Sunday, May 27, 2007

Wine reform will lead to job losses

The competition: a vineyard in Chile

An impact assessment of the European Commission's proposed reforms to the CAP wine regime warns that job losses are inevitable in parts of Europe most responsible for the distillation of wine. The report quotes Italian organisations, not an entirely disinterested source, that the sector could lose 75 per centr of its jobs in Italy.

Reform is also expected to bring down the price of cheaper table wines as wine that would, under the old regime, have been distilled is instead bottled for sale (with binge drinkers in Britain being one possible market). However, specialised table wine producers in Sicily and Languedoc-Roussillion in France could see their income fall by up to a third. Enraged wine makers in Languedoc-Roussillion started fires in several French supermarkets to protest against the reform.

However, CEEV, the European wine producers' federation said that changes in the industry were inevitable in the face of growing globalisation. 'This may be the last chance we have to update the sector', warned José-Ramón Fernandez. 'We welcome the Commission's efforts as long as they are accompanied by measures to move into alternative agricultural sectors that are socially acceptable to producers.'

A Commission spokesman said that the changes were likely to mean less but better wine on the market in the short term, but in the long-term a more competitive market, together with simplified labelling and classification rules, could see production soar. 'In the long-term people around the world could be drinking French and Spanish and Italian wine, instead of New World varieties.'

Perhaps. But New World producers know that the market has changed, with a mass market less interested in provenance and more in having drinkable wines available at an affordable price. In the short run, Australian production could be hit by the country's chronic drought, a topic we hope to cover soon

Thursday, May 24, 2007

Plus ça change, plus c'est la même chose

France's new president Nicolas Sarkozy has aligned himself firmly with traditional French thinking on the CAP. He warned that he expected the EU to take a much tougher stance in global trade talks and said that he would not allow his country's farmers to be sold 'at the lowest possible price.'

He said that he would not allow cuts in support for European farmers while their US counterparts benefited from the same policies. Trade offs did not interest him: 'I'm not going to sell agriculture to get a better opening for services.' Mr Sarkozy said he as not going to be 'boxed in' if others failed to make reciprocal offers.

With the Doha Round talks seemingly making little real progress, Mr Sarkozy has dashed hopes that he might to talk a more flexible approach to cutting EU farm tariffs than his predecessor.

Scrap CAP says Commons committee

The Common Agricultural Policy should be scrapped and replaced with a new rural policy for the European Union says the House of Commons Select Committee on Environment, Food and Rural Affairs. The report is a response to the Government's 'Vision for the Common Agricultural Policy' published in December 2005. I appeared before the committee: further details of the report can be found at: CAP

The report states, 'The objectives of the CAP have remained unchanged for the last 50 years and now an anachronism. For all its revolutionary rhetoric, the UK Government's "Vision for the Common Agricultural Policy" was ultimately a disappointing lost opportunity as it merely described an evolution of the existing policy, primarily motivated by budget savings, rather than presenting a truly revolutionary vision.'

I was critical of the Government's strategy and tactics in launching the Vision document. The report comments, 'The Government showed a naivety in believing that its Vision document could be its catalyst to a reform agenda when it was introduced so near to the end of its Presidency and without any programme in place to gain support for the British position. For British ideas to succeed, it is important that the UK adopts a more sophisticated approach to its agenda than when it launched its Vision document on an unsuspecting audience and without prior effort to prepare other farm ministers for its arrival.'

It further notes, 'Not only did this approach subsequently damage its prospects for Pillar 2 development, it may well have undermined the UK Government's ability to infuence the reform agenda in the future by antagonising the European Commission and the other EU member states.'

The report talks favourably of the idea of a bond scheme, but notes Commissioner Fischer Boel's argument that it would lead to the demise of cross-compliance. However, the bond is intended to replace and phase out SFP payments. Separate payments could still be made for public good provision by farmers linked to cross compliance.

The report is perhaps too optimistic about the forthcoming CAP 'health check' offering a means of moving the debate forward given the narrow way in which its purpose has been defined by Commissioner Fischer Boel.

Wednesday, May 23, 2007

Wine lake threatens to overflow

Chilean 'reserve' wine in oak barrels - see story below

A tabloid newspaper once asked me if I could help them with a stunt whereby a journalist in a boat would row on the wine lake. Needless to say, the wine lake does not exist in a form that lends itself to such an enterprise. Nevertheless, the crisis of surplus wine stocks in Europe is such that the lake metaphorically threatens to overflow.

The Commission's proposed reform measures would not have eliminated the problem, but now their effectiveness is going to be further diminished by dilution at the insistence of wine producing states like France, Italy and Spain, aided and abetted by wine producers among accession states such as Bulgaria and Romania.

The fundamental facts are these: Europeans are drinking less wine (consumption is declining by 0.65 per cent a year) and they are drinking more 'New World' wines from Australia, California, Chile etc. Exports are also declining, so that ten years ago the EU held mpre than 80 per cent of the world wine market and its current share is 65 per cent. Moreover, the accession of Bulgaria and Romania has pushed up production by some 7 million hectolitres.

The structural surplus in the wine market in a 'normal' year is around 12.8 million hectolitres and this does not include the amount distilled for industrial use. The EU is currently spending €1.269m a year on the wine regime, about forty per cent of that being spent on distillation.

Policy instruments have not worked well. The ban on new plantings has not controlled production because yields have increased in some member states and there have also been illegal plantings. The grubbing up scheme has virtually ceased to operate.

Wine is a very conservative industry in Europe and the rigid rules on labelling and wine-making practices hinder innovation. When I visited a Chilean winery last year, they told me that they had two types of wine, standard and reserve, the latter being matured in oak barrels.

Attempts to promote the idea of Geograohic Indications are making little headway anyway, but are not helped in the case if wine by the dichotomy between table wines and 'quality' wines produced in specified regions.

The Commission's original proposal envisgaed getting rid of about 12 per cent of the current area of vineyards. This would not have eliminated the surplus in a declining market, but it now looks likely that the grubbing up programme will be halved.

It is disappointing that the European Parliament has taken a hostile approach to the Commission's proposals. Particular interests have prevailed over more general ones. However, the wine sector itself needs to become more competitive otherwise it will suffer more in the long run.

Sunday, May 13, 2007

Sugar reform hits trouble

Last year's sugar reform has hit trouble and it's a familiar story: too much sugar is still being produced in the EU. 2007 production plans show that quotas have only fallen by 2.2 million tonnes over the first two years, well below the 5-6 million tonne target.

Moreover, the new rules also allow most sugar producers to purchase limited quantities of extra quota at €730 per tonne, and many companies who believe that their long-term future is promising have taken up this option, with nearly 900,000 tonnes of extra quota having been bought. In all, therefore quotas have only fallen by a net total of just over 1 million tonnes. Only three countries have ceased production altogether: Ireland, Latvia and Slovenia.

The quota system, together with high support prices, has not only built in large surplus production, but has left no room for imports. The commitment to import sugar from the ACP countries is being replaced over a transition period by quota free imports from the least developed countries and eventually from the ACP countries. The prices set in the EU will still be well above current world market levels even at the end of the reform process and the EU market is likely to be attractive to many producers in the developing world where the option for growing alternative crops is limited.

The reform cut sugar sale prices by 36 per cent over four years and set up a restructuring fund to pay uncompetitive processors and farmers to close down. Factories could choose between competing for sales at the new price, or being paid to cut their production quotas. According to the Commission, sugar facories were reluctant to reduce quotas because it was unclear how much of the restructuring aid they would have to pass on to sugar farmers. The reform gave farmers the right to at least ten per cent of the aid but member states could decide to hand out more.

The Commission is concerned that processors have been discouraged from taking up restructruring as they have been offered too small a proportion of the payment, particularly in the new member states where take up of restructuring money has been much lower than expected. The Commission plans to allow producers to keep 90 per cent of the restructuring money, with the remainder passed on to farmers. In any event, the world sugar market is very volatile and likely to become more so now that the EU has virtually disappeared from world trade.

Thursday, May 10, 2007

Commission waters down wine reform

The Commission has backed away from radical plans to reform Europe's perenially troubled wine sector in the face of opposition from member states. The proposals put forward last June offered EU winemakers €2.4 billion over five years as an incentive to dig up their vines and concentrate on producing quality wines.

In particular the vineyard removal scheme will be much less extensive than originally proposed. The target for grubbing up vines, originally set at 400,000 of the current 3.4 million hectares, looks set to be cut in half. In any case, the scheme would continue to be voluntary for producers with no one forced to tear up vines.

All vine-covered land is planned to become eligible for Single Farm Payment to secure the 'Green Box' status of these aids in any future WTO dispue.

The Commission's plans have encountered opposition from some member states, not least Germany who are upset by a plan to ban the use of sugar. German farm minister Horst Seehofer claimed that Germany would lose part of its competitiveness 'if we did without sugar unnecessarily.' A ban on adding sugar would increase the cost of producing wine in Germany by up to 25 per cent. However, Commission officials argue that half of quality German wines are already produced without using sugar.

Tuesday, May 01, 2007

Accession states face surplus stocks fines

The Commission has announced that all of the 2004 accession states except Hungary will have to pay for failing to stop speculators building up stocks and benefitting from selling them at EU prices. The issue has caused alarm in the new member states who claim that in many cases the build up of stocks was due to hoarding by citizens rather than any profiteering by commercial traders. This was the excuse used by Estonia to explain what would have been huge sugar stocks per household, the argument being that Estonians were preparing for an orgy of jam making which was claimed to be an historic national pasttime.

Poland will have to pay €12.5m for surplus meat stocks, the Czech Republic €12.3m for excess meat and fruit stocks and Estonia €7.6m for milk. However, the relatively poor accession states will be given time to pay with instalments spread out over four years.