eunbil · GT0N1614 · 2006-07-14 00:00:00 — Assuming that total expenditure on the CMO is transferred to the Single Payment Scheme, the decoupled payment would amount to approximately 380 per ha ( 1 300 million for 3.4 million ha). This direct payment would be subject to modulation. The results of this simulation exercise indicate that the introduction of a hectare payment would initially at least compensate for (and in some cases would even exceed) the price drop, so that the impact on agricultural incomes would vary, after the first year of the reform, between -in Poitou-Charentes and +34% in Castilla-La Mancha. However, the further price drops in subsequent years would lead to a progressive decline income. After two years, agricultural incomes would already be declining everywhere (between -for non-specialised table wine producers in Sicily and -in Poitou-Charentes), except in . The reason for the income increase in Castilla-La Mancha is that, given the low yields and the low price of table wine in that region, the level of decoupled payment turns out to be quite substantial for that type of farm. However, the steep fall in prices from one year to another could mean a decline of agricultural income in subsequent years, so that the main difficulties could occur in the medium term, before market balance is achieved. Graph 3: Evolution of FNVA/AWU of seven typical wine farms in five EU regions before and after the implementation of reform option 3 Again, the ban on the use of sucrose would have the same adverse impact on production costs and incomes of Central and Northern European wine regions as noted for option 2. Finally, distributing the whole wine budget as a flat-rate decoupled payment per hectare of vine area would mean that quality wine producers, even in the upper range, would benefit from direct payments as well. This could make it difficult to accept the system and lead to overcompensation of certain quality wine farms, which might in fact be affected very by the worsening of the market situation. On the other hand, any alternative system discriminating between quality wine and table wine producers could introduce disparities between single producers, would be technically very difficult to implement and could lose the advantages of a simple and approach, e.g., as far as scope for applying cross-compliance rules is concerned (see section 5.3). Option 4: Deregulation of the wine market As mentioned under the previous two options, long-term achievement of market balance is the guarantee that the prices and agricultural incomes will stabilise at a satisfactory level. However, the immediate removal of the ban on new rights, combined with the lack of structural measures in the CMO accompanying the abolition of market measures, would complicate the move towards market equilibrium, which would take longer compared with other options. Furthermore, as in option 3, there would be no instrument to alleviate conjunctural problems linked to the extreme variability of wine production. Short-term impact on prices As for the other options, after the abolition of distillations, production surpluses would invariably accumulate as additional stocks, with serious consequences for market prices and consequently agricultural incomes. Compared to option 3, wine stocks would accumulate even more steadily, due to the proposal to maintain the status quo as far as the use of sucrose for enrichment is concerned (which would prevent production from decreasing). On the other hand, the immediate removal of the ban on new rights would not have an impact on production in the short term, but only in the medium term, due to the time it takes for any new vineyards to enter into production. In short, we could estimate that, under this policy option, the surplus generated by the wine market would lead on average to an annual increase in stocks of 19 million hl (wine surplus including the 4 million hl resulting from the abolition of potable alcohol distillation). On the basis of the same regression analysis the decrease in average wine prices resulting from the trend in stocks is estimated at in the first year and after two years, which would represent the highest price drop of all the options. Short-term impact on agricultural incomes (detailed results can be found in 4) Based on the usual model farm approach described under the previous options, agricultural income was simulated. The results of this simulation exercise show that the consistent price decrease under the deregulation scenario would have a very significant impact on agricultural incomes, which would, after the first year, fall by between for non-specialised table wine producers in Sicily and for table wine specialists in Languedoc-Roussillon. After two years, agricultural incomes in those two regions would decline respectively by and . Graph 4: Evolution of FNVA/AWU of seven typical wine farms in five EU regions before and after the implementation of reform option 4 Source: DG - FADN Competitiveness is a many-sided concept and difficult quantify and measure. Broadly speaking, the competitiveness of an industry can be defined in terms of the profitability of its production. In an undifferentiated-products industry, profitability is mainly linked to lower production costs compared to competitors, but, in differentiated products industries like the wine sector, another fundamental factor of profitability is the attractiveness of the product compared with the same industry in other countries, with which one might trade. Thus, a wine industry is competitive if it has the capacity for profitable and viable production and can compete on the world scene by producing and marketing wines that meet consumers expectations and preferences. Although a large part of the EU wine production can be certainly considered highly competitive in the global market, the increasing erosion of the market share of EU wines as against so-called new world wines, both on the domestic and on the export markets, shows a worrying loss of competitiveness of our industry, particularly in the low and medium quality segment. The EU wine industry has several handicaps compared to its competitors: smaller production and processing structures, and lower yields, entailing higher production costs and lower volumes to respond to demand from large scale retailers; too large range of products and less clear price positioning and marketing strategies, making it difficult for consumers to understand, identify, remember and find again products they need or like; greater regulatory constraints in the CMO, like rights, the ban on new , cumbersome procedures to allow the development of innovations in oenological practices or marketing strategies, and on the other hand, market support mechanisms preventing adjustment of production. Option 1: Status quo, with possibly some limited adaptations Although some instruments of the existing market organisation have played a positive role in boosting the competitiveness of the EU wine sector, for example the restructuring programme, which has allowed a quality improvement and an alignment of production with demand, the CMO has largely contributed to the loss of competitiveness of the EU wine sector; therefore a substantial extension of the existing regime would not lead to any improvement, but could only worsen the situation. Option 2: Profound reform of the CMO The measures proposed under this option would significantly contribute to an improvement of the competitiveness of the EU wine sector in different ways: Ending market measures would encourage structural adjustment in the wine sector, leading less competitive holdings, whose production is currently largely intended for distillation, to abandon the activity. The overall competitiveness of the sector would thereby increase. The reinforced grubbing-up programme and the incentives for early retirement of wine producers would facilitate structural adjustment of the wine sector and help to increase the average size of wine holdings in the EU, although the gap with the huge companies in new world countries could certainly not be closed. Confirming the restructuring programme and strengthening rural development measures would permit continued modernisation of the vineyards, thus contributing to a greater cost-effectiveness and better market orientation of EU wine production. flexibility in the procedure for approving new wine-making practices would increase scope for innovative techniques. The possibility of authorising specific wine-making practices only for export would allow EU producers to operate on the world market in conditions of equal opportunities with non-EU competitors. Simplifying the GI system and the labelling provisions would increase transparency for the consumer. Moreover, a greater flexibility in the regulatory framework would provide new marketing opportunities for EU wines: for example, permitting the indication of the wine variety and vintage year for table wine without GI would allow the expansion of the "vins de cépage" segment, which was one of the key factors for the recent overwhelming success of new worlds wines. A more ambitious promotion and information policy could underpin new wine marketing strategies and innovations in wine-making practices. As far as the proposed ban on the use of sucrose for enrichment is concerned, it was already mentioned that this provision could lead to an increase of production costs in wine regions currently making use of this practice. Replacing sucrose with unsubsidised concentrated must could increase the production costs of that part of German wine production relying on chaptalisation by . This would have an adverse effect on the competitiveness of the producers concerned. Option 3: Reform along CAP reform lines The most significant positive impact, described under option 2, also apply to option 3. In particular, ending market measures would provide for better market orientation of wine production and the improvements introduced in the regulatory framework for wine-making practices, geographical indication system, and labelling rules would facilitate innovation. However, concentrating the entire budgetary envelope on the SPS would mean wine producers could no longer benefit from the restructuring programme or any structural measure promoting a higher competitiveness. Finally, we have to point out the adverse impact of the ban on sucrose for enrichment on competitiveness of Central and Northern European wine producers currently making use of this wine-making practice. Option 4: Deregulation of the wine market Besides ending market measures, common to options 2, 3 and 4, the main advantage provided by the deregulation scenario is the immediate abolition of the ban on new . The possibility of expanding the vine area without restrictions gives the most efficient producers freedom to optimise the size of their holdings and to operate at the most convenient production scale, although the rules regulating the access to GIs and protected denominations would de facto partly restrict the area eligible for protected designations. Maintaining the status quo as regards allowing producers to enrich wine with sucrose would avoid the loss of competitiveness of Central and Northern European wine producers described in options 2 and 3. Finally, as far as the so-called regulatory measures are concerned, incorporating the whole legal framework into horizontal legislation could produce improvements in competitiveness to the same extent as the more sector-specific approach in options 2 and 3. In any event, the practical impact would depend on the implementation of the general systems and on the way in which the particularities of the wine sector are taken into account, so as to promote the quality of the product and protect of the image of European wine inside the EU and in the world. Economic and social impact on rural areas Vine-growing and wine production play an important economic and social role in the level of activity and employment in rural areas of many Member States in the EU. As was mentioned in section 2.1, wine production represents, in the most important producing countries, about of the value of their agricultural production. In 2003, there were more than 1.5 million holdings with vineyards for wine production in the EU-25 , representing more than of all EU farms. Wine farms as a whole absorb over 1.5 million Annual Work Units, which corresponds to about of the total AWU employed in EU agriculture. Compared with other crops, vineyards are more labour-intensive, even though this higher labour-intensity is compensated by a smaller average farm size. The family labour force strongly prevails, but employment of regular non-family labour is considerable in some regions, particularly in . Compared with other types of farms, wine holdings typically have a higher proportion of older farmers. Vine-growing is vitally important in certain EU regions, where it represents an even greater share of regional agricultural output, use of the agricultural area and/or agricultural employment. There, the value of wine production accounts for to of final agricultural production, with a maximum of over in Languedoc-Roussillon (). At a more local level, the percentages are often even higher. In those wine regions, alongside the permanent jobs in the vineyard, there is seasonal employment in the harvest and jobs linked to wine-making. Wine is either made directly on the holding, in a cooperatives cellars or by a private enterprise, but always near to the production area, for reasons both technical and legal. Wine production is an activity where processing takes place on the spot, so the added value remains in the production region. That value can also be increased to the benefit of the producers if they sell directly from the holding. Finally, the economic and social function of wine production extends well beyond the production and marketing of wine and should therefore be measured taking into account indirect economic activity in the production regions: its knock-on effect in terms of employment, for example linked to wine distilleries, or tourism, contributes to the rural development of the regions it is present in. In addition, grape and wine production fulfils non-commercial functions - its structuring effects having an impact on the countryside, villages and rural communities. Broadly speaking, the impact assessment on agricultural incomes (see section 5.1.2) already provides useful indications about the possible economic and social impact of the four reform options on rural areas of regions, in which vine-growing plays a major role in their agricultural activity. Option 1: Status quo, with possibly some limited adjustments The continuation of the existing wine regime, even with limited adjustments, has been proved to be unsustainable in the long term. The progressive deterioration of the market situation in the wine sector would increasingly lead to economic and social difficulties in rural areas of the most concerned regions. Option 2: Profound reform of the CMO In general, the smooth stabilisation of the market balance, and hence the achievement of economic sustainability of wine production, would have a favourable impact, not only on the wine sector itself, but on the agricultural and economic activity of rural areas as a whole. In particular, the funds allocated to the national envelope would facilitate structural adjustment of the sector and mitigate the adverse economic and social effects of downscaling wine production. In addition, the grubbing-up premium and reinforced early retirement measures under rural development would give adequate support for non-competitive or older vine-growers, thus providing them an opportunity to leave the activity. On the other hand, coupling the grubbing-up of vineyards with granting SPS entitlements could ensure viable alternatives for farmers intending to reconvert production. Other rural development measures could address additional specific problems linked to restructuring. Option 3: Reform along CAP reform lines The complete lack of specific structural measures accompanying the abolition of market tools and helping the structural adjustment of the wine sector would entail significant risks for the cohesion of wine producing regions. This could particularly affect the fragile rural economies of the new and the acceding Member States. While wine producers would be partly compensated for the price drop and loss of income through a decoupled payment, some of the jobs directly and indirectly linked to the wine production could be lost. Option 4: Deregulation of the wine market Immediate deregulation of the wine sector would have the most radical impact on the economy of wine-producing regions. Besides the significant fall in income for wine producers (see section 5.1.2) and the adverse effects linked to the absence of structural measures accompanying the adjustment process in the wine sector (as for option 3), abolishing the ban on new could lead to a substantial shift of production between wine-producing regions or even between Member States, thus resulting in an additional risk for the economy of less competitive and hence more fragile wine-producing entities. Again, the new and the acceding Member States will particularly suffer from the complete lack of necessary support, preventing them from taking the opportunity to apply the necessary structural measures they need (grubbing-up and/or restructuring) to adjust their wine production, in quality and quantity, to demand. Given the importance of the agricultural dimension, and in particular of the wine sector, in and , it is very likely that this would impact on their rural economies as a whole. Impact on the environment Vine-growing has both positive and negative effects on the environment. The most important environmental pressures exerted by wine production are: impact on the soil: erosion (if vine rows are arranged in the direction of the slope and soil is uncovered between the rows), compaction, loss of organic matter and contamination through plant protection products; intense use of plant protection products, in particular fungicides, which have an adverse impact on water, soil and biodiversity; disposal of waste and by-products of vine-growing (e.g. pesticide packaging) and wine-making (marcs and lees). Other environmental concerns raised by wine production, although to a lesser extent and limited to certain regions, are an increasing use of irrigation, the effects of excessive specialisation and risks resulting from disordered grubbing-up of vineyards. A major wine regime measure with considerable environmental consequences is distillation of the by-products of wine-making. On the one hand, it allows a sound management of these by-products, thereby avoiding environmental risks (acidification of the soil, infiltration of alcohol in underground waters, air pollution by ethanol and ozone production, etc.); on the other hand the practice of not returning the elements contained in these by-products to the soil and of using rather than organic fertilisers contributes to a progressive loss of soil organic matter. Moreover, the environmental costs of distillation operations (energy use, transport of by-products to distilleries, etc) are not negligible. Despite all the environmental implications of vine-growing, the wine CMO contains few explicit references to environmental concerns. specifically, the extent to which the environment is integrated in the wine regime is very limited compared to other market organisations that have undergone the 2003 CAP reform. In particular, as vine land is not eligible for direct payments, it is not covered by cross-compliance rules. This means that there is currently no environmental baseline for vine-growers, except that provided by environmental directives. In reality, some wine producers and part of the corresponding vine area are nevertheless already covered by the system of cross-compliance, since any wine producer receiving direct payments (for areas other than vineyards) is subject to cross-compliance for his whole farm. According to FADN data, of professional wine producers in the EU and of the corresponding total vine area are subject to cross-compliance obligations, but with considerable variation at level, the largest coverage being in and the lowest in and . The reform of the CMO should better integrate environmental concerns in the wine regime. This could be achieved along two lines: 1. establishing an environmental baseline of what it is reasonable to expect a farmer to fulfil without additional support. This baseline would include statutory management requirements under Annexe III and all standards in of Regulation 1782/03 on cross-compliance, whose scope should be adapted and extended to cover specific problems concerning vine-growing; 2. support for environmentally-friendly production methods, which go beyond the environmental baseline, like organic production, () and, if possible, (). Option 1: Status quo, with possibly some limited adjustments The status quo would result in the continuation of a number of pressures on the environment, putting the wine regime significantly behind almost all other CMOs in terms of environmental integration. The wine sector jeopardise its own image for producing a wholesome and desirable product. Option 2: Profound reform of the CMO As under this option many wine farms would not receive direct payments, which could be cut in the event of non-respect of cross-compliance rules, there is no easy way to enforce the environmental baseline in the whole vine area. However, the proposed option offers enough flexibility to adopt alternative measures. A realistic solution to tackle the problem could be the following: make support provided by each single measure granted under the wine CMO, including all measures eligible for the national envelope and under the second pillar, conditional on cross-compliance; where the first method is not applicable, leave Member States to apply their usual statutory penalties for non-compliance with Community legislation. Financial incentives for environmentally-friendly production would be provided as agro-environmental measures, reinforced through the new funds transferred to the second pillar as an additional envelope earmarked for wine-producing regions. Other new elements introduced by option 2 could be assessed as follows: Strengthening permanent abandonment would have a globally positive impact on the environment, since it generally reduces monoculture and the associated environmental pressure. However, it could also lead to environmental risks if the land is abandoned (risks of soil erosion) or replaced by more intensive production. In any event, the grubbed-up area could be given an SPS entitlement, thus falling immediately under the scope of cross-compliance. The proposed cultural landscape payment under the rural development programme could also help to prevent the adverse impact of a far-reaching grubbing-up programme for vines in areas with a specific and recognised environmental/landscape value, which could otherwise be endangered. Regarding the use of vine land after grubbing-up, historical records show that the situation is quite different from one MS to another : in , vines were mainly replaced by maize and then sugar beet; in by arable land and fallow land; in by cereals, olive trees (particularly in Castilla-La Mancha), vines to produce table grape and orchard; in , by fallow land and in some cases by land; in , in the Po Valley by arable land, in the hilly regions of Trentino and Romagna by orchards and in Southern by olive trees; in , finally, by olive trees.