EU Seeks to Cut Its Wine Surplus

Europe’s wine industry, the world’s largest, should see sweeping changes over the next few years as producers are offered cash incentives to dig up vines to reduce the European Union’s wine surplus.

Keen to fend off tough competition from New World exporters such as Chile and Australia, Europe’s farm chief plans to divert some of the subsidies paid to EU winemakers to get them to abandon vines and focus on quality.

The debate will begin next week when EU Agriculture Commissioner Mariann Fischer Boel publishes four broad options to shake up the industry, which was last reformed in 1999.

Her comments in recent months have made her thinking clear: Many of the existing subsidies should be scrapped or simplified, and production must fall.

That won’t go down well with some governments, particularly the main wine countries of southern Europe such as France, Spain and Italy, also the world’s top three producers.

This year, thousands of winemakers took to the streets in southern France to demand help from Paris to cope with low demand and fierce competition from New World rivals.

For many years, hefty production subsidies skewed the balance between EU wine supply and demand and led to huge surpluses that could not be easily sold. The EU is the world’s biggest producer, consumer, exporter and importer of wine.

More recently, Europe has lost part of its traditional export markets to cheaper wines from countries such as Australia, Chile and also the United States, and seen a surge in imports.

Fischer Boel has said wine reform may prove more difficult and divisive than the 2005 sugar reform, itself a marathon negotiation over steep price cuts that faced heavy opposition from countries whose sugar industries now face collapse.

Fischer Boel will publish her paper June 22, and EU ministers are expected to debate it in July. A formal proposal can be expected toward the end of this year, and the reform negotiation would probably take place in mid-2007.

One of the biggest items on the wine budget of some 1.2 billion euros ($1.52 billion) a year is so-called crisis distillation, an emergency subsidy used to correct market imbalances by distilling surplus wine into biofuel or industrial alcohol.

It is almost certain to be a main target for abolition. Fischer Boel’s idea is to use the money saved to offer cash incentives over five years for producers to dig up their vines, so cutting the EU’s vineyard area and production.

Another cornerstone of the plan is for country allowances based on historical output. EU nations would get more leeway from Brussels to control vineyard abandonment and perhaps also some extra cash for vines they remove from production.

Vine planting is strictly controlled in the EU, both by area and approved varieties. New plantings are not allowed until mid-2010 except under particular circumstances. Fischer Boel’s idea is to extend that ban until 2013 and then scrap it.