FOREIGN AGRICULTURAL SERVICE
Common Market Organization
In April 2008, the EU Council of Ministers reformed the Common Market Organization (CMO) for wine. The reform aimed to reduce overproduction, phase out expensive market intervention measures and to make EU wine more competitive on the world market. The European Commission claims that EU wine producers are disadvantaged because they are smaller than major competitors’ in other countries and their production is not adequate to the needs of large-scale retailers. EU wine makes lost market share because of regulatory constraints and ineffective market strategies. Other issues officials hope the CMO will address: increasing production and competition from the New World, a systematic recourse to crisis distillation, an overly cautious grubbing-up policy, exaggerated use of enrichment practices, confusing labeling rules and rigid oenological practices.
Grubbing-up: Grubbing up is when grape growers receive a financial incentive to pull up their grape vines. In the wine reform the EU targeted an area of 175,000 hectares to be grubbed up over a three year period. For 2009, Member States (MS) submitted applications for grubbing up nearly 160,000 hectares, representing 4 percent of the total EU wine grape planted area. After applying a “reduction coefficient” (to accommodate oversubscription for the scheme), the actual area was scaled down to over 73,000 hectares. The 2009 budget for Grubbing-up was €464 million.
For 2010 there is again a substantial oversubscription and the Commission expects a coefficient of 45.9. The budget for 2010 is €334 million. The budget for 2011 is €276 million. The reason for the oversubscription of the grubbing-up program is expected to be the low wine prices, the labor intensity and financial difficulties.
The sums are allocated to interested Member States (MS), which then decides how to distribute the amount. For example, a MS could distribute its allocations to all applicants providing only partial compensation or it could prioritize which applicants are accepted. Last year the two largest priority groups were older people and people who leave the wine production completely. In order to avoid abandonments, specific areas can be exempted from the grubbing-up scheme for environmental reasons. The Commission is currently waiting for MS inputs before notifying what applications they have accepted.
Planting rights: Planting rights is the right for a wine producer to plant vine. There is currently a prohibition of new plantings in place until December 31, 2015, replanting is allowed where producers undertake to grub up equivalent areas planted with vines. This current restrictive planting rights regime in the EU will end on January 1, 2016, however MS are given the possibility to extend the prohibition on their territories until 2018 if they consider doing so necessary.
Single Payment: In order to bring the sector in line with the reformed Common Agricultural Policy (CAP), all areas formerly under vine can claim the status of areas eligible for decoupled single payments. One reason for making these areas eligible for the single payment scheme is to gain the beneficial effects on the environment since this would mean the cross-compliance rules would be applicable i.e. keeping them in good agricultural and environmental condition
National Envelopes: This term refers to a funding budget that each Member State can use according to its own priorities Article 7 of the Wine CMO outlines 11 measures that MS can chooses from to support its wine industry. In 2010, MS plan to use about one third of the funds for wine sector restructuring and conversion. MS plan to use 15 percent for distillation of potable alcohol which will be phased out by July 31, 2012. Restructuring and conversion of the vine yards is done to improve the competitiveness and can include relocation and improvements to vineyard techniques.
Promotion in third-country markets: In the wine CMO there is a possibility for MS to promote wine in third country markets with funding from the National Envelopes. The Community contribution for this may not exceed 50 percent of the eligible expenditure. However, according to the Commission, during the recession promotion is not a priority and it has so far been practically insignificant due to the economic situation, around 5 percent of the funding has been used for this. The Commission estimates that both imports and exports have decreased in 2009, however exports are expected to have decreased more than imports. EU exports of wine to the US are expected to have decreased by about 16 percent in 2009.
Crises Distillation scheme: Crises distillation of wine is one way for the EU to get rid of surplus production. The distillation scheme of surplus wine will be a gradually phased–out. The emergency distillation scheme has a four-year phase out scheme until 2012, going from a maximum of 20 percent of national funding in 2009 to a maximum of 5 percent in 2012. Distilled alcohol must be used in the industrial sector.
Rural Development Funding: There is an overall aim to transfer money from Pillar I into Rural Development (RD). RD is and aspect of the CAP that used to receive very little attention from policy makers, however, as agriculture was taking a declining share in rural employment and there was a growing concern for environmental hazards from intensive livestock and crop production, interest for RD started to increase.
The reason that RD funding is not used more is that MS have to put up some money too in this system. All Rd measures are jointly funded between the EU and national authorities. The rate of EU co-financing varies between 50 and 80 percent depending on what the funding is for and the region. The MS or local authority pays the reminder.
Only three MS have allocated budget for using RD finds for the wine sector: Spain, France and Italy. The total budget for these MS increase from about €40 million in 2009 to €80 million in 2010 and €120 million annually for 2011 and onwards. The largest part of this money is used for education to improve the quality of the wine. Some of this money is also used for environmental purposes, for example to keep the vineyards on slopes where other types of agriculture are difficult and where there is risk of abandonment of land and the cultural environment is important for the region.
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