Opinion of the Economic and Social Committee on the "Proposal for a Council regulation on the common organisation of the market in ethyl alcohol of agricultural origin"

(2001/C 260/05)

On 12 March 2001 the Council decided to consult the Economic and Social Committee, under Articles 36 and 37 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 21 June 2001. The rapporteur was Mr Wilkinson.

At its 383rd plenary session (meeting of 11 July 2001) the Economic and Social Committee adopted the following opinion by 106 votes in favour and two abstentions.

1. Introduction

1.1. General situation of the EU market in agricultural alcohol

1.1.1. The EU produces about 20 million hectolitres (hl) of alcohol annually, of which some 13 million hl are of agricultural origin. The remainder is of non-agricultural origin and is often referred to as "synthetic alcohol". The main processing industries using ethyl alcohol are spirit drinks, chemicals, pharmaceuticals and cosmetics. Fuel from alcohol is a growing sector.

1.1.2. The spirit drinks industry may only use alcohol of agricultural origin; other industries may use either type. The spirit drinks industry now accounts for about 30 % of EU usage and the quality of their products is guaranteed by the relevant EU regulation(1). The other 70 % may use either agricultural or synthetic alcohol. Total EU demand is currently met by about 50 % of each type.

1.1.3. Agricultural alcohol is an important outlet for some EU primary commodities, notably cereals, sugar beet, molasses, fruit and wine.

1.1.4. The Commission states that the EU market for alcohol is in surplus by about 3 million hl per year. This surplus is gradually rising. Total EU demand is declining slightly. Imports are at about 12 % of total usage including blends, which are not fully covered by the Commission's proposal. On current trends imports are rising gradually. A high proportion of imports is duty free, or imported at very low tariffs as denatured alcohol. Up to 80 % of imports are estimated by some to be subsidised in some way; others consider this a high estimate.

1.2. The Commission proposal

1.2.1. The proposed regulation would establish a framework of common rules for ethyl alcohol of agricultural origin. The decision to propose such a regulation followed a request from the Agriculture Council in mid 2000 to consider the advisability of such action.

1.2.2. The main objectives of the proposed regulation are to improve market information on agricultural alcohol and to establish a forum for policy proposals on it. The Commission consider that the proposals would establish a "light" CMO. This is because there are negligible financial implications. The proposals do not include intervention measures.

1.2.3. Since early 1998 the Commission has monitored some alcohol imports, but they consider that the system is not an adequate implement to deal with the current and expected problems that are identified. They therefore now propose(2) a CMO regulation.

2. General comments on the Commission proposal

2.1. The Committee produced an Information Report on the alcohol sector in 1996 as well as commenting on earlier draft CMOs in 1978(3) and 1980(4). The Information Report gives much useful background to this very complex sector and, although much has changed since the report, it is worth noting that the comments on the need to rationalise the industry so that it can remain competitive were qualified, where it noted that in some EU regions the many very small distilleries performed a valuable socio-economic function in their communities. This remains the case. Only Germany now retains a national organisation for alcohol.

2.2. A CMO was first proposed some 40 years ago, when the primary market for agricultural alcohol was the food industry (including spirit drinks). Since then the market has become increasingly complex and technology has, and is, affecting the uses of the alcohol produced.

2.3. The Commission's proposal does not cover all the factors affecting the market. It concentrates on the growth in imports, that account for about 12 % of the market, and includes as a challenge competition from accession countries. Accession countries should not be exempt from Article 10 (concerning national aid in the proposal).

2.4. The Committee fully supports the value of better market information and of a forum to analyse this market information, to discuss problems in the sector and to recommend what action is necessary. A clear problem is the lack of national statistics in the necessary form. Also Eurostat-data is arriving too late to be of real value. There might be other ways in which these aims could be met. For example, market information is available from national authorities (notably fiscal authorities), Eurostat or commercial sources; and the forum used in the past for alcohol matters, the Spirit Drinks Implementation Committee, could be developed to provide a proper forum. Trade "abuses" should be tackled as such; to do this successfully requires good information. What the proposal does not make clear is what the added value of a CMO would be for producers, users and consumers. The Commission should explain what this added value would be.

2.5. The various measures proposed (import and export licensing, tariff quotas, inward processing and safeguard clauses) cause concern, since such proposals could lead to protectionist and/or interventionist measures. The Committee recognises that the Commission is not proposing to implement these measures, but it is including provisions for them. In particular, Article 34 of the Treaty includes the possibility of regulation of prices as part of any CMO. Users want access to alcohol of appropriate characteristics and quality at a freely determined price. This position is also of benefit to consumers helping to ensure the quality and safety of the products. Further, the measures included could cause excessive and costly administrative burdens.

2.6. A major difficulty with the proposal is that it does not cover that part of the market that can use either synthetic or agricultural alcohol. Since synthetic alcohol is not an agricultural product it is understood that it cannot be included in the CMO. Yet it accounts for about 50 % of current usage in the EU. Any CMO will be fatally flawed if it does not ensure adequate arrangements, and particularly statistical data, to cover this type of alcohol. The risk of unfair competition would be high if one type was to be controlled under a CMO and the other was not.

2.7. Moreover, the expected growth in the use of fuel alcohol in the EU, from about 1 % of fuel now to about 20 % by 2020, can be expected to change the balance, with a far larger percentage of the market that can be met by either type of alcohol. In practice, agricultural alcohol is expected to meet the bulk of this increase because of tax advantages given to renewables and synthetic alcohol by definition cannot be renewable.

3. Specific comments

3.1. If the decision is to set up a CMO, the Committee believes that, in addition to including adequate means of covering synthetic alcohol, the following changes must be made to the proposals.

3.2. Management Committee. The proposal to include agricultural alcohol within the remit of the Wine Management Committee is wrong. The alcohol sector is extremely complex and this complexity is growing. It is clear that national "alcohol market experts" would be needed for the tasks foreseen for the CMO. The meetings would therefore not be a normal part of Wine Management Committee business, but would involve separate meetings. The Commission has confirmed that this is what is foreseen.

3.3. In these circumstances no additional cost would arise from having a separate "Alcohol Management Committee" and the system would be clearer to those concerned. The proposal should recognise this.

3.4. Definitions. At present the only EU definitions of "agricultural alcohol" are in Regulation (EEC) No 1576/89 (for spirit drinks) and Regulation (EEC) No 822/87 (for neutral alcohol of vinous origin). These differ in a number of ways from the definitions in the Common Nomenclature (CN), which is used for Customs and trade purposes, and which is the definition used in the proposal, Article 1. Article 1 should harmonise these definitions to avoid any confusion.

3.5. Given the numerous and evolving techniques for producing alcohol from agricultural products, and from products that are themselves produced from agricultural products, it will be difficult to establish satisfactory definitions for the various types and even more difficult to police them, especially for products from third countries.

4. Conclusions

4.1. The Committee:

- supports the value of better market information and of an established forum to discuss problems in the sector;

- supports the need for a legal framework to provide these;

- suggests that the requirements could be provided in a number of ways;

- has yet to be convinced of the added value of a CMO regime for alcohol of agricultural origin;

- insists that any CMO that does not include arrangements to cover the complete alcohol market will be fatally flawed;

- considers that if a CMO is established it will need a dedicated Management Committee;

- points to the need to harmonise definitions.

Brussels, 11 July 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) Council Regulation (EEC) No 1576/89, OJ L 160, 12.6.1989, pp. 1-17.

(2) (COM(2001) 101, dated 21.2.2001).

(3) OJ C 181, 31.7.1978.

(4) OJ C 83, 2.4.1980.