While joining the EU has provided economic advantages for the six wine-producing countries which joined the union in 2004, they have faced increased competition in their home markets while in many cases lacking the quality, consistency and volume to make their mark in the new EU markets to which they now have access. Ben Cooper reports.

In principle, EU entry should have represented an opportunity to the wine industries in the six wine-producing accession states - Cyprus, Czech Republic, Hungary, Malta, Slovakia and Slovenia - but the reality has been somewhat different.

Joining the EU has meant producers have faced far greater competition in their domestic markets, while arguably they lack the products, investment and know-how to compete effectively in the wider EU arena, at least for the short-to-medium term.

The six countries have a combined annual production of around 6m hectolitres, with Hungary by far the largest producer with annual volumes of around 4m hectolitres. But this is a drop in the ocean - or in the wine lake - in comparison with total EU wine production which comes in at between 170 to 180m hectolitres a year.

But it is not only economies of scale which these countries lack in competing with their larger European rivals. These industries have been in many cases deprived of investment and lack export know-how and in many instances the kinds of products required to compete effectively. Not only are these countries now having to compete in their domestic markets with Italian, Spanish and French imports but also with wines from the New World which have already proved to be more than a match for established Old World producers.

In the cruellest twist of all, those countries which would now like to expand their vineyard area to increase economies of scale, or add varieties which may be more suitable for other European markets, are prevented from doing so because they are now subject to strict EU regulations on vineyard planting.

A case to point would be the Czech Republic where it is imported wines which have arguably gained most from the country's entry into the EU, not only because of the removal of import tariffs which have made them more competitive, but also because of limited capacity in domestic production. Many Czech producers would like to plant new vineyards in order to compete better with imported wines but are prevented from doing so by EU regulations. In fact, in the lead-up to accession in May 2004, Czech farmers rushed to plant as many new vines as they could before limits were imposed. Some 3,000 hectares of new vines were planted ahead of the country's EU accession, mostly through aid raised by a levy on growers and vintners. The Czech Republic asked the EU for a derogation on the planting ban but were given permission to plant just an additional 300 hectares over the next five years.

The same situation has to a degree prevailed in the Slovak Republic where domestic producers were not only protected from competition by tariffs but also by the scarcity of domestic production. With the imported wine sector already representing about a third of the market, other wine-producing countries have targeted the Slovakian market, increasing competitive pressure on domestic producers. Some estimates have suggested that imports reduced the domestic producers' share of the market by as much as a quarter in the year since accession.

In cases where the accession states were extensively subsidising their wine industries, such as Cyprus, EU membership has once again hit wine producers, as national subsidies have been replaced by a relatively parsimonious share of EU general funds.

While EU accession in many instances will lead to increased inward investment in the 10 accession states, the wine industries in the six wine-producing countries are not likely to be major beneficiaries, in comparison with areas such as tourism or service industries. Despite it being a growing category in many markets, wine is rarely seen as an obviously attractive investment proposition.  And the returns on offer from investing in the wine industry in accession countries is unlikely to be setting venture capitalists' pulses racing. In addition to requiring structural investment - some of which will be difficult to achieve because of regulation - considerable marketing investment is required to put these countries' wines in the game.

So that puts these nations in something of a Catch-22, with the inherent structural problems which lead to a lack of competitiveness deterring much needed investment that could boost the wines' competitiveness both at home and abroad.

The wine industries of the six wine-producing accession countries and the impact of EU membership are the subject of just-drinks.com's December management briefing. For further details or to download the report, go to: