ext eval wine sector presentation 2012 en ppt.pptx

COGEA S.r.l.
October 2012
Evaluation of Common Agricultural
Policy measures applied to the wine
sector

EVALUATION FRAMEWORK
 Council Regulation (EC) n° 479/2008 of 29 April 2008
 Council Regulation (EC) n°1782/2003 of 29 September 2003
 Council Regulation (EC) n° 1234/2007 of 22 October 2007 (Single CMO)
 All wine producers Member States
 Fourteen case study regions: Mosel, Baden-Württemberg, La Rioja,
Castilla-La Mancha, Comunidad Valenciana, Champagne-Ardennes,
Aquitaine, Languedoc-Roussillon, Veneto, Toscana, Sicilia, Douro, Del
Alföld, South-East Romania
 UK market case study
COGEA
FOR DETAILS: EZIO SCOTTI, PROJECT COORDINATOR - escotti@cogea.it

THE LEGISLATIVE FRAMEWORK
Regulation (EC) n° 479/2008, integrated in 2009 in the “Single CMO”, deeply reforms the
1999 wine CMO. It aims to guarantee both the competitiveness and the sustainability of
the wine sector.
The reform represents a shift from a support system based on intervention and measures
for limiting production to a system aimed at decoupling and with reduced number of
regulatory instruments. It foresees:
 a new programming approach of the EU measures based on five-year National
Support Programmes. MS may choose among 11 measures.
 Regulatory measures including: general rules, oenological practices, rules on
designations of origin, geographical indications and traditional terms (from
01/08/2009), labelling rules, rules on producer organisations and inter-branch
organisations.
 Trade with third countries: import or export licence, Common Customs Tariff, tariff
quotas and additional duties on imports of certain products.
 Production potential: planting rights are maintained until 31/12/2015 (31/12/2018 at
the latest), grubbing-up scheme (until the end of the wine year 2010-2011).
COGEA

EVALUATION SCOPE
Assess the impacts of the CAP measures applied to the wine sector
since the 2008 reform on:
 production and production structures;
 wine growers’ income;
 wine producers and enterprises involved in wine processing and
marketing of wine products;
 wine products: quality, market balance and on the competitiveness of EU
wine products on the EU and international markets;
 efficiency and coherence.
COGEA

METHODOLOGICAL APPROACH
The evaluation judgment is based on the following analyses :
 Statistical analysis of secondary data from various sources (DG AGRI, EU
Regulations, MS, EUROSTAT, COMEXT, COMTRADE, official national statistics
and FAO) for the period 2001-2010/2011.
 Analysis of FADN data concerning the impact of CAP measures on wine
growers’ incomes in 12 case study regions and in the producer MS over the
2003-2009 period.
 A qualitative analysis of information collected from public authorities and
agricultural and industrial sector representatives.
 A qualitative analysis of the results of three mail surveys through
questionnaires addressed to samples of wine industries, distilleries and public
authorities.
 Qualitative analysis of merchandise reviews of EU and third country wines in
food retail chains and wine specialist stores.
COGEA

OVERVIEW OF MEMBER STATES SUPPORT
PROGRAMMES
COGEA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BG CZ DE EL ES FR IT CY LU HU AT PT RO SI SK
Use of concentrated grape
must
Crisis dist.
Potable alcohol dist.
By-product dist.
Investments
Harvest insurance
Mutual funds
Green harvesting
Restructuring
Promotion
SPS
LT – 100% promotion; MT and UK -100% SPS
The measure Mutual Funds was not chosen by any MS
On-going plans are not included in the graph
Source: DG AGRI
Source: DG AGRI
Breakdown of National Support Programmes by measure
(%, programmation 15/04/2011)
National Support Programmes
5 years budget (1,000 euro)
BG 112 683
CZ 21 640
DE 163 835
EL 101 475
ES 1 487 852
FR 1 186 810
IT 1 508 531
CY 19 586
LU 2 478
HU 122 175
AT 57 763
PT 274 035
RO 210 500
SI 21 389
SK 21 250
LT 202
MT 1 455
UK 372
Total 5 314 031

 At the EU level, the implementation of
the reform has led to a decline in
production potential compared to the
pre-reform period, but wine volume
supplied to the market has not declined
proportionately.
 Nevertheless, the implementation of the
grubbing-up scheme has had a
significant effect on EU vineyard area (-
4.6%).
COGEA
0,0 2,0 8,0 10,0
Total
CY
DE
RO
SI
PT
AT
SK
FR
IT
HU
ES
 The end of aid to potable alcohol distillation in Spain (replaced by the single payment in 2011)
should have shifted significant volumes on the market for wines without GI (around 3,000,000
hl). Decoupling seems to have caused a considerable decline in the volume of wine for potable
alcohol distillation. The shift of such volumes on the market could be sufficient to alter market
balance.
IMPACT ON PRODUCTION AND STRUCTURE
OF PRODUCTION/1
% grubbed up area/total area
4,0 6,0
Source: DG AGRI

COGEA
OF PRODUCTION/2
 The transitional planting right regime is not a determining factor in the evolution
of vineyards given the existence of a planting rights’ market.
Vineyard area Index number (2003-2010, NI 2003=100)
Source: National Authorities
85
90
95
100
105
110
2003 2004 2005 2006 2007 2008 2009 2010
Sicilia
Toscana
Veneto
85
90
95
100
105
110
2003 2004 2005 2006 2007 2008 2009 2010
Castilla-LM
C. Valenc.
La Rioja

OF PRODUCTION/3
 The measure for "restructuring and conversion of vineyards" should have helped improve
the quality at the agricultural level. However, the effects are not yet measurable in
practice.
 The grubbing-up scheme has had an impact on the structure of production, albeit in a
differentiated way depending on the region where it has been implemented.
COGEA
RESTRUCTURING
&
CONVERSION
GRUBBING-UP
ON FARMS:
- little dimension
- marginal areas
- not specialised
- producing varieties not demanded by the market
- held by aged farmers
USED FOR:
- Adapt varieties
- Modernize vineyards
- Improve quality
- Decrease production costs (mechanization)

IMPACT ON WINE GROWERS INCOME/1
 In the analysed MS and regions, wine growers’ incomes and their evolution
over time are relatively differentiated from one group to another.
 Income variability is also heterogeneous depending on the MS / region and
according to farm specialization.
COGEA
80 000
70 000
60 000
50 000
40 000
30 000
20 000
10 000
0
2 2 2 2 2 3 3 3 3 3 1 1 1 1 2 2 3 TotTotTot
1 1 1 1 1
Q Q Q Q Q
FR IT DEES PT
Q Q Q Q Q Q Q Q Q Q NQNQNQ NQ NQ NQ NQ TotTot Q
IT FRDEAT PT FR IT DEAT PT IT ESBG PT IT FR IT ROHU SI
Euro
Income (FNVA/AWU) in Member States (euro)
Q = Quality wines (PDO wines)
NQ = Non quality wines (non PDO wines)
1 = growers selling only grapes
2 = growers selling only wine
3 = growers selling grapes and wine
Source: FADN

IMPACT ON WINE GROWERS INCOME/2
 The implementation of support measures has had differentiated effects on wine
growers’ income: positive effect in the case of single payment and crisis
distillation, less positive in the case of green harvesting.
 In most analysed regions, the grubbing-up premium compensates the loss of
farm capital represented by the vineyard. In the hypothesis that this premium is
invested in 5-year bonds, the income generated by this investment does not
compensate the loss of income due to cessation of production.
 However, the resulting income loss is more than compensated in most cases
where vineyards are replaced by other permanent crops (fruits, citrus and olive
orchards).
COGEA

IMPACT ON
COMPETITIVENESS
 In almost all MS and case study
regions, there is a proportion of
unprofitable farms that fail to fully
compensate the factors of
production, including the cost of
hired labour, but in particular the
cost of family labour.
 This proportion of farms is very high
(more than 50%) in some MS /
regions and in general, in the group
of farms specialised in the sale of
grapes for non-PDO wine
production.
COGEA
 The restructuring and conversion of vineyards, where the measure is aimed at developing
mechanization, should help increase the competitiveness of wine growers / makers.
 The grubbing-up scheme has also helped to increase the sector's overall competitiveness.
80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
0,0
1 1 2 3 1 1 1 2 3 2 tot
NQ Q Q NQ Q NQ tot
BG DE ES FR HU IT
1 2 3 1 2 3 2 3 1 2 3 1 tot tot
Q NQ Q Q NQ tot Q
AT PT RO SI
WINE GROWERS
% of unprofitable farms by Member State
Source: FADN

IMPACT ON WINE PRODUCERS/1
 In general, changes in overall performance of companies do not seem related or
only in a limited way to the implementation of the reform.
 Nevertheless, a positive role is recognized for:
 the conversion / restructuring of vineyards, with effect on the quality of
the grapes and thus wine, and;
 promotion on third country markets with effect on the expansion of
markets.
 On the contrary, a negative role is attributed to:
 the grubbing-up scheme, which has created problems of supply of raw
materials, and;
 the maintenance of chaptalisation.
COGEA
In this latter case, the withdrawal of aid for the use of concentrated and
rectified grape must can create problems of distortion of competition
between firms located in areas where chaptalisation is authorized and those
located in regions where the practice is prohibited by the regulation.

IMPACT ON DISTILLERIES AND PRODUCERS
OF RCM
 The abolition of subsidies for distillation (crisis and potable alcohol) had /
can have negative effects on wine alcohol production and, therefore, on the
overall performance of distilleries. In this context, support to by-products
distillation was crucial for distilleries, including those that produce industrial
alcohol.
 The abolition of aid to the use of concentrated grape must and rectified
concentrated grape must can have negative effects on the overall performance
of companies producing these products, but more limited than for the distilleries.
COGEA

ADAPTATION STRATEGIES OF PRODUCERS
Moreover:
 Some weaknesses of PDO and PGI
wines may limit the interest of
companies including those export-
oriented:
 a high number of wines with GI with
very limited average production
each in some MS / regions and;
 lack of interest on the part of retail
chains of non-producing countries to
use the PDO and PGI labels as
quality criterion.
 The role of Producers Organisations
and Inter-branch Organisations on
improving the marketing of wines and
stabilising markets is very limited and
highly concentrated in few MS /
regions.
COGEA
WINE PRODUCERS
Shift from production of bulk wine to
wine conditioning and marketing
Better adjust to market demand and
better market positioning on EU and
third-country markets
Shift from production of industrial alcohol
to potable alcohol
Development of activity of raw alcohol
rectification
Upgrading of equipment to better meet
quality requirements of food industries
users of rectified concentrated grape
must (non wine producers)
DISTILLERIES
RCM PRODUCERS

IMPACT ON WINE QUALITY
COGEA
 The PDO / PGI system favoured the
increase of production of wine with GI in
most producer MS and case study
regions.
 Varietal wines have so far seen limited
development. However, especially in Italy
but also in France, indication of individual
varieties exists for many PDO and PGI
wines.
 As far as other CMO measures are
concerned, the effects on wine quality are
difficult to quantify at present and will be
observable only in the longer term.
0
4000
2000
6000
8000
10000
14000
12000
16000
20000
18000
- 6.000 8.000 10.000
IGP
+
SIG
2004
2010
Cast LM
Languedoc
Veneto
Aquitaine
Sicilia
Toscana
La Rioja
2.000 4.000
C. Val
Production of PDO and (PGI+Without GI): variation between 2004 and 2010
(1 000 hl)
AOP
Source: National Authorities

IMPACT ON MARKET BALANCE
The EU wine market has largely been in equilibrium throughout the 2000/01-2009/10 period. A somewhat
similar situation is observed in France and Spain. There are no stocks accumulated, with the only
exception of Italy where a slight stock of PDO wines has built up.
COGEA
1,00
1,50
2,00
2,50
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
UE15 UE15 UE15 UE15 UE25 UE25 UE25 UE27 UE27 UE27
PDO wine
Non PDO wines
Total wine
However, this equilibrium is the result of opposite
trends in the various balance sheet components:
 the gradual reduction of distillation
seems to have been offset by a gradual
increase in exports (non-PDO as well as
PDO wines) and,
 the increase in imports was offset by a
parallel increase in exports. These
developments are underway since the
beginning of the decade.
Therefore, the 2008 reform does not seem to
have had any important effects.
Evolution of the ratio total availability/total use
(2000/01-2009/2010 (%)
Source: DG AGRI

IMPACT ON THE COMPETITIVENESS OF EU
WINE/1
The analysis highlighted the existence of factors beyond the policy, playing a role on the
competitiveness of EU wines: the global economic crisis, fiscal policies adopted by
different countries, the euro / dollar exchange rate, and market power of food retail
chains.
COGEA
0
5.000.000
15.000.000
10.000.000
20.000.000
25.000.000
2001 2008 2010
Exp. in quantity
2001 2008 2010
Exp. in value
hl;
1
000
Euro
Liqueur wine
Sparkling
Not PDO
PDO
 EU wine export increased. However, different
trends are observed for PDO and non-PDO
wine exports, as well as in export volumes and
values.
 Moreover, most of the market growth was
concentrated in a very limited number of third
countries that are emerging economies (Brazil,
China, Hong Kong). Therefore, it is not
possible to establish whether the
implementation of the reform, namely the
promotion of PDO wines, contributed to this
growth.
Source: COMEXT
EU wine exports (2001, 2008 and 2010, hl, 1,000 euros)

WINE/2
 In all eight traditional importers2, imports
from the EU grew less after 2008 than in
the previous period, albeit the slowdown
was smaller than that of their total wine
market. Therefore, the market shares of
EU wines increased.
 However, market share of bulk wine has
increased more than that of bottled
wines. Again, the overall performance is
determined by a very limited number of
third countries.
 It is not possible to draw clear
conclusions on the ability of the
reformed CMO, in particular of the
promotion measure, to boost the
competitiveness of EU wine on third
country markets.
COGEA
2 For which data are available: USA, Russia, Switzerland, Canada, China, Japan, Norway, Brazil.
0,0
100,0
90,0
80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
2001 2008 2010
EU
USA
South Africa
New Zealand
Chile
Australia
Argentina
Others
EU and competitors’ market shares in volumes
Source: COMTRADE

WINE/3
On the markets of some MS producing little wine or none at all, the market share of EU
wines has been eroded over time to the benefit of imported wines. The lack of specific
CMO measures to guide the preferences of retailers and consumers towards EU wines
has not helped reverse this trend. This is particularly true in the case of PDO wines for
which interest of retailers (and consumers) in non-producing MS is limited.
COGEA
0%
10%
20%
30%
40%
50%
60%
70%
80%
2001 2008 2010
Autres PT
Nouvelle Zelande
Macedoine
Etats-Unis
Chili
Australie
Argentine
Afrique du Sud
UE
UK market shares of EU and third-country wines
100%
90%
Source: COMEXT

EFFICIENCY/1
With respect to the objective of stabilisation of the wine market:
 Grubbing-up is more efficient than the distillation measures, in particular crisis
distillation (expenditure/hl is lower). Moreover, in Sicilia crisis distillation is more
efficient than green harvesting (expenditure/hl is higher).
Regarding the objective of stabilising producer incomes:
 In Spain aid for potable alcohol distillation is efficient.
 In the same MS, the single payment is efficient (but not sufficient) for growers
who have decided to continue producing for potable alcohol distillation, whereas
it is not efficient if they have re-orientated production towards non-PDO wines.
COGEA
The latter case is likely to distort competition between wine growers
receiving the single payment and those who are not entitled. Growers
receiving the single payment may decide to lower their selling prices thus
maintaining a level of income higher than that of wine growers who are not
entitled to single payment.

EFFICIENCY/2
Regarding the objective of strengthening the competitiveness of EU producers
and wines:
 the measures for "conversion / restructuring of vineyards" and "investments" are
efficient, but the terms of implementation in some MS/regions have reduced
efficiency.
 A judgment on the efficiency of the measure "promotion on third country
markets" is less straightforward, due to factors related to implementation
strategy and rigidity of procedures adopted by some MS / regions.
Efficiency of measures implementation in the form of national support
programmes:
 Concerning the flexibility and adaptability of measures to local needs of wine
sectors, the implementation in the form of national support programmes has
been effective. However, problems limiting the effectiveness (and efficiency)
have appeared, but they are related to the policy management.
 Concerning simplification of administration and management of the measures
applied to the sector, the programming approach did not allow to achieve
simplification.
COGEA

COHERENCE BETWEEN MEASURES APPLIED
TO THE WINE SECTOR AND RURAL
DEVELOPMENT MEASURES
At the theoretical level, there is overall consistency between the objectives of the
CMO measures and those of RD policy. However, there are reservations about
certain objectives, relative to:
 the objectives of competitiveness, gaining new markets and balance between
supply and demand, given that support through the second pillar encourages
less competitive / sustainable production methods and not only production
driven by market signals.
In some MS / regions a clear demarcation between RDP measures and CMO
measures was difficult to define, which led to delay in the implementation (i.e
investments).
COGEA

COHERENCE WITH THE PRINCIPLES OF
THE 2003 CAP REFORM AS WELL AS THE
OVERALL EU OBJECTIVES
There is overall coherence between the objectives of the reformed wine CMO and
the principles of the 2003 CAP reform as well as the overall objectives of EU
agriculture. However, in some cases the coherence is not that strong.
 The main reservation concerns inconsistency between the measure for
promotion on third country markets (promotion of private brands) and that of
Regulation (EC) n° 3/2008 (allowing generic promotion).
 Concerning the distortion of competition, the introduction of the single payment
scheme in Spain and the possibility to shift production from wine for potable
alcohol distillation to still wine opens the market to possible new competitive
relationships.
 Moreover, the abolition of support to the use of concentrated grape must can
lead to a distortion of competition between regions that can/can not use
sucrose.
COGEA

1. Concerning the measure for "promotion on third country markets“, it would be
appropriate to revise the criteria in order to facilitate access to the measure also to
small businesses that do not always have adequate financial resources.
Moreover, it would be appropriate to extend the measure for "promotion" also to the
EU market, with the same terms and procedures established for third countries.
Finally, it may be appropriate to extend the eligibility of the promotion measure
beyond wines with GI and varietal wines, to other wines without GI, but possessing
the quality standard required by target markets.
2. The measure "mutual funds“ has not been selected by any MS. It would be
appropriate to review the terms of support for this measure in order to increase its
attractiveness.
COGEA
The evaluation results lead to the following recommendations:

4. The different rules concerning enrichment could result in a distortion of competition
between firms that can utilise sucrose and those under Regulation (EC) n°
1234/2007 who cannot. Given this distortion, it could be desirable to revise the
system.
5. Considering that the closing down of distilleries would cause environmental
problems in areas where alternative by-product uses are not easy to develop in the
short-term or they are not economically viable, the Commission should be
sufficiently attentive to this issue.
6. With respect to the PDO/PGI system the evaluator suggests to think about a new
segmentation of wines in relation to the concept of wine "quality" as perceived by
consumers.
COGEA

7. Concerning the "single payment scheme", it would be advisable to control that
situations of distortion of competition do not arise as a consequence of the
implementation of this measure.
8. We suggest that the MS improve their monitoring of producers organisations and
interbranch organisations so as to annually assess output shares (in value and
volume). Improved knowledge may constitute a preliminary assessment to be used
to adapt particular actions of national programmes.
9. Finally, improvements in the procedures for envelope management are
recommended in order to provide more flexibility to the Authorities in charge.
COGEA

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