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Those who have visited the Douro valley in Portugal will agree that it is a unique place. But scratch beneath the surface of this beautiful region and that uniqueness runs deep. So deep, indeed, that the laws of market forces appear not to apply. Chris Losh takes a look at  the beneficio system, and the hornets nest it has stirred up in the Douro.

Travel through the Douro and you can't help but be reminded of the opening line of LP Hartley's novel, The Go-Between: 'The past is a different country, they do things differently there.'

There are, of course, electricity, motorways and even mobile signals in the Douro now. But set against this is also the beneficio system. The granting of licences to growers to make Port, it was set up in the 1930s, and its age is starting to show, with a number of shippers in the region increasingly vocal in their criticism.

There are two main reasons for the beneficio: firstly, it allows the industry to control the overall production; secondly, it spreads the wealth around, giving a broad supply base in which the many earn a little, rather than the few earn a lot.

In both these areas, it has been successful. Port sales might be less than buoyant, but there is no Aussie style glut, and at a time when there is a general flight from country to town, there are still plenty of vineyards in the region.

The problem is that its 1930s style social and economic engineering is a long way from the free market, and the growth of table wines has thrown something of a curve-ball into the mix.

Growers do not need to have a beneficio to grow table wine, and there is a big dislocation between grape prices that carry the Port beneficio and those that don't. Grapes with the beneficio go for EUR1,000 per pipe (1 litre = around 550 litres); table wines (without the beneficio) for considerably less.

"[As a grower] you're getting four times as much for making the wine into Port - the only difference is a piece of paper," says Adrian Bridge, MD of The Fladgate Partnership.

This imbalance in price means that, in effect, the Port industry is subsidising the table wine industry. Growers are able to sell their excess grapes at competitive prices simply because they are being paid over the odds for their Port wine grapes.

As one shipper put it, "The Douro is an expensive place to grow grapes. There's no way the farmers would be able to sell table wine grapes at EUR250 per pipe. They can only do it because they're getting four times as much for their Port grapes."

While it goes without saying that having the beneficio system makes Port intrinsically more expensive, removing market forces from the equation also means there is less incentive for growers to pursue quality, at least for their Port grapes. That block of old-vine Touriga, worth EUR500 per pipe? Sell that to the table wine producers at market rate, and shift the inferior grapes to the Port houses, for twice the price...

"There's a shortage of quality grapes in the Douro, and there's no incentive for the farmer to grow his best grapes," says Bridge. "You can deliver rotten grapes to a co-op with a piece of paper and it doesn't matter."

Not everyone is so dismissive of the system as Bridge, though. Paul Symington, MD of Symington Family wines, believes that it is essential for the region and that simply allowing the free market to take effect could be "catastrophic".

"You could argue "let's destroy everything and see what survives", but that's the nuclear option that could only be suggested by someone who doesn't understand 300 years of history," he counters.

Nonetheless, Symington does believe that the system needs some modification, partly to address the imbalance between Port and wine prices, but also to revisit the way vineyards are classified. The current classification system rates vineyards from A down to F, but while it's broadly accurate, it doesn't take into account such factors as grape varietal (some, obviously, are better than others) or altitude.

Global warming is making the latter, in particular, ever more of an issue. With half the normal rainfall for each of the last three years, vineyards at 450m are doing significantly better than those at 150m - a factor which is not recognised by the current classifications.

Ironically, in hot dry summers such as 2009, where yields are naturally low, the beneficio system (which to a large extent props up an uneconomic table wine model) starts to work against table wine.

Instead of having slack in the system, with growers selling excess grapes to table wine producers at low prices, everything tightens up. The high prices guaranteed by the beneficio means that growers will inevitably sell what they can to the Port houses first, leaving a shortfall in table wine.

Certainly, there is some attraction to the idea of stripping away some of the unfairness inevitable in a system that is so political in nature. Not least the idea that it might create wealth by enabling smaller producers to make a go of making their own table wine, free from the distorting effects of the beneficio.

But while some modification is clearly necessary, radical changes are unlikely. "Letting economics rule, and saying "devil take the hindmost" would be like shutting down South Wales," says Symington bluntly. "The Douro valley lives on grapes alone. There is no other industry. We do need changes, but we have to be very careful how we make these changes. We're playing with the entire social fabric of the region."

And since this would be political suicide, for the moment, at least, the Douro will remain a place where they 'do things differently' for some time to come.

Sectors: Wine

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