The revised system of vine-planting rights in Europe comes into effect in 2016

The revised system of vine-planting rights in Europe comes into effect in 2016

Earlier this Summer, the European Union finally agreed on a reform of the region's Common Agriculture Policy. The reform has ramifications for Europe's wine producers. Chris Losh casts his eye over the changes.

News earlier this summer that the European Union is finally set to liberalise vineyard planting will doubtless have been greeted with everything from enthusiasm through sardonic applause to outright derision.

Any cynicism is understandable. The EU has, after all, spent billions of Euros down the years fiddling with the market, and proved itself adept at spending vast sums of money to undo situations that it spent equally vast sums of money creating in the first place.

Could the decision to relax the restrictions on planting rights from the end of 2015 be just such an example?

For those of you who missed it, in 18 months’ time, member states will be able to increase their vineyard area by up to 1% a year, should they wish.

This might not sound like that big a deal. But, in theory, it gives France, for instance, the opportunity to grant planting rights to an extra 8,000 hectares of land.

Given that much of the last 30 years has been spent freezing plantings, and, more recently, paying people to take vines out in an attempt to get supply and demand somewhere approaching equilibrium, the liberalisation looks somewhat contradictory.

The EU has, of course, run a structural surplus for much of the last 40 years – and that's the reason that the area given over to vineyard has been frozen since the late 1980s.

But, it’s only in the last seven years that a concerted attempt has been made to get the industry to stand more on its own two feet.

Big money was put aside for grub-ups, and subsidies for distillation (supposedly only used in years of big production, but routinely abused for systemic overproduction) have gradually been phased out. 

The EU now says it is able to take its foot off the plantings brake because its previous measures have worked. A report from the Commission to the European Parliament last year stated confidently that "market balance has been reached".

Well, yes and no. 

Certainly things are a whole lot better than they used to be. It’s hard to be exact, because of vintage fluctuations, but an average year would see the EU produce around 160m hectolitres of wine. Consumption is now down to around 135m hl, but the region exports about 10m hl more wine than it imports, giving a net market of about 145m hl. 

This means that, in small years like 2012, when pretty much the whole of Europe experienced heavily reduced harvests, the region can, amazingly, be short of wine. In an average year, there is an overproduction of about 15m hl. That's not ideal, but not terrible either.

Even so, supply was intended to be smaller than it is now. When the wine plan was first put together in 2007, it envisaged 450,000 ha of vineyard being taken out, to remove 20m hl of wine from the supply chain.

These figures were watered down (doubtless after heavy lobbying by growers’ bodies) to 175,000 ha, with the vague (and unrealistic) hope that ‘green harvesting’ and ‘restructuring’ of vineyards would soak up a further 10m hl of production. Unsurprisingly, they haven’t; the final irony being that twice as much land (350,000 ha) was put forward for vine removal as was able to be accepted.

The EU has, however, been consistent in stating that their latest set of reforms are not purely about levels of production. Rather, it’s about making sure that the EU has the right kind of wine to sell. 

The pot of money available for vineyard ‘restructuring’ has been enormous - EUR4.2bn (US$5.59bn) from 2001 to 2010 - and has seen vast swathes of unproductive vineyard converted from B-list bush vines of Airen and Carignan to bankable, wire-trained Merlot, Syrah and Chardonnay. Castilla-La Mancha and Languedoc-Roussillon have restructured 16% and 21% of their vineyards, respectively.

Ironically, this restructuring tends to increase yields, thereby working against the aim of bringing supply and demand into balance. Spain’s yields, for instance, are twice what they were 25 years ago. There’s some concern, too, about the tendency of countries like France to concentrate their budget on restructuring rather than grubbing up. Is every grower in France selling their production at a profit? Really?

If they’re not, they could be in trouble. From here on in the EU is keen that the market decides the market. Distillation subsidies have gone. Grub-up incentives have gone. Producers of wine that nobody wants should, in theory, soon be gone too.

And, if in-demand regions want to increase their vineyard area, they’ll need to take far more responsibility for selling the stuff than they have in the past. "Producers," concludes the EU in its report, "will only plant if they are sure of a commercial outlet."

Sadly, I’m not entirely sure that I share their confidence. 

While supply and demand are better than they were, they are still not fully in balance. A couple of big vintages would make that very clear. Even if uneconomic growers drift away unsubsidised, they aren’t likely to do so in sufficient numbers to make a difference, with any fall in production merely keeping pace with the ongoing fall in domestic consumption.

Plus, there’s an entrenched culture of irresponsibility in European agriculture that isn’t going to change overnight. If there’s too much wine, and prices drop, will the EU stand by while uneconomic producers riot in the streets? I doubt it.

Spain, for instance, has allocated a third of its pot of money over the last four years (EUR450m) for ‘Single Payment Scheme’ funding – essentially bailing out producers who no longer receive distillation subsidies. This, clearly, is not in keeping with the EU’s aim of making the region more hard-nosed and commercial. Yet, it’s permitted.

So, much as I agree with the overall direction in which the EU is going, I don’t think it should be allowing new plantings until production is genuinely in line with demand and the organisation has proved that it has the stomach to watch unviable businesses fail. 

The evidence so far is that, on both of these issues, they talk a better game than they play. In which case, adding more vineyards into the mix can only make things worse.