COMMISSION REPORT TO THE COUNCIL on evolution of the hop sector (under Article 18(2) of Council Regulation (EEC) No 1696/71 on the common organisation of the market in hops)

TABLE OF CONTENTS

Introduction

1. Structure of hops CMO regulations

1.1 Production aid

1.2 Producer groups

1.3 Special measures

1.4 Product certification

1.5 External trade

1.6 Budget costs

2. General overview of sector

2.1 World hop production

2.2 Hop production in European Union

2.2.1 Areas

2.2.2 Production

2.2.3 Yields

2.2.4 Structure of production

2.2.5 Production costs and returns

2.2.6 Variety groups grown

3. Market situation

3.1 Marketing

3.2 Prices

3.3 Stocks held by growers

3.4 Trend of trade

4. Post-accession outlook

5. Assessments

5.1 Operation of market

5.2 Operation of CMO

6. Conclusions

ANNEX I - History of the CMO (1971 - 1997)

1 First 20 years

1.1 Production aid

1.2. Varietal conversion aid

1.3. Certification procedure

1.4. Producer groups

1.5. External trade

2 Adjustments made in 1992

ANNEX II - Technical data on hops

ANNEX III - Statistical tables

INTRODUCTION

Article 18 of the basic Regulation (EEC) No 1696/71 on the common organisation of the market in hops [1] requires the Commission to send the Council, before 31 December 2003, an assessment report on the sector together with any appropriate proposals for the future. This is that report. Annex I gives the history of the CMO and Annex II technical information on hops.

[1] OJ L 175, 4.8.1971, p. 1. Regulation last amended by Regulation (EC) No 1514/2001 (OJ L 201, 26.7.2001, p. 8).

1. Structure of hops CMO regulations

The CMO at present in force is as reformed in 1997 [2].

[2] Council Regulation (EC) No 1554/97 (OJ L 208, 2.8.1997, p. 1).

The key objectives of the reform were to make the rules more consistent and flexible in the context of the dynamics of the market and user requirements and to simplify their administration.

1.1 Production aid

The cornerstone of the CMO is the production aid. This was set for a period of five years at a single rate for all varieties. In 2001 this arrangement was extended for three years (to include the 2003 harvest).

The single aid rate was set at EUR480/ha with effect from the 1996 harvest and has not been changed since. At the moment it accounts for around 8% of a grower's average gross return.

Growers wishing to receive it must declare the areas planted by 31 May of the crop year (exception for United Kingdom: 30 June) and submit their aid application through their producer group by 31 October of that year.

Controls on hops fall within the scope of the Integrated Administration and Control System.

If the market is disturbed the aid can be modulated or granted on only a part of the area under hops the decision being taken by the Council acting on a proposal from the Commission.

1.2 Producer groups

The 1997 reform boosted the role of producer groups in order to pursue the aim of encouraging adjustment of production quality to market trends.

They have in fact a double role:

1. They carry out the product marketing. Some flexibility is however permitted at group level: a group can authorise its members to market some of their production themselves. In such cases it has a right to monitor the level of selling prices. In the event of disagreement on the prices proposed the group is obliged to buy the hops itself at a higher price and find a new buyer.

It may be of interest to mention the German national contract management system set up at producer group level to encourage quality production.

The buyer has to pay the group the price contracted with the grower. The group has a quality analysis carried out by an independent agency and part of the price is paid to the grower using a bonus/penalty system. The parameters set are water content, percentage of leaves, stems and waste matter, percentage of cone cover leaves and alpha acid content.

2. A package of structural measures is financed by means of a deduction on the production aid up to a maximum of 20% [3]. This resource is managed at producer group level.

[3] It is compulsorily 20% in Germany since the producer groups do not market all their members' production. In the other Member States except France it is less than 20% and varies from year to year depending on need. In France there is no reduction, i.e. growers receive the full aid.

The money is used to support varietal conversion and for rationalisation and mechanisation of cultivation (notably harvesting), adoption of common production methods (cultivation techniques, fertiliser use, varieties etc), marketing and accompanying market measures, quality improvement, research etc. It can also be used to provide additional support for resting and grubbing-up.

1.3 Special measures

In 1998 the sector was confronted with a big imbalance between production and the market's actual quantitative and qualitative needs. It had become imperative to adjust production by selective cutting of the areas under hops in the Union.

Special temporary measures were adopted for five years (1998-2002) [4] and subsequently extended to include the 2003 crop. These measures are temporary resting and grubbing-up of hop plants. They are optional for both Member States and producer groups and participation by individual growers is voluntary.

[4] Council Regulation (EC) No 1098/98 (OJ L 157, 30.5.1998, p. 7).

Resting is decided on for one year at a time, the decision whether to keep in rest or return the hop field to production depending on the market situation and outlook. This measure permits qualitative adjustment of supply and can be selective by variety.

For grubbing-up there is a requirement that the area concerned cannot be replanted with hops before the end of 2003.

For both measures compensation of EUR480/ha is granted, i.e. the production aid rate. Certain good agricultural practice requirements must be met, notably for maintenance of fields being rested.

1.4 Product certification

The CMO requires that before being marketed hops go through a certification procedure to ensure that the minimum quality requirements have been met.

The certificate also states the location where the hops were grown and the crop year. It must be issued before any processing is carried out and before 31 March of the post-harvest year. It accompanies the hops and their derived products right along the production and marketing chain until the final stage, i.e. brewing.

Imports into the Community can be made only under cover of a certificate recognised as equivalent to the Union's.

1.5 External trade

Ad valorem customs duties are imposed on hop imports into the Union and protective action can be taken in the event of market disturbance.

On exports there are no provisions.

However, hops and hop products cannot be imported or exported unless they present qualitative characteristics at least equivalent to those adopted for hops and hop products harvested and processed (and certified) in the Community. The quality guarantee for imported hops is provided by equivalent certification issued by the relevant department of the country concerned.

1.6 Budget costs

Budget expenditure on the hops CMO has been:

>TABLE POSITION>

Thus expenditure has been stable since the 1997 reform even though areas have been falling. The explanation is that the same payments are made on areas to which the special measures (resting, grubbing-up) have been applied as on those from which crops are taken.

2. General overview of sector

2.1 World hop production

For the period 2000-2002 mean world production of hop cones was 97 125 tonnes, 25 467 tonnes (21%) lower than for 1995-1997 (see Table 1.B).

The world area under hops fell by 26% between these same periods (see Table 1.A).

The Union of Fifteen is the leading world producer with 40% of production. The forthcoming enlargement will see this proportion rise to more than 50%.

In second place is the United States with 27% of production. Its areas fell by 22% between 1995-1997 and 2000-2002 (EU -17%). Its production of hop cones fell by 16% between these periods (EU -15%).

Preference is given in the United States to varieties that are very rich in alpha acid, some varieties yielding up to 15%.

China is in third place, at present accounting for 14%. From the statistics available it appears that the mean quantity produced in the 2000-2002 period was 9% lower than for 1995-1997. Nonetheless China, which is increasingly opening up to world trade, has great potential for increasing its production.

Figure 2.1.a: Breakdown of world hop production in 2002

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Source: Compiled by DG AGRI using IHGC (International Hop Growers Convention) figures

Figure 2.1.b: Trend of world hop production

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Source: Compiled by DG AGRI using IHGC (International Hop Growers Convention) figures

2.2 Hop production in European Union

2.2.1 Areas

The area under hops in the Union fell between the periods 1995-1997 and 2000-2002 by 4 576 ha (17%).

Hopgrowing is in decline in all producing Member States except France. The fall is particularly marked in Ireland, Portugal and above all the United Kingdom (-43%) (see Table 1.A).

Special temporary measures. Five Member States have made use of both the resting and grubbing-up measures: Belgium, Germany, Austria, Portugal and the United Kingdom.

Grubbing-up. It appears that by the end of the fifth year of the programme (end 2002) 2 879 ha had been grubbed up. Expectations for 2003 bring the total to 3 224 ha, a 12% reduction on 1997. To this must be added the area of some 1 454 ha grubbed up on which no aid has been granted.

Resting. There have been big fluctuations from one year to another, i.e. the measure has rendered production potential very flexible. The areas involved have however been relatively small. In the first year of application (1998) the area rested was 1 393 ha, i.e. 5% of cultivated area. It has subsequently been in the range 400 to 700 ha.

Figure 2.2.1.a: Areas cropped and areas grubbed up under the special temporary measures // Figure 2.2.1.b: Areas rested under the special temporary measures:

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Source: Member States' notifications

2.2.2 Production

In 2002 the Union produced 38 380 tonnes of hop cones. These gave 3 466 tonnes of alpha acid, a 9% yield (see Table 1.C).

Germany grew 32 271 tonnes of hops, 84% of Union production. The remainder was spread over seven Member States, mainly the United Kingdom (6%), Spain (4%) and France (3%).

The Union's production has fallen constantly in recent years but not so strongly as total world production. Mean production for the last three years (2000-2002) has been only some 86% of the mean for the period 1995-1997. But the actual production loss for alpha acid has been markedly lower, only 5% over the last six years (3 663 to 3 466 tonnes). The stabilisation of production from 2000 has been the outcome of a degree of optimism on market prospects that has lasted through 2001 and 2002. During the last three years the market has shown momentary signs of upturn, notably thanks to export opportunities under a favourable euro/dollar exchange rate.

Figure 2.2.2: Hop production trend in EU

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Source: Member States' notifications

2.2.3 Yields

Comparison of the periods 1995-1997 and 2000-2002 shows a 2% rise in hop cone yields in the Union, from 1.61 to 1.65 tonnes/ha. For the same periods the rise in the United States was 9%, from 1.96 to 2.14 tonnes/ha.

Comparison of alpha acid yields for the same periods shows a 22% increase in the Union and 28% in the USA. Average US alpha acid yields are much higher than in the Union (EU 156 kg/ha in 2002, USA 267 kg/ha) (see Table 1.D).

Figure 2.2.3: Trend of alpha acid yields in EU

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Source: Member States' notifications

2.2.4 Structure of production

Although the number of holdings growing hops has been in constant decline (down 31% from 4 123 holdings in 1997 to 2 846 in 2002) the mean area per holding is increasing (up 20% from 6.5 ha in 1997 to 7.8 ha in 2002).

The figures vary very much from one Member State to another. The biggest holdings are in the United Kingdom (mean size 11.62 ha in 2002), Germany (9.45 ha) and France (7.49 ha) (see Table 2).

These are above all highly specialised family enterprises in which two thirds of the work is done by the family members and one third by employees.

The average age of growers is rising, from 47 in 1990 to 52 in 2000 according to FADN figures for Bavaria, the biggest production region in the Union.

2.2.5 Production costs and returns

FADN figures for the years 1998 to 2000 show [5] production costs in Bavaria, the most representative region for Community production, of EUR4 805/ha on average. Returns in the region were EUR5 537/ha (see Table 3).

[5] Figures calculated from the farm accounts collected by the FADN from a number of Bavarian holdings for which hops account for more than 40% of income.

2.2.6 Variety groups grown

Some 12 000 ha, i.e. 55% of the Union's present total hop area, is devoted to aromatic varieties.

The area planted with bitter varieties can be considered as stable in recent years (around 10 000 ha). Some bitter varieties have completely disappeared (these were of minor importance except for one in Spain) but the super alpha varieties have been rising strongly.

Figure 2.2.6.a: EU production of aromatic and bitter varieties in 2002

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Source: Member States' notifications

CMO varietal conversion measures to boost the spread of the super alpha bitter varieties have had a decisive impact. The main result has been conversion away from the traditional bitter varieties Brewer's Gold and Northern Brewer, which were less and less able to compete with the American super alpha varieties on the world market. Germany has also grubbed up the aromatic variety Hersbrucker, for which there were no longer market outlets.

Over the period 1986 to 1997 3 241 ha, 12.4% of the 1987 Community area, was converted. On about 71% of this area the change was to alpha and super alpha varieties.

Table 4 in the Annex summarises the varietal conversions between 1997 and 2002.

Figure 2.2.6.b: Union trends for aromatic and bitter varieties

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Source: Member States' notifications

3. Market situation

3.1 Marketing

Hops are sold either under contracts concluded in advance generally for from three to five years or on the free market.

The volume of hops sold under contract in the Union fell from 72% in 1997 to 61% in 2002. The "contract" market is declining because users are finding increasingly abundant supplies on the free market at lower prices than the contract prices. The contract as a marketing tool continues however to be valued by growers mainly because the contract prices are stable over longer periods.

Demand depends on breweries that are becoming ever larger and are changing their buying policy in line with consumer taste. In addition they often have stocks from previous crops about which the growers have no information.

3.2 Prices

We look at the trend of prices of the hop varieties sold under contract and on the free market during the period 1993-2002 (see figure 3.2 and Table 5).

Contract prices for the aromatic varieties rose until 1999, when the volume of sales under contract began to fall, and have themselves continued to fall up to 2002. For bitter varieties under contract there was some price recovery in 2001 and 2002 owing to a more positive assessment of them and reduced availability on the world market [6].

[6] A fire destroyed part of the stocks held by the pools in the USA.

Free market prices varied more markedly for all varieties and more than doubled between 1993 and 2002. As already indicated, the free market was more active since the brewers, enjoying reduced dependence on hops were increasingly inclined to make spot market purchases.

It should be noted that free market prices have grown much closer to those for contract transactions. The average free market price rose from 41% of the average contract price in 1993 to 79% in 2002.

The aromatic varieties, giving lower yields and more difficult to grow, have traditionally commanded higher prices than the bitter. But the gaps between the two types is tending to narrow since demand for the aromatics is dropping and the new super alpha varieties have a higher alpha acid yield and hence a higher market value.

Figure 3.2: Trend of Community prices by variety group

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Source: Member States' notifications

3.3 Stocks held by growers

The figures sent in by the Member States show a strong rise in 2001 and 2002. Before this stocks were insignificant (Table 6).

The increase is even more marked in 2002, accounting for 36.1% of production, which on its part remained relatively stable. The stocks were divided equally between aromatic and bitter varieties.

It should be noted that the stock figures are for the situation recorded in the month of March each year. It appears from more recent hop trade information [7] that these stocks have finally been sold. The situation in 2001 and 2002 was certainly new and no doubt was the outcome of marketing difficulties in recent years. That said, according to the trade there may also be big stocks at present at the breweries.

[7] Given by the growers at the Standing Group meeting on 12.6.2003.

3.4 Trend of trade

Since 1993 the Union's exports have been in the range 20 000 to 24 000 hop cone equivalent tonnes [8]. More than half the exports have been in the form of compressed hops (pellets) or extracts.

[8] Volumes of pellets and hop extracts are turned into their equivalent in hop cones in order to keep production figures comparable.

Imports on the other hand have fallen steadily but have levelled out since 2000 at around 11 500 cone equivalent tonnes (see Tables 7 and 8).

The Union is thus traditionally a net exporter and above all is the hub of the world hop market. The positive balance increased in 1998 and 1999 and since then has been around 10 000 tonnes.

The USA is the Union's main trading partner and hence the second player on the world market. It accounts for 45% (5 049 tonnes in 2002) of our imports and 17% (3 673 tonnes in 2002) of our exports. Around 50% of our exports are small quantities sent to a multitude of countries whereas our imports come essentially from four countries.

The two other main purchasers of Community hops are Russia (3 733 tonnes in 2002) and Japan (2 732 tonnes in 2002).

The Czech Republic, Australia and Slovenia with 2 000, 1 100 and 1 000 cone equivalent tonnes respectively are our other big suppliers.

Figure 3.4.a: Community hop imports

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Source: EUROSTAT

Figure 3.4.b: Community hop exports

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Source: EUROSTAT

4. Post-accession outlook

Accession of 10 new Member States, including four producers (Czech Republic, Poland, Slovenia, Slovakia) means a rise in the Community hop area of about 50% (10 000 ha) and in production of about 29% (11 000 tonnes)..

The new Member States' production is primarily of aromatic varieties but the trend is to an increase in varieties rich in alpha acid. In Poland these are in fact now predominant.

Between 1997 and 2002 the area under hops in the 4 producers fell by 18%, a similar fall to that recorded in the Union of 15, and actual production fell by 32%. The production share of the alpha varieties rose from 5.4% to 13%.

5. Assessments

5.1 Operation of market

The nub of the hop market problem lies in the two outstanding trends of the last decade that have become more acute in recent years.

1. The consumer's preference has moved to more lightly hopped beers. Hence demand for hops has fallen.

2. Conversion to the high alpha acid varieties has led to an abundant supply of them on a market where demand is in marked decline. The growers have been weakened by introduction of the new alpha rich varieties, which have brought them marginal benefits whereas the users have been able to acquire hops with a richer alpha acid content without paying a proportionately higher price.

It is this situation that brought about the need to reduce hop areas.

Nevertheless, in 2001 and 2002 the growers (and/or producer groups) were clearly somewhat reluctant to follow this course. The immediate result was greater difficulty of disposal on the market and a build-up of stocks.

Price movements on the "contract" market (share about 60%) and the free market (which has risen to 40%) continue to be connected. The outcome is a balance between the two marketing types that both allows a viable price base to be guaranteed to the growers (the contract prices) and allows the users to purchase supplies on the free market at attractive prices. They continue to cover a large proportion of their requirements through contracts.

The players' positions have shifted. The users are in a stronger position. Their lower needs and continuing abundant supply have allowed them to reduce their commitments on the market and disinclined them from entering into longer term contract links with suppliers.

The Union market continues nonetheless to display a coherent dynamic in that supply is adjusting to gradually declining use. A new balance involving varietal conversion appears to be attainable that will reflect changing industrial requirements.

The Union will not lose its importance as hub of the world market and enlargement is expected to boost this role. In the new hopgrowing Member States the need for conversion will be accentuated. Integration into the Community market will bring marked advantages to these countries' growers.

5.2 Operation of CMO

The production aid has certainly been a highly appreciated support to growers.

Its importance lies in the possibility it affords of growing hops at an attractive level of profitability given both the structural and managerial investment that the crop demands. Maintenance of a level of profitability acceptable to the grower has restricted abandonment and preserved the sector's viability.

Any assessment must also give due weight to the fact that the aid has had a decisive role in

* the survival of a crop that is a distinctive feature of the landscape of certain regions

* maintenance of a thriving local economy, and notably of employment on family farms, at an aid rate acceptable from the budget standpoint (aid about 8% of return) and favourable from the economic and social standpoint.

Producer groups are the mainspring of the CMO's operation.

Theirs is a preponderant role in providing technical assistance and guidance on growing and marketing. They are a channel of dialogue between growers and users and in that capacity are leading market players.

That said, the possibility afforded to growers of themselves marketing all or part of their production has been widely appreciated and helped reaffirm the main market scenario.

Turning to the deduction from the aid and use of that resource, approaches have differed from one Member State to another and this raises the question whether the provision should be retained. In fact it is only in one Member State that this option of deducting and using part of the aid at producer groups level has been regularly used. Even if a positive judgment can be made on how the deduction has been used, doubts remain whether the provision gives the Community any added value. It is pointed out that

* for transparency and simplicity payment of the entire aid to the grower is desirable.

* the same aims and results could be pursued and achieved voluntarily. If necessary producer groups could decide, in line with their own rules of organisation and national civil law, to make the deduction from the price to be paid to the growers. This would significantly simplify administration of the measure, notably on the verification side.

The requirement of payment of the aid via producer groups would remain inviolable. This would be quite sufficient to guarantee the grower's ongoing interest in being a member of a group.

Certification has been a feature of the CMO since it was launched in 1971. Hop quality improvement is one of the CMO aims designed to ensure respect for minimum quality standards.

The certification procedure gives a guarantee of the quality of the products marketed and contributes to market transparency. It is important to the grower since the price obtained on the market depends on the quality and is also of great interest to the industrial user.

The special measures have indisputably had a role to play in the face of the need to

- cope with the volatility of market demand

- provide ongoing structural adjustment of production to market requirements.

Giving the same aid rate as for actual production has allowed part of the grower's shortfall and conversion costs to be covered.

The sole reason for the grubbing-up measure was a vital need for structural adjustment of production to demand on two counts: quantity and varietal range. This unavoidable need to seek balance is undoubtedly the reason why in some Member States additional grubbing-up has occurred without support under this special measure.

The question whether there would have been the same volume of movement out of the sector without the measure is certainly relevant. The impression is that conversion to e.g. arable crops has been possible because the hopgrower has with the grubbing-up compensation received a slightly higher degree of support than that provided by the direct aids received for arable crops.

The grower's major problem over conversion is to find an alternative offering comparable utilisation opportunities. Conversion to arable crops is attractive since it does not require big investment or pose technical difficulties but it entails a marked scaling down in intensity of utilisation and hence in income.

Resting has been used more locally and more sporadically. It has nonetheless been genuinely useful in resolving short-term market disposal difficulties owing to its selective impact on the supply side. But its attraction to growers has been limited since temporary abandonment of production involves maintaining the hop field and raises the problem of the substitute use and the market income reduction.

The two special measures (each with its own purpose) have in combination provided an effective response to the need for balance in the sector.

Are they still relevant as at presently defined? The answer is probably that in their present form they are obsolete but could be relaunched on a different basis better geared to the sector's future requirements.

6. Conclusions

The hop market is oriented above all to the needs of the brewing industry, which is reducing its requirements. This dominant trend of the past decade also dominates the immediate outlook and will probably be a constant in the future.

Producers, heavily dependent on returns from the market, have no alternative but to adjust and continually seek new market equilibria.

The common market organisation has played a role consistent with market dynamics. The production aid has been set at a level well geared to the principal aim of supporting producers without creating a situation of dependence on the aid.

The special measures have facilitated both the short-term adjustment (through resting) and the structural adjustment (through grubbing-up) required for rebalancing of supply and demand.

The producer groups have played an important role in marketing and orientation of production.

Certification and quality standards have allowed the high quality of Community hops to be maintained and permitted constant verification of the products put on the Community market.

Having a common organisation of the hop market becomes of even greater interest in the context of enlargement of the Union: the sector will be bigger in terms of both production and world trade.

Against the background of declining market demand the overall assessment on application of the regulatory provisions for the hop sector and on operation of the market is positive.

The question that arises is essentially how to enable the market organisation to cope adequately with the projected medium and long-term situation.

The future system must meet three crucial requirements.

1. Maintain the viability of production

Hopgrowing must continue to be viable on two counts; production quality and critical marketing volume. For success on both counts we need to retain:

a) the product certification provisions, which are a benchmark for both the Community and the world markets;

b) the central role of the producer groups in marketing and orientation of production. This does not rule out some flexibility in accommodation of producer group members who wish to sell some of their production themselves.

2. Ensure economic conditions favourable to production

The present economic position of hopgrowing, in particular the profitability of the crop, should be maintained in order to ensure its financial interest to growers. This second requirement is also of great importance in the context of sustainable rural development, in particular for upkeep of the countryside and maintaining jobs. Thus it will be necessary to ensure that hopgrowing has medium and long-term prospects by safeguarding the stability of present returns by means of an aid equivalent to the present aid and more efficient and direct transfer of the support. This will encourage growers to maintain investment in hop fields and to pursue varietal conversion.

3. Accommodate the market trend

Alternatives for producers must be available as they also are of importance for responding to short-term and structural market crises. The grower must be able both to halt production temporarily and to quit it altogether to use the land for other types of production.

The future arrangements should integrate these various components into a system that as far as growers are concerned is simple, flexible and sustainable.

1. Integration of hop production aid into the single payment system

Integration of the production aid into the single payment system introduced by the CAP reform would allow the objectives indicated above to be attained. Total decoupling of the aid guarantees stable support to the grower. Were the market situation to deteriorate for either structural or short-term reasons he would be able freely to decide to halt production temporarily or grub up his hop fields and change to other crops.

Member States would however have the option of maintaining a coupled aid up to a maximum of 25% of the production aid in order to enable them to cater for particular production conditions or specific features of a more regional character. To encourage growers to organise Member States could decide to make part or all of the coupled aid conditional on membership of a producer group.

2. Modification of present CMO

The rules on certification and trade links with other countries would be retained. Provisions on the role of producer groups should be included but in simplified form.

ANNEX I History of the CMO (1971 - 1997)

1. First 20 years

Common organisation of the hop sector market commenced in 1971 in order to improve product quality and guarantee an equitable standard of living to growers.

The primary features of the basic Regulation, which were then detailed in separate Council and Commission Regulations, were the production aid and aid for varietal conversion, the certification procedure, producer groups and the provisions on external trade.

1.1 Production aid

Each year the Council set a direct aid per hectare differentiated by variety group: aromatic, bitter, other. The rate was set with reference to the market situation, projected trends, prices on the external markets and costs. It was paid in the year following that of the harvest.

1.2. Varietal conversion aid

To encourage growing of the varieties most in line with market requirements a varietal conversion aid was introduced in 1987. This special aid [9] was ECU 2 500/ha and it was restricted to a maximum area of 1 000 ha per Member State. Its period of availability was extended to the end of 1996.

[9] Council Regulation (EEC) No 2997/87 of 22 September 1987 (OJ L 284, 7.10.1987, p. 20). Regulation last amended by Regulation (EC) No 423/95 (OJ L 45, 1.3.1995, p. 1).

1.3. Certification procedure

Right from the beginning the CMO incorporated a certification procedure for quality purposes. Certification gave proof that all hops marketed met minimum quality standards.

1.4. Producer groups

These played a central role in hop marketing. A start-up aid for new producer groups was available for a maximum period of ten years (until August 1981). It was jointly financed from national budget resources. When Spain and Portugal acceded the aid was available for five years, and likewise for the east German Länder and for Austria. This support was available up to 31 December 1999.

1.5. External trade

Ad valorem customs tariff duties are levied on imports. Safeguard measures can be adopted if on account of imports or exports the Community market is seriously disturbed. There are no provisions on exports.

2. Adjustments made in 1992

One of the recognition requirements for producer groups was that they marketed all the production of their members.

It turned out in reality that a large proportion of producers had difficulty in conforming with this provision. To avoid the need to go through recognition withdrawal procedures for the groups in default the provisions were made more flexible in 1992 but with penalisation by progressive reduction of the aid.

Thus the basic Regulation as amended in 1992 [10] stipulated that if the aid was granted to a recognised producer group that did not market all of its members' production it was to be reduced by 4% for the 1992 crop, 8% for 1993, 12% for 1994, 15% for 1995 and 15% for 1996. Producer groups had to be marketing all of their members' production by 1 January 1997 at the latest.

[10] Regulation (EEC) No 3124/92 (OJ L 313, 30.10.1992, p. 1).

The temporary provisions required that at least 15% of the aid granted be used for market stabilisation action and for schemes for adjustment to market requirements and improvement of production.

ANNEX II Technical data on hops

1. Product description

Botanically the hop (Humulus lupulus) belongs to the same family as hemp, i.e. Cannabinaceae, and to the order Urticaceae. It is a dioecious plant, i.e. each plant carries only female or only male flowers. Only the female plants form fruits, known as cones. These contain lupulin, a yellow substance easily seen when a ripe cone is crushed between the fingers.

The root system remains functional for very many years (generally around 20) and the part of the plant above the ground is cut each year at cropping time. It is a climbing plant that can reach 7 metres hence needs a support structure (poles, wire, trellis). Dwarf varieties (reaching around 2.5 m) have also been developed in recent years.

It has certain climatic and soil requirements, hence is generally grown between the 35th and 55th degrees of latitude of the northern and southern hemispheres.

The quality of the fresh hop deteriorates rapidly through oxidation and it can lose up to 30% of its power of imparting bitterness in the 6 months following cropping. For that reason it is immediately dried after cropping and either compressed and baled or processed into pellets or hop extract. As the latter type of product is easier to store and handle given its low volume and is qualitatively very stable, more and more brewers are opting for it.

2. Hop varieties

These are in commercial practice divided into three groups:

- aromatic (low average alpha acid content),

- bitter (high, sometimes very high, average alpha acid content),

- other varieties including experimental varieties; these account for only 0.25% of the Community hop area.

At present some 25 aromatic and 18 bitter varieties are listed in the Union. The new varieties are the outcome of years of research and selection. It takes more than twelve years to develop a new variety; a further three years to reach full production gives a total of 15.

Selection is targeted at yield per hectare (affecting the grower's income), improved disease resistance (contributing to high yield and lowering production costs) - for new plantings growers are increasingly using virus-free plants - technical features (e.g. time of ripening, some varieties being early, some being late, so allowing cropping to be staggered), good growth qualities (climbing ability, ease of training) and content of aromatic and bitter substances.

3. Utilisation

Hops are used principally for beer production and secondarily for production of soaps, shampoos and herbal teas of the calming type and to fill pillows. In discussing hop use in beer the most important terms are alpha acid (a bitter component of lupulin) and hopping rate (amount of alpha used per hectolitre of beer). Varietal characteristics are also very important for production of beers with particular tastes and aromas.

Although hops are important for conferring bitterness and flavour and for preservation of the beer, very small quantities are required: between 40 and 200 grams of hops per hectolitre of beer, depending on the alpha content of the hops (up to 14% for super alpha varieties) and the hopping rate chosen.

Technical progress means that hopping rates are falling year on year: the figure calculated for 2002 is 5.3 grams of alpha per hectolitre. For world beer production estimated at 1 455 million hectolitres in 2003 around 7 566 tonnes of alpha acid is therefore required. Beer consumption is rising slightly each year, the trend being particularly marked in Asia and Latin America. In Western Europe it is falling slightly.

Consumer taste is moving to decreasingly bitter beers requiring ever less hops. It is interesting to note that hops account for about 0.3% of beer production costs, taxes excluded (source: HOPS USA, June 2003).

ANNEX III Statistical tables

CONTENTS

page

Table 1 A - Hop areas in the European Community and in the rest of the world (1993-2002)

Table 1 B - Hop production in the European Community and in the rest of the world (1993-2002).

Table 1 C - Alpha production in the European Community and in the rest of the world (1993-2002)

Table 1 D - Alpha yields in the European Community and in the rest of the world (1993-2002).

Table 2 - Structure of production in different hop regions of production (1997-2002).

Table 3 - Changes in returns and production costs in Bavaria (1997-2000)

Table 4 - Changes in varieties (1997-2002)

Table 5 - Hops average contract and spot market prices (1993-2002)

Table 6 - Evolution of hops production & unsold quantities (1990-2002)

Table 7 - Development of EU hops imports (1993-2002)

Table 8 - Development of EU hops exports (1993-2002).

Table 9 - Special temporary measures (STM) 1997-2003.

Table 10 - EU hops consumption (1993-2002)... 35

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