       |
+--------------+------------+-----------+--------------+-------------+

As shown in the table below, the support scheme also includes storage
and export subsidies.

  --------------------------------- ---------- ----------- ----------------
  Viticulture Sector Support Scheme                        
  (€million)                                               

                                    2003       2004 E      2005 F

  Distillation                      174        150         150

  Storage                           27         23          25

  Restructuring                     167        150         140

  Export subsidies                  13         13          13

  Must/grape juice, alcohol         52         40          40

  Total                             433        376         368
  --------------------------------- ---------- ----------- ----------------

EU export subsidies are eligible for certain "table" wine types and
musts to certain destinations.

+-------+-----------------+-------------+-----------------------------+
| E     |                 |             |                             |
| xport |                 |             |                             |
| subs  |                 |             |                             |
| idies |                 |             |                             |
| 2003  |                 |             |                             |
+-------+-----------------+-------------+-----------------------------+
|       | (Million hls.)  | (€ milion)  | Main Destinations           |
+-------+-----------------+-------------+-----------------------------+
| Wine  | 1.0             | 9.3         | Ivory Coast, Eq. Guinea,    |
|       |                 |             |                             |
|       |                 |             | Czeck R., Senegal, Angola   |
+-------+-----------------+-------------+-----------------------------+
| Must  | 0.4             | 3.3         | Corea, China, Taiwan        |
+-------+-----------------+-------------+-----------------------------+
| Total | 1.4             | 12.6        |                             |
+-------+-----------------+-------------+-----------------------------+

The attempts made late last year for the renewal of the United States-EU
wine accord continue. At issue are wine making practices and the
protection of geographic names. Spain is seeking protection for its
generic names "Sherry" and "Malaga". With a new EU derogation granted in
last December, negotiators have two more years for talks.

# CONSUMPTION

The long-lasting downward trend in wine consumption continues. However,
during 2004, the use of quality, sparking and other wine types are
showing robust growth but do not offset a declining table wine use.

![](media/image5.wmf)

Per capita bottled wine consumption in Spain declined to 28.1 liters in
2003, half a liter less than in 2002 and 4.6 liters less than in 2000.

![](media/image6.wmf)

![](media/image7.wmf)**TRADE**

![](media/image8.wmf)

# ![](media/image9.wmf)  {#section-2 .unnumbered}

# 

# MARKETING

Hotels, restaurants and institutions (HRI) are the main channel for
quality wines, representing about 71 percent of all quality wine sales,
volume basis, last year, versus 29 percent of quality wines consumed at
homes. The remaining wine types are more consumed at homes.

Value basis, as shown the chart below, the HRI channel, is even more
important, representing 75 and 58 percent of quality and table wine
sales, respectively.

![](media/image10.wmf)

Total bottled/packed domestic wine sales in 2003 amounted to €2,422
million, €39 million less than in 2002.

  ---------------------------------------------- ------------ ------------
  Average wine prices for 2003 (€/liter)         Channel      

                                                 Home         HRI

  Quality                                        3.41         4.14

  Table                                          0.99         1.28

  Sparkling                                      4.90         4.98

  Other                                          2.93         3.95
  ---------------------------------------------- ------------ ------------

## Market Opportunities

Spain should be considered as only a specialty market for wine imports.
Some U.S. brands already have in‑country distribution made by
distributors based either in Spain or elsewhere in the EU.