Opinion on the proposal for a Council Regulation (EC) on reform of the common organization of the market in wine (95/C 210/09)

On 16 May 1994 the Committee of the Regions, acting under the first paragraph of Rule 10 of its Rules of Procedure and in accordance with Article198c of the EU Treaty, decided to draw up an Own-initiative Opinion on the above-mentioned proposal.

Commission 2: Spatial Planning, Agriculture, Hunting, Fisheries, Forestry, Marine Environment and Upland Areas, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 6 September 1994. The Rapporteur was Mr Rodriguez Ibarra.

At its fifth plenary session (meeting of 15 November 1994), the Committee of the Regions adopted the following Opinion by a majority vote.

1. Objectives of the CAP reform

1.1. The Commission discussion paper on the development and future of the Common Agricultural Policy (), which was submitted to the Council and laid the foundations for the 1992 CAP Reform, set the following objectives:

a) A sufficient number of farmers had to be kept on the land. There was no other way to preserve the natural environment, traditional landscapes and a system of agriculture based on the family farm.

b) Production had to be controlled to the degree necessary to bring the markets back into balance.

c) Extensification should be encouraged, as a way of reducing surplus production and contributing to an environmentally sustainable form of agricultural production and food quality.

d) The CAP must continue to be based on its three fundamental principles: a single market, Community preference, and financial solidarity.

e) The Community's agricultural budget should become an instrument for real financial solidarity to help those in greatest need.

f) Direct aid should be used to guarantee farmers' incomes. Its level should vary in line with farm size, income, regional situation and other relevant factors.

1.2. The Commission's proposed Regulation for the reform of the common market organization in wine does not reflect the basic principles of the discussion paper, and makes an arbitrary interpretation of subsidiarity designed solely to reduce expenditure in the sector.

1.2.1. The proportion of expenditure on the wine sector (in comparison with total EAGGF expenditure) has always been consistently much lower than the sector's contribution to the European farm economy (in terms of turnover, employment and foreign currency earnings).

1.2.2. Moreover, such expenditure has been consistently less than the appropriations voted annually in the European Parliament for the last eight years (and by significant - and growing - margins), to the extent that this systematic under-use of appropriations is one of the main causes of the present situation on the markets and of wine and alcohol surpluses.

2. Comments on the Commission's proposal

2.1. Background

2.1.1. On 22 July 1993 the Commission issued a Communication to the Council on the development and future of wine sector policy (), which it also submitted to the European Parliament, the Economic and Social Committee, trade organizations and some representatives of the Union's wine-producing regions. The Communication has now been followed by a draft Regulation, approved by the Commission on 11 May 1994 (). While the Commission waited until the adoption of the European Parliament report, it is worth noting that the corresponding ESC Opinion did not appear in the Official Journal until five days after the Commission proposal had been adopted, making it difficult for the Commission to take it into account.

2.1.2. It should be noted that there are marked inconsistencies between the proposed Regulation and the Commission discussion paper of July 1993.

2.2. The European Parliament's report

2.2.1. The EP report () made a number of points which the Commission failed to take up, thereby displaying a lack of political sensitivity. These were as follows:

- The reform of the CAP must be comprehensive and coherent and its underlying principles must be extended to the wine sector. Measures are necessary to regulate production and support producers' income, alongside price policy.

- There are some regions which have a strong natural vocation for wine-growing, and in which wine-growing is an integral part of the economy and the way of life. Action is needed in these regions to prevent wine-growing from dying out.

- All Community producers must be accorded equal treatment under the same conditions.

- The practice of indiscriminate enrichment has served to create surpluses and allowed low-quality products.

- The tax treatment of wine differs from one Member State to another and sometimes discourages consumption, while also distorting competition in the Internal Market. This situation should be remedied.

- The fall in consumption is due in part to adverse publicity and a lack of information. A programme is therefore needed to provide information and promote modest consumption of wine as a product forming part of Europe's cultural and gastronomic tradition.

- Inter-branch relationships should be strengthened, and the cohesion of the sector boosted.

- The European Parliament expressed doubts about the effectiveness of the measures proposed by the Commission, and feared that they would widen the disparities between producer regions and constitute discrimination vis-à-vis other agricultural sectors.

- The Parliament felt that the structural and intervention measures should be fully financed from the Community budget, as was the case for other agricultural sectors following the reform of the CAP.

2.3. The Economic and Social Committee Opinion

2.3.1. The ESC Opinion () made the following main points:

- The ESC deplored the fact that the Commission took no account of the effects on incomes and the industry. It pointed out that other sectors of the economy were dependent on the wine sector and that if wine-growing were to cease, many regions' economies would crumble. There was a danger that the sector's demise would lead to the erosion of economic, social and cultural life.

- The ESC felt that the Commission report painted far too negative a picture of wine-growing's effects on the environment. Wine-growing prevented soil erosion and depopulation, and wine- growers used environmentally-compatible practices as a matter of course.

- The Commission had based its national reference quantities on the assumption that consumption would fall by almost 2m hl per year. The ESC asked the Commission to consider a second scenario for the year 2000, in which account was taken of measures to boost consumption and reduce excise duties.

- The ESC also stressed the implications of the GATT decisions for the EU's wine sector. The phasing-out of external protection via the abolition of reference prices and the dismantling of import restrictions and customs duties would lead to a rise in imports. While the areas under vine in the Community had been reduced by a million hectares in the last 30 years and now stood at less than 4m hectares, wine-growing areas elsewhere had only shrunk slightly and some had even been expanded (United States, Morocco, Chile) or replanted with high-yield varieties (Eastern Europe). Account thus had to be taken of trends in consumption in third countries.

- The ESC came out firmly against national reference quantities, and was concerned that the quota scheme would create new tensions between wine-growing regions. The producer should be the direct target of intervention policy, without the bureaucratic superstructure of a Community quota scheme. The aim should be to make the adaptation of production to market openings a more attractive proposition than the production of surpluses. The ESC also recommended the fixing of maximum yields per hectare for table wines.

2.4. Other comments

2.4.1. The basic data used by the Commission are unreliable. They do not tally with those provided by the International Vine and Wine Office (IWO), with studies by European universities which cast serious doubt on the scale of surpluses and are more upbeat about consumption trends, or even with the data originally used by the Commission. Furthermore, doubt is cast on the basic claim that there is an upward trend in yields by (at least) one mistake in the July 1993 document, which has not been corrected since.

Lastly, the cost of supporting wine-growing (underlying all the Commission's proposals) has been artificially inflated by 60 % more than actual expenditure since 1990.

2.4.2. The proposed reform of the wine market rests on the control of supply as the sole instrument for achieving market balance.

COR Commission 2 considers it necessary to pursue a more vigorous policy to promote sales of wine products and to provide adequate funds for this.

2.4.3. The establishment of regional plans part-financed by the Member States may cause market imbalance. The proposed measures run counter to the general spirit of the CAP reform, which seeks to encourage extensive rather than intensive production. On the contrary, by discouraging extensification the proposal uses different ground rules from those applied to sectors which have already been reformed. This could lead to a dangerous tendency for farmers to increase production since, in order to keep up their income level, they will be obliged to use intensive cultivation methods. The result will be a significant drop in quality which will erode the wine-growing heritage and identity of traditional producer regions.

2.4.4. The Commission's July 1993 discussion paper noted that the use of sucrose to enrich wine artificially generates surpluses. However, not only does the final proposal fail to propose any measures to restrict this practice, it indirectly encourages it by abolishing aid for the use of concentrated must. Furthermore, it is signally at odds with the definition of wine as a 'product obtained from the total or partial alcoholic fermentation of fresh grapes or grape must' while respecting traditional production practices. By allowing producers to boost alcoholic content artificially through the addition of products not intrinsic to the grape, the proposal enshrines competition.

2.4.5. The Regulation seeks to bring balance to the wine sector by adjusting production to likely demand. This is to be done by the establishment of a 'national reference quantity' for each Member State, calculated on the basis of average production over their best three marketing years out of the last four (1989/1990 to 1992/1993).

2.4.6. The national reference quantity for each producer Member State and marketing year has been decided in a totally arbitrary manner, penalizing countries where production has traditionally (rather than in the last four marketing years) remained stable or even been reduced. By way of example, Appendix I shows the vineyard areas grubbed up over the period 1988-1993.

2.4.7. Moreover, in the initial proposal the Commission's technical services calculated the reference quantity by a flat rate reduction coefficient of 0.7968 for all countries, while the final proposal does not use flat rate coefficients. Account appears to have been taken of the surplus/deficit situation of each Member State. This is clearly at odds with the Community spirit which applied to the other sectors such as milk or cereals, where non-surplus countries were obliged to cut their production in line with reference quantities laid down by the Commission, and not on the basis of domestic consumption (Appendix II).

2.4.8. The production cuts for each Member State are based on present total production, and take no account of national differences in yield per hectare. Since Member States' yields per hectare vary greatly, the reduction in the area under vines will therefore be much greater in low-production countries than in others whose unit production is three or even five times higher.

2.4.9. Account should also be taken of the efforts made in some regions over the last few years to reduce wine-growing potential by introducing practices which limit production and encouraging quality, such as regulation of new plantings, changing to different varieties, grubbing up, limitation of yield, prohibition of irrigation, regulation of processing yields, and the use of oenological practices which enhance quality.

2.4.10. Hence the criteria used to establish the reduction coefficients should not be based solely on market factors, but should reflect other social, economic and cultural factors.

2.4.11. Appendix III gives the latest available figures (1989/1992 marketing years) for wine production and areas under vines in the Member States.

2.4.12. The period laid down for this adjustment is too short and will make the process unnecessarily traumatic. No provision is made for Member States to extend the deadline and cushion its impact according to the socio-economic circumstances of each region.

2.4.13. Although the proposal speaks of environmental considerations, no accompanying measures are provided for farmers who cease wine-growing, nor is any special provision made for certain regions, such as Southern European regions where no alternative crop is possible and where afforestation schemes, even if environmentally beneficial, cannot provide a stable economic alternative for the local populations. Consequently, Structural Fund resources must be used more selectively and efficiently to help these regions.

2.4.14. The Commission proposes reduction of the Community area under vines as the main tool for securing market balance. Despite the scale of this measure, little thought is given to its economic, environmental and social effects. Many Southern European wine-growing regions where no alternative crops are possible would be abandoned, bringing a serious risk of erosion, desertification, impoverishment and a flight from the land, creating pockets of poverty.

Moreover, it is inconsistent to continue proposing a considerable increase in the grubbing premium (ECU 7,000 where regional viticultural adjustment programmes apply) while the grubbing target presented as final in the proposal of 11 May 1994 has been revised sharply downwards, in line with the level recorded over the last five years with the current premium (60,000 ha/year).

2.4.15. The Commission proposal significantly reduces aid for compulsory distillation and the distillation of winemaking by-products, and introduces highly restrictive ad hoc distillation arrangements. A fixed reference system is established which is independent of the market situation and market trends. No account is taken of the fact that an increase in the distillation of by-products improves quality, and no mention is made of other instruments such as storage aid, voluntary distillation and aid for the preparation of musts.

2.4.16. In the negotiating process which preceded the signing of the GATT agreements (Jumbo Council), the Commission and Council agreed that the sectors not yet reformed would be subject to the same budgetary guidelines as the reformed sectors. This meant an increase in the Community budget allocated thereto, and full EU financing of the sectors concerned, but the reverse is now being proposed for the wine sector.

2.4.17. A Community moving towards union cannot tolerate a sectoral reform based on measures which will encourage friction between North and South, and worsen economic divisions. As well as setting a dangerous precedent, this would also impede convergence towards Union.

3. Alternative proposals

3.1. General comments

3.1.1. As the ESC Opinion notes, the Commission proposal may be premature insofar as there has been no serious study of the market situation or of likely trends over coming years, particularly as regards consumption. It may be that after a draconian reform that will destroy 20 % of the area under vines, forecasts will turn out to have been overpessimistic, and the surplus will give way to a deficit.

3.1.2. At a time when the trend internationally is to maintain, if not increase, wine-growing potential, the proposal prejudices EU production on the world market, to the benefit of third countries where wine-growing is steadily expanding, as demand in some regions of Europe is on the increase.

3.1.3. The surplus mentioned in the Commission preamble does not seem to be borne out by the statistics quoted in studies by some European universities, which estimate that actual surpluses are appreciably lower than those given, at less than 30m hectolitres.

3.1.4. The proposal may be doubly premature when we consider that four countries are set to join the EU within the next year. Since these are non-producer countries, and thus potential consumers, with considerable purchasing power, demand is bound to rise, so surpluses will fall. Similar developments may follow the end of the Uruguay Round and the signing of the GATT agreements, which will radically alter international trade relations and significantly boost world trade. Hence, in order to improve its market outlets, the EU should develop a genuine trade policy and equip itself with the means to make its wine products more competitive.

3.2. National reference quantities

3.2.1. Some European regions could be particularly penalized by the chosen reference years, since these were years of exceptional drought in which rainfall was in many cases less than half the average, with serious effects on production.

3.2.2. In line with practice in the organization of other common markets in fixing a national reference production, account should be taken of indices relating directly to production aspects, such as yields. These should be used alongside indices of consumption and use.

3.2.3. Community reference production - which is the Commission's target for restoring balance to the wine market - should be determined in natural alcoholic strength, and not in hectolitres.

3.2.4. Similarly, consideration should be given to the introduction of a corrective weighting of the reference quantities in line with yield per hectare, so that some Member States do not have to make a disproportionate reduction.

3.2.5. The Commission's way of establishing the reference quantities goes against the traditional mechanisms for regulating wine surpluses by means of distillation, which imposes higher penalties for higher productivity. It seems inconsistent to require greater efforts from those who produce least per hectare.

3.3. Viticultural adjustment programmes

3.3.1. Measures to control yield

3.3.1.1. The basic instrument for controlling production in order to achieve the reference quantities should be the limitation of yield per hectare. Unlike grubbing up, the control of yield must take account of the natural vocation and tradition of wine-growing in certain regions, and avoids the undesirable effects of the abandonment of vineyards.

3.3.1.2. Production can also be reduced by green cropping to eliminate part of the harvest, under the multiannual regional programmes, with a view to regulating production, preserving a centuries-old landscape, and avoiding the damaging effects of erosion.

3.3.1.3. Growers who reduce production should receive compensation for loss of income, established as a premium for cultivated area. This premium should be more attractive than for permanent abandonment, and should be equivalent to the income lost from the cut in production.

3.3.1.4. Lost production is already assessed in % volume per hectare in the existing market organization, which applies it to the quantities disposed of by distillation. Similarly, EAGGF sales of the product of distillation are done by volume of alcohol.

3.3.2. Voluntary abandonment of vineyard areas

3.3.2.1. Grubbing-up measures must always be voluntary and entitle the grower to a premium based on a reference figure per hectare established for the national average yield. The premium would take the form of a one-off payment in the year the land was grubbed up. Payment of the premium should not disqualify the grower from any other aids or compensatory payments established under the CAP reform or its accompanying measures.

3.3.2.2. The average amounts of the premiums would be equivalent, in all regions, to the average amount under the current system, since the grubbing target (60,000 ha/year) is slightly less than the grubbing recorded over the last five years with the current premium (62,000 ha/year).

3.3.3. Replanting period

3.3.3.1. The period during which replanting rights apply should be extended to at least 15 years from the year of grubbing up, as this contributes to the reduction of yield and market balance. It should only be possible to transfer the right to another farm in the same wine-growing region, so as not to distort regional balance.

3.3.4. Oenological practices and processes

3.3.4.1. Blending:

The common market organization should definitively, rather than by way of derogation, accept the blending of red and white wines in appropriate proportions in countries where this is a traditional practice, provided that the product obtained retains the characteristics required of red table wine. This will stimulate demand for white wines, which are in more serious surplus.

3.3.4.2. Artificial increase in natural alcoholic strength:

Enrichment is a clear stimulus to production, and creates serious distortions as it allows alcoholic strength to be achieved artificially and at lower cost.

In traditional wine-growing regions where climatic conditions make it impossible to reach the minimum alcoholic strength, the difference should be made up by natural enrichment using concentrated musts, so that the alcohol surpluses in the sector offset the deficits. The price difference between sucrose and concentrated musts should be offset by a system of aid for concentrated musts until market balance is achieved.

The IWO estimates that the replacement of sucrose by concentrated musts could on its own remove 20 million hl of wine from the market, which would account for the bulk of Community surpluses.

3.3.5. Intervention and other measures to improve market conditions

3.3.5.1. Given that the surpluses are produced within the Community, and are of a Community nature, the burden of eliminating them should be borne by all Member States. The volume to be distilled should be allocated according to an overall Community quota to be distributed in the light of individual yields and farm incomes. Since all the wines are for a single market (a basic principle of the Union Treaty), regionalization is not possible, and would create tensions between the different wine-growing regions.

3.3.5.2. Compulsory and voluntary distillation should continue in the usual way until other measures have successfully restored market balance. Distillation of by-products should be raised to 15 % and should be extended to all types of wine. This would reduce surpluses and improve product quality.

3.3.5.3. Aid must be allocated to keep up demand for alcohol of wine origin for oral consumption, which is currently estimated at 15 million hl. This subsector needs support in order to ensure that it is competitive.

3.3.5.4. All wines - both table wines and quality wines psr - should be subject to compulsory distillation. Nevertheless, the possibility should be allowed of exempting quality wines psr from the quota and replacing them by table wines. In the case of some island regions, controlled withdrawal of by-products should be allowed, calculating the equivalent which disposal of the wine by compulsory distillation would entail.

3.3.5.5. Voluntary distillation should be credited against compulsory distillation, benefiting from a higher price in order to make it more attractive.

3.3.5.6. Special ad hoc distillation would be unnecessary if voluntary distillation were used to complement compulsory distillation.

3.3.5.7. Penalties should be imposed on a sliding scale, proportional to individual yields.

3.3.6. The alcohol market

3.3.6.1. Official figures show that the market in alcohol for oral consumption (manufacture of spirits, brandies, liqueurs, etc.) provides an outlet of at least 15m hl.

3.3.6.2. This quantity should therefore not be treated as part of the surplus, but as a subsector with its own characteristics which deserves management measures, both to stabilize the market and to enable it to compete fairly in other consumption areas currently dominated by industrial alcohols, bringing a quality which the latter lack.

3.3.6.3. This would boost demand for distillation by the alcohol market; at present, distillation is almost all compulsory. By helping to satisfy demand for musts and wines on the free market, this would be of major benefit to the wine sector.

3.3.7. Funding

3.3.7.1. All intervention measures should be fully financed from the Community budget, in line with the principle of financial solidarity and the GATT Jumbo Council agreements.

3.3.7.2. National aid should not be permitted as it would distort competition.

4. Conclusions

Preamble: The COR respects the traditional wine-growing areas in all EU Member States. Wine-growing is part of the culture of every region and interwoven into its social, economic and political fabric. The COR therefore calls for wine policy to be tailored more closely to regional characteristics, and for coordination with regional structural policy and the accompanying measures adopted as part of the CAP reform.

a) Before any proposal is made, a detailed examination is needed of the balance between supply and consumption, and the possible impact on the sector of the EU's forthcoming enlargement and the removal of customs barriers under the GATT agreements. In this context, the EU must examine all possible ways of making its wine sector more competitive.

b) Grubbing up should not be compulsory, as it has serious social, environmental, economic and land-management implications for the European Union as a whole.

c) Compulsory grubbing up should be replaced by:

- temporary grubbing up

- qualitative renewal of wine varieties

- the introduction of a comprehensive programme bringing wine-processing into line with the new economic context, within a regional, inter-branch framework.

d) National reference production should be calculated on the basis of a reduction coefficient which does not only consider market criteria but also takes account of social, economic and cultural factors, and unit yield.

e) Where production needs to be regulated, the basic measure should be the establishment of maximum yields per hectare calculated according to the EU average yield. It should take account of the special circumstances of the poorer and less productive regions. A premium should be established for loss of income on the cultivated area.

f) At all events, rectified concentrated grape must, which does not alter the character of the wine produced, should be used for the enrichment of wine. Aid should continue to be granted for the production of rectified must, and should not be reduced.

g) Until production balance is achieved, measures will have to be adopted regarding distillation. These should not entail any loss of farm income, in keeping with the spirit of the CAP.

However, the regional viticultural adjustment programmes should also provide for the possibility of putting part of the harvest into temporary storage in order to regulate the quantities available and adjust supply to demand.

h) Distillation of by-products should not generally exceed, for all Member States, 15 % of total production. This should cover both table wines and quality wines psr.

i) All EU producer aid and financial compensation should be based on individual yields as expressed in % volume of alcohol per hectare.

j) The financial measures for regulating the sector should be financed in their entirety by the EAGGF-Guarantee Section, just as other sectors are, in accordance with the principle of financial solidarity. The appropriations voted by the European Parliament for the wine sector must actually be used, in proportions comparable to those of the EAGGF-Guarantee Section total, i.e. on average ± 3 % of estimates. The proportion of expenditure on the wine-producing sector within the EAGGF should progressively be brought into line with the sector's contribution to the farm economy in terms of turnover, employment and foreign currency earnings.

k) The market in alcohol for oral consumption should be treated as a separate subsector providing an effective outlet for wine production. As such it should be subject to management measures to guarantee its supplies, irrespective of wine surpluses.

l) Fiscal policy on wine should be harmonized throughout the Community. Excise duties should be reduced, and accompanied by measures to encourage moderate consumption of wine, with reference to its gastronomic and cultural importance and its benefits for health.

m) The balance of the sector should be improved by encouraging the establishment of inter-branch and producers' organizations.

n) Voluntary abandonment of vineyard areas should be compensated by a one-off premium in the year of grubbing up, and not disqualify the grower from other types of aid granted under the CAP reform. The amount of the premium would be proportional to the grubbing target set by the present proposal, i.e. no change from the current scheme.

o) The reform of the common market organization should not prejudice the least favoured regions.

p) The current division into seven wine-growing areas should be retained so that different arrangements can be used to allow for the difference in natural production conditions.

q) Interspecific vine varieties should be allowed for the production of quality wines psr.

r) The vineyard register should be the definitive basis for adequate surveillance of the wine market regime. Extending the system on the basis of expensive graphical reference bases is rejected. Adequate arrangements are not, however, considered to have been made for constant updating.

It is essential that the 'body of specific officials of the Commission' be adequately staffed by an equal number of representatives from Member State authorities and the Commission so as to fulfil the conditions of Council Regulation (EEC) No 2048/89.

Commission 2 of the Committee of the Regions urges the Council to study to what extent the whole EU wine market organization, and in particular the wine-growing regulations and accounting and notification obligations, can be further simplified.

Done at Brussels, 15 November 1994.

The Chairman

of the Committee of the Regions

Jacques BLANC

() Doc. COM(91) 100 final and Doc. COM(91) 258 final.

() Doc. COM(93) 380 final.

() Doc. COM(94) 117 final.

() PE(206) 935 fin, Rapporteur: Mr Mateo Sierra Bardaji.

() CES 231/94, Rapporteur: Mr Kienle.

APPENDIX I

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APPENDIX II

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APPENDIX III

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APPENDIX IV

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