""

Required Report - public distribution

**Date:** 12/22/2003

**GAIN Report Number:** FR3072

FR3072

**France**

**Wine**

**Annual**

**2003**

**Approved by:**

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

#### U.S. Embassy

**Prepared by:**

Roselyne Gauthier

**Report Highlights:**

French 2003 wine crop is estimated to 48 million hectoliters, down eight
percent from the 2002 vintage. Domestic wine consumption has continued
to decline except for quality wines. French wine exports increased 5.6
percent in value in 2002 with an exported volume of 15.3 million
hectoliters; however, exports for the first six months of calendar year
2003 have increased to Italy, the United Kingdom and Switzerland and
decreased to Germany, Belgium, the Netherlands, the United States and
Japan. The wine industry faces challenges in boosting both domestic and
exports markets. Negotiations on a wine agreement between the U.S. and
the EU are ongoing; France favors a comprehensive agreement that
protects the names of its geographic production areas.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Paris \[FR1\]

\[FR\]

Table of Contents

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

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

[SECTION II. STATISTICAL TABLES 6](#section-ii.-statistical-tables)

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

[3. Price Table: 8](#price-table)

[4. Tariff Table: 9](#tariff-table)

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

[Production 9](#production)

[2. Crop Area and Yields 10](#crop-area-and-yields)

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

[Consumption 11](#consumption)

[Trade 11](#trade)

[1. Exports 11](#exports)

[2. Imports 12](#imports)

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

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

[MARKETING 13](#marketing)

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

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

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

[4. Competitor Programs/Activities 16](#competitor-programsactivities)

[5. U.S. Market Opportunities 16](#u.s.-market-opportunities)

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

Average exchange rates:

Calendar Year 2001: USD 1.00 = FF 7.32 = 1.116 Euros

Calendar Year 2002: USD 1.00 = 1.057 Euros

Average Jan-October 2003: USD 1.00 = 0.8964 Euros

(Source: Paris Stock Exchange/European Central Bank)

# EXECUTIVE SUMMARY

France is world number one wine producer with 51.9 million hectoliters
(MHL) in 2002 and a 2003 vintage currently estimated at 48 million
hectoliters (MHL), a decrease of 8 percent over the 2002 crop and minus
15 percent compared to the average 1998-2002. Last summer\'s heat wave
reduced harvest size but enhanced quality. 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, Denmark and Japan.

The long-lasting trend toward declining wine consumption continued last
year. Based on a recent study conducted by a renowned French consumer
panel, this trend will continue in coming years. Total bottled wine
sales in hyper/supermarkets in 2002 dropped 2.5 percent, compared to
2001 to reach 9.9 HHL. The consumer-panel also reported that volumes
purchased by the food service sector (traditional restaurants,
cafeterias and company restaurants) decreased 2 percent in 2002. The
decline is largely due to shrinking use of cheaper \"table\" wines,
while consumption of quality wines continues to grow slowly.

French wine exports in CY 2002 dropped 2.7 percent, compared to CY 2001,
at about 15.3 MHL for a value of 5.7 billion Euros (\$5.4 billion).
However, even if France\'s exports remain at a high level, France
continues to loose market share among its major clients to the advantage
of \"new world wines\". French wine exports for the first six months of
2003 decreased three percent in volume and 0.7 percent in value to 2.6
billion Euros (\$2.9 billion). During this period, volume exported to
the United States decreased 14 percent, and 19 percent to Japan.

Total Wine imports in CY 2002 decreased 11.6 percent in volume to reach
4.5 MHL worth at 460 million Euros (\$435 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 96,000 HL in 2002. In 2002, French imports from the United States
increased 32 percent in volume and 19 percent in value to reach 17
million Euros (\$16 million).

Growth in trade and the EU\'s proposed expansion to include Central and
Eastern European countries will 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.

The budget for financing international promotional campaigns for wines
in 2002 amounted to 10.4 million Euros (about \$9.8 million).

On December 17, 2003, the EU Agriculture Council approved a two-year
extension to the U.S. derogation on wine-making practices. Two
additional derogations on labeling and documentation were also extended
by the Wine Management Committee on December 10^th^. The negotiations
for the renewal of the United States-EU wine accord have intensified
lately since the current EU derogation for the U.S. wine making
practices expires on December 31, 2003. Since important differences
still exist, such as protection of geographic names, winemaking
practices and registered trademarks, it is likely that a minimum
temporary accord aimed at preventing trade disruption will be reached.
France, however, is seeking a broader accord that includes effective
protection to its semi-generic wine names such as \"Champagne.\"

**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.*

# SECTION I. SITUATION AND OUTLOOK 

The 2002 wine crop (MY 2002/2003) amounted to 51.97 million hectoliters
(MHL), 6 percent less than the 2001 level (MY 2001/2002). Of total
production, 24.4 MHL were VQPRD wines, 18.9 MHL table wines, and 8.6 MHL
wines for cognac production. Cold and humid weather in early spring 2002
proved unfavorable for vine flowering. Floods in certain regions
followed this and subsequently resulted in a significant crop decrease.
French production of VQPRD wines remained the same as in 2001, while the
table wine production went down from the 2001 crop due to the continued
vineyard improvement efforts (conversion of table wine into country wine
and AOC wine).

During MY 2002/2003, ending stocks decreased 8.3 percent, compared to
the previous MY, to reach 3.1 MHL. A Crisis distillation support program
for a total of 4 MHL of table wines was implemented by the Government to
balance the market. Experts forecast the 2003/2004 wine crop to reach 48
MHL (down 8 percent compared to the 2002/2003 crop and 15 percent
compared to the average of 1997/98-2001/02).

During CY 2002, total French wine and spirits exports increased by 5.6
percent in value to 7.8 billion Euros (\$7.4 billion) compared to CY
2001. Wine exports increased by 5.6 percent in value, from the 2001
level, to reach 5.7 billion Euros (\$5.4 billion), with an exported
volume of 15.3 million hectoliters. The value increase is mainly due to
champagne and AOC sparkling wine exports. 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 (more than 72 percent
of wine exports in volume and 60 percent in value). Of the total Fench
export volume, the United States represents 7.3 percent.

Total French wine imports during calendar year 2002 decreased 11.6
percent in volume to reach 4.5 million hectoliters, valued at 460
million Euros (\$435 million). Table wines represented 79 percent of
total French wine imports in volume, mostly from EU countries. Italy and
Spain remain France\'s leading suppliers. In 2002, imports of U.S. wine
into France increased by 32 percent in volume and 19 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 17 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 96.000 HL in 2002.

French wine consumption in France has been decreasing since 1999. The
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 will continue and result in a 25
percent decline in wine consumption by 2010 compared to 1999.

MY 2001/2002 was the second marketing year where the new Common
Organization of the Wine Market (COM) (as defined by the European
Commission regulation 1493/1999) was applied. In Spring of 2002, the
European Union adopted the last text of application in regard to
designation, denomination, presentation and protection of wines, as well
as financial support to wine growers to adapt their vineyards to new
market conditions, uprooting of vines, distillation process for certain
vineyards, etc. The new COM will continue to focus on wine quality,
production management and maintaining traditional outlets, principally
alcohol distillation.

In Calendar Year 2002, France (ONIVINS and SOPEXA) had a total budget of
10.4 million Euros (\$9.8 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 2003 wine crop to be 48
MHL, down eight percent from the 2002 wine crop and to be of excellent
quality with a high alcohol percentage. French customs officials
indicated that during the period January-June 2003, total French wine
exports decreased 3 percent in volume and increased 0.7 percent in
value, compared to the same period in 2002, For Jan-June 2003, total
French wine exports amounted to 2.6 billion Euros (\$2.9 billion). The
increase in value is due to Champagne exports, which after two years of
crisis, benefited from an increase in demand. Exports of VQPRD still
wines and table wine decreased both in volume and value; only exports of
red Bordeaux wines in bottles increased 20.3 percent in value.

During the first six months of 2003, France's major clients remained the
United Kingdom, Germany, Belgium, the Netherlands and the United States,
representing 69 percent of the total export volume; however, export
volumes of wine to the United States and Japan decreased 14 and 19
percent respectively.

# 

#  SECTION II. STATISTICAL TABLES 

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

  **Country**          **France**                                               

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

                       2001         Revised    2002       Estimate   2003       Forecast

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

  **Market Year                     08/2001               08/2002               08/2003
  Begin**                                                                       

  TOTAL Grape Crush    7766         7194       7194       6756       6756       6240

  Begin Stock (Ctrl    22134        25227      25227      26219      26219      26219
  App)                                                                          

  Begin Stock (Other)  9433         12639      12639      8520       8520       8520

  TOTAL Beginning      58166        37866      75545      48102      85781      55924
  Stocks                                                                        

  Prod. from Wine      59741        55339      55339      51966      51966      48000
  Grapes                                                                        

  Prod. from Tabl      0            0          0          0          0          0
  Grapes                                                                        

  TOTAL PRODUCTION     59741        55339      55339      51966      51966      48000

  Intra-EU Imports     4859         4130       4130       3872       3872       3750

  Other Imports        565          590        590        628        628        615

  TOTAL Imports        5424         4720       4720       4500       4500       4365

  TOTAL SUPPLY         123331       97925      135604     104568     142247     108289

  Intra-EU Exports     11447        11062      11062      10922      10922      10850

  Other Exports        4255         4441       4441       4161       4161       4100

  TOTAL Exports        15702        15503      15503      15083      15083      14950

  Dom.Consump(Cntrl    16433        16834      16834      16144      16144      16100
  App)                                                                          

  Dom.Consump(Other)   15651        17486      17486      17417      17417      17300

  TOTAL                32084        34320      34320      33561      33561      33400
  Dom.Consumption                                                               

  End Stocks (Cntrl    40970        41104      54732      48544      48544      52199
  App)                                                                          

  End Stocks (Other)   34575        6998       31049      7380       7380       7740

  TOTAL Ending Stocks  75545        48102      85781      55924      55924      59939

  TOTAL DISTRIBUTION   123331       97925      135604     104568     104568     108289
  -------------------- ------------ ---------- ---------- ---------- ---------- ----------

Source: French Customs/French Center for External Trade (CFCE)

## Trade Matrices

  ---------------------- ------------- -------------------- -------------
  **Import Trade                                            
  Matrix**                                                  

  **Country**            France                             

  **Commodity**          Wine                               

  Time Period            Jan-Dec.      Units:               1,000 HL

  Imports for:           2001                               **2002**

  U.S.                   73            U.S.                 96

  Others                               Others               

  Italy                  2428          Italy                1800

  Spain                  1515          Spain                1411

  Portugal               359           Portugal             565

  Chile                  105           Chile                154

  United Kingdom         83            Germany              98

  South Africa           72            Australia            72

  Australia              72            South Africa         69

  Germany                80            Morocco              69

  Tunisia                62            United Kingdom       46

  Morocco                61            Tunisia              32

  Total for Others       4837                               4316

  Others not Listed      231                                169

  **Grand Total**        **5141**                           **4581**
  ---------------------- ------------- -------------------- -------------

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

  **Country**            France                             

  **Commodity**          Wine                               

  Time Period            Jan-Dec.      Units:               1,000 HL

  Exports for:           2001                               **2002**

  U.S.                   1049          U.S.                 1116

  Others                               Others               

  Germany                2977          United Kingdom       3242

  United Kingdom         3204          Germany              2947

  Belgium/Lux.           1702          Belgium/Lux.         1772

  Netherlands            1530          Netherlands          1559

  Denmark                696           Japan                636

  Canada                 636           Denmark              621

  Japan                  616           Switzerland          603

  Switzerland            658           Canada               596

                                                             

                                                             

  Total for Others       12019                              11976

  Others not Listed      2121                               2384

  **Grand Total**        **15189**                          **15476**
  ---------------------- ------------- -------------------- -------------

Source: French Customs/CFCE

## 3. Price Table:

**Wine Price Evolution and Retail Sale Prices**

**From 1998 to 2002**

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  |
+---------+---------+---------+---------+---------+---------+---------+
| 1998    | 100.6   | 102.7   | 102.1   | 102.1   | 1.32    | N/A     |
|         | 105.9   | 109.6   |         | 114.5   |         |         |
| 1999    | 104.2   | 100.8   | 98.8    | 102.2   | 1.30    | N/A     |
|         | 105.6   | 102.3   | 110.4   | 103.9   |         |         |
| 2000    |         |         | 112.0   |         | 1.13    | N/A     |
|         | N/A     | N/A     |         | 101.2   |         |         |
| 2001    |         |         | 101.3   |         | 1.25    | N/A     |
|         |         |         |         |         |         |         |
| 2002    |         |         |         |         | N/A     | 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 858,400 hectares of vineyards for wine
production. About 42 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 2002, France was the largest European producer immediately followed
by Italy and Spain. France's share of total world wine production is
about 20 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-accounted for 62 percent of
total French wine production in 2002. 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 2002 wine crop (MY 2002/2003) amounted to 51.97 MHL, a volume
decrease of

6 percent compared to 2001 with homogeneous quality. Despite regional
flooding in tandem with cold and humid weather, a reduced crop still
yielded uncompromised quality.

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 (opened in a unique session: As of MY
    2002/2003 the prevention distillation was from October 1 thru
    December 30, totaling 25 percent of wine growers production

## 2. Crop Area and Yields

In 2002, on a total planted area of 858,400 hectares, the French average
yield was 60.4 hl/ha, compared to 61.4 hl/ha in 2001, or a decrease of
two 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, can benefit from EU export subsidies. This subsidy,
however, is granted only for export to certain countries and the wines
involved are subject to specific analyses and agreements. During CY
2002, the volume of French non-AOC wine exported with EU export
subsidies amounted to 162,695 HL, and the amount paid by ONIVINS was
1.50 million Euros (\$1.42 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. 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.

## Consumption 

French Wine Consumption by Category

For Marketing Years 2000/01, 2001/02 and 2002/03

(In 1,000 HL)

  ------------------------------- ------------ ------------- -------------
  Wine Category                   2000/01      2001/02       2002/03

  VQPRD Wines                     16,433       16,834        16,144

  Table Wines                     15,651       17,486        17,400

  TOTAL                           32,083       34,320        33,544
  ------------------------------- ------------ ------------- -------------

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

Per Capita French Wine Consumption by Category

For Marketing Years 2000/01, 2001/02 and 2002/03

(liters)

  ------------------------ ------------------- --------------- -----------
  Category of Wines        2000/01             2001/02         2002/03

  VQPRD Wines              27.7                28.3            26.9

  Table Wines              26.5                29.5            29.0

  TOTAL                    54.2                57.8            55.9
  ------------------------ ------------------- --------------- -----------

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

French per capita wine consumption has been decreasing from 103 liters
in 1980 to reach 58 liters in 2002. 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. 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
50-65 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 should decrease
between 5 to 25 percent by 2010.

## Trade

## 1. Exports 

In 2002, the total value of French wine exports increased by 5.6 percent
from 2001 to reach 5.7 billion Euros (\$5.4 billion). French wine
exports for 2002 reached 15.3 MHL, representing 27 percent of the total
French wine production, an increase in export volume of 1.1 percent
compared to the previous year. The trade surplus in wine for calendar
year 2002 was 5.2 billion Euros (\$4.9 billion), an increase of 6.6
percent over the previous year. The increase in wine exports values is
due to Champagne exports (+13.2 percent) as well as most of still wines.

VQPRD wine exports in 2002 decreased in volume (-1.8 percent) and
increased 1.4 percent in value, compared to 2001. Globally, 2002 French
wine exports showed a slight increase of 1.1 percent in volume, while
values increased 5.6 percent. After export decreases in October and
November, the month of December bolstered the end of year figures
although the economical and political environment was not favorable.
Industry is becoming increasingly concerned about export market share.

French wine exports are very concentrated. In value, the three largest
French clients represent 49 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 72 percent in volume and 60
percent in value, a decrease of two 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, Denmark, Switzerland and
Canada.

During the period January-June 2003, French exports of wines increased
to the United Kingdom (1 percent in volume and 7.9 percent in value),
Switzerland (4.1 percent in volume and 18.3 percent in value) and Italy
(21 percent in volume and 19 percent in value), while exports to the
United States and Japan decreased respectively 14 and 19 percent in
volume. Within the EU, French wine exports also decreased to Germany,
Belgium and the Netherlands (respectively 1.3 percent, 6.9 percent and
4.9 percent in volume). During this period, the wine exports to the
United States decreased between 15 to 35 percent compared to the first
six months of 2002.

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 French Center for Exterior
Trade (CFCE) and the French Association of Wine and Spirits Exporters
(FEVS).

## 2. Imports

The value of French wine imports in 2002 amounted to 460 million Euros
(\$435 million). In 2002, total French wine imports decreased by 11.6
percent in volume compared to the previous year (VQPRD wine imports,
mostly from the EU, decreased by 20 percent and table wines by 10
percent). Most of the decrease in French wine imports is for red VQPRD
wines and table wines. France's top EU suppliers remain Italy, Spain and
Portugal. Outside the EU, Chile (153,000 HL imported), USA (96,000 HL)
and Australia (72,000 HL) are the top suppliers.

In 2002, French imports from the United States reached 96,000 HL, an
increase of 32 percent in volume over calendar year 2001. It is
interesting to note that the French imports of U.S. wines have increased
54 percent in volume over the period 1999-2002. 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 2002 was 82.5 million
Euros (\$78 million); from this amount 52.8 million Euros (\$49.9
million) went to orientation and intervention expenses; 26.5 million
Euros (\$25.1 million) to operational expenses, and 3.2 million Euros
(\$3 million) to working capital.

ONIVINS also administers and implements EU subsidies allocated to the
French wine sector which included export refunds and assistance
earmarked for vineyard restructuring, distillations, and grape juice
fortification. For MY 2003/2004, a total European budget of 443 million
Euros (419 million) was allocated for the restructuring of a total of
58,651 Ha throughout EU. From this amount France will receive 111.2
million Euros (\$105.2 million) for 12,745 HA. The other EU countries
who benefited from this support are Spain (150.9 million Euros) and
Italy 120.1 million Euros.

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

The major lines of the Wine Community Market Organization Reform (COM)
were validated by the European Union Agricultural Ministers in March
1999 under "Agenda 2000\" and implemented by regulation no. 1493/1999 of
May 17, 1999. The COM in force was dating back to 1987, with a reform
project which failed in 1994. The new 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
reconversion, 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 benefited 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 (14
percent for hard discounters), while 22 percent come from specialized
wine sales (wine stores, direct sales, etc.).

According to SECODIP, in 2002, total still wine sales in French
supermarkets, including foreign wine sales, was estimated to 3 billion
euros (\$2.8 billion), from which VQPRD wines represented sales of 2.4
billion Euros (\$2.3 billion). Total wine consumption in 2002 reached 32
MHL, of which restaurants, hotels and cafes accounted for 11 MHL, and
homes 21 MHL. Of the 21 MHL of wine consumed in homes, 11 MHL were
purchased in supermarkets and the rest in specialized stores or directly
from wine growers.

As per SECODIP, in 2002, the volumes of wines purchased by the food
service sector (traditional restaurants, cafeterias and company
restaurants) decreased by two percent in volume and increased one
percent in value, compared to 2001. The decrease volume purchases
affected VQPRD wines (-2%) and country wines (-12%), as well as foreign
wines (-3%), while purchases of table wines (including EU assembled
wines) increased by 2.6 percent. The SECODIP panel also indicated that
white wine purchases in 2002 in the food service sector increased by one
percent in volume and 4.5 percent in value, while red wines decreased 5
percent in volume and 2 percent in value. Rose wine purchases decreased
3.5 percent in volume and one percent in value.

In 2002, total sales of foreign wines in supermarkets remained stagnant.
Foreign wine market in France is a branded market representing sales in
supermarkets of over 54 million Euros (\$51 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. As of
to date, these regulations are still in force and the French wine
industry continues to lobby for the GOF to modify 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.

It is difficult to measure the impact of the Evin law, since the French
wine consumption began to drop even before 1992.

**\-- 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 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 must. 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).

The new regulation was originally scheduled to enter into force on
January 1, 2003, but has been postponed until February 1, 2004 to allow
third country wine producers to comply with the new EU wine labeling
requirements. During the transitional period, the European Commission
may consider amendments to the wine labeling regulation to address WTO
concerns, raised by the U.S. and other non-EU countries.

GOF is still discussing the implementation of this new regulation with
the French wine industry who does not entirely agree on several points
proposed by GOF for implementation of the new regulation. A decision
should be made by mid-December, 2003.

## 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 has actively promoted French food products and wines in EU and
overseas markets.

During CY 2002, ONIVINS had a budget for financing international
promotional campaigns of French wines of 10.4 million Euros, or about US
\$9.8 million. 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 2002, 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.

In October 2003, the GOF launched a four year program and allocated a 22
million Euros (\$24.8 milion) to promote Burgundy wines between 2004 and
2007 and develop trade as well as oenological research to fight against
more and more aggressive competition from \"new world\" wines.

Also, the French Minister of Agriculture promised French wine exporters
exporting to the United States special promotional assistance to help
them regain market share lost in 2003. This support will consist of the
improvement of the two largest professional trade shows in the United
States (the Wine and Spirit Wholesaler Association in Las Vegas in May
2004 and VINEXPO in Chicago in June 2004).

## 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.