European Wine: a Better Deal for All

HOUSE OF LORDS

European Union Committee

30th Report of Session 2006–07

European Wine: A Better Deal for All

Volume II: Evidence

Ordered to be printed 17 July 2007 and published 23 July 2007

Published by the Authority of the House of Lords

London : The Stationery Office Limited £price

HL Paper 144–II

CONTENTS

Page

Oral Evidence Mr. Jeremy Cowper, Deputy Director and Head of Crops, Plants and Products Division, Mr. Robin Manning, Head of Cereals and Wine Branch, and Ms. Simone Pfuderer, Economic Adviser to Cereals and Wine Branch, Department of Environment, Food and Rural Affairs Written evidence 1 Oral evidence, 7 February 2007 6

Mr. David Statham, Director of Enforcement Group, and Mrs. Sarah Appleby, Head of Imported Foods Division, Foods Standards Agency Written evidence 22 Oral evidence, 21 February 2007 26

Mr. John Corbett-Milward, Head of Technical and Internal Affairs, Wine and Spirits Trade Association, Mr. Philip Goodband, Consultant to Constellation (Europe), and Mr. Patrick McGrath, Managing Director, Hatch Mansfield (SME importer) and Chairman, WSTA Wine Importers Panel Written Evidence 36 Oral evidence, 28 February 2007 45

Mr. José Ramón Fernandez, Secretary General, Comité Européen des Entreprises Vins (CEEV) Oral evidence, 7 March 2007 56

Ms. Eva Corral, Head of Wine Sector Division, COPA-COGECA Oral evidence, 7 March 2007 66

Ms. Katerina Batzelli, a Member of the European Parliament, EP Rapporteur for the Commission 2006 Communication, European Parliament Oral Evidence, 7 March 2007 76

Mr. Guiseppe Castiglione, a Member of the European Parliament, EP Rapporteur for the Commission 2007 Legislative Proposal, European Parliament Oral evidence, 7 March 2007 80

Mr. Lars Hoelgaard, Deputy Director General, DG Agriculture, Ms. Lene Naesager, Member of Fischer Boel Cabinet, Mr. Emmanuel Jacquin, Head of Unit and Mr. Dooley, Deputy Head of Unit of the Wine Reform Unit, European Commission Letter from the European Commission 85 Oral evidence, 7 March 2007 85

Mr. Zoltán Somogyi, Hungarian SCA Deputy Spokesman Oral evidence, 8 March 2007 100

Mr. Luigi Polizzi, Italian SCA Spokesman Oral evidence, 8 March 2007 108

Mr. Dietrich Guth, German SCA Spokesman Oral evidence, 8 March 2007 117

Mr. Bertrand Guillou, French SCA Spokesman Oral evidence, 8 March 2007 125

Mr. Michael Paul, Chairman, Wine Intelligence Written evidence 130 Oral evidence, 14 March 2007 132

Mr. Robert Beardsmore, General Secretary, Mr. Robert Lindo, Chairman, United Kingdom Vineyards Association, Mr. Michael Roberts, Proprietor of Ridgeview Wine Estate, and Mr. Owen Elias, Winemaker at Chapel Down Written evidence 141 Oral evidence, 21 March 2007 144

Mr. Julian Dyer, Senior Wine Buyer, Sainsburys plc, and Mr. Dan Jago, Category Director – Beers, Wines and Spirits, Tesco Oral evidence, 2 May 2007 159

Mr. Philip Gregan, Chief Executive Officer, New Zealand Winegrowers Written evidence 171 Oral evidence, 16 May 2007 175

Mr. Claude Magnier, Regional Director, Mr. Bernard Clarimont, and Mr. Jean François Solere, Regional Directorate of Agriculture and Forestry Oral evidence, 21 May 2007 185

Mr. Jean-Louis Alaux, President, Mr. Jean-Marie Fabre, Secretary General, and Mr. Jean-Luc Fabry, Director, FVIA Oral evidence, 21 May 2007 192

Mr. Alain Vironneau, President, Mr. Dennis Johnston, President of the CIVB Economic Commission and Member of the Board, and Mr. Philippe Casteja, Former President of the CIVB, President of the Federation of Exporters of Wines and Spirits, Conseil Interprofessional du Vin de Bordeaux Oral evidence, 22 May 2007 198

Senator Gerard Cesar, Member of the French Upper House Oral evidence, 22 May 2007 205

Mr. Claude Mailleau, Departmental Delegate, and Mr. Jacky Bonotaux, Economic Specialist, Agricultural Ministry Local Office, DRAF Oral evidence, 23 May 2007 210

Written Evidence Australian Wine and Brandy Corporation 217 New Zealand High Commission 219 World Wildlife Foundation 223

The Report of the Committee is published in Volume I (HL Paper 144-I) and the Evidence is published in Volume II (HL Paper 144-II) 3714281001 Page Type [Ex 1] 19-07-07 00:32:52 Pag Table: LOENEW PPSysB Unit: PAG1

Minutes of Evidence

TAKEN BEFORE THE SELECT COMMITTEE ON THE EUROPEAN UNION (SUB-COMMITTEE D)

WEDNESDAY 7 FEBRUARY 2007

Present Bach, L Palmer, L Brookeborough, V Plumb, L Jones of Whitchurch, B Sewel, L (Chairman) Moynihan, L

Memorandum by the Department for Environment, Food and Rural Affairs

General Introduction

The EU is the world’s major wine producer, with over 45% of total growing area and 60% of production. This represents around 10% of the value of agricultural production in about a quarter of Member States, with as many again having an active industry interest. The EU also accounts for 60% of global consumption and is the leading exporter and largest import market. The EU wine regime was first established in the 1960s. Its aims are consistent with the objectives of the Common Agricultural Policy, in particular, to stabilise markets, ensure a fair standard of living for agricultural communities, and ensure fair competition within the Single Market. The regime contains all of the basic components of classic CAP support measures, including: — support of internal prices through planting restrictions, storage and distillation arrangements; — protection from low priced imports through a duty system; and — export refunds to facilitate external sales into markets with lower prevailing prices. In addition, the regime includes a complex set of rules on wine-making practices and labelling. The regime has been adapted several times since it was first introduced. For example, during the 1980s, the response to budgetary pressures and concerns about structural surpluses was a modification away from intervention by price support towards measures to better balance production and use, via the introduction of compulsory distillation and a ban on the planting of new vines. The most recent modification was brought about in 1999—and it is clear that substantial further reform is needed now in order to improve the sustainability of the sector. The relative competitiveness of the sector has been steadily eroding under strong price and quality pressure, particularly from so-called “New World” wines. EU stocks are now equal to a year’s consumption, despite “crisis” action in four of the last six years to aid disposal. Such actions serve to disguise but fail to address the underlying problems and the wine sector is now seriously out of line with other already reformed CAP sectors. The latest Commission forecasts put the budgetary cost of the present arrangements in 2007 at 1.5 billion euros, of which 500 million euros would be for further “crisis” measures. On 22 June 2006, the Commission set out its options for the reform of the European wine regime in a paper entitled “Towards a sustainable European wine sector”.1 The Commission intends that this consultation paper will form the first stage of the policy making process. The objectives of reform are to bring into being a wine regime that: — increases the competitiveness of the EU’s wine producers; strengthens the reputation of EU quality wine as the best in the world; recovers old markets and wins new ones in the EU and worldwide; 1 http://ec.europa.eu/agriculture/capreform/wine/index—en.htm 3714281001 Page Type [E] 19-07-07 00:32:52 Pag Table: LOENEW PPSysB Unit: PAG1

2 european wine: a better deal for all: evidence

— operates through clear, simple and eVective rules that ensure balance between supply and demand; and — preserves the best traditions of EU wine production and reinforces the social and environmental fabric of many rural areas, and ensures that all wine production respects the environment. We expect that the Commission will present formal proposals for the reform of the wine regime this spring, 2007.

Defra’s response appears in bold beneath each question

A. The Need for a Regulation

A wine regime has existed within the CAP since the 1960s, and producers have adapted to the current regime. However, the Government set out its overall position on the CAP in the 2005 document “A Vision for the Common Agricultural Policy”,2 including the elements which would need to be in place to comprise a sustainable CAP, and this applies as much to the wine production sector as to any other. It is clear that the existing support arrangements for wine do not deliver value for money to taxpayers, nor do they act to improve the sustainability of the sector. In discussions on the Commission’s options paper, Defra has argued that in order to achieve the long-term sustainability of the sector, a deregulatory approach along the lines of Options 3 or 4 should be the aim. However, we recognise that a rapid switch to one of these options carries certain risks and that there may be a need to continue to provide a regulatory framework, but one which will allow the market to operate freely and indeed encourage and facilitate it to do so more eVectively than might otherwise be the case. In the longer term we consider that farm incomes will be best maintained by the existence of a competitive, sustainable and subsidy free EU wine industry. Defra believes that there is a case for laying down rules on labelling and wine-making practices at an EU level to ensure the provision of consumer information and fair competition. But such rules should be aimed at the consumer, and wine making practices should be aligned with those set down at an international level through the OIV (International Organisation of Vine and Wine).

Defra believes that EU wine making practices should be aligned with the OIV, thereby establishing a baseline that meets international standards. This will allow producers the maximum opportunity and flexibility to adjust production to meet changing consumer demands and export opportunities. In order to allow EU producers to compete more eVectively with third country wines, arbitrary quality-related provisions must be eliminated eg the measures under current rules which permit reference to the vine variety on the label only of quality and table wine with a geographical indication (GI). The use of geographical indications in the wine sector is widespread and can certainly represent an asset in an overall food and drink market place in which consumers are increasingly interested in provenance and quality and in information to inform their choice. Indeed, the use and success of GIs in the food sector is widely acknowledged to be based on the example of Appellation Controlee. Some GIs, such as Champagne or Port, are widely recognised as representing a good quality product from a particular region, and use of the term is conditional on producers maintaining defined higher standards. Defra strongly supports the concept of marketing products based on quality, local reputation or other specific consumer-targeted characteristics which serve to distinguish them from other products on the market, so long as they do actually relate to attributes that add value in the mind of the consumer and inform choice. GIs can help in this; but if, on the other hand, they serve to insulate the producer from the market, for example by encouraging the continuing production of a wine that the market does not value, they not only harm the producer, but also devalue the concept in the mind of the consumer—even if the prescribed standards are maintained. We are concerned that the underlying driver for the proliferation of GIs in the wine 2 http://www.defra.gov.uk/farm/capreform/vision.htm 3714281001 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 3 sector, where there are over 10,000, appears to be a producer—rather than a consumer—or market-focus. We feel that use of a GI in the European wine sector may have become a matter of formula when in reality many such wines lack the key qualifying criteria to set them apart from other products. We therefore support the Commission’s view that wine should be brought within horizontal quality policy governing Protected Geographical Indications (PGIs) and Protected Designations of Origin (PGOs). We also recognise there is a strong case for other approaches to marketing to be considered, for instance linking style, quality and distinctiveness with a strong brand or trademark.

B. The Market

3. Given the existence of a wine regime, how might a better balance be achieved between the supply of and demand for wine and wine products produced within the EU?

EU wine production signiﬁcantly exceeds market needs, and with imports taking an increasing share of a decreasing market, this situation can be expected to deteriorate unless remedial action is taken. In its impact assessment attached to the options paper, the Commission forecasts that on the basis of expected trends, excess wine production will increase to 27 million hl (15% of production) by 2010–11.3 The current regime protects ineYcient and poor quality producers and prevents producers who have developed strong market demand for their wine from expanding.

Defra believes that it is important to remove the incentives that currently exist to over produce, and to establish a framework under which the sector is better able to respond to the demands of consumers and compete more eVectively on the EU and world market. The Commission’s recent communication identiﬁed a number of options to achieve this. Defra is looking forward to seeing the Commission’s proposals, which are now expected in spring 2007.

4. Is the EU wine industry, within the current regime, sufﬁciently competitive within the global wine market? How can it be made more so?

On the basis of the analysis attached to the Commission’s options paper of last year, the answer, at a general level, is clearly, no. The EU wine regime costs EU taxpayers ƒ1.5 billion a year, of which ƒ600m is earmarked to store and dispose of surplus production. However, the picture is a very varied one, with some producers in all wine- producing countries demonstrating marked success in traditional and new market segments. The English wine industry, whilst small in global terms, is enjoying a period of sustained growth and has achieved success in international wine competitions.

Defra believes that in order for the EU wine industry to become more competitive, it will be necessary to establish a framework which facilitates the greater market orientation of EU wine production, for example through: — better understanding of the market and greater responsiveness to it; — greater capacity and willingness to adapt supply to demand; — building on the sector’s heritage and other competitive advantages including its skills and technological capacity; — removal of the link between production and the payment of aid; — clearing the way for eYcient, market-focused producers to expand and re-capture market share from third country wines —for example by providing for simpler and clearer labelling and delivering a consistent product to meet consumer wishes; — aligning EU wine making practices with international minimum requirements through the OIV; and — establishing more collaborative supply chains. 3 Includes quantities distilled with aid to the potable alcohol sector. 3714281001 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

4 european wine: a better deal for all: evidence

The Government strongly supports the successful conclusion of the Doha Development Agenda (DDA). Speciﬁc agreements cover trade with most suppliers to the EU market, and on wine these serve to oVer a good level of protection to established EU names, terms and GIs. The major impact of a successful DDA agreement on the wine sector is likely to result from changes to domestic support arrangements, such as crisis distillation, which we expect will be addressed in the Commission’s wine reform proposals anyway. In the longer term, we consider that farm incomes will be best protected by the existence of a competitive and sustainable EU wine industry, whilst protection of GIs etc should be made more consistent with international agreements under WTO-TRIPs.

C. Structural Measures

As indicated in our answer to Question 4, the current measures are ineVective at balancing supply and demand, and planting restrictions hamper the eYciency and adaptability of the sector. Defra believes that the design of rural development measures should be undertaken by individual Member States in order to ﬁnd the best solutions for local environmental and social concerns. However, it is important that such measures do not perpetuate the current market instruments (such as crisis distillation), and we believe it would be appropriate to establish a list of possible measures that can be applied for example relating to agri-environment or early retirement.

7. How signiﬁcant an issue is illicit planting for the supply situation?

Defra is unable to comment on how signiﬁcant an issue illicit planting is. However, we expect the Member States concerned and the Commission to ensure that CAP rules are applied in order to ensure fair competition.

8. Is there a case for the continuance of remedial measures (“crisis distillation”) to deal with exceptional market conditions?

Defra is not convinced there is a case for Community measures once the regime is fully reformed. Indeed, we believe that their provision would risk hampering eVorts to establish a competitive and sustainable wine sector and put pressure on the Commission to intervene in the market. This would not preclude Member States from taking nationally funded measures in exceptional circumstances in compliance with state aid rules.

9. What alternative outlets (ie other than wine sales) exist for excess production?

Defra is not aware of any signiﬁcant alternative outlets. The commercial distillation of some wine will continue to be necessary for the production of certain wine spirits (such as Cognac) and food products, but its use as a method for controlling structural surplus is not sustainable. Alcohol production for industrial or fuel uses can be derived more eYciently from other agricultural sources.

10. What is the potential impact on wine producing areas of liberalisation of the market? How sensitive are these economies to change?

Defra recognises that there are socio-economic and environmental concerns about the liberalisation of the wine sector in certain parts of the Community. The Commission identiﬁed these issues as a concern in its wine reform options paper last year and, as indicated in our answer to Question 6, Defra supports the Commission’s view that they are best addressed through rural development measures. 3714281001 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 5

D. Marketing

12. Given continuance of an EU wine regime, what are your views on labelling and quality issues? Are current arrangements conducive to consumers understanding what they are buying? Is there scope for rationalisation and simpliﬁcation? Defra believes that recent successes of third country producers in capturing market share in an established market needs to be carefully considered. We are aware that clear, eVective labelling based around promotion of brands and varieties, consistent quality and competitive pricing based on target price bands has proved to be successful. Some EU producers are adopting similar approaches and proving that they work for them also. We do not however feel that this will be the case for all. Some producers who operate under a strong GI will continue to see beneﬁts from this, provided quality is maintained and prices remain competitive in relation to the value perceived by the customer. A reformed regime should not seek to compromise any legitimate marketing tactics employed by producers.

13. What part has marketing played in the rise in sales within the EU of wine produced outside the Community?

14. What lessons might be learned from the penetration of non-EU wines into the EU market? Australia is now the major supplier of wine to the UK market, recently overtaking France. Other southern hemisphere producers are also increasing their penetration in northern European countries. Defra believes that other respondents to the House of Lords questionnaire will be better able to comment on the role that marketing has played in this success. But, the policy of many third country producers to label and promote their wines through brand and vine variety, with a good reputation for ensuring consistent quality, continuity of supply, strong pricing and promotional activities with the retailers has enabled many producers to become household names in the UK.

E. Wine Making Practices (WMP)

15. How suited are current regulations on WMP to a competitive global market in wine? What changes would you like to see? Defra’s position on wine-making practices is set out in our answer to Question 2. We believe that this is important in order to establish a level playing ﬁeld for EU wine producers with those in third countries. Wine making standards set by the OIV are the benchmark for wine production worldwide, yet the EU still seeks to ﬁlter these practices on the grounds of maintaining traditional wine production. Furthermore, the current process for the inclusion of OIV methods into EU legislation is slow and cumbersome and we support the idea outlined in the Commission’s options paper of streamlining the system.

16. How should enrichment (with sugar or must) be regulated? Should there be ﬁnancial aid for enrichment? Enrichment of wines with sugar or grape must (juice) is important in northern countries, which do not receive as much sunshine during the ripening period as countries in the south of the Community. Wine makers therefore need the possibility of enrichment in order for their wines to achieve the necessary alcohol levels. Indeed the opposite happens in the south of the Community where the possibility exists of acidifying wines when sugar levels are too high. Defra does not agree with the ideas outlined in the Commission’s options paper, either to reduce the level of enrichment that is possible, or to ban the use of sugar as an enriching agent. Both ideas would increase costs of production and the limitation on enrichment could aVect the viability of production in northern countries. Furthermore, both suggestions are inconsistent with the overall objective of achieving a competitive, market oriented wine regime. Subject to the achievement of this objective, Defra does not see a need for any ﬁnancial aid for enrichment. 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

6 european wine: a better deal for all: evidence

F. Environmental and Social Impact

17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Are measures needed to support good environmental impact? Should they be selective? One of our aims for wine reform is that it should provide a framework in which wine producers deliver a net positive contribution to the environment, and that any public support should be directed towards this—rather than assisting in the production or disposal of produce. In our initial Regulatory Impact Assessment,4 we drew attention to the fact that the main potential negative impacts of wine production are soil erosion, compaction of soil, water pollution through the use of fungicides, impacts on biodiversity through the use of plant protection products and waste disposal. However, wine growing can also have a positive impact in terms of absorbing carbon dioxide and countering the eVects of desertiﬁcation. The overall environmental impact will often depend on the area and intensity of production and the competence of the grower. The Commission believes that around 57% of the area under vine is already subject to some form of cross compliance requirements, as a consequence of other agricultural activities on the farms. We are aware that organic production has been steadily increasing in response to growing consumer demand for a more environmentally and ecologically sound product. While grape production can be classed as organic, wine made from them cannot, as all production methods fall outside the scope of the EU organic standards. The EU organic standards are currently being reviewed and wine making practices will be brought within its scope, though it will take a little while to put in place detailed measures. As production of “organic wine” becomes possible, it should serve to encourage more producers to convert to organic production methods, with beneﬁts to the environment and further market orientation of the sector.

18. To what extent and how should reform of the EU wine regime take into account concerns over the potential for alcohol abuse? The Government is working closely with the Commission on its alcohol strategy to ensure that the harm caused by excessive alcohol consumption is reduced. The main aim of the wine reform is to improve the sustainability of the sector and pave the way for EU producers to win a greater share of the EU wine market, rather than to increase the size of that market. The Commission in its Impact Assessment indicates that the abolition of the subsidised potable alcohol distillation and, more generally, the aim of reducing surpluses through a better market orientation of the production, are likely to have a positive rather than negative impact on public health. The Government is not currently in a position to assess any impact or its scale. February 2007

Examination of Witnesses Witnesses: Mr Jeremy Cowper, Deputy Director and Head of Crops, Plants and Produce Division, Mr Robin Manning, Head of Cereals and Wine Branch and Ms Simone Pfuderer, Economic Adviser to Cereals and Wine Branch, Defra, examined.

Q1 Chairman: Welcome, good morning and thank Mr Cowper: Yes, thank you very much indeed for you for coming to help us with the beginnings of our giving us the opportunity to come here today to give inquiry—we are just at the very start of this. Our view evidence. I am Jeremy Cowper, and can I introduce is that, although in the United Kingdom at the my colleagues? Robin Manning is the Head of our moment we do not have a big stake in a domestic Cereals and Wine Branch and knows a lot about wine industry, clearly it is of signiﬁcance, at the very CAP regimes. Simone Pfuderer is the Economic least, because of the amount of resource it takes up in Adviser on CAP crops regimes and also some the European Union, and that is why we decided to livestock regimes. Since the beginning of this year I do this inquiry. At the beginning of these sessions I have been the Head of our Crops, Plants and Produce always have to start with a long rigmarole, which is Division, which embraces the wine regime, so I am that you will be aware that this is being recorded and quite new to this. In fact, we are all relatively new on maybe broadcast or webcast. Also, you will get a the wine sector, but we hope certainly to make a copy of the uncorrected transcript and you can contribution to your inquiry and to learn from it, respond to that as you wish. Would you like to certainly from what you think and from the other introduce yourselves and then we can get on with the evidence that is given. Would it be all right, Lord questions? Sewel, if I make some opening remarks? 4 http://www.defra.gov.uk/corporate/consult/wine-reform/defra-initialria.pdf 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 7

7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer

Q2 Chairman: Yes, please do. Defra’s family but is now part of the FSA—who Mr Cowper: I hope you have received the written enforce the labelling rules at industry and trade level, evidence that we gave, which was very useful for us in maintain the register of UK vineyards and who check sorting out our thoughts, as indeed this whole the volumes of wine produced. The enforcement of exercise has been in making us look at a number of wine labelling and so at the retail level falls to local aspects of the regime and the possibility of the authorities, the Environmental Health OYcers and reform. Defra is the lead department for the Trading Standards OYcers. Defra leads on policy Common Agricultural Policy and so we are and we have to bear in mind our various stakeholder responsible in this context for the Common Market groups—five stakeholder groups—and in particular, Organisation in wine—the CMO, as we call it. It is first of all of course, taxpayers. As you have one of 20 or more commodities for which a CMO observed, the wine CMO is expensive, it costs around exists and the aim of the CMO is to stabilise markets, one and a half billion euros, about £1 billion a year, to ensure a fair standard of living for agricultural just under. It is one of the most expensive CMOs and communities and to ensure fair competition within clearly the issue of whether it is delivering value for the single market. To achieve this the CMO includes money is a very important one and how we can make many of the classic instruments found in Community it less expensive and better value. As we mentioned, regimes, including measures aimed at supporting and the English and Welsh wine industry is small but protecting the internal market and provision to assist growing quickly. It is a good example of a sector, that exports. This CMO is slightly unusual because it is responding to the market, that is market includes a complex set of rules on wine making orientated, as far as we can see, and we want to practices and labelling, which are designed to ensure facilitate the continuation of that growth. Clearly the maintenance of standards and protection of UK consumers get through quite a lot of wine and consumers. Wine is a significantly important they need assurances that wine will be produced to commodity in many Member States. As you have certain standards, and the FSA oversees that health observed, we have a small sector ourselves but in and safety are protected and that labelling is clear France, Italy and Austria it is around 10% of and contains certain basic information. We also have agricultural production, and also in Portugal; and in a stakeholder, the environment. Clearly a certain total it is about 5.4% of total EU agricultural output, basic framework needs to be in place to ensure that and I think it is about 15% of employed labour in wine production is environmentally sound. Defra— agriculture. Our domestic industry in England and the Government—has an aim that in fact agricultural Wales is small but growing quickly, producing high (viticultural) practice should, if possible, make a net quality products that are very much sought after in positive contribution to the environment, and that is the market in their own niche, and command a clearly moving up the agenda and increasing premium, and I believe that some are winning emphasis. Then in trade the UK is a centre of the prestigious international awards. Because of its size the domestic production sector is largely operating world’s wine trade and we need to ensure that outside the CMO. We have not reached the 25,000 discussions in Brussels and reform discussions hectolitre rolling average over five years. provide a balance between production issues and trade issues. So those are the sort of stakeholder bases that we want to be sensitive to and responsive to. We Q3 Chairman: Are we getting quite close to that have a fairly small new team in Defra on wine; three threshold now? in full time equivalents; there are about five or six of Mr Cowper: Yes, I think so; we are up to 18, 19. us who get involved from time to time. We aim to Mr Manning: Yes, and the maximum is probably contribute fully to the discussions in Brussels on the around 18,000 or 19,000 hectolitres, and an issue for management of the Common Market Organisation, the industry is the fact that they are moving towards so we attend management committees and so on, and this 25,000 hectolitres limit and we will be talking a we will be playing, we hope, an active role in the little more about this in our evidence later on. negotiation of the revised CMO when the proposals Mr Cowper: But at the moment they get no direct are received later this year. Clearly we hope that this support from the regime. Of course, the corollary is Committee’s work will help us to advise Ministers in that they are able to expand production up to that their response to the proposals when they come out. limit in response to market signals in a way that the Chairman: Thank you very much indeed. larger countries that are already part of the CMO are not currently able to do. Our own industry is bound by EU rules on wine making practices and on the Q4 Lord Palmer: My Lord Chairman, could I ask labelling rules. At Defra we share a responsibility for one question? I am not sure whether I picked it up the wine CMO here with the Food Standards correctly, you talked about 15% of the workforce. Is Agency, our colleagues in the FSA, who have the that the European Union which is involved in the Wine Standards Board—which used to be part of wine sector? 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

8 european wine: a better deal for all: evidence

7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer

Mr Cowper: If I have the figure right, it is that about Mr Cowper: Yes. 15% of employee input into agriculture is in connection with wine production. Q10 Chairman: How influential do you think that we are going to be in the revision of the regime when Q5 Lord Palmer: 15% of the agriculture workforce is some countries have the big battalions working for involved in wine? them? Mr Cowper: I think our influence will, to some extent, Mr Manning: I think there are 1.5 million whole depend on how well prepared we are and the weight units—is that what they call it?—whole work units, of the points that we make. Clearly in some sense we which is the full time equivalents involved in have other countries—France, Italy, Spain, Portugal, viticulture and wine production. But, of course, that the very big producers—who will have a much covers many more people because not everybody is greater interest and therefore will carry a lot of doing it all the time, obviously, with the grape weight. They have the detailed concerns about many, growing, and it is a family business as well. But that many people; in certain regions, of course, is their estimate. Yes, 15% of agricultural work is viticulture, wine production, is a very important part what the Commission say; they describe that as the of the socio-economic fabric, but I do not think we input of 1.5 million annual working units. could make those sorts of arguments. None the less, Lord Palmer: Thank you very much. I think we are an important part of the wine trade— we have some production experience—and we would hope, certainly as a contributor to the Common Q6 Lord Plumb: My Lord Chairman, just to follow Agricultural Policy in terms of money, that we would up on that, does that include the whole process, the be able to play a proper part in those discussions. bottling and labelling and all the things that go with it? The reason I raise that is that, if you make a comparison between food production and wine Q11 Chairman: The “It is our money” argument production, we hear it regularly said that there is only comes to the fore. two% of the people involved in producing food, but Mr Cowper: Clearly the wine producing countries it is 10% if you add in the rest I am wondering how obviously have diVerences between the north and the that compares, because it could be a bit misleading if south,—the southern Mediterranean countries. I you are using that figure for wine and a totally think some people may hope that the UK, with some diVerent one for food. of the other northern Europeans, may be able to— Mr Cowper: We think that is the agricultural bit not necessarily group together but perhaps form rather than the labelling and bottling. some kind of coherent view more about the trading aspects and the less producer—orientated aspects of the regime, so that we ought to be able to be Q7 Lord Plumb: Really? influential. Mr Manning: I was going to say that these figures are Mr Manning: I was going to add one further point, taken from the Commission’s impact assessment and and that is that the key player is really the in it they say that the wine sector is composed of 1.5 Commission in all of this. Having looked at the work million holdings, utilising a vine area of 3.4 million that the Commission did in June in terms of the hectares, which is two% of the total agricultural area, Options Paper and the Communication, it is quite which we referred to just now. But it employs 1.5 clear that they are going to be very near to what we million annual working units, which is about 15% of want to see as the end result of this, and we are very agricultural work, so I think all of those figures we pleased with the way that the Commission has have given you relate to the actual cultivation of the entered into this process. We think that they have vines, the production of the grapes—it does not cover done an excellent piece of work in working out the the downstream end of that. impact and working out the course that we need to go. From that point of view, whilst we are small in terms of production and small in terms of the number Q8 Viscount Brookeborough: But the two% in food of people who are working in Defra on it, it will be an production would be two% of all the working important dossier for us and we will obviously seek population. to use our influence both with the Commission, who Mr Manning: Yes. I think we are very close with already, but also, as Jeremy says, in terms of building alliances with other northern Member States, who we are likely to have a Q9 Chairman: Can I again follow up something that large degree in common with, not only non- you said? You mentioned that you have three full producers like the Netherlands and Denmark, but time equivalents in Defra working on wine. countries like Germany, who have a substantive wine 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer industry themselves but who share many of the same mentioned already. High taxpayer costs—we have views and criticisms that we do in this. mentioned that already—the wine regime is about ƒ1.4, ƒ1.5 billion a year, about £1 billion a year. One of the things which is preventing the wine industry Q12 Chairman: That leads nicely on to the first developing is the current restrictions which exist on question. You say that the Commission has made it the planting of new vines, and this means eVectively fairly clear that they are up for a degree of radical that the most eYcient, the most innovative, the most form and that there is an urgent need for profound entrepreneurial producers in the Community are not reform because of the present structural weaknesses able to expand their production, whereas the less in the regime. Your evidence does again indicate that eYcient, the less market-orientated are just the Government shares this view. Can you briefly continuing to produce wine, and that is clearly an sketch out for us what you think the Government’s unsustainable situation. I think it is fair to say that perceptions are of the strengths, if any, of the present regime, and the weaknesses; and where you would there is significant over-regulation in the sector in like to see the major reforms coming? terms of what producers can put on their labels in Mr Manning: I will start oV on that question. In terms terms of the information that they can make of the strengths of the EU wine industry, firstly there available to consumers. It is quite clear to us that is history and heritage—wine production started in these are issues which the New World wines have the European Union. We have some of the strongest identified in terms of marketing and labelling, which brands, some of the strongest heritage and a very really show the direction in which we ought to be strong performance in terms of quality. Good EU thinking about going in the future. In terms of the wine has enjoyed a wide reputation for quality. We changes that Defra would like to see, the first thing have some of the strongest Geographical we would like to say is that we fully support the Indications—if you think of champagne and if you Commission’s analysis of the problems facing the think of port, world-renowned types of wine. The sector and we support their objectives for the reform Community is a very big exporter of wine—in 2005 of the regime, and these are around increasing something like 13 million hectolitres. Then there are competitiveness, about having simpler and clearer all the softer things associated with wine production rules and preserving the best traditions of wine in the Community, such as landscape, tourists being production. So taking those, if you like, as headline attracted to wine growing areas, wine growing themes, what Defra would like to see is, firstly, providing some environmental benefits in terms of measures introduced to stabilise production, and so the activity taking place in areas which may not be we think what must happen is that there needs to be that suitable for other types of production. So very a very radical move towards greater market shortly they are what would seem to be the strengths. orientation and that can only really be achieved, we However, some of the strengths are also weaknesses believe, by removing the market management because, when we have a system which is established instruments as quickly as possible. We also think that to the extent that the wine system in the EU has been the industry needs to be able to grow in areas where on such a long degree of history and heritage, it can grow, where there are eYcient and unfortunately there is some inertia there in terms of entrepreneurial producers, as indeed we have in making changes and moving and adapting to the England and Wales; they need to have no modern world. It is quite clear that there is a loss of impediment placed upon them to allow them to grow competitiveness in the industry and one measure of and develop markets, and so we want to see an end to that would be the overall trade balance. Imports have the planting ban—or at least the planting ban to now grown at something like 10% a year, around 12 continue no longer than its envisaged life scale, which million hectolitres in 2005; and, as I said, exports are is 31 July 2010. We want wine making practices to be around 13 million hectolitres. Exports are relatively modernised and to be able to respond much more to flat, imports are growing by something like 10% a the market and a greater correlation between the year, so we are soon going to be in the position where rules that are set up on an international basis through the trade is balanced. Then pretty soon, if the current the OIV and what the Community implements. Most trends continue, we will go the other way and we will importantly, we think it is vitally important that the be a net importer of wine into the Community. EU re-establishes itself on the domestic market and Falling consumption is an issue. The Commission in starts to increase its exports overseas as well. So we their impact assessment estimate that consumption is think all of those things are important in order to falling by around 0.65% annually. But I think that move the wine sector on to a more sustainable basis. that disguises a big diVerence between the traditional wine growing countries, where wine consumption is decreasing more quickly than that, (by about two% Q13 Chairman: Having said that, the Commission per year), and countries, such as the UK, where wine identified four options, did they not. The fourth consumption is increasing. The rise in imports I have option seems to be nearer to what you are saying than 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer anything else, but it is fairly unlikely they are policy that Defra, I think rightly, has put forward for supporting that, is it not? a number of years. Explain to the Committee, if you Mr Manning: I think that is a fair point. The will, why it is that we do not go in with all guns Commission has identiﬁed four options. Option 1 is blazing as far as that option is concerned? essentially the status quo, and everybody agrees that Mr Manning: Just to reassure you, in the discussions this current situation is unsustainable, so that was that have taken place so far on the Communication, dropped at a fairly early stage. Options 3 and 4 are we have been one of a very small number of Member more radical options. Option 3 is about reorientation States who have been pushing for the most radical of the current support arrangements on the basis of option in terms of the reform. But it was quite clear the single Payment Scheme. Option 4 is just saving within those discussions that there is a wide range of money and having a complete liberalisation, and I views amongst Member States, particularly with the think in time that is clearly the direction of travel producer side. There was a lot of resistance to even where we would like to end up as that is consistent moving to Option 2. So at the end of the day there will with our vision for the CAP that we published last be a balance, and the Commission will make a year. But I think we also have to recognise that we are judgment. And we need to bear in mind that there are where we are and that we have a regime that has been no proposals at the moment—we are talking about a in operation for 40 years; that we have an industry in consultation document eVectively. I believe that, Europe which is used to the kinds of support that it when the Commission comes forward with its has at the moment; and we need also to understand proposals, which is now likely to be May or June they that there is tremendous social and environmental will centre more around Option 2 because that is signiﬁcance to wine production in the countries where the centre of debate has rested in the concerned, and so we would expect to have to do this discussions which took place in the autumn. But I can incrementally. So whilst our overall ambition, as you reassure you that, in terms of what the UK wanted, say, is Options 3 or 4, we think it is quite likely that, we did make the point that we felt there needed to be when the Commission presents its proposals, they a much more radical reform of the regime. The will be based around Option 2 because that was danger in just saying that we want complete where the gravity of opinion rested in the discussion liberalisation, however, would be that we lose some on the Consultation Paper that took place during the credibility in terms of the discussion process in course of the autumn period. To be clear, that is not Brussels. What we must do is make sure that we do where we would like to end up: we would like to go not lose sight of getting the most radical possible further than that. But at least it is a move in the right reform around Option 2, if that is where the direction and Option 2 does contain a number of proposals come out, because I can assure you that measures which we believe will be very useful in terms there will be a lot of resistance even to proposals of stabilising the market, which we think is the most which are emanating around Option 2. So I agree important thing. with you entirely; we want to keep the debate to as Chairman: Lord Bach. near to the most extreme liberalisation end of this in order to balance up the argumentation from the Q14 Lord Bach: Thank you, my Lord Chairman. It producers. But we have not seen the proposals yet is very good to see you again, if I may say so. I want from the Commission—they are due later on in the to continue the line about which the Lord Chairman year. was asking you. We all know the resistance that will be met to de-regulation, and I hope we know that Q16 Lord Bach: Thank you very much. Can I ask Defra’s view is that de-regulation is the preferred you next about your written evidence? You estimate choice. that the budgetary cost this year, supporting the Mr Cowper: Yes. present scheme, is about ƒ1.5 billion, about £1 billion, with a third going to “crisis” measures Q15 Lord Bach: Indeed, the example of the sugar designed to remove the surpluses that we have heard reform that took place not many years ago was based about. Can you give me an estimate as to how much on a very strong line from the UK government, which of that cost falls on British taxpayers? And is it also in the end was one that was very largely successful. the case that EU consumers of wine face an My comment is this, really—and then the question. If additional cost on their purchases of wine as a result you go in, as it were, at too low a level in regard to of this market intervention? what we want to see as a result of these discussions Mr Manning: I will pick that one up as well. Yes, you and negotiations, then we should not be surprised if are right, our evidence does refer to the high we do not end up with anywhere near what we want. budgetary costs of the regime. The budget for 2007 And this is the question: surely we need to go in has now been adjusted down to ƒ1.4 billion. Actual arguing for Option 4, for complete de-regulation of expenditure varies from year to year; it depends on this industry, which is absolutely in line with the the quality and quantity of the harvest and what the 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer overall prevailing market situation is. But I think it is with complete liberalisation. So I think this goes to significant that the wine sector takes up anywhere confirm what I said earlier on, that the current regime between two and a half and five and a half% of the does maintain prices at a higher level than they would annual CAP budget each year, so it is very significant. be if the regime was not there. Most of the measures go to supporting the market in the main producing countries, so they are on things Q17 Lord Plumb: My Lord Chairman, can I ask, on such as storage of wine and grape must, paying for the other side of the tax equation, there is a the distillation of wine into alcohol. The distillation substantial tax on wine. The taxpayer is paying to measures, as we said in our evidence, do account for support the regime but what is the level of tax and about one-third of the budget, but that figure does how does it compare with other countries? I am told, not actually include extra money which is spent from for instance, if I use the example, that Three Choirs, time to time on crisis measures. In fact there has been which is quite a substantial UK grower of wine, at the a crisis in four of the last six years in the wine sector end of the day have two pence profit left out of a involving additional expenditure on wine in order to bottle of wine. That is not very much, is it. And their prop up the market in certain Member States. The argument, of course, is the tax that has to be paid UK as a recipient of the budget, as we said earlier on, from them for the privilege of growing it. It is out of gets very little from it; we largely operate outside of one hand and into the other, is it not? the CMO. We do get a small amount in terms of aid Mr Manning: That is a very good question and I am for the grape must, which is about £300,000 a year, afraid we do not have the answer with us today, but but out of a budget of ƒ1.5 billion you can see that in what I can say, in terms of the duty rates of wine is terms of value for money in the UK it is not one of that the rates vary according to the type of wine the top performers. It is very diYcult, Lord Bach, to produced. For still wines, with an alcohol content of actually attribute a national cost to any of these 15% or under, then the tax is £172 per hectolitre of measures because the UK contributes to the whole of wine produced. For sparkling wines with an alcohol the EU budget rather than to specific components, content of between eight and a half and 15% the tax and attempts to calculate national costs into is £220 per hectolitre. In terms of what that means in individual programmes would be purely notional and terms of revenue to the UK, as a result of the duty almost certainly inaccurate so it is very diYcult to say system, we do not have that here, I am afraid, but we what the UK contribution would be to any of these could of course let the Committee have that particular measures. In terms of cost of the regime in information after the meeting, if you would like it. terms of the market price of wine, I think that is a Chairman: Thank you. Viscount Brookeborough. very fair point. The Commission’s 2006 Communication, to which we have referred a couple Q18 Viscount Brookeborough: You have given us a of times already this morning, states that crisis broad-brush indication of what other Member States distillation and private storage (a) have become think of the current regime and you have also said structural rather than temporary measures and (b) that some of them would be quite aligned to our point about 15% of annual wine production is removed via of view, although we will not be able to fight quite distillation in order to limit price decreases. So this that corner. Is the separation of these points of view, suggests that the various forms of market or the diVerence, very obvious in that it is those who intervention mean that EU wine consumers pay, as a produce wine and those who do not produce wine? consequence, higher prices than they would be Mr Manning: It is diYcult at the moment to be too otherwise. There is some work done by the OECD categorical on these things because we have not which estimates that wine consumers in the actually seen the Commission’s proposals. What we Community subsidise producers by around ƒ200 have had is a series of meetings around an Options million each year. That sounds a lot but actually this paper, and I think that in those circumstances people estimate has fallen from a peak in 1992 of ƒ1.3 take positions in order to try and influence what the billion, so it is not a significant cost on consumers. I Commission produces in terms of their proposals. think it is also relevant to point out that in terms of What I would say is, based on my experience of the wine imported from Third Countries consumers attending the three working groups that were held are also paying in terms of the import duty which is during the autumn, that there are probably about applied to those Third Country wines, so there is a three diVerent groups forming within the Member direct consequence to the market. The Commission’s States. Firstly, you have what I would categorise as own impact analysis suggests that with reform—and the key producers, mainly the Mediterranean I am reading this now—“Wine producers will have, countries, and they are concerned about the social in general, to face a price drop as the stabilisation of and environmental impacts of change; they are the market situation will require an important eVort concerned about the Commission’s proposal for a of structural adjustment”, and it estimates that prices large scale grubbing up scheme and what that will could fall in the short term by around 20% or more mean in terms of local communities. They are very 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer keen to maintain the planting ban beyond the 2010 Q20 Viscount Brookeborough: But a large amount of date which is envisaged in the existing regime. They their wine, at least up until very recently, has been continue to argue for a separate budget, a separate going east and not west. regime for wine, and they have reservations about Mr Manning: It is diYcult to comment on that but I moving money from the wine regime into rural think the important thing is that they are in now from development measures. They are very cautious about 1 January and they have six months to prepare making changes to labelling because they have themselves for the Commission’s proposals coming developed their own niches and their own out, and so they will be able to play an active part in Geographical Indications, and they want to protect the reform. But looking ahead as to the impact on those as much as possible. But they do, of course, their markets, I think that is quite diYcult to assess. support rules on the tightening of enrichment of wine, which is something else that we refer to in our Q21 Viscount Brookeborough: Do you have evidence. You then have what I would call importers/ anything else to say on what the Commission itself consumers of wine, and I think we probably have the thinks about the current state of aVairs? UK in that category—we have a small wine industry Mr Manning: The Commission has been very but I think we are essentially an importing country— categorical that we cannot go on as we are. Their who, if you like, are the mirror image of the first impact assessment makes it perfectly clear—it is very group, and so these countries support the abolition of black and white—that the current regime is market management instruments; they support the unsustainable and that, if we carry on as we are, by early lifting of the planting ban; they want greater around 2010–11, which I think is the figure in their market orientation of the sector; they certainly want impact assessment, we could have eVectively a 15% to maintain the current enrichment possibilities; they production with no market in the Community, and support RDR and they want to see clearer labelling that situation is only going to deteriorate because rules introduced so that consumers are better imports are going up—exports are flat, consumption informed about the wine they are buying. is going down. We are very pleased to see the Finally,there is a group in the middle who are, if you Commission’s very thorough impact assessment of like, smaller producers but also importers, and I the situation as regarding no change. We fully would put countries such as Germany, Austria and support their objectives and the new wine policy, Hungary in this group, who have views which are which is all about increasing competitiveness and between those. So on the whole—and this is having clearer rules, but preserving the best generalisation at the moment—they would support traditions of the EU wine production. I think the the abolition of most market management important point now would be to see what they come instruments; they are concerned that the current out with in their proposals, and this comes back to enrichment possibilities are maintained. They also the point that Lord Bach was making earlier on, that have reservations about moving the money out of the what we would expect to see is something which is wine budget into RDR, but they do support changes probably going to be around Option 2, and we will to labelling as GIs. I hope that is not too simplistic; I certainly be using the time between now and when the am not trying to put anyone into any particular box, proposals come out. And I think the work of this but looking at it from our perspective that is how it Committee will be helpful in influencing the seems to be at the moment. Commission as well in terms of trying not to limit the level of our ambition, because if the Commission settles too quickly on Option 2 then there is only one Q19 Viscount Brookeborough: To what extent have way that you are going to go in terms of the final the views of the new accession countries been taken settlement. So it does come back to the point that because you have these new countries—Romania or Lord Bach made earlier on. wherever—and we have already seen with Hungary that, where they used to produce mass production in Q22 Viscount Brookeborough: Looking at the figures cooperatives, their market was severely hit, not only that you gave us, 15% of the agricultural workforce, V by joining our regime but by the fall o of their but it is 2.5% of the CMO budget. Is that not an Russian markets. Is this going to happen with such argument from the countries that wish to stay in countries as Romania and others? And are they not some sort of regime that you are really targeting in line for, if you like, a double-whammy if we bring something that uses a small percentage than the total in major reforms in this country? workforce? Mr Manning: I think every country that is a major Mr Manning: I think that is a fair point as well. I think wine producer will face some impact as a you only need to look at the situation on the market consequence of the changes which we hope will be where we are frankly not competitive. Even the made. Romania and Bulgaria are relatively big producer Member States realise that change has to producers of wine. happen. I think the issue will be how that change 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer happens, how quickly that happens and how much are not focusing, not helping growers focus on the money is available to make that change happen. real market. Similarly, we have referred already to Chairman: Lord Plumb. the need to make the industry more competitive, and the planting ban, which has a perverse eVect of stopping the good producers—as well as the bad Q23 Lord Plumb: The Chairman will continually ones—expanding their operation, needs to go, I remind us during the next month or two that our think. That is another of the issues that is getting in study is the EU regime and we should concentrate the way. The labelling regulations is another matter our thoughts there. But we cannot avoid knowing, of that is cutting oV producers from the market place— course, that there is an increase in consumption of in particular, the rules that say that, unless you are a wines from the New World, as it is so often called, wine with a Geographical Indication or a Quality and some good wines too that are coming through. Wine from a specified region, you cannot specify the The reason that is given—reading all the evidence— grape variety, for example, or the vintage are tying is better harvests in the last year or two, which the hands behind the backs of the producers, whereas V obviously has a considerable e ect, and that has the New World producers have made great strides in meant the excess of supply over demand. But you terms of producing varietal wines, so that people have already said, and you said earlier, that know, roughly speaking, what they are going to get production will exceed demand by as much as 15% by and enjoy, and those labelling rules are obviously 2010—and you say that there has been crisis hampering, the market and that is another distillation in four of the last six years. The question competitive point. Similarly, wine making practices therefore we have to face is what measures ought to are slow to adapt because of the systems that we have be taken to try to bring that under control? May I say in the EU, and that is why we think that moving to that one of the problems here is the problem that one the OIV, allowing more of the wine making processes has in food production as well as in wine production, that the New World, the Third Country producers, that when there is a climatic change we might, for use to be open as options to our producers would be a instance, in one year get double the quantity of good thing; and to get the recognition for enrichment potatoes over another year purely because of the with must or sugar as a proper methodology would climate. We are not making nuts and bolts and this is be helpful. I think we need to encourage market Y the di culty, that you will never find a system which orientation but there are a number of ways of doing says that we have this under control year by year by this. Again, this is more of a comment than a formal year; I think that would be asking for the moon. On proposal, but as an observation I do think that the other hand, you have to have that sort of market orientation requires producer groups to flexibility to have a regime that at least brings it into understand their market better. I would hesitate to a semblance of control if it cannot be complete. interfere in the French system with Ne´gociants and Where are we going? What ideas do you have other all the rest of it, but I think that some of the messages than those that you have already given to try to that we put out, or the Curry Commission put out to match supply to demand? our farmers in this country, are highly relevant in Mr Cowper: Certainly we recognise the problem is understanding, and getting a better connection with that it does change from year to year. But the trend is the chain of supply would be a very good thing, and certainly an excess of production over consumption, measures that would encourage producers in that and one of the things we need to do is to stabilise direction and would be all part of the package, the production, and to us that looks as though we need direction of travel is part of the package of measures to end the market support—the support for private we would like to see, together with some storage and crisis distillation—which is encouraging environmental issues. But I think competitiveness is wine producers to carry on producing products for about the labelling regime, the market support and V which there is no market, e ectively. There is a risk of the ability to respond to consumer demand. sitting here in London and commenting on wine Lord Plumb: Lord Chairman, the cooperative producers in various places and it is a generality. Of approach would have been said long before Curry. course, a lot of wine producers are producing There is nothing new in it, it is a matter of getting it products which are very much sought after, but the going and encouragement being given. production regime and the support for production in Chairman: Lord Palmer. particular encourages farmers to go on producing wines for which there is no market and they are unconnected with the market. I think a lot of what Q24 Lord Palmer: I reckon my question has already the Policy Commission—Sir Donald Curry’s Policy been answered, both when you were answering Lord Commission—said about reconnection of our Sewel and indeed Lord Plumb, and it certainly came agriculture with the market applies here, and as no surprise to me when, in your written evidence, measures like private storage and distillation and you clearly stated, “The current regime protects oVers to take surpluses oV people’s hands in that way, ineYcient and poor quality producers and prevents 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer producers who have developed strong market much better informed about the wines that they can demand for their wine from expanding.” Is there buy from the Community. anything else that you would like to add that you have not already mentioned in replying to Lord Q26 Lord Moynihan: My Lord Chairman, I would Plumb and our Chairman? echo the remarks made by Lord Bach about the Mr Manning: I think, Lord Palmer, we have cut importance in reflecting on the fact that, whilst you across your point already, but maybe to crystallise it so readily dismiss the idea of market de-regulation around your question. We think that primarily the from a practical negotiating point of view, it will, I planting ban is of great concern. One can understand hope, be key to the work that you do over this year to why it was thought a good idea to introduce it in the consider in far greater detail the implications of 1980s but the fact of the matter is that it is a double- Option 4, to look at them and to make sure that the edged sword because, on the one hand, it is strength of those arguments in all areas is put constraining production, but, as I said earlier on, it forward in negotiation, so that that is not lost. In that does mean that we are actually preventing the best context can we look further at the labelling and producers from expanding to meet market demands, marketing issues? I think the direction in which you and this is why, of everything that we are referring to are heading may lead to a positive answer on this, but in terms of what we would like to see come out of this would you support wines being branded in Europe in report, that we want to see the liberalisation of this the same way as New World wines are? Large scale planting ban no later than 2010. I think that is very branding, which makes it much easier for consumers, important. who are not experts, to identify with the product and hence are more likely to become regular purchasers. Q25 Lord Palmer: You do not think that is too late? I would be interested in your views on that, Mr Manning: The market is anticipating 2010 particularly when you see UK television coverage of the Ashes, for example, sponsored by Wolf Blass, the because it is in the existing regime at the moment, so Australian wine, and Friends sponsored by Jacob’s that everybody is working on the basis that it would Creek. New World wines are advertising and end on 31 July 2010. I think you need to provide some promoting themselves very heavily in this country. time for the ineYcient producers to adapt to the fact Would you support EU wines doing the same? that the planting ban will disappear, and so I think Mr Cowper: Yes, we would certainly support EU 2010 is the optimum time for that to come oV.Soit wine producers being much more market orientated, not only sends a clear signal that the ban is going to much more adaptive and much more flexible in their end but it gives people time to adjust. I think, in terms approach, and labelling and branding clearly has of English and Welsh production, 2010 should be OK been very successful for the New World producers, as well. We are about 15,000—16,000 hectolitres a who have operated from a very well—thought— year at the moment, but that is going up through marketing strategy. This is not just based incrementally each year, and we would expect to be around brands, it is based around consistency of around the 25,000 hectolitres by around 2010—2011. product, simplicity of product, and aimed at So, provided it goes in 2010, then that should be particular price segments in the market, and having a Y su cient and would give everybody time to adjust to very good view of the distribution in the retail chain that. In terms of the market management measures, in Europe generally. We would certainly want to we think it is also important that they disappear very facilitate that for European producers. Another Y quickly because they are insulating the ine cient point that is worth picking up about brands is the producers from the market; they are continuing to scope for a brand to cover a range of diVerent produce wine for which they have no market on the varieties within it, so you can keep promoting the basis that the Community regime will take that wine name, as you have indicated. However, I think we V o their hands and dispose of it for them. We have must be careful about not losing our heritage, not mentioned a couple of times that crisis distillation is moving too far. Branding is one option—and brands no longer really ‘crisis’, it is more a structural does not necessarily mean good quality, of course, it measure, having been used in four years out of the is not a panacea. I have already touched on the point last six. A large amount of money is spent at the about the scope for table wines, or the lack of current moment on private storage of wine—about ƒ67 scope for table wines, to be able to refer to the variety million in the latest budget—and to our minds there or the vintage, and that is certainly hampering is no reason why we should be paying for something people. There are some Ne´gociants who have good which in most other sectors the industry would pay names and are equivalent to brands, but in general for themselves. So we think it is important that that terms, yes, the labelling regime is a hindrance. But goes. As Jeremy said earlier on, as part and parcel of there are obviously some very powerful, historic, this there must be simplification of labelling and famous and still extremely successful Appellation marketing possibilities so that the consumers are Geographical Indications, which are at the heart of 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer the EU wine sector, which is of course still the biggest Lord Moynihan: Thank you, my Lord Chairman. in the world and very, very valuable. If you look at Chairman: I was in China recently, and the Chinese the exports one example of this is the fact that in Minister was going on about how they wanted to volume terms France is not at all the largest exporter develop the Chinese wine industry and they took but it has huge value, and that is because those great pride in the fact that they had gone to the Appellations, those Geographical Indications, are French experts. I did not say anything! Viscount recognised and they do monitor quality very Brookeborough. carefully. So I think that branding alone is not the solution. Q28 Viscount Brookeborough: I think in many ways you probably have nothing left to add because, after Q27 Lord Moynihan: That answer rather indicates a all, we are here in a way to find out how we do positive response to the Geographical Indications, compete and you have mentioned many parts of it. the GI concept of marketing EU wine. That is in So, if you have anything to add, please do. You contrast in your written evidence, where you suggest mentioned the inertia and so on. But are the actual that the GI system may “serve to insulate the production methods controlled by the various producer from the market, for example by districts and the people who administer the GI encouraging the production of wine that the market system? And is the lack of modernisation not entirely does not value”. Can you expand on that for us? in the hands of the individual vineyards? I have a little Mr Cowper: Yes, I will. Thank you very much for the knowledge—and I accept that is very dangerous—of chance to do so. I do think that there are considerable Taylor’s Port. Taylor’s is family—run, which strengths in the GI system. It provides a measure of includes various others such as Fonseca and so on. authenticity, it operates within local and national But they are very much behind the market and they rules and, in the EU framework, and it gives some have modernised their production methods in the assurance and information to the consumer. It is most incredible ways, and they do not necessarily about provenance, and that is what consumers value; agree that the human body crushing the grapes adds we are told that consumers increasingly want to a particular flavour or whatever. Who is controlling understand what it is they are buying. I have touched this? And why can Europe not modernise its on some of the GIs being world-recognised assets— production of wines at a certain level? Because it Champagne, Port Rioja, Barolo, whatever; there are seems to me that, whereas we have the very expensive V plenty of them. GIs that do provide clear French wine and whatever, this is almost a di erent diVerentiation and useful information and also product in as much as port, maybe. And where we preserve quality and authenticity are helpful. have the problem is not at a lower but at the more However, the GI system—and the material from the commercial level such as the New World is Commission indicates this—has become one which is producing. very producer—rather than consumer—orientated, Mr Cowper: In terms of the production rules, as I and partly because of the issue about the labelling understand it, there is a framework set by the EU rules giving you more flexibility to describe your regulatory framework, the general level about the product once you have a Geographical Indication, it types of vines that can be used and the production looks as though it has become rather a formula to try methods. Then national Geographical Indications to get a GI with your wine, without necessarily have to be agreed at the national level and they also having a good basis for doing so, either particularly have to be agreed locally, whether it is the region or in quality or necessarily a strong link to the place, to the locality, and by the owners of the GI. So there are where you are coming from. Therefore it has been various levels. devalued. We had some conversations with the Comite´ Europeén des Entreprises des Vins and they Q29 Viscount Brookeborough: Does that dictate the gave us the analogy of a tree—the plethora of GIs has mechanisation that the actual systems use? now become a huge growth which is actually shading, Mr Cowper: All of those would have a bearing on it. cutting out the sunshine, and it has become excessive, If you wanted to propose a methodology that was not and I think in that case, yes, the GI has become a acceptable at the national level or within the EU weakness. It does not provide useful information for regulations, you would be unable to do so. But at the consumers necessarily and I think there is an local level the producers for the Commune, or argument for saying that it builds inertia into the whatever it is, who own the GI would start oV by system. In order to adapt your wine or your agreeing the yield that they are going to allow and the production methodology to meet changing consumer production methodology and so on, and then they tastes you would have to get agreement from the would get it registered with the Regional Committee owners of the GI and that may not necessarily be within the national rules and so on. One of the straightforward if some of the traditionalists do not problems is that, because we do not import all the want to change it. So it can be a handicap. methodologies that are allowed by the International 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Organisation of Vine and Wine, Europe does not of other uses, were you talking about other uses of recognise all the production methodologies which the land? some of the New World producers do, and we think that the Commission is on the right lines in suggesting Q32 Lord Moynihan: Removing over-production that we ought to recognise that Europe as a whole, and grubbing-up being one, obviously, and further through the medium of the Commission, ought to constraints on production, but additional outlets for pick up more of those production methodologies to excess production—do you give that a high priority make them options available to producers within the in the negotiations? And the restructuring and the EU, because again we are constraining ourselves in greater support for rural development are the other some of the new methodologies. As you say, within two options that are being considered to remove over Europe, as I understand it, there are fantastic leading production. technologies in how to produce wine, but some of the Mr Cowper: I think whatever other uses there are methodologies are not yet approved that the New should be market led and not artificially induced by World producers are using, for example. I think one using taxpayers’ money to carry on encouraging of them is using oak chips in barrels which has only people to produce stuV for which somehow a use will recently been approved. be found. I think our position would be that people should get a clear market signal that, if there is no Q30 Lord Moynihan: Various options are being market for it, then do not produce it, rather than considered to remove over-production. What perpetuating market management. priority would the Government give to, firstly, further constraints on production—for example, Q33 Lord Moynihan: So we are going back to the grubbing—up and the restrictions on planting rights; idea of market de-regulation at the forefront of your secondly, finding additional outlets for excess mind in that context? production; thirdly, restructuring and greater Mr Cowper: That is certainly what we want to get to. support for rural development? Looking forward to The Government’s vision for the Common the 25,000—hectolitre threshold here in the UK, how Agricultural Policy does envisage, not market exactly do you see the grubbing-up process working management but moving support into Pillar 2, where in the UK in the future? And what alternative crops the taxpayer, the public, can get a return for their would you consider suitable for cultivation on money in terms of environmental management and grubbed-up vineyards? the delivery of public goods rather than unwanted Mr Cowper: I very much hope that we do not get to market goods. grubbing up in the UK. Q34 Lord Moynihan: My Lord Chairman, there Q31 Lord Moynihan: Potentially in the not—too— does seem to be a growing credibility gap between the distant future, with the steady growth and becoming logic of a lot of what is said. We have very interesting members of the CMO, we have to consider these evidence on eVectively going towards market de- issues, have we not? regulation, and yet being a long way in terms of the Mr Cowper: Yes, I suppose we might. But grubbing- position that you will be taking with regard to the up, it seems to me, would be the result of a market overall reform of the EU wine sector, and you seem failure of an industry that was not in tune with its to seek minor improvements around the Option 2 market and had expanded too fast and needed to be area as a success story. I would hope that the thrust encouraged to cut back or to move on to better land. of the very good answers that you have given on a I think that the Commission’s idea we should have range of issues will lead you maybe to go one or two some grubbing-up until 2010, or whatever, a fairly steps further than where you were indicating your intensive encouragement to grub up and to negotiating position is likely to be. encourage producers who are clearly not producing Mr Manning: Can I respond to that? I think it is what the market wants to move to other enterprises, important to look very closely at what the options is an important part of it, although it is a very mean. Option 2 is all about market de-regulation; negative connotation, I think—it sounds rather what it is saying essentially is that all of the market unpleasant. I certainly hope that the UK industry will support instruments which are there currently will be free to develop in a market-orientated way that go—the planting rights will be liberated—so the will not bring that about. Where grubbing-up does industry can respond to market signals. What it is take place, I think it is important that it should go saying is that a large proportion of the money which hand in hand with environmental measures so that, is currently spent on the wine budget will be used to whatever happens to the land afterwards, it is not just facilitate the transition, will be used to go to rural left in a bad state but it is managed in some positive development programmes of Member States in order way. I am certainly not in a position to advise what to provide local, targeted social/environmental other crops might best be grown on it. I think in terms responses to the particular situations in which these 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer local communities find themselves. So that is what X, it will be devastation; there is nothing else you can Option 2 is about, and we still see that as a very do.” What is the response to that sort of claim? liberalising measure. The diVerence between Option Mr Manning: I think some of these concerns are very 2 and Option 4 is that Option 4 is eVectively saying real, which is why we would like to see them that you are on your own, that your budget goes and addressed through the Rural Development that is that. All along we have said that we want to get programme rather than through market to a situation where there is much greater market management, because at the moment market liberalisation and we spend less money on the wine management is maintaining the infrastructure but regime than we are at the moment, and that is with no focus on the market whatsoever. Under certainly the view that we have taken in the Rural Development programmes you can adapt discussions on the proposals on the Communication programmes to meet local needs and the Member so far. Option 2 should not be dismissed as being a States can decide what they want to spend the light option, there is still a lot in it and still a lot which particular programmes on. However, I think the is positive in terms of getting a greater market important thing is—and I think we mention it in our orientation, but I think the point you have mentioned evidence—that it is not just carte blanche, you will very clearly—and I am glad it has come out—is the have a list of measures which are fundable under the actual cost of that, and so it is essentially a financial Rural Development regulation. So it may be agri- issue as much as anything. environmental—you have a specific production area which is very sensitive and, if it was not maintained, Q35 Chairman: Can I check that I understand? A then you would get a major ecological problem, and fairly broad level of agreement here and between us it may well be that the Member States would want to that de-regulation, moving money into Rural allow some sort of production to continue there, but Development, Pillar 2, is the way forward, but I it has to be done in conformity with the Rural thought I heard you say in one of your answers that Development programme and all the conditions the wine producing countries where this is most which attach to the Rural Development programme. necessary are actually most opposed to the So we would see that as a situation where Member movement of money out of the wine regime into the States design their own programmes but based on a Rural Development? central menu. It is imperative, we believe, that the Mr Manning: That is exactly right. market management instruments we are looking to see phased out are not introduced through the back Q36 Chairman: So that is where the fight is going to door, through the RDR programme. The other thing be, is it not? which I should clarify about RDR that may be of Mr Manning: Yes. some concern amongst the producer Member States Mr Cowper: I think they would be concerned to focus is, of course, these sorts of programmes entail a money on wine—related issues rather than just going national contribution to the measures, and I think to a general Pillar 2 point, that would be one thing. there is a budgetary issue there for those countries. Of course they do have a much bigger interest, they have lots of families engaged— Q40 Chairman: This has been absolutely fascinating and helpful but I do realise that time is going on and Q37 Chairman: But that leads inevitably on to we still have quite a few questions to ask. How long national envelopes, does it not? do you have available? Mr Cowper: Yes. Mr Cowper: We are at your disposal. Mr Manning: We are in your hands. Q38 Chairman: If you have national envelopes and Chairman: That is very helpful indeed. Lord Palmer. you have rural development all done at the national level with national schemes—I will try to choose my words carefully—the opportunity for evasion is high. Q41 Lord Palmer: You have mentioned the word Mr Cowper: We have already identified that, should “environment” in the last five minutes and I am we be in a situation where we were discussing Option aware that this has now becoming a tremendously 2 and national envelopes, we would want to try to key word. I am also aware what a thorn in the side I encourage a regime where Member States were not have seen for successive Defra Ministers on using national envelopes to reintroduce market environmental issues, not least of all alternative fuels. measures by the back door, if you like. The direction To what extent do you think that the EU wine of travel in which we want to go is towards 3 and 4. industry does have an impact on environmental issues? For example, could the distillation of wine Q39 Chairman: What is going to happen at some into fuel make a significant contribution to the stage is that you are going to get some Member States substitution of, for example, fossil fuels? Would turning round and saying, “If we do not grow wine in support for measures leading to good environmental 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer impact be justified? I realise that in particular that last environmental measures would be justified. I have bit is a complete subject and debate in its own right. already mentioned the policy for our agriculture, that Mr Cowper: Yes, it is. I will come on, if I may, to the we should seek to make a net positive contribution to fossil fuels and I think the answer is that it is not the environment and that support should pay for going to be much of an avenue really. Yes, we have public goods. I think this is something that mentioned the environment and in environmental consumers of wine have an interest in, as indeed they terms the wine industry in Europe is hugely do in other food products. People are beginning to significant; it is bound to be, given the area under ask questions about the way in which their food and viticulture—1.5 million holdings, 16% of all drink has been produced, and again it is an area agricultural farms, 3.4 million hectares, two% of the where I suspect that Third Country producers may agricultural area. It is the primary role of agricultural have a slight edge at the moment, so in market terms activity in most of the wine producing Member as well this is something we want to encourage. States. In some regions wine production is 20% and even 30% of agricultural production. Of course it varies very much between diVerent regions but I Q42 Lord Palmer: Could you envisage the likes of think it is true to say that a lot of diYcult and rural strategy schemes coming into eVect across the sensitive areas are under vines. The Commission Europe Community? itself has commented on this and said that wine Mr Cowper: Some vine producers who are paid de- production has both positive and negative eVects on coupled support because they have other land and the environment, but it is hugely important in terms produce vines do get the support at the moment— of shaping the landscape, and as well as our cultural they have some cross-compliance requirements. Yes, heritage our physical heritage as well. It is important I would envisage moving taxpayer support to a in tourism. Positively vines on hillsides can limit soil situation in which it delivered some environmental erosion and rainwater run-oV and stabilise hilly benefits. Wine as a fuel you asked about— terrain against landslips—it can do. Vines can provide some fire protection if they have a relatively low density of rootstock, and there are other positives Q43 Chairman: We are not topping up our cars with as well. But there are adverse environmental impacts: Beaujolais! impact on soil erosion if the vines are planted down Mr Cowper: It is not going to be very viable. My the slope instead of across it and the soil is uncovered; understanding is that it is not going to be a good mechanisation, which may not be suitable for all substitute for fossil fuels. For a start, it has to be soils; compaction and loss of organic matter; there processed twice and turned into wine if we were doing can be excessive use of fertiliser or contamination it that way by distillation, and there are other more from plant production products; and there is the starchy crops that will provide a much better source. disposal of waste and by-products of vine growing. And surplus quantities currently are relatively small So it has a big impact. There are also impacts on in relation to energy requirements and, unless we are irrigation in some areas of excessive specialisation, going to encourage people to start growing vines for and there are risks from grubbing up if it is not that purpose, it would not be sensible, it would not be managed properly. Defra, in our life-cycle analysis economic. work, touched slightly on various products and we have one case study on viticulture, vinification and bottling. We do not have actual numbers. The most Q44 Lord Moynihan: You gave a very helpful significant environmental impact is at the answer to Viscount Brookeborough on the subject of agricultural stage and the production of glass bottles wine-making practices and production techniques. and in this report we said that the agricultural stage But just assist our understanding. The Commission is particularly significant in terms of eutrophication seems now to be recommending that the OIV and toxicity, use and loss of fertilisers and pesticides practices should be applied to EU producers. respectively. So, yes, there is a big environmental Presumably you would support this? And I wondered impact and I think that the CMO is slightly out of if you would care to comment. touch with the other organisations in not yet having Mr Cowper: Yes, we would support that. We would a strong link with the environment and with support that as an option because it would open up environmental measures, and that is one of the more production possibilities; it would loosen the EU reasons why we want to move towards a link to the framework of possibilities for producers. As I say, I RDR, towards de-coupling from production and do not think we are envisaging the OIV enforcing coupling to measures where support from the production methodologies on European producers taxpayer, is delivered in return for some but just opening up more possibilities through the environmental gains and from some management of medium of the Commission. Yes, we would support the countryside. So I think that, yes, support for good it, and I think that is a good idea. 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Chairman: Thank you. Baroness Jones. hands behind their back when doing so. So we would be concerned with, on the one hand, saying to everybody, “We want a much more liberal regime Q45 Baroness Jones of Whitchurch: You said at the and want people to be more market focused” but, on outset that you supported most of the Commission’s the other hand, saying, “By the way, you cannot do recommendations. But one of the areas that you do what you have been doing for the last 205 years not seem to be supporting is the issue of their because new rules have been introduced.” We can proposals to reduce the level of enrichment and the perfectly understand why the Commission has ban on added sugar. There are two things about this. floated these ideas because, if they came in, what it Firstly, you say in your evidence to us that it would would mean is that more of the surplus grape juice have an increased cost, and I wondered if you would produced in the Community would be used within like to expand upon on what you think the cost implications are. The second thing is: do you think the Community for these enrichment possibilities. there is a danger if we did end up opposing those But what it would mean for the northern Member Commission recommendations that we would be States is that there would be a reliance upon seen to be doing it too much from a position of self- obtaining grape must from the south of the interest and almost falling into the trap of what we Community in order to be able to carry out their are accusing the southern producers of doing, which processes; and there would be extra costs, as I said is trying to protect our own producers without just now. In terms of our overall position on the looking at the wider picture? Do you want to dossier, I think that is a very relevant point and comment on that? relevant concern, and we need to weigh this against Mr Manning: I can start the discussion on that, and the balance of everything as negotiation takes place. thank you for raising the point. We have said very I think, based on the evidence I have seen so far, that clearly that we disagree with the Commission’s the UK would not be a lone voice—I think you could ideas—there are no proposals as yet—with the ideas run a map right across Europe from central France floated in the Communication Paper on enrichment. all the way across to the Baltic States and north of Just to recap, what they have suggested is, firstly, a that, and I would suggest there would be a lot of tightening of the enrichment possibilities, which concern about the Commission’s possibilities being means that in northern Member States you would implemented as a policy, simply because of the only be able to enrich up to a maximum of two% additional costs and the reduction in flexibility that rather than up to three and a half% as you can at the that would entail. moment. Also, there would be a ban on the use of sugar as an enrichment agent, and that is sometimes Q46 Baroness Jones of Whitchurch: Probably, if you called chaptalisation. The reason that we are so asked consumers what they wanted in terms of wine, concerned about that is that the reason enrichment they would not want these additions and/or, if they takes place is largely climatic. So countries which do were going to be added, they would like it clearly put not receive the right amount of sunshine or maybe have rain at the time leading up to harvest can find on the label so that they could see what the themselves in the situation where the grapes do not production methods were. Do you have any thoughts have the same levels of sugar as they would do in the on that? Would you expect more honesty about the sunnier parts of the Community. Enrichment and production methods were enrichment and added chaptalisation have been a central component of sugar to continue? wine making in the northern Member States for Mr Cowper: I think it is a perfectly reasonable point. many years, probably hundreds of years. We have heard the argument that one of the reasons Mr Cowper: 205 years. for wanting to stop chaptalisation, using sugar, is Mr Manning: 205 or so! Our concern about the that wine should be presented as a whole grape tightening of those rules is really on two fronts. product. But some of the very good wines from Firstly, economic—and this is the point that you France have, for hundreds of years, been produced have raised, as to how much would that cost. Figures by that and people seem to like those, including some which have been produced by the Wine and Spirits of the best wines. Probably you would have to let the Trade Association indicate that, if the ban on the use market decide. If you labelled it and said what it has of sugar was implemented and if the maximum in it and people stopped buying it because it had got enrichment possibility was reduced, then you are sugar in it, then you would have to take that message. talking about increasing costs by something like 15 to Of course, the southern producers and the New 25% in northern Community Member States, and World ones have to add things as well for that is quite significant. Our other concern is that in acidification, and then there are other ingredients introducing these restrictions it is going against the that are used in wine making. In general terms, yes, whole ethos of the reform, which is liberalisation—let I think we should give the consumer the information people produce in the market and do not tie their they want. 3714281002 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Q47 Viscount Brookeborough: To an extent you moment, but in terms of how things look to be have almost answered it. But to what extent do New developing, if the warming of the temperature World countries actually use the same sort of continues, then I would say that it would be right to enrichment that we use? be positive about the UK wine industry because it Mr Cowper: To the extent that they need to in terms would give us that extra sunshine and that extra of their climate, I think some of them in New warmth that we need. Conversely, this could have a Zealand may. negative eVect on some other wine growing areas of the Community of course, as they become too hot. Q48 Viscount Brookeborough: But is it common Most English wine is sold direct, either via mail practice throughout the rest of the world? order, via farm shops and other outlets; some is sold Mr Manning: No, not with sugar. in supermarkets but not very much at the moment. Is Mr Cowper: Not with sugar, no, not chaptalisation the industry in excess? No, it could sell everything and not enrichment. But they do need to do that it wants, and if you look at the prices that acidification. English wines can command they actually command a premium in the market. Could there be an excess in the future? Theoretically, yes, but we sincerely hope Q49 Viscount Brookeborough: Because it is not not, and I think we picked that point up earlier on necessary or because they are not permitted? that we see the English wine industry as an industry Mr Manning: Their climatic conditions are more which is adapting to market demands and, provided sunny. we stay outside the CMO, then there is no reason to Chairman: No risk of adding antifreeze! Lord Bach. believe that that should not continue in the future, and in many ways the English wine industry is a Q50 Lord Bach: Back to the UK wine industry. I model for what we would like to see the Community know from personal experience what a champion of wine industry develop to in the future. UK wine Defra has been over the last few years. How Chairman: Baroness Jones. significant a player are we, how significant player Baroness Jones of Whitchurch: Could I raise with you could we become given climate change and perhaps the issue of public health, which some of these V some of the existing trends? Do we su er from excess discussions raise? Presumably Defra takes some production as a sector, or could we in the future? responsibility for the public health issues that are And, of course, not being part of the CMO because linked with, obviously, food consumption, but in this we do not reach the figure that has been mentioned, case consumption of wine. You said at the outset that V are the di erences that there obviously are between our consumption is going up, whereas in a lot of other the UK operations and EU operations to our European countries wine consumption is going advantage? Are there lessons here for the future? down, and I think you also said that, if we did have V Mr Manning: I will start o . Firstly, in terms of the more liberalisation, there could be a reduction of profile of the UK industry the UK is, in global terms, wine costs of something in the region of 30%. So that, a very small wine producer. Annual production is along with the fact that alcohol levels in wines are around 15,000 to 16,000 hectolitres per year, which is going up, means that there is a potential danger to about two million bottles of wine. That can increase public health, and I wondered if you had any to 18,000 hectolitres, maybe, depending on the thoughts on it—is this something that we should be weather conditions, the quality of the harvest, et concerned about? You did say in your evidence that cetera, but in broad terms around 15,000 to 16,000 you thought that better market orientation of the hectolitres a year, but that is increasing. There is production would have a positive rather than a significant interest, I think, in the English and Welsh negative impact on public health. I was not quite sure wine sectors at the moment; we are seeing some major how you squared that, really; it seems to me that we investment going in in terms of establishing new are in danger of increasing the consumption of better vineyards, particularly in the south of England. quality wine in England, which is potentially going to There are similarities in terms of topography, soil have an adverse eVect on public health. Do you have types between parts of the south of England and the any comments on that? champagne area in France, and there has been, as we said earlier on, considerable success by English growers in international wine competitions, and it Q51 Chairman: The answer is, you are in has been said that some of the quality of the English consultations with the Treasury! sparkling wines is on a par with champagne, Mr Cowper: They could certainly, no doubt, solve the although obviously they cannot be called problem of wine being too cheap if they chose to tax champagne—but in terms of quality they are very it. We said in our evidence that ,generally speaking, good indeed. Climate warming has in the past been the Government is of course working with the linked with the growth in our industry. I think the Commission on its alcohol strategy and is very aware jury is out on whether it is having an impact at the of the issues of harm caused by alcohol, and we are in 3714281002 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 21

7 February 2007 Mr Jeremy Cowper, Mr Robin Manning and Ms Simone Pfuderer touch with both the Food Standards Agency and the Mr Cowper: I cannot cite you where but I think I have Department of Health itself, which is leading those read something—maybe it is a Commission issues. Health, per se, is not a Defra responsibility, document—saying that the taste for more alcoholic although I do not want you to think that government wine had now peaked and was beginning to come works in silos. Of course, we talk to the Department down and people were looking for lower alcoholic of Health about that and, yes, we are very conscious wines, and that is precisely because of health and of that as an issue. What we want to do is to ensure lifestyle issues, that there was a niche developing or a that wine producers are producing wine that people bit of a market route for lower alcoholic wines. We want to drink for positive reasons, if I can put it like have talked to the Department of Health about the that. I think that we have quoted from the possibility of doing a health impact assessment on the Commission’s impact assessment indicating the wine reforms and we will have another conversation abolition of the subsidised potable alcohol with the department about that. I think it is an distillation and reducing surpluses through better important aspect of it. In general terms I think the market orientation. What they are saying, I think, is Commission’s point was, to go back to that, about a that they would hope that the reforms would steer more market orientated regime that did not just produce unwanted wine, unsought after wine that producers to producing better quality wines rather nevertheless got on to the market and encouraged than artificially enhanced alcoholic products that are lower prices for binge drinking. I think we need to at a very low level in terms of quality, but, none the bear that in mind in looking at the reforms and less, can cause ill health. That is a slightly confused looking at the regime. We certainly do not want to answer. Simone? bring that about. Ms Pfuderer: I think one other aspect was that the distillation of wine for alcohol would go which would Q54 Chairman: Before we finish, for my own have some kind of oVsetting impact as well. In the information, crisis distillation will go eVectively but longer term one would expect, if supply and demand there will still be distillation for top mark brands, will were in balance, that the price would go up again, so there not? in the shorter term there would be an issue with the Mr Manning: That would still happen but the over-supply if that all came on to the market. But taxpayer will not pay for it. over the longer term prices would possibly go up again. Q55 Chairman: We still want our brandies and our cognacs, do we not! Mr Cowper: Exactly, and for fortified wines Q52 Baroness Jones of Whitchurch: As you said, you distillation into potable alcohol is very important for do not work in silos, so presumably you are in sherry and port and cognac, indeed. Fortified wines contact with organisations like the FSA. is an important sector and one that is part of this Mr Cowper: Yes. regime and certainly the Iberian colleagues will want to make sure that the reforms address their needs as well. Q53 Baroness Jones of Whitchurch: What we do not want to do, on this Committee or indeed whoever Q56 Chairman: Thank you very much indeed for the deals with the Commission, is to create an increased thoroughness of your answers. public health problem inadvertently by some of the Mr Cowper: Thank you very much for inviting us to measures that we could agree in terms of wine contribute. production which could, for example, increase the Chairman: You may have guessed, our message to alcohol levels in an individual bottle which people you is “All power to your elbow and victory goes to inadvertently then would be drinking thinking that it the brave!” On the other hand, “Brave decision, was the same as it had been previously. Minister”! 3714281003 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

22 european wine: a better deal for all: evidence

WEDNESDAY 21 FEBRUARY 2007

Present Brookeborough, V Palmer, L Jones of Whitchurch, B Plumb, L (Chairman) Moynihan, L

Memorandum by the Food Standards Agency

Introduction The role of the Food Standards Agency. Responses to questions posed by the Committee that are relevant to the work of the Food Standards Agency. A. The Need for a Regulation (questions 1 and 2): FSA Role in enforcement of the Regulations. Wider role in protecting the consumer, labelling and consumer information. C. Structural Measures (questions 7, 8 and 9): Illicit planting in the UK. Crisis distillation and outlets for excess production. D. Marketing (question 12, and 14): Current labelling and quality issues. E. Wine Making Practices (questions 15 and 16): Current regulations and controls. Regulation of enrichment of wine. F. Environmental and Social Impact (question 17): Current data on UK vineyards.

Introduction

The role of the Food Standards Agency 1. The statutory objective of the Food Standards Agency (the Agency) is to protect the health of the public and the other interests of consumers in relation to food and drink.1 The Agency was set up in April 2000 as a separate Government department, at arm’s length from the political process (although accountable to the Westminster Parliament and to devolved equivalents through Health Ministers) and with a clear objective. The independence of the Agency is given eVect both by its formal status as a non-Ministerial UK Government Department, led by a Board appointed by UK Ministers to act in the public interest and by its powers to publish the information and advice that it issues, including advice to Ministers. 2. We have responsibility for food policy and consumer safety, and therefore this submission concentrates on the enforcement of wine standards legislation and labelling matters. 3. The Food Standards Agency’s role in relation to labelling is to protect consumer interests in relation to the information on food labels. The Agency’s primary objective is to ensure that all food labels are clear and easily understandable in order to help consumers make informed choices, protect public health and enable free trade within the European Union. 4. Food labelling is an area of EU competence and therefore national legislation in this area implements the relevant EU legislation. We negotiate on behalf of the UK to ensure that EU legislation in this area addresses the needs of UK consumers and industry. 1 Section 1(2), Food Standards Act 1999. 3714281003 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 23

5. The Wine Standards Board (WSB), an executive Non-Departmental Public Body was set up to implement the UK legal obligations under the EU wine regime. As a company, it was sponsored by Defra and the Vintners Company. Following recommendations of the Hampton Report, the work of the WSB transferred to the Food Standards Agency on 1 July 2006. 6. The Agency is now responsible for the enforcement of legislation on quality, labelling and standards of wine sold in the UK, whilst the policy functions on industry remain with Defra. The Agency also provides technical advice to Defra on wine making practices and labelling in support of their policy on wine. 7. The Food Standards Agency employs a team of wine standards inspectors who are responsible for carrying out enforcement of EU wine labelling rules at bonded warehouses, bottling operations and wholesalers across the UK. Their work also includes maintenance of a register of UK vineyards and recording and checking wine volumes produced, as well as advising vineyards on composition and labelling issues. 8. Wines imported into the UK from non-EU countries are subject to import documentation controls giving analytical details and a description of the origin. These are checked by wine standards inspectors for conformity with labelling information. 9. Enforcement of wine standards is primarily aimed at protecting consumers through the advice the Agency provides to the wine industry on labelling and composition, and the routine checks carried out by wine standards inspectors. Their work not only has synergy with the Agency’s wider food safety standards and labelling activity, but is enhanced by the strong networks with local authority Environmental Health OYcers and Trading Standards OYcers and wider food labelling and sampling expertise. 10. Enforcement of wine labelling at retail level is carried out by local authority Environmental Health OYcers and Trading Standards OYcers. 11. In addition, since consumers need to have conﬁdence that the products they buy are what they claim to be, the Agency is developing expertise on sampling and checking the authenticity and composition of wines with wine standards inspectors in order to protect consumers.

Responses to questions posed by the Committee 12. The Agency welcomes the opportunity to provide evidence to this inquiry. We have structured the main part of our evidence around those questions posed by the Committee in its call for evidence that are relevant to our remit.

A. The Need for a Regulation

Committee Q. 1. What is the nature of the case for having a wine regime at all—ie as distinct from allowing the industry to adjust itself to competitive pressures (eg via increased efﬁciency, rationalisation, diversiﬁcation, etc)? 13. The Food Standards Agency interest in the wine regime is to ensure that producers meet regulatory requirements, and do not sell unsafe wine or engage in illegal trade practices, and that labelling and compositional standards are met. This will ensure the appropriate level of consumer protection.

Committee Q. 2. Why should wine quality—eg relating to Geographical Indication—be regulated? Why cannot consumers choose between wines as they do between other products—eg on the basis of brand names or other information which might provide a guide to quality? 14. The current legislation for labelling of wine within the EU is complex, from both trader compliance and enforcement perspectives. Additionally it may not assist consumers in making an informed choice. Given the diverse market within the EU and the diVerent scales of production, regulation should ensure minimum standards are set for wine quality in order to protect consumers. Consumers want to buy wine in the knowledge that they meet minimum standards for quality, composition and labelling. 15. Within the EU there are quality classiﬁcation systems that give some guidance; a Country Wine (Vin de Pays) ought to be better quality than Table Wine (Vin de Table) because of the wine production laws in place. Wines produced outside the EU are not governed by the same regulation. 16. The use of geographical indications in the wine sector is widespread and can certainly represent an asset in an overall food and drink market place in which consumers are increasingly interested in provenance and quality and in information to inform their choice. 3714281003 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

24 european wine: a better deal for all: evidence

17. At international level, the International Organisation of Vine and Wine (OIV) set quality and compositional standards in order to facilitate global trade. The Agency believes that EU wine making practices should reﬂect more closely those approved by the OIV, thereby establishing a baseline that meets international standards. This will allow producers in the EU the maximum opportunity and ﬂexibility to adjust production to meet changing consumer demands.

C. Structural Measures

Committee Q. 7. How signiﬁcant an issue is illicit planting for the supply situation? 18. Wine standards inspectors have not identiﬁed illegal plantings in the UK.

Committee Q. 8. Is there a case for the continuance of remedial measures (“crisis distillation”) to deal with exceptional market conditions? 19. The UK market is not in surplus and therefore there is no need for crisis distillation in the UK, and hence this is not an enforcement issue. However, other Member States can apply for crisis distillation to the European Commission where market circumstances dictate.

Committee Q. 9. What alternative outlets (ie other than wine sales) exist for excess production? 20. The potential outlets for excess production include distillation and sale of industrial alcohol, grape juice and vinegar. But this is not common practice within the UK. Consumer protection is provided through UK legislation (Food Safety Act 19902 and Food Labelling Regulations 1996)3 to ensure that products from excess production (including from other member states) used in food are subject to appropriate controls.

D. Marketing

Committee Q. 12. Given continuance of an EU wine regime, what are your views on labelling and quality issues? Are current arrangements conducive to consumers understanding of what they are buying? Is there scope for rationalisation and simpliﬁcation? 21. The EU wine legislation (which is the responsibility of Defra) speciﬁes the mandatory information required for labelling of wine from within the EU, and for wine imported from outside the EU. This is additional to the requirements of general food labelling legislation. This information includes alcohol content, quality term approved for the Member State or third country of origin and the region of production. 22. In addition wine labels should include statutory declarations relating to allergens. New rules on allergen labelling came into eVect in November 2005 and require indications of the allergenic ingredients in foodstuVs, including wine, where sulphur dioxide is required to be declared. 23. General food labelling legislation requires food to be marked or labelled with certain requirements such as the name of the food, a list of ingredients, the amount of an ingredient which is named or associated with the food, instructions for use where appropriate and the name of business and manufacturer. Full ingredient listing is not currently required for drinks of more than 1.2% alcohol by volume, so this requirement does not currently apply to wine. 24. The European Commission is currently carrying out a review of labelling legislation, and published a consultation document in February 2006. Discussions will cover ingredient listing for alcoholic drinks as well as health warnings on drinks. The UK response in July 2006 to the review supported, in principle, ingredient listing on all alcoholic drinks, but recognised that there are diYculties in the detailed application which need to be worked through (eg for distilled alcohol products) to ensure that requirements are kept simple and proportionate. 25. Aspects to be considered in the review include the need for health warnings, which may be relevant to wine labelling (this is a Department of Health lead). This will need to be discussed further with stakeholders, in particular industry and consumers. 26. The Commission is now looking at responses from Member States and a wide range of other stakeholders. The earliest a new proposal is expected from the Commission is late 2007. 2 Food Safety Act 1990. 3 Statutory Instrument 1996 No 1499. 3714281003 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 25

27. The review of the EU Wine Sector may provide an opportunity to streamline the wine regulations and ensure that they facilitate consumer choice and are consistent with the approach proposed to be taken on food labelling generally.

Committee Q. 14. What lessons might be learned from the penetration of non-EU wines into the EU market? 28. The UK imports a large quantity and diverse types of wine, making it an unusual market compared with its EU neighbours. Australia is now the major supplier of wine to the UK market, recently overtaking France. Other southern hemisphere producers are also increasing their penetration in northern European countries. 29. Wine standards inspectors are carrying out an increasing number of checks on wine imported into the UK from countries outside the EU. New exporting non-EU countries are often unsure of the statutory requirements relating to the import of wine into the EU, and the imports may be rejected. This compares to imports from established wine producers in non-EU countries, where levels of imports reﬂect better systems for controls on vineyards, wine production and labelling.

E. Wine Making Practices (WMP)

Committee Q. 15. How suited are current regulations on WMP to a competitive global market in wine? What changes would you like to see? 30. DiVerent climates necessitate diVerent wine making practices, and it would not be appropriate to designate one method only. 31. Outside the EU wine making practices have become highly developed and very technical (eg ion exchange). These novel processes are not currently permitted in the EU. 32. Detecting non-compliant practice is complex, expensive and time consuming. The FSA is aware of new analytical methods to determine authenticity, and other tests are currently under development. However, the constant challenge is to keep up with trade developments and possible fraudulent practices. 33. In order to address the competitive challenges being faced by EU producers, there is a case for relaxing some of the present requirements, and allowing a wider use of diVerent methods where there is no detriment to the quality of the wine, or any disadvantage to consumers. Further, it would be a desirable aim for EU member states to press for greater global harmonisation of technical standards via this route.

Committee Q. 16. How should enrichment (with sugar or must) be regulated? 34. Enrichment of wines with sugar or grape must (juice) is important in the northern EU countries, which do not receive as much sunshine during the ripening period as countries in the south of the Community. Wine makers therefore need the possibility of enrichment in order for their wines to achieve the necessary alcohol levels. Indeed the opposite happens in the south of the Community where the possibility exists of acidifying wines when sugar levels are too high. 35. Wineries are required to notify the Agency before enrichment takes place. Enrichment is used regularly in the UK. There are strict limits on this and Wine Standards Inspectors carry out checks to ensure correct procedures are followed and consumers are not misled.

F. Environmental and Social Impact

Committee Q. 17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Are measures needed to support good environmental impact? Should they be selective? 36. Currently there are 362 vineyards registered by the Agency in the UK, with an area under vine of 923 hectares. (This compares to Bordeaux with 120,000 hectares. 13 UK vineyards are over 10 hectares each. Denbies (near Dorking) is the UK’s largest producer. Much of the wine produced is sold at the vineyard. 37. In the South West in particular, viticulture is closely linked to tourism, with vineyards open for tours, restaurants and shops. In some cases wine is only sold from the farm gate, and not widely marketed outside the local community. 6 February 2007 3714281004 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

26 european wine: a better deal for all: evidence

Examination of Witnesses Witnesses: Mr David Statham, Director of Enforcement Group and Mrs Sarah Appleby, Head of Imported Foods Division, Food Standards Agency, examined.

Q57 Chairman: Good morning both to Sarah and government department and that we were set up on David, and a very warm welcome to join the 1 April 2000—I am not sure whether the first was a Committee today. Unfortunately we have four significant date, but that is when it happened!—and members absent this morning, but there are enough obviously we were set up particularly following of us to both field comments from you and to ask public concerns about food safety and the need to questions. So we are delighted to have you with us. restore confidence in food. Our role is to deal with all We have, as you probably know, already seen Defra. aspects of food regulation and food control; also to Mr Statham: Yes. deal with public health advice, food safety advice, consumer protection and also to deal with issues of Q58 Chairman: We had quite a good session with nutrition and diet. All those things have an impact to them at the last meeting. It was obvious that we some degree on the wine area. The Agency became should hear evidence as soon as possible from the responsible for wine standards enforcement on 1 July Food Standards Agency, and you have already sent last year and we have two full time equivalents us an excellent paper on your position, but working at headquarters in London within Sarah’s recognising, on the basis of that paper, of course, that team, and eight inspectors who work across the UK, your main interest is labelling. On the basis of that although in Scotland and Northern Ireland that paper, therefore, we would like to ask you some work is limited solely to imported wine, because there questions. First of all, I have to say that we are are no vineyards, in Scotland and Northern Ireland. recorded—there are probably half a million people The team deals with the registration of vineyards, watching!—so what you say is giving people the and they have vineyards from Yorkshire down to the chance to take note of what is being said. Having said south coast of England and they carry out checks on that, we realise, of course, that we are setting forth on grape harvest, wine production and particularly the a study of a sector that is quite complicated—far area you have mentioned—the labelling. We also more complicated than people realise. It is not a deal with checks on wine that is imported, and again matter of deciding whether the quality is right or the area there in which we are particularly interested whether there is doubt about it, but, nevertheless, it is labelling. Just to complete the picture, we work is a matter of great importance. It is not an closely with local authority colleagues and Y inexpensive area if you look at this on a full Environmental Health O cers and Trading Y Community scale. Standards O cers, who enforce the hygiene and Mr Statham: Absolutely. labelling regulations of wine at the retail level. So our inspectors only deal with them at the wholesale level and at the vineyards, and the local authorities deal Q59 Chairman: And, like so many things that are with them at that level. I think that is probably European, like the Common Agricultural Policy in suYcient background to give you a feel for where we particular, from time to time these things have to be are, how we do it and how we came in. And, unless considered and revised to make sure that production there are any specific questions raised by that, then is as cost—eVective as it can be. So, as I say, having taken evidence from Defra we would now like to hear that would be our introduction. something from you. We would like you to introduce yourselves first of all and, if you have anything to say Q60 Chairman: Questions will follow. Sarah, do you first, if you wish to add to your paper or comment on want to say anything in addition? the paper, please do so. Mrs Appleby: No, thank you. Mr Statham: Thank you, and thank you first of all for the opportunity to come and give evidence to this Committee. If I can introduce Sarah Appleby, who is Q61 Lord Palmer: Could I quickly ask—who was in the Head of the Imported Food Division of the charge before 1 July? Or was there no control at all? Agency, and that particular division also has the Mr Statham: Before 1 July the inspectors were part of responsibility for wine standards enforcement. It the Wine Standards Board, and that transferred to us might be helpful if I gave a little background to on 1 July. The Wine Standards Board was a non- explain a little bit about the FSA and particularly its departmental public body and was set up in 1973 with role in wine standards enforcement, because it has specific responsibility for the EU wine regime, and changed recently. We have only fairly recently taken this was a company that was sponsored by Defra and on this responsibility. So if I explain that very briefly, the Vintners Company. That company was wound that might give a bit of background to where we are. up on 1 July, when the inspectorate came to us, and I am sure you are aware that we are a non-ministerial now they are a full part of the government 3714281004 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 27

21 February 2007 Mr David Statham and Mrs Sarah Appleby department as opposed to being a separate non- labelling is concerned, you are extremely correct departmental public body. when you say that it is complicated and diYcult to understand. There are all sorts of bits and pieces that Q62 Viscount Brookeborough: I think you said you make up the labelling. There is some mandatory have two full time equivalents working on this? information that has to be on the label; there is some Mr Statham: In the oYce, but most of the work is the optional information; there is information about V inspectors who are out on the ground, and there are di erent categories of wine; there is a distinction eight of those who are working doing the inspections. between wine produced in the EU and non-EU wine; and then there are issues around quality wine regions and vine variety descriptions. So there is a whole Q63 Chairman: Thank you very much indeed. We range of diVerent things. And, if that sounds will ask the questions, and I think you have had a complicated enough, it becomes even more copy of the questions that we intend to ask. If we complicated when you realise that some of the could lead oV with the cost of the enforcement mandatory information is mandatory for some wines process. Please tell us what that costs, if you could, but not for others. For example, EU wines are who pays and what are the linkages with the Customs required to state the type of wine—claret or OYcers; and it would also be helpful if you could tell us the precise status of the Wine Standards Board. burgundy or something of that sort—but third Those things would help us. The website described it country wines do not have to. So certain things are four years ago as a “non-profit making company mandatory for some wines and not for others. Some limited by guarantee” but it now appears to have information, however, is mandatory for all wine. For been brought in-house, as you have already said. So example, all wines have to state the alcohol strength. in that case why was the change of status made? I also Then there is optional information which is largely hope that you can elucidate, in layman’s terms, some designed to protect the quality end of the market, but of the complexities of the labelling and the in some cases there is some information that is winemaking processes with which your Agency is optional, which is not optional for some wines concerned. We all have thoughts on labelling but we because you cannot use it even though it is optional. would like your views on how it is working, whether So it is not at all straightforward. For example, it is working and whether in fact people actually read something like table wine, you cannot state the vine these labels in the way that they should. variety—you are not allowed to do that—nor could Mr Statham: Absolutely. As I have already you state the vintage if it had a vintage. So it is not a explained, the team consists of wine standards simple process, it is extremely diYcult—far more inspectors who go out and enforce the rules, and a complex than ordinary food labelling, which is a lot very small team at head oYce that deals with the more straightforward and a lot simpler. policy and the administration. There are no charges made for these inspections, so this is a government— funded piece of work, and it currently costs around Q64 Chairman: Thank you very much. If this £400,000, half a million, something of that order a Committee decided, having heard what you said, that year to run this service, depending on how much of the labelling ought to be simplified, would you be Sarah’s time we charge and all of that—but around prepared to say to us, “Yes, I would be prepared to £400,000 to half a million. Her Majesty’s Revenue sit down and suggest what could be done which and Customs deal with non-EU wine imports and would lead to that simplification”? they check certificates of origin and analyses on our Mr Statham: Yes, absolutely. It is a very pertinent behalf, so they will check that any non-EU wine that time as well to be thinking about that because, as you is imported has the right certification and the right are probably aware, the EU is looking at food analysis. Just to explain a little about how the Wine labelling as a whole at the present time and I think Standards Board came to be part of the FSA, this was there are quite a number of lessons coming out of that as a result of the report I am sure you heard of from exercise that we could directly relate to in the wine Hampton, who in March 2005 did a report sector, so I think that would be an extremely useful recommending that enforcement activity in England and profitable piece of work. should be simplified and that the number of enforcement bodies should be reduced. One of his recommendations was that the Wine Standards Q65 Viscount Brookeborough: Before I ask my Board should be transferred to the Food Standards question, you said that the cost of these inspections Agency. So we negotiated that with our colleagues in and regulations was £400,000 to £500,000 per year. Is Defra and, as I have already explained, the non- there any reason why wine producers should not be departmental body was wound-up and it became a paying that? After all, in other agricultural activities full part of the Agency and the staV are now civil we have to have our cattle tested in various ways and servants and work in Sarah’s group. As far as the we now have to pay. 3714281004 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

28 european wine: a better deal for all: evidence

21 February 2007 Mr David Statham and Mrs Sarah Appleby

Mr Statham: In order to charge for inspections there and more concerned, as you suggest, about has to be a statutory capability to do that and that protecting their own industry. does exist in a number of areas, as you suggest, and it exists in a number of areas in the food area. Because Q68 Viscount Brookeborough: Do producers in wine is regulated separately, as far as I am aware the other countries pay for this regulation ? Or is it like statutory instrument does not give us that ours? opportunity to recover the cost. But, again, as part of Mr Statham: As far as I am aware, it is a similar the reform, particularly since it is now appropriate in process throughout the whole of the European a number of other areas in food, we could seriously Union. suggest that that would be the case. It would certainly make an awful lot of sense. Q69 Viscount Brookeborough: It must be a fairly large bill. Q66 Viscount Brookeborough: Could you tell us in Mr Statham: Absolutely. general terms how other EU Member States go about enforcing the application of the wine sector regulations? Could it be said, for instance, that the Q70 Viscount Brookeborough: If I could now go on UK approach is more or less zealous than that to the third question. Could you explain to us how employed by others? the Geographical Indication, the GI markings, is Mr Statham: I think generally the work of the defined? We heard a couple of weeks ago from Defra regulators in this sector is very similar across Europe about GI markings being ‘owned’. What exactly does V and a lot of it is about education and advice, but there that mean? And how does it a ect your enforcement is very little in terms of prosecution or formal role in this country? enforcement. Much of it is trying to get changes on a Mr Statham: Sarah is going to take that one. voluntary basis, and I guess most Member States Mrs Appleby: The Geographical Indication marking take a similar approach. One of the things that I have is defined by each Member State. They can specify an learnt over the years in dealing with other Member area of production, vine varieties, grape yields, States in relation to food enforcement is that they all minimum alcohol levels and perhaps ageing claim that they are more zealous than any other requirements, and these all go up to making a specific country and that everybody else is allowing the food type of wine with this GI marking. For example, at industry to get away with murder. So I think there is the moment in Member States there are about 10,000 Y a fairly common approach across the Community. of these GIs in use and so that makes it very di cult We do have regular, informal contacts with our for interpretation of the labels without considerable opposite numbers in other wine—producing prior knowledge and understanding of all these V V countries just to try and ensure that there are similar di erent vine types and varieties and the di erent V approaches, and also, of course, DG Agri have recipes e ectively that go into making each of these V auditors that carry out audits of the competent di erent types of wine. These are protected under EC V authorities and their enforcement regimes to ensure regulations, so if you are in a di erent area you Member States are enforcing the legislation with a cannot use a GI marking for somebody else, and it is level playing field. The last audit in the UK was the wine standards inspectors who are looking at the carried out in 2003, I think. labels to ensure that there is no misinterpretation and no fraudulent use of these labels and that consumers are not being misled. Q67 Viscount Brookeborough: Do you think that in some of the other countries is not so much the Member States but it is the powerful wine growers Q71 Viscount Brookeborough: Is this one of the V who are protecting their own little world as far as major di erences between Europe and perhaps the labelling and uniformity of practices go? New World? Mr Statham: There is certainly evidence that the wine Mrs Appleby: Increasingly the New World are industry being such an historic industry has a lot of coming up with similar markings; I think a GI historic practices which may not relate in any way to indication may cover all of South Australia, for V safety or consumer protection and relate probably to example, which is very di erent perhaps from protection of the producers. It is also perhaps Bordeaux or claret, or those kind of things. important to point out that in some cases our enforcement is a bit diVerent because obviously we Q72 Chairman: Before we come on to the next are a very small producer but a very big importer, so question, you referred earlier to the fact that your much of our enforcement work is designed to try and role is dealing with imported wines, and in particular ensure that what is coming through the ports is checking, and you said this is a non-cost on imported satisfactory and acceptable, and many of the other wines too. How are they checked? And who does the big producers will be less concerned about imports checking? 3714281004 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 February 2007 Mr David Statham and Mrs Sarah Appleby

Mrs Appleby: At the point of import Customs would that a prosecution took place. It may be that it was a actually be looking at the imports, obviously because first import and so in view of the situation it was not of the levy of tax that they want to collect, and they a deliberate intent to mislead consumers, but that is would be identifying, perhaps, new sources or something that can be taken if we need to. diVerent sources or higher levels of alcohol, for Y example. But also the Customs O cers in their own Q78 Lord Palmer: To follow up on that. Is there a paperwork would be checking for the certificates of margin of error which is allowed if, for example, a analysis on our behalf. wine says five% alcohol and it is in fact 5.75%? Is there a recognised margin on which you do not take Q73 Chairman: If necessary would they be opening action? the bottle? Mrs Appleby: I think the standards for wine, again the Mrs Appleby: It may come to that, yes. percentage alcohol limits, are prescribed and there Mr Statham: Then obviously, when they go perhaps may be a number of samples which you take, so you into the bonded warehouses or when they go down to average out the alcohol levels, because if they vary the wholesalers, the retailers, that is when our enormously you are looking at the average levels. I inspectors and the local authority inspectors will also do not know if that is any help. be checking these things on imported wines. Mr Statham: Again, as with all analytical techniques there will be a built-in margin of error and, if it was Q74 Viscount Brookeborough: Just very quickly, in extremely close to the line, again it would probably be Paragraph 29 of your evidence you say, “New the form of a letter saying, “We have analysed this, it exporting non-EU countries are often unsure of the was slightly over but we are not taking formal action statutory requirements . . . and the imports may be on the basis of this because it is very close, but you rejected.” Are they actually rejected? should get it right in future”. And, if it was outside Mrs Appleby: We have had occasions where we have the margin of error, then that is where formal rejected wines, yes. enforcement is more likely to be taken. Mrs Appleby: But taking up your point, we do have Q75 Lord Moynihan: My Lord Chairman, to pick up contact with our opposite numbers in other countries on your question. Do you look into the accuracy of as well as other Member States to talk about these the certification analysis or do your inspectors also, kinds of issues, to identify where there may be even at the retail end for example, take random particular problems, where we may need to do samples of wine to tests its alcohol strength? If so, further surveillance work. what process do you use to confirm that that alcohol strength is right? Is it a simple test? Or could you Q79 Baroness Jones of Whitchurch: Can I follow that explain to us how that actually works? up because, as you know, in the past there have been Mrs Appleby: We would use public analysts for a couple of big scandals about wine being testing. The details of the test I am not sure of, and adulterated, so we are not talking about accident obviously there are a variety of tests that can be used. alcohol levels, but major issues. Do you have a You can drop beads and things in to test alcoholic system of liaising with your colleagues abroad? strength, but I am not an expert. But we would use a Obviously if that were to happen, then wine from one recognised public analyst who is able to undertake vineyard could go all around the world and you tests and certify the results. would need to pick it up very quickly, to know that it had been adulterated in some way. Do you have a Q76 Lord Moynihan: If there were a sample that did surveillance level almost like a policing role at that not match its description, you would prosecute? level? Mrs Appleby: That is one option, yes, certainly. Mrs Appleby: Certainly the Food Standards Agency is familiar with dealing and identifying with Q77 Lord Moynihan: Have you done so for any particular concerns about food and, if we picked up imported wine or taken it up with governments of the particular problems associated with public health or relevant countries? And do you have a relationship contamination, we would immediately alert the EU with those governments which would allow in terms of the rapid alert system for food. It is a prosecutions to take place in the country of origin? central body within the EU who would disseminate Mrs Appleby: As far as I am aware, on 165 occasions that information amongst other Member States and in the last year—this is 2005–06, before they came further identification or tests would be done of that under the Food Standards Agency—wine standards same product on sale in other countries. It may be inspectors served detention notices on imported dependent on the nature of the problem that a food wine. Some of those would be going for analysis and would be stopped, we would identify and trace where further testing and on the basis of that we are aware it had come from and where it had gone to and we that at least one or two were rejected. I am not aware could either put it on hold pending further analysis or 3714281004 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 February 2007 Mr David Statham and Mrs Sarah Appleby make arrangements for destruction. And that would could give us some more advice on how we could be the case for any other food. simplify that GI system as part of the labelling. Do Mr Statham: In addition to that, we would mobilise you have any thoughts on how you could make it colleagues in the local authorities to ensure that, if more democratic? any of it was on sale, it was seized at the point of sale Mrs Appleby: It is very interesting to try and think and removed so that consumers were protected. We through a system which a consumer would be able to have had a few examples in this country, not of wine clearly understand, and comparing it to other general of that nature but of spirits, where there have been labelling requirements there are particular things that counterfeit spirits and they have included harmful a consumer would look for—the name of the country alcohol as well as ethanol. Methanol has been in where it has been produced, perhaps the type of grape there, and in that case that very process was followed, that has been used in the production, the alcohol rapid alert systems were issued across Europe and content. You could have a standard list of four or five products were seized from the stores where they were issues which should be on any label and that may not on sale because obviously it is a very serious public be the case for some of these GI wines. There is an health issue, and we have a way of moving to get that assumption that someone who is an expert on the done very quickly. issues would automatically know what the label meant. Q80 Baroness Jones of Whitchurch: We were talking a little earlier about GIs and you say in your evidence Q83 Viscount Brookeborough: Is there an issue or a that you think they can represent an asset in the problem with re-labelling, for instance own labels, overall food and drink market place. I wondered if whether it is a supermarket or any other? You you could tell us a little more about that. Just now mentioned counterfeiting—and the counterfeiting you were talking about the problems of GIs, but in problem is much greater than most people might your evidence you are saying you think they could be think, in particular with vodka and so on, and (we an asset. Just give me a sense of the strengths and have had a big problem in Northern Ireland with it). weaknesses of GIs. But counterfeiting is done in a very serious manner. Mrs Appleby: Certainly when consumers are selecting How happy are you that it does not take place in wine they are often attracted to a well known brand wine? or a grape variety, perhaps one they have bought Mrs Appleby: Certainly, starting with the labelling, before, and many EU wines provide consistent that is something which on imports we would be quality and quite clear labels. But we have to looking at the label, and if it fails to comply we may remember that supermarkets account for 73% of ask the importer to actively re-label a product and so wine sales in the UK and that is an astonishing re-labelling works to our advantage. amount. When people go into a supermarket what is it that they are buying? People often pick up on a Q84 Viscount Brookeborough: What about if people particular picture of a label and so consumers can want to re-label? actually identify consistent products, a consistent Mrs Appleby: There may be situations where people label, and if it is on the supermarket shelves it is much buy up a cheap table wine and change the label to easier for them to buy. So there are increasingly market it as perhaps a higher value product, and this consumers who do get confused by some of the is where we would work very closely with our Trading Geographical Indications but also they may be Standards colleagues and Environmental Health looking for particular varieties. I think Coˆte du OYcers working in local authorities, and it is Rhoˆne may be something that they become familiar working and sharing intelligence about those sorts of with and they know it is a good quality wine, but then incidents when they receive complaints about wine we have traders who are perhaps pushing some of the from consumers, and we actually follow it up and we boundaries. We had a label turn up, “Goats do can find out where and how it is happening. Roam,” which is a novel approach, but obviously trying to cash in on the Coˆte du Rhoˆne name. Q85 Viscount Brookeborough: Is there any evidence of actual counterfeiting? Q81 Chairman: It is actually a very good wine! Mrs Appleby: There is some work that we are trying Mrs Appleby: That is an example. A Coˆte du Rhoˆne to do at the moment in terms of sampling and could be a red, a rose´ or a white, but it is very surveillance, to look at the authenticity of wine, to try interesting to see the way that other people take that and find out the country of origin and make sure that as an asset and exploit it for a marketing advantage. the labelling is giving the correct information.

Q82 Baroness Jones of Whitchurch: You said earlier Q86 Baroness Jones of Whitchurch: How would you that you could give us some more advice about how know? It is not like you can do a scientiﬁc test as with we could simplify the labelling. Do you see that you the alcohol level. If something was a table wine that 3714281004 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 February 2007 Mr David Statham and Mrs Sarah Appleby had a slightly diVerent label that said it was one level Mrs Appleby: The International Organisation of the up from that, how would you know that was the case? Vine and Wine, the OIV, is an inter-government Mrs Appleby: The first stage would be maybe working organisation and they aim to promote and develop on consumer complaints, and we have experts the wine trade and to improve standardised scientific around who can taste the diVerence between certain wine analysis and research. So they look at diVerent flavours and certain types of wines from diVerent wine making practices and diVerent analytical regions, and that level of expertise may come in and methods and they make resolutions and these can be we may be aware of it. But there is work increasingly adopted by the EC, although there may be some being done on analytical methods to be able to delay in that. So the OIV does actually provide an identify the type of grapes used and the geographical opportunity for Members to discuss the concerns of area in which they are grown. It is very clever work producers and consumers, worries from that is being increasingly used. Enforcement OYcers, for example, and how we carry Mr Statham: In addition, each of the GIs will have a out standardisation activities, but also attempts to very clear profile so that it can be analysed to prove harmonise existing practices and standards, whether it is exactly as it says it should be, and if it is potentially preparing new standards and conditions not then clearly that is where the fraud would be for producing and marketing wines. They can detected. So there are records of the many thousand obviously look at some of the interests of consumers GIs that Sarah was telling you of so, that we can use as well. those reference samples, as it were, to be able to compare it with those that may be fraudulently Q89 Baroness Jones of Whitchurch: But do they do produced. that? Are they out there at the moment trying desperately to standardise something that the EU is resisting? Is that what is happening? Q87 Baroness Jones of Whitchurch: Can we broaden Mrs Appleby: The idea is that under the current wine the discussion out a little because again you say in regime the Community do limit the range of wine your evidence that the EU rules are complex both for making methods, for example, that we can use, traders and enforcers and in many ways that prevents whereas the OIV are looking at all the diVerent types consumers from making an informed choice? I know of wine making practices, new methods, new we have started that discussion but can you give us technology, what can be produced and how it can be any other illustrations of where you think that the produced. But the EU is outside that process, almost EU rules are too complex at the moment? being perhaps a little protectionist about some of the Mrs Appleby: We recognise that for a lot of methods and things that they use. Maybe we should consumers the label is very, very important to them be out there looking at it in the same way and and very often it is the only way they have of contributing to the debate. identifying the wine, and they may be confused by unfamiliar terms. We have already talked about table Q90 Lord Palmer: You mentioned earlier that 73% wines and quality wines, and perhaps the average of wine in this country is sold through the consumer would not know the diVerence; maybe they supermarkets. Do you happen to know, or would recognise that there is a price diVerence but they may you be able to discover, what percentage of that is not understand what that means. Member States can actually bottled in the UK? restrict the optional information on the labels which Mrs Appleby: I do not have the figures with me but we consumers find helpful. As I think David has already may be able to provide them. mentioned, on French Appellation Controlleé wines they are not allowed to put the vine variety and that Q91 Lord Palmer: Would you hazard a guess— is something that may help people identify exactly about a third is bottled in the UK? which wine they are buying. That compares with Mrs Appleby: Probably far less than that. some of the New World wines, which are specifically Mr Statham: Far less than that, yes. One of the things labelled with the grape variety, the geographic origin. we do find is that a great deal of the UK market tends Some countries permit the generic designations but to be not through supermarkets and tends to be either others do not. As I have said, we have this thing with directly purchased from the vineyard or from local traders always pushing the boundaries of how much stores at a more craft level. The supermarkets tend to they can get away with in terms of the labelling. be looking far more for the bigger ranges, so there is quite a small amount of UK production that would Q88 Baroness Jones of Whitchurch: In your written actually go through the supermarkets. evidence you said that the EU wine making practices should reflect more closely those of the OIV. Are Q92 Lord Palmer: In the old days certainly, Berry there lessons that we should learn from the OIV? And Brothers, I know, used to import their own chateaux what did you mean exactly by that? wine and then bottle it in London. They did this most 3714281004 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

32 european wine: a better deal for all: evidence

21 February 2007 Mr David Statham and Mrs Sarah Appleby particularly with the chateaux bearing my name, to reject large quantities of non-EU wine imports? And which, sadly, I have no relation. You refer in your how does this tie in with the WTO agreements? written evidence to the current review by the Mrs Appleby: We do have some well—established European Commission for food labelling generally non-EU countries who have excellent systems in and you suggest that “the review of the EU wine place to ensure and control the vineyards, the wine sector may provide an opportunity to streamline the production and labelling, and so when it does enter wine regulations and ensure that they facilitate the EU it fully complies. But we are aware that there consumer choice and are consistent with the are other non-EU countries that do not have such approach proposed to be taken on food labelling well-established controls. As I have already generally.” Can you expand a little on this and put us mentioned, we have had 165 temporary movement more in the picture? control notices issued by our wine standards Mrs Appleby: Obviously we have already talked quite inspectors and these related to wines mainly from a bit about food labelling, but I will add a little if I non-EU countries, and that included the USA and may? There are all sorts of diVerent rules, as I South Africa. The most frequent oVences relate to previously indicated, according to the diVerent alcohol levels being above the permitted maximum, categories of wine—still wine, sparkling wine, table lack of importer details or problems with the wine, GI quality wine, all the things we have been certification that accompanies the wine. In most talking about. What the Food Standards Agency instances the wine has been released following would like to see is that we should have wine labelling corrective action but we are aware of re-exports. So which is far more in line with the rest of the food the wine standards inspectors apply the regulation sector, is simple for consumers and also for the and third countries must comply with those EU industry and for enforcers, and regulations are labelling rules. We do have some bilateral agreements harmonised, proportionate and very much risk— with some non-EU countries where we are certain based. As we have mentioned, the EU is reviewing its that the controls are very similar. The Agency is labelling of food, and again they are going to be currently undertaking sampling and surveillance reviewed along similar lines: there will be new work and looking at certain of these new entrant requirements for certain mandatory things and there countries—Moldavia, Georgia, Lebanon. We have are other things that will be optional on labels. If some people obviously with some very good quality wine, for example, was treated like any other food we wines, but we are looking to see what kind of could,—and perhaps should—have a requirement standards they maintain and to ensure that they do for ingredient listing so that consumers could see comply with the EU rules. We are looking at things what was in the wine that they were buying, and that like authenticity. I understand that there is more may also tie in with nutritional labelling for wine Pinot Grigio wine circulating than there could be because obviously we are all very conscious these vines on which to grow it, but that is the sort of thing days of the need to be careful what we are eating and we are trying to find out more to look and see exactly drinking, and it would perhaps be appropriate that, where the problem is and whether it is fraudulent use when we had our glass of wine, we knew what the of labelling, and exactly where the problem might traYc light colours were on it. So things of that sort come. would be extremely helpful to consumers and would help us to have a common regime. It does seem a little Q95 Lord Palmer: In the papers today it said that strange that we have a situation where, for example, wine sales in the UK were flat. Do you have a view or we have to list ingredients for soft drinks but not for do you know why non-EU wine imports have been so wine. I guess it is perhaps assumed that we all know much more successful in knocking particularly the what is in our wine. French and other European wine producers in the sale of wine in this country? Q93 Lord Palmer: I think some of us would be Mrs Appleby: I think it is very interesting because amazed what is in it! historically Member States may have been simply Mr Statham: I think we would be, absolutely. wanting to produce wine for their home markets. Maybe they had not intended to produce wine for exports or maybe they export the wine that they do Q94 Lord Palmer: In Paragraph 29 of your evidence not want, and that is quite an interesting concept. We you drew attention to the two groups of non-EU wine know clearly that the New World countries have exporters to the UK—the established ones who are exploited every opportunity—they have had familiar with the EU wine sector rules and the newer financial backing and sustained advertising ones, some of whom are not—and whose imports campaigns—and perhaps they have made you may have to reject. Presumably this is an issue in considerable eVorts to ensure a consistent product, other EU Member countries as well? Can you give us and maybe with stable levels of sunshine and rainfall, some idea of the scale of the problem. Do you have to it is easier for them to do that kind of thing and 3714281004 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 February 2007 Mr David Statham and Mrs Sarah Appleby perhaps produce it at a price which consumers enjoy. Mr Statham: It will be by ship; very little is air- We mentioned earlier about various wine scandals freighted in. Unlike the salads and things we ﬂy in that occurred in the 1980s and that potentially from Kenya, it is not quite as sensitive in terms of perhaps led to a falling oV in conﬁdence for EU time in relation to wine. So, yes, it virtually all comes consumers. We had the problem of adulteration with in by ship. diethylene glycol in Austria in the 1980s, and that Chairman: It is a strange world, this. I tried to buy created a problem. We have had problems again with some wine in New Zealand a couple of years ago and wood alcohol being added to wine. I think something I found that I could buy it cheaper in this country like 37 companies have been involved with this than I could buy it there. This is an odd market for adulteration of wine, and that has obviously been me, but there we are. Lord Moynihan wants to know dealt with. We have had TV chefs and wine experts how to make wine! coming on to educate the public about wine tasting, what to expect, what to look for. With increasing Q100 Lord Moynihan: Before I come to that, my travel people are very interested in trying new wines Lord Chairman, could you give us your view on and, if they are very easily available in supermarkets, whether you feel that you are satisfactorily resourced V there is every opportunity to try di erent sorts of to undertake all these challenges? We have been wines. talking about scandals, alcohol strength, analysis, Lord Palmer: Thank you very much indeed. labelling, content. You have outlined how many people work on the team. Do you feel comfortable Q96 Chairman: There is growing concern or at least that you are able to undertake all that work with the publicity given to the fact that food miles are team you have and the resources which you have beginning to aVect climate change and so on. Do you available? think this is getting through to the wine industry at Mr Statham: It is early days as far as we are all, because whilst New World wines, as we often call concerned because obviously we inherited the team them, are increasing in this country as far as the and we are looking at their practices and the way they consumer is concerned, do you think it will aVect in work, and particularly one of the things we want to the long-term the import of wines from long work on is a closer working relationship with the distances? inspectors at the retail level within the local Mrs Appleby: I think consumers are certainly starting authorities, because obviously if we have those into to become much more aware and I think our own UK the team then we have quite a substantial team in this vineyards are seeing increased planting, and so UK area. I think the important thing to stress here is that, production, although very small, is actually when there are serious issues like the sort of things increasing and, maybe with some good positive you have described—the fraudulent practices, the marketing, they may be able to increase their sales counterfeiting, then we need to get the whole team and potentially increase the awareness of the involved. Our inspectors are really more involved— consumer to perhaps try more local wines or be more it is a diYcult concept—in non-intentional crime adventurous with EU wines. than in fraud, I would say. They are more about saying, “This has slightly exceeded the level” or “This Q97 Chairman: Then they are limited on a quota, the is not quite labelled correctly” but nobody has done amount that can be produced? it intentionally, it is just the way that things have Mrs Appleby: Yes, and that is potentially where the happened. Clearly when we get into major frauds, changes in the wine regime may have an advantage then that is a system that involves a wider number of for the UK market. inspectors and may of course also involve the Customs and the Police, depending on the nature of Q98 Viscount Brookeborough: You have mentioned the investigation. We feel that the team is probably the maximum alcohol content permitted, when adequate at the present time but we need to check exceeded, as being one of the things in which you are that out as we look to the future of their business very interested. How often is what is indicated on the plans and the way they intend to operate. label exceeded, because that may not be the maximum permitted—it could be 11 or 11.5%. How Q101 Lord Moynihan: Do you feel that the local often is that? authority inspectors are satisfactorily trained? Mrs Appleby: I do not have any data on that with me. Mr Statham: This is an important area and we think that they are satisfactorily trained in relation to Q99 Lord Palmer: A very naı£ve question, following dealing with fraud in general. Whether they are on from our Chairman’s question about air miles. suYciently trained in the wine area is something that How does most of the wine, for example from New again we would want to look at as part of this review Zealand, arrive in the European Union? By boat, of the system and the process. Both Trading by air? Standards and Environmental Health are graduate 3714281004 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 February 2007 Mr David Statham and Mrs Sarah Appleby professions and they are both trained to a fairly high joined us and they probably understand the analogy level and they are trained in Enforcement practices. better than we do! Probably what they are not necessarily particularly focused on is the wine area in general. Q105 Lord Moynihan: I think you have made a very important point, but can I press you a little further? Q102 Lord Moynihan: I am very grateful to you, and You defined the logic as being nonsensical. In other I apologise for the fact that we did not give you words, a number of these practices, the novel advance notice of those questions, but I think it is processes, which are not harmful, I assume—and quite an important issue for us, following what has please correct me if I am wrong—and your argument been exceptionally interesting evidence. Back to the is that they are not a harmful way of producing wine subject of wine making practices. Could you tell us but they are not traditional; that many of the something about what you call the “novel processes” processes within the European Union are there for wine making which are practised outside the because by definition they are traditional and are European Union and which are not permitted in the threatened by non-traditional processes coming European Union. We understand that such practices internationally which, as I understand it—and please are illegal for EU wine makers to use. How does that correct me if I am wrong—you would regard as a aVect imports? Maybe you can go into a little more nonsensical approach. Would you agree with that? detail than you have already given us on that? Mrs Appleby: I suppose the objective of the Food Mrs Appleby: Certainly there are a wide range of Standards Agency is to ensure that consumers know techniques—reverse osmosis and (one that intrigues what it is that they are buying and have information me) the “spinning cone” technique. Perhaps I can to allow them to make an informed choice. We are refer to my notes? The idea is that it allows the wine there to make sure that the food they eat is fit and that maker to harvest grapes at full ripeness so that you they are not exposed to health hazards or get all the flavour and aroma but obviously you get contaminants and that they are in a position to make high alcohol levels and a hotness associated with the that choice. I do not believe it is for the Food taste of the wine. So the idea is that you use this Standards Agency to say that one method should not spinning cone, which is an alternating series of fixed be used as against another method. If they are safe, is and rotating inverted stainless steel cones. You get a there no objective reason why it cannot be used to liquid film falling over this and apparently you use an make a safe product for a consumer, then there is no inert gas to strip out some of the alcohol level and reason why it should not go on sale. then you can add alcohol back into the wine to the level that you might prefer. So you get the balance of Q106 Lord Moynihan: I think there are about a the fruit and the alcohol levels. Certainly that dozen people now who are wiser as to the “spinning “spinning cone” technique would not actually be cone” technique but I am not sure putting that on the allowed to be used in EU wine. label of every bottle will overcome the problem. You do say in your evidence that there is a case for relaxing some of the present requirements and Q103 Lord Moynihan: Why? allowing wider use of diVerent methods where there Mrs Appleby: Because that is what the wine regime is no detriment to the quality of the wine or any specifies. disadvantage to consumers. Can you be a bit more specific on that? Q104 Lord Moynihan: That is what it says, but what Mrs Appleby: Just to reiterate, the Agency does aim is the rationale for making it illegal? to ensure that consumers are not misled, that they are Mr Statham: As an illustration, we used to have a not exposed to health hazards. Wine historically is situation where you could not adjust the fat content considered as a safe food and that is obviously why and the water content of milk, you had to have a we started drinking wine all those years ago—it was specific level because that is what naturally came obviously safer than water. So the novel techniques from the cow, and clearly that is as nonsensical as and the way that wine is engineered need to be shown this. What it is talking about is saying that we can that it is safe to consumers, that the process does not only produce wine in the natural way as opposed to actually contaminate the wine. There is also an issue producing wine in a way that has the alcohol level about when is wine a wine—what makes a wine a correctly worked out and balanced. That is why it is wine? Is it because it has gone through a traditional probably done; there is only one traditional way of process? Or is it a composite product with the doing this, in the way that there probably was only addition of alcohol to some fruit base? In that respect one traditional way of milking your cow. the engineering needs to ensure that the wine is what Chairman: If I could just say on that that I am the consumer thinks of as wine—it is quite technical delighted that you use that analogy because I here. I think we are reiterating that as long as the recognise a number of Welsh farmers who have just consumer is not being misled, that there are no health 3714281004 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 February 2007 Mr David Statham and Mrs Sarah Appleby risks, then there is no reason why some of these novel Mrs Appleby: I hope not. techniques should not be allowed. Again, it is for a producer to find a market because, if they try Q110 Lord Moynihan: Do you check on the validity something consumers do not like, they may want to of organic wines? go back to the traditional methods. Limiting the Mrs Appleby: Yes, checks are made on organic wine. methods may not necessarily be an advantage to consumers. Perhaps more recently we have been Q111 Chairman: Thank you very much. As you can keener to think about reducing the alcohol levels in imagine, evidence has been pouring into us from wine as a safer product for consumers, and perhaps many interests and I have been reading it all over the we might want to encourage the availability of some last day or two, mainly because I am standing in for of these wider ranges of alcohol wines, and that could the Chairman at the moment, and to make sure that be an advantage of using something like this. I was doing my homework! It was interesting that one lot of evidence we had from the World Wildlife Lord Moynihan: Thank you very much. Fund—and I did not expect to get evidence from them on wine—is all related to cork, and they are concerned that the cork trees are coming down. Q107 Viscount Brookeborough: You monitor There is a much wider interest in this than just the standards. It is said by some commentators that one manufacture of wine or the movement of wine from bottle in 12 which uses a cork is oV in one way or one area to another. Thank you very much indeed for another. How interested are you in that, where the the way you have answered the questions that we consumer may be the victim of the one bottle? have posed, and thank you for the statements and the Mrs Appleby: There is a lot of debate about corks at evidence you have given. Is there anything that you the moment and I am aware of the real—versus— want to ask us before going, in terms of the future? the—plastic—corks or the screw—caps. Again, the We are hoping that the report will be released in bottom line is that we are there to protect the July—that would be the earliest possible date if we consumer, to make sure that the product they buy is can get it in before the Summer recess. We had a safe and in the condition that they expect. A lot of discussion earlier this morning and realised that this those complaints would probably come through at is very much an ongoing process and, since we are the retail level to our colleagues in Local Authorities starting to work on a “Health Check” of the CAP, to and Trading Standards, and every consumer has a see how that is working, I think it will be important right to expect a product that they buy meets the that after this, particularly if there is a change in the wine regime, we do a follow-up then. So, again we standards that they expect. should be asking you to come forward and we would welcome your views. If there is anything that you think of after this meeting and points that have been Q108 Viscount Brookeborough: But, if that figure is raised upon which you would like to expand, we appropriate, that means 8% of wine may be oV. really would welcome any further points that you Surely that is highly significant from the FSA’s point wish to make. of view. Can you back up that figure? Mr Statham: Thank you very much, and obviously if Mrs Appleby: I have no evidence to confirm that there is anything that comes up in your deliberations figure but that is something on which our wine where you feel that we could add something, then standards inspectors spend a lot of time with the UK please do not hesitate to contact us and we will vineyards, to look at their wine-making practices, to respond as quickly as we can. ensure the quality of the wine that we produce in the Chairman: I was pleased that you emphasised so UK meets those standards, and obviously a lot of much this morning the importance of simplification. eVort is increasingly going on on checks of the The boys who are sitting behind you will understand imports of wine. But, when we are dealing with very the importance of simplification with some of the diYcult scales of imports in the UK, it is a big job. forms that they receive! It does seem strange these days that we have to complicate everything and make it more and more diYcult for people to understand, who spend more time form-filling than they do in the Q109 Viscount Brookeborough: So that figure of 8% production of whatever they are concerned with. may not apply to English wines? Thank you very much indeed. 3714281005 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

36 european wine: a better deal for all: evidence

WEDNESDAY 28 FEBRUARY 2007

Present Bach, L Palmer, L Brookeborough, V Plumb, L Jones of Whitchurch, B Sewel, L (Chairman) Miller of Chilthorne Domer, B Ullswater, V Moynihan, L

Memorandum by The Wine and Spirit Trade Association

EVIDENCE TO THE HOUSE OF LORDS EUROPEAN UNION COMMITTEE SUB-COMMITTEE D (ENVIRONMENT AND AGRICULTURE) The Wine and Spirit Trade Association1 thanks the House of Lords European Union Committee (Environment and Agriculture Sub-Committee, Sub-Committee D) for its kind invitation to provide evidence in relation to the forthcoming Reform of the EU Wine Regime, and makes the following comments:

A. The Need for a Regulation

1. What is the nature of the case for having a wine regime at all—ie as distinct from allowing the industry to adjust itself to competitive pressures (eg via increased efficiency, rationalisation, diversification, etc)? 1.1 The case for a wine regime is that it ensures that participants abide by the same rules so that goods are produced and marketed to uniform standards: without a Common Market Organisation (CMO), the consumer would have little chance of making comparisons with similar products in an overcrowded market place. 1.2 The wine regime consists of a general Regulation (1493/99) and a large number of ancillary rules (ie wine making practices, labelling, market mechanisms etc) which have been developed over many years: these are designed to prevent barriers to trade and to enable product to be traded cross-border within the Single European Market (SEM). 1.3 The wine regime has influenced global standards for the sector. However, it is the most complex of all CAP regimes, with many of the provisions having a producer, and not a consumer focus: this inherent inflexibility restricts the ability of producers to adjust to changes in consumer preference. 1.4 Although there are many faults with the present regime including its complexity, which is a deterrent to new entrants, complete de-regulation would not be acceptable to the trade and it is highly unlikely that it will be of any long term benefit to the consumer, see Annex I

2. Why should wine quality—eg relating to Geographical Indication—be regulated? Why cannot consumers choose between wines as they do between other products—eg on the basis of brand names or other information which might provide a guide to quality? 2.1 In accordance with the EU wine regime, quality wines with a Geographical Indication (GI) are only produced in AOC/DOC regions: many of these were developed more than a century ago as a means of regulating the trade in speciﬁc areas and as a means of preventing fraud. 2.2 Many EU producers and consumers would now argue that brands and GIs are synonymous. Over time, AOC regions have become de facto the intellectual property of producers making wine to the standards set by the inter-professional bodies whose purpose is to ensure that wines of quality—and with the characteristics of a particular region—actually do emerge from that region (Burgundy, Cahors etc.). 1 The Wine and Spirit Trade Association (WSTA) represents the whole of the wine and imported spirit supply chain including producers, importers, wholesalers, bottlers, warehouse keepers, freight forwarders, brand owners, licensed retailers and consultants. The WSTA was established in 1824 and currently has 300 members. 3714281005 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 37

2.3 The controls in place in the AOC/DOC regions are supposed to ensure that the specificity of the wines of a particular region are maintained. Abolition of the quality wine system in favour of branding per se will erode product specificity which is one of the finest legacies of viniviticultural Europe: over time this will lead to the homogeneity, and it will be impossible to tell the diVerence between wines from specific regions. 2.4 Branding per se is no guarantee that a consumer will actually like the wine he or she has bought. Tasting notes prepared by competent experts are often used as a vehicle for marketing wines. However, they tend to reflect the quality of a generic wine made with particular vine varieties from a specified region. By their nature, the notes are subjective, and a consumer may not think that a particular wine is of any merit whereas an expert may take a contrary view,

B. The Market

3. Given the existence of a wine regime, how might a better balance be achieved between the supply of and demand for wine and wine products produced within the EU? 3.1 The Commission estimates that without reform, by 2010–11, the EU’s annual surplus output may move to 27m hl, ie 15% of total EU wine production. Clearly, this is untenable and action will need to be taken to address the imbalance between supply and demand. 3.2 In seeking a sustainable wine sector, the Commission has identiﬁed the following general objectives to: — increase the EU’s ability to compete with wines from Third Countries; — strengthen the image of European wines; — regain market share in old markets and develop new markets; — develop rules that are as simple as possible; and which — take into consideration the social and political roles of the wine-growing regions. The WSTA fully supports these objectives. 3.3 In its communique´ to the trade of 20 June 2006, the Commission analyses the current market situation, describes the problems with the current CMO, and suggests measures to regulate the market. It cites four options for reform: — Option 1: Retention of the status quo; — Option 2: Profound reform (with fast and slow variants); — Option 3: Reform along CAP reform lines; and — Option 4: Complete deregulation, see also para.1 and Annex I. Based on its own assessment, the Commission has come to the conclusion that a Profound Reform (Option 2) oVers the most advantages among the four options, and that the retention of a CMO speciﬁc to the wine sector is necessary. 3.4 Profound Reform (Option 2) Option 2 contains two variants (A & B): — The main diVerence between the two lies in the speed of change but with both reaching the same conclusion. — Variant A provides quicker answers to the present diYculties, and Variant B allows the rural economy and social fabric to adjust more slowly to change. 3.4.1 Common features of Variants A & B: — Abolition of market measures, ie support for by-product distillation, potable alcohol and dual purpose grape distillation, private storage aid, and grape must/juice aid. Crisis distillation—originally intended as a means for special situations—now seems to be in almost constant use. In June 2006, the Commission granted ƒ131m to France and Italy for crisis distillation. In 2005, the measure cost the EU ƒ185m. In addition to being a huge burden on the EU budget (see Annex 1), crisis distillation is considered by the WTO as being a trade distorting market mechanism. The WSTA shares the view of many that the present position is untenable, and is a gross waste of public money. 3714281005 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

38 european wine: a better deal for all: evidence

— Allocation of a national envelope to each Member State based on objective criteria, with the possibility to fund a range of non-trade distorting (green box) measures, ie restructuring programmes and certain crisis measures. The WSTA supports this measure, including the possibility of establishing locally administered mutual funds to be used to stabilise farm incomes. — Enhancing rural development policy in the EU wine regions. For example, increasing support for early retirement or reinforcing the agri-environmental measures where recognised landscapes are threatened by a reduction in vineyards. see para 11.1. 3.4.2. DiVerences between Variants A & B: The WSTA notes that both variants seek the same objectives, but that timeframes diVer. — Variant A: This model oVers a quick fix. Under the one step model (Variant A), the regulations regarding restrictions on planting rights would be abolished immediately without a transitional arrangement but would lead to greater adaptation problems for the sector. — The ban on new plantings would expire on 1 August 2010, or be lifted immediately with the option for member states to limit areas producing wine under Geographical Indication (GI) arrangements. The WSTA supports the end of the ban on new plantings for products without a GI as this would encourage innovation to reflect changes in the market. The abolition of planting rights would encourage the allocation of vineyards, the development of large firms skilled in mobilising capital, ie they would contribute to the creation of economies of scale which are sorely needed if the EU is to compete successfully in the same segmented markets with Third Country producers. — The grubbing up scheme—which is subsidised—would be abolished at the same time. The grubbing up scheme aims to reduce the EU’s wine production capacity to a level which would be viable without artificial market support (such as crisis distillation). Only then would new plantings be permitted freely: growers would then plant only if they were confident of finding buyers for their wine, so there would be no further need for artificial restraints in supply. Note: However, it is important not to constrain the ability of growers in countries such as the UK, operating without subsidy, where there is a demand for their products. — Cultivated areas would enter into the Single Payment Scheme. Suggestions have been made—under Option 3—that some payment could be made via a single payment scheme (SPS). However, this would require a shift of all or part of the budget to direct payments for vineyards which could then be included in the SPS. The WSTA believes that although this would be advantageous in that it would introduce major simplification and cross-compliance for all wine growers, the process could lead to wide spread fraud so proper controls would be necessary. In contrast to other sectors, there would be no obvious equitable way of distributing SPS entitlements. Moreover, the available budget would mean the decoupled payment would be very small and would probably not compensate for the loss of market support for many growers. — Variant B: This model envisages a two staged approach. Initially the aim would be to restore market balance, with a second stage building improved competitiveness within the sector. Extending the EU system of restriction on planting rights until 2013 when it would expire. The WSTA’s view is that if the sector is in crisis and that present arrangements are not sustainable, rapid (not delayed) remedies are necessary. Temporarily reactivating the grubbing up scheme, with the premium being set at an appropriate level. To encourage take-up from year 1, a decreasing scale would be set for the premium over the remaining period of planting rights. The aim would be to grub up 40,000 ha in the EU over a five year period, with a maximum total aid of about ƒ2.4bn. The areas grubbed up would automatically fall within the Single Payment Scheme (SPS), see above. 3714281005 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 39

4. Is the EU wine industry, within the current regime, sufficiently competitive within the global wine market? How can it be made more so? 4.1 In recent years, the EU has lost significant market share to Third Countries: for example, Australia is now the most important supplier to the UK. 4.2 The WSTA (and others) would strongly support the creation of a comprehensive EU strategy so that a coherent approach can be taken by the EU in relation to international negotiations. Funds should be set aside in the EU budget to support this objective. Given the inadequacies of Eurostat, funds should also be set aside by the EU for an “economic observatory” (Unit) to monitor progress stemming from reform: this would allow better data to be collected and analysed for the general benefit of the EU sector with a view to developing sound strategies.

5. Is it to be expected that barriers to trade in wine will continue to diminish as the result of WTO negotiations? If so, what impact can this be expected to have on the cost of the EU wine regime and/or on its effectiveness in protecting farm incomes? 5.1 The development of a WTO GI register for wine and spirits will reduce barriers to trade (and the risk of trade wars). Although this is unlikely to have much impact on the cost of the EU wine regime per se, it is an important issue when considering brand building and product diVerentiation, and therefore, there could be a knock on eVect for farm incomes. 5.2 Global technical standards are set by the OIV (the inter-governmental body for wine). These standards are a means of preventing technical barriers to trade, and the suggestion by the Commission that OIV standards should be incorporated into EU legislation as Commission (not Council) Regulations is to be applauded. 5.3 The WSTA strongly agrees with the Commission that it is important that the new CMO for wine is compatible with WTO standards.

C. Structural Measures

7. How signiﬁcant an issue is illicit planting for the supply situation? 7.1 The Commission’s view is that “after many years, some member states have still not completed the regularisation of certain so-called irregular vineyards (planted before 1 September 1998) or the grubbing up of certain so-called illicit vineyards (planted before 1 Sept 1998). The areas for which regularisation has been refused and which are still under examination amount to about 68,100 ha or about 2% of the total EU-25 area under vines”.

8. Is there a case for the continuance of remedial measures (“crisis distillation”) to deal with exceptional market conditions? 8.1 No case can be made for the continuation of Crisis Distillation: experience has shown that the original purpose for which it was designed has become distorted and is now a means to an end, ie to guarantee an income to the grower at the expense of the taxpayer.

9. What alternative outlets (ie other than wine sales) exist for excess production? 9.1 Alternative outlets for wine products include: — Vinous alcohol for use in the manufacture of other beverage alcohol products such as Port and for the manufacture of Rectiﬁed Concentrated Grape Must (RCGM) used for the sweetening of still wines in some wine growing regions. — Bio ethanol as a fuel for vehicles etc. — The pharmaceutical industry. 3714281005 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

40 european wine: a better deal for all: evidence

10. What is the potential impact on wine producing areas of liberalisation of the market? How sensitive are these economies to change? 10.1 Given the economic uncertainties in the wine sector, there are no easy answers. According to the Commission: — With 1.6m vineyards, vines occupy roughly 3.4m hectares in EU 25. The average size of vineyards is roughly 2 ha, although the majority of growers actually work on less than one ha of vines. Wine production in 2004 represented 5.4% of agricultural output. Wine production represents around 10% of the value of agricultural production in France, Italy, Austria, Portugal, Luxembourg and Slovenia, and a little less in Spain.2 — In total, vine growing farms employ more than 1.5 million people full time. When the other actors in the production chain are added, the total employment generated by vine growing is considerably higher. The Figure of 1.5 million people corresponds to roughly 15% of the total Annual Labour Units in the EU for agriculture. — In the EU, specialised vine growing farms have had higher revenues than the average farm since 1990. On average, the evolution of revenues made steady progress between 1990 and 1999. However, this positive trend has been substantially reversed with average revenue per farm having declined by 12% between 1999 and 2003. — Europe grubbed up its vineyards in the 1980s and 1990s whilst at the same time the New World was busy planting. The new CMO of 1999 reversed this trend but was quickly confronted with over- production and illicit planting. Europe embarked on a new wave of grubbing up in response to a crisis that was partly cyclical. 10.2 Experience has shown that ﬂuctuations that trigger cyclical crises in the EU can become structural ones, both as a result of insuYcient clearance of markets by crisis distillation and through lack of growth potential in outlets in the face of powerful competitors. 10.3 Production has continued to evolve outside Europe and the present situation remains heavily inﬂuenced by world over-production in 2004. Over and above the cyclical aspects, the trends of yields vary widely from vineyard to vineyard.2 10.4 In the EU, consumption has stabilised on average. It continues to decline in the traditional producer countries and to rise in the non-producer countries. The trend at EU level is towards virtual stability (no growth) on average, and towards a slight increase at a world level. 10.5 Vineyard performance makes sense therefore only in terms of productivity adapted to the dual concept of product/market segment.

european wine: a better deal for all: evidence 41

D. Marketing

12. Given continuance of an EU wine regime, what are your views on labelling and quality issues? Are current arrangements conducive to consumers understanding what they are buying? Is there scope for rationalisation and simplification? 12.1 From a EU regulatory perspective, the complexity of the present re´gime is excessive by most standards. There is a bewildering array of Geographic Indications (GIs), which their owners attempt to link to expressions of quality even though the wines are of no particular merit; there is a stratum of dedicated wine labelling arrangements which is incomprehensible to the consumer outside the region of production; and in many cases these represent quasi technical barriers to trade. 12.2 On labelling: — Consumers are often confused by wine labels resulting from a highly complex legal system consisting of legal instruments which deal diVerently with several wine categories and with some specifics depending on the product. — Certain inflexible labelling rules hamper the marketing of European wines. A major drawback is the limitation of the use of the optional indications, ie vintage and vine variety (ies) to wines with a GI. This presently prohibits the indication of a vintage year and the vine variety on a table wine without a GI. This situation hinders the production, marketing and export of important volumes of “vin de ce´page” (wines of one or more vine varieties classified as table wine), whereas there is strong competition on the Community market and on third countries” markets for this range of product. — The conformity of labelling rules with international obligations should be improved, as far as the sale designation (for example, quality wines psr table wine with a GI, and table wine), the use of optional indications, the reservation of bottle shapes, and the policy on traditional terms are concerned. — To aid new entrants to the sector, (especially SMEs) the WSTA believes that consideration should be given to developing a comprehensive sector-specific data base to assist compliance with EU regulations, particularly those relating to labelling.

13. What part has marketing played in the rise in sales within the EU of wine produced outside the Community? 13.1 New World Wine producers have taken a “holistic” strategic approach to marketing their products in the EU: marketing should not be seen as a function in isolation. Their success has largely been achieved by: — Close cooperation within producer countries of stakeholder organisations, ie trade associations, research establishments, universities etc and trade. — Access to capital and the development of new production facilities and innovative practices. — Flexibility of approach, allowing producers to plant varieties which they know will have a market, and to grub up as necessary: third country producers of wines of quality do not have the same constraints put on them as many producers operating within AOC/DOC regions in Europe. — Economies of scale which permit large volumes of branded product to meet the increasing demands of the multiple grocers in markets such as the UK. — Protection by government of “Brand Australia” etc. — Development by the trade of products to ﬁt consumer preferences in speciﬁc EU target markets. — Brand consistency and value for money to the consumer. — Label designs (plus the use of vine varieties) which are comprehensible to the consumer.

14. What lessons might be learned from the penetration of non-EU wines into the EU market? 14.1 European producers need to become far more ﬂexible, and should not rely so much on “protected” home markets. In a declining home market, companies should seek export opportunities and produce only to consumer demand. They need to understand: — The market, and respond to consumer demands. — That over time, in the Single European and global markets, market mechanisms are more powerful than attempts by government (or inter-professional bodies) to protect local economies. 3714281005 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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— That subsidy is a short term solution: eventually, the tax payer will lose patience. New Zealand— whose wine producers are not subsidised— competes favourably with many EU member states on a global market. 14.2 The rules governing the CMO should be liberalised to enable producers to react to consumer demand.

E. Wine Making Practices (WMP)

15. How suited are current regulations on WMP to a competitive global market in wine? What changes would you like to see? 15.1 The current EU wine regime restricts innovation and is a disincentive to the production of modestly priced, wines aspiring to attain higher quality: in addition, EU constraints on the adoption of oenological practices hands a competitive advantage to Third Country producers which are permitted to use more wide ranging (OIV) winemaking practices. 15.2 Current regulations are restrictive; and the WSTA would support the Commission’s proposals for greater liberalisation regarding wine making practices (WMPs) , as follows: — Transfer from the Council to the Commission the responsibility for approving new or modifying existing WMPs including taking over the “acquis”. — Recognise OIV’s WMPs, and ﬁlter at Commission level their incorporation into Commission regulations. — Authorise use in the EU of WMPs already agreed internationally for making wine to export to those destinations. — Abolish the ban on viniﬁcation of imported musts and blending of Community wines with Third Country wines. — Delete the minimum natural alcohol requirement for wine, ie to permit the use of technologies to reduce alcoholic strength, see para. 18.

16. How should enrichment (with sugar or must) be regulated? Should there be ﬁnancial aid for enrichment? 16.1 See Annex II.

F. Environmental and Social Impact

17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Are measures needed to support good environmental impact? Should they be selective? 17.1 Good Agricultural Practice (GAP) and sustainable development are deeply engrained in the vine growing (vitivinicultural) sector, and standards are being set at OIV global level. 17.2 The sector has had a profound eVect on the EU environment for very many years (in some regions for centuries); it has been responsible for the construction and maintenance of ﬁne architecture, and interesting landscapes. However, this comes at a price. 17.3 The Commission has found that reform along the lines of the general CAP reform would be diYcult to apply to the wine sector. The cornerstone of this type of reform involves converting past subsidies into decoupled payments, ie payments which are not based on production but linked to land area and disbursed when farmers respect certain conditions of environmental care, animal welfare and public health. The WSTA concurs with this assertion.

18. To what extent and how should reform of the EU wine regime take into account concerns over the potential for alcohol abuse? 18.1 In its Communication of 22 June 2006 on the wine reform, the Commission conﬁrmed that “. . . information on the advantages and the beneﬁts of moderate and responsible consumption of wine as well as information related to alcohol harm has to be provided to all concerned”. In later correspondence with the sector’s European trade association (Comite´ Vins), the Commission stated that it “encourages initiatives to inform consumers on responsible patterns of alcohol consumption by carrying out information and education campaigns”. 3714281005 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 43

18.2 For its part, the EU wine sector has developed a strategic initiative (The EU Wine Plan) as a key education initiative which it hopes will be incorporated, developed and supported in the future wine CMO. DG Sanco has acknowledged that with its plan, the EU wine sector has made a constructive commitment to contribute towards moderation and responsibility in the consumption of wine and other alcoholic beverages as a contribution to the reduction of irresponsible consumption and related harm. The EU wine sector hopes that the EU will provide consistent political and ﬁnancial support for information and promotion campaigns aimed at educating consumers in the broader sense of “life skills”, and focusing on moderation and responsibility in the consumption of wines in particular. Moreover, it hopes that these EU wine sector campaigns can be implemented in close partnership between oYcials at the EU Commission, and at national and local levels within the framework of the future EU wine policy. Wine and Spirit Trade Association 6 February 2007

Annex I

ECONOMIC IMPACT The following notes summarise the Commission’s view of the likely economic impact of reform on the wine sector, and include some preliminary comments from the WSTA.

Option 1(Status Quo): The WSTA notes the Commission’s estimates that the structural surplus in an average year would be 15 million hl, excluding wine withdrawn for distillation into potable alcohol, or 27 million hl if wine withdrawn for distillation into potable alcohol is included. After application of market measures, and taking into account the remaining stocks, the remaining surplus is estimated to be 9 m hl with a resultant downward pressure on prices of 6% annually. The WSTA shares the view of the UK government that under this option, it is inevitable that EU wine will continue to lose market share to new world wines. Moreover, the present system of market support measures is environmentally unfriendly, is wasteful and is hugely expensive. Moreover, it is likely to come under pressure in WTO negotiations.

Option 2(Profound Reform): The Commission estimates that oversupply would be 8.2m hl in year 1 but reduce to 4.2m hl in year 2. Thus the oversupply is expected to be substantially lower than option 1. Consequently, the impact on stocks, prices and incomes is also expected to be more moderate. This option shows a 5% fall in the ﬁrst year and a further, but smaller drop in process in the second year. For incomes the Commission’s model shows a 7% to 26% fall in incomes in the three main wine producing countries after two years. The magnitude of the reduction in income depends on the region and the type of vineyard. After year two, prices and incomes are expected to slowly recover because of a tendency towards balance between supply and demand. One eighth (12.5%) of jobs in the sector is expected to be lost under this option as less eYcient enterprises go out of business.

Option 3(Reform on CAP Reform lines): As in option 2, in the short term, the imbalance between supply and demand is likely to persist but in the medium to long term the market will be in balance: thus incomes and prices will reach satisfactory levels. The level of income could be higher in the long term than under option 2 due to the single payment. However, this would depend on how the funds are used under option 2. According to the Commission, adjustment would be slower under option 3 due to the lack of a grubbing up scheme. It estimates an increase in stocks over the ﬁrst two years of 12.2m hl annually. The results of the Commission’s prices and income model are for prices to fall by 16% over the ﬁrst two years. Incomes 3714281005 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

44 european wine: a better deal for all: evidence

(including the decoupled payment) are projected to increase for some producers but to fall for most producers by between 5% and 17%. The impact of the ban on Chaptalisation and a maximum enrichment of 2% could lead to an increase in production costs of 15% to 25%.

Option 4(Complete Deregulation): In the short term complete deregulation would lead to severe imbalances in the market which could have severe long term human costs. The Commission estimates that stocks would increase initially by 19m hl annually— more than under the status quo (Option 1). Based on this assumption, prices are projected to fall by 23% over the first two years—the largest projected fall among the four options. The Commission’s model also suggests the largest impact on farm income under option 4 with falls between 21% and 74% in the first two years. The elimination of market support measures would make the system WTO compatible. The WSTA acknowledges the merits of the following measures falling under Option 4: these should not be discounted as long term objectives: — The immediate elimination of the planting ban would eliminate barriers to entering the market. It would allow more eYcient producers to expand at a lower cost and be more competitive in the market. — The WSTA believes that there should be suYcient flexibility in any system governing planting rights to enable competent growers to expand their holdings should the market require it. — Complete harmonisation of EU oenological practices with OIV rules should be a long term objective and would put EU producers on a level playing field with other Third Country producers, allowing them to produce products demanded by consumers. All these measures would help drive up eYciency and improve the competitiveness of EU producers.

Annex II

CHAPTALISATION The Commission has suggested a prohibition of Chaptalisation with sucrose (beet sugar), and justiﬁes doing so as a consequence of abolishing subsidies for rectiﬁed, concentrated grape must (RCGM), among other things. The WSTA strongly opposes this approach as to do so will disproportionately disadvantage growers in northern (cooler) climates by comparison with those in southern (warmer) climates who are permitted to acidify: in cooler climates wines often have to be enriched to achieve balance with acidity levels, and in warmer climates the reverse is the case.

The Effect of a Ban on Producers: Despite a uniform EU market, there are diVerences in location, climate and weather within the European Union and these are the basis of varying regulations governing production within the EU. The impact of the ban on Chaptalisation and a maximum enrichment of 2% would lead to additional costs for producers in northern and central European wine areas estimated at 15% to 25% The WSTA believes that the link between removing aid for RCGM and further restricting the rules governing the use of sucrose is spurious. If there is a need for Chaptalisation in deliminated production areas, market mechanisms rather than regulatory imperatives geared towards absorbing excess vinous material (RCGM) should determine whether it or sucrose is used in wine production

Inconsistency with the Proposed Liberalisation of Oenological Practices:

The practice of enrichment should be re-classiﬁed as a genuine oenological practice. A ban on Chaptalisation is not consistent with the proposed liberalization of oenological practices; neither is it consistent with the recognition of the practice by the EU in bilateral agreements with Third Countries. 3714281006 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 45

The Effect of a Ban on Importers: The eVect of a ban of use of sucrose would impose additional costs on wine producers in Northern and Central Europe and thus would aVect the proﬁtability of importers which mainly import wine from those regions.

Examination of Witnesses Witnesses: Mr John Corbet-Milward, Head of Technical and Internal Affairs, Wine and Spirits Trade Association; Mr Philip Goodband, Consultant to Constellation (Europe); and Mr Patrick McGrath, Managing Director, Hatch Mansﬁeld (SME importer), and Chairman, WSTA Wine Importers Panel, examined.

Q112 Chairman: Hello and welcome. Thank you committee meeting after that initial meeting at the very much for finding the time to come and help us Commission and the result of these discussions in with our inquiry and for all the eVort you have put Brussels was a Commission Consultation Document into preparing your written evidence. Thank you which came out in, as I recollect, July of 2006. There very much, we are very grateful. At this stage of the has not been a Proposal that has come out of the proceedings, I have to point out that this is a public Commission yet and we are still talking about a session and it is actually being webcast, so do not get Consultation Document. Broadly, the Comite´ du carried away! There is a possibility that somebody Vins is in full support of the proposals that have been may be listening to it, though it is a very remote put forward by the Commission and the music which possibility, but it is technically there. After the is coming out of the Commission is very clear— evidence-gathering session, you will receive a namely that the wine regime is extremely expensive transcript of the proceedings which you can correct in and there are a lot of things wrong with it, so perhaps terms of any errors which have slipped in. We will it is time that a good look was taken at it and some proceed with questions, but it would be helpful if you reforms put into place. We very much support the could introduce yourself and make any initial Commission’s line which is one for “Profound statement which you think it might be helpful for us Reform” and we have also of course worked closely to hear. So, over to you. with Defra, our sponsoring department, in relation to Mr Corbet-Milward: I am John Corbet-Milward, and ensuring as far as possible that some co-ordinated I would just like to say a few words about the Wine thinking takes place before we make our submissions and Spirits Trade Association. We are a typical trade and before we get into the detailed discussions on the association. We have 300 members and we are reform. That is where we are and who we are. We are particularly strong on marketing and holding the a trade association and we focus on trade mainly. movement. We do not represent growers. There should have been a fourth member of our team, but Q113 Chairman: Would you just introduce your he was hijacked by the Committee! That was, colleagues. someone from the UK Vineyards Association. We Mr Corbet-Milward: Yes, Philip Goodband, on my have links at a national level to Defra, which is our right, is a Consultant Master of Wine, and he does a sponsoring department, we do a lot of work with the great deal of work for an international company Food Standards Agency and we have links to DTI, called Constellation. And, on my left, Patrick the Department of Health and every other McGrath is the Managing Director of an SME government department there is. At a UK level, we company and is very experienced in brand-building, have trade links to the Comite´ du Vins, which is the and he has interests both in wines coming from European trade, and that trade association consists Europe and also wines coming from third countries. of mainly trade-orientated national trade I do not know if you want to say any more, Philip associations, plus a few big companies. So in Comite´ or Patrick? there is of trade as well as roots going down into the Mr Goodband: No, that is probably suYcient. growing community within the European community. At a global level, we have links to the International Federation for Wines and Spirits, Q114 Chairman: Can I start oV, and I suppose it is FIVS, and FIVS has observer status on a number of really going to first principles. Reading your intergovernmental bodies, including the OIV, which evidence, I detected a certain tension in your view of is the intergovernmental body for wine. The Wine the desirability for even having one regime to begin and Spirits Trade Association’s involvement with the with, because you rightly point out its complexity, CMO began in February 2006 at the Commission. that it is inflexible and, most of all, which is The Commission set up three working parties and we, something I alighted on, that it is “restricting the the WSTA, played quite a leading role on the ability of producers to adjust to changes in consumer working party that was dealing with the consumer preferences”, which is absolutely fundamental to end of the supply chain. There was also an advisory the system. 3714281006 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

46 european wine: a better deal for all: evidence

28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath

Mr Corbet-Milward: Yes. suggest that the UK would be better oV if it worked with people who were inclined to our way of thinking, Q115 Chairman: However, you are not in favour of such as the Poles, the Danes and the rest of the complete deregulation. I am really teasing out how northern European states, and then applied as much these things sit together—a damning criticism of the pressure as we could to eVect change. Maybe we regime and saying, “Ah, but we can’t go all the hog should put the issue of full deregulation into the towards deregulation”. What is the justification for debate or ask those questions: there is nothing wrong sitting on the fence? with that. But I guess what I am saying is, do not be Mr Corbet-Milward: Well, we are pragmatic people surprised if the growers say, “But you are a very small and we know very well that, if you go to complete producer, so why should we listen to you?” deregulation, then the farmers will be dumping manure on the E´ lyseé. We are not locked into our Q118 Lord Bach: The danger surely is that, if you, as relationship with Comite´ du Vins, but we did discuss it were, adopt a pro-Commission view at the present this at a European level and we realised that a step- time, you will be taken along with the Commission, by-step approach would probably be the best way whatever it is they actually argue for in the end, and forward. We fairly quickly set aside complete that may be not really what you want at all. deregulation option largely because of the Mr Goodband: It seems to me that the tactic here, and impossibility of achieving it, and we opted for 2A, it is something we subscribe to, is bringing as many of which is what the Commission suggested. However, the north European countries along with us and you are right: I read the evidence that Defra gave to pushing for as much deregulation as we can achieve, this Committee and I know that you posed the same but having those allies alongside and creating the question to oYcials, and you were quite right to do consensus amongst those north European states. so. We would dearly like complete deregulation, but whether we can achieve it within the time available is Q119 Baroness Jones of Whitchurch: I would like to highly questionable. explore a little bit more with you your views on quality and how we can maintain, and drive up, Q116 Chairman: That is fine, because what I wanted quality. You say somewhere in your submission that to clear up in my mind was whether you had a you are concerned that, if we do away with the justification for a regulated market, that it brought current quality wine system, there is a danger it will any benefits, but you are basically saying, “No, we lead to homogeneity. On the other hand, then you go would prefer deregulation, if it was a viable option, on to praise the “New World” which has a branding but we take the view that it is not actually system which gives quality and branding. Could you achievable”. Is that a fair summary? just give us a little bit more of your insight into what Mr Corbet-Milward: Correct. you think the best way of maintaining quality? What Mr Goodband: That is correct. is, in the future, the best way of maintaining those quality standards? Is it the current EU quality wine Q117 Lord Bach: Could I press you on that a little standard either in its current or a moderated form? bit. I am delighted to hear that your real view, if I can Mr Corbet-Milward: I will defer to my colleagues, call it that, is that deregulation is the preferred of the who are much more expert in branding and that side options. Do you think you are not just being a little of things than I am. too over-pragmatic in settling for what the Mr Goodband: The strengths of the existing system Commission seems at the moment at least to be have been built up over many centuries. And, if we arguing for? Is not the best way to get as close to take Bordeaux, Burgundy, Champagne, the top deregulation, to be pushing for it and then to see appellations, for example, these are world-standard where it is that we actually end up? Is not the real benchmarks. The real problem lies below that level, concern that, if we all settle, as it were, for what is even within the upper appellations. If we take described as “Profound Reform” (and, whenever I Bordeaux as an example, the tiny fraction of wines see the word “profound”, it makes me think it means which are the international world standard for fine actually the opposite), is not the way to get towards wine represent probably less than five% of the total deregulation, which is what you favour and perhaps production of Bordeaux. At the lower levels, there some of us favour, actually to argue for it and then are a million hectolitres of structural surplus. They see where we end up? What can be the reason for not are producing six and a half million hectolitres a year doing that? and they are able to sell five million, much of it at Mr Corbet-Milward: That is quite a good tactic, but I knock-down prices and of very questionable quality. suspect that within the European wine mix the UK is In order to raise that, there is a need to remove that a tiny pimple on the bottom of the elephant, and we structural surplus and there is a need for each of the would risk being laughed out of court. So I would appellation regions to strengthen the quality (it is 3714281006 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath called the “label” in French), the certification, of deregulation ultimately would lead to quality, wines sold under the appellation name. At the because you would let market forces decide. moment, there is too much wine being sold which Particularly with the change of climate, why in time simply does not meet the standard and has nothing at can we not plant Shiraz in Bordeaux? If you look at all to do with that top 5%. So, if we were to the “New World”, they have complete freedom, deconstruct the appellation regulations, what we although there are problems of over-production in would lose is the ability of the producers of good- the “New World”, and the same applies to certain quality wine to produce wines with specificity, and GIs in Europe. The Champennoise very strongly that specificity comes, for example, from the defend their origin in terms of protection of the regulations which have within them the grape appellation, but also they have progressively over the varieties which can be grown within that appellation. last 15 years tightened up their entire appellation If that were removed, you would certainly get people system and controls to increase quality and increase planting and producing grape varieties from other minimum age in the bottle, etc. When we look at parts of the world. other countries around the world, countries like New Zealand who have very high internal standards, but, Q120 Baroness Jones of Whitchurch: Is it a system within that, still have a complete freedom of what which is also strangling some good producers of they can do in terms of wine-making or in the quality wine elsewhere in Europe? vineyard, and quality comes to the surface, it is a Mr Goodband: Yes, it is, and that is why I was careful combination of quality and then of course marketing to say that there are some appellations which have in terms of how you talk to the consumer. world-standard, benchmark qualities. The other problem is that there are far too many GIs, far too Q123 Baroness Jones of Whitchurch: So how would many. It is a complete nightmare for the consumer, you then define “quality”? How would you define it who has no idea what most of them mean and, for the consumer? therefore, there is a desperate need to simplify that Mr McGrath: I would say it is a balance of what the whole situation. It is indeed strangling producers consumer will pay for. I think there is a danger often within those areas who could very happily produce in wine that we think it is diVerent from you and I very attractive, accessible and saleable wine and who going to buy a stereo or buying a piece of furniture. are currently not able to do so. It is market forces and, as long as the consumer believes he is getting value for money, whether it is V Q121 Chairman: But how would you do it? £50 or £5, people will have di erent views of what it Mr Goodband: How would I do what? represents. Mr Goodband: It is very much delivering value at whatever price level. That is really the definition of Q122 Chairman: You said that there is a need to “quality”. change it because it is strangling, so how would you reform it? Mr Goodband: Well, the number of appellations—and Q124 Viscount Brookeborough: Mr Goodband, just perhaps we can use the term “denominations” to to follow on from that on quality, you said that there stretch it further than France—has arisen because of were several million hectolitres of questionable- the notion that anything which has a denomination quality wine that is surplus. of origin is automatically considered to be quality Mr Goodband: Yes. wine, and that simply is not the case, as I have tried to explain. So there is a need to ensure that the notion Q125 Viscount Brookeborough: If it is surplus, are of origin is separated from the notion of quality. people actually producing it in order that it goes for Mr McGrath: The appellation rules originally were “crisis” distillation? If they are producing this and introduced really to guarantee authenticity and that you can tell that it is of questionable quality and they was the basis of them. Then they tried to guarantee presumably know, then what is making it practical quality at the same time and actually, I think, for them to keep doing so? introduced far too many regulations, which actually Mr Goodband: They are continuing to produce, has been stifling the quality of course. In many parts knowing that they will be able to receive funds for of France, I know of many people who go around the distillation, and crisis distillation is no longer a crisis, “New World” in envy, saying, “I wish we could do it has become structural. this and that, because I am not allowed to do it within Mr Corbet-Milward: Absolutely. the system”. I think generally, as Philip said, that you would have to strip it out and simplify it Q126 Baroness Jones of Whitchurch: In your dramatically. It is important that you guarantee the experience of importing and trading, do you have any origin, but actually I personally feel that complete indication of any fraud that is going on, because 3714281006 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath obviously there is that surplus and the easy thing to Mr Goodband: I think, in reality, the level of fraud we do would be somehow to redefine it to get it on to the have been describing has to be quite low, I really do, market so that you can sell it. I just wondered if you because it would surface through the tastings that we had any experience of fraudulent producers or go through in order to market the wine and, quite middle men trying to do that, to put wine, which is honestly, we do not see a lot of it. not what it says on the label, on to the market? Mr Corbet-Milward: I have had experience of that Q131 Chairman: This will be grossly oVensive to only at the trade association level. I remember a few you, but could you not tell by chemical analysis? years ago that the harvest dipped in France, and, Mr Corbet-Milward: No, you cannot. It is very surprise, surprise, there was a tremendous drawdown diYcult indeed and people have been scratching their on wine from Cyprus: where that went was blindingly heads for a long time, including scientists, in order to obvious; it turned itself miraculously into French solve that particular conundrum, but have so far wine, but we could not prove anything. failed. There is an EU organisation (ISPRA) which is Mr Goodband: One of the ways in which fraud works, looking at the sugar levels in wines. Coming back to given the complexity of regulation and so on, is your question, sure, there is fraud, there always has simply the paperwork, and I have had personal been fraud in the wine sector, but our experience has experience of seeing how the switch of paper works. been that it is patchy and obviously, if there are Wine of undrinkable quality comes in from downturns or diYculties, climatic diYculties, then somewhere, comes into a cellar, they have the temptation is greater. paperwork for the undrinkable-quality, appellation, denomination wine, and other wine comes in from Q132 Viscount Ullswater: Just before we leave somewhere else which has cost a lot less, but which is V actually more drinkable, and the switch takes place. quality aside, is there any di erence, in your That is a direct result of too much paper flying about experience, between the definition of quality of New because of the regulations. World wines and the definition of quality within the European Union? Is this a European Union problem? I know the “New World” wines are much Q127 Baroness Jones of Whitchurch: They switch more unregulated and obviously they will have to sell the labels? either on brand, quality or reputation, and I am not Mr Goodband: They switch the paperwork, the quite sure what I am talking about here. But it seems certification. that there is a big structural problem on labelling, appellation, and geographic areas which seems to be Q128 Baroness Jones of Whitchurch: Do you think very, very much in Europe. that is quite widespread? Mr McGrath: I think a lot of it comes down to Mr Goodband: I have no idea. marketing in terms of the “New World”. They will have their own regulations in place and most of them will have to get export certifications, particularly out Q129 Baroness Jones of Whitchurch: I am asking you in New Zealand where they have very rigid too much here, but do you think it is going on a lot? regulations, but ultimately they are more driven by Mr Goodband: I have no idea, I am afraid. market forces. They work better, so they will have Mr McGrath: Interestingly, I am always surprised their own generic bodies in most of the countries and that there is not more fraud in terms of premium they will put on their own generic tastings, so they brands. If you look at the price of a case of Chaˆteau will have their wines available on a far more Latour Mouton-Rothschild 2005, it is at a ridiculous organised basis to the trade and indeed to consumers, price, most of the box of which will not be opened for and I think it is easier for the consumer generally to 15 years, and then you look at the people who go to get an impression of quality or to get more clues lengths to forge banknotes. Relatively, there is very regarding quality from a “New World” label, a front little there; it is a wooden box with a stamp on it and label, than they do from most “Old World” labels, a label, and most people will not realise that they have which are actually a complete minefield. They have been conned for 15 years. The Chaˆteaux now do go never heard of the chaˆteau, they do not know what to lengths and they will put tiny ink marks on bottles, “appellation controˆleé” means, there is no clue about but I am pleasantly surprised that more people do not the grape variety, and there are less clues for the do it, given the value of premium wine, how little consumer. there is and the money you could make out of it, if Mr Goodband: In many cases, there is nothing on the you were so inclined. label at all and there is no informative back label whatsoever. In terms of whether there is a big Q130 Chairman: Could you give us a little sort of diVerence, standards of quality in the “New World” private talk! also tend to be built on, as you say rightly, 3714281006 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath reputation, and that reputation comes from winning down the road and you favour “national envelopes” medals and awards at wine shows and national to fund both restructuring and, what you call, competitions held under very strict rules, and those “certain crisis measures”. What are you thinking are widely used in Australia, New Zealand and many about there in terms of certain crisis measures? And is other “New World” producing countries. there not the danger that, if we go down the “national Mr McGrath: There is more of a competitive spirit envelope” road too much and there is lots of money between wine-producers and wine-makers in a there, then that actually is a backdoor route into this friendly way, or not so friendly, but there is much thing that we are trying to get rid of? more of a system to challenge each other to win a gold Mr Goodband: I totally agree, but there seems to us to medal, and they seem to have more value, they are be an opportunity in those areas, and there are some better organised and they are more structured. There areas undoubtedly where, if all the vines were taken are wine shows in France, but I think an Australian out, there would be real and significant social would be pretty critical of them compared to a very problems. So, if there were a fund available, which organised, sophisticated competition system in was nothing to do with support for viticulture or Australia. wine-making or anything else, but to deal with those Mr Goodband: I have participated as a guest judge in social issues, they could also cover environmental those international competitions in Australia and issues and other things which could be dealt with on they are very, very highly organised. The results are a national basis, and that was really the area we were widely publicised and much sought after by the thinking of. producers. Q135 Chairman: So what you are really saying on Q133 Viscount Ullswater: Is there scope for a review this is to move away from supporting crisis of all this labelling within the European Union, intervention on the wine side and move over to the within the CMO, in order to compete on an rural development part? international basis where international standards are Mr Goodband: Yes. being dictated by the “New World” generally or by the WTO (I am not sure who would be in charge of Q136 Chairman: That is a helpful clarification. the international standards) but for the EU to grab Mr Corbet-Milward: We also made the point in our that rather prickly nettle? written evidence about the mutual funds: maybe I Mr Corbet-Milward: Yes, the answer is that there is drafted it rather loosely, but the thought was that scope—plenty of scope—for simplicity. We talked perhaps the growers themselves might fund the funds earlier on about the multiplicity of GIs and rather than government so that, if there was a dip in appellations. The Commission, believes, as we do, yields because of bad weather, then they could draw that simplification of the labelling system is winnable. on something. That sort of approach happens in It is blindingly obvious, it is a no-brainer; if EU other sectors, I know. producers want to sell their wines to consumers, many of whom barely understand wines outside their Q137 Lord Plumb: The word “simplification” has own region or wines produced outside their region, been used once or twice, and I think we all share your there needs to be an overhaul of the present labelling view that, if at the end of the day the regime could be regime. The detailed work has not been done, but changed so that it is simplified, and quite extensively, there are certain things that were mooted at the last then that would be welcome. How you do that when reform about five years ago and including the you are dealing with living and growing things, when permitted use of wine variety and vintage on a label the quality will change and the quantity will change of table wine. What could be more obvious than that, year by year. And then of course, when you get it but it is the rules that are blocking these changes: growing and prepared, in the industry outside there is plenty of pressure coming from the Comite´ du Europe the quantity and the quality perhaps may be Vins, from our association and from other trade coming in in larger quantities, and that is going to associations in Europe for these changes to be made aVect the regime? Of course, there is no doubt that so that people, like my colleagues either side of me, growers in Europe are looking at that and are can sell their products to consumers and ensure that concerned. You have said very clearly in your those consumers come back to the brand that they statement that you are opposed to a ban on new have already bought. plantings and you believe that, if there was an end to the grubbing up scheme, then that would encourage Q134 Chairman: Can I take you up on crisis the development of large-scale enterprises, distillation. You have rightly said that it is no longer economies of scale and the better ability for growers crisis distillation; it is structural, and you are agin it, to compete in the global marketplace. That has a which I think everyone is, honestly. You then go similar ring to it to that of the CAP in the way things 3714281006 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath are changing in various directions following the important thing, I suppose, to recognise is that there reform of the CAP. It might be true of course of the needs to be greater encouragement for quality wines wine industry in this country for the simple reason rather than the reverse. that we have not reached the maximum growth area Mr Corbet-Milward: The irony is that in the latest which is assumed, but, if you are going to face bout of crisis distillations, quite a lot of wine which competition from British-grown and British-made was distilled was quality wine. wine, and of course there is still room for expansion, Mr Goodband: It was wine of appellation status. then when we get to other countries of course they Mr Corbet-Milward: Good point, but it is deemed to may think diVerently. The French, I know, in their be quality wine and put into that position by the own evidence to us, are saying, “Well, yes, we have existing rules and regulations. been encouraged to do more grubbing up, which is fine, but what we have done now is allowed in the Q139 Baroness Miller of Chilthorne Domer: Mr New World wines because, while we have been Goodband, you spoke about eYciency as being one grubbing, they have been expanding their market”, of the main drivers in this and I wonder if you can and so on and so forth. Well, we can all listen to those define for us what your view of an eYcient wine sorts of argument, but I think the real question is: producer is. Obviously in some areas quantity is whilst you do not support the grubbing up scheme, eYciency, but in this area it is not, but is it just which is envisaged under the Commission’s preferred quality? What do you mean by “eYcient”? option for reform, there has to be some reduced Mr Goodband: If I could come back to the point I capacity and it has to be done fairly quickly if we are made earlier about value at each price level, in the really going to get this under some sort of control. So, world market wine quality has risen as knowledge of if it is left to market forces, and we all might be in viticultural techniques and wine-making techniques favour of moving in that direction, that might be fine have become more sophisticated and known. There is for simplification and stopping a lot of the undoubtedly eYciency available to New World paperwork if we did, nevertheless, if we moved in that producers being able to plant, mechanise and use the direction, what would you expect to survive at the knowledge of viticultural techniques to produce end of the day from what we have at the moment? optimum quality levels, getting the grapes ripe within Y Mr Corbet-Milward: I think that is a very di cult any given country, any given region. In Europe, of question and a very good question. With regards to course a lot of things are diVerent; the weather in grubbing up, we are certainly not against it and, in some respects in some places is very diVerent from our written evidence we put to the Committee, we that in parts of the New World, the terrain is diVerent thought we had made that reasonably clear. We and, therefore, the definition of what is eYcient is broadly agree with what the Commission has put somewhat diVerent, but fundamentally it is being forward, but there has to be a balance between the able to produce economic loads of grapes on the planting bans and the grubbing up scenario. Exactly vines, getting them ripe and being able to produce how that would work in practice, I think, is a matter good-quality wine to be sold at the right price level for debate. into the marketplace. That would be my definition of Mr Goodband: There is clearly a need to reduce eYciency. One of the key factors, I think, capacity and that is why we are for grubbing up determining that is that the growers should be much rather than against it. The ban on plantings is the more directly linked to the marketplace and what I other side of that coin and definitely, because of, as see beginning to happen, but only just in very recent we see it, the drive towards free market situations, months beginning to happen, is a change in the way that ban on planting should be lifted because that that ne´gociants, for example, in France are bypassing Y would enable the more e cient growers to plant and the old system and taking a direct interest and Y gain the benefit of those e ciencies in the competitive partnership with those growers who are willing to do marketplace, so those are the two sides of the coin. It what I have just described. That, I think, is key to is a matter of having the vines in the right places, raising the quality and producing the style of wine being farmed by the right people making the right which is going to be acceptable in the marketplace at products for the market. the prices that will be acceptable to it.

Q138 Lord Plumb: Going back to some points you Q140 Viscount Ullswater: If we could perhaps go were making earlier, I have always argued that there back to improving competitiveness, you state in your is not a wine lake, there never has been a wine lake, excellent paper that you strongly support “the there is a “plonk” lake, and the point you were creation of a comprehensive EU strategy so that a making is that there are surpluses, but the surpluses coherent approach can be taken by the EU in relation have increased at the lower end of the scale rather to international negotiations”, and you actually go than the upper end of the scale and, therefore, an on to say that funds should be set aside within the EU 3714281006 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath budget to support this objective. I do not know will. There are all sorts of strange situations, and I whether you would like to be a bit more specific in will just quote you one where evaporation of must, how you see that developing and what the objectives which is the unfermented grape juice, has been should be, what you are really looking for as the brought in in wet conditions. It is allowed to be result. evaporated to concentrate it, but, on the other hand, Mr Corbet-Milward: One of the reasons for the if the weather is too dry, you are not allowed to Australian success in the UK market is that they did irrigate the vines and the vines, when they are heat- develop a strategy fairly early on and they decided stressed, simply shut down and the quality of the that they were going to grow a lot of wine and sell it to wine is diminished. Now, that is illogical, it is totally the UK market; and they realised what the consumer illogical, but it is within the regulations and the wanted in the United Kingdom and they produced current situation. Now, in OIV, those kind of wines accordingly. By comparison, in Europe, technical advancements, if you like, or rules are all because it is a very grower-orientated scenario there, dealt with. you get growers producing wines which they have been producing for generations, some of which are Q142 Lord Moynihan: I assume you have got a series very good and an awful lot of which is not of examples such as that, which I will not ask you particularly good, so there is this muddle about what now for, but I think they would be quite helpful to the should appear in the marketplace as quality wine. Committee. The view at a European trade level is that the Mr Goodband: There are others, yes. European trade would be much better oV if it took some of the lessons learned in Australia and they put Q143 Lord Moynihan: If, subsequent to your their heads together to try to come up with a proper evidence, you put something in writing along the lines strategy with which they could attack particularly the of highlighting some of the specific issues, that would American market with much more cohesion and be very helpful. vigour. Obviously you need money and you need a Mr Corbet-Milward: The blockages? proper detailed strategy to achieve that. That is as far as the discussions have gone at both the UK and the European level, but it is an interesting view and it Q144 Lord Moynihan: Yes, and other examples such merits serious thought, in my view. as that. Mr McGrath: It comes back to market forces, I Mr Corbet-Milward: Barriers to quality? believe, very strongly. Q145 Lord Moynihan: Exactly, barriers to quality. Mr Corbet-Milward: I go to the OIV meetings, and Q141 Lord Moynihan: I think my question has just there are production techniques agreed at global level been very eloquently answered, but you might just which, as Philip has quite correctly said, are not want to go a little bit further because there is this allowed in Europe because the rules stop them. I had conflicting balance which the EU now faces between a letter cross my desk the other day from a major issues which are attributable to the global surplus international company, saying that they wanted to and, on the other hand, the internal system of wine produce below-strength wine. The fact is that you regulation within the EU. I think the line you are cannot do it because the EU rules say that you cannot taking very much is that, within the EU in terms of go below nine%, but there is a market for it. It seems wine regulation, it really needs to be addressed in its to me dotty in Europe, where there is all this pressure own right in order to recognise the international on the trade, with all the binge-drinking and so on, market forces, and the surplus in the global market why it is that wine-makers are not permitted to or, as you alluded to, the surplus in some of the New produce wines of low strength. World markets in its own right would be dealt with by those market forces if you removed some of the inherent inhibitions to addressing the marketplace. Q146 Viscount Brookeborough: In many areas, we Do you want to comment a little further on that or would accuse the EU of interfering too much in tell me if I have summarised what you have said on individual nations with rules and regulations. Who is the structural measures inaccurately, as I think it the power behind this stagnation? Is it the major big would be helpful if you were to crystallise your names trying to foster the mystique of their wine- thinking on that. making? Mr Goodband: There was one other aspect which is Mr Corbet-Milward: No, it is producers dragging about, from the EU perspective, accepting all the their heels, “We have always done it this way ...” OIV recommendations. If the EU did that, then there would be a more level playing field for the producers Q147 Viscount Brookeborough: Sorry, I meant the to do what I have been describing and that requires a major wine producers. 3714281006 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

52 european wine: a better deal for all: evidence

28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath

Mr Corbet-Milward: There are one and a half million Mr McGrath: If I can add to that, I would give the small growers in Europe: they do not want to change consumer what he wants. the way they operate because it means they will have to spend more money on equipment, et cetera, et Q150 Chairman: Has anybody asked the consumer cetera, that is where the problem lies. what he wants on the label? Mr McGrath: Generally with the producers who are Mr Goodband: Yes. doing very well, they are so quality-orientated that generally they actually do not need to change. What they are doing now they are doing extremely well, Q151 Chairman: What do they say? making top-quality wine. It is actually much lower Mr Goodband: They want to have information that down the pyramid where you have the inhibitions they can understand, which might be, for example, and where they need to have much more freedom. grape variety, they want to have keys to be able to Particularly if you look at viticulture, I was always buy it again when they see it— taught that a good wine is made in a vineyard. If you go to a New World vineyard, you have all sorts of Q152 Chairman: So you want the brand name, yes. diVerent training and pruning techniques and yet, if Mr Goodband:—brand of some description, and they you go to Bordeaux or Burgundy, a lot of the good want simple information on the back—for example, growers of a Grand Cru Burgundy would not change what might I serve this with. anything. At a lower level they would much prefer to be able to train and prune their vines in a diVerent way, but they cannot and yet, if you go to a New Q153 Chairman: And at what temperature. Zealand vineyard, you get confused in five minutes Mr Goodband: Yes. because the viticulturist will show you three diVerent Mr McGrath: And what does it taste like. trials that he or she is doing, and that is all in the search for quality. Q154 Viscount Ullswater: Is country of origin Mr Goodband: What we are trying to paint a picture important? of here is that at all levels, whether it be at the Mr Goodband: Yes, to some extent it is important vineyard level, whether it be at the winery level or and, if we take New Zealand as an example, it is a whether it be at the marketing level, there is far too measure of quality in its own right. much constraint and not enough freedom. Mr Corbet-Milward: And Australia. Mr Corbet-Milward: Then you jump into the AOC Mr Goodband: And Australia, yes. world: I know their regulatory frameworks mirror who is related to whom and how long people have spent time on that particular patch of land and so Q155 Viscount Ullswater: What about the blending forth, so there is a drag element, and the really of wines from various regions or countries? enthusiastic and entrepreneurial wine-makers, I Mr Goodband: A very interesting point, if I may say would suggest, are often held back by their own rules so, because at the base level, at the bottom of the which they cannot change. pyramid, there has been a prohibition on blending Mr McGrath: If I can make one other point. Climate wine across regions within France, and I understand change is why it is even more important that we allow that a new law has just been agreed whereby they will much more flexibility, because the good growers all now allow this and create a new category of wine over the world are going to have to adapt called, I think, Vignoble de France—please do not dramatically and they are not going to be able to do hold me to that, but I think that is what it is called— what they were doing even five years ago. and that is in response to the competition from other countries where cross-regional blending is allowed, Q148 Lord Palmer: I have to say, I am finding this but that is at the base level. evidence absolutely fascinating. I have two quick questions on marketing, one of which you have Q156 Viscount Ullswater: That should be on the already touched on when you answered Lord label too? Ullswater’s supplementary. But, in an ideal world, Mr Goodband: It would be on the label, if my how would your association tackle this labelling understanding is correct, because it would be a problem? category in its own right, Vignoble de France, in Mr Corbet-Milward: Rip up what is there at the other words simple French wine. Then, of course, we moment and start again! come back to this question of what the consumer wants to see on that label, and one of the most Q149 Chairman: That is not a very pragmatic important things would be to allow the grape variety suggestion! to appear on that label, which currently it does not. 3714281006 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 53

28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath

Q157 Lord Palmer: You mentioned how prestigious Mr Corbet-Milward: In very broad terms, the weather the wine fairs and shows are in the New World. Has in diVerent parts of Europe dictates what you have to the European Union not got something to learn from do to the wine to make it palatable for the consumer. that: because it seems slightly the wrong way round, My understanding is that it would be preferable for to my thinking, in that France is the great producer certainly the northern European producers, the UK of superb quality and it has now gone topsy-turvy, so producers, to be able to source their sweetening to speak? material for chaptalization from a broader base than Mr McGrath: I think they have a lot to learn. I think has been mooted by the Commission. The suggestion there is a danger at times that there is a feeling that has been put that rectified concentrated grape must they do not want to be seen to be following the New should be used, and that is a good way of soaking up World. I had a comment from one of the people I surplus wine. But there may be a cheaper way of work with the other day, who said, “I am horrified. I achieving exactly the same results, sugar beet am acting like a New World brand manager”, and possibly being one of them. So we would certainly that came from a French commercial director, and he favour, as much as possible, the ability of the knew he was doing the right thing and he was quite producer to seek alternative sources of supply to cut amused about it, but I think one of the issues also is costs for his particular sweetener if it makes sense to the complexity of the number of operations and the do it. structure of the appellation which makes it much Mr Goodband: The whole point about creating good more complicated in France to do it. You get some wine is the question of balance: on the one hand good local shows if you go to the Loire, or whatever, having suYcient alcohol, and in the more northerly but they do not market them in the same way. New climates it is necessary to chaptalize in order to raise Zealand have three or four very high profile wine the alcohol level to give the wine the balance; at the competitions, the most important is sponsored by Air other end of the scale, where the weather is very hot— New Zealand, and that is the big event of the year for the taste ripeness of those grapes—you may find that the New Zealand wine industry—who wins the top when the taste is absolutely optimally right, the Pinot Noir award at the Air New Zealand Wine acidity is too low and, therefore, it needs to be Awards—and they all striving towards that. balanced upwards. Hence the need for acidification. Mr Goodband: One of the most obvious results of So it is really a climatic thing. In cold climates you wine competitions is the use of the seals on labels. If need to add some sugar to raise the alcohol; in the hot you look at any wine shelf in any supermarket or climates you need to adjust the acidity. wine shop, you will find these gold medals, bronze medals, and that is the most tangible result, and that Q160 Viscount Brookeborough: In your view it does is what the consumer needs. They need reassurance as not make any diVerence to the quality of wine to the product they are buying. whether the sugar levels have come from the growing or from the chaptalization? Mr Goodband: I do not think there is any evidence to Q158 Viscount Brookeborough: You have already suggest that there is any diVerence. talked a fair amount about the practices of wine- making. However, one issue, chaptalization, in the annex to your paper, you went into at great length in Q161 Viscount Brookeborough: Could you tell us in your first paragraph, where it talks about sugar beet. layman’s terms what the use of what you call rectified Does chaptalization also include acidifying as well? concentrated grape must involves? Is that when you Or are they at the opposite ends of chaptalization? talked about the evaporation? Mr Goodband: Does chaptalization cover acidifying as well? Rectified concentrated grape must is must that has been concentrated and neutralised in Mr Goodband: No. flavour, in simple terms. Mr Corbet-Milward: No. I should say that that particular annex on chaptalization was drafted in consultation for the UK Vineyards Association and Q162 Baroness Miller of Chilthorne Domer: In other I believe they are going to come and give evidence in sectors of agriculture reform has gone hand in hand a few days time; so they will be able to answer that in with decoupled payments and cross compliance. In a lot of depth. your written evidence you do not seem to be at all keen on those decoupled and cross compliance routes. I wondered why that was and why you do not Q159 Viscount Brookeborough: Your case against see it, to take your earlier words, as a pragmatic way the ban seems to be well argued. Would you care to forward as well? expand on it at all? And could you explain to us what Mr Corbet-Milward: Decoupled payments, if it is an the complementary process of acidifying wine in arrangement that works, will make it work, and, as southern Europe involves? far as I recollect from the Commission’s proposal for 3714281006 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

54 european wine: a better deal for all: evidence

28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath

“Profound Reform”, decoupled payments were not that we might get. We would be very happy for like- in there. I may be wrong here, and I defer to the minded countries to come together so that, when it evidence that Defra gave you in that area, but in comes to the trench warfare which will inevitably principle we are not against decoupled payments if take place on this issue, if there is a caucus of like- people are prepared to agree to that and if in the minded Member States who can push for the package of proposals put to growers it is something deregulation, then we would strongly support it. All that they are happy to buy into. I am saying is—do not be surprised if at the end of the day we do not get it. Q163 Baroness Miller of Chilthorne Domer: So you are not actually against it as a way forward? Q168 Viscount Brookeborough: Can I come back to Mr Corbet-Milward: No. chaptalization for the moment. There is a paragraph in the annex, which I understand you did not Q164 Lord Palmer: Could I ask another quick necessarily write completely yourself, that says, “The question following up on blending. You mention that impact of a ban on a chaptalization and maximum blending will be allowed in France shortly under enrichment of 2% would lead to additional costs for Vignoble de France, or whatever it was. Quite often, producers in northern and central European wine if one buys, for example, tomato juice, it says, areas estimated at 15 to 25%.” Surely, if there was a “Product of origin of more than one country.” Are ban, it would actually make production of any form you, in fact, able to ship wine for blending around the of decent wine impossible rather than just a price European Union at the moment? increase? Mr Goodband: Yes, that is possible. In fact quite a lot Mr Goodband: If there was a ban on chaptalization? of the cheapest table wine being sold within European countries, although I have to say not here Q169 Viscount Brookeborough: Yes; if there was a in the UK, is the produce of more than one European ban on it, it would become unfeasible? Union country. Mr Goodband: For some producers that would be so.

Q165 Lord Palmer: But not labelled as such? Q170 Viscount Brookeborough: Therefore the Mr Goodband: It has a label which says so. costing is not really an issue? Mr Goodband: The costing is an issue in the sense, as Q166 Lord Palmer: It does? I understand it (correct me if I am wrong), that if the Mr Goodband: Yes. growers are forced to use rectified concentrated must, Lord Palmer: Thank you very much. the cost would undoubtedly be higher. Lord Bach: Having heard your very interesting evidence, it strikes me, and I dare say some of my Q171 Viscount Brookeborough: That would be their colleagues here, that beneath your pragmatic skin only way out? there is a real radical deregulator fighting their way Mr Goodband: Yes. out! Chairman: He is ending the way he started! Q172 Baroness Miller of Chilthorne Domer: Could I check one other issue, which is what would be the Q167 Lord Bach: I do not think anyone would eVect, if there were a radical reform of the regime in disagree with that. You defended yourselves ably by Europe, on the ability of the independent wine sector saying it was to do with establishing some consensus to purchase as opposed to the very large supermarket with the northern wine industry. But why should that wine buying power? consensus be on the basis of being so utterly Mr McGrath: No impact at all, it is neutral, because pragmatic and not be on a rather more outspoken they would probably have a broader range of higher deregulatory package? Why are our colleagues in quality producers. Clearly the major impact from the northern Europe so reluctant themselves? Is it social point of view is going to be on a lot of small because they do not want to fight with the growers round Europe who just do not have the Commission? Or is it because they do not feel it is in ability or the nous to adapt to the market. Being their interests? I cannot understand why they should slightly practical, as much as we would all love to go take such a restricted view. for the major reform, there will be a lot of social Mr Corbet-Milward: At a European level, as I said in issues for small growers who have had two or three my earlier comments, the consensus was, “Let’s go hectares for a hundred years, fifty years, who simply for what we can actually achieve”, bearing in mind will not be able to adapt, but, ultimately, they have to that around that table there are people representing adapt, because if they do not adapt they are not going growers. At a UK trade level, there is no reason why to be in business anyway because nobody wants we should not push for more than we perhaps think their wine. 3714281006 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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28 February 2007 Mr John Corbet-Milward, Mr Philip Goodband and Mr Patrick McGrath

Q173 Chairman: If I can give you the opportunity, organisations in Europe. To what extent do you are there points you think we ought to be aware of think the broad approach that you have taken this that have not been covered in the questions that you morning would be supported by your colleagues would like to inform us of? throughout the rest of Europe? Mr Corbet-Milward: The only additional point that I Mr Corbet-Milward: To answer your question would make is on the social aspects side—that at a directly, I believe that, in so far as the trading European level we are keen to get an article into the communities are concerned, they are fully CMO on social aspects to tie in with, and make life supportive. In so far as the small grower is concerned, easier for, people who are trying to be responsible in not at all. They do not want to change. They have a selling wines to people who perhaps need to be nice lifestyle, they can pull in subsidy and they will educated into purchasing those wines and how they not want to change. That is the nature of people consume it. living on the land very often.

Q174 Chairman: Can I ﬁnish with one question. We Q175 Chairman: This is not unfamiliar to us. Thank have mentioned “pragmatic” and “consensus” and you very much indeed. It has been very helpful, very all of these words. It sounds awfully like the reform interesting and very enjoyable as well. for the House of Lords. Maybe it has a better chance Mr Corbet-Milward: Thank you very much for than that! You are in touch with similar inviting us along, Chairman. 3714281007 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

56 european wine: a better deal for all: evidence

MONDAY 7 MARCH 2007

Present Bach, L Miller of Chilthorne Domer, B Brookeborough, V Plumb, L Cameron of Dillington, L Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V

Examination of Witness Witness: Mr Jose´ Ramo´n Fernandez, Secretary General, Comite´ Europe´en des Entreprises Vins (CEEV), examined.

Q176 Chairman: Good morning. I will explain very national organisations and companies in the wine briefly who we are and what we are trying to do. We industry and trade. We represent around 90% of are the Agriculture, Environment and Fisheries Sub- European Union wine exports all around the world, Committee of our House of Lords EU Select including, of course, not only the trade in the Committee. The job of the Committee is to look at European Union but also exports to third countries. EU proposals, scrutinise them, make comments and It is important to understand that it is a very prepare reports on issues of interest. The Committee atomised sector in the European Union, even in itself consists of representatives from all parties and, terms of companies, not just producers. We are distinctively in the House of Lords, Cross-benchers, talking about thousands of small and medium who are aligned to no party whatsoever. So it is a very companies which have a very small market share for widely-based committee, and indeed it is drawn from the diVerent brands in the diVerent wine categories, all parts of the United Kingdom with the notable so the role of a professional organisation is quite exception of Wales. We have started this inquiry into important in terms of trying to put together and the wine regime. We have already taken some define the common interests of the whole industry evidence in the United Kingdom and we thought it and trade in the European Union. It is a well would be helpful to us if people closer to the decision- established organisation in terms of presence in making process in Brussels could come and give us Brussels. We have been here since the early sixties. At their views in order to help us formulate our own the beginning it was just a club of the main companies views eventually. We hope in the near future to do in the wine-producing countries but more recently we some fieldwork in parts of France on what the eVects have been able to step out of our European wine- of reform may be. We have spoken in the United producing bubble and start to have a more open Kingdom to the Wine and Spirits Trade Association, structure incorporating genuine import sectors in the which is part of your overall body. It would be European Union, such as we had in the past from the helpful if you could give us a brief introduction UK and other countries in the European Union. explaining the nature of your organisation and what Today we consider that we represent the whole trade you see as the main challenges facing the wine and industry side of the wine sector in the EU. The industry in Europe and how they could be best main challenge we have is sustainable development. answered through reform of the regime. That is why the reform of the Common Market Mr Fernandez: Thank you very much. First of all, I Organisation is essential, and we link this to the other am very grateful for having the opportunity to be big challenge we have in terms of being more here today. I would just like to say that the way in competitive and having sustainable development, which your country is reflecting on the position of which is the promotion of the place of wine and wine what is a priority issue for us like the Common culture in our European society. There are more and Market Organisation is obviously best practice in more discussions taking place about the terms of open consultation with all stakeholders and compatibility of drinking our products with a healthy something that we would very much like to have also lifestyle. That is a major challenge and we are from other Member States in the European Union. I absolutely determined to contribute to the solution have also had the opportunity to have some contact by promoting moderation and responsibility in the with Government representatives of the UK here in consumption of our products. In approaching the Brussels. Let me explain very briefly what is the reform of the Common Market Organisation we Comite´ Europeén des Entreprises Vins. The CEEV is have to have a broader perspective, that is, we have a very well-established organisation at European to provide a real European wine policy, which also level. It is the umbrella organisation representing the includes this social aspect of how to promote the wine industry and trade in the European Union. That place of our product in society and make that means that we are talking about more than 20 compatible with a healthy lifestyle. 3714281007 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramo´n Fernandez

Q177 Chairman: We have got to the stage with the and the decision-making by the producers and wine regime where the Commissioner is basically preventing them from adapting to market saying that the present situation is unsustainable. If expectations. Producers take their decisions based on you look at it you can identify systemic production their own logic without taking into account what is surpluses leading to “crisis” distillation now happening in the market place because by producing becoming year-on-year crisis distillation, a high level you get money in the event that you are not able to of import penetration and a decline in consumption place your wine in the market. What we are asking is in many parts of Europe. In order for a European to fundamentally review the current market wine industry to be competitive in that situation what intervention mechanism in order to eliminate all do you think the main policy elements of the reform those mechanisms which are preventing the sector ought to be? from reacting to market trends. There is a third point Mr Fernandez: Let me start by recalling the for us which is essential and that is simplification. I background. Why do we have today the wine policy think we will have the opportunity to elaborate a that we have? Until recent years the world market little bit more on the intensive rules that we have for was likely to be the European market. It was perfectly labelling and so on, but there is much room for possible to adjust the wine market of the whole world manoeuvre in terms of simplification of the rules by regulating the balance between supply and because we also need to let companies take demand at European level. Today we continue to be appropriate decisions in order to be competitive with the biggest producers and the biggest consumers but what is happening in other parts of the world. The we no longer have a situation in which we can decide fourth element which is also essential for us is that alone in our European bubble what is the way to lead until now we have not had a real external trade policy the sustainability of the sector. We need to have a for wine in the European Union. The trade policy is fundamental reform of the foundations of our system mainly in the hands of the European Union in order to take into account the fact that we are in an institutions and the European Commission, and until open world, with our friends from other wine now the decisions in terms of negotiating bilateral or producing countries around the world who are doing multilateral agreements concerning wine have not things very well. We do not fear this competition but been driven by the wine market interest in terms of we definitely need to adapt our system in order to be priorities and negotiating strategies and we are V able to compete in this new environment. The su ering as a result. The external trade factor has evolution in the world market has been quite been considered to be a secondary element instead of impressive in the last year, so I do not blame a real issue in the very fundamentals of our European immediately the European Union by saying that they wine policy today. What we want to see in this new did not anticipate it. What we are now asking the wine policy is a fourth chapter, a strategic chapter of European Commission to put on the table is a external trade policies and objectives for European comprehensive wine policy which eliminates all those wines all around the world. Finally, as I have already market mechanisms and restrictions that were mentioned, there will be no sustainability for the wine driving the traditional supply and demand in our sector if we are not able to promote sustained system in order to make companies permeable to consumption of our quality products because there is market expectations. We want a market oriented more moderate and responsible consumption all approach but what we have today does not fit with around Europe and in the world, so we think we also this philosophy. I would like to tell you what are the have a role to play in partnership with the public key elements we would like to see change. In our sector to promote moderation and responsibility in the consumption of our products. We are not just sector there is a total ban on planting rights given the talking about promoting our products in terms of quota system that we have today. If you decide to go increasing consumption; we are also talking about for instance to the south of Spain and think you can promoting moderation and responsibility in the plant vines there, you are not allowed to do so. That consumption of our products because, if we do not is the fundamental restriction which fits with this have this agreement with the public authorities and traditional logic of trying to preserve a balance at the the whole of society about the possibility of having a European level but no longer makes sense because healthy lifestyle in consuming wine, it is going to be overseas they have absolute freedom to take very diYcult to have sustainable development for our production decisions also in terms of planting. This is sector. Those points are the pillars of our position for a restriction which is intended to be stopped in 2010 the Wine CMO reform. in the current Common Market Organisation, so the fundamental starting point for us is to abolish this ban on new planting rights as from 2010. Secondly, Q178 Chairman: I was interested in what you were there are, as you know, market intervention saying about having an active trade policy at mechanisms like crisis distillation, and we consider Community level. Could you fill us out a little more that all these interventions are restricting the sector on what that might mean? At the moment we have a 3714281007 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

58 european wine: a better deal for all: evidence

7 March 2007 Mr Jose´ Ramoń Fernandez regime which is dictated under WTO regulations, Q181 Viscount Ullswater: Do you think that this is including access for New World wines to that market. something the European Union should be doing? Or Do you think the Community, at the Community should Member States be doing it? What you were level, should be marketing wine? Or is this a job for describing was the sort of promotion , for instance, the industry itself to do? that Australia does for Australian wine and New Mr Fernandez: When we are talking about external Zealand does for New Zealand wine. Surely the trade policy, the first element is the fact that we are a European Union cannot do it for European Union very atomised sector. There are not big players in our wine. It must be individual Member States that are sector and we are lacking economic intelligence going to promote French wine or Spanish wine or about what is going on in the world. DiVerent parts Italian wine? How do you deal with that? of the industry do not have access today individually Mr Fernandez: The framework for the Member to appropriate economic tools allowing them to States to provide this support is also subject to understand what are the market trends and the new European rules because there are public support rules consumer expectations and anticipate what is going in terms of limiting what you can do as a Member to happen in the coming years. That is essential for State to provide support to companies, so in any case any business and also for wine, but in comparison we are obliged to have some kind of European Union with other parts of the world we do not have this coverage for doing that. Of course, we agree with that access because of economic and financial restrictions. but we want to have a global framework which can provide the basis for the sectors to do that with the We would like to have some kind of European tool Member States. Let me also say that, given the for economic intelligence to provide information in a experience we have had with the existing European transparent way to all the sector about what are the regulations in providing support for the promotion market expectations and so on. of agricultural products, we have seen many times that the condition of having the public support of the Q179 Lord Cameron of Dillington: So it is to produce Member States is a brake because it becomes a very intelligence, not to promote? bureaucratic system, so we would like to have Mr Fernandez: One part of this policy is about getting something more simplified with clear rules that intelligence. There is another one which is allows the companies to have this support directly promotion, because when you see what is being done and improve access to new markets. by other sectors they have business plans with ambitious export strategies, and that is something Q182 Chairman: Can I take you up on external trade that we also need. before handing over to my colleagues? There are two sorts of questions here. Where is Europe good at Q180 Lord Cameron of Dillington: But that is your exporting to? Which countries do we export to well. And what type of wine is best in terms of export? And job, not the Commission’s job? then there is the reverse of that almost:—why have Mr Fernandez: It is our job but what we need is some third countries been so successful in penetrating support from the European Union in order to build the European market? What is the secret of their up this scheme. We have to know that there is success? substantial public support for the promotion of wines Mr Fernandez: I guess you already have access to from third countries to come also to the European these but we are happy to provide to you some oYcial Union. We should not prevent ourselves from having statistics explaining which are the main markets for this kind of partnership also with public authorities the export of European wines. If you take out the in promoting this access. Of course, a big part of the internal trade between the Member States of the responsibility lies with the industry and with private European Union the main market for European initiative but we have also requested the European wines, the highest value market, is the US. Commission to provide some support in developing Switzerland is the second one, Canada is the third, this. Let me give you an example. We are not talking then Russia and Japan. They are the top five. What is just about putting money into promotion for the wine that we are exporting there? That is European wines. We are talking about something that we can also elaborate on. We have no accompanying negotiations. We need resources from problem with competitiveness in the high quality the European Commission in order to be a performer products from certain Geographical Indications, in these negotiations. Today there are some schemes which are doing very well in these external markets in the European Union. There is a regulation and year by year are increasing their performance. providing support for the promotion of agricultural Where we have rigidities and a lack of products in third countries but we would like to see competitiveness is in the medium segment, where something more consistent and coherent for the more and more New World wine-producing interests of the wine sector in international trade. countries are developing and coming into this 3714281007 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramoń Fernandez segment. It is not about the low-priced wine segment. Q184 Viscount Brookeborough: We saw some time It is about something which is very good value for ago, when we were looking at soft fruit, that some money, where consumers appreciate the quality fruit was produced without using enough fertiliser which is there but not at a high price like having top knowing that it would be for intervention and wines from certain Geographic Indications that we therefore it was being intentionally grown or have in Europe. I would say that the challenge we produced. Can one say this about the wine? have in terms of competitiveness is that there is Mr Fernandez: I know that in some parts of the fruit expanding consumption of wine at world level but the and vegetable sector historically there has been this market share of European wines is not following this situation. I would not say that there is ad hoc increase. There is an increase but is a smaller increase production of wine for going to distillation. I would than our friends in third countries are getting. The say that it is more subtle than that, that this reasons why our wines in this medium segment are mechanism impedes producers from being permeable not performing are very much linked with the enough to market demand. Maybe they produce their regulations that we have in terms of restrictions and wines because it is their activity, but if you are not limitations in communicating with consumers and confronted with the reality of the market you cannot also the structure of the sector in terms of not having just keep doing this. There is something very big players which are able to compete internationally important to understand here about the wine sector. as our competitors can. The harvest can vary very much from one year to another. This is a naturally driven production and it continues to be the case. Wine, fortunately we say, is not an industrial product. We depend very much on natural conditions in terms of the volume and the quality of our production and that is something Q183 Viscount Brookeborough: Looking at prices which also explains why in the current system we generally, first of all are there some producers who have a strong market mechanism, in order to be able are producing wine of such a low quality that (a) they to regulate the variability of the harvest that we have are fully aware of it and (b) they can only do so from one year to another. because of intervention, be it crisis distillation or whatever? Or does it occur because they simply cannot sell it and therefore it goes into crisis Q185 Viscount Brookeborough: If there was no crisis distillation? Are they actively producing wine of that distillation and if you removed the planting ban and quality knowing that it will have to go into therefore it was just market-governed, what would intervention? you see happening to prices of wine? And how do you Mr Fernandez: We think that market mechanisms think it would initially aVect them? like crisis distillation are not allowing producers Mr Fernandez: I think there are segments of crisis. today to take the right decisions in being competitive. There is huge diversity in wine production in the The problem we have today is that, when producers European Union, and also from a world perspective. decide to go ahead with their yearly production, they In wine there is no one consumer and there is no one do not necessarily take into account whether that is wine. You have diVerent segments of products, and I going to have a proper outlet or not. Of course, this think that this diversity we oVer is one of the assertion is not valid for the whole production of the strengths we have in our sector. I am not just talking European Union but a significant part of the about the European Union; I am talking about the production decisions made do not take into account world. For some segments and some producers a whether this product is going to be marketable or sharp deregulation of the whole system could lead to not, because in the worst situation I would be able to some diYculties from a social point of view because get some money which would allow me at least to it may be that for this segment, if you have no cover the cost of production. Even if they intended to production one year, you have some problems. That produce the wine, the price for crisis distillation in the is why we are supporting very much the European European regulation is intended to have the eVect of Commission approach with some criticism of certain dissuading people from producing this wine. points. We support the idea of having as soon as However the use of crisis distillation over the last few possible quick adaptation to market demand but we years has shown that there is a structural production need to have some kind of tool in order to prevent of wine which finally goes to crisis distillation, so we crisis while accompanying the restructuring of the definitely feel that this market mechanism should be sector. I think that, if we do not provide this tool, reviewed and eliminated and that we should think on from a political point of view it will be very alternatives to it in order to avoid the eventual complicated to have the in-depth reform we need for conjunctional crisis that we will have in this sustainable development of the sector. We want to be particular type of production of wine in the realistic also from a political point of view in that, if European Union. we want to perform in the medium term in a 3714281007 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramoń Fernandez competitive way, we need to go ahead with this roots, specificities, harvest year, varietals, the taste, reform but also provide some tools to allow the sector the combination with gastronomy, if it is OK for fish to adapt. or if it is OK for beef. This is the kind of information that consumers want. They have said in this SANCO Q186 Lord Cameron of Dillington: On a temporary research, “We are not that interested in knowing if it basis? has been made with a clarification agent. We want to Mr Fernandez: Of course, definitely temporary, and know if this product goes with lamb”. This aspect of V you should not be able to delay the deadline that we o ering diversity for consumer choice continues to be put there. That is why it was put in the regulation that very important. We think that is one of the strengths the ban on planting rights would stop in 2010. We of the European concept of wine culture. This think it would be a very bad sign to the sector to once concept is intended to be reflected in the labelling again delay the entry into force of this which is rules that we have, so we do not want to make a already in our regulation. That is a very strong sign revolution in the labelling rules but there are some to deliver to the sector, that the European Union is things that we definitely want to change, and I come serious when drafting the rules, that there are clear to your point about Geographical Indications. The signs that some restrictions have to stop at a certain best part of this approach is that the specific qualities deadline and that we should stick to this deadline. of wine are very much linked to the natural conditions in diVerent parts and the way in which the Q187 Lord Cameron of Dillington: I want to ask you wine making is done. about labelling. You did mention it before and I think probably you are going to agree with me. First Q188 Lord Cameron of Dillington: In some cases. of all, let me say that I agree with you that there are Mr Fernandez: Yes, with this approach. The rules in going to be social and economic problems with any the European Union for labelling are that the only wine reform that goes on, and obviously they will wines that are able to provide interesting information need to be considered. But I come from the to the consumer are the wines under the perspective that the best and most sustainable way of Geographical Indication scheme. You are not able reforming the wine regime is to make it economically today to provide information on a table wine. You sustainable to have liberalisation in the market, to V are not allowed to inform the consumer that such a listen to the consumers. We have a lot of di erent wine is from the 2005 harvest or that that is made labelling rules in Europe and there are over 10,000 with Merlot or provide some kind of explanation geographical indications, of which probably over about the qualities of the product. With table wine 9,000 mean nothing to the consumer. What is to stop you have to stick to a very non-attractive us saying, in order to encourage entrepreneurship, communication for wine, because the policy of the that anybody can put whatever they want on a label European Union is to give preference to providing it is accurate and true? That is the only Geographical Indications. The result of this check we need, which after all is what happens in the approach has been that in order to be able to provide rest of the food industry. When Robert Mondavi in appropriate labelling information for the consumer, California first put grape varieties on a label, people thought he was mad but now it is how people you have to go under a Geographical Indication recognise wine. scheme. As a result there has been an “inflation” of Mr Fernandez: That is one of the most interesting and Geographical Indications in Europe, which leads to a challenging parts of this reflection about how things “banalisation” of the concept. That is why the label should change in the European Union system. Let me point is so important. I would say it is not just about start with some principles. The Common Market the label; it is also about the communication of the Organisation for wine is unique historically because whole product. With table wine you have to put from the very beginning, in order to allow internal “table wine”, which is a pejorative message, and the market functioning on the basis of fair competition only thing you have there is the brand and whether it and to protect consumer expectations, they decided is red or white. That is all you can do with this, so you to incorporate a comprehensive set of rules about are not really stimulating the possibility of valorising labelling. This principle, we feel, continues to be this segment of products, and that is why we say that valid. There has been some very interesting research in the new rules there should be more flexibility for all done by SANCO, the Health and Consumer wines to provide accurate, objective and verifiable Protection Directorate General, on food labelling information to consumers. There is consumer about what are European consumers’ expectations in expectation about the segmentation of the product. terms of what information they would like to find on We think that in the labelling rules you should keep their food, et cetera. The outcome of this research is some kind of segmentation. There are Geographical that consumers of wine are interested in the Indications and non-geographical indications but fundamentals of the wine labelling regime, which are this category of non-geographical-indication wine 3714281007 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramoń Fernandez should be allowed to communicate in a more What we want is not just to prevent our producers flexible way. from making a profit but also to lead this trend in providing consumers with significant wines that are Q189 Lord Cameron of Dillington: Who should interesting for them because of the specificity that the control what is put on the label in your view? It seems varietal, or other specific characteristics can bring. to me that there is room for the existing sellers to keep out somebody who is being entrepreneurial and Q193 Lord Plumb: You said that reform is essential innovative by saying, “No, we do not want you to be and yet you accept that there would be a pretty able to say that. We do not want you, Robert substantial socio-economic problem with the Mondavi, to be able to sell your wine in this way”. thousands of small businesses there are. Do you do There is a sort of Mafia element here that could creep anything as an organisation in encouraging those in. Who should control it? small businesses to co-operate so that, if they got Mr Fernandez: The starting point is that, as with any together, they could then be much more competitive? other food product, when you make a claim on your You are not going to drive them out of business. They label you should be able to prove that what you are are there and they are established, and they will claiming is true. tighten their belts and they will live for a very long time and cause problems. But nevertheless it is going Q190 Lord Cameron of Dillington: So I have to be, I would submit, a major part of the changes misunderstood it? What you are saying is that you that take place. One of the things that we would like should have liberalisation as long as you are saying to ask you is on the practices of wine making to the truth? permit a narrower range of procedures than those Mr Fernandez: Exactly. used by non-EU wine producers, and that, of course, could be a hindrance to growth in the market if they Q191 Viscount Ullswater: Do the OIV have rules are working under diVerent standards and there is a which would apply to both Europe and the rest of the limit to the types of method for producing the wine. world that you could go along with? Would it be going too far to say that we could be Mr Fernandez: They are not necessarily leading a facing a choice therefore between traditional wine harmonised labelling approach for all wines around growing and producing wine for a competitive the world, but in terms of oenological practice in market? In that situation, providing the product is wine making. safe and everybody is satisfied that what they read on the label, as you have just been saying, is correct, why Q192 Viscount Ullswater: But not labelling? have those restrictions? Why can we not, as part of Mr Fernandez: They have some projects working on the change in the objectives of the future regime, labelling, but what we would like is just to have the make it the same in a freer sense as the rest of wine possibility to do as other parts of the world do in making elsewhere? terms of providing accurate information on what is in Mr Fernandez: First of all, we talk about wine, and the product. Of course, you have to be absolutely wine should preserve authenticity as a product. That frank. It is quite a sensitive issue at the European level is a fundamental starting point for, I would say, the because, for instance, the varietals in the European whole wine sector around the world. One of the Council are part of the idea of Geographical strengths that we have is to have a very specific Indication. That is why there is this resistance to the product which is natural and with a minimum of liberalisation approach, because the Geographical human intervention which ameliorates the quality of Indication in diVerent Member States means also the product that has been given by nature. This is a that you can only use particular varietals. If you very important concept. The European Union has a allowed the accent in the communication on any wine set of strict rules in wine making because the objective to be put on such a particular varietal, that would be is to keep wine as an authentic agricultural product considered by some to be a dilution of the identity of which is made from the fermentation of grapes, the Geographical Indication. In fact, that is the respecting as much as possible the nature of the reason why in third countries they have taken the product. That is why we have in the European Union varietal as a communication vector of quality and a positive list of oenological practices which says how significant wines for the consumer. Because in the US to produce a wine and what standards you have to or Australia there was not initially a Geographical respect in order to ensure that the wine stays an Indication reputation approach—they had no authentic product. With technical development or Geographical Indications they have taken some innovation, of course, there is more you could do words with links to the wine culture—like Merlot, with a wine. But if you allowed wine to lose Cabernet Sauvignon, et cetera—and put those on the completely its natural characteristics which come label stimulating in the consumer perception an from the grapes, you could, from a political point of interest in these characteristic elements of wines. view and from a perception in society and a consumer 3714281007 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramoń Fernandez point of view, start having a problem in terms of Q195 Lord Cameron of Dillington: But why do you saying what the specificities of this wonderful need to have a political filter for the OIV wine- product are in comparison with others. In the making processes when all the rest of your argument European Union our position for the industry is that seems to be about being competitive and encouraging we want to keep a set of rules which are quite clear for entrepreneurship? I would have thought you would wine making, but at the same time we can accept that want to keep the politics out of wine making and the there are other parts of the world where they want to business of sustaining the wine industry? make wines in a more liberal way. We do not prefer Mr Fernandez: In fact the first political filter is in the this. We consider that this is something that you OIV. It is not just an expert body. should be able to valorise vis-a`-vis the consumer, because you preserve a set of rules which fits with the Q196 Lord Cameron of Dillington: OIV has European traditional concept that we have for wine consumers, wine makers and wine sellers, whereas the making. Oenological practice for us is not just a Commission is just politics. matter of safety for the consumer. It is also about Mr Fernandez: OIV is an intergovernmental preserving the authenticity of the product for organisation of the Member States of the European consumers as a whole category. Union and the Governments of the other countries (Australia, Chile, et cetera). The sector is not a Q194 Chairman: Is there a real problem here “member” of OIV. Some sector representatives because, when you spoke about import penetration, participate as experts as part of the national you identified third party countries taking over the delegation but the members are governments, so the middle range, middle quality wines, not the stuV at OIV is a political body. What we want is to defend the top and not the stuV at the bottom. Is that not our mode of wine in OIV. I think it is the right place; really the area where European wines are going to it should be the reference also for all wine producing have to compete. And, in order to compete countries. The United States are not members of OIV successfully, will they not have to use similar wine- today, but we would very much like them to be making practices to their competitors? members; and also the European Union should be Mr Fernandez: Yes, but we do not want that directly represented in the OIV . Today it is not the oenological practices should lead the competition in Commission or the European Union which is a diVerent segments. For the time being we want to member of the OIV; it is the Member States. Once refuse to go into the game of competition by diluting there is a reference and an agreement on oenological the profile of our product. Wine should remain wine; practice in OIV,—and once again we want to be able that is the starting point. What we consider very to decide but not in a very heavy and bureaucratic important is to have an international reference for way—we need to simplify the procedure in order to defining these wine-making practices. This for us is be able to incorporate the decisions of OIV into the OIV, and as proposed by the European Commission, European Union rules. But we do not request as a the OIV standards should also become the reference matter of principle, to have for our production a set for European wines. But we want to define in the OIV of rules which are necessarily the same as in the profile of wine-making that we want. We will also Australia, Chile or Argentina. There is also another support the proposal from the European point which is important . The oenological practices Commission. Today the legislative procedure is very that we can use for European Union wines are the heavy and very bureaucratic. To allow any new same notwithstanding whether you market your oenological practices for wine making in Europe you product in the European Union or in third countries. need to go through the Council and the Parliament in We would like to be able to have some flexibility for order to have this change, which makes it become a oenological practices on the wines which are real political issue at any time. We support the idea of exported to the third countries. If you go to Japan having a Commission competence. I would very and they are more open on that it is not a problem for much like to stress that oenological practice is very us to fit in with this. Why should we prevent opening much about preserving the authenticity and the the door to these new oenological practices for the concept of wine, and I think that there is a common third market countries? I understand there is a certain interest in that in the whole world wine community. degree of complexity in this approach but the Of course we have to be open to technical and fundamental thing is that we want to preserve the commercial innovation. We should not prevent authenticity of our products. And we want to be able ourselves from accepting oenological practices. That to incorporate in the most diligent way in the EU goes with this philosophy of ameliorating the natural rules the innovation that is decided at the OIV level. qualities of the product. But we do not want to be in the position of explaining to consumers that they are Q197 Viscount Brookeborough: Can you give us an drinking something which has lost completely its example of some of the practices, or perhaps some of natural aspect. the additives or whatever, that are added in New 3714281007 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramo´n Fernandez

World wines which you object to or that you feel Union. We think that this should be revisited. The damage the principles of wine making? We hear approach we want to promote is to have a clear about added sugar but sugar is a natural product. indication of the areas where this can be done in order What is it that really goes against your practice? to avoid abuses in terms of enrichment in any case. Mr Fernandez: There are some oenological practices Finally, what we say on that is, forget about giving which are under discussion today also in OIV which money to use this method of enrichment, but at the are already practised. They are not approved by the same time enrichment with sugar should be limited to OIV but they are practised. what is strictly necessary because of climatic conditions and so on. For that you have to open the Q198 Viscount Brookeborough: Can you give us debate with Member States about what could be the some examples? areas where you could do that with reviewed limits. Mr Fernandez: There is, for example, the ion exchanger. Which make wine lose their Q201 Baroness Jones of Whitchurch: Given how characteristics. I do not want to be poetic or literary, restrictive the rules currently are, as we have been but wine is a live product. There is a biological discussing, have you got any evidence, particularly at process there. If you “kill” the wine from an the lower end of the market, of people breaking the oenological point of view, it loses its very nature. rules, of inaccurate labelling, of table wines being wrongly designated so that people can sell them on Q199 Chairman: That is like pasteurised and non- the market? How widespread is that? Secondly, how pasteurised milk. easy is it to get the new EU countries to embrace these Mr Fernandez: Afterwards you just start with rather arcane rules? Presumably they are very another element and you put that in and you resistant to them. continue to call that wine. I would like to stress that Mr Fernandez: Do you want me to answer about all there are some of these practices in place in some of these aspects or a particular one? our partner countries in other parts of the world but they are not yet agreed by the OIV. That is why we Q202 Baroness Jones of Whitchurch: Let us go with think that the OIV should be the reference, because it the labelling. could bring everybody around the table to decide Mr Fernandez: In terms of the temptation to breach what is the wine making concept that we want to the rules because they are complex, as I tried to have. explain before, for labelling you have the possibility in practice to go under a Geographical Indication Y Q200 Lord Plumb: There is one further thing as far scheme without a lot of di culty, so you have the as the use of must is concerned. The Commission, I choice. Either you take your table wine and you stick gather, have already suggested the removal of aid for to what is not possible to communicate on the table grape must. That is, of course, just in the south of the wine or you go into the scheme of Geographical Community, and the prohibition of chaptalisation in Indications. There is also in the wine producing the north. Do you have a view on this? Or is it countries quite strong control already by the bodies something that is of concern? which manage the Geographical Indications or the Mr Fernandez: This is always one of the classic, food authorities that control the accuracy of claims traditional, hot issues when approaching a reform that are made on the label. We do not have a because there is an historic background about why summary or photograph of what could be the there is today public intervention in funding the use situation in terms of breaches of the rules on labelling of grape must for enrichment and at the same time at a European level, but here in our environment in there is authorisation for using sugar in enriching Brussels we do not get the impression that that is a wine. Our position, and it is a position which is huge issue for driving reform on that point of shared by the whole European Union wine industry, labelling. Considering the third countries, of course, which is a delicate and sensitive issue, is that the situation is that we are already confronting this enrichment is an oenological practice. It is perfectly competition, not only outside the European Union possible to enrich the wine and it should continue to but also inside. We have bilateral agreements for the be possible, but we stress the idea that enrichment is wine trade with some of those countries and they can an oenological practice and should not in any case be market their wines with the brand and the name of a market intervention mechanism by subsidising the country with the varietal without any problem. anything. The priority for enrichment should be to give priority to wine products for enrichment because Q203 Baroness Jones of Whitchurch: I was thinking that once again preserves as much as possible the more of Romania, Bulgaria, those countries which integrity of the whole product. But of course there is have presumably had their traditional way of a tradition, or a need because of climatic conditions, labelling that does not necessarily ﬁt with the new EU for enrichment in certain parts of the European rules. Are they making those adjustments? 3714281007 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramo´n Fernandez

Mr Fernandez: In principle, by acceding to the debate about the definition of the terms of reference European Union, talking about Romania and for organic wines. I think that is going to be one of the Bulgaria, they are obliged to stick to the acquis,so important topics in terms of environmental they should not be able to label today varietals on perspective in the future for the wine sector. their table wine, and they have also their Geographical Indications which are recognised and Q206 Baroness Miller of Chilthorne Domer: France incorporated within the European Union already has quite a strong market in wine labelled as regulations, so they are not today treated in a biologique, so where are the standards for that? There diVerent way from any existing Member State. are standards for that drawn up, so how would a new organic wine sector vary from that? Q204 Baroness Miller of Chilthorne Domer: On your Mr Fernandez: I think this is the starting point of website you talk about the environment and I wonder confusion about organic wines. There is already what that word encompasses, whether it is landscape regulation. It is about wine coming from organic and biodiversity. I wonder also if you could expand a grapes. In the production of wine you have the bit on whether you think that the reform of the production of grapes and after that you press the regime is likely to have benefits to the environment or grapes and you have the fermentation, wine making disbenefits, and particularly perhaps, thinking about et cetera. You can grow organic grapes perfectly well some of the issues that are being highlighted with today and, if you have a claim and you want to say climate change, how weighty are environmental that it is “organic wine”, it is about wine made from issues in considering reform? organic grapes. However, of course, in the public Mr Fernandez: First of all, traditionally as industry arena there are more and more developments every and trade we have been focusing, when talking about year in the organic wine field and the challenge we environmental issues, mainly on environmental have today is that there should be some rules for issues concerning industry and trade—for example, organic wines and wine making. packaging waste, packaging management, all these kinds of things. I think that in the proposal from the Q207 Baroness Miller of Chilthorne Domer: In the European Commission there is increasing attention process as opposed to just the grapes? given to the environmental aspects in terms of putting Mr Fernandez: Exactly, and that is something which the wine sector also in the mainstream of cross- is on the agenda now of the European Commission to compliance with environmental conditions for the define, so we say that work has already been launched whole agricultural production of the European and for the next year there should be some draft Union. terms of reference on what could be considered an organic wine. That is where we say that we should Q205 Baroness Miller of Chilthorne Domer: Did take a careful look at what is going to be defined as a most of your members agree with that approach, that term of reference for organic wine, because already cross-compliance should be included? the rules that we have for wine making are intended Mr Fernandez: From our point of view the support in to preserve as much as possible the non-intensive terms of having the production of wine respecting or human intervention approach in the wine making. promoting environmental standards in wine production and wine growing is very important, so Q208 Lord Bach: You very kindly sent us a list of we do not oppose this approach at all. There is a new your members. It is obvious that they include evolution in perspective, which is the organic members from south Europe, north Europe and production of wines. Until now organic grapes from central Europe. It must be diYcult sometimes to form which we can produce wines which are regulated by policy on an issue like wine reform when interests the European Union have been part of the whole clearly can be very diVerent. I do not know if you package of organic agriculture, but now there is a want to share with us—maybe you do not—how you proposal to go ahead and include also wine making manage to come to the kinds of articulate conclusions in an organic way in the scope of this regulation. That which you have given us today, and in particular, is something we have to look at very carefully with regard to the whole issue of rural development because, as I tried to explain before, the whole set of and rural development programmes in terms of EU wine making rules that we have in the European cash, when there must be diVerences between what Union today is intended to preserve the natural and your members think, depending from where they minimum human intervention approach in wine come, how you manage to form a view about that and making. So if we create a regulatory category of what your view is on it. organic wine which is diVerent from conventional Mr Fernandez: As a conclusion, I would say that our wine, the diVerence to the consumer should be job consists of trying to bring all these parts together significant enough to justify this diVerence. We will and define where there are shared beliefs and look very carefully at that and try to participate in the common principles that we can defend. That is what 3714281007 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Jose´ Ramo´n Fernandez

I tried to explain at the beginning. The process is a sector should also take profit from the fact that there kind of question: do you want to be more is a rural development tool which is not necessarily competitive, do you think that we should be more fully used in an appropriate way by the wine sector, competitive, yes or no? If you say yes, we should so we think this is an opportunity for accompanying agree on what are the elements in the currency that the adaptation of the wine sector to a more market exists and are not allowing our sector to be that oriented approach, but it is mainly for Member competitive. On that basis we have built up the States and our national members to handle with their position I tried to explain to you. There are some priorities how they want to see this reflected in the fundamentals, of course there are. If you go into the Common Market Organisation reform. details about what is going to be the distribution of support from the European Union for the diVerent Q209 Lord Bach: Pillar 2 spending attracts your national sectors, we have not yet gone into this detail organisation or does not? Or do you think it is just a because, of course, it will be very complicated for our matter for individual countries? Mr Fernandez: We promote and defend the idea that organisation to arbitrate and decide on that. But we want to preserve a specific wine regime in the first there are some fundamentals on which we all agree, pillar, because it is coherent with having a which is that we need to promote and integrate the comprehensive and consistent wine policy. But we promotion of our wine consumption in a moderate recognise that preserving this principle of having the and responsible way in the wine policy. We need to fundamental of the regime in the first pillar means have an ambitious external trade policy. We need to there is huge potential for complementary support review all the market intervention measures in order and help from the second pillar which has not been to eliminate what is preventing adaptation to the fully used by the European wine sector to the extent market, and also there is room for manoeuvre in that it could be. One of the fundamentals in our terms of simplifying the rules that we have today. On position is that we want to preserve for the time being this basis we have created the whole position that we this specific approach on the first pillar tool for the have tried to explain in this session. Concerning rural reform of the Common Market Organisation. development, there is this strong proposal from the Chairman: Mr Fernandez, that was absolutely European Commission to cease production and grub fascinating and very valuable to us. Thank you very up in order to stop production of wine which is not much for your time and the clear way in which you finding a market. We think that the European wine expressed your thoughts and opinions. 3714281008 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

66 european wine: a better deal for all: evidence

MONDAY 7 MARCH 2007

Present Bach, L Miller of Chilthorne Domer, B Brookeborough, V Plumb, L Cameron of Dillington, L Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V

Examination of Witness Witness: Ms Eva Corral, Head of Wine Sector Division, COPA-COGECA, examined.

Q210 Chairman: Thank you very much indeed for producer co-operatives.1 They were created almost coming to talk to us this morning. Can I explain at the same time as the Common Agricultural Policy who we are and what we are doing? We are and they merged and established a common collectively what is called Sub-Committee D, which secretariat here in Brussels. We represent all the is the Agriculture, Environment and Fisheries Sub- Member States. We are now in contact with some Committee of our main European Union Select organisations in the two new Member States so that Committee. We scrutinise European policy and they can participate, and we are a horizontal European directives, regulations, anything that is organisation, which means that we work with all the coming up from the EU, and prepare reports on agricultural sectors. We also work with rural major items of policy and then publish and circulate development, SANCO issues, organic farming. I am them. We are carrying out an inquiry into the also responsible for organic farming, and we work proposed reform of the EU wine sector. We have in five languages. There are almost 50 people on the already taken evidence in London from a number staV, so it is a very big organisation. Our work is of interested parties and we thought it would be to link the points of view of producers with what is particularly useful to come to Brussels and meet decided at the European level and also to inform people like yourself who are much more closely them of what is happening at the European Union involved in both the industry and the proposals. We level, so we are very much in contact with the represent all political parties, and indeed we have European Parliament and the Commission, Council people who are called Cross-benchers who are members and with other organisations, like CEEV. members of no political party. We also happen to We work together on a number of issues, even if we cover just about all parts of the United Kingdom so have some diVerent points of view regarding the we are a fairly diverse bunch. It would be helpful if reform. On the Commission Communication I think you could give us a brief “idiot’s guide” to what we all agree that we need a reform because there is your two organisations do and what their role is and a crisis in the sector. We still are the number one then give us your view of the Commission’s thinking producer/consumer/importer/exporter, but we are on the reform of the wine regime. losing market share because of the very good Ms Corral: First of all, I am going to distribute promotion from third countries. I recently learned copies of a dossier which I have brought. I am going that Iran is producing wine, which is very interesting to explain what COPA-COGECA is but, if you have because what we consider to be traditional third time, you may want to read it. The first document countries—for example, Australia, Argentina and explains what COPA is and what COGECA is. They the United States—are not all the producing are two diVerent organisations but they have a countries in the world. I have also learned that the common secretariat in Brussels. The other surface area planted with vines in China is bigger document is the COPA-COGECA position on the than the surface area of California. We have this wine reform. I think you have all read it because you problem and we also have the problem of surplus in have referred to it in your questions. The other one the internal market. We are using crisis distillation is a document that tries to explain what the wine almost every year. This is not normal. It should be sector is in Europe. It is very important to an extraordinary mechanism to face crisis, not a understand the structure of this sector in Europe mechanism to use every year, so there is a problem because it is very diVerent from the sector in the new and we have to solve it. We need a reform and we producing countries. This is a fundamental do agree with some comments that Commissioner diVerence and it has a lot to do with what wine is Mariann Fischer Boel has made. She says that in Europe and what is the sector and what is the European wine is the best wine in the world—I think specificity of the sector in Europe. COPA is an 1 Note by Witness: COPA is the Committee of Professional Agricultural Organisations in the European Union. COGECA is organisation that represents producers. It is an the General Confederation of Agricultural Co-operatives in the umbrella organisation, and COGECA represents European Union. 3714281008 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral we do agree on that—and she says that we have a produce their product, et cetera. On the situation of number of strengths: our culture, our specificity and the market the starting point for us is not only a our tradition, and that the way to win markets again question of surplus; it is also a question of an open is to use those strengths. We fully agree with that. market since 1994, and our Common Market However, when we go into the Commission Organisation is not able to respond any more to the Communication we tend to find, let us say, some situation of being in an open market. It is very inconsistencies with those aims. The Commission is important to note that the wine sector is one of the proposing the grubbing up of an enormous surface sectors, together with fruit and vegetables, that has a area, such as the surface of California, same higher annual yield variation. This has to be taken example I have already mentioned. This is going to into account because it is very diYcult to plan things cause enormous problems because it is not in a sector like that. The last report from the OIV, managed. It is a five year programme with an aid Organisation Internationale de la Vigne et du Vin, given to producers. That money is twice the annual recognises that we are still suVering the consequences budget of the Wine Common Market Organisation. of the world’s harvest from 2004. In this harvest there On the one hand, we are spending too much on was a surplus2 of around 24 million hectolitres distillation and on the other hand the Commission regarding 2003 and 2005. proposes grubbing up with money that is double the annual budget of the Wine Common Market Organisation. We (COPA/COGECA) consider that Q214 Chairman: Yes, but the surplus that we have is we should redistribute the money in the Common not a surplus just of exceptional harvests. There is a Market Organisation for positive measures to structural surplus there. How do you remove the modernise the sector and adapt the production to structural surplus? the market. At the same time as the Commission is Ms Corral: There is a structural surplus but what I talking about grubbing up, it is talking about the mean is that it is not the only reason. The problem is liberalisation of planting rights, For us it is not very that, when we have a very big harvest and we do not clear how this can work to make the European wine sell it, it stays there stored in the warehouse or sector more dynamic. We all recognise the need to whatever and becomes a surplus that goes over every do promotion, to do research, to do modernising year, and this is also a factor to take into account. but there is no budget in the Communication for What we are proposing is the idea of “national these important measures. envelopes” which have been adopted by the Commission. This is also because the wine sector is Q211 Chairman: Can I start by taking your own very diVerent from one Member State to another, words from what is on your website the recognition from one region to another—the type of product, the that the incomes of producers have been declining type of organisation of this sector in each region or in despite all the interventions through crisis each country, the size of the sector. The idea is to have distillation. As you have just said yourself, we are two types of measure. There will be a number of living with surpluses, there is increasing import measures that will be dealt with at a horizontal level, penetration into Europe and there is declining at European Union level, for all the Member States, consumption; and, although we can all agree that and there will be a toolbox. In this toolbox there will some European wine is the best in the world, it is far be a number of instruments. Of course, we are not from saying that all European wine is the best in the talking about re-nationalisation of the Common world. Agricultural Policy. This should be 100% funded by Ms Corral: Yes, that is right. the European Union and it should be controlled by the European Union. The idea would be that each Q212 Chairman: You criticise Mrs Fischer Boel, Member State, according to the characteristics of its particularly in relation to grubbing up, and I think wine sector, could decide on the diVerent plans they you rely on dealing with the problem by promotion, were going to carry out and would submit these plans modernisation and getting it closer to the market. to the European Commission. The Commission Ms Corral: Those are important measures; they are would see that they are OK, they are consistent, not the only ones. approve those plans and it would be the Member State or the region that would implement these plans Q213 Chairman: Ah, well, I am going to push you on together with the sector as a whole. The sector is V the other ones. organised in very di erent forms in each Member Ms Corral: If there is a surplus, of course prices go State—inter-profession, producers’, organisations, down. Farmers cannot sell their product. Prices are the trade, et cetera. In some countries it is the also pushed down by imports, and there is wine producing region that is the most important structure coming from these third countries at a very low price dealing with wine production. That would be a type because of a number of characteristics in the way they 2 Note by Witness: In the European Union. 3714281008 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral of reform that would allow each Member State to Union and it is a very labour-intensive crop. 71% of manage its wine sector in a better way. the farms have an average surface area of five hectares3 and there are 2.5 million jobs linked to the Q215 Chairman: Do you think that an inevitable harvest. In the wine producing areas all the economy consequence of the reform of the wine regime will be of these areas is built around the wine. It is very a significant reduction in the number of producers? impressive to know that in Languedoc/Roussillon Ms Corral: We think that there should be some 44% of the value of agricultural production comes grubbing up. We are not opposed to that; it is from the wine sector. It is not only the jobs linked to necessary. As you say, not all European wine is the the harvest or the jobs linked to the vinifying process best in the world, so we are going to have to because normally it is the producers and the caves restructure the sector and there will be a number of coope´ratives that are making the wine. All the villages producers that will find it more appropriate to go out are structured around that. There will be a school, of the sector, to take early retirement, and we have to and there will be a market, and there will be shops, oVer them the possibility of joining the early and there will be cafe´s; everything is linked to that. It retirement scheme. Of course, this is just one tool that is very important to understand that, if we are going should not have the dimension that the Commission to talk about the wine sector and the implications of is proposing and it should be managed inside a this policy of distillation, et cetera. Talking about restructuring programme. Otherwise it will have very jobs, we have to consider that at the moment the wine negative impacts in terms of the economy of the sector provides for a very high number of jobs and we producing regions or the employment and even the have to be very careful about the way we do our landscape, because most of the wine in Europe is reform because of these jobs and because of the produced in convergence regions which were regions. If, for example, there is uncontrolled Objective 1 before. There is going to be a need to grubbing up in one region and half of the sector goes change some things. I am not saying that the wine out because there is a crisis, they will say, “OK, I am sector is perfect. There are a number of problems and going to get the money. I am very tired of continuing they are going to have to be addressed. to fight in this sector”, what is going to happen to the other half? It is going to be aVected by that. That Q216 Viscount Brookeborough: Has there been any would be very serious. It is not distillation that will year in recent years when there has not been crisis have an impact on jobs. But, if we talk about distillation. And is it therefore no longer crisis but distillation, there are four diVerent types of the norm? distillation at present in the European Union. It is Ms Corral: I cannot say what is recent before three true that we have to consider that, as it is given as a years ago because I have only been in COPA- possibility, a number of farmers are using that COGECA since 2004. It is true that we are using possibility to get an extra revenue and this is not what crisis distillation every year and, as I say, this is not it should be. It is true that we will have to consider normal. eliminating some types of distillation but we do consider that there are two types that we have to Q217 Viscount Brookeborough: Is it true that maintain. One is by-product distillation, because this Germany is a country which does not over-produce is not a distillation to remove products from the at all or, to put it a diVerent way, markets all its market. This is a distillation that is aimed at products in wine? maintaining the quality of the product, because it is a Ms Corral: Production in Germany is very small distillation that means you are not going to utilise the compared with big producers in Europe, and the lees and the marcs. I am not sure if you are familiar climatic conditions as well mean that they cannot with the wine vocabulary, but the marcs are what you produce as much because of lack of sun. This is a get once you have pressed the grapes and the lees are question that links to the question of oenological what you get after the first fermentation. This practices. distillation means that you are not going to use those products, which implies that the quality of the Q218 Viscount Brookeborough: If you had one product will be better, that you will not use that to extreme reform which could put an end to produce table wines or alcohol for other purposes distillation, and the ban on planting rights is ending and that you are not going to put that in the anyway and perhaps grubbing up was no longer an environment because it is an organic product with a issue and there was a more open market, do you have lot of alcohol and it is a contaminant. We consider any estimates of the eVect on prices, employment and that this type of distillation should be maintained, the environment? even if the way of working of this distillation should Ms Corral: I have data on employment in the be reviewed because currently the money for the European Union in the wine sector. There are almost distillation is not going to the producers; it is going to 1.6 million farmers making wine in the European 3 Note by Witness: 71% of holdings have less than 5 has. 3714281008 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral distillers. In the four types of distillation the distiller plantations, processing and marketing”, in other is getting the money, not the producer. The other words bringing the whole industry hopefully as close type of distillation is the alcool de bouche, potable together as possible. The second point is “the strong alcohol. We do not consider that this is a distillation involvement of the sector in adapting production to to eliminate product but rather to supply a market. marketing opportunities in terms of quantity and There is a very clear example of this and this is in the quality”. And the third one is “the linking of a part of Castilla La Mancha in Spain, which is a region south the CMO aid to this commitment”. Does this mean a of Madrid. In this region 45% of wine producers are further development of co-operatives? Can you producing grapes to use for distillation to produce expand on that a bit because that is in itself quite potable alcohol, and they provide half of the total interesting? If we see the reform of the wine regime 10 potable alcohol in the European Union. They are not years hence, it is obvious there has to be a much producing wine; they are producing these products; greater degree of co-operation than there is at and, if we eliminate this type of distillation, I imagine present, with 1.6 million farmers, as you say, that all that quantity of grapes will go to produce producing wine. If you could expand on that a bit, it wine, which is going to be a problem, and also the would be helpful to us. You seem to imply that there price of these products is going to go up. should be no aid for excess production. Is this the correct interpretation of what you are saying, Q219 Viscount Brookeborough: But that distillation because I think that is rather important as far as our that you have just talked about is a market one and evidence is concerned? You have already mentioned that would therefore be paid for by the people that the crisis management mechanism. But is the crisis require that distilled product. Did I understand you management mechanism a fairly wide definition of a to say that there are some people who are producing crisis? What really do you mean by “crisis”? Is it crisis wine of such a quality because they know that it will of surplus? Is it crisis of management? Is it caused by go for crisis distillation and, therefore, that is an disasters or whatever? Is it a combination of these abuse of the system to a certain extent? things? Ms Corral: I was not meaning crisis distillation. Crisis Ms Corral: I will start at the end with crisis. Crisis will distillation works as a mechanism that normally be all extraordinary situations that cause a big should be employed in exceptional circumstances. problem in the market. It could be exceptional climatic conditions. Q220 Viscount Brookeborough: But it has been used every year. Q222 Lord Plumb: Drought or whatever? Ms Corral: Yes, it has been used lately every year and Ms Corral: Yes. It will be whatever situation that even for quality wines, so I do agree it is a problem causes a big surplus in the market and that cannot be and this has to be resolved. There should be some managed by the measures that are already in the kind of management of the vines so that we avoid Common Market Organisation. having to distil all that quantity of product. Probably a good reform should start by getting out of the Q223 Lord Plumb: In other words it could be market all that surplus, because I imagine it would climate? not make sense to have a reform now and apply it Ms Corral: Yes. However, we think that because of when we are having such a surplus in the European the crop and its high yield variability we have to Y Union; it would probably hinder the e cacy of the maintain, probably in the national envelopes, some new Common Market Organisation. measures to address this. We are proposing, as a type of measure, green harvests because green harvests Q221 Lord Plumb: First of all, could I congratulate can help prevent these surpluses before they are you on your paper. It is an excellent paper and it is produced, which is a very good way of dealing with good to see that COPA-COGECA are on the this. However, can we really manage to produce oVensive, not just the defensive, and you have come exactly what the market is asking for? There are too forward with some interesting ideas. How on earth many variables and agriculture is not a science, so it you get farm organisations and co-operatives from seems diYcult to produce just the right quantity. 27 countries to reach an agreement on a paper is Therefore a number of other mechanisms should be beyond me. I too had a bit of experience in COPA there to deal with these quantities, that should not be some years ago and I could not get 12 to agree, so you as enormous as is the case now in normal are doing very well to get as far as you have. There are circumstances. This should be linked to the two first three points that I would like to question you on points, the restructuring and connection of all the which are in your Position Paper, which we find very sectors and the involvement of the sector. This is interesting. First of all, the organisation of the because until now the CMO has just been addressing sector—in the framework of subsidiarity, you say— the producers but has not been linked to the market. is there to achieve better consistency “between We have been having a lot of restructuring but the 3714281008 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral restructuring is not linked to whether these products which is the organisation that brings together all the or these varieties have a market. In some places we co-operatives in Spain. I was doing this work on have found ourselves with, for example, a lot of white supplies and I had to travel around Spain and visit wine because there was a demand for white wine, and diVerent co-operatives, and they were doing a lot of sadly there has been too much reconversion to white inter-co-operation. You have one co-operative that wine and now there is no market. Another thing is has a lot of members which are producers and that restructuring has been accompanied by an another co-operative and they have got together to increase in yields and this has to be managed. If you buy inputs or to market things. This inter-co- restructure, you change the variety, you have got operation is even going to the point that diVerent co- another variety and then you start to produce more; operatives from diVerent regions in Spain are and this is, of course, a problem, The idea is that there working together. This is very interesting from the has to be a link between all the actors in the sector. In point of view of marketing and management of what COPA-COGECA we are working with our is produced. colleagues from CEEV, and also at national level, Lord Plumb: Interesting and encouraging. trying to be consistent with what is produced and what the market is demanding. That is why we are Q225 Chairman: I do get a little bit worried when asking also for a market observatory. There are very people talk about managed markets, quite honestly. few data on consumer demand. Because of the nature Is there not the danger that, if you put so many of the crop (it is not an annual crop), it is not possible mechanisms in place between the producer and the to change from one year to another and say, “OK, market, you are actually insulating the producer now I grub up my vines and plant something else”. from the market and they will carry on acting in a They take three years to produce, so there should be way which is not responsive to the market? all this information coming in from the market, from Ms Corral: I am not sure I understand your question. world trends, that will help the sector to adapt (to it). These are all the changes; it is what we call verticality Q226 Chairman: You have a producer, and I think of the sector, and of course the sector has to be we are all agreed that the producer ought to be more involved. But that does not mean that these responsive to the market. You say there might be big organisations and co-operatives are doing on their ﬂuctuations caused by the market and we have to own what they think is correct. These are the plans protect the producer from some of those impacts? that are drawn up by the Member States with the Ms Corral: We have to protect the producer from the involvement of the sector. They will have to consult crises which are caused by those exceptional the sector and it will be implemented by everybody. situations. Otherwise, it is the producer that is going The idea is that farmers are not passive. They will not to see what is going on in the market, not individually just stay there and say, “OK, here is our money”, and but in these producer organisations or regions or co- that is it. They have to engage and adapt their operatives or whatever, and is going to take a production to the market and they have to be willing decision to see how they can respond better to those to focus on producing a product that has an outlet in market demands. the market. I do not know if I have answered all your questions. Q227 Chairman: But we have the example of where trying to protect the producer in terms of crisis has Q224 Lord Plumb: You have. Vertical integration is meant that crisis distillation has become routine what I call the relationship with the trade. To what distillation. Is that not the danger with any crisis extent are farmers prepared to accept contractual intervention, that it becomes routine and actually arrangements with some of the buyers? Is this not prevents the producer from having to face up to what possibly a progress point where there could be a the market signals are saying? better relationship between them if they are related in Ms Corral: Maybe it should not be a crisis commercial terms and not just by agreement on distillation. Maybe it should be a crisis system. It contracts? could work diVerently. It could take a diVerent form Ms Corral: Of course, this is something that has to be but it should be a kind of net in case of those studied in more detail. The characteristic of the exceptional circumstances. We are totally agreed that European wine sector is that, contrary to third crisis distillation should be only used in a crisis countries, there are not really big companies in situation and that we do not have to use it every year Europe. Most of the wine is produced by the and that the present situation is not normal, so we producers and marketed by their co-operatives. The have to make sure that it really works. The way to co-operatives play a very important role and it is very make sure that the producers are not using it every interesting to see what degree of integration they are year is to prevent it, to cover all the possibilities by all achieving. Before working in COPA-COGECA I was these responsibilities of the producers and all the working for the Co-operative Association in Spain, sector as a whole so that we do not get to that point. 3714281008 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral

Q228 Chairman: I would like to hear you talk a little restrictions could or should be placed on the EU bit about the relationship between your net either by the Member States themselves or by the underneath these producers and the need for Council. Is this not going to make it a very rigid structural change in the industry, because the system and rather bureaucratic, when in fact I believe industry you are talking about is coalescing in quite you are looking for more flexibility, particularly to an important way, whether it is through co- take on the mid-price range wines, which are the ones operatives or other devices. How does this net fit into that are penetrating the European Union, the that? Would it not prevent it from taking place? consumer side, from third countries, which are not Ms Corral: When I talk about the sector as the whole bound by these extra restrictions which you say could sector, it is co-operatives, it is traders, it is retailers, it or should be imposed by the EU or the Member is the whole sector from producer to market, but I am States? How do you see the future of that? always, of course, talking about producers and co- Ms Corral: I think we have to go back to wine operatives because they are the ones I represent. definition, and at present there is no internationally recognised definition for wine. We are very much Q229 Chairman: But they all have to be changing in attached to a definition of wine that keeps wine as a relation to a market which itself is changing. natural agricultural product. It is made by producers, Ms Corral: Yes. it is regulated by the Common Agricultural Policy, so it is an agricultural product, which for us makes it Q230 Chairman: And so how does the change take important to have a restricted list of oenological place if you put a network of protection underneath practices. You are absolutely right when you say that it? we cannot be very restrictive and we should allow Ms Corral: But the net is not a net that is always there. some evolution of these practices for table wines. We As I said, it is exceptional. Normally that net will be do agree with that. We have to find an equilibrium “under the table” and you will not see it and you will between Geographical Indications and table wines not use it. It is not necessary and it will not be used that can, let us say, adapt to a certain limit without every year. Normally it is not used any year and the losing the characteristics of what is a European wine, sector adapts itself. In the eventuality that one year because this is important for us. They have to adopt happens to have some extraordinary circumstance some of the characteristics of these wines coming that creates a situation which it is absolutely not from third countries which have been very successful. possible to deal with in terms of the mechanisms that We have to adapt this list of oenological practices. are on the table, then we take it out and say “There What we are saying is that they have to be recognised is no way we can deal with this situation. It is a very by the OIV to be adopted in Europe, so the OIV is extreme eventuality”. necessary but not a suYcient condition for oenological practices to be adopted in Europe. We do Q231 Chairman: And it would be set so low that it not want the Commission to have the competence for normally did not operate? this because the quality policy is something that Ms Corral: It is not a mechanism that is put there to depends very much on Member States. I do not think be used. “Crisis” these years has lost a bit of its Member States would really agree to give the meaning. Crisis should be exceptional by definition, Commission those competences. Also, we have had so with all the mechanisms that you have: promotion, some examples where at international level we have research, some grubbing up, temporary grubbing up, not had our Geographical Indications protected very green harvests, you should be able to manage it. much, and I think you all know about the example of There should not be any problem. We are trying with the wine agreement with the United States. In this this plan4 to ensure that this crisis mechanism is wine agreement we were, let us say, obliged to sign it something that we are not going to use. because there was this exceptional measure that we would have to comply with (certification) and we Q232 Viscount Ullswater: Earlier on you said that have had 24 oenological practices approved for the way to deal with this was at two levels, at the EU United States wines that are not allowed in the level of reform and then by using the “national European Union. We do attach very much envelopes” to allow the Member States to take on importance to this list, and the capacity to adopt this particular problems in their regions. Obviously, one and update this list is should be maintained in the of the things at the EU level is adopting the wine Council. However, it may be true that there has been making practices which, I note from your paper, a certain rigidity regarding this but this might be should be governed by the OIV and that any wine more because Member States have not been willing to making practice adopted in the EU should be move on that. Maybe they will accept that it is a authorised by the OIV. All of that I think we would necessary flexibility for table wines and that we need agree with, but then you go on to say that further to be able to adapt this list. We are currently doing it. 4 Note by Witness: Refers to COPA and COGECA position paper. We adopted last December the regulation on wood 3714281008 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral chips and the Commission is now considering some have, and perhaps for table wines we can try to make other oenological practices, so this is a process that a product that will be a little more similar to what has already started and we are discussing it. We have third countries are doing without losing our identity. a group of oenological experts that meets with the Commission and discusses those practices. Q234 Baroness Miller of Chilthorne Domer: You were just speaking about a five-hectare producer here Q233 Viscount Ullswater: Do you think that, if you competing with a 50-hectare producer in Australia. do not adopt these practices, the third countries will But, of course, as you said much earlier, a lot of your bypass Europe and compete much more readily in producers are organised into caves coope´ratives,so countries like China and Russia, which is importing they are not really five hectares; they are eVectively a lot of wine, because of the restrictions that you are producers with a much larger area through the means imposing on the wine makers in Europe? They seem of the co-operative? to have a freer hand to adapt to what the market is Ms Corral: Yes, that is so, but when we talk with the wanting, what the consumers are wanting, rather wine producers they say that wine is a product that is than what you are saying—that is, “We must have alive and that you will make one wine one year which this natural product. This is what we determine is is linked with the land and you will have a flavour this what you want”, rather than other people perhaps year and you will have another flavour next year. saying, “Actually, we want something diVerent”. Ms Corral: When we talk about consumers, what it is Q235 Baroness Miller of Chilthorne Domer: I agree if that they want, I want to be sure that what they want they are marketing it as their own five-hectare wine, is that type of wine. I remember that, when this but perhaps you would tell me if many caves regulation on wood chips was adopted, there was an coope´ratives are marketing the wine and selling it as incredible problem in all the producing countries in that cave coope´rative’s wine that has received, for the European Union where all the consumer example, a gold medal at the Paris show. It is organisations were complaining about how could we promoted as the whole coope´rative’s wine, not as the put chips in the wine, that it was absolutely awful and product of one producer with just the five hectares? we should under no circumstances allow this. Ms Corral: There is some of that, and that can Immediately a number of regions and governments in certainly be developed and that would be a plus if Europe made some legislation to say that that could that happened. But I wonder if it would be exactly the not be used in Geographical Indication wines, in same as one producer having this big exploitation. quality wines. Some regions were even saying they The case now is that we have big companies that have were not to use that in their table wines. What is it vines in a number of continents and they put them really that the consumer wants? We talk also about together and mix them so that they can get the same Geographical Indication quality wines. If our model flavour every year and have a standard product, is not working, why is it that new producing countries whereas our concept of the product and its are using our Geographical Indications? Why is it characteristics is that we cannot do that and I do not that in Canada we can find one of those powder packs think we want to do exactly that. to make “wine” and you put the powder in water and it is called “Rioja pack”? I would never buy something like that. But why is it that they are using Q236 Lord Cameron of Dillington: I think you have our name if this system is not working? It is clear that already said that the most sustainable way of third countries have a certain type of product which sustaining the wine sector in the long term is to ensure is a very standardised product and which is, let us say, that the consumer buys more wine and is encouraged correct. It is a correct standard wine. It is not a bad to buy more wine? Ms Corral: wine but it is not a wine that is going to give you More European wine! something special, even if they also have wonderful wines. Because of the structure of production in the Q237 Lord Cameron of Dillington: Exactly, which I European Union, is it logical to think we can fully totally endorse. I want to talk to you about labelling. compete with Australia where they have an average It seems to me that the more you can encourage the of 50 hectares against five hectares in the European producer to have entrepreneurial ideas, to have flair Union? Even if we do some merging and increase the and enterprise and marketing and to try to relate to size of our farms, can we really compete with those the consumer, sometimes they will succeed, other countries? Or maybe the way to compete is, as sometimes they will not. But the more you can try to the Commissioner was saying, to use our model, to be encourage them to market their wine in their own flexible about the number of things that are not way, to encourage independence rather than being currently working but to, let us say, attack with all controlled either by the EU or by the Member State those things that we have and they do not have? That or even by the current local appellation controˆleé, the is more the approach we (COPA/COGECA) would better it will be for them. Why, like with other food, 3714281008 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral should people not be able to put on their labels what currently discussing that so it is not yet really a they want providing it is true and correct? position of the COPA-COGECA—that, if a wine is Ms Corral: To put something on the label that is true to carry those Indications, then there should have to you have to be able to demonstrate that it is true, and be a cahier des charges or some control so that you this goes to the question of the year and the variety of can determine that what is in the bottle is exactly table wines, and there are 8,000— what you are putting on the label. This is a question of traceability which I think is fundamental. Q238 Lord Cameron of Dillington: There are 10,000 Geographical Indications in Europe, of which the consumer probably recognises 50 at the most. Q241 Lord Bach: You have talked in some detail Ms Corral: The case for Geographical Indications is about your response to the competition that there is very particular because for the quality wines there is from the New World in terms of wines, so I am not no European legislation. It is each Member State that going to concentrate too much on asking you to is dealing with this and this has caused many Member repeat yourself. But, if I put to you this, that States to create many Geographical Indications and European wines have something diVerent, special, even diVerent categories in the quality wines. Of compared to New World wines, you would agree, I course, this makes the system enormously think. Yet at the present time for various reasons complicated but this does not mean that the concept European wines are losing out. Is it really good of quality wine is not a good one, because it is very much linked to what we have always been producing enough just to say that what European wines have to in this region. concentrate on is what is special about them in order to remedy that? Or is it that really those who produce European wines have to do something much more Q239 Lord Cameron of Dillington: But the only good fundamental in order to compete over the medium one is the one the consumer understands. and long term? My worry is that your response, Ms Corral: Absolutely, but we consider that we need which you have put so well, is that really all you need some simplification in the labels. That is absolutely to do is tweak or slightly change, slightly alter, necessary because, if we compare our European wine concentrate on the tradition rather than something with another wine from a third country, the way it is else. I would argue that that is not nearly enough and labelled is very complicated. There are a number of the New World will continue to grow at our expense. items on the label which are compulsory indications What is your reply to that? and a number which are voluntary. There are Ms Corral: indications for quality wine, there are indications for I think I have already mentioned that we table wines, so we have to do something about that— have to change the system, the current Common for example, traditional mentions like “chateau” or Market Organisation and all the amount of money “clos”, et cetera. There is no European legislation on that is spent in distillation, that table wines should this. There is no legislation that says that in every have a more open list of oenological practices, that European country we have the same definition of we will have to find for those wines an equilibrium so this, so we would say that we need to revise this and that they enjoy some of the characteristics of these we need to see how we can simplify the labelling New World wines, and that we will have to grub up without misleading consumers and without putting some vines and do re-conversion. I am not saying something on the label that we cannot control. Going everything is rosy in the European wine sector. We do back to the Geographical Indications and the wine have problems and we have a sector that is in some variety and year, the Geographical Indications do aspects very heavy, so that is what we recognise, that have a cahier des charges. They are certified, so that we need also to be flexible and simplify labelling to a what is on the label is what is inside the bottle. If we certain degree, that some of the producers will be are to allow those Indications in table wines, that is willing to abandon the sector, and that we will have going to be very diYcult because we cannot to have this compromise for table wines to allow demonstrate what is inside the bottle. them to respond more to this other new model. We talk about equilibrium. What we do not want, Q240 Lord Cameron of Dillington: But the table according to our interpretation of it, is what the wines should be able to say what the grape variety is Communication of the Commission is proposing, and describe it in their own way, and at the moment which is, “OK, these third countries are very good. the freedom of entrepreneurs to sell their wine is very They are entering our markets and they are limited. That is why we have major problems, it conquering new markets, so we have to stop seems to me. everything and start producing as they are doing”. Ms Corral: I do not think that is a major problem for That is not realistic either, so we really have to find an the table wines to be sold. We do not have a clear equilibrium between both of them. You are right: we position on that but we could accept—and we are cannot just rely on keeping our system as it is 100%. 3714281008 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral

Q242 Lord Bach: There has to be some structural is co-funded and rural development measures are not change, does there not? That is my question to you. applied to a sector; they are applied to an area. Even We have to change the structure of the European if this area is structured around the wine, it will not go wine market in order to be able to compete. Would to the wine producers. Also, there are these new 2007/ you agree with that or not? 2013 programmes. They have already been presented Ms Corral: We are going to have to have some to the Commission and they should be adopted, I concentration of the exploitations, increase the size, think, in six months’ time. I am not the person in concentrate on selling our products, focus more on charge of this question in COPA-COGECA. This the market. Of course it is going to have to be like means that, if those programmes are already on the that, but, as I was saying before, can we change table and are going to be adopted, how are we going radically the structure of production so that we are to introduce them into the wine sector if the reform is going to have 50-hectare exploitation only and things still not there? That is all part of the problem. like that? I do not think that is feasible. On the other hand, I think it is very important to take into account Q244 Baroness Miller of Chilthorne Domer: Is that also that most of the wine production in the something you have raised with the Commissioner, European Union is linked to the land, to certain that the rural development programme is now more areas, what in French we call the terroirs. This is what than in draft; as you say, it is there on the table and gives the identity to wines. If we are going to take all there is a problem of accommodating reform of the the wine production from the areas where it is wine sector within it? produced now, which may be areas that are Objective Ms Corral: That is a practical problem but, as I said 1, that are less productive, such as the Greek Islands, before, we do not agree. We do not think it is a and put it in the plains, irrigate it, we are going to solution to take the money from the Common have much more productivity, we are going to have Market Organisation away and put it into rural bigger exploitations and we are going to have a development, where it is going to be diluted between product that has no identity. Even if there are 10,000 the regions and with co-funding. That is not the way Geographical Indications in Europe and they are too to give dynamism to the wine sector in our opinion. confusing to consumers, consumers do recognise We should keep all the credits in the Common Bordeaux, they recognise Chianti, they recognise Market Organisation, which are not so much if you Rioja, they recognise Valdepenas, so this is look at the budget of the Common Agricultural something we have to take into account. Policy, considering where the wine sector is in Europe. Q243 Baroness Miller of Chilthorne Domer: Earlier in your evidence you were talking about the generous Q245 Baroness Jones of Whitchurch: We have been pre-retirement package to farmers and you indicated talking about where the impetus for change and support for that. But I think you said that it could reform might come from, and obviously you have have some landscape eVects, and also you spoke very been talking to your own members about that and passionately about the fact that, particularly in you have some ideas for change. But in parallel to Languedoc/Roussillon, the very villages and the that we see the big supermarkets coming into the schools and so on were all organised around their market, which are very powerful, certainly in the UK, production areas. How does your organisation view in terms of deciding what people should drink and the decoupled measures that might address some of what new wines they should explore. 70% of all wine those issues by bringing money for rural development drunk in the UK is bought from a supermarket shelf, in to deal with those landscape and social issues? Is so they are very powerful. I wondered how you that a desirable thing, to move into decoupled reacted to that, because they will increasingly become measures? the driver for change. They will increasingly be, if you Ms Corral: We were discussing this with the like, the voice of the consumer. They will decide what Commissioner. Decoupling is a very diYcult option consumers like, what tastes they like, what changes to implement in the wine sector because wine is not a they are prepared to consider, and they increasingly commodity. How are we going to ﬁx a single payment stack UK shelves with New World wines rather than for a product that has a high added value and is very EU wines. I wondered how you reacted to that. How diVerent? A red wine is not a red wine. A red wine is do you manage that power of the supermarkets? a Geographical Indication from this country or Ms Corral: I think this is a general problem another one, or a table wine, or a white wine, or a throughout the agricultural sector, the increased diVerent quality wine. It is very diYcult to ﬁx a single concentration of retailers, and that the producers payment in the wine sector. Regarding rural have been very disadvantaged in relation to the big development, it can be a very useful complementary supermarkets, that are increasingly powerful and measure for the wine sector, but it cannot replace the concentrated. To a certain extent they do drive Common Market Organisation. Rural development consumer demand but they adapt from one country 3714281008 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Eva Corral to another because they also listen to what the going to open new markets and we want to re- consumer has to say. To give an example that is conquer markets. Promotion can also be done with completely diVerent, it is like organic farming. I come supermarkets. Of course, it is a campaign that has yet from Spain, and in the supermarkets it is absolutely to be designed but it can also be done in the impossible to ﬁnd organic farming products on the supermarkets with wine tastings, with putting the shelves because people are not aware of them and products at the head of the aisles in a place which is they are not buying them. But, when I arrived here in very visible to the consumer, and that is something we Brussels, I went to the supermarket and the shelves have to invest in. We are very attached to this idea. were full of organic products, which was amazing, so That is also why we do think that initially it is a very they are also responding to what consumers are good idea to give money for that inside the Common Market Organisation instead of going to the asking for. It is absolutely true that they have a lot of programmes of promotion that already exist, because power in deciding what is put in the market but they those programmes are generic for all the agricultural cannot impose something if consumers want products and they are co-funded.5 In 2003 I think it something else, and that is something with which we was, out of all the money the European Union gave are going to have to work. to all the diVerent agricultural sectors, only 6% was given to the wine sector, so we want promotion inside the Common Market Organisation to regain those Q246 Baroness Jones of Whitchurch: Is the danger markets and to inform consumers about our product. not that we will all get left behind because we will be Chairman: Thank you very much for your patience arguing about the wording of an EU Directive or with us and the amount of time you have spent whatever and meanwhile they will be deciding what answering our questions. You have given us a very the rules are and what they are prepared to sell, which clear account of the approaches of your two may or may not take a great deal of account of the organisations to this very important issue. Thank EU? you once again. Ms Corral: We think we have to do promotion, and we hold very strongly this idea of doing promotion 5 Note by Witness: COPA and COGECA do want promotion and information because it is fundamental if we are programmes in the wine CMO. 3714281009 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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MONDAY 7 MARCH 2007

Present Bach, L Miller of Chilthorne Domer, B Brookeborough, V Plumb, L Cameron of Dillington, L Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V

Examination of Witness Witness: Ms Katerina Batzelli, a Member of the European Parliament, EP Rapporteur for the Commission 2006 Communication, European Parliament, examined.

Q247 Chairman: First of all, thank you very much problem of the wine sector as a whole. Knowing all for coming and finding time to meet us in your busy the procedures that take place in any Parliament and schedule. It is a great delight to see you. the big national interests of the other Member States, Ms Batzelli: It is a very great pleasure for us as the final text is more globalised. I think that all of my Deputies to the European Parliament to have a colleagues will try to face the three points that you meeting with the National Parliaments. It is very have mentioned—first, the reduction in income of the important for us to talk with persons who have an wine producers and farmers; secondly, what is going interest in the subject. on with imports from the New World; and, thirdly, the reduction in consumption of wine that has taken place in Europe in the last three or four years. These Q248 Chairman: I will very quickly explain who we are three things that nobody can deny. This is the are. We are the Sub-Committee of the EU Select problem that we are coming to face with the reform Committee in the House of Lords. We consist of of the wine sector. The challenge is what package of members from all political parties and cross-benchers proposals we use in order to solve these three main who owe allegiance to no political party—so they can do what they like! We also represent just about all the points that you raise. One package is greater regions and areas of the United Kingdom, so we are liberalisation of the market and the other one is a very diverse bunch. We have had the opportunity of restructuring the sector, reducing protectionism (if reading quite a lot of the background there is some somewhere) and opening the market. V documentation, your own report and the stuV that There are two di erent scenarios. The first scenario is came out of both the Commission and the coming from the proposal of the Commission, as far Parliament, and we have been taking evidence in the as I understand it. You know the proposal and so I United Kingdom. But we thought that it would be will not repeat it. What are we trying to do as a particularly helpful to us if we came to Brussels and Parliament? First, we have to face the reduction in spoke to people like yourself who are more directly income. There are three reasons why we have a involved. I would like to start by asking you how you reduction in income. The first, is because we have approached doing your own report. What comes out occasional surpluses; the second is because France, from the Commission’s and some of the background which is the biggest producer of wine, has in the last documents is that, although I do not like to use the two or three years interrupted the commercial word “crisis”, there are major issues facing the wine contract with the big supermarket networks in Great regime. We have declining incomes of wine Britain; and the third is that the system gives producers, increased import penetration of the incentives to increase production (the mechanism of European market, declining consumption within distillation). This was an anomaly of the system and Europe as a whole (although that is, of course, for that reason in my first report I did not want this variable from country to country), and we are getting system to exist in the next reform, because it is not a into the position of basic structural surpluses. That good signal to the producers of wine and to the represents a pretty powerful set of problems. As you farmers. We have a big surplus for the reasons that I approached the issue yourself in response to have already explained and we are trying to delete or Commissioner Fischer Boel’s Communication, I change this mechanism that creates incentives to think it would be helpful to us to know how you farmers for the surplus. Imports we cannot avoid. We addressed the problem and what your initial policy are an open world. It is not a question of thoughts were. international trade organisations; we must be open. Ms Batzelli: First of all, I would like to underline that We have to focus on the quality of our products. The my own report was the first report, the draft report, reduction in consumption has happened for three and I think I was more radical on the policies because reasons. First, European wine is a little bit expensive; they are very important in order to face the actual and, secondly, a lot of people prefer beer or other 3714281009 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Katerina Batzelli alcohol. The third reason is that in some Member and overriding this, of course, is—what is the States there is high taxation on alcohol. We cannot concern? The concern is surplus. How can people intervene in the taxation system because it is national compete on a level playing field with wines that are policy. We cannot say that beer is not good for coming in from other countries? One of the areas— health, but we can intervene on the prices. This means and I mention only one because colleagues will pick we have to find a way to sell European wines, or some up on the others—is that, to deal with surpluses in the of them, at a more logical price to the consumer. We past, if it was the Common Agricultural Policy, we formulate the price from the price of the producer, tended to say we would either put on restrictive the commercial price and intermediate costs, but, of quotas or we would take animals out of production course, even the European Parliament cannot and so on. In this case it is taking vines out of intervene in the intermediate costs. With regard to production by grubbing them up. There must have the price to the producer, the wine sector is a part of been a lot of reservations about how far you could go the agricultural sector that does not have direct with the grubbing-up procedure. In your report you payments to farmers or producers; they do not take say that you are not opposed to the initiative of any prices as in other products, and the problem is grubbing up if individual producers are able to what price is given to the farmers from the wine approve or reject permanent abandonment, using makers’ wine. This is the core of the problem. For various environmental, social and geographic that reason we said that we had to have a safety net criteria. What we would like to hear about from you for the farmers with two conditions: first, that they is how you see the grubbing-up regime working, would have to improve their quality and in improving including the proposal for the introduction of their quality they would take more money from temporary grubbing-up. commercial prices, and, secondly, they would have to Ms Batzelli: It is better to have some friends. diminish the production of table wine. This is the big Temporary grubbing-up was not in the framework of problem in Europe, table wine. It is a huge the compromise with friends. production without any control, without any limits, and these are the wines that are going to the distillation system. Table wine is the competitive Q251 Lord Plumb: You have partly answered this as wine from the new world—Australia or California. we understand it, but is that part of the scheme? And, They produce table wine. They do not have any if it is part of the scheme, are we not still going to get Geographical Indications and so on, so in order to criticism from a lot of the growers saying, “While we take a space in the market Europe has to decide what are grubbing up, more wine is coming in from part of the market will be their main market, and that elsewhere, which is taking our market”? That is what is high quality wine, not table wine which costs the I read in that report. I also noticed that you had V budget a lot of money. Those monies that we could evidence from some 26 di erent organisations. I save could be transferred to other uses in the sector— think 15 of them were French. It tends to get a little promotion, enforcement of organisation by producer biased, does it not, if you are taking that number or inter-professional organisations, whatever may from one country? exist in any Member State. This is roughly speaking Ms Batzelli: I would like to mention openly the package of answers we have found in order to something that was very interesting even for me. In answer the main three questions that you are asking. that round of negotiations the French delegation We cannot answer with “yes” or “no” but with a here did not press me a lot. Why? I am old enough to global package of proposals. understand why: because they have three or four diVerent scenarios in every region of France on the reform of the wine sector. They do not have a Q249 Lord Plumb: We have read your report with common approach for the reform of wine. Bordeaux great interest. If one were to give a general view is very diVerent from the south, even reading the following what you have just said, it is really proposal of the Commission. This was my first point. tinkering with the situation rather than getting to The second point is that the French see the wine grips with the major problems which exist, looking at sector as their property. The wine sector is one part of the longer term, which, of course, is a concern for all its history, and really I expect that they do not want in of us. I notice you had 500 amendments tabled. any case to grub up some vineyards permanently. For Ms Batzelli: It was 560. I am very proud about that. that reason they insist on introducing temporary grubbing-up, “And, guys, we will see after three or Q250 Lord Plumb: There is nothing unusual in that, four or 10 years what is going on with the market and of course, and I note the Conservatives from the then probably we can use our quotas to produce wine United Kingdom and the other countries all voted again”. This is the reason why temporary grubbing- against for various reasons, probably thinking it did up is in my report. It is the only delegation that is not go far enough. You have presented the package doing that, because, if you read it, there is a conflict of proposals which you have just been talking about, between temporary grubbing-up and all the other 3714281009 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Katerina Batzelli texts. There is a lot of confusion but we have to do it. it or put it in the “national envelope”, but even this Grubbing-up as a whole policy is the main key to potable alcohol mechanism that will remain will not reducing production, especially in the small be the same as the actual; it will be based on the vineyards because, according to the statistical base of mechanism of by-products. That means that it will the Commission, around 20 or 30% of the European cost not so much money and it will be a mechanism vineyards are very small and the proposal of the that contributes also to environmental questions. Commission is very attractive. Politically, nobody The Spanish are not so happy, which is normal, but I from my committee could accept this proposal of the had a great deal of pressure from the Spanish Commission as it is. For that reason, as you delegation, all of them, so that finally they voted mentioned, Lord Plumb, we erased a quarter of the against my report because of this distillation system. grubbing-up in every Member State, in regions or at the national level, on the basis of certain criteria, Q254 Viscount Brookeborough: Without knowing some of which are negative incentives to discourage anything about the situation of the alcohol going to grubbing-up or to encourage grubbing-up. We are Portugal for the port, surely alcohol that comes from not against it totally but we try to find a new formula. distillation that has got a further commercial use is It is one of the best points, that the Commission in the paid for by the people who have the commercial use Plenary said that they were going to accept the for it? Are you saying that crisis distillation is, first of criteria that have been adopted in this report. all, paid for by the EU and then is sold on at a profit thereafter into another business? Should not the end Q252 Viscount Brookeborough: We understand that business be funding that? the Parliament would quite like to reform it in two Ms Batzelli: This is the main argument of the phases and that Commissioner Fischer Boel was Commission, that the wine sector of the Common critical of the report’s approach to distillation. The Agricultural Policy could not pay for the alcohol Parliament’s particular suggestion was to convert the sector. This is the main argument but I do not think various distillation measures into two, compulsory that, for British Portuguese or Spanish Spanish, we and voluntary. Could you indicate how these forms have to reform the system radically from the first of distillation are to be funded? I understand that moment and not give them a period of two years in what you said was that you, perhaps personally or order to reconsider the way they work, the incentives from the point of view of your committee, are entirely that are given to the producers and for promotion against distillation continuing into the future. policy. Port producers have a huge budget for Ms Batzelli: The next point that was most important promotion. On the contrary, in common with the in my report after grubbing-up was distillation. In my Spanish, they pay the producer to produce huge primary report I did not support any distillation quantities to go to distillation. They are two diVerent system, even for the first period of the reform. Now things. The British, in any country they work in we propose a package of distillation systems and this favour of the market. proposal came after pressure, especially from the Spanish, because the system works in favour of the Q255 Viscount Brookeborough: So some of the Spanish distillation system. They absorb around 30% farmers are producing wine at a quality at which they of the Community budget in wine just for distillation know perfectly well it will never be drunk in order to and, of course, you know that nobody can reject this get the distillation price? kind of money. Ms Batzelli: Yes, you are right. In order to understand the whole distillation system, there are Q253 Lord Plumb: Even I would not. four distillation systems and each of them works in a V Ms Batzelli: But there we have two problems. We di erent way in Member countries. have the normal distillation system, crisis distillation, that sometimes is needed, and distillation into Q256 Viscount Ullswater: We were told that the potable alcohol. The potable alcohol concerns only reform was likely to be budget neutral, but in the Spain and Portugal. In Portugal in port all the report you make several references to the budgetary owners are English, as you know. It is concerning situation. Some of your colleagues fancy a two-phase your country or your citizens, but really the potable staging of this, and in Paragraph 8 suggest that you alcohol in port is totally diVerent from Spain; even would need additional funding. Would you like the organisation is diVerent, and the import is based perhaps to comment on whether you think it is a bit on the wine, and in Spain on alcohol. I do not know premature to conclude a wine reform before the CAP the word in English but it is two diVerent things. 2009 review? What we have said now is that we will reform in two Ms Batzelli: If we say additional Community budget, phases, and we have said that the distillation system it was not on the level to vote to finish. Nobody for potable alcohol will be accepted as a mechanism believed that we were going to take an additional in the first period. In the second period we will delete Community budget for the wine sector. This is 3714281009 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Katerina Batzelli something that does not happen and we do not want detailed question. It seemed as though the Parliament it to happen. What we wanted was that we needed was unable to come to an agreement on how the more financing from the national budget in that “national envelope” should be allocated among sector. This was the first point in the report of our Member States. Can you give us a little bit of discussion. Why? It was a way of financing all the information about the discussions that took place measures that finally we are going to decide will take and any ideas on how agreement on this might be place. It is concerning the paragraph on the “national finally reached? envelopes” and how this measure will be financed, Ms Batzelli: First, I would like to say that all my including a supplementary budget from the national answers were in order to inform you what happened pocket. Concerning the health check—the review— “behind the door”. we will see, because first of all we will have a discussion in the European Parliament on the rebate. Q261 Chairman: We are very appreciative of that. Nobody touched the wine before we talked about Ms Batzelli: You can read my report and you have all the rebate. the experience to understand that I would like to say what my last six months was like. If I can turn to Q257 Lord Cameron of Dillington: There seems to be allocation of budgets, the first question of my a bit of a dispute between you and the Commission colleague was, what are we going to take from that over the amount of money that stays in Pillar 1 and market? There are several approaches. First, the money that might go to Pillar 2, but it seems to me Commission does not have the tolerance in its logical that, if you follow the grubbing-up process Communication to propose some criteria. It was that Lord Plumb was talking about, you should then open. They did not mention anything, so I took the put money into that area to redevelop new industries, responsibility, and I mean that, to propose some to give new employment, and it seems to me logical criteria. I was against the historical criteria. Why? that some money should go into Pillar 2 as part of the Because the distillation system has been distorted and whole process. How would you respond to that? it depends on the budget. I will explain the reasons for Ms Batzelli: You are right for the future, but in the that. It was not only the distillation; it was also the actual situation we could not accept that u-turn. question of the must. Italy takes 60% of the budget Why? First of all, we try to keep the Community for the must; and of this budget, that is around ƒ98 budget for the wine in Pillar 1. When we have finished million, Sicily takes 70%. whatever is the reform of the wine sector, the budget will be divided by certain criteria that are not under Q262 Chairman: Ah! discussion in every Member State, and that budget Ms Batzelli: The Italians have a problem. Listen to will be added to the “national envelope” of all those the story, because it is a big story. When we allocate agricultural products that have already reformed— the budget on historical criteria, Italy has a problem cereals, cattle, fruit and vegetables in the next month; because in the last two years they have had and then even the wine sector will be under rules of autonomous regions, which means that on historical modulations. You know what I mean by criteria the Sicilian regions will take these packages of modulations? money but not all of Italy. So northern Italy has a problem with the historical criteria of the south—you Q258 Lord Cameron of Dillington: Understood, yes. do not understand my life!—and, of course, the Ms Batzelli: We know even the Scottish problem Spanish have the same problem for the whole here. We know everything, do not worry. That means country, because as a whole they take around 300(?), that some money from the wine sector in the First something less, of the wine sector because of Pillar will be transferred anyhow into the Second distillation and must. And, of course, the Spanish do Pillar of agricultural and rural development, and the not want to lose 25% of that. Germany does not take governments can do whatever they want. As a target any money from the budget except for restructuring it is correct, but at the first phase of negotiation it was problems, which is very important in the sector, for not possible to accept it at this moment. all of them, and nobody can say that they do not take money for restructuring problems. It is for quality; it Q259 Lord Bach: I am delighted to hear your radical is for everything. So in all the north they do not stance on all this. You said your draft report was produce wine but they have a collision with written in a radical way. I hope you have not lost your Germany. They do not want historical criteria, and in radicalism as you have had to go through with it. Spain and some regions of Italy they want historical Ms Batzelli: I hope not. criteria. I was in favour at the beginning of mixed criteria: surface area and volume of the wine. That Q260 Lord Bach: Good; we will see. As far as means what would be the result of the restructuring “national envelopes” are concerned, and you have programme? It is calculated on the surface area and been discussing that, I really want to ask a more the volume. Nobody wanted it except Germany. I am 3714281009 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Ms Katerina Batzelli

Greek. I come from the south of Europe. I have a Ms Batzelli: He can do it even now, especially for the problem with my government but I am sure they are wines of Geographical Indication and qualite´ du vin. conservative, so I can manage this a little bit. But It is a point that has not yet been clarified and, as far everybody thinks that we have to put on the table as that is concerned, I am not wedded to the paper on more realistic criteria because if we allocate it on the the bottle, but I tried in my original text, and basis of historical criteria we take with us all the something remains of the bones of this proposal, to distortion of the budget into the next reform. This is say that we have to improve the labelling of table the main point. I do not know what will happen in the wine. That is the big problem. Council. Something will be historical as a gift to the Lord Cameron of Dillington: I agree with you. Spanish. I do not know how much. It depends on the negotiations. Q265 Baroness Miller of Chilthorne Domer: Your report does mention some of the environmental benefits, such as vine-growing stopping soil erosion. Q263 Lord Cameron of Dillington: We come from I wonder if there is anything you would like to the perspective that we ought to encourage flair and expand on in terms of benefits? And also did you enterprise to persuade consumers to buy more wine, come across any negative eVects in environmental and therefore people should be able to put on their terms? labels what they want and market the wine how they Ms Batzelli: Our approach for the environmental want as long as it is true and they can verify it and it issues was not concentrated on the real question of is audited, and there seems to be again a dispute the environment because vineyards secure the between you and the Commission on this issue. environment anyhow. This cultivation is friendly to Perhaps you could tell me what your position is. the environment, but it was a mechanism to give Ms Batzelli: I will give you a very general answer. The incentives to the farmers that were going to remain in labelling must be very simple, clear and with few the sector after grubbing-up, with more obligations words, not because it is like the labelling of Australia to improve the quality of the wine first, and, second, and California wines where they know the market during the commercial or cultivation period to limit quite well, but to take into account the attitude of the with the co-operation of the wine producer the final consumer, that they do not have time to read so many production of grapes, because if we delete the details on the back of the bottle. distillation system somebody has to tell the farmers, “Please do not produce such high quality grapes”. And of course we have to give them the initiative to Q264 Lord Cameron of Dillington: But, if a business bring down the production. It was a mechanism to man thinks he can put lots of words which will control the production and the market. persuade the consumer, can he not put on what he Chairman: Thank you very much. That was a lovely, thinks will sell wine? open, frank discussion.

Examination of Witness Witness: Mr Giuseppe Castiglione, a Member of the European Parliament, EP Rapporteur for the Commission 2007 Legislative Proposal, European Parliament, examined.

Q266 Chairman: Mr Castiglione, thank you very environment, to the earth, how you cultivate the much indeed for finding the time to come and talk to earth, all these major questions. There are many us. If I can briefly explain what our job is, we are a factors which see us nowadays competing not only Sub-Committee of the Select Committee on the amongst Member States in the internal market but European Union of the House of Lords in the British there is a wider type of competition from Australia, Parliament and we are carrying out an inquiry into South Africa, Chile and from emerging countries. It the wine regime. In particular we would value your is growing wider and wider in scope, so for us in observations and comments, because clearly you Europe in wine-growing it is very important above all have an important role to play in the European for the European agricultural economy. We have Parliament as it develops its views on the wine endorsed the choice of the Commissioner that we regime. I wonder if I could start the questions by have a thinking phase and a debate and look to asking you to give us your view of what you see the parliamentary initiatives which will follow the reform of the wine regime delivering. What do you Legislative Proposal which should come in in a think will be the outcome of the reform? couple of months’ time. The Legislative Proposal will Mr Castiglione: I would like to thank you for giving be out in about June, and we will work then with the me this opportunity to get over the message about the same sort of commitment we have devoted to it over work which has taken up a lot of our time and will the last few months. But we do agree with, if you like, continue to do so. The wine-growing sector in Europe this first challenge from the Commissioner, who has is a very important sector and is linked to the adumbrated a new strategy saying we have to reform 3714281009 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Giuseppe Castiglione the wine market. It is absolutely necessary to give new how we promote our wine. The competitiveness of impetus—I think, some new fizz—to the European our undertakings can be made more profitable with wine-growing companies facing these new challenges sustained support for marketing. Our competitors, from countries which more and more are finding we have noted, really have massive advertising outlets in the European market for their wines, and it campaigns, even if their products are of lesser quality, is something we have to square up to. We have to try are less good for the environment or less linked to the and get new market share via reform, we agree on structure of the land. Nevertheless, a tremendous that and that is a challenge. What are the guidelines, amount of investment goes into the advertisements, the most important aspects which the Commissioner certainly compared to what we are doing as pinpointed to get this new impetus? Above all, there Europeans. In the Farm Committee we have called is over-production of wine in Europe, and the for a study looking to young English people, because Commission will respond to this by grubbing up 70% of young English people do not really know about 400,000 hectares of wine-growing in Europe much about European wine. It may be better quality, along with measures which they will propose such as but nevertheless they know Australian wine better abolition of certain parts of the market. What they and this was a fact which came out of these studies are trying to do is make sure that the wine which is and really is food for thought—this question of how produced is more market-orientated, so to that extent you promote, market, advertise, and it is something they want to abolish aids to production. Also looking which has to be made extremely clear by the to the market brings up the issue of the importation Parliament. On topics such as aid to markets, we of musts from third countries, in particular for non- should not be producing just to distil. We agree with quality wines, and for table wines the possibility of that. We agree that we should abolish aids for that putting on the label where it has come from and the but we came up with a few topics of our own which year. We have discussed this amongst the countries. we think could be subjects for regulation—for It brought in the producers in general, and there has example, in production this question of distillation of been a major thinking process for a year now by-products or, if you like, finding outlets for by- amongst all the protagonists in the various regions products. How you find outlets for by-products is from the various regional specificities. There has been very important for regional reasons above all and real work, but useful work, I think, and the resolution that is something we have to bear in mind. There is approved by the Parliament looks to the first stage of then this question of how you get rid of the by- general mediation and conciliation, trying to give a products, market them, et cetera. There is a crisis much clearer stamp to what we want from the solution you always have to have in farming. Legislative Proposal. The Commission should take Sometimes in a year you have an environmental on board, we think, what has gelled out from the disaster or over-production. There should be some Parliament of 27 countries, so not really grubbing-up reform of the CMO which you can look to if for grubbing-up’s sake. The Commission is looking necessary, so we are against distillation and therefore at 400,000 hectares in Europe but there are many market aids just for distillation purposes, but I think countries which market wine in the European market the Parliament has a few points to raise there. What and they are continuing to set up production do you do with the by-products? The environment is processes, so you cannot have indiscriminate linked to that. How do we define a mechanism and grubbing-up, especially since countries have had manage it in the agricultural area to cover these incapacity, so you have to focus your grubbing-up. It problems? Another very controversial area much is of cultural and environmental value as well, this discussed from the various aspects is the type of whole issue. Wine produced in many areas of Europe production, the question of adding to and enriching is something which is environmentally prime and has wines. A lot of countries enrich their wines or add to a tremendous link to the structure of the land. In them. Many countries, not necessarily in Europe, use many parts of Europe, if there were no more that practice. In many areas of Europe, above all in vineyards, from the environmental point of view it the Mediterranean area, there is hostility to this would be a real catastrophe. So we have tried to come practice of, if you like, processing your wine and up with a more subtle response of “ifs” and “buts” building your production on that basis, but the and grey areas from the Parliament where there are northern countries defend that practice, so enriching no environmental problems or no wine growing their wines is a sort of traditional practice. But we vocation. You have to look very closely at the actual think we could possibly reconcile these positions by circumstances. Member States have to look very saying up until when you can continue adding sugar, closely at where we are doing the grubbing-up, how say, but you cannot subsidise or aid imports of must much and how, and I think we all very much agree on which many Mediterranean countries use. You that. A topic which has been looked at by the would link those two things, aid to must and Parliament, which the Commissioner is very keen on enrichment in many countries, because it would be (and perhaps we are all keen on), is this question of unfair competition otherwise. Some people produce 3714281009 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

82 european wine: a better deal for all: evidence

7 March 2007 Mr Giuseppe Castiglione with added sugar and others import must for their Any position that does not tie those two things fermentation process, so you do not want to skew the closely together—if you ask me, having seen the fair playing ﬁeld when it comes to market aid. We are positions of all the countries—is going to be very going to get rid of all market aids but this is diYcult to defend. There is my personal opinion, nevertheless a relevant topic for all countries. Then which is that you should not be using sugar or sucrose there is a topic on labelling. We have said “no” clearly at all, but on the other hand there is the abolition of to imported must from third countries. We do not say aid to must, but all of that is my personal position. why people are importing must from third countries. From what I have seen, having spoken to all the We do not see why, when there is over-production countries and seen the German position on everywhere, as I have said. We say “no” inter alia enrichment right across the political board, they are because it might give rise to confusion when it comes absolutely solid behind the traditional practice, they to labelling, where it was produced, the vineyard and say, of adding sucrose, and that applies, as I say, right the year. If you have imported your must, the across the political spectrum. They are shoulder to consumer can be really confused, so I think the shoulder behind the practice of adding sucrose. I am consumer has a right to know genuinely what is in the prepared reluctantly to give up aid to must but at the bottle, so for table wine where it is produced exactly same time on the internal market you cannot have and the year have got to be clear. This is something distortions of competition, so what I want is to see we will have to discuss and we would be interested to the two things closely connected in the future, hear what you might feel about that but allow us to including in the Council debate. improve our draft further. Maybe we could have a meeting of minds on that. Q268 Lord Cameron of Dillington: If you are against Chairman: Thank you very much indeed. That was chaptalisation, are you also against acidiﬁcation? very helpful. My colleagues have a number of Mr Castiglione: Yes, of course. individual points they want to bring up. Q269 Lord Plumb: You have referred to grubbing- Q267 Viscount Ullswater: You just touched on some up as a method of trying to reduce volume and, of of the wine-making practices and I think you course, it is one that we have experienced over many indicated that you were against the addition of sugar years now. Reading the full report, there seem to be but were a little bit more equivocal about the a lot of people who are concerned because they feel maintaining of aid for musts for the southern states. I they have been grubbing up their vines, allowing would like to know your particular views on this and therefore wine to come in which is in competition whether you think a compromise can be reached with (and unfair competition as seen by some) while they regard to enrichment, bearing in mind that a lot of are grubbing up. However, the report itself says that the competition from the third countries, from the the initiative should be that of the individual New World, will be making wine with these newer producer and it should be perhaps on a temporary practices and they are going to be a large amount of basis, and it appeared too that Commissioner Fischer the competition. Boel was agreeing with that. How do you see the Mr Castiglione: As regards this enriching, I have told grubbing-up working if it is on a temporary basis? Do you Parliament’s position, not my personal one. you see people responding to it? Or is it not going to Personally, I recognise that it is a traditional practice make much diVerence? and a great many countries would not be producing Mr Castiglione: As regards temporary grubbing-up, I wine at all if they could not do that. It is a widespread have very great doubts about that. What we are practice and it is accepted, but there is a point about saying is that there should be controlled grubbing-up, many other regions in Europe where now they help in other words, co-ordinated with the Member the must, and there is one party that wants to abolish States—for instance, if you have an area which is not that altogether and there is another set of people who traditionally wine-making and when the region is are increasing production through enriching with happy about the grubbing-up and when it is not sucrose and it is diYcult to reconcile the two. The going to do harm to the environment and there is not compromise position is that the traditional practice is some kind of geological diYculty with it. We put all recognised but in that case the aid to the must and the these conditions in the report somewhere. We have enrichment have to be kept very closely linked to each got a few of these criteria—mountain areas, coast other. What you cannot have is one set of people areas, islands, mainly producing geographically adding sugar—and, in fact, with the sugar market denominated wines, areas where you have to avoid reform sugar is getting cheaper, which makes it erosion, loss of bio-diversity, historical importance, cheaper to add it to your wine—but meanwhile on vineyards whose wines have a commercial market, the other hand we abolish the aid to must which we vineyards which should not be reduced too much already have on our internal market, so these are two because it would then undermine a whole DoC things that have to be kept very closely connected. region, vineyards which have had structural aid 3714281009 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Giuseppe Castiglione under community programmes, and regions where Mr Castiglione: The budget, unfortunately, does not there would be environmental risk. These are all apply just to the wine CMO. The same thing areas where there should not be grubbing up and happened with fruit and vegetables here last week. anyway there needs to be co-ordination with the We were talking to the Commissioner about Member State. If you ask me personally— producer organisations in that ﬁeld last week, the resources for producer organisations to do investment plans. The Commissioner says there is no Q270 Chairman: I just wonder—is there anywhere way that there are going to be any extra resources as else left? there are not any resources in the budget for that. I Mr Castiglione: V Yes, there is. We are making an e ort do not believe there is going to be any more budget. here. There are still vineyards with low yields that are I really do not see where any more resources could not going to be able to produce fully, areas where come from, but within the wine budget it seemed to there is early retirement for the grower, places where us that the First Pillar of the CAP should be retained there is no market for the product. But anyway it but then there are lots of measures on the rural would always have to be the Member State that development side which could be used to help the would end up deciding where the grubbing-up could productive environment for vineyards. We do not happen. This is what we are calling controlled believe in more resources but we think that under the grubbing-up. First Pillar, by renaming expenditure, reclassifying it, by taking money from certain market measures, we Q271 Lord Plumb: So you see this leading towards could make some resources available for what is further restructuring of the whole of the wine- really important. I was talking about marketing, and growing areas—in other words, some of the units I am sure you will agree with me that, if you are going getting larger as some of the vineyards are grubbed to do any marketing, you have to have some money. up and compensation has been paid? You cannot do any marketing unless you have a good Mr Castiglione: The basic starting point for us is that deal of money to spend. So I think yes, the reform can we do not think you can re-launch wine production be achieved before the 2009 budget. through a grubbing-up programme. Meanwhile, people are planting away in other parts of the world. Q273 Lord Cameron of Dillington: Is there not room The grubbing-up measures in the past frequently under the Pillar 2 funding—and I recognise there is a have not worked. We have had some experience with diVerence of opinion between you and the this in Europe in the past. It has not cut production Commission—for money to be spent on non-wine of wine, for example. And then there is another thing orientated projects? For instance, where you have you cannot understand in the Commission’s grubbing-up you need to have other businesses being proposal, which is the logic of it. On the one hand, started, other enterprises, other structural investment you are grubbing up 400,000 hectares and meanwhile in order to compensate that neighbourhood so that you are allowing the import of must from third they have a future. countries to make into wine. Then there is the Mr Castiglione: As I said before, in the rural question of liberalisation. We are calling for a development policy, that is under the Second Pillar, consistent proposal from the Commissioner. But, if there are regional development plans, a whole series you are grubbing up on the one hand, liberalisation of other measures. In all of these places you can ﬁnd and import of must from third countries is not considerable resources, suYcient resources, for the consistent or logical. Basically, what we cannot wine industry to get some resources to improve its understand is how this much grubbing-up is going to competitiveness. I have spoken to the Commission reduce the excess in production or how it is going to about this. There are regional development plans allow European wine-growing to be re-launched. being prepared and within those there is a lot of money to support an environment of competitiveness Q272 Baroness Miller of Chilthorne Domer: I would and, within that, you can improve the environment, like now to turn to budgetary matters. The report you can get added value out of culture and you can makes reference at several points to budgetary also improve the wine-producing atmosphere. It is an matters. In particular Paragraph 2(f) states that the important subject, certainly, but the important point reform must take into account “the prospects of the here is that we are competing hard with countries that CAP, in particular future funding, in respect of which are devoting a lot of resources to this, so we want to discussions will begin in 2009”. Then Paragraph 8 keep the resources in the First Pillar, we want to push suggests that reform may require additional funding. hard on competitiveness. But, as far as grubbing-up Do your colleagues share these views on budgetary is concerned, you have to remember that the heritage matters? And do you think it is practical to conclude of the wine-producing regions is an important a wine reform before the 2009 budgetary round cultural heritage and we need to support that in the review? broadest possible sense; at least that is what I think. 3714281009 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

84 european wine: a better deal for all: evidence

7 March 2007 Mr Giuseppe Castiglione

Q274 Lord Bach: There seems to be agreement prepared to make sacrifices. But after all the other between you, the Parliament and the Commission, on reforms were done, with countries maintaining their the idea of “national envelopes”, but it seems that the budgets and now suddenly for wine we are Parliament itself has not been able to come to an embarking on some other principle,—No. We are agreement on how the “national envelopes” should talking about a large industry here. I am not talking be allocated between Member States, and that is about strict historical figures but the basis of our perhaps a pretty important issue. Could you just give proposal is the historical criterion. In point of fact, I us the benefit of your views on how you feel an have got an amendment that I have tabled. A agreement might perhaps be reached on that point? reasonable solution could be one based on what each Mr Castiglione: I recognise that, when there is an Member State gets under the present CMO or else a appropriation in the budget, everybody tries to get formula or a joint or mixed arrangement taking into his hands on it. My view has always been that you account the area under vines, which would be a good have to be consistent with all the other reforms that way of achieving the objective. We are open to have been carried through. We have had the sugar dialogue. What we certainly cannot envisage is a reform, we have had the banana reform, we have had sudden drastic cut in only one country’s budget, but others, and Parliament’s view has always been that I think there can be cuts if they are the same for the same states within their budget should have the everybody—which, of course, is bad for me back same resources. That is the basic principle and, of home in Italy because it would mean a cut for Italy. course, I can see that some individual Member State We each have to defend our own country, do we not? may have to make a special sacrifice to the others and We believe in the European Union but we also have I do not have any objection to that. But the idea that to defend our own countries. Italy or Spain could be heavily and specially Chairman: Thank you very much, and on that point penalised—obviously, they are going to be penalised I think our skill as politicians is to make self-interest like everybody else but specially penalised, no! I think appear as the highest form of altruism. Thank you you take the history as your basis and we are very much for your time. 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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MONDAY 7 MARCH 2007

Present Bach, L. Miller of Chilthorne Domer, B. Brookeborough, V. Plumb, L. Cameron of Dillington, L. Sewel, L. (Chairman) Jones of Whitchurch, B. Ullswater, V.

Letter from the European Commission Thank you for your e-mail of 19 December 2006 addressed to Mrs Fischer Boel, Commissioner for Agriculture and Rural Development concerning the inquiry into the EU wine sector. The Commissioner has asked me to reply. I would like to compliment you on taking this important initiative, not least because of the importance of the UK market as an importer of Community and non-EU wines and of the need to elucidate the dynamics of that market. Wine production is also becoming important to some regions of the UK. The Commission has already published substantial documentation on its position with regard to the current situation in the wine sector in the EU and the way forward notably in its Communication “Towards a sustainable European wine sector” COM(2006) 319 final of 22 June 2006 and the accompanying Impact Assessment. In addition the Commission has prepared two working papers “Wine—economy of the sector” and “Wine -.common market organisation”. All these documents are available on: http://ec.europa.eu/agriculture/capreform/wine/index—en.htm. These documents have been circulated widely and discussed in depth in the Council, the European Parliament, in the European Economic and Social Committee and in the Committee of the Regions as well as by stakeholders at Community and at national levels. The Commission is open to any informal discussion in Brussels with you and your colleagues and Members of the UK House of Lords on the current situation and the future common organisation of the market in wine. The European Parliament is expected to adopt its Opinion on the Commission’s Communication during its Plenary Session in February or March 2007 and following that the Commission’s legislative proposal is likely to be adopted before the Summer break 2007. I wish you every success with your initiative white remaining open to informal discussion and I look forward to your early contribution to the discussion so that it can be taken into account. Pour le Directeur Geńe´ral empesh L Hoelgaard Directeur Geńe´ral Adjoint Jean-Luc DEMARTY Director-General

Examination of Witnesses Witnesses: Mr Lars Hoelgaard, Deputy Director General, DG Agriculture, Ms Lene Naesager, Member of Fischer Boel Cabinet with responsibility for wine reform, Mr Emmanuel Jacquin, Head of Unit, and Mr Dooley, Deputy Head of Unit, in charge of the Wine Reform Unit, European Commission, examined.

Q275 Chairman: Good afternoon. We are very oneof the tasks that I am dealing with and we have grateful to you for making the time to come and talk from DG Agriculture also Mr Lars Hoelgaard, who to us. is the Deputy Director General, Mr Emmanuel Ms Naesager: Welcome to Brussels and the Cabinet Jacquin, who is the Head of the Wine Unit and of Commissioner Fischer Boel. I am a member of the Mr Dooley, who is the Deputy Head of the Cabinet who is responsible for wine reform. It is Wine Unit. 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

86 european wine: a better deal for all: evidence

7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley

Q276 Chairman: Thank you very much indeed. I am Q278 Viscount Brookeborough: Could you, please, afraid we are coming to the end of one of those take us step by step through the process by which Brussels days. We have been in meetings and listening Community funds are dispersed on distillation and to people for quite a bit of the day. Perhaps it would be storage? Your working paper on the CMO says that usefulif Iexplainedwho we are andwhatweare doing. surpluses are withdrawn from the market at a We are what glories in the wonderfully romantic title guaranteed minimum price and processed into of Sub-Committee D of our European Union Select alcohol for the potable alcohol and fuel market. Who Committee. We are responsible for Agriculture, the gets the receipts from these sales? And can you Environment and Fisheries and most of us bear the explain to us why and how the surplus wine is stored? scars of Agriculture, Environment and Fisheries in Mr Jacquin: I can start to reply to this question. We various capacities. We are carrying out an inquiry into have noted that you are aware of two documents the reform of the wine regime. We think it is a pivotal which were published by the Commission just before reform, not just in terms of the amount of money the Reform Communication. These two documents involved but also basically the nature of the present date from February 2006. One is called Economy of regime and the need for change. We have already the Sector and the other one is called Common taken evidence in the United Kingdom from a number Market Organisation. They are available on the of interest groups. We have spent today, as I say, website and we know you are aware of them because listening to people in Brussels, having taken the view they are quoted in your papers, but they are very big that it is important for us to get close to and hear from documents and we can help you to understand what the people who are most directly involved in taking is in them. The distillation system is a complex one, decisions and influencing decisions. Could I start by and in fact there are not only distillations but also asking you how you think the prospects for significant other market instruments such as the private wine reform have developed and changed since you financing of private storage. Let us concentrate on published your initial document? the distillations. There are four of them in our system. Ms Naesager: As you know, we put on the table on 22 Two are compulsory and two are optional for June last year a Communication on the future of the producers. The first one is the compulsory distillation of by-products. The by-products are the marcs and wine sector. We put down some ideas that we thought the lees which are extracted when the grapes are were very interesting and that we wanted to have vinified. These by-products have to be distilled and tested with Member States and with the European the wine grower gets a minimum price for that, and Parliament, and we then had a debate in the Council the Community funds go to the distillers in the form with Member States and got the report from the of a subsidy for the distillation and in the form of EuropeanParliament at the endof February. Wehave public buying-in for the alcohol produced. This also had plenty of meetings with the stakeholders, the distillation costs us about ƒ200 million per year. agricultural organisations. The Commissioner has been travelling quite a lot in order to meet the wine sector, wine growers, wine producers. She has so far Q279 Viscount Brookeborough: So, without visited six diVerent Member States in order to be out Community funds being put into it, the end product there meeting people and listening to what they think. would be unsaleable because it would be too It is clear that some of our ideas have not been fully expensive? endorsed, if I may say so. Mr Jacquin: Yes. The end product is in any case unsaleable, so it can be composted and put again on the ground. Q277 Chairman: You must be on the right lines then! Ms Naesager: Yes. There has been some criticism, Q280 Chairman: That is the lees and the marcs? which we need to look at, of course, and this is work Mr Jacquin: In Germany they do that, but in most that we are currently carrying out with DG Member States there is this obligatory distillation Agriculture. It is too early to say where we want to go which produces alcohol and also by-products. From but we are aiming at having a Legal Proposal these by-products you can extract a lot of interesting adopted by the Commission on 4 July. The things but at the end you have some waste which can Commissioner is still confident that we will be able to be put on the fields. This is a compulsory one, which have a kind of “Profound Reform” but what exactly costs a lot of money. Then we have another small will be the precise elements of it I cannot convey to compulsory distillation, which is called the double- you at this moment. purpose distillation. It is a distillation which is Chairman: I wonder if we could look at particular specific to the Charente region in France and to very components of the reform, going through tiny other regions in Italy and Greece, and the distillation, restructuring, competitiveness, the purpose is mainly to get rid of the wine which is whole lot. produced above the quantity which is used for 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley cognac. The producers have to put this surplus have done is that we are trying to get rid of those and quantity to distillation. It is a small one and concentrate it, so that even if it is still at a loss it is at represents more or less ƒ15 million, so it is not so least not a loss as exorbitant as getting one tenth of important. Then we have two other so-called the cost. Now we are getting something like between optional distillations. A very well-known one is the one third and 40% of the cost. distillation for potable alcohol. This is a distillation which is optional for producers, so they may sell wine Q283 Viscount Brookeborough: Presumably at to distillers at a warranted price and then the distiller certain times of the year there is a great deal of wine gets Community money. He distils the wine and then to be stored. Is there a business in storing this? Who he transforms it into brandy, and so this goes into is storing? And who is paying for it? distilled drinks, mainly brandies but the alcohol Mr Jacquin: Apart from the distillations there is also V extracted can also go into di erent wines, such as a support measure for private storage, so that people port. The aim is to produce wine alcohol from wine. having stocks of wine can make a contract with the The last distillation is called crisis distillation and is Administration and they get a per diem subsidy to also optional for Member States. This is a distillation store these wines—for example, between December which is not open every year. It can be opened at the or January of one year during 10 or 12 months, and request of a Member State if the Commission so this is used every year. agrees when there is a surplus situation in a particular region for a particular wine category. Recently it has been triggered in 2004–05 and 2005–06. It has been Q284 Chairman: These are wines designed to be sold used to eliminate diYcult quantities of surplus wines as wine? in diVerent Member States, like Italy, Spain, France Mr Jacquin: Yes, then they have to sell this wine. and Greece. Q285 Chairman: Staying with the distillation Q281 Viscount Brookeborough: So it is becoming the business for a moment, there are certain businesses norm, not necessarily a crisis, because it is presumably that exist to make a profit out of the continuous? process of distilling this wine and certain businesses Mr Jacquin: The present regime was adopted in 1999 that require inputs which come to them more cheaply and so it has been valid since 2000: crisis distillation because this distilled wine is available. In other has been in existence since 2000. It was used at the words, you are depressing their input costs as well, so very beginning, in 2000–01, and then a little bit in there is a chance for the subsidy in a sense through the 2001–02, and then it jumped to 2004–05 and 2005–06, system to go to a variety of people, not only to the so it has been very significantly used but not every grower? year. It is a problem that we have highlighted in our Mr Hoelgaard: That is true. What we are saying is Communication, that these distillations have now that we may experience having some of the distillers become so very often used. In total the distillations kept alive artificially, not totally—because, after all, represent more than ƒ500 million a year on average. the aid they are getting is not necessarily that big. But certainly they are having a permanent outlet and therefore permanently something to process. If we do Q282 Viscount Brookeborough: Who gets the away with this systematic type of distillation, there receipted money for potable alcohol and the fuel will only be those who are able on the one hand to market? At the end of the day are we just subsidising process it eYciently and on the other hand can obtain the production of cognac and fuel? a market. We believe that there is a market out there Mr Jacquin: This money is paid to the distillers but it for potable alcohol- certainly there is. But in terms of is paid for the benefit of the wine producers, because using alcohol from wine to fuel our cars it is not very with this they buy the wine and they pay a price. rational. Mr Hoelgaard: I think we have to make a clear distinction here. The potable alcohol is the one which is destined for human consumption. All the rest Q286 Viscount Ullswater: It is not very rational but should not go into disturbing the alcohol market. It can you explain whether there is a market there for it? has to go to other outlets, the chemical industry or for Mr Hoelgaard: There is a limitless market. As long as fuel purposes or whatever, and that is in an attempt the Commission and the Community taxpayer are to avoid having a wine surplus overloading the willing to finance and subsidise it, there is no limit, alcohol market consumption. What we did do in the but we cannot continue to go down that road. past was to sell considerable quantities of alcohol in excess at very low prices. Basically, we only obtained Q287 Viscount Ullswater: So there is not a natural maybe one tenth of the value of the product market for bio-ethanol production from distilled compared to the cost of distillation. Now what we wine? 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Hoelgaard: Not other than there is as bio-ethanol Lord Cameron of Dillington: In 1974 Portuguese port from maize or from wheat or from biomass in growers were sold coal alcohol to add to their wine general. and the man from the Communist regime—it was the year of the Portuguese revolution, you may Q288 Viscount Ullswater: Does it rank the same? remember—is now living in Rio de Janeiro. But the Mr Hoelgaard: Oh, yes. Alcohol is alcohol. whole of the 1974 harvest of port was made from coal alcohol and not from distilled wine at all; one of those interesting pieces of information. Q289 Chairman: But it is the production costs. Chairman: Thank you very much for that. That leads Mr Hoelgaard: The loss in terms of producing alcohol on nicely to your question on restructuring. from wine and using it for fuel is clearly a loss compared to other raw materials. Q292 Lord Cameron of Dillington: I want to ask a series of questions—and, my Lord Chairman, you Q290 Chairman: You said in your Communication will stop me if I am asking too many—on the whole that you had emphasised the problem of distillation. question of rural development and restructuring. In What has been the general reaction to what you say in addition to the major grubbing-up scheme that you your Communication? What we picked up, if we can have put forward in your Communication, 400,000 share it with you, is people initially saying to us, “Oh, hectares, there are quite generous pre-retirement yes, this crisis distillation, we cannot carry on like grants for wine growers who are willing to cease this. It must come to an end”, and then about 10 production. I think the pre-retirement grants come to minutes later saying, “But we still need some crisis some ƒ2.4 billion over five years. How do those two distillation when it is a real crisis”. marry up? If someone retires without having grubbed Ms Naesager: V There are a lot of di erent comments up, can some of them carry on? The other question sometimes and, as you rightly mention, some is—what criteria are you going to put in place for the contradictory comments as well. There is an grubbing-up? Can everyone apply? We have just understanding that we cannot continue with the heard from the parliamentary representations that systems as they are today, but on the other hand there should be a whole lot of criteria applied to the sometimes the willingness that we need to go down grubbing-up process? the road and say “OK, we take the consequences of Ms Naesager: With regard to grubbing-up, we have abolishing crisis distillation, by-product distillation”, put an estimate in our Communication which, as I is not so apparent. However, so far we are aiming at mentioned, is one of the issues that has been pursuing the line that we have put down in the contested by Member States, by the European Communication because we think this is important, Parliament and by many stakeholders. We are to be able to defend our wine system in WTO terms looking into the figures at the moment, but we as well. Coming back to the potable alcohol, I think believe, and our Commissioner believes, that it is I should indicate that for our producers of port and important to have a grubbing-up scheme. The basis sherry, which are also part of our wine Common of this grubbing-up scheme, to decide whether or not Market Organisation, it is important to have access to grub up, is the wine grower’s own decision. We to the potable alcohol. They have an implicit subsidy know as well that there could be some areas where it because the potable alcohol that they buy from the could be diYcult to grub up; we have been told that— distilleries is a bit cheaper than what they would see steep wine slopes, mountain regions and so on. We without the subsidy. have also been told that there could be other regions that could have arguments not to grub up. All that Q291 Viscount Brookeborough: And what is that you can find in the report of the European percentage? Do you have a figure of the percentage Parliament. We are looking into that to see how we by which it is cheaper than it would otherwise be? should make a kind of framework for the grubbing- How much would it aVect them if they paid for it? up and we are also looking into the estimates. That Ms Naesager: We have made some rough being said, when we talk about grubbing-up the idea calculations. If we look at the price of a bottle of port, is that it is the wine grower himself who decides for instance, at the selling level, then the price whether or not to grub up. He will receive a premium increase would be less than 10 cents a bottle. It is for grubbing up. After he has grubbed up, the areas extremely low, but of course our calculations are not that have been grubbed up will go into the Single always taken for granted and are contested Payment Scheme and will receive the single payment. sometimes by the sector. In any case, what we have The early retirement is a tool that comes from the seen when we have done calculations is that there Rural Development Regulation. Early retirement is would not be a tremendous increase if we abolished something that has been decided by the Member the subsidy to the potable alcohol. State. We hope, of course, that Member States have 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley put into their national programmes on rural existing schemes work and (b) how you see that going development the early retirement tool. The Member forward into the future? State can, of course, decide to link the grubbing-up to Mr Jacquin: In the present Common Market the early retirement premium. Or the Member State Organisation we have a restructuring and can decide that now there is a wine grower who wants reconversion scheme. It costs each year around ƒ450 to transfer his vineyard to a younger person and the million and with this money we have financed varietal transferer will then receive the early retirement reconversion or restructuring of about 150,000 premium. This is possible as well. It can be linked to hectares. This represents around five% of the EU the grubbing-up but it can also be applied separately vineyard. from grubbing-up because it is a tool of the rural development system. Q296 Lord Cameron of Dillington: So what is the money going for? I did not quite hear? Q293 Chairman: But it does not help your policy Mr Jacquin: It is a subsidy paid by the Community objective? budget to the wine producer who is restructuring or Ms Naesager: It does help to the extent that the reconverting the vineyard. It is not for normal Member States decide to combine the two of them. renewal of vineyards. It should mean a significant eVort to improve methods of growing—for example, Q294 Chairman: If they combine the two, but what land consolidation or varietal reconversion to if they do not? varieties which find a market more easily. Mr Hoelgaard: No, but I think we have to keep in mind that the whole thrust of the reform is market Q297 Chairman: Does this sort of thing go into orientation, which is what the CAP reform has been increasing the scale of operation? You said wine about for the last 12-15 years and is still going down growers get together and set up a joint activity. that road. The proposal on fruit and vegetables Would they qualify for this sort of funding? which has come out of this is exactly in that line. Mr Jacquin: Yes, it is an individual subsidy which is Sugar we have talked about. Wine is trying to get into paid by the Member States from the Community that mode. In terms of retirement, either you take out budget. But they can bring plots together, so it is an area which is considered to be surplus and is often combined with land consolidation. overhanging the market, creating diYculties for the whole group of producers and depressing prices, or Q298 Chairman: Restructuring has several you can consider this as a farmer who does not apply dimensions to it. One of them is scale, because we are modern techniques. We know that this is the case. frequently told that people abroad have larger scale Any time you are talking about a younger new farmer and are therefore more competitive. Another one is a coming in, he will be applying more eYcient methods sort of chain linkage between the wine grower and the and, as such, will be able to survive on the basis of a final wine consumer. Do you think of restructuring price which the farmer who is retiring is not able to, aVecting both those dimensions, as it were? so that fits well together. Either it is balancing the Mr Jacquin: The restructuring scheme as set up in market contribution or it is eYciency and 1999 was to improve the competitiveness of wine productivity. growers.

Q295 Lord Cameron of Dillington: Can I go on to Q299 Lord Cameron of Dillington: It is only the ask about the restructuring programme? You have grower who gets the money? already got a restructuring scheme in place and it has Mr Jacquin: Yes, so they can grow varieties which are been going since 2002, and I think some 37% of the better adapted to the market instead of continuing budget goes into that. Perhaps you could explain to producing wine for distillation. me how that works. It would seem to me logical, and I think consistent also with the Communication, that Q300 Lord Plumb: I am not quite clear on the where you have got quite a lot of grubbing-up going retirement grant. Supposing a grower decides, “I on in a particular area, you should probably put have had enough. I am going to retire”. The some money into Pillar 2 and therefore have some retirement grant is based purely on the decision by kind of rural development schemes going on there to the national government. You said the one would be try to create new forms of business enterprise that can linked to the other if the country is applying the exist in the countryside outside the wine sector. farmer retirement scheme. Supposing you are in a However, that does not seem to be very popular, country where there is no scheme and yet the farmer because people are not very keen on moving money decides that he has had enough and wants to retire from the wine regime in Pillar 1 into anything to do from wine growing. Does he get a grant? Or does he with rural development. Can you explain (a) how the not get a grant? 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Ms Naesager: If early retirement is not a part of the Q305 Lord Cameron of Dillington: In addition to national programme of a Member State when that, are you going to carry on paying this implementing the rural development regulation, then restructuring grant which is encouraging new it is not possible for the wine grower to ask for early investment at the same time as the grubbing-up retirement. scheme? Ms Naesager: No. These are two completely Q301 Lord Plumb: That is what I assumed but I was diVerent things. not absolutely clear. Ms Naesager: This is something which is clearly set Q306 Lord Cameron of Dillington: So the one with out in our Rural Development Regulation. It is the restructuring would stop? Regulation No.1698, adopted in the year 2005, I Ms Naesager: No. The one with the restructuring will think. It is Article 23. continue with new and better wines. The one with grubbing-up will go out of business, will receive the Q302 Lord Plumb: I must look it up. premium that we will set for the grubbing-up and his V Ms Naesager: But in this article you have the di erent areas will be subject to the Single Farm Payment conditions on how to apply for the early retirement Scheme, so there will be the area premium as such premium and what is the rate, what type of premium and then, if it is provided for in the national rural you can get. This is set out in the annex. A key development programmes, he can get the early element for obtaining this is that the Member State retirement premium. has put it in its national programme in implementing Mr Hoelgaard: It is true that the grubbing-up is a key the Rural Development Regulation. element but I would not call it a fundamental Lord Plumb: In the British system it is a waste of time element. I would not call it a key to success. Why? looking it up. Either you go for the rough method, which is that we simply abolish distillation measures—there is no Q303 Baroness Miller of Chilthorne Domer: Can I more support on the market, and then there will be a ask how many Member States have put in for early crisis, there will be surplus and then you will have a retirement? lot of farmers who will simply not be able to survive Ms Naesager: I think it is most of them so far, but we the process. They will then go out. What we are trying are on the point of approving the national to say is that there is a surplus on the market. We programmes. want to give those farmers who know that they do not Baroness Miller of Chilthorne Domer: Perhaps we really stand a chance in a market-oriented type of have a diVerent view because we have not. environment, without all these distillation measures artificially supporting the prices a chance to get out, Q304 Chairman: We have not, no. Grubbing-up which will be to the benefit of them as well as to the seems to me to be absolutely vital to the success of rest of the market, so that there is a better balance your strategy and yet it is clearly something that there when you start from scratch, saying that now we have is a great deal of suspicion, reluctance, hesitancy an equilibrium between what we get in from third about. We had this wonderful exposition about countries, what we export and what is internally where a Member State should be able to intervene available for consumption. It is not that, if we do not and prevent grubbing-up, even though the individual succeed on grubbing-up, there is no reform. No. It is producer wished to, and it is contained in the just that this is a way of having a soft landing, if you European Parliament document. Basically, any area like. It is a soft landing versus a crash landing, and at all you could define into those criteria. There is why the producing Member States are so critical nothing that stands out. It does seem to me that about it is that they know exactly that there are so without grubbing-up the chances of getting rid of the many of their farmers, the wine producers, who are surplus and the low quality wine is not achievable. Is just sitting and waiting for this possibility to get out. that your perception? That is what they are scared of. It is a bit like the Ms Naesager: I think this is our perception, yes—that discussion on the Single Farm Payment and the we need grubbing up in order to let those who are not decoupling. It is really not the farmers that they have able to compete with regard to their wines to get out in mind. It is the dependency on that activity in the of business but in a dignified way. rural areas—the processors, the distillers, the Chairman: Does that not come back to Lord employment. That is really the underlying resistance Cameron’s argument that, if they are getting out of against having a farmer with a chance to go for this business in these areas, you have to have a strong and open the door to get out. That is really where the Pillar 2 contribution to provide them with something problem is, and therefore we need to have a solution else? And yet this again is something that you have which on the one hand accommodates a certain got opposition to? market clearance to the benefit of those who leave as 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley well as those who stay, and at the same time not have not necessarily, I have to say, from the European a complete demolition of some areas of wine Union. What is it that has allowed this permeability? producing where it would lead to quite dramatic And what steps do you feel now ought to be taken to consequences in terms of infrastructure, make EU wine more competitive, because we are employment, et cetera. That is why, as Lene Naesager talking about a global market? Obviously, the has said, we would provide for, say, a limited structures are European but we are talking about a exception in terms of the agri-environment, in terms global market in wine. of slopes. If you ask a farmer today, “Can you survive Ms Naesager: It is clear that it has become a global on the basis of what you get from the market in terms market in wine. It started in particular after the of the costs of production?”, the answer to that is no, Uruguay Round in 1995, and the changes this led to he cannot survive; but there are means and ways by were one of the reasons why we had the wine reform which you can artificially maintain such farmers in in 1999. What happened was that the EU had no place if you want to do so for other reasons by way of more a reference price and also we reduced the taxes extra support. That, I think, is something that we quite a lot, so it meant that the obstacles that had have to take into consideration, but in general there been there beforehand at the borders disappeared. At has to be a balance between the considerations of the the same time we started to negotiate bilateral wine farmer, the vintner himself and the general societal agreements with some third countries. So we had in considerations. 1994 the first wine agreement with Australia, and I do not think that people were expecting this huge import Q307 Chairman: If you pursue the steep slope of Australian wine afterwards, but this is a fact. We environment issue, should the funding come out of a continued the negotiations with other third policy for wine or out of a policy for the countries—Chile, South Africa, also the United environment? States recently. We have one with Canada and one Mr Hoelgaard: We do both, basically. We have an with Switzerland, but with these wine agreements I environment policy, we have our legislation on would say that we have two types of wine agreement. nitrate, pesticides, et cetera. We now have introduced Some of the wine agreements are more what you this in specific cases, like in fruit and vegetables, could call import agreements of wine into the EU. where we are saying that in the operational This is particularly the case for Australia, South programmes farmers have to put in place Africa and Chile. There are some others which are environmentally-friendly methods for which we can more export agreements for the EU, which are the provide extra support to farmers, and then we have ones with the United States (even though it is the general notion, as you know, in terms of cross- criticised but this is something else), Canada and compliance, so that there is an ability to withdraw Switzerland. Then you say, “How do we want to money if farmers do not comply. We do not do a improve the competitiveness?”, and this is really single avenue. something that is key to our reform. This figures in the objectives as well, that we want to improve the Q308 Chairman: It is part of that programme? competitiveness of EU wine and gain market share. Mr Hoelgaard: Yes. We have to look at the diVerent tools that we have now and we believe that the combination of the V Q309 Viscount Ullswater: If I can turn to di erent tools will lead to better competitiveness for competitiveness, what you have been explaining to us EU wines. For instance, if we look at the money that is that, whereas you want to reform the wine regime, is now being used for distillation, this is not a very at the moment it is entirely budget neutral and that, if positive measure, using money to distil the wine that you take away the distillation costs, which are nearly we produce. That is one of the reasons why we want 50% of the cost of the CMO, you are going to to use this money better. It is one of the reasons why redistribute that money in various forms in order to we have created the “national envelopes”, where we give the soft landing that you are talking about. say to Member States, “Here you have a series of However, surely one of the key things is that since measures that you can choose to use if you think that 2000 at least you have noted, I think, that the EU has this is good for your wine sector”. We also want to do become highly permeable to third country wines? I far more on promotion, this has been a strong request just do not quite link that what you are doing is going from the sector, and we want to do more in order to to make EU wine more competitive and more help the European wine sector to promote and market-orientated, so that the consumer says, “I commercialise its wines. want to buy EU wine”. We have heard now that 70% Mr Hoelgaard: In terms of competitiveness, let us of wine in the UK is sold through supermarkets and take them one by one. Restructuring is that they have great promotions of various sorts of competitiveness. It is making sure that the quality of wine, including from Australia and New Zealand but the wine is more marketable, that it has a higher value 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley and it gives a better return. Of course, there is Q311 Viscount Ullswater: But I do not know conversion, the fact that market orientation in itself whether the consumer at Sainsbury’s in the King’s is also competitiveness because it means being able to Road in London is really going to think, “Gosh, this survive at a lower price and being more self-suYcient. is a special wine”. Probably the result, as in other areas, is that there will Mr Hoelgaard: It depends. In Germany the German be a certain degree of amalgamation of surpluses. consumer will be very attentive to the wine-making This is a process which is, of course, going on and will methods, and you may have followed the discussion probably be reinforced. The third element of with the US/EU wine agreement, where there was competitiveness, as Lene has mentioned, is strong criticism from the German side, which was promotion. The fourth element is the fact that by the certainly mobilised to a degree by the wine producers “national envelopes” we will have more integration but also in government circles (and maybe even between producers and the selling of the product, consumer organisations), that they were allowing which is one of the areas where many of our methods of wine which had nothing to do with wine stakeholders are saying there is a lack of integration, and therefore they wanted to make sure that the wine a lack of coherence, and there is a need to reinforce they were consuming was made on the basis of good, this whole chain, which is much more pronounced in old, traditional practices that applied in Germany. some of our third country competitors. The ﬁfth There is very little of that approach, say, in non- element of competitiveness enhancement is in the producing, wine-consuming Member States like the area of our Geographical Indications, the protection UK, Denmark, Norway, Sweden, Ireland and others, of economic issues, the fact that we can also in the which have no particular adherence to the culture, future, as we do for third countries, allow our compared to those who come from wine-producing producers to market their wine even if it is not countries who have a very strong relation to that, so necessarily quality wine but is still a wine that has there is that diversity in the approach. I would say value, by indicating the vintage year and the grape that, if you went to Member States like Italy, they variety, which we have seen is one of the areas where would probably be much more open than in a case where you were talking about Germany or even the third countries have made inroads and France. encroached on our market. We want to put our wine producers on the same footing. A sixth element is in oenological practices where we say that we should Q312 Chairman: When we were talking about give our wine producers the same possibilities in promotion generally to other stakeholders, what terms of methods, modern techniques, et cetera, that came across was almost a “blame the consumer” they have in the third countries. If a producer culture—that it was the consumer’s fault, that he was organisation, a protected denomination of the letting down the European wine industry, that Geographical Indication, says, “I do not want to use promotion was about telling the consumer that this those methods because it will infringe on the was good for him. There was no recognition that you reputation of my wine” ﬁne, then let him do so. But at have to look at the product and you have to look at least that possibility should be available for the wine what the consumer wants, because with all the growers to make use of. I think we could mention promotion in the world the consumer is quite capable more but those are some of the main ones. of turning round and saying, “Well, actually, I prefer Viscount Ullswater: All of the things you say are another product”. Mr Hoelgaard: We have no inhibitions in telling the incredibly refreshing to hear but I do not think we third countries that our wine is better than whatever were getting that message. comes from any other country, but we certainly do Chairman: That is the problem, I think. We would all not want to use that policy internally. We want to sign up to that. make sure that the consumer is informed, that there are pros and cons in terms of consumption and that he or she needs to be informed. That is basically what our policy in terms of wine should be about, and it is also to promote this notion that our wine maybe does Q310 Viscount Ullswater: The producers were much have long-standing traditions and, if you as a more hesitant about opening their doors to changes consumer want to make sure that these are in oenological production methods, and I think were safeguarded, then you are also given a chance to critical of some of the things in the document because demonstrate that in the supermarket; but, if you do they felt that they were going to change the nature of not care, then you buy whatever is available. this very special EU wine. Mr Hoelgaard: There is a high degree of Q313 Viscount Ullswater: Can you get round this by conservatism. changing the labelling rules? 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Hoelgaard: To some extent, yes. opening it up now. We say that, if there is a table wine, we should be able to see what is the wine variety Q314 Viscount Ullswater: So that you can indicate that has been used, what is the harvest year and so on. exactly how the wine has been made on one part of This is linked to what we have done in international the label and exactly what the wine is on the other negotiations. In addition to that, when we do so, we part of the label? give our wine producers the same opportunities as the Ms Naesager: Then we would be talking about wine producers in third countries. This is also including statements that we do not have yet for something that applies again when we talk about wine. As far as I have understood from the sector, this oenological practices, the wine-making practices: is not necessarily the way they would like to go why should we not give them the opportunity, say, in because we have a lot of diVerent oenological Europe? It is up to them if they want to use it, but at practices. If you put them down on paper they look least the door is open. very strange to the consumer, so consumers might not be so tempted to buy the wine. Q318 Viscount Ullswater: Should the OIV be the gatekeeper here for oenological practices? Q315 Viscount Ullswater: But it should be Ms Naesager: What we say is that we want to filter the transparent. practices recommended by the OIV into our internal Ms Naesager: It should be transparent, I agree with legislation: we want to have the OIV as a reference you. I come from a very Nordic approach about institution. Today we already have OIV as a kind of labelling, but we also need to take into account what reference institution but we want to make that even the sector would like to see. stronger, and then also we say that it should no longer be the Council but the Commission which is Q316 Lord Cameron of Dillington: When you say competent. One of the ideas behind that is that most “the sector”, it is the growers, not the consumers? of our Member States, and certainly all the wine- Ms Naesager: When I say “the sector”, I mean the producing Member States, are already members of wine growers and the producers, but today we have OIV. They have already said “yes” once, because some kind of labelling requirements. We have OIV works on the basis of consensus. So, if they have obligatory labelling requirements when we talk about said “yes” once in an international organisation, why sulphites, because allegedly they can give you a could we not just say that it should be the headache and so on, so therefore we have to put on Commission that decides, which is far simpler and all the wine products that this wine contains SO2.We quicker? start slowly to go down the road but it is not an easy task. Chairman: What is the argument on labelling—Lord Q319 Baroness Miller of Chilthorne Domer: Some of Cameron’s point that he has been making during the your comments this afternoon with regard to the day: let people put on the label whatever they want as environment suggested—for example, when we were long as it is true? talking about the slopes issue and whether the money from distillation subsidy would be better used Q317 Lord Cameron of Dillington: One of the elsewhere—that you would have favoured Option 3 examples of that is that Robert Mondavi was the first in your paper and, given the Commission’s eVorts person in California to put grape varieties on a label elsewhere in developing strategies on soil and water and people thought he was mad, “No-one is going to and all the directives for those, it is surprising that understand this”. But now the whole world you seem to be moving away from Option 3 at this understands it and, of course, it has become the point. I would appreciate your explanation as to why practice. I am sure there could be equally things that you are throwing in the towel on that option already. people would want to put on their labels, and frankly Ms Naesager: I would not say that we are doing that. why not let entrepreneurship and enterprise flourish We have a lot of good things in the Single Farm and let them put what they want on their labels, Payment scheme. What we have already announced providing it is true? in our Communication is that an important tool for Ms Naesager: This is a very strong argument and, the environment, such as cross-compliance, will when we had the wine negotiations with some of the apply after grubbing-up and we have also announced third countries with whom we had concluded wine in our Communication that there are a lot of other agreements, this was an argument, “Why do you environmental considerations that we will need to have all these specific rules?. We just want to put integrate into our wine reform in order to avoid soil truthful information on. Why can we not put the erosion, in order to look at plant treatment, and so wine variety on a table wine?” It is diYcult to explain on. We are still looking into ideas that we could use that, and that is one of the reasons why we are for the Single Farm Payment scheme because it is, 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley and this is a personal comment, the future for the check whether this will cause environmental damage whole agricultural sector. and we can oblige the farmers to respect a certain number of conditions to ensure that we take care of Q320 Baroness Miller of Chilthorne Domer: There the soil. The main instrument that we will use for this was tremendous fear amongst, for instance, the is to grant a Single Farm Payment to the grubbed-up livestock sector as they began to look at reform, yet area so that it will become automatically subject to now they find that there is life after reform. Do you cross-compliance for the whole farm, even if the think that the wine sector needs to go and have a look farmer has only grubbed up one hectare. If he wants at some of what is happening in other sectors, to use it on his farm to grow cereals or something else, because from what we have heard they do seem really for instance fruit and vegetables, he will have to pessimistic about the afterlife, if I can put it that way? respect the conditionality of the whole farm and good Ms Naesager: It is clear that, if they could have a look agricultural practice. at what has happened beforehand with the 2003 reform and how it is working today, it will be useful. Q322 Lord Plumb: We have read that you envisage One of the reasons why we do not in our extending the planting ban until 2013. Of course, the Communication buy fully into Option 3, the Single grouse from growers is “You are telling us to grub Farm Payment Scheme, is that the payment per out what we have got and you will not let us plant. hectare might not be big enough. In some cases you Meanwhile, of course, wine is coming in which is in have big chateaux which are producing extremely competition with us. How are we to be recompensed well and you have regions which might not be helped for that situation?”. Do you not think it is an by or interested in such a payment. We need to take interference in the market to continue for that period V into account that there are huge di erences in Europe of time, because I am sure at the end of the day that between the wine-growing regions. There are some is going to be one of the major issues? which are asking for the Single Farm Payment Ms Naesager: If you have a look in the Scheme but there are others who are definitely not Communication at the “Profound Reform”, we have Y interested. Our di culty is to find a balance in our two variants: an A and a B. What you have referred proposals so that we can come forward with to now is the first one, Variant A, where we go for something that will be considered as a basis for strong adaptation here and now because for wine negotiation with Member States. growers, we say that the ban on new planting will run out, as it is foreseen today, in the year 2010. We have Q321 Baroness Miller of Chilthorne Domer: There seen with Member States that this is not something are obviously several environmental benefits to areas that the wine-growing Member States would like to that are devoted to vines, but I wanted to explore buy into. There is a lot of hesitation there, so the where the balance is between the benefits and the tendency has been that they go more for the scenario disbenefits in terms of any analysis you have done of of the year 2013. This having been said, most of them grubbing-up and alternative crops and so on? do not like to hear about abolishing the ban on Mr Jacquin: Wine-growing brings environmental planting at all. They are strongly against it. What we benefits for the landscape but it can also bring say in our variant B is that our idea of having a environmental problems, mainly with the use of grubbing-up system, where we allow the market to pesticides, and erosion problems, so it is a double- find a balance, where we allow the non-competitive sided situation. We want to improve the positive side producers to get out, can only work if we have a of the environmental benefits brought by vineyards period of time, five years, where the grubbing-up by introducing environmental conditions and by premium can be paid and then can be scaled down, using cross-compliance more and more. It has to be and we hope that by that time the market will be noted, by the way, that already at the moment about ready for an abolition of the ban on planting. half of the vine areas are subject to cross-compliance Mr Hoelgaard: I think this is Number seven which I because the farmers who grow vines also grow cereals forgot in my list of competitiveness strategies. The or have livestock, so they are subject to cross- ban on plantings is just like milk and sugar quotas. It compliance for the whole farm. We want to enhance is a question of capitalisation into landowners, so the environmental benefits of vines, and this can be many of the producers would be hesitant about and attained with the rural development measures, for against giving up this capitalisation. It is in a way like example, agri-environment. We can also improve the people who hurry to retire, “Why did I give up my application of the environmental directives and the pension on that?”. But on the other hand the purpose application of good agricultural practice with this of the CMO, whether it is sugar or wine or milk, is not instrument of the 2003 reform of cross-compliance to derive a pension for farmers who want to get out for other crops, so that this is also for vineyards. in order for the newcomers to pay a high price for When the vineyards ask to be grubbed up, we can getting in, and this is, of course, one of the main 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley obstacles. What we have said at the same time, in the Q324 Lord Plumb: Do you not agree that there same sense of a GI, the same sense of having might be an element of flexibility here? You say this oenological practices, is that if, because of reputation is Number seven on your list and I understand that. or whatever, a regional area which has a protected Mr Hoelgaard: I did not order the priorities. denomination wants to restrict the number of Lord Plumb: I know that, but an order of priority is growers because this is a way of protecting a one thing when you are setting it down on paper now, reputation or enhancing a certain value-added, fine, but it may be that one in seven is a good year and this it can do so. This is exactly what is happening, for is a problem that faces everybody when you are example, in the area of Parma ham. There is a dealing with living and growing things. If you get restricted number of producers who can use this four bad years, you have got a problem. If you get denomination. They get a higher price on the value of four good years, maybe there will be more grubbing- their market. If you as a wine grower believe this is up and maybe then you could be a little more flexible the way forward, you can decide amongst yourselves; in the planting. It is a situation which I do not think it is not for the Community to implement or continue you can set down in black and white at the moment to impose on top a limit on how much wine or how and say “This is exactly how I see the situation and much milk can be produced because, as the what is going to happen”, because you do not know Commission has clearly announced, that this will be from year to year what is going to happen. done away with in 2014/2015. Clearly there will be a loss of value of the land to a certain extent and that Q325 Viscount Ullswater: Are you not handing your is why there is a strong resistance to it. There is competitors so much on a plate, grubbing up, certainly also the element, and this is more the reducing the area of wine in Europe, planting bans, traditional thinking, of, “Let us regulate the market. when none of them has any of those restraints in what Let us intervene. Let us make sure that there is not we call the New World wines? When you are looking too much wine produced. Let us make sure that we at the export markets around the world, I just wonder get rid of it by way of distillation.” This is the more whether they are saying “That increases our interventionist approach, of course. Those are the opportunity to export and bypass Europe because two elements, and the second one, of course, hangs Europe is restraining us”. together with our wish to abolish distillation as a Ms Naesager: I absolutely agree, and that is the permanent outlet. It has to be market orientation, so reason why at the latest in 2013 we need to give up the this is Number seven on the list. ban on plantings. Viscount Ullswater: But that is miles away.

Q323 Chairman: This is again one of the problems, Q326 Chairman: Would it be a good idea if you kept is it not, that the way forward for the industry is to to 2010? become more market—sensitive, and yet we keep on Ms Naesager: running up against criticisms of your That will not really work that well. This is the problem: everything is linked in the Communication which actually are deeply anti- Communication. It is completely linked. market and in some ways it is almost either a lack of knowledge of how markets operate or a hostility towards markets. Q327 Lord Cameron of Dillington: Could I change Mr Hoelgaard: Certainly. the subject and talk about enrichment? Lars, you Ms Naesager: There is a kind of unwillingness to take were talking about freeing up or having the same responsibility for decisions. When we cope towards possibilities in terms of methods and creating a level the end on the ban on planting, I do not think there playing ﬁeld with New World wines. But on the issue will be a completely uncontrollable market situation. of chaptalisation there seems to be a divergence from People who want to plant new vines will have to that approach. I think most of us would agree that decide whether or not this is economically feasible. In there should not be any subsidy for the creation of addition to that, as Lars has mentioned, there is the must, either in Sicily or, for that matter, coming in whole situation with the diVerent GIs, where there from outside. But I cannot quite see why the are limitations within diVerent zones as to what you Commission should interfere in the adding of sugar if can still plant. Some regions have almost reached a wine maker, particularly in northern climes, wishes their ceilings; others have stopped. It will not be a to do that. For that matter, if you are going to kind of anarchy situation but a situation whereby interfere there, why do you not interfere in the wine growers will need to make their economic addition of SO2, as you were talking about, Lene, in assessments, “Do we want to do it or do we not want the southern states, which is absolutely crucial to to enter into business?”. wine making in hotter climes? 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Hoelgaard: You just shocked us by telling us, Q332 Chairman: Except in wine. those of us who were not aware, and I certainly was Ms Naesager: No, the natural sugar from the grapes. not, that port in the old days was based on alcohol from charcoal. Q333 Chairman: And you cannot add SO2. Ms Naesager: But this is the wine-making practice. Mr Hoelgaard: This is subsequent. Q328 Lord Cameron of Dillington: Coal alcohol, Ms Naesager: This is the wine-making practice. This that is right. It was only one year, when the is the definition of wine. If we look abroad, most of Communist regime was in—a particularly corrupt the New World wine countries are not allowed to regime. use sugar. Mr Hoelgaard: Had we known, we would not have Lord Plumb: They do not want to. bought it. If that is the case, equally what is it that should be natural in producing wine from sugar? Q334 Lord Cameron of Dillington: You are quite right. Ms Naesager: It is not recommended either. Q329 Lord Cameron of Dillington: You are not Lord Cameron of Dillington: They have no rules on producing wine from sugar; you are producing it it either. from grapes. But you are adding a bit of sugar, and what is wrong with that? And what is right about Q335 Viscount Brookeborough: But sugar is a totally adding SO2 in that case? If you are going to ban one, natural product from farms. you have to ban acidification as well, in which case Mr Hoelgaard: Our model third country, California, most of the southern states would not be able to does not use it either. produce wine either. Mr Hoelgaard: The main reason is basically one of making sure that there is a degree of a level playing Q336 Lord Cameron of Dillington: But California field, because our primary objective is to get rid of the adds wood chips, of course. subsidy for must. Ms Naesager: But we can do it as well now.

Q337 Chairman: I think we all know what this is. Q330 Lord Cameron of Dillington: We would Mr Hoelgaard: I will take note of that: you are not support you on that. convinced! Mr Hoelgaard: The subsidy for must is there only because some are using methods in terms of Q338 Lord Cameron of Dillington: On a serious producing wine on the basis of sugar, for good old point, is there a compromise position of saying that reasons. And, of course, the Germans would argue certain areas which do not have enough sunshine, that this is certainly not an aberration; it is part of above a certain latitude perhaps, could use a certain their normal, natural wine-making practice—and, by amount, a limited amount, of sugar? You could limit the way, it was invented in Bordeaux and so what is it down. Would that be a good compromise position? wrong with that! The main reason is that, if we want Mr Hoelgaard: What we have said is that we want to to get rid of the subsidy for must, then we have to ban limit the degree of enrichment as such, because we do the use of sugar because otherwise there will be a not want to produce wine from 5% basic raw material distortion of competition between those who use up to nine minimum (or nine and a half, whatever the sugar and those who use must and, since sugar prices minimum is), so we are saying 2% maximum in areas are going down, this distortion will be even greater. which are not so well equipped with sun and 1% which are, but sugar as such, no.

Q331 Chairman: That is not a distortion of the Q339 Chairman: It does seem to me that the solution market. Come on! You know that as well as I do. You is to ban the subsidy on must and, seeing that sugar have had a good chance. It does not work. prices are going down, get everybody to use sugar. Ms Naesager: We have a nice deﬁnition of wine in our Mr Hoelgaard: Yes, but that would, of course, have wine regulation. It is in Annex 1 point 10. There it the result that there would be an excess of wine on the says that wine is “a product obtained exclusively market which would otherwise have been produced from the total or partial alcoholic fermentation of into must. fresh grapes, whether or not crushed, or of grape Chairman: We have another dodgy one from Lord must”. There is no sugar here. Bach on national funding “envelopes”. 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Q340 Lord Bach: I was going to say that this is going in. We have really tried to make the “national to be gentle stuV after what we have just been envelopes” restrictive and, of course, there will be through. I have to say that, when I saw the word definite criteria that will need to be respected. “profound” as being the basis, the adjective, to define Member States will need to make the “national Option 2, my heart sank because. I thought it had envelopes”. They will have to be communicated to been used because it meant exactly the opposite, but the Commission, of course, and there will be a check in fact, from what you have said today, I am pretty on how they spend the money. When we come to the convinced that you are really serious as a money, the big question we will have for negotiations Commission about doing something fundamental with Member States will, of course, be the allocation here. But, by gosh, I think you have got a battle on amongst the Member States, and this is going to be, I your hands from what we heard earlier today. Let us think, a huge battle and very interesting. Some of the ask you about national funding “envelopes”, which Member States will, of course, say “We want to have have been described as eVectively nationalising exactly the same that we have received during the last market intervention. This is an Option 2 proposal, of three years”, and they will only look at the money course, and the quote is to “finance the measures actually received in their pocket. Others will say necessary for the modernisation of the wine sector, “This is simply not feasible because we will receive V taking account of the di erent needs of each region”. hardly anything”, so we will come up with a proposal You say that these “envelopes” would be available to and then we will have to have the discussion with the fund an approved menu of measures, including not Member States in Council. only restructuring but also “crisis management Mr Hoelgaard: The “national envelope” has been one measures”. What sort of measures do you have in of the ideas that has been the most well received, for mind when you write that? And how would such V the simple fact that, as Lene says, there is a wide intervention di er from the present system of degree of diversity in terms of structure and, “What Community-wide action to remove surpluses? It is is the kind of problem that I have in my area for my the criteria you have in mind for national funding wine growers and structural type of promotion and “envelopes” that would be of particular interest. If integration”, as we talked about. One thing which I they are going to be on some kind of mere historical think is also important is this concept of co- basis, then I think it would be much more responsibility because, by providing a certain budget objectionable than if they were based on some kind of after having the fight about the size of the objective, up-to-date criteria. I just wonder what distribution, it is no longer easy for a minister to say, your comments are on the whole issue around that. “OK. I go to Brussels and now I ask him to waste Ms Naesager: First of all, I would prefer to say that money on crisis distillation”, or whatever. “I have to we give more subsidiarity to Member States when we talk about “national envelopes”. make up my mind, together with my stakeholders, on a priority in terms of the most eYcient use of the money for the benefit of the whole sector, and why Q341 Lord Bach: I thought you might put it like should I systematically waste my money on crisis that. distillation versus something which is much more Ms Naesager: The other point is that, when we talk future-oriented in terms of competitiveness or about “national envelopes”, it is to give the investment or whatever?”, so that will discipline also opportunity to Member States to decide what is best to a high degree the use of the measures, or at least the for their wine sector in this particular Member State, concept, which is the concept which we have also in knowing the wine sector better than we do here in the case of our policy for the outermost regions. It is Brussels. We will not provide for open-ended this idea of, “OK, it is subsidiarity”, which is not a measures; they will be rather restrictive and we have word which looks good in English or in any other already announced in the Communication that we language but if you have a better word I think the V have three di erent tools. We have the restructuring Commission would welcome it. It is this notion that, that we have just talked about; we have green if you do give a degree of devolution (to use a British harvest—where you go out and pick the grapes which expression), then maybe there is a better uptake in are not yet mature; and then we have crisis terms of the use of the money instead of just sending management. We have indicated in the the bill down to Brussels. Communication what we understand by crisis management. It can be to set up a mutual fund, it can be to pay farmers for the loss of income, and it can also be insurance against natural disasters. This is Q342 Chairman: But your example of them not one thing. When we say “crisis management”, we do using it for crisis management and being future- not talk here about crisis distillation. That is out, orientated means you have a touching faith in the even though some Member States would like to see it rationality of ministers, do you not? 3714281011 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Hoelgaard: No, because they have to justify it vis- but right up the supply chain to the producers, the a`-vis their wine growers and their industry—“What labellers, the bottlers, the market? Is that drive there are we using our money for”? to achieve that profound change? Ms Naesager: You are right to ask the question, Q343 Chairman: Yes, exactly, but eVectively the because what we basically need in order to make this pressures are always upon the immediate rather than a success is competitive drive. It is that the wine the future. That is the diYculty. producers buy into our ideas, that they understand Mr Hoelgaard: Sure, but if I say now to my industry, that they need to do something, and the incentive to “I have got ƒ100 million here and I am going to use do something needs to come from them, because they it for crisis distillation”, I do not think I will have so are the most concerned players; they are the much support. I may have some wine growers who responsible players. The only thing we can do is say “yes” and all the others are saying, “That means provide the tools to ease their lives in order to become less money for whatever other purposes”. more competitive and to start thinking diVerently, so that they do not think, “Now I am producing the Q344 Chairman: What you are talking about is wine because I like to produce my wine like that”. managing the crisis, not managing the market, so it is They need to think about what does the consumer how you cope with these situations. I was not sure outside France—for instance, in Denmark or in the that I properly understood what you said. Did I hear UK—want to drink? There is a lack awareness you say something about mutual involvement in this, amongst the wine producers today. They are only so that the industry and the government and the thinking about producing their own wines. They do Community funds might be there to sort out crisis not think, “How do I really sell my wine? How do I problems, not crisis in the market but crisis in the persuade people that they should buy my wine?” This industry? They are slightly diVerent concepts. perception is something that we will not be able to Ms Naesager: We can, under the “national envelope”, change from here. What we can do is make the tools provide for money to set up mutual funds, in other available so they understand “We will be able to do words, funds set up by the sector, by the government more on the structural side, we will be able to prevent or other players that could have an interest in that. crisis, we will be able to do far more on promotion”. But what is important is that Member States become That is where we can help the sector to modernise, aware that it is important to prevent crisis, not tackle “We will be able to put more on our labels, make it when it is there because then it is too late. The tools them more fancy”, and not just stick to old-fashioned that we have provided are really crisis prevention labels that people are not interested in any more and measures. try to give them the tools so that they can adapt to each and every market, because the producers, for Q345 Baroness Jones of Whitchurch: If I may turn to instance, in the UK think maybe that wine with a aid for modernisation, a lot of our discussion this label with a kangaroo on is more fun than something afternoon, both with yourselves and with your else coming from France, where you just see the usual colleagues earlier, has been about, if you like, the label with a chateau which is in green and grey limits of the market—what constraints and colours. We try to give the tools to the wine sector to limitations do we have to put in to guarantee give them a kind of drive coming from here but we continuous production. And yet you use the phrase cannot go out and really stimulate people to do “Profound Reform” in your report and somehow something about it. We hope that we will be able to that concept, as Lord Bach said, is nice to see it, but do that by introducing ideas that we give them and what does it mean in practice? Where is the impetus, the tools that we put on the table, but it is their the real drive and impetus for a positive reform, not responsibility. just that kind of protectionism but a positive drive to Mr Hoelgaard: I think in general we can say that there reform the industry, going to come from? has been recognition by all that there is a need for a Objectively, looking in on this, it has the capacity to fundamental reform, but the problem starts compete much better than it is doing with all the New immediately when we start discussing the details or World. There is nothing inherently wrong with the the instruments. There is there, as I said, a high wine or the potential of the wine that the EU could degree of conservatism. It is always easier to defend produce in the future, so where is that real drive and what you have and more diYcult to embark on a bold impetus going to come from? Is there the opportunity new future with all the uncertainties and competition to use some of the money that is ﬂoating around in that will be the result. However, we do sense that we this sector at the moment to, as it were, kick-start get very mixed messages, but behind the oYcial some of that impetus so we are not just protecting resistance there is still a lot of thinking in the sense of, people but we are using some of it to give aid for new “Yes, we want to go and do a reform”. There has to ideas, new development, not just by the wine growers be this balance between the carrot, which is the 3714281011 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7 March 2007 Mr Lars Hoelgaard, Ms Lene Naesager, Mr Emmanuel Jacquin and Mr Dooley

“national envelope”, the ability to have more recognised but now are coming forward, and also the ﬂexibility, and the stick, which is no more crisis improvements taking place in France. There seems to distillation or misuse of funds, together with the be a very one-sided orientation. notion of ﬂexibility and competitiveness in terms of investment. In general, we have to mobilise it in that Q347 Lord Cameron of Dillington: So what you are sense, that there is a positive for us and that saying is that there is still huge potential in the everybody recognises, or at least assumes, that our European wine market and people should get out and wine is the best in the world. But we just need to prove market it? it, not just to our consumers but also to our own Mr Hoelgaard: Yes, and I would say that in my own producers, and then give them a chance to prove it. country there is not this very one-sided orientation; Lord Cameron of Dillington: I have just one slightly there is a much more diverse orientation. If you go to cheeky political question. If we were going to a supermarket here in Belgium, they are very produce our report, in terms of your negotiations Francophone; it is almost only French, and then with Member States and within the sector what there is a little area where there are some other EU would be the most helpful thing we could say from and third country wines. But if you go to a your perspective? Maybe you have just said it, Lene, supermarket in Denmark, you will have a wide I do not know. diversity of both EU and third countries, and that is where there is something to be done in the UK, and Q346 Chairman: “Being Anglo-Saxons, we are in Ireland perhaps as well, to have a bigger and better opposed to this reform”! degree of diversity, and I think it is not your Mr Hoelgaard: I would say that, in particular in the responsibility; it is certainly the responsibility of the case of the UK, one perhaps needs to start to discover sector. That is where we want to give them the means the fantastic variety, and also in terms of cost price, to go in and compete, so it is not just three bottles for of what is coming up from many of those areas which two, as I saw in Glasgow the other day. up till now have not been recognised, like the south Chairman: Thank you very much indeed for your of Italy or regions in Spain which were never evidence, which has been extremely helpful. 3714281012 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

100 european wine: a better deal for all: evidence

THURSDAY 8 MARCH 2007

Present Bach, L. Moynihan, L. Brookeborough, V. Plumb, L. Cameron of Dillington, L. Sewel, L. (Chairman) Jones of Whitchurch, B. Ullswater, V. Miller of Chilthorne Domer, B.

Examination of Witness Witness: Mr Zolta´n Somogyi, Hungarian SCA Deputy Spokesman, examined.

Q348 Chairman: Good morning. Thank you very these nice statements that we agree with “Profound much for finding the time to talk to us. I know it is a Reform” and so on. To answer your first one or two particularly busy time for you at the moment and we questions, we fully agree with the Commission’s are very grateful. Can I explain who and what we are. position that the European wine sector is in deep We delight in the title Sub-Committee D, which crisis and we have to find a way out. We are feeling conveys everything you need to know really! We are the eVects of some negative circumstances like, as you a Sub-Committee of our Select Committee on the mentioned, the decrease in consumption and European Union. We look after Agriculture, the competition pressure from third countries. But we Environment and Fisheries, and we are conducting are not fully convinced that the measures proposed an inquiry into the reform of the wine regime. We by the Commission are the right measures, especially have already collected some evidence in the United because, when it comes to decision-making, we have Kingdom but we thought it would be particularly to take into consideration the specialities of 27 valuable to come to Brussels and speak to people, like countries. The Hungarian wine sector is in a very you, who are much more closely engaged in the policy specific situation. We have just survived political and process. Over the past day or so we have identified a economic changes. At the end of the eighties we went number of key areas, like attitudes to distillation, through a very tough period, which was also true for grubbing up, labelling and issues like that, which my the wine sector. At the end of the eighties we had colleagues will be asking you about, but I would like something like 140,000 hectares of vineyards in to start by giving you the opportunity to speak fairly Hungary and now the production area is around generally. The Commission have identified the 85,000 hectares, so it was quite a big structural problems with the wine regime, that incomes of change and decrease in production. Our market farmers are declining, consumption of wine in V completely changed from the previous economic Europe as a whole—although there are di erences— system. We were targeted then towards the countries is declining, there is greater import penetration and of the east, especially the Soviet Union, where quality there is a structural surplus of wine in Europe. That was not as important as the alcohol content of the is a pretty powerful combination of factors. Do you wine, and obviously it was a kind of ice-cold shower agree with that analysis? How does that relate to for us when this good market collapsed and we had Hungary’s particular problems? And what do you to find some other outlets which were a bit more think is the way to a solution? exigent on quality. However, we survived and today Mr Somogyi: Thank you very much. It is my real I can happily tell you that Hungary is one of those pleasure to be here with you this morning. First of all, countries where there is no structural surplus in wine I have to convey the apologies of my boss, Mr Vajda, production. I can go further and say there is a kind of who is the SCA Spokesperson for Hungary. Since he deficiency because for certain categories of wine the is based in Budapest, it was impossible for him to demand is higher than we can produce. Obviously, come here. I am the Deputy Spokesman. there are certain areas where I imagine stakeholders are very keen to see some further developments, like Q349 Chairman: We could always go to Budapest. It quality wine production, some restructuring, renewal is a very nice city. of vineyards. But, if you look at the specific situation Mr Somogyi: That is an excellent idea. As you will see of Hungary, not all the statements included in the during this one hour, I am not a wine expert but I will Commission paper are true for us. As I have told you, do my best. It is a very good opportunity for me to we have no structural surpluses and this is one of the prepare myself and dig into the details of this reform. reasons why, for example, we are not really keen on We elaborated our general position on the this grubbing-up scheme proposed by the Commission document some six months ago, but for Commission. You know very well that our country is me it was really interesting to see what was behind in a very diYcult economic situation, so everyone, 3714281012 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zoltań Somogyi including the farmers, would be happy to see some export and import figures, you can see that it is quite easy money, so I think that grubbing-up subsidies a balanced situation. From a market point of view, I would be very good money for some farmers and they am happy to say that we consume a lot of wine. For would not hesitate to give up production, even health reasons I am not sure that it is very good data. though there is no structural surplus and there is a The per capita consumption is around 34 litres and good outlet for the raw materials. Those are my we have 10 million inhabitants, so 34 litres per capita general comments. means that we are consuming almost 3.5 million Chairman: That is very helpful. Thank you. hectolitres. As I told you, a good average production is around four million, 4.2 million. If we look at the Q350 Viscount Brookeborough: You said that you average of these variations and fluctuations (and we do not actually have a surplus of wine produced. You are exporting around 600,000-700,000 tonnes of have a market for everything that you produce? wine), the market is really balanced and our imports Mr Somogyi: Yes. are below 100,000 tonnes.

Q351 Viscount Brookeborough: And therefore Q353 Viscount Brookeborough: Quite clearly you presumably you have not used crisis distillation at have managed your recovery and the change of all? methods and systems after leaving the Soviet Bloc Mr Somogyi: That is a very good point. I have and you have managed it incredibly well. But what is prepared myself in order to give you a broader your view of how it appears to be used in some other introduction to the sector. But, just to answer this countries in Europe, not as crisis distillation but as a question, I have some statistics with me on the normal trade, people producing almost in order that production figures in Hungary and, if you do not it should be distilled? mind, I will read them. In 2001 we produced 5.4 Mr Somogyi: We do not like it, so producing for million hectolitres of wine. The next year it was 3.5 distillation as a main outlet is something which is not million. After that in 2003 we had 3.9 million. In 2004 acceptable even for us. According to the Hungarian again it was more than five million hectolitres. In Government’s position, we would like to see this 2005 it was 3.1 million, and also in 2006 it was just measure phased out as soon as possible and these three million. So, as you can see, there is quite a big funds transferred to restructuring and marketing, but variation between diVerent vintages. We had a very it still goes for the normal distillation. For crisis good harvest in 2004, which was above five million distillation we would like to see measures available hectolitres, and we asked the Commission to provide for countries and we would like to see it available in Hungary with a kind of crisis distillation measure the “national envelopes”. It should be distributed to because we feared that there might be a surplus and Member States and the Member States should be it would be easier to get rid of it by using this crisis allowed to decide whether to use crisis distillation if distillation. So we applied for half a million there is really a specific market problem due to hectolitres and by the time we received the green light climatic reasons or whatever. for this distillation it turned out that the next harvest would be lower, so the uptake of this half a million Q354 Viscount Brookeborough: What is your hectolitres was something like 8% of the total strategic aim as far as production is concerned? You available distillation quota. It was the first and last have gone down to 85,000 hectares. Are you now time that we asked the Commission for this crisis going slowly to increase production in order to distillation. increase your exports? Mr Somogyi: I am afraid that we will not be able to Q352 Chairman: That was the 2004 vintage, which stay at this production level, so we can expect a was a heavy one everywhere, was it not? further decrease in the production area. I am grateful Mr Somogyi: Yes, but, as you can see, it was the same that you say we have managed this transition very in 2001. After that we had two years of lower well but still there are some old vineyards and some harvests. There is a saying in Hungary that due to this not very good quality vineyards, and I am sure that, variation, which cannot really be avoided by even though we are making great eVorts on technological measures because it is mainly due to restructuring, some of these vineyards will simply be climatic reasons, a good wine producer who really pulled out from production. The owners are not wants to survive these fluctuations has to have one interested in replanting or re-cultivating, so I expect harvest in his bank account, one harvest in the cellar a further decrease in the production area. According and one harvest on the field. With all these three to the strategy elaborated by stakeholders in the elements he can survive the diVerent fluctuations. So, sector, they would like to improve quality wine although I think it is a very important element to see production. For example, there is a quite interesting Hungarian production, if you look at the average and target, in that at the moment the average export value then if you look at the consumption figures and the of Hungarian wine is around one euro and they 3714281012 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zoltań Somogyi would like to double it in 10–15 years, which is a very only good quality bottled wine. I do not know, nice intention and I support them, but definitely maybe it depends on the marketing and on the production will be decreased. It was very interesting companies importing wine. It is also interesting to see for me to see that, for example, in 2005 we imported the French figures. We are exporting a negligible only 60,000 hectolitres of wine. But yesterday I quantity to France, but the value is more than seven discussed it with our expert, who was here for the euros per litre, so I suppose it is because of Tokai, and Wine Management Committee, and he told me that I expect an increase in the value of our export to the last year we had almost 100,000 of imports, so there is U.K as well because some of your fellow countrymen quite a significant increase in imports, mainly cheap are already in Tokai, and I am sure they will do their table wine from Italy and some other European best to export more to your country. It was very nice countries. for me to see that now we are exporting more wine to the UK than to our ex-Soviet market, which is good Q355 Chairman: You are importing cheaper wine, news. are you? Mr Somogyi: Not cheaper than the Hungarian wine Q358 Viscount Brookeborough: I was in Hungary a but still it is relatively cheap. If I look at our trade few years ago and we visited a vineyard. They said figures, we are exporting to the UK wine which has that the problem they had with their higher quality an average value of ƒ1.5 per litre. We are importing wines was because of the history of Hungarian wine, from Italy something like 40,000 hectolitres with an the Hungarian label. They simply could not sell it in average value of a bit less than one euro. When I some countries above a certain value. If you walked checked the import figures we are not really into a shop and it was 10 euros, you simply ignored importing wine from third countries such as Chile, it because it was Hungarian wine and that was that, just some negligable quantities. We are mainly although they do have good quality wine. importing from Spain and especially from Italy. Mr Somogyi: Yes, I fully agree with that. This is one of the reasons why we would like to focus this reform Q356 Chairman: So you are exporting your better on two main issues, restructuring and marketing wine and importing cheaper wine? promotion. We have plenty of things to do in these Mr Somogyi: Yes. I have brought with me a bottle of two areas, and personally I am disappointed when I our wine. You might know this wine. It is called see good Hungarian wines not appreciated elsewhere Woodcutters White, which is quite an interesting in the world. Everyone knows about Tokai, but even name. It is called Woodcutters White because the Tokai’s reputation was a bit destroyed during this variety is a Hungarian variety, Cserszegi Fuszeres, Communist period—there is quite a nice story about V which is unpronounceable for you! And, as this wine that. Tokai has di erent categories depending on the was in 1998 the white wine of the year in London and special grape content. It is called “puttony”, and it it had an unpronounceable name, they called it has a category of three, four, five and a maximum six Woodcutters White. puttony. The more puttony it has, the higher the value. When I talked to some people who worked in Tokai those days they told me that sometimes it Q357 Chairman: But that label is almost a New happened that—specially when we exported to World label, is it not? It is not a traditional European- eastern markets—the quality or at least the bottle type label. and the labelling, depended on which label was Mr Somogyi: Yes, but you can see everything. It is a available in the store. white quality wine. I will leave it here and maybe you can taste it. It is a very nice wine. It is a very nice wine but it is not of great value. You can buy this wine for Q359 Chairman: One label is as good as another? around two euros but it is really nice; it is very tasty Mr Somogyi: Now, especially thanks to some foreign and spicy. We were talking about the value of investors and some marketing people, I think the Hungarian wine and the value of our exports. We are reputation is coming back to normal. exporting, of course, the higher value products, but the value of our exports depends very much on the Q360 Chairman: Can we go on to grubbing-up? You destination and on the packaging. I have told you the say that you are against grubbing-up because figures which are valid for the UK, but if we look at basically you have not got a surplus, you want all the our other destinations—for example, the Ukraine— wine production that you can have and you fear that, we are exporting wine to the Ukraine only in bulk, so if you have a grubbing-up process which is open to it is not bottled, and the average value of these the producer, people will take the easy money and 30,000-40,000 hectolitres of export is ƒ0.3 per litre, so you will just lose the production. they are not as choosy as the British. I was a little Mr Somogyi: It is not as simple as that. We are against surprised to see our exports to Russia. I have told you the approach which was formulated by the the Ukrainian figure, but to Russia we are exporting Commission that grubbing-up would be left to the 3714281012 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zoltań Somogyi discretion of the farmers, so Member States would have got my figures right, that about 140,000 hectares not have any influence on the system. We are happy were used for wine production and the figure is now with this measure, but some control should be given down to 80,000. In other words, you had 140,000 and to the Member States in order to have an influence on then you joined Europe and went down to 80,000 at the uptake of grubbing-up. If there is no control, we a time when you were going to be ultimately on a par are afraid that it might have some really negative with other countries as wine producers. You have eVects. We are not against grubbing-up but it should reached a position now where you do not have a be given to the “national envelope” and it should be surplus, but in any reconstruction, as I understand it, left to the Member States to decide which measure you are looking for the use of funds to help with within this envelope should have priority. Just to give marketing and with further reconstruction. What you a technical example, especially during the interests me is to know what has happened. Have previous political and economic system we had big those vines, the 140,000 or the 80,000, been grubbed vineyards, big wine production farms. Most of them out already? What is the land being used for? Is there were state-owned and there was a kind of greater incentive for other use? Is Hungary taking an privatisation, or compensation called a restitution in interest in and advantage of the possibility of kind process, when we changed our system. So, if we growing non-food crops, because that seems to be a take the example of a state farm, almost all the growing interest and is becoming quite fashionable? employees were able to get part of the vine-growing One has only got to look at Germany to realise the area. Sometimes they had to pay for it and sometimes way they are going and the amount of biofuels that they just had to use their tickets that they received to are being produced now from crops. Are these the compensate previous confiscations. If we look, for sorts of alternatives as you see it. And, having said example, at a wine parcel of 20 hectares somewhere that, obviously, in a wine sector you are going to in the great plain of Hungary, which is a flat, sandy, concentrate on the quality wines? I have to tell you not a classical wine-producing area. Anyway, we still that I have a bottle of that in my wine shelter at home had these big farms, so during these privatisations the given to me by Mr Csaba Csa´ki, when I was with him new owners received certain parts of this parcel. For not very long ago, and I am sure you know him rather example, I was invited to my friends and I helped well, and he promised to send me more if I liked it. I them to harvest the grapes and his father has two have not opened it yet. rows in a big parcel. He was lucky because he had two Mr Somogyi: That is a mistake. straight rows and not diVerent small plots, but I might imagine that this 20-hectare parcel had 30 or 40 Q362 Lord Plumb: It is really a matter of asking you owners. Obviously, after a while, most of them got rid to pursue further what you said. It is interesting, is it of it and sold it to others, but still it has quite an not, that here is a country just joining Europe that interesting owner structure. And now not only the has already done what Europe is saying you have to state but also if this local wine community does not do, because this is a crisis. You cannot go on with have any influence on the grubbing-up scheme, surpluses like this and face the competition. Could I perhaps 30% of them would prefer to buy a new just follow on with this because we were seeing this Suzuki for their daughter and grub up the area, and last night when talking to the Commission. They the others would prefer to continue production. So were saying, “Yes, we want to encourage the you can imagine what would be the result of this grubbing-up scheme for areas where it is needed, but completely free grubbing-up scheme. We are not we want to continue with the non-planting scheme against the measure and we should not have state until 2013”. You can understand that in principle and influence but it should become a bit more in economic terms, but the grower is going to say “If complicated than Commissioner Fischer Boel we allow the stuV to come in from elsewhere while we imagines. grub out our vineyards, we are opening the door to wines coming in from all over the world”. Q361 Lord Plumb: I would like to pursue this a little Mr Somogyi: Thank you for this very professional because it is rather important. What you have just question. I am afraid that I will not be able to respond said relates very much to the Commission’s own to all aspects of this complex issue. When I told you thinking, and indeed to the proposal, and that seems that it is a mistake not to open this bottle, it is true to have come from even people like COPA, the farm because yesterday I showed this bottle to our expert organisation, and COGECA, and also from some of and he told me that it is just about the time to drink the other organisations. I think it comes out of the it. It is a vintage of 2006 and these wines cannot be report of the European Parliament. In other words, kept even for two or three years. So you have to drink the initiative has to be taken by the individual and it by next year. It has a very fruity, spicy flavour. therefore (if it worked) come out of the “national envelope” that is the responsibility of each of the Q363 Lord Plumb: If I may say so, my Lord nations. I was rather intrigued when you said, if I Chairman, we have a very good salesman with us. 3714281012 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zolta´n Somogyi

Mr Somogyi: Really I am a bit worried because I have Obviously, we should not do it in an artificial way but told a nice story about this wine and maybe you will we should really think about this special rural open your five-year old bottle and be very situation, especially in the new Member States— disappointed. although the situation is not as diYcult in Hungary as in other new Member States, because agricultural employment has decreased, I think, to four or five% Q364 Lord Plumb: I will open it tomorrow evening. now. It was about 10% and, as you probably know, Mr Somogyi: Coming back to these developments it is still around 20% in some other Member States, so and what happened to the wine growers and the we are quite close to the European average vineyards, I do not know exactly what happened to them, but I will give you some more background employment figures. Coming back to alternative uses information. I was talking about this restitution in of land, this is a very interesting issue in Hungary and kind and compensation and privatisation. With the we talk about this issue a lot, especially now due to remaining 85,000 hectares of production area we still this maize intervention stocks and surpluses, and have more than 130,000 wine growers in Hungary, so especially due to the planned abolition of maize wine-growing does not mean that a wine grower is a intervention. In our new Rural Development wine producer. We have 130,000 wine growers Strategy it is a priority to help farmers to find registered somewhere, but we have only 12,000 wine alternative outlets for their classical agricultural producers who are producing wine for the market. products. Coming back to arable crops, now we are Obviously, out of this 130,000 there is my father, for planning to set up a processing capacity within a few example, who is a wine grower but he is not registered years for about two million tonnes of cereal to as a wine producer; he is producing about 15 produce bio-ethanol, especially from maize. Also, hectolitres, 1,500 litres. We have a big family and it is sugar beet can be a kind of alternative raw material for our own consumption, and he also gives some to for this bio-ethanol industry but I am afraid that it neighbours and friends. Let me go to the grubbing-up has nothing to do with grape production so we are scheme. These 130,000 wine growers are usually not not planning to produce grapes for bio-ethanol. full-time farmers; it could be, for example, an employee of the Hungarian railway system, who has this vineyard and after work he cultivates it, and I am Q365 Lord Cameron of Dillington: Is there any sure that he is somewhere on the edge of giving it up appetite for some wine growers to plant new areas? and he would be happy to get this grubbing-up Mr Somogyi: Yes. I got some figures from my money and leave the sector and he would not care colleague yesterday. The demand for restructuring what we did to his land. Maybe he would just leave it aid according to the present system has always been as set-aside or plant some fruit trees or whatever. I higher than the possibilities. Now we can restructure can imagine that mainly this is what happened to less than 2,000 hectares per year, and out of these these 60,000 hectares, that they have mainly become 2,000 hectares which we can call restructuring around arable land because the fruit sector is also in 400 or 500 hectares are new plantations, so there is an diYculty. In Hungary we also produced a low-quality appetite for it. apple especially for the Russian market, and now there has also been quite a big decrease in production. I have to tell you that it was a very tough period for Q366 Lord Cameron of Dillington: At the top end of those farmers who survived these economic and the market? political changes. I was an agricultural student at that Mr Somogyi: Yes, exactly, and actually it will also be time, so I did not feel it really closely but we were able a priority within our “envelope” to focus to read in the newspapers that this or that farmer had restructuring and new cultivations on re-cultivating hanged himself because he was so disappointed with all those areas which were prestigious areas and this situation and was unable to survive. We lost tens produced good quality wine. But during the socialist of thousands of hectares which became arable land, period wine production came down from the hills to and these developments also contributed to the fact the skirts of the hills because it was cheaper to that we have this maize situation, for example, where produce. The quality was lower but it was cheaper we are producing a great surplus of maize. When I and more economical, but now we would like to bring look at the developments of the Common it back. Agricultural Policy, on the one hand we are saying that agriculture plays a very important role in rural areas on the other hand we are just reforming all the Q367 Lord Cameron of Dillington: My proper regulations and legislation, and at the end of the day question is about labelling. Are there any state rules we see farmers leaving production. We are trying to about labelling in Hungary at the moment? Or can create jobs in the rural area and on the other hand we people, as long as they are being truthful, put on what are making it impossible to stay in production. they want? 3714281012 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zolta´n Somogyi

Mr Somogyi: I am sure, yes. Q373 Lord Cameron of Dillington: The danger of that, of course, is that the existing older producers control those organisations and the new people who Q368 Lord Cameron of Dillington: Because other are trying to have flair and innovation cannot do very countries have quite rigid rules about how they label much about that? their wines? Mr Somogyi: Yes, but today and starting from last Mr Somogyi: Frankly, I am not a wine expert. I do not year in Hungary the political situation is so tense that know exactly what are the specific rules. I am 100% we are trying to avoid any unnecessary debates or sure that we are in line with all the relative fights with any of this regions. regulations. But, focusing on the future—and this is what I know because I have just investigated our position—we are happy with the Commission’s Q374 Viscount Ullswater: The Commission have proposal. We are happy with these two categories, proposed that wine-making practices should be more wine with GI and wine without GI. There are some closely aligned to what is agreed by OIV—I do not other ideas for creating two sub-categories within the know whether Hungary is a member of OIV. I am category of wine with GIs but I did not want to go sure they are, but if it is agreed in that forum, then the into it. Commission are also saying that it should be for the Commission to decide, rather than the Council, what practices of OIV should be allowed in the Member Q369 Lord Cameron of Dillington: I think our States. We have heard quite a lot about position would be that a businessman, an chaptalisation, the aid for grape must—I am sorry, entrepreneur, providing he is being truthful, as with but again I do not know about production of wine in other products, should be able to put what he likes on Hungary as to whether any form of sugar is needed to his labels. We do not think it should be for the be added or how you manage the alcoholic content. Member State or the Commission to tell somebody Could you give us your views on what I have what they can and cannot put on. suggested? Mr Somogyi: Yes, but apart from finding the Mr Somogyi: Sugar is called by my father “packaged Commission idea a very good one, we would really sunshine”. Yes, we are using it. We are a member of like to focus on the real protection of GIs and also we OIV. We were a founder member of the OIV, so we would like to be given the opportunity to handle have been members since 1923 when OIV was some specific problems or circumstances under our established and, therefore, we have been following all national legislation or the internal rules of diVerent its recommendations and rules, so we were on the wine regions. same track as the European Union even before our accession. I am happy to tell you that this is also part of the reform proposal with which we can almost Q370 Lord Cameron of Dillington: We know there fully agree, in that we have found it useful to follow are over 10,000 GIs in Europe and probably 9,990 of OIV recommendations, and all those oenological those mean nothing to the consumer. practices which are recommended or approved by Mr Somogyi: Exactly. It is the same in Hungary, OIV should be authorised to be used by European because as a producer I know plenty of GIs, and we producers. It would help to regain our also know that despite the fact that we are a small competitiveness, because we know very well that our country we have 22 wine regions, which may be Y trade partners are using those kinds of techniques di cult to understand. We have plenty of GIs but all which are not really allowed but which are we think of is that in our case Tokai has a real value. appreciated by consumers. I still remember a discussion when we were discussing wood chips, Q371 Chairman: You see, that label on your bottle which are used everywhere for barrique wine there, which is a good one, is really selling a brand production. Even my ex-boss would put wood chips rather than a GI, is it not? in his own oven. He was grilling wood chips to put Mr Somogyi: Yes, exactly. into wine. So, yes, it is a good technique but is now authorised in Europe. Generally, we are in favour of this approach but there are certain specialities which Q372 Chairman: That is what the New World must be tackled and they are treated in a special way. labels do. The last part of your question related to Mr Somogyi: Yes, I would agree with you. But, as I chaptalisation. Sugar is a very important part of our told you, we really do not want to get into discussions position, that the addition of sugar should be allowed with diVerent wine regions. They have their own rules in future as well. I was happy to see that, when we had and sometimes even some state tasks are delegated to the first exchange of views in the Council, most of the them, so there is an act which is regulating the Member States even the present Presidency expressed operation of these diVerent wine communities. the view that it was not really a good idea that the 3714281012 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zolta´n Somogyi

Commission tabled a motion to abolish income, giving up wine growing did not have a chaptalisation. It is a very important part of our significant eVect on their everyday life. In Hungary mandate, especially because as I told you at the we have experienced a kind of tendency, which is beginning, we have had some climatic diVerences, contrary to moving from rural areas to the cities, and especially for certain categories of wine sugar is because now there are more and more people who are needed. Sugar is also used by most of our moving from cities to the suburbs. We are a small competitors, so we believe that controlled use of country. We have plenty of cities, almost in each part sugar should be allowed and we should not impose of the country, and now with the improvements to measures preventing it. our infrastructure it is not diYcult to travel 20 or 30 kilometres a day, so we do not have this rural Q375 Viscount Ullswater: We have been hearing emigration problem. Obviously, we are not happy to quite diVering views on that from various wine- see that we are losing additional income from society growing areas. I think the position of the OIV is that and we are losing jobs in rural areas, and maybe I am it should be entirely up to the Member State or the just answering one of your questions in advance. But nation state as to whether they should allow it or not. it is a firm Hungarian position that rural We do not think OIV have their own view about development is very important also for the wine adding sugar. They allow individual members of OIV sector but we would not like to see a transfer of to take their own decision. money from the present wine CMO budget to the Mr Somogyi: Yes. I was head of the negotiating unit Second Pillar. This ƒ1.2 billion which is spent when we prepared ourselves for the accession, and at annually on the Wine CMO should be kept for the that time we had to find some arguments to be Wine CMO. For the future Wine CMO it should be allowed to use this chaptalisation process after transferred to diVerent Member States, to the accession. So we collected some old Hungarian “national envelope”, but the rural development regulations or legal measures which allowed us to add problem should be solved from the available rural sugar. During the socialist period the state gave development budget. Depending on the outcome of authorisation each year, depending on the harvest, to this reform we might ask the Commission to be more use sugar or not, so it was really controlled by the flexible in adjusting our already approved rural state and we authorised the addition of sugar when it development plans to the outcome of the reform if it was really necessary. is necessary, but we are against moving the funds from the First Pillar to the Second Pillar, which is quite understandable from a Hungarian point of Q376 Viscount Ullswater: So depending on the view. I know that you have a quite diVerent position alcoholic content of the harvest? on this, but it is also quite understandable from your Mr Somogyi: Yes, or of the vintage, whether we had point of view. enough sunshine during the ripening period or not, but we should not exclude this possibility. It should be left to the decision of Member States or wine Q378 Baroness Miller of Chilthorne Domer: Clearly regions. The same goes for the subsidy for using must you have taken quite a lot of areas out of production, concentrate. and you just mentioned that fruit and vegetables also have been reduced. I wonder what you see as the Q377 Baroness Jones of Whitchurch: Moving on to future land use and how that would tie in with some rural development, you have given us some of the pressures that climate change is likely to bring? fascinating insights into what happens over the Mr Somogyi: That is quite a complex question. If you reduction in capacity that you have already look at the area and our production structure in experienced. I think you said that, as far as you are Hungary, it is quite obvious that we are in a specific aware, a lot of the production then went to arable situation. We are a country where the proportion of farming. Was there a shift in population as well arable land is much higher than the European arising from this? Has there been a shift from the average. If I remember correctly, the total area of our rural areas to the towns, because some of the evidence country is 9.3 million hectares, out of which 4.6 that we have heard is that some people are quite million hectares is arable land, so 50% of the total anxious about the pressure from the Commission to area is good quality arable land. You can see some reduce production and are saying, in the way that you figures in these pamphlets. I have brought some described, that there will be an awful lot of upheaval, pamphlets about the Hungarian agricultural sector. I poverty, distress caused by it? Was there in your also have some CDs Each CD contains English, experience an actual shift in the population away German, Hungarian and Russian versions of this from the rural areas when that decline took place? 2006 pamphlet. I am sure that, even if some thousand Mr Somogyi: Not really. As I have told you, since we hectares were grubbed up (and, as I told you, we have have plenty of wine growers and for most of them it some problems with the food sector), it does not have is just a part-time job to bring in some additional a very big impact on the total production area and the 3714281012 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Zolta´n Somogyi utilisation of this area. We might have more arable you, we would be happy to see crisis distillation on land or we might have some more set-aside or we the menu when choosing measures for these might have more grassland, so I do not see a major “national envelopes”. Some market measures should impact of the wine reform on all those elements that be included but, as I told you, rural development your question contained. Obviously, when we are should be left out from this envelope. coming to climate change and global warming, I mentioned that now we are planning to set up new Q381 Lord Bach: Altogether? infrastructures for producing things like bio-ethanol, Mr Somogyi: Yes. It is quite diYcult to draw a clear so we will do what we can and we will be able to reach line of separation because, when we are talking these targets which were approved a few weeks ago— about, for example, the improvement of technology to reach 10% biofuel target and we have good for wine-making, it could be considered as potential for this. development investment but also as a measure specially dedicated to the wine sector, so these kinds of measures should not be excluded from the Q379 Lord Bach: You have already expressed your envelope. Personally I do not have a clear view of Government’s support for the Commission’s what exactly should be included. I hope that you have proposal, which itself is supported by the Parliament, found from my 50 minutes’ intervention what are the on “national envelopes” being allocated to each main priorities—restructuring, marketing and Member States to provide funding for this industry. maybe I could ﬁnd some other things here. What I You have already explained what you would like to can tell you more clearly is an answer to the second see funded from such envelopes, but you might like part of your question concerning the allocation just to give a priority order for me. Would the priority criteria. Somewhere in the Hungarian press some be further restructuring of industry? Would it be interesting criteria were released, that some people rural development? Presumably it would not be crisis have said that 80% of the allocation should be based distillation? on previous spending from the Community budget Mr Somogyi: That is right. and 20% from the production area. We are against this approach. I do not know whether you have Q380 Lord Bach: I would also like to know what you already heard about this approach, but hopefully not think the criteria for the funding should be from because we really do not like this approach. The Europe. Should it be on a historical basis based on Hungarian request is that the allocation of “national what has happened in the last 10 years. Or should it envelopes” should be based on production area over be on something slightly more objective and looking a certain reference period. This position is quite to the future? understandable if you look at the Hungarian point of Mr Somogyi: I have already indicated that our two view. I am not sure whether we would be able to get main priorities are restructuring and marketing. But, it through. It will be our starting position and we will when we are talking about spending money, see what happens. obviously the main priority is restructuring. As I told Chairman: Well done. Thank you very much indeed. 3714281013 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

108 european wine: a better deal for all: evidence

THURSDAY 8 MARCH 2007

Present Bach, L Moynihan, L Brookeborough, V Plumb, L Cameron of Dillington, L Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V Miller of Chilthorne Domer, B

Examination of Witness Witness: Mr Luigi Polizzi, Italian SCA Spokesman for Italy at the European Union, examined.

Q382 Chairman: Good morning. First of all, can I have the basis on which to start a discussion on the thank you very much indeed for finding the time to Commission’s proposal for reform. We know that come and help us with our inquiry. I will just explain the Commission is already preparing this reform, so briefly who we are and what we are doing. We are we are awaiting this and we are hoping that the known as Sub-Committee D. We are a sub- Commission will take our remarks into account, committee of our Select Committee on the European particularly those from the producer countries. The Union, and we look at Agriculture, the Environment reaction from Italy was positive because we consider and Fisheries. We are carrying out an inquiry into the that we need reform to give enhanced reform of the wine regime. We have been taking competitiveness to the sector, not only in the evidence in the United Kingdom and we came to the European market but also outside it. That is a view that it was very important for us to come across personal view. In the last 10 years this sector has been to Brussels and meet people who are more directly completely closed to the changes around the world involved in the policy-making process so that we have from the New World producers, and we share a more immediate understanding of the issues completely the objective of this reform—namely, to involved. We have spoken to a number of increase competitiveness but also to reduce some of representatives of the industry. We have spoken to the measures, concerning, for example, distillation, the Commission and we have spoken to members of and to use this budgetary resource for other things the European Parliament. Today we are seeing a which would be useful for the producers and the number of representatives from Member States to try growers and so on. We have some critical points on and get a feel for what the reform could mean to this proposal—grubbing-up, for example, because individual Member States. If it is all right by you, I you know that the Commission has proposed the will start with a general question which hopefully will grubbing-up of 400,000 hectares. We consider that enable you to make your country’s position clear on this measure is the focus of this proposal, among the general issues. Then I have a number of other measures, that we will use to give colleagues who will take up specific policy areas. The competitiveness to the sector, but we would like this Commission have identified the problems of the wine grubbing-up to be used by Member States with some regime by saying that it is unsustainable and that it is flexibility. You know that Italy is a long country in crisis for a number of reasons. We have declining geographically, so we have northern, central and incomes for farmers, we have increased import southern areas. The wine growers cover the whole penetration into the European market, we have territory but their geographical situations are declining consumption of wine in Europe generally, completely diVerent. In some parts of Italy it is and we have the development of a long-term important for the landscape, for the environment, structural surplus of wine, particularly lower quality that the growers continue to maintain it, so we do not wine. Does your country agree with that analysis? like, because it depends on the level of the amount of And, if so, what is your reaction to the Commission’s aid that will be given to the producers, that some of Communication? these growers will completely go out of the market. Mr Polizzi: First of all, thank you very much for this We would like to maintain some sensitive areas, like opportunity to speak with you and to have an in northern Italy but also in the south of Italy, the exchange of views concerning what are very sensitive heel of Italy, which are not really competitive with the issues for us. With the French, we are the most other parts of Italy. So we would like the grubbing-up important producer of wine, so this reform of the measure to be among other measures, not the central wine market is really important to us. You know that measure. We consider too that, if we reduce our work on the Communication has been finalised and production, other producer countries throughout the also that the European Parliament has concluded its world will compensate for this loss of production. resolution. The outcome was not clear but at least we That means that, if we cut 400,000 hectares, we will 3714281013 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi eliminate some production in the European market trade and our exports have increased because, and other producer countries will compensate for this compared with the French situation, our prices are production. In other words, we will be open to lower, so we are more competitive with New World imports from other countries. Our aim is to improve imports, even if the market share of the import the quality of European wine—Italian wine, Spanish production has increased during these last years. In wine, French wine. This is one of the critical points of any case, for the traditional Geographical Indication this reform and we hope that the Commission will we have really simple labelling because it is important modify this part of the reform proposal. This that we maintain a linkage between the product and measure also is seen as an important budgetary the area where it is produced. It is important for us resource because we are talking about two milliard and it is important also for the consumer to have this euros for this measure. I would just like to summarise linkage. In Italy on the table we always have a glass by saying that we think grubbing-up should not be or a bottle of red wine. It is in our culture, so it is a the main measure in this proposal but along with complete linkage to our behaviour. We recognise that other measures that will be announced, and at the this product is linked to a specific area and that this same we should give some subsidiarity to Member area has a heritage, a traditional process and a States by the participation of the growers in the use of traditional culture, so the wine is a symbol of our these measures, because the Member States may say country and of a small town or an area. Of course, we “We choose where. What area is possible?”. For are hoping to follow the proposal of the Commission example, do we do it in some areas of Italy, namely, but we would like the current system to be completely in the south of Italy? We have some regions that changed because we have a diVerent target for our produce just for distillation, not for the market, so we products. We have high quality products and also would like, of course, to concentrate these measures DOC, the main quality. This is a target less than the in this area, because the areas where production will other ones but it is really good, because the price and be competitive are those where the quality is high, so the quality are nice and so it is very competitive with this is one of the first critical points. The other point the products of other countries. So we do not have is the “national envelopes”, and this is linked to any specific problem; we just give consumers the subsidiarity, so we would like, also for the other information about the kind of product that we have. measures, that Member States have “national Just to touch on another area, because I have seen envelopes”. This “national envelope” is not to be your question paper, what are the lessons to be used for the same measures in the current reform—in learned from the New World producers? First of all, other words, not for distillation aid or for the other it is the trading policy. The marketing is really well measures. But we would like to use it for some specific organised in these countries and they use an easy intervention in the chain, such as to join up all the communication with the consumer because they use processing investments, because in Italy, for five or four international varieties. In Italy we have in example, compared with other situations, the average each region diVerent varieties in each region. It is surface area is really small, one hectare or less. We really diYcult to put the information on one line. I need for this reason to promote association among come from Sicily, and in Sicily we have some producers, and in this case we would like the varieties. But I live in Naples, and in Campagna we measures to be used to concentrate supply and at the have other varieties which are completely diVerent same time to get the instruments to promote from Sicily. If you go to the north of Italy you have production and so on. At the same time, during the the most important: Chianti, Barolo and the other transitional period we would like to use some old varieties. But now, for example, I can tell you that in measures—for example, crisis distillation—just Sicily we have a good wine like Nero d’Avola, which during a transition period, because even if the in less than three years has increased production climatic conditions are good five or six% of the greatly but also its market share in Europe, so the production is not good quality. It is important that it situation has improved a lot. These are just a few is not put on the market because otherwise the price elements concerning our position. I do not know if it will be lower. It is important that during this was clear but we completely share the eVorts of the transition period the distillation price is maintained Commission to reform the market organisation of but also that the aid for this distillation is reduced, so the wine sector because we consider that it is we would like this transition period for the use of important to take into account that imports from the these measures. This is concerning the “national New World countries have really increased a lot, envelope”. Another issue is labelling. You know that mainly after all the preferential bilateral agreements the Commission wants to modify the situation on with South Africa, Chile, Australia and so on. All labelling because the labelling of the New World these products are important, but we would like to producers is really simple. I would like just to stress maintain our market and we would like also to that for Italy the situation is diVerent, because we do expand our market and now we are going to organise not have any problem with trade. At the moment our some fairs in China and India. These are new 3714281013 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi markets, and so it will be useful for us to be there in was really a very substantial user of this measure in competition with the other producer countries. the last two years. Chairman: Thank you very much. That was very helpful in explaining your country’s position. Q387 Viscount Brookeborough: Can you quantify how much you put into distillation or what Q383 Viscount Brookeborough: I want to clear in my proportion of your table wine production you put mind about a few things you said. I understood you into distillation? to say, when you were initially talking about Mr Polizzi: It depends on the market situation each grubbing-up, that you did not want to reduce year. Last year we requested three million hectolitres. production because that reduction would be taken up Spain requested six million, the French four million, by other people coming into the market. Then I think so this is the situation. We would like to avoid it you said that there was wine being produced further because we would like to use this budgetary resource south which was going direct to distillation, and for other measures, not for distillation. However, therefore by definition you have got a surplus of crisis is impossible to foresee. It is important to wine, have you not? maintain safety net measures in each sector; Mr Polizzi: But, as I say, the surplus is physiological otherwise, what do we do when a crisis happens—a in the whole sector, because in any case in some parts crisis for the price, a crisis because of the drought? the wine is not good quality, so what do we do with Sometimes now it is a chronic situation. In the south, this? We stock and we pay for the stock? It is and now in the north, the drought is every year, so we important to ask what do we do with this part of the have a reduction in production and the quality of the wine that is impossible to put on the market? wine is not good, so what do we do? It is important to have some instrument to face this situation. For this reason we would like to have a transition period, and Q384 Viscount Brookeborough: But do you mean during this transition period to look at what has that there are people producing wine of a quality happened, whether this is a good way or whether it is which they know, before they produce it, will go to important to change and use another instrument. distillation and not on the market? Therefore, they are intentionally producing it? Q388 Lord Cameron of Dillington: Under your Mr Polizzi: Yes, but for this reason I stress that it is criteria what area would you be grubbing up? What important to give Member States the instruments to area are we talking about that is now going manage this measure. It depends on the amount of automatically to distillation? the aid. If the aid for grubbing-up is high, all the Mr Polizzi: Automatic distillation? growers will go out. It is not specifically the growers that are producing for distillation. It is important for the Member States to know exactly what is the Q389 Lord Cameron of Dillington: You produce one situation. Where could we intervene specifically to third of the wine of Europe. reduce this part of the production? At the moment Mr Polizzi: We do not have any correct analysis on the situation is that we have aid for distillation. If we that, because it depends in the end what is the level decided that this aid would be reduced and that there and the amount of the aid for grubbing up. If, for would be a phasing-out during a transition period, I example, at the end of the proposal the aid were to be think the situation would be diVerent, and at the ƒ6,000 per hectare, people would consider that same time the Member States would intervene between 148,000 and 160,000 hectares would be cut. specifically on this area to grub up and eventually to But it would depend on the level of the aid, because promote and diversify production. That means if you fixed the aid at ƒ10,000, more people would diversifying production in a quality manner. request it. It depends also whether this global amount of 400,000 hectares remains, and if so how it will be distributed between the Member States, how will it be Q385 Viscount Brookeborough: So a phasing-out of managed, because at the same time you know that, distillation whilst other measures also change—your when you use the grubbing-up, the growers are go government would back that? into the Single Payment Scheme, so we need other Mr Polizzi: With other measures. money for that. It is important to know the global situation because the situation is diVerent at the end. Q386 Viscount Brookeborough: Phasing-out and At the moment it is unclear. more money for grubbing up so that distillation would not become a normal practice; it would only be Q390 Lord Cameron of Dillington: I am just in a crisis? wondering whether you are trying overall to reduce Mr Polizzi: In the last three years this has been a the amount of grubbing-up or whether you would be normal measure for France, Spain and Italy too, but happy to accept that Italy is responsible for grubbing we would like also to avoid it. I can tell you that Italy up so many thousand hectares. 3714281013 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi

Mr Polizzi: We would like to introduce some one side grubs up and the other side is open, so we mechanism and some level of participation, because need to maintain some balance in this measure. participation in grubbing-up will be voluntary for the growers, not mandatory. That means that we want to Q393 Chairman: How will you increase the quality if participate and that at a certain ceiling the Member you keep the new planting ban in place for 10 years? States can intervene, at 30%, for example, and after Mr Polizzi: Why do you link a new planting ban with intervening decide where to stop. quality? We could improve the quality with the existing investments. It is important to modify the Q391 Lord Plumb: You gave us a very interesting approach to quality. That is the reason we would like overview of the situation in Italy. You said that you to use the budgetary resource for quality measures were in favour of sharing the objectives of the reform, but we would also like to change oenological but then, of course, you say, “But we have to do it my practice. This is also perhaps one of the instruments way”, and it is not necessarily the way the for improving the quality. Commission are proposing at the moment— although you are not very far away, I think, from Q394 Lord Plumb: Is that quality improvement as what we heard both from the Commission and the part of the processing, because if you are not Parliament. As far as grubbing-up is concerned, one replanting, if you cannot change your vines, you of the things that has come out of the European cannot suddenly put a diVerent grape on your vine? Parliament and also appears to be approved of by the Mr Polizzi: I understand and I will be very frank with Commission itself, from the evidence we took you. This position is a little contradictory because, if yesterday, is that they tend to accept that the we want to admire the aim of this reform—to initiative should come from the individual producer, improve competitiveness, of course the aim is to give and if it came from the individual producer then it the best producers the opportunity to enlarge their should be on a voluntary basis and it should be investments and invest in the quality process, I agree temporary. with you. But at the same time I think it will be Mr Polizzi: Yes. necessary to safeguard the investments. This was also the outcome of these measures over 18 years. These Q392 Lord Plumb: That, obviously, would fit into were good measures because a lot of the surface of the pattern that I think you were presenting to us. our wine sector was completely eliminated, but at the Secondly, I think the thing that producers are going same time 50% of this space came into the sector, so to be concerned about is that they take the initiative we would like to avoid this outcome. I also want the and they grub out some of their vineyards and reduce benefits in Sicily of these measures. I do not want to the quantity in anticipation that they are then going grub up my vineyard but at the same time a lot of to get a better market for what they have left. That other people close to me start to plant vineyards, so being so, that is fine. But then the proposal that seems we would like to avoid this contradictory outcome. to be on the table at the moment is that there will be a continuation of the ban on replanting until 2013. If Q395 Lord Cameron of Dillington: I think there is a I were a grower, I would say “I am going to grub up slight misunderstanding on our side because you can but all I am doing is opening the door to wines replant new vines on the existing area at the moment. coming in from all over the world which are taking Mr Polizzi: This is another thing. This is the place of my wines, and I have not got a chance to diversification. We would like to improve these come back into competition”. Is this a problem? Will measures. Italy reject the proposal to keeping the ban for replanting for a period of time, because that seems to be one of the issues at the end of the day as far as Q396 Lord Cameron of Dillington: Exactly, but what grubbing-up is concerned? From all we have heard you are saying is that you do not want new blood, we would certainly accept that grubbing-up is only new enterprising people to come into the industry and renew it? You are saying only the existing one part of the deal. It may not be the major part at growers, the old growers, should be able to survive the end of the day, but it has got to be one part if you for 10 years. That is more or less the result of what are going to reduce the volume that is there at the you say? moment, which is over-supply from production. Mr Polizzi: Yes. I also stress that this is a Mr Polizzi: Concerning your last remark, we would contradictory position in our country. I spoke too like to move the ban on new planting for 10 years so frankly to you! that we maintain the ban for 10 years. First of all, it is important to give the producers who remain in activity the opportunity to safeguard their Q397 Chairman: It is important to try and resolve investment, because otherwise what it means is that things. 3714281013 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi

Mr Polizzi: It is important in the end to achieve a Q401 Lord Cameron of Dillington: I agree, but you compromise and this is a contradictory situation. We can do that without Brussels telling you what you can had the experience in the past that the grubbing-up and cannot do. measure was a good measure because a lot of the Mr Polizzi: We are open to discussion because the lower quality wine of Italy was cut. But at the same situation in Italy is diVerent from in France. France time new producers came in, so now we have two has a lot on the label because they are talking about aims: competitiveness on one side and quality on the cru, chateau, and so for the Italian consumer it is very other. It is important that we work with existing diYcult. For me I know that very well but what is the producers and we would like all the investments to be diVerence between that and Italian wine? I discover for improving quality and at the same time, if that the diVerence is that in one region the farmer possible, for the existing producers also to be able to says “chateau” and in another region he says “cru” enlarge their surface area. but it is concerning an area, so it is linked to the Lord Plumb: I understand. diVerent regions in France. In Italy the situation is diVerent because we have the name of the main Q398 Lord Cameron of Dillington: You mentioned varieties that are known in the world—Barolo, that the Geographical Indication is important for Chianti, Grenache, Sassicaia. Sassicaia is one of the Italy. most important wines. This is the main export wine Mr Polizzi: It is very important. in the world but, when you buy a bottle of this wine, you are sure that it has come from a specific area with a specific tradition. We would like to maintain in the Q399 Lord Cameron of Dillington: It probably is in future that the wine sector is identified in this system many instances, although we are aware that there are or we need another system in parallel. What do we more than 10,000 Geographical Indications in want in the future? Taking account of our tradition, Europe and probably 9,950 of those are irrelevant to we would like the European model of marketing wine most consumers. to be maintained. Of course, it is important to take Mr Polizzi: At a personal level I agree with you, account of the fact that the world has changed, because this is one of the reasons we lost our market consumers have changed, their behaviour has share. But at the same time we would like you to changed. But it is important to follow these changes know that Geographical Indication is the subject of without completely changing the current system. In debate in the Doha Round of negotiations. It is any case, with regard to the question of freedom on impossible that we present with 10,000 Geographical labelling, it is mainly for table wine. Indications. Q402 Chairman: The growing markets within Q400 Lord Cameron of Dillington: It probably is Europe are largely in the north of Europe, such as important but there is no reason why, if you have the UK? freedom of labelling, the growers cannot keep their Mr Polizzi: Yes. Geographical Indication, that they get together and they say “This is a club and this is how we want to do it”. We are trying to ensure that the most sustainable Q403 Chairman: In those countries most of the wine way to keep the wine sector going is to encourage reaches consumers through large supermarkets. enterprise and marketing flair and so on. If you do Large supermarkets are going to have a problem V not have freedom of labelling, that is going to stop coping with hundreds of di erent small packages, so that. I just wonder whether you are trying to control they are naturally going to look outside the your industry from the centre too much and in the Community for New World-type wine of a consistent end it is going to fail because you have not got new quality which they can buy over a large volume. ideas and new blood coming in, and labelling is part When you say you want to become more competitive, of that. those are the people with whom you have to compete. Mr Polizzi: I understand your question and also your So how are you going to become more competitive opinion behind this question, but I think it is while you retain this sort of diverse and varied important that the European wine sector model is system? safeguarded. The current system is based on the Mr Polizzi: You think that we are not competitive Geographical Indications. You know the proposal in quality? for the possibility of using the must from the grapes from third countries. You eventually allow the use of Q404 Chairman: You might be competitive in new oenological practices, so then it is possible to quality. make wine everywhere with labelling which gives Mr Polizzi: We are competitive in quality. consumers the characteristics of this wine. But it is also important to maintain our model, that this wine Q405 Lord Cameron of Dillington: But not in is linked to some geographical area. marketing. 3714281013 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi

Mr Polizzi: But not in marketing. This is another hear your views on that. And do you think the OIV thing. should be the authority on what the proper wine- making practices should be and that should be Q406 Chairman: It is what the consumer buys that adopted by the EU? determines whether you are competitive. Mr Polizzi: Concerning the linkage between the use Mr Polizzi: I agree with you that it is the consumer of sucrose and aid for must, you know that our that determines it; that is clear. This was also the position is very strong because the current proposal reason for the success of the wine imported from in this Communication by the Commission is to elsewhere, from Chile and other countries. First of eliminate the use of sucrose and we completely agree all, I cannot say that it is not good quality. It is good with that. But at the same time, if this is the outcome, quality too, but it is immediately identified with a we should move also to eliminate aid for must variety—Chardonnay, Cabernet, because it is just concentrate. The Italian Government’s position is one variety, no more. You know exactly the area that, if we maintain the use of sucrose, we need to where it is produced, so the labelling is a simple maintain aid for must concentrate. We talk about communication with the consumer, but also the price quality. We have a diVerent opinion, because a lot of is lower than for European wine. As I said before, people say that the use of sugar does not change the Italy can continue to compete with this wine because quality of the wine. But we consider it is better to use we have a rational price and the quality is very good sugar which comes from wine by-products, so we also for this product, because high quality wine would made eVorts during the work in Parliament to change have diYculty competing with this wine. It is the relationship in the report. In the first report from impossible for Barolo or Chianti to be competitive. the Agricultural Commission this was not clear, but Of course, we have Chianti for the cafe´s and hotels in the outcome of the Plenary this linkage between but it is diYcult for good wine to be competitive with the elimination of the use of sucrose and the this wine. Personally, I do not have any diYculty elimination of the aid for must was introduced. If we discussing how labelling could be used to improve the maintain the use of sucrose, because a lot of Member marketing of our wine but we have to take into States use sucrose, we consider that also this account that we would like to modify completely the contributes to maintaining the quantity of the wine European model linked to the Geographical on the market, because without sugar maybe this Indications. You have a table wine that indicates the wine will not be very good. We would like to consider variety and also the year, so consumers at the end will that, if we maintain the use of sucrose, we maintain be confused because the wine linked to a aid for must—maybe reduce it but we would like to Geographical Indication has the same information. maintain it. Secondly, Italy last year was the So I think it would be useful to put the producer and Delegation that asked the Commission to introduce the Geographical Indication in order to be more the use of wood chips as an oenological practice, competitive with the other wines, to show that the because we consider that for some categories of wine wine is diVerent. This is the request of the this is one of the tools which gives more Commission, just to put on table wine the variety and competitiveness compared to the new countries. We the year, but we know that table wine is made from come back to what the consumer says, and the several varieties, not just one. In Italy, and also in consumer wants a wine with a taste of the wood, so other countries, 50% of our production comes from for us the wood is by the barrique. I take into account producer associations, co-operatives and so on. That the fact that this is what the consumer wants and that means that they put all their grapes together and they this is also one of the reasons for the success of wine produce wine, but it is impossible to give a name to imported from other countries. And I also take into indicate exactly what the varieties are, because it is a account that this is authorised by the OIV, so why mix, because in that area we have diVerent varieties. not? Also, during the last five years Italy has asked, We are open to discussion and to finding a solution as a pilot project, to use wood chips and the outcome in order to make our wines more competitive. was good. So why do we not introduce this new Lord Cameron of Dillington: I bet you a businessman, oenological practice at Community level? We are given freedom, would find a solution to the problems open to discussing all the oenological practices that that you have described, but you have to give him the the OIV has already authorised or which are not freedom. considered harmful for consumers and are good practice. But other practices we are against because Q407 Viscount Ullswater: May I turn to wine- we have some practices that completely split the making methods? You said earlier that you wanted to characteristics of the wine, so that you could prepare adopt modern oenological practices. I would be another wine. So we would like to use, for example, interested to know what they are. The Commission filtration, ionic resin. In the United States this was a have said that they wish to do away with aid for grape derogation they used each year, and this was must and also to ban the use of sugar. 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United States. The OIV authorised all the Q410 Baroness Jones of Whitchurch: But you could oenological practices that we derogated but we are give some leadership in providing alternatives? open to discussing the new oenological practices Mr Polizzi: Yes. authorised by the OIV. We have a pragmatic approach on this. Q411 Baroness Jones of Whitchurch: And when you say, “Why change?”, it is for exactly the reasons that Q408 Baroness Jones of Whitchurch: If I may move we have been rehearsing—over-production, lack of a on to rural development and the possible use of Pillar market, competition from third countries. 2, one of the expressions that the Commission used in Mr Polizzi: At the moment we do not have any their report was this idea of “Profound Reform”, that particular crisis in our wine sector, but we can see there was major reform needed in the wine sector. I what has happened in the sugar sector, for example. have been listening carefully to what you have been This was a radical reform, where we invited all the saying and you have not really given me a sense that farmers to go out of the market or to modify and you think that in Italy there needs to be that major change. And now we have the situation that out of 19 reform. You say that there needs to be an increase in sugar farms we have reduced to six, so we have quality, and we understand that. But there is not a completely eliminated 13 farms. This has had a huge sense from you of the need to really change radically socio-economic impact on the area where these farms V the way that production is organised or to deal with exist, and we have made a lot of e orts to find a good the issue of the significant amount of table wine that solution for the future, what we do in the future. Now you are still producing, or even to do something quite everybody is talking about biofuels and energy crops substantial in terms of rural development, bringing in and so on, so we are moving in this direction. The new industries or whatever. I just wonder if you have same thing will also happen maybe for the wine a sense of that need for that big change. Or are you farmers, that they go out and change to other sectors. But, of course, the wine sector is a labour-intensive expecting everybody else to change and you more or V less to carry on as you are? sector, so it is di erent from the sugar sector. You Mr Polizzi: This is a good question. First of all, I have a lot of people working during the production would like just to wish the women around this table of the grapes and then you have a lot of other people all the best because today is your day, International who work in the processing of these grapes into wine. So the impact will be more important than for sugar Women’s Day. or other sectors. In any case, it will be diYcult to have Chairman: You will try anything, will you not? rural development measures. We have some compensation for employment in the rural areas, Q409 Lord Plumb: He is Italian! because we consider, for example, that if we maintain Mr Polizzi: My question is, why change? What do we the analysis that I presented before concerning the need to change? I do not know if you have visited possibility of 148,000 hectares being grubbed up, we Italy. All the landscape from the north to the south of will have lost 70,000 employers in the sector. So it will Italy is characterised by the presence of vineyards, be diYcult to say that they will be compensated by and we have some areas where it is diYcult to change the rural development measures first of all because completely the structural investment in these areas. It this depends on the choice of the producer. Once the is important eventually to modify the processes of the farmer is in the Single Payment System, it will be sector, maybe in the organisation and management completely his choice what to produce and, if he of marketing and promotion. In Italy we would like chooses cereal or energy crops, the level is completely more resources for promotion because it is important diVerent. The impact at the social level will be huge, to inform the consumer, especially the new so I do not know if the measures foreseen by the consumer, about the value of the wine, not only the Rural Development Programme will be enough to taste but also the impacts of this product on health. deal with this situation. Concerning rural development, we have worked a lot on the rural development area and all the measures Q412 Chairman: When we have been talking to concerning, for example, restructuring and people over the past few days, there is clearly a view diversification. In some regions the current rural held by quite a number of people that what you have development programmes have a lot of measures in to do in the European wine sector is improve quality the wine sector to improve the structural situation, and then deal with this horrible person called the but what do we change? It is very diYcult to say. consumer, who has got it terribly wrong at the Rural development could contribute to the situation moment. Either they are not drinking enough wine or of employers in the rural areas but it depends also on they are drinking wine from the wrong countries, and the choices of producers in the future. It means that the way to deal with that is to have something called all the producers could be grubbing up their vines. promotion. The problem is that you can promote as What will be the choice in the future? much as you like but, if customers do not like the 3714281013 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi product, they are not going to drink it; and, if you Mr Polizzi: No. In some areas of Italy, mainly in cannot supply the product they want, they are not southern Italy but also in some regions in the north, going to drink it; they will continue to drink wine people go directly to the cellar with a bottle and buy from the wrong countries. How do we get over that? it there. Even people close to the rural areas go That seems to me to be a diYculty. The other thing is directly to buy olive oil, for example, and also wine. that, if we have got a profound crisis in the wine All the table wine has a market, but not all the market sector and that crisis has as a significant component at the end of the year will be served, so it is important over-production, then at the end of the day surely to that the production that remains in the other areas is tackle it you need to reduce supply? Do you agree used for other things, for example, biofuel. We have with that or not? a market for table wine and now we also have Mr Polizzi: In regard to profound crisis, if you see changed the packaging. I do not know if you watch what kind of product in France was destined for TV, but now we have wine in tetrapaks. This is distillation, this was quality wine; it was Bordeaux. completely diVerent than the traditional glass bottle, The problem for that is the price, not the quality. The but it is mainly because you can have five litres or two problem is the price for some, because the consumer’s litres that you put in your house and you can take behaviour has changed. There is also the economic your glass to the wine there, so the way of presenting situation. We have to take into account that in the product has also changed and also the use of the diVerent areas of the European Union, Italy—for product. The world has started to change but we have example—in the last few years we have had an to take into account what consumers want. economic crisis. This, of course, has an impact on the market for wine. A trader in wine told me that in the Q416 Baroness Miller of Chilthorne Domer: past people of higher classes bought a lot of the wine Obviously, your consumers and your producers are each year, good wine—Bordeaux or Chianti—and very diVerent in the north of Italy than they are in the put it in their cellars. He told me that during the last south. Would you agree with that? I know that is a two to three years they have started to drink the fairly general statement, but is there likely to be a bottles in their cellars because of the diYculties. This substantial diVerence in the reaction to the is one of the main elements of the success of other Commission’s proposals between the north and the producers in the New World, the price, and the price south? Are there elements that the north prefers in the is linked to the quality. I think that the consumer now proposal but the south would not countenance? is more educated about drinking wine. They know Mr Polizzi: No, I do not think we have any diVerence exactly what they want to drink because they know between north and south. The tradition is diVerent whether it is a good wine or it is not a good wine. But because the varieties of wine are diVerent in diVerent at the same time they want to buy cheaper wine. I regions. This is linked also to the meals of the region. agree with you, because if we improve the quality, if In the north you use rice, you use diVerent kinds of we launch all the promotional campaigns or meat. In the south of Italy you use more fruit and whatever, it is important to have a supply first of all vegetables, so the use of wine is linked to the meal and and also a good supply. This is your proposal? the cooking tradition. The only diVerence is in the Chairman: I am just saying that it seems to me that size of the farm. In the north we have larger farms there is a general reluctance to face up to the problem than in the south but in the south we have some of over-supply. traditional farms. For example, in Sicily we have Corvo di Cella Paruta, Tasca del Merita or Rallo. That is a big extension of the farms, and I can say also Q413 Baroness Jones of Whitchurch: Quite a high that big producers in the north have moved to the proportion of the Italian wine that is produced south of Italy just to make investments and this is the currently is table wine. Are you selling that table situation. We do not have any tension or any wine? Or is it just stacked up somewhere? problem between north and south, and also the wine Mr Polizzi: In the last years the proportion between produced in the south of Italy is more for the internal high quality and table wine has changed because now market. The north is for the external market— we produce more quality wine than table wine, so it Chianti, Barolo. is 60/40. Q417 Viscount Brookeborough: Italy is the second Q414 Baroness Jones of Whitchurch: OK, but have largest wine producer but even in Italy the you got a market for that 40%? Do people buy it? consumption of wine is going down. First of all, do Mr Polizzi: Yes, there is a market. you recognise that? And, secondly, we have been given the impression that the consumption of wine has gone down among the social groups which might Q415 Baroness Jones of Whitchurch: So it is all have drunk it every day out in the countryside during being sold? a normal day’s work—and therefore that is very local 3714281013 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Luigi Polizzi wine where the labelling perhaps does not have much you say about an increase in the alcohol content. I do eVect on them because it is local wine that they are not know if this is the general situation. I do not have drinking. However, in casual conversation with an answer to this. I could say that in Sicily now we somebody in the Commission yesterday he suggested have good wine. If you drink Nero d’Avola it is 40o, that wine had become more alcoholic over recent but I recognise that the habit of consumers has years and that this was partly because of the use of changed. Also, among my friends, when we go to the must and the aid involved and the use of sugar. If that restaurant and we request just a glass of red wine, we is so, and accepting that the reduction in wine ask what the variety is. Before you would request a drinking is taking place at that level, do you think red wine and it was not important to the customer, that that reduction may be partly due to wines being but now I ask personally what it is, and I also have stronger and people going for milder drinks, such as friends who asked before, “What is beer? This is a vast quantity of table wine that is not Montepulciano?”. So Consumers pay more attention being drunk, table wine that used to be consumed at now to exactly what they are drinking, so I think it is a very local level, but the alcohol content has gone up important to promote the quality of the wine. For and a lot of the wines are now up to 12, 13, 14%, this reason I think consumption in the future could whereas, as I understand it, the minimum level used move in a positive way. This is my aim. to be about 8.5%. Mr Polizzi: Consumption at the moment in Italy has Q419 Chairman: Fine. Thank you very much been at the same level during the last two or three indeed. You have been extremely generous with your years. time and very patient with us as well and extremely eloquent. Q418 Viscount Brookeborough: We were told that Mr Polizzi: It was a good opportunity to speak with throughout the European Union consumption levels you because we have to take into account that you are of wine had gone down and that they had only gone a consumer country more than a producer. up in the United Kingdom over the past number of years but last year it was level, so in fact it looks as if Q420 Chairman: We will try and do our best to it is beginning to go down in every nation. maintain consumption! Mr Polizzi: Concerning consumption, my expert told Mr Polizzi: You are the ﬁrst market in Europe me that during the last two or three years it has been concerning the consumption of wine, so it is at the same level. We have had in the past a bigger important from our side to explain what is the decrease in consumption because in the past young situation in Italy, as this will be a complex reform people substituted wine for beer, but now also young with grubbing-up, investment, labelling, oenological people are close to the wine sector and wine has practices. It will be complex, and I hope that today I become an occasion to drink in a group during the have contributed to telling you what is the position evening, so now the habits of young people have also and the situation in Italy. changed. I do not know the practical aspect of what Chairman: Thank you very much indeed. 3714281014 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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THURSDAY 8 MARCH 2007

Present Brookeborough, V Plumb, L Jones of Whitchurch, B Sewel, L (Chairman) Miller of Chilthorne Domer, B Ullswater, V Moynihan, L

Examination of Witness Witness: Mr Dietrich Guth, German SCA Spokesman, examined.

Q421 Chairman: Good afternoon. Thank you very because we have focused more on quality wine. As much indeed for coming. It is very good of you to find you said, there is a structural surplus in certain the time to come and help us with our inquiry. If I countries, especially in Italy, Spain, Greece and could briefly explain who we are and what we are Portugal and a little bit in France too. We think that doing, we are a Sub-Committee of the House of that wine which is distilled is produced for Lords Select Committee on the European Union. distillation, not for wine consumption, and therefore Our particular sub-committee looks after we are spending money to get rid of surpluses when Agriculture, the Environment and Fisheries. We we think it is better to spend the money for represent all political parties, indeed we have some development in that region to improve quality and independents who have no political allegiance; and invest in the future, not in the past. we are drawn from all parts of the United Kingdom, so there is a fair regional representation. I will start by asking you a general question and my colleagues have particular aspects they will want to focus on. Germany is an interesting country in terms of wine Q423 Lord Plumb: Grubbing-up is an issue, as we production. You are somewhat distinct from some of have been receiving evidence on from so many the southern European countries in the nature of people, and, of course, meeting with the Commission your industry. The Commission in their and the European Parliament. Some feel it is a very Communication and in discussions have clearly major issue; others feel it is not such a major issue. stated that there is a need for “Profound Reform” of We recognise from the figures that the level of the wine sector and paint a pretty grim picture of the employment related to the volume of output industry with falling incomes, decreasing indicates that there is a degree of eYciency in wine consumption at an EU level (although not in production in Germany. Grubbing-up is part and Germany), structural surpluses and increased third- parcel of the general concept in Europe, of course, party import penetration, which is a pretty desperate that if you get a surplus you reduce it by taking out situation. What has been your Government’s the product. I would like your views on this. As far reaction to the Commission’s Communication? Do as grubbing-up is concerned, the move is to grub up you see the analysis as broadly correct? And what do 400,000 hectares, which is not inconsiderable. And you think of their policy prescriptions? Are they then, of course, the Commission believe that there going the right way or not? should be no replanting until 2013. One can Mr Guth: We have two main market organisations, understand that, but at the same time I do not know fruit and vegetables and wine, which have to be how you feel if growers say “Yes, I am prepared to reformed. As a whole we are very happy with the grub up, but if we do not see replanting taking place proposals of the Commission and the diVerent then we know that pressure will be there from options, and we are of the opinion that we should competition and the products will be coming in and have a fundamental reform of the wine sector too; they will take the market and we shall find diYculty that is the main point. We have several diYculties on in getting back again, however good the quality of detailed points, but we would like to go on with what our wine might be”. So it is really the grubbing-up the market regulations are. That means distillation issue, how you see it, how important it is, where it is should be abolished, as the Commission proposed as in the pecking order in the reform changes. one option. We can do that very easily because we do Mr Guth: I think that is a question of principle. If I not use distillation. look at the milk sector or even the sugar sector, where we got rid of quota systems, the system we have in the Q422 Chairman: You do not use it at all? wine sector is more or less the same thing. This was Mr Guth: No. We had in the past, 10 years ago or so, the most diYcult thing I have had to deal with in the a crisis distillation in one or two regions of Germany, last 30 years, and therefore we should also find here but in the last eight or 10 years we have not used it a solution which gives farmers the opportunity to 3714281014 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Dietrich Guth decide by themselves, without buying quotas or Mr Guth: Yes, but why should we deny farmers the planting rights or something like that, and develop opportunity to shift from diYcult areas to better their farms as they want. This is my personal view. areas? Again, this is my personal opinion, and yet we Grubbing-up is very expensive and this is not the first had the same argument in the sugar sector, where we grubbing-up we have had. We have had in the past said, “OK; sugar should be produced in regions and we still have a structural surplus. Therefore, I where it is worthwhile to produce it”, but not in think this system is not very eYcient. Even if we grub southern Italy. They have not survived by subvention up 400,000 hectares, Member States would like to from the EU at the national top-up for 30 years and, have the right to decide whether in certain regions if that argument on the sugar sector was right, then I they can grub up or in others not. So they will choose think the argument must be right in this sector. I am those regions where the yield per hectare is low and not really sure that we can get rid of the replanting the conditions are bad for wine production and then rights because I do not think the Commission will we will not have a big eVect on reducing the surpluses. propose that, but in my opinion it would be logical to In Germany we do not need it because we do not have do so. surpluses. From our consumption 40% is German wine, 40% is EU wine and 20% is from third countries, so we have a need for imports. My ministry Q425 Chairman: You say grubbing up would not V has the problem that, if the decision to grub up is have a big e ect on the surplus because people would given to farmers, then we will have certain small areas give up the land that was not very good and was not in Germany where it is better for farmers not to producing very much. But this is the sort of land that produce, especially in the valleys and on the hillside is producing the rubbish wine that is a major (because that is a really hard job), although my component of the surplus. So at least you would be V experts have told me that we have to look at that taking out the poor quality stu that is a contributor because it is not in our interests to give up wine to the surplus. It could serve a purpose there, could it producing in those areas. However, again my not, in bringing about a more rational market? personal opinion is that we will make up our mind Mr Guth: I am not sure that we can define the so- when we have the Commission proposals how we called surplus as a surplus because that wine was handle that. In my opinion the farmer should decide produced for distillation and only for distillation. It whether it is worthwhile to produce wine in certain is round about 200 or 300 hectolitres per hectare, regions or not. On the other hand, as I told you, this double or three times the yield in quality wine is a very expensive instrument and we feel it would be production. That is because they do not need to look better to give that money either back to the net payer at the quality. In Germany, if you want to produce in a certain amount or to the regions where we have good wine, you have to limit the yield to, let us say, to restructure, in other words the “national 70–00 or 100 hectolitres per hectare—it depends on envelopes”. Then we would have money from the the region—and then you can get a good quality grubbing-up scheme and from the diVerent wine. 15 or 20 years before in our bigger wine- distillation schemes, but we will have enough money producing regions we had yields of 150 or 180 to invest in the future and at a certain stage—let us hectolitres per hectare and that was not good wine. say five, six or 10 years—to reduce the amounts. In So there was a change in the mind of the farmers, and other words, more or less the solution we found in the now they can sell 95% of their wine directly to sugar regime could be applied here. When I prepared consumers and to the retailers. Another thing is, if we myself for the Presidency we expected to have the abolish distillation, do we need the grubbing-up wine reform during our Presidency and there we tried scheme? to find possible solutions in advance and we decided that we should look at the principles of the sugar Q426 Lord Plumb: Absolutely. reform and do the same thing here. Mr Guth: We could give that money, let us say, as direct payment for restructuring, but that can be Q424 Lord Plumb: I am a farmer myself, although I decided by the regions or by the Member States. Then am not a wine grower, and I hear what you say very we would have already an eVect on the so-called clearly. If I were to have the opportunity to take some surplus because it makes no sense to produce wine for land out of production, I certainly would not take my distillation and for burning in motor cars. The best land. So it is the same thing in principle. But do question is: do we need grubbing-up? Or is abolishing you not think that by continuing the ban and distillation enough? If we then have further surplus, restricting planting there is a possibility that you are we can give farmers or the region money to restricting eYciency, because the planting might be restructure the region. And then we will have the taking place in an area where it would be better for eVect that the Commission is looking for and we do wine growing? not spend so much money. 3714281014 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Dietrich Guth

Q427 Chairman: A brave strategy. same farm, the quality diVers from year to year and Mr Guth: No. This is my fifth Presidency and the first that is a question of how the production is done. In Presidency where we have not had a wine market Germany it is forbidden to mix the harvest of reform. In 1988 I was the President of the wine group, diVerent years and in France they do it in order to but I am not a wine expert. have always more or less the same taste for the Chairman: It is better not to be. It is better just to get same wine. the economics right. Q434 Lord Moynihan: But the overwhelming Q428 Lord Moynihan: Labelling rules are, as I am growth in the sector in Europe, certainly in northern sure you will agree, very complex in Europe and it is Europe and in the United Kingdom, for example, arguable that consumers in general do not really comes through the supermarkets. I know you do not understand what they are buying. Have you any buy supermarket wines, as you have just mentioned, views on how labelling of EU wines can be simplified? but they do and you have a standard quality and a And are there any lessons to be learned in this context highly eVective New World penetration of this from New World wines? market, which is in our view very much driven by Mr Guth: Not really; that was the answer to the last more eVective marketing and clarity of labelling. You question. would not agree with that? Mr Guth: I have told you I am not a wine expert; I am Q429 Lord Moynihan: There are no lessons to be not even a labelling expert, but this is more or less my learned from new world wines here? feeling. I think you are right. If they are going to Mr Guth: No. market the wine in the retail sector, then I think clear labelling is necessary. But then we also have to Q430 Chairman: They are very successful. change the form of wine production—in Germany, Mr Guth: The labelling is decided by Member States, for example—to have the possibility that every year so we do not have detailed rules in the wine sector for the same wine has more or less the same taste. That is labelling, and therefore Member States can more or not the case in all countries because it is forbidden to less decide what they want to do. As I understand it, mix them. This is not only a question of labelling but the most part of the labelling is voluntary, so farmers also a question of how we can produce wine. can decide by themselves what they put on the label, except for some important points. Q435 Viscount Ullswater: Do you believe that the OIV should be the arbiter of what the wine-making Q431 Lord Moynihan: So you are comfortable with practices are worldwide and therefore in the Geographical Indications? European Union? Or do you think the European Mr Guth: We do not use that in Germany as, for Union should be able to impose its own constraints example, the French do. on some of the practices? We have heard about adding wood chips and enrichment. I would like to Q432 Lord Moynihan: The French do it? know what your views are on enrichment. I know you Mr Guth: Yes, they have a big interest in that. are saying that aid to must should go, because you are against all forms of distillation and support in that. Q433 Lord Moynihan: But do you not recognise What about adding sugar to wines? I would like to that, because the French do it and it is a hear your views on oenological practices and who disadvantage, there are improvements to labelling you think should be the arbiter. that can enhance the market value of European Mr Guth: At the working level of our ministry we can wines, which currently are restricted by the agree with the Commission proposal to take over the regulations that apply within Europe, not least the OIV standard, because we should use more or less the GI designation? same practices as our partners in third countries, as Mr Guth: If I look at the market or at the we are importing more and more wine from third consumption shares in Germany and what the countries, and this is something to do with consumer looks for, we have 40% of German wine, let competitiveness. In my opinion there is no diVerence. us say, with German labelling and 40% of EU wine, If you have a parallel which has the same eVect as this especially Italian, Spanish, Greek and French, with cheaper possibility and produces the same quality, the other labelling system with regional information why should we stick to the more costly production on. I do not think that the consumer really recognises methods? That we have to sort out, but in principle what is on the label. If I a buy a French wine, I am we accept the OIV standards and the OIV methods pretty sure that I will get a good wine but that has because we are in the discussion in OIV on that too nothing to do with the label, and every year the same and then we can have a more balanced way to taste, the same quality. I normally do not buy produce high quality wine but not to the highest cost German wine in the retailer’s shop. Even if I take the possible. 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8 March 2007 Mr Dietrich Guth years we have always had this question on the table. Q440 Viscount Ullswater: They said, “No, you That is normally a point from the Commission to get cannot. You have to import the must from us”. That the Germans to be a little bit flexible. was how the argument was going. You would not agree with that? Q436 Chairman: It is a negotiating ploy, is it? We Mr Guth: No. It is not right; it is wrong. thought it was. Mr Guth: We have had it in every wine market reform Q441 Viscount Brookeborough: Does wine have to and it never resulted in stopping using sugar. Why be of a certain quality in order to produce must? Or should we take must? It is not must; it is concentrate. can it be produced from the lowest quality wine? So that is also sugar, and this sugar is more expensive Mr Guth: That I do not know. The reason you are than normal sugar from sugar beet, but the eVect on using must is to have the sweetener, sugar. The wine the wine is the same. This was the gift to the Italians for distillation must not have so much sugar, so there and to the Spanish and the French to reduce their must be a diVerence in quality. I think you cannot use over-capacity in the vineyards in order to produce it in every wine but that is really not quality wine. expensive sugar to use for wine production. That is the first point. The second point is the level of subsidy Q442 Viscount Brookeborough: It is not a quality for that product. In Germany in the last years we wine but it is probably a higher quality wine than for have used must more and more because the subsidy crisis distillation. is higher than the diVerence between the must and Mr Guth: No, I do not think so. sugar, so it is cheaper for the farmer to use must, including the subsidy, than to buy sugar on the Q443 Viscount Ullswater: It just happens to be V market. This is ridiculous but the di erence will be a sweeter and, if it is sweeter, it is more sunshine little bit diminished by reducing the sugar price. We producing more alcohol? calculated in Germany that, if we had the same Mr Guth: Yes. comparable situation, must and sugar, we would have to reduce the subsidy under German conditions Q444 Baroness Jones of Whitchurch: Do you agree by 50%. with the Commission’s proposals about rural development programmes—that they have a crucial Q437 Chairman: We have heard an argument, which role to play in terms of helping countries make the Y I have had some di culty with and perhaps I can test transformation that we are talking about? If you do, it out on you to see what your reaction is, that if you do you think that the funding of it should be just remove the subsidy from must and do not ban sugar constrained at Pillar 1 or, as some people have made then you are distorting the market. the case to us, it could overspill into Pillar 2? Mr Guth: Why? Sugar is there. Mr Guth: I am just here to solve that British problem—voluntary modulation. I am personally Q438 Chairman: I do not understand it either. It was not so convinced that what we are doing in Pillar 2 is tried on us and we did not understand it. the right thing, but this again is my personal opinion Mr Guth: No. If they cannot produce the must, then and I will tell you the oYcial opinion. We have 16 we have bigger quantities of wine on the market; that areas in Germany, 16 La¨nder or regions. Every is quite clear. But they use sugar in Italy, they use region has to draw up a programme, so we deliver 16 sugar in France, they use sugar in Spain, not only programmes to the Commission. It is a big must, and so do we. We use must and we use sugar, bureaucracy. Then we have to change it because the and that is because of the diVerences I have explained Commission asks us to change something. And then to you, but everyone can buy sugar in Europe. They we spend a small amount of money compared to the can use it, so why not? First Pillar, which can be done by 20 people or something like that, and in the other sector we need— Q439 Viscount Ullswater: I think this was a restraint I do not know—1,000 or 2,000. That is a point of which, I have to say, probably came from the principle but we are speaking also of simplification. southern states, that a lot of people in the north On the other hand, the politicians are eager to have would not be able to produce wine with a suYcient the Second Pillar bigger than it is now and the oYcial alcohol content to fulfil the factor that it is wine and, point is that we should use this also to have it as a help therefore, they would have to use must from the for reforms. But we do not like it in the wine sector south to increase the alcohol content to bring it up to because if we shift, let us say, the earmarked wine the level. This was the theory. money to the Second Pillar you can use it everywhere Mr Guth: No. You can use sugar. and it is not going to the wine sector. Therefore, we Viscount Ullswater: Well, yes. But they said “No, you have made these “national envelopes” in the sugar cannot”. sector so that it can be exclusively used in the sugar Chairman: That is why they want to ban sugar. sector for restructuring that sector, and we would like 3714281014 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Dietrich Guth to see that in the wine sector too. Then we have the Mr Guth: Yes. problem of distributing the money, so what do we use? Do we use the reference of the cash flow in the Q451 Chairman: Those businesses would be largely Member States? That we do not like because then we wine and wine-related businesses of one sort or get nothing, and others too. Can we use the another, so the problems of adjustment originate in production area? That might be something, but then the wine sector. But the solutions to those problems we get 3%. It is a little bit too low a percentage, so we are moving resources into other sorts of activity. The are thinking, for example, of a mixture between the reason I am asking this question is that it seems to me total yield and the yield of quality production and that you are saying that you want this money then our share would be a little bit better. confined to being spent within, as it were, the wine Chairman: A bit of special pleading there, comrade! sector, whereas the solution lies in spending it in other sectors, if you follow me. Mr Guth: No, sorry; then I was not clear. The monies Q445 Baroness Jones of Whitchurch: Whatever would go more or less to those regions where they criteria you use, and I understand your point about have problems and then they can use it as they Y bureaucracy and we can all imagine how di cult that want—put it in the tourism sector, give it to the is, the principle of putting money to help that farmers to improve their quality or to bring together transformation through rural development producer organisations to promote wine, to give programmes is not one that you disagree with? It is them help in increasing quality and so on. This just how you calculate it? should be decided not even by the national Member Mr Guth: You mean in principle, not the wine sector? States but by the region where we have the problem, because those people on the spot know best where they can spend the money most profitably for the Q446 Baroness Jones of Whitchurch: No, I am region. talking about the wine sector now. Mr Guth: No. We would like to have it in the “national envelope”, not put in the rural regulation Q452 Chairman: Can I clarify that? It seems to me area, because then it could be spent on whatever you that what you are saying is that you do not want this money to become part of the Rural Development want and I think that is the point of most Member Fund. But you do think it might be spent on things States. which are rural development? Mr Guth: Sure—infrastructure, schools, tourism. Q447 Chairman: If I have got your model right in my mind, you would argue that we do not need Q453 Chairman: That is a much wider view of rural grubbing-up. What we need is to abolish distillation. development than Pillar 2 allows you to have. That will mean that prices will fall and supply will Mr Guth: Yes. The positive aspect of that financial come into balance? model is that you do not have to co-finance it. If you Mr Guth: No, not that prices will fall, but that they give the money in Pillar 2 you are obliged to co- do not produce the wine which they have produced fund it. only for distillation. Q454 Chairman: Do you think this should be a time- limited payment? Q448 Chairman: No, but why will they not produce Mr Guth: Yes, but I do not think that we will be it? Because they cannot find a remunerative market? successful with that. Mr Guth: No. I am not convinced that they cannot find a remunerative market. They do not look for a Q455 Lord Moynihan: There is a conflict beginning remunerative market. They have the distillation and to emerge between your support for “national that is it. envelopes” allocated to each Member State and your thesis that, if we focus on distillation and putting the Q449 Chairman: I had assumed that, if you took out funds in areas of distillation, they will either, through a major support item which underpinned falling regional development or whatever, move on or go to prices, the eVect would be to lower the revenues to the alternative crops, or potentially look to a market sector, particularly those which produce surplus which they do not look to now in order to compete in wine. that more open market for sales. Why not get rid of Mr Guth: That is true. “national envelopes” and simply focus the resources towards the eVects of abolishing distillation? Why should Germany get any money in this context as Q450 Chairman: That means that some businesses opposed to, say, Italy, in the south east or growers will no longer be profitable. exclusive to distillation? 3714281014 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Dietrich Guth

Mr Guth: That we did in the sugar sector. The money example, without the necessity to produce beef. That is going to those regions where they got rid of the was a decoupled payment and that year he said “No, production. So in Germany we get no money from that is too early”, and one and a half years later he that because we did not give up any production in the proposed that. In Germany our farmers are quite sugar sector, and this would be the case in the wine happy with that system because they can choose the sector too. This is one possibility and I think that is production, they can produce to the lowest cost. In the most realistic possibility. But on the other hand Germany we had bull premiums, suckler cow we always try to get a little bit of money back and that premiums, heifer premiums and so on, and they had way we always have some options. 10 riots here, ﬁve riots there, 100 riots there, and they could not choose the production with the lowest cost, Q456 Lord Moynihan: So that is the reason you are and here we do the same. Now you can argue, “OK, supporting the “national envelope” route? it is just shifting money from one thing to another”. Mr Guth: No, no. You can use the funding of But we are shifting it from a bad thing to a better “national envelopes” in diVerent ways. You give the thing. money to those regions where they give up their distillation, for example. Then it is only the southern part of Europe. Again I repeat: this might be the most Q461 Lord Moynihan: What is the rationale of realistic distribution, but why should we not try to having any subsidy in the European Union wine make smaller changes? regime? What is your rationale, considering that consumers can buy on the market without subsidy? Q457 Viscount Ullswater: You have demonstrated Mr Guth: We do not use subsidies in the wine sector. rather a liberal approach to the reform of the wine We only have subsidies for distillation, and we do not regime. In eVect, you have indicated that you do not use distillation. We have the same thing in the fruit support distillation, you do not support grubbing-up. and vegetable sector. And yet the Commission have said that they want this “Profound Reform” of the wine regime to be budget-neutral. I believe from what you are saying Q462 Lord Moynihan: In Germany, yes. I am talking that you can see it being an opportunity for saving about the wider context of the European money. Commission’s proposals. Is there any rationale for Mr Guth: Yes. subsidising wine? Mr Guth: No, I do not think so. There is also no Q458 Viscount Ullswater: But they are not taking rationale for subsidising tobacco plantations. If I that route. look at the direct payments as a whole, I cannot see Mr Guth: No. That was the question before— that after 2013 we will have the same amount of direct whether we should spend that money for years and payments because we reformed that sector 10 years years or can we say, “OK, this is for, say, 10 years or before. We will not have an increase, surely not. That ﬁve years and then it is declining”. In the sugar sector means that the share of the EU budget will decline they got money for three or four years, and then the and maybe we will have a reduction of the subsidies restructuring was almost over. What are we doing over time, so we are going in the right direction. Now with that money then? we can argue whether it should go faster or slower.

Q459 Lord Moynihan: Do you really believe this is “Profound Reform”? Or do you think it is a nice Q463 Baroness Miller of Chilthorne Domer: We had political way of giving a smokescreen for, frankly, many more discussions yesterday when we were shifting subsidisation of over-supply down through talking to the Commission and Parliamentary “national envelopes” to the Member States, who then representatives about the issues relating to the in turn can spend it on whatever they wish to within environment and the wine regime and perhaps some their country? That was never my understanding of of the eVects of grubbing- up and soil and water the word “profound”. Is it yours? strategies. Have you any concerns in Germany about Mr Guth: Yes. those issues? Mr Guth: No, not at all. Why should we have Q460 Chairman: In this context it is? problems with the environment? We can plant trees Mr Guth: No, because we give the farmer the freedom or something else. It is a question of economy, not to do what is better for them or not, so the farmer environment. Maybe the eVect on the environment decides by himself. We proposed to Commissioner will be even better, because we are using a huge Fischler in 1998, when we had the BSE crisis and amount of pesticides in those regions or, if you look prices went down, that we give the farmers the money at wine production in Germany in the valleys and the they got the year before in the beef sector, for hills, there we have a problem of soil erosion. 3714281014 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Dietrich Guth

Q464 Baroness Miller of Chilthorne Domer: Another anything, and this selling of wine in Germany is eVect might be that, if production shifts from increasing. The farms are pretty small—let us say 10, cultivation which is less intensive to drip-fed irrigated 20 hectares of vineyards or even lower—and they are vines, it is going to be a draw on water to a much selling more and more and combining it with tourist greater extent, which is going to be more diYcult things, and they are ding pretty well. given all of the pressures of climate change and less predictable water supply. That is one worry? Q469 Baroness Jones of Whitchurch: So why did that Mr Guth: No, I do not think so. If I look at certain happen in Germany when that same process has not regions in Germany where we produce wine, not in happened in some of the other sister countries? the hills but on the plains, this is a relatively good soil Mr Guth: Because we have always had small farms so you can produce cereals or fruit and vegetables or compared with Spain. We have had small farms, something like that. So that is not a problem. It is an small amounts, and the consumer buys it outside the argument I always hear from the southern part of door of the farm. That is an advantage, to do it like Europe, that it must be right. that. You cannot sell the wine like that if you have, let us say, 200 hectares of wine or if you are in a really Q465 Chairman: To what extent are you a voice rural area where you do not have big cities. Then you crying in the wilderness? have to use another method. Mr Guth: Sorry; I do not understand that. Q470 Viscount Brookeborough: It is not just locally. Q466 Chairman: To what extent do you think that People come from other parts of Germany to go to what you are saying is shared by other Member those farms. When I was in Germany in the army, we States? used to send a couple of people down for a week to Mr Guth: I think it is shared by the northern Member go round and they just bought it at the door. It is a States, and even France—not to that extent, because recognised trade. It goes on the whole time. the French administration always tries to have the Mr Guth: Yes. You do it at the weekend by driving, markets in the hands of civil servants and not the let us say, from Berlin to the western part of market. But they do not use distillation to the same Germany. You have a nice weekend trip and buy extent as others and, if they can get some more money your wine. That is quite common. for promotion or something in the “national envelope”, I think we can persuade them to accept it. Q471 Viscount Ullswater: Is the 80-85 hectolitres per Then we have Spain, Portugal, Greece, Italy, and hectare limit imposed voluntarily by the wine that is it. That is not enough for blocking a minority. producers of the area? Mr Guth: Yes. Q467 Chairman: One can only say, “Good”. Mr Guth: I think it will be a really diYcult thing to Q472 Viscount Ullswater: How is that policed? Is find a solution. that policed voluntarily? Baroness Jones of Whitchurch: When I think of Mr Guth: No. They just checked out that, when they German wine in the past, you thought about it as not had, say, 120 hectolitres per hectare, the wine was not being particularly good quality. so good. Then they had the lower yield because the Chairman: It is because they keep their best! wine picks up the flavours of the soil. That is a part of the wine, and if you have too high a yield per Q468 Baroness Jones of Whitchurch: But you have hectare it is not enough, so therefore they cut the turned that around; you have transformed that over plants in order to have only between 70 and 80 or 60 the years. Where did the drive for that come from? to 90 hectolitres or something like that. Was it the producers themselves? Or did the Government, by encouragement, by financial Q473 Viscount Ullswater: And that will obviously assistance, do it? Where did that transformation vary with diVerent years because of yields? come from? Mr Guth: No. It varies between diVerent areas. Mr Guth: It was more or less a discussion among the farmers themselves in the diVerent wine regions. We Q474 Viscount Brookeborough: Then what you do is have had regions in the past where they always that, as the grapes are growing, you reduce the produced wine at 70-80 hectolitres per hectare. This number of grapes? You merely take some of them oV? is a figure where you really have quality wine, and Is that how you keep it down? then more and more of those farmers said “If I do not Mr Guth: No, before the grapes come. produce quality wine, I have problems selling it or I have to sell it at lower prices”. I know several farmers Q475 Chairman: I have been playing around with who sell their whole harvest the year before. They sell “national envelopes” in my mind. I can see exactly it directly to consumers without retail prices, without the argument you are using for “national envelopes” 3714281014 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Dietrich Guth in that it gives you much greater flexibility, it is more decoupled from direct production, and in that responsive to particular needs and you can do much context the problem which you have raised should broader things than you could if it went in through not arise. You could put a barrier up, could you not? Pillar 2. The counter to that, is that if you are a Mr Guth: Yes. country that really wants to keep ineYcient production going, you can get away with it more Q478 Chairman: Thank you very much indeed. It easily by using money in a “national envelope” to has been absolutely wonderful to hear you, actually, fund a bit of crisis distillation here, a bit of other very refreshing. production support there, can you not? Mr Guth: Thank you so much. Mr Guth: Yes, because you spend it on the infrastructure, for example, to get more tourism in Q479 Lord Plumb: Do you think you will really get that region. You can do it with a restaurant or even it through during this Council? invest it in wine production, in the marketing of Mr Guth: The wine reform? quality wine which you can drink. That wine which is produced for distillation you cannot drink. Q480 Lord Plumb: Yes. Chairman: But that is because you are using the Mr Guth: No. We get the proposal at the end of June “national envelope” in a very good way. or in July, so the Commission is waiting for the Lord Moynihan: And it is market-driven. French elections. Q481 Lord Plumb: The message we had yesterday Q476 Chairman: I was interested in two things that from the Commissioner was that she is quite you said. You mentioned the possibility of “regional confident that by 4 July she will have something on envelopes”. the table. Mr Guth: No, not regional envelopes. These are Mr Guth: We get the opinion of the European “national envelopes” but the using of the money Parliament on the Communication of the should be decided in the region. Commission now, in March. I spoke with the Deputy Head of Cabinet and he said, “OK, then we cannot Q477 Chairman: That is fine; I understand that. table the proposal in March because we have to write What I was also thinking was that with these it before”, so they would like to have a gap of three “national envelopes” presumably comes a menu of or four months, and then we had the problem of the things that you can do with them, and that menu French elections and the regional elections in Spain. could eVectively consist of things which were Chairman: Thank you very much. 3714281015 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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THURSDAY 8 MARCH 2007

Present Jones of Whitchurch, B Plumb, L Miller of Chilthorne Domer, B Sewel, L. (Chairman) Moynihan, L Ullswater, V

Examination of Witness Witness: Mr Bertrand Guillou, French SCA Spokesman, examined.

Q482 Chairman: Good afternoon. Thank you very France, Italy and Spain. Now that is not the case; it much for taking the time to come and speak to us. We is very diVerent and the production from the US and are at the end of two days in Brussels and you are the Australia is rather important so it is not possible to last person we are seeing. So, as we say in the context continue with the same rules; it is necessary to modify of wine, we have left the best till last. them. From the French point of view it is necessary Mr Guillou: Thank you. to modify these diVerent provisions of the present regulation. That is the first point: how can we modify these regulations? It is not easy to sure that it is a real Q483 Chairman: Let me explain what we are and problem. If Australian or US wines are good, it is a what we are doing. We are a Sub-Committee of the good thing to drink them. Our problem is to find a House of Lords EU Select Committee on the structure for European viticulture which corresponds European Union. Our little Sub-Committee has with the new situation. In France, for example, more responsibility for Agriculture, the Environment and than in Italy we continue to produce table wine. I do Fisheries and we have started an inquiry into the not know if you understand what I mean by “table reform of the wine regime following the wine”. It is common wine. It is not very expensive, it Commission’s Communication. We have already is quite cheap, but it is not good wine which has spoken to people in the United Kingdom and we found consumers, so what do we do? It is not possible thought two things would be sensible: first of all, to to transform all the table wines in Europe into quality come to Brussels and speak directly to people who are wines in volume. It is necessary to decrease the more immediately involved in the process of policy production of Europe but in what way is it possible? development; and, secondly, we are going to France The Commission says it is necessary to grub up to have a look at some wine-growing areas and find 400,000 hectares. Why not, but where? The European out what their concerns, and perhaps fears, are about wine sector is not one region but diVerent regions, what impact a reformed regime may have on them. I where we produce wines in great competition. The wonder if I could start from the point of view of the competition between France, Italy and Spain is, I Commission in that they say there is a need for think, the most important competition in the world “Profound Reform” of the regime, that the regime is wine sector, more than the competition between not sustainable at the moment, that we have a context European production and Australian or US of declining incomes for wine growers, we have production, so it is very diYcult to find a good increased third country import penetration, we have balance between each country in one regulation. structural surpluses and the whole situation looks Therefore, when the Commission proposed grubbing Y pretty di cult. I would like to know whether you and the share between the diVerent countries of this think that is a fair assessment of where the wine area. That is the most important issue of the reform. Y regime is and of the di culties it faces; and, secondly, It is necessary to decrease the area of vines in Europe what is your country’s view of the initial but it is necessary to find a good key to share this Communication from the Commission. We have, of grubbing-up among diVerent countries. course, seen the motion that went through the National Assembly, although we are not quite sure whether they are for or against reform. Really what I Q484 Chairman: You could do it by saying “We are am inviting you to do is give us your general view at stopping distillation”. this stage. Mr Guillou: No. It is not possible to resolve the wine Mr Guillou: I think that the report of the Commission problem through the market, because it is a sector about the situation of the wine sector is rather good. which produces for the long term. When you plant I think that it is not possible to continue with the vines, it is for 30 or 50 years. It is not the market CMO. There was a reform in 1999, just before 2000. which is the main instrument for modifying the It was not a very real reform. It was just a sector. It is not cereals. It is not wheat. It is very modification of the CMO which had been in place for diVerent. In the vegetable sector, although not in 25 years, when there was no world trade in wine. The fruit, it is possible to modify production from one only countries which produced in this period were year to another. In wines it is not possible. It is not the 3714281015 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

126 european wine: a better deal for all: evidence

8 March 2007 Mr Bertrand Guillou problem of distillation. The problem of distillation is grubbing-up in diVerent areas of France to facilitate the use of the Community wine budget. It is not an the departure of the old producers. Our problem is instrument for modifying the sector in the long term. finding an agreement between diVerent regions in France. It is not easy to do that because, as I say, Q485 Viscount Ullswater: I do not understand why, there is great competition between France, Italy and if you withdraw a very considerable market support Spain, but there is also great competition between mechanism, which is the money given to distillation, diVerent regions in France. I do not know the prices the wine producers who produce the wine which goes of wine in the UK, but in France there is not a great to distillation will not have to cease production diVerence between a bottle of basic Bordeaux wine altogether. Is that a wrong assumption? and a bottle of table wine from Languedoc/ Mr Guillou: Yes. The French position is not to Roussillon. It is a real problem for us. maintain distillation. It is not necessary to maintain a permanent instrument of distillation, but we think Q488 Lord Plumb: I wonder if we might come back it is not the main problem of the present scenario. It to the 400,000 hectares area to grub up, but I have to is a budgetary problem, because we have put a lot of say first of all that I am still reeling from your money into this measure. It is a budgetary problem comment earlier. I do not think I have ever heard a but it is not an economic problem. Frenchman say before that either Australian or American wine was even drinkable. It is perhaps Q486 Viscount Ullswater: I am surprised. worth coming to Brussels just to hear that. You jest Mr Guillou: You are surprised; I understand, but if and we understand. The grubbing-up programme we always have surpluses it is not because there is that we have been hearing much about during the last distillation. That is our point of view. couple of days seems to generate the general opinion that this has to be done at the initiative of the grower Q487 Chairman: I accept that annual fluctuations and not dictated nation by nation. But nevertheless it occur in the wine sector and that people growing wine is that sort of area that should be covered. I think you will not respond immediately to a particular signal in make a very valid point when you say this is a matter one particular year because they have committed that has to be shared. One understands that very resources for a long time. But they will continue to clearly, and so your question “Where?” is the use those resources in that way until they see some problem. If in the final round of the Council it is better alternative for the use of those resources. Part agreed that that amount should be taken and they of the reason that it is at the moment convenient for start trying to divide this up, it then, of course, Y them to continue to produce wine for which there is becomes a very di cult political issue for any no natural market is that they do have a crisis country, particularly France, when you have intervention system that makes it possible for them to elections taking place and all this sort of thing. retain a reasonable standard of living. If you put it Mr Guillou: It will be after the elections. It is easier. the other way round, and instead of spending money in the short term on intervening to support collapsing Q489 Lord Plumb: Probably well after. markets you spent money in order to create Nevertheless, it becomes a political issue. Do you not alternative uses for these resources in these areas, so think that this is an issue that could be settled, since that people were in a sense choosing to move their the initiative is to be taken by growers themselves, by resources elsewhere, that seems to me to be a bundle COPA and COGECA? They are the farm of activities that are necessary in order to achieve the organisations for all the countries, and particularly adjustment you are looking for. It gets away from the for the three countries mostly aVected. Do you not issue of deciding where you are going to do this think that this is a matter where you say “OK, let the because the individuals then make the decisions for farmers decide. Initially it is going to be taken by the themselves, so the distribution would depend on individual. Let the farmers themselves decide now what were the real alternatives for those resources in how best they can share it out”? It is a challenge, I the various parts of the Community which were think, that they frankly ought to take on board and aVected. In a sense I am saying you do not need deal with, by saying “We recognise this and we shall grubbing-up in that context. benefit at the end of the day from this”. The second Mr Guillou: Yes, I agree, the problem of grubbing-up part of this, of course, is the replanting. We are told is also a social problem. Most producers are rather at the moment that the intention is to continue the old and we cannot consider that the premium for ban for replanting until 2013. Earlier on, your Italian grubbing-up is like a retirement pension, so it is colleague said they would like the ban to continue for necessary to find diVerent criteria by which to another 10 years. What is your opinion on this, distribute this premium. In France we have about because I can almost hear growers now saying “We 800,000 hectares of wine. I am sure it is too much. We will take this out of production and you will not let us think it is interesting to put the money for the plant again”, and it is a big problem when that good, 3714281015 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Bertrand Guillou drinkable wine you talked about can still be coming do not have a market, and your argument in that into the whole of Europe? context was, “No, we cannot address distillation Mr Guillou: Yes, perhaps. I think it is important to because vines last 50 years and the market may bear in mind the history of grubbing-up in the change”. We heard that argument from a famous European scenario. Before 1999 there was a great coalminer called Arthur Scargill, who took the view programme of grubbing-up and about 500,000 that you should continue to mine very expensive, hectares were grubbed up during the previous 10 deep-mined coal irrespective of the market because years. In the present situation it is not a free decision that coal was going to be there for hundreds of years for the producers. It is Member States which decide and was going to provide security of energy supply. if it is possible to grub up or not. Italy, Spain, Greece Baroness Miller of Chilthorne Domer: He might be and Portugal have decided not to allow the producers proved right. to benefit from the premium for grubbing-up. During the past seven years only in France was it possible to Q491 Lord Moynihan: He will not; he will be proved use this premium, and not everywhere but only in horribly wrong. But on the distillation point, surely particular areas, like Charente, where we produce the that is one area where you can match the argument wine which is at the basis of cognac, so it is necessary that you have put forward on France responding to to open up the opportunity for the producers. If we the market place, which you have argued very clearly, continue with the present rules, I suppose that Greece with a recognition that the best possible way to or Portugal or Spain or Italy may decide, “No, it is respond to that market place is to address distillation, not possible”, because it is necessary to maintain not least because distillation is not as big a problem in wine because of the landscape or whatever. It is France as it is, for example, in Italy. Why the outright necessary to decrease production but, if in five years opposition to the proposals on distillation from the it is possible to plant as we want, then it is French Government at the moment? paradoxical to pay for grubbing-up now, you are Mr Guillou: You know there are diVerent distillations right. So in France we are not very much in favour of in the present scenario? the abolition of the ban on planting. Q492 Chairman: Yes, four types. Q490 Chairman: What is the solution? Come on, tell Mr Guillou: Exactly. The most important of them is us. You are against this, against that. What are you the distillation to produce potable alcohol. In France for? it is not used. It has been used a little this year, but it Mr Guillou: It is diYcult. There is not at this time a is not generally used. It is used by Spain and by Italy, French proposal for reform. There are two diVerent but in France not a lot. It is not important for us if points of view in France on the modification of the this distillation is abolished. There is a specific CMO. It is for us a good thing that the Commission distillation for Charente. If this distillation is has not put a new regulation proposal on the table abolished, it is not a problem for us. There are two too quickly. others. First, there is crisis distillation. In France we Lord Moynihan: It is quite diYcult to get to the detail think it is necessary to have this instrument, not to be before we have got past some of your opening used every year but to destroy sometimes the comments and fully understood them. Can you help conjunctional surplus. We think it is necessary to me with what seem to me conflicting principles? First, have this measure, but it is not very important. The you recognise the importance of the market place, other is the distillation of the by-products of and I took it seriously when you recognised the vinification. We think it is necessary not to oblige all popularity of Australian, American and New countries to use this measure, but in France we think Zealand wines in Europe. Secondly, you recognise it is necessary to have good wine. It is a quality the importance of the market place in the context of measure, and we think it is necessary to maintain this grubbing-up and 400,000 hectares, when you distillation probably in “national envelopes”. It is not recognise that there needs to be a reduction, but the necessary to have a strict common regulation in real key to that, which is to be searched for, is the Europe about that. In Germany it is not used, in mechanism by which to achieve it, so another Austria also, in new Member States also. It is a recognition of the market place. Thirdly, you historic tradition in France and in Spain, so we think recognise that 800,000 hectares in France was too it is necessary to maintain this measure in the much and that is a recognition of the market place, “national envelopes”. Distillation is not for us a because if the market demanded more wine from regulated market measure. It is not only about crisis France you would say “It is not enough. We need distillation. another 200,000 hectares to meet the demand”. Then you came out with the most interesting argument, Q493 Chairman: That can be contained. which was that the one area where there is greatest Mr Guillou: Yes, within very strict limits. It is agreement is removing distillation because there you necessary but it is not a good line for the market. 3714281015 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Bertrand Guillou

Q494 Chairman: But you are in agreement, are you better to let somebody else pay for it. But you have not, with the view that you should not be in a position got this other structural problem of adjustment, and where wine is being produced regularly, year in, year it is a complicated structural problem because of the out, knowing that its only destination is crisis diversity of wine production in the Community and distillation? the diversity of alternative things that could use that Mr Guillou: No. I am not sure that there is a lot of land in the areas in which it is. In that situation, wine in Europe which is only produced for crisis letting the owners of the resource who are going to distillation. In the past it was true. live with the consequences of the decision take the decision seems to be likely to get better results than Q495 Viscount Ullswater: But is the wine produced an overall planning structure. So in a sense I suppose for potable alcohol drinking wine? I am coming back to saying, rather than looking for Mr Guillou: Yes. a permanent structure or imposition of “Where do we grub up and who is allowed to grub up?”, we make it Q496 Viscount Ullswater: It can be used for drinking an oVer to people to decide and then give them some or for distillation into potable alcohol? level of support suYcient to get enough of the area Mr Guillou: The problem is that it is possible to drink down to get yourself a market balance. this wine. Mr Guillou: There is a structural issue and there is a conjunctional issue in the wine sector. The real Q497 Viscount Ullswater: But it is not advised? problem is the structural issue. The conjunctional Mr Guillou: It is not a good wine. The main part of issue is everywhere in every sector. Our problem in wine which is used for distillation for potable alcohol the wine sector in the Community is the structural is in La Mancha, in the centre of Spain, but we have problem, so the grubbing-up is the main problem for something like that in Charente. The wine which is the future CMO. You mention the green harvest—a used for cognac is not a good wine to drink but it is very good idea. If I were a wine producer, I would use possible to drink it. It is table wine. this instrument for myself without subsidies. It is a management of my holding, and I know that in Q498 Chairman: But it makes good cognac? diVerent years the good producers use this Mr Guillou: It makes good cognac but it is not in the instrument themselves. But, if one year there is great distillation regime of the CMO. production because there is a good climate, it is necessary, because all producers are not good Q499 Chairman: But you are not too far away from producers, to have a public instrument to eliminate the Commission on this, are you? surplus. I think it is necessary to maintain crisis Mr Guillou: At the beginning of the story we were distillation in “national envelopes” and that it is each very much against them. Now it is a little diVerent. Member State which decides if it uses this instrument or not. It is not necessary to decide this at the Q500 Chairman: In a sense the issue relates to how Community level. You know now that, if it is you handle risk, how you handle uncertainties that necessary to eliminate surplus in small regions of arise, because crops are not always every year going Italy or France or Greece, it is necessary to ask the to come out at the same level, so that is always going Commission if it is possible or not. It is not a good to be a problem. The question in a sense is who way to manage the sector. should cope with that problem? Should it be the industry itself, which is the case in most other parts of the economy? They have to cope with uncertainty and risk. Or should it be the public sector? If it is the Q501 Lord Moynihan: If “national envelopes” were industry itself, or a mixture of the industry itself, to be introduced, could you give us some examples of what sorts of techniques should one use? For what would change in France, say, two years after the example, what do you do when you do something like introduction of “national envelopes”? the green harvest? Or you could actually step in Mr Guillou: It is necessary to know exactly what will sooner; and, if you step in very much sooner, in a be in the “national envelopes”. We do not know sense you are actually paying people not to produce exactly. In the Communication of the Commission it at all? If you go one further on, you are getting to a is not clear. I do not suppose that in the French point where people could be paid not to produce “national envelope” we will use the distillation of by- permanently—and that is eVectively grubbing-up. products and crisis distillation every year; distillation But you let them make the decision about taking that of by-products probably every year, the other on, so in a sense you have two sorts of problem. You sometimes in some regions perhaps. The main budget have a ﬂuctuating problem which an industry could of the “national envelope” will be used to help the cope with itself, and as long as the state intervenes the production and marketing of wines, not the industry will never do it for itself because it is much production of grapes. 3714281015 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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8 March 2007 Mr Bertrand Guillou

Q502 Chairman: It is for modernising the Q508 Chairman: Only two? production of wines? Mr Guillou: It is the only country cut in two parts Mr Guillou: Yes, exactly, the production of wines, about enrichment. In the north we cannot use sugar. and it is the main part of the “national envelope” in In the south we are obliged to use must, so we listen France. to the discussion between Germany and Italy, and the better will win. Q503 Chairman: Processing and marketing and promotion? Would that be something or not, or do Q509 Viscount Ullswater: You are on both sides. you not need it? Mr Guillou: It is like labelling. It is diYcult for France Mr Guillou: Our professionals ask for funds but I to have a strict position about that. It is very diYcult think it is an industry problem, not a public problem. for the French Government and in the future it will probably be the same problem for it. It is very diYcult Q504 Lord Moynihan: What are your Government’s to have a position. views on labelling? Mr Guillou: I cannot tell you the Government’s views about labelling because in France there are all the Q510 Chairman: I have one last question, which is to positions about labelling around the table. It is very seek your advice. We are intending to go to France, diYcult. as I said, to get a view of the variations in the French wine industry, and we are intending to go to Q505 Chairman: Do we have anything to learn from Burgundy and then Languedoc Roussillon. Would Y the way the New World countries have used that show su cient variations? We have only got labelling? three days, but would that give us a feel for the V Mr Guillou: Of course. di erences, the tensions, within the industry? Mr Guillou: The north and the south? Q506 Lord Moynihan: But do you see a need to reform the system of labelling? Q511 Chairman: Yes. Mr Guillou: In France some producers consider that Mr Guillou: In Burgundy the only red variety is Pinot the present regulation on labelling is good. There is Noir and the only variety for white wine is another group of producers who consider that the Chardonnay, and with the same variety we can find way of the new producers, like Australia, is a good completely diVerent wines. It is very interesting to way and there are all the positions in between. In the taste the same variety produced in this part of discussion in the Council our minister did not say Burgundy and in that other part of Burgundy anything about labelling. because they are very diVerent and it is necessary to be a good taster to recognise that it is the same Q507 Viscount Ullswater: Could I touch on variety. There has been a great revolution in wine in enrichment? You said very helpfully in your reply just the south of France between the 1970s and now. Now now that you thought the major part of the “national we cannot find very good wine and all wines in the envelope” should go into improving the production south, in Languedoc-Roussillon, are a mixture of of wine. Should the methods of producing wine be diVerent varieties. There are not wines produced with authorised by the OIV? And should they be accepted only one variety and the main varieties used in as being what is available to the European Union and Languedoc-Roussillon in red wine are Syrah, which all the countries within the European Union as the is very well known, and Grenache. The wines in the techniques? And perhaps you could just include in south are rather strong. The level of alcohol is your answer what you think about enrichment— naturally rather high. In my opinion there is a very whether you can use sugar or whether the aid for good white wine in the south called Picpoul. If you go must should be continued in order that must would to Languedoc-Roussillon, you should ask for a wine be the only thing to be used in enrichment? called Picpoul de Pinet. It is a very funny name. It is Mr Guillou: We have agreed to follow OIV Appellation d’Origine Controˆleé. It is a little area near regulations in Europe. It is clear. On enrichment Montpellier. It is a very good white wine. France is a country cut in two. Chairman: Thank you very much. 3714281016 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

130 european wine: a better deal for all: evidence

WEDNESDAY 14 MARCH 2007

Present Cameron of Dillington, L Palmer, L Bach, L Plumb, L Jones of Whitechurch, B Sewel, L (Chairman) Miller of Chilthorne Domer, B Ullswater, V Moynihan, L

Memorandum by Wine Intelligence

Question A2 Wine as a category does have several distinguishing characteristics and one particularly that diVerentiates it from other food and non-food FMCG categories. This is “sense of place”—the concept that all wine is made by a vigneron on an identifiable piece of land in a distinctive area of countryside. Consuming wine is very much about the emotional imagery of sun-splashed vineyards and traditional wine farmers—neither of which is conjured up when choosing and consuming most other food and drink categories. While most of the 23.5 million UK adult regular wine drinkers have low levels of objective knowledge about geographic origin, the concept of “place” is one of their five important choosing cues, helping them decide which wine for which occasion or which is best value for their current needs at a specific price range among the dauntingly-large selection of wines on oVer (biggest supermarkets: 800! diVerent wines; up to 2000 bottle facings). Thus, while “place”—or Geographical Indication—was historically a producer measure to protect origin, it is now an essential consumer instrument of recognition and assurance. For the consumer, “GI” is often a proxy for quality, and always an indicator of style. Relatively well-regulated geographic wine regions such as Chablis, Rioja and Chianti are outstanding examples how the concept works eVectively in the interests of both producers and consumers.

Question B3 The current issue is not one of the fundamental relevance of a GI system. However, there are two serious issues which need to be addressed: (i) Some GI’s are increasingly unable to find profitable markets for all their volume. (ii) Traditional rules about what can be produced in each region now urgently need structural reform. These rules were created mainly in the 19th and early 20th centuries to protect the rights and opportunities of small producers or grape-growers, by defining what varietals could and could not be used, how they should be labelled, and whether irrigation could be used. Much of this regulation revolved around the co-operative structure, with the objective of ensuring payment to and a level playing field for all producers rather than making wine that consumers wanted. Certainly not a market-driven system suitable for dynamics of the 21st century global wine market. Reform must address over-production and quality in areas where current volumes and styles are unable to find profitable markets.

Question B4 No. Over the last 30 years, wine sources outside the EU—the so-called New World wine regions—have come to market with a diVerent production model, based on much larger units of winegrowing (100’s of hectares versus as little as one or two within in the EU) and wine making and, most importantly, styles and value propositions that set new standards for consumers. The New World also adopted simple labelling and marketing approaches which, eVectively, democratised wine and created a much bigger consumer market. “Accessibility” is the much-used phrase to describe what diVerentiates New World oVer from traditional EU producer approaches to market. 3714281016 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Question B5 No, or very slowly. Protectionism is strong in many EU wine areas—both versus other and often neighbouring EU wine areas, and versus non-EU sources. Subsidies and incentives to grub up are the mechanisms to bring order to the supply-demand balance, but they are expensive and politically unacceptable to elected representatives from some of the most seriously-threatened areas.

Question C6 Grubbing-up is a necessary 1-time measure to reduce supply in producer areas that will never be able to compete structurally or in quality/value terms. However, the EU and more importantly the wine regions themselves must invest eVectively and durably in demand-generation imperatives that will enable globally competitive wine to be brought to market: — Consistent quality. — 21st century styles of wines. — Label descriptors that inform and engage consumers. — Production and supply-chain eYciencies.

Question C8 Yes, selectively, but only as a transitional measure where a wine area is in the process of upgrading its capabilities as above. Removing production capability in commercially non-viable areas is the only solution, however painful to some local families (no more so than removal of ﬁshing licenses).

Question C9 None, beyond transitional distillation.

Question C10 Potential impact varies widely. Chablis, for example, will survive and continue to ﬂourish as a distinctive wine region. Parts of southern France and central Italy will not.

Question D12 New approaches to labelling are an imperative, as deﬁned above. Much of the labelling regulation within EU wine regions is consumer-unfriendly and thus a signiﬁcant factor in loss of market share to New World sources. Labelling must achieve 3 essential tasks to engage consumers and generate demand: — Explain what the wine will taste like—or what the regional style oVers. — Indicate clearly where the wine comes from and who made it. — Suggest what sort of wine drinking occasion it is best for—casual drink; informal/formal meal settings; type of foods; etc. And labelling needs to be a smart market-led combination of front and back labelling. Many EU wines have no back label, or are often only in the language of the producer country.

Question D13 Enormous! From articulate wine makers coming to the UK to enthusiastically hand-sell their wines, to large company running sophisticated multi-channel marketing programmes from UK-based oYces. However, we should not attribute marketplace success solely to great marketing. The wine is: — Consumer-friendly in style. — Suits without- and with-food occasions. — Perceived by consumers as good value and very frequently heavily discounted. — Of consistent quality. 3714281017 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

132 european wine: a better deal for all: evidence

Question D14 Many lessons can be applied, including matching and clearly exceeding in front of the consumer the winning factors identiﬁed above. However, the solution is not simply to produce wines that look like New World wines. Retaining regional character is vital, and a latent strength that even many Australians would like to emulate. Long-term, the biggest learnings are about production and distribution structure, and adopting producer business models that support globally competitive scale and reach. February 2007

Examination of Witness Witness: Mr Michael Paul, Chairman, Wine Intelligence, examined.

Q512 Chairman: Good morning, Mr Paul, and the Australians having a totally diVerent approach to thank you very much for finding the time to come and marketing and selling wine and with the help us with our inquiry. We have taken quite a bit of supermarkets deciding that wine was something they evidence here from people involved in the wine needed to get into, first of all because they had industry from the British end, and we have been identified a growth market and, secondly, because across to Brussels to talk to the Commission and to wine was seen as very aspirational by consumers and, talk to members of the European Parliament and to therefore, supermarkets used wine as a means of representatives of a number of the Member States building their own status as a destination for other with significant wine interests. We have heard a similar kinds of premium products. When the variety of views, one of them being “Oh yes, it has to supermarkets got into wine, they realised that the be reformed but it may be quite diYcult to identify wine trade in the UK was pretty unequipped to deal what bits they are happy to reform”. Would you like with their demands and behaved in a way that they to say something generally about yourself and your would have said was fairly amateurish, and that organisation as an introduction? Or do you want to would have been a reasonably fair criticism. What the go straight into the questions and answers? supermarkets also realised at the time was that they Mr Paul: I am quite happy to talk about my could take control of the supply chain and go direct credentials if you like. But, if that is not important, to producers in many instances and also develop we can go straight into the questions. own-label propositions which, compared with most consumer categories, was pretty sophisticated— Q513 Chairman: I suppose the question I have to ask certainly compared to the rest of Europe pretty is that it seems to me that wine is a rapidly changing sophisticated. You now have the situation where area over the past 10 years; the nature of wine someone like Tesco, for example, has 400 own-label drinking in Britain has changed and is changing. I wines in its range, and it is expanding very rapidly. understand we are one of the few countries in Europe The supermarkets were able to diVerentiate their now where wine consumption is increasing rather ranges from each other, which of course gave them than decreasing, that a lot of our wine consumption the competitive advantage. Wine fulfilled a number is now coming from what are referred to as third of the aspirations of what has become obviously the countries rather than from the EU. Could you give us most important part of the supply chain in this a summary of the main changes in wine purchasing, country. As to the benefit of wine as a category, there wine consumption and behaviour over five to 10 is no question that, if it had not been for the years? supermarkets embracing wine and making it a Mr Paul: I think you probably need to take a 20-year destination category, wine would not be in the timescale, because 20 years ago wine was still position it is now, having grown at 5% a year for the relatively elitist and now it is an everyday drink for last 10 years. That is largely down to the high street millions of people. retailers’ involvement. The other part of that is the revolution led by Australia, which was then picked Q514 Chairman: Twenty years ago I was drinking up by Chile and, to a lesser extent, by South Africa. Hirondelle. That was a totally diVerent way of approaching wine, Mr Paul: I will not tell you what I was drinking. The actually listening to what the consumer might want democratisation of wine referred to in the notes here before you put something onto the market. It also is, I think, a good term. It has really been led by two involved some basic business practices, like not going things, first of all the supermarkets getting involved to customers and saying “Look, it costs this. Do what with wine, which was not really the case 20 years ago; you like with it”, but actually going to a customer and and, secondly, the Australians coming into the saying “Look, we think this is probably worth market, which happened around the end of the around £5 a bottle and our price takes into account eighties. There was a combination of the two, with what you might need to sell it oV your shelf” et cetera, 3714281017 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul et cetera. That is what would be standard practice in Q516 Chairman: Some of the Old World producers virtually any other grocery category but quite new to are rather sniVy about the fact that, if you open a the wine trade. The Old World, if you like, has picked bottle of New World wine, it tastes the same every up on that to some extent but not to the same extent time you open a diVerent bottle. It seems to me that (it tends to be much more production-driven). Those the consumer quite likes that consistency, whereas were the two key things, and they happened around the producers seem to think that this is terribly the supermarket revolution in the early eighties and artificial. the Australians came in at the end of the eighties. Mr Paul: If you are a purist and very seriously into wine, the idea of vintage variation appeals, because wine becomes almost a lifelong study and therefore vintage variation is something that is attractive; talking about it is attractive too. If you are the Q515 Chairman: You said that the traditional average consumer, the last thing they want is vintage producers in Europe had picked up to an extent. How variation. far have they picked up? Are they still blaming the consumer for the fact that they are not drinking Q517 Lord Plumb: On marketing, a lot of enough? supermarkets are obviously at airports, but I Mr Paul: If ask the average person in the wine trade understand that there is a problem with transfer why was Australian wine successful, they will say it is passengers who are coming in, moving across— down to the style of the wine (it is pretty drinkable getting another airplane to go elsewhere—and wine in most instances); or it is down to the finding that their purchases have been confiscated, consistency, in that the bottle tastes the same every V time you buy it; or it is down to accessible labelling, which is causing some chaos in di erent airports. which again is partly true. However, what people Could I just ask whether you are aware of this and forget is that the structure of the industry in whether you see action being taken to deal with it? Australia, in New Zealand, in Chile and in Mr Paul: I am not aware that it is a big issue. I have Argentina—not in South Africa or California heard instances basically of people not being aware of though—was totally diVerent to the Old World the fact that, if they buy a bottle here, it might be structure. The diVerence was that, it could be argued confiscated somewhere else. I am sure that is the best wines in Australia and New Zealand are extremely irritating, but it is not something that often produced by the biggest companies, whereas if people in the wine trade would talk about as a big you take France, Italy, Spain and Portugal the best issue. wines are generally produced by the smaller niche producers while the big guns basically produce Q518 Viscount Ullswater: You were talking about sometimes not very good stuV. Therefore, what the the structure of the New World against the structure Australians were able to do was not only to introduce standard businesses practices to the marketing of of the Old World and the development of the wine but they also had the resource and the wine- Australian market. Is that because they were from the making availability to sell premium wines through beginning able to have much bigger holdings and, those business practices as well. If you take a brand therefore, able to standardise and mechanise and that you might be familiar with, such as Penfolds, blend (or whatever they do to make this consistency) Penfolds was able to sell wine at £5 a bottle but was which I think we were hearing from so many of the also able to sell a £100 bottle of wine within the same producers in the Old World, who are on one and a range. And therefore you created this fairly seamless half hectares and producing something which is V brand that went across diVerent price points whereas bound to di er from year to year and from farm to if you look at the French market it is either down here farm? or it is fantastic Bordeaux and Burgundy, and in the Mr Paul: That is crucial, because the whole culture middle you have a bewildering array of wines which and ethos of wine making is going to be diVerent if change virtually every time you go into a restaurant you have an almost infinite amount of land to expand or oV-licence and nothing really connects the two. into. You could be a very, very go-ahead producer of The Australians were able, through the structure of Burgundy, but actually there is not much you can do their industry, to connect the two. New Zealand does other than, perhaps, make better and better wine if the same and so do Chile and Argentina. South you cannot get more land. I am sounding quite New Africa has a structure which is more like France, and World-biased, but one should not assume that California is somewhere in the middle. The New everyone in France and Italy is stuck in the last World had the structural benefits and was therefore century, or the century before, and that everyone in able to market their range across a broader array of the New World is a fantastic marketer and wine price points. maker. That is definitely not the case. 3714281017 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

134 european wine: a better deal for all: evidence

14 March 2007 Mr Michael Paul

Q519 Baroness Jones of Whitchurch: Mr Paul, I from a Tesco store that has 700 lines and from a would like to follow up a little bit about your garage forecourt that might have ten, you will go to organisation. You have a website, and we have seen buy from the Tesco store because Tesco has more some extracts from that, which have been very credibility as a supplier of wine. So people are helpful. Can I ask you: do you put all the research actually buying into the confusion and that is a key that you do on the website? Or is that only a point about wine. Subconsciously or consciously, selected taster? they actually like the confusion because it implies Mr Paul: It is a selected taster normally, because we that it is more aspirational; this is something they would come to an agreement with the people we do it really do not understand, so it must have a lot of for as to whether they were happy for this to go into added value in it. Complexity adds value, if you like, the public domain or not. Some companies do so even though they may always buy Jacob’s Creek. I because it is good for their own publicity; other think that is a crucially important point. companies would choose not to. We are obviously using the website to tease people as well. Q523 Baroness Miller of Chilthorne Domer: I would like to turn now to the question of GIs. I found some Q520 Baroness Jones of Whitchurch: There was a of your comments on them were very interesting, very useful report that we downloaded called “How people buying into the sun-splash dream and so on. do consumers select wines?”. But that was going back But actually the GIs do not really reflect that. I would to 2002. Presumably you have done other reports have thought that for most visitors to France, for since then on how consumers select wine. example, then the south of France, say Languedoc- Mr Paul: Yes. Roussillon, would have far more visitors than Chablis and within Languedoc-Roussillon all those Q521 Baroness Jones of Whitchurch: Can you give us little GIs would be pretty meaningless. How do you a flavour of how things have changed since 2002? think the sector should start to address that in Mr Paul: The average consumer is more confident actually making more of a link between what the when buying wine now, and one should not over- consumer understands as that sense of place—a place estimate that, and therefore maybe buying a wider that they visit or a place that they would like to visit— variety of brands than perhaps they were buying as opposed to something that is actually such a small before. As they become more confident, they are geographical area that it is meaningless? hopefully paying a bit more for the wine. The key Mr Paul: I think that is a very interesting point, and thing which is often forgotten when people talk about of course a lot of these GIs are successful and how consumers choose wine is that the first decision premium because they have been around for so long. they make is not about price, it is not about what they There are examples of names which, if their wine were like or do not like; it is about whether they are going launched today and did not exist beforehand, it to drink it themselves or whether they are going to probably would not get remotely close to the price it take it to someone else’s house. That is absolutely actually gets simply because it has gained from crucial. They will pay more if they are going to take having been around for a hundred years or so. There it to somebody else even though they know when they are other GIs—as you rightly point out, in the south go there that they are probably not going to be of France there are a lot of them—where actually a drinking it themselves, and that it will get hidden lot of the wine is pretty good but there is no away. Also they will play safe, so maybe they will awareness amongst the consumers of that wine being drink a Chilean Chardonnay at home but they buy a good because it does not have that history behind it bottle of Claret to take to a friend down the road. It and it has not necessarily been marketed very well. sounds obvious when I mention it like that, but it is There are 750 appellations in France and you could often forgotten. People think it is all about price, get out your pen and end up with 500 and agree a way price, price or deal, deal, deal. But actually it is not. of marketing them in a way which would be appealing to the consumer. If you could start again Q522 Baroness Jones of Whitchurch: Of the research and do that, then that would be sensible; but I would you have done about how they choose wine, do you suggest it is unrealistic. By cutting down the number get a sense of what they would like, in terms of more of GIs do you improve things at all? I would argue information that we might be able to help deliver to that actually that is not really the issue. There are an them, that would make those choices easier? awful lot of GIs that need to market themselves Mr Paul: That is a good question because, if you do better. We have just got a project working with research, the consumer always says it is so confusing, InterSud in the south of France to do just that, but it that this is a impenetrable maze. But actually there is is terribly easy to analyse the problem and less easy to something which I call the retail paradox, which is come up with a solution of how a particular region in that if, say, you normally buy Jacob’s Creek and you France should diVerentiate itself from any other are given the choice between buying Jacob’s Creek region in France when maybe its wines are relatively 3714281017 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul similar to another one down the road. I suppose the the constricted European market place and that they point I am making is that the whole thing—the are more designed to protect existing producers than patchwork quilt, if you like—as a totality adds such they are to give information to consumers. I would huge value almost because people do not understand like to have an idea as to your definition of it, which is really the point I was making earlier. If “accessible” labelling. Secondly, what sort of you cut out half of them and simplified it so you had information do you think should be allowed? Should neat little rectangles on a map, you would probably there be complete freedom of labelling? If there were destroy the added value pretty well over night. The to be complete freedom, how do you link that to the issue is how do you take something which is protection of GI status as being partially valuable to production-driven and was set up to avoid terrible selling wines? wine into a marketing opportunity? That is where the Mr Paul: I actually have a couple of bottles here, French generally have not been good and the Italians which I thought might illustrate the point. I did not have been worse. The only people, I would suggest, pick one of the big Australian brands but this is an who have done it particularly well are the Spanish, Argentinean brand called Argento. It is well designed with the way they have given much more freedom and it looks as though it could have been around a and allowed almost companies to become GIs. That, long time, even though it has not been. It has to me, has a lot of potential but then the way the Argento, a very clear brand name; it has the variety Spanish trade is structured there are actually big if you need to know it. There is information, the real companies who, more on a New World model, Argentina, on the front label, and then there is a mass produce some of the finest wines. of stuV on the back label which you either say you cannot be bothered with but it makes terribly Q524 Baroness Miller of Chilthorne Domer: The interesting reading or, when you take it home, you wine industry is much more complex, but if you take look at it and see it has all the legalities. This is food now in Britain, for instance, with beef or lamb designed by a UK company and most of New World or cheese, it is tending to move the other way, into packaging would fit into that. That is attractive, being much more specific about area. You talk about appealing and, if the consumer only wants to know salt marsh lamb or beef from Ruby Country in where it comes from, it tells them that; if it is a brand Devon,—very specific but tying it into the qualities of they know, it tells them that; and, if they want to the particular area it comes from, a very sunny area know what shoes the wine maker wears when he or the seaside, for example. Do you think the GIs treads the grapes, they can read the back label. Now actually give consumers any sense of what it is about this classic French regional label has the number it the place beyond famous names? Or is that the move is—105887—in the make, as if anybody really minds you think they will be making? about that, and no back label at all. That is an Mr Paul: I think that is the way they have to do it. extreme. Funnily enough, I looked on the shelves in Y The thing about what is happening in other the o ce and most Old World wines now have some categories—I do not want to sound cynical because I form of back label. I had to search quite hard for this. do not mean to be at all—is that the move to create If you take the top clarets, they do not have back provenance or to create more naturalness of product labels; it is assumed you know. There is this mixture is actually marketing-led. Then, of course, the of arrogance on the one hand, this assumption of product has to live up to the hype or whatever, but it “why would you want to know anything more, just is marketing-led. Wine is sitting over here with all this drink it and you know it is great kind of thing”. At provenance and history and millions of GIs; food is the other end, there is this kind of “what does it really actually moving in that direction, with wine as a kind matter, it is just for everyday drinking, why do you of role model. Wine has already got there but it has need to know the name of the wine maker”? Or, it is got there in this totally chaotic and amateurish far too expensive to put a back label on and the production-driven way. The issue for wine is: how do machine will not do it, whereas this obviously is you inject marketing thoughts over here to make designed by a marketing department but trying not to what wine has got more meaningful to the consumer, look to designed, which is also important. That is an who is increasingly demanding what you are talking accessible label. You could argue that there are more about, which is more provenance, and they want to accessible labels which would have, say, Chardonnay know who makes it and whether it is made in the right in big letters, whereas that does not really tell you way, whether there is quality control, et cetera. Wine other than that it is a bottle of French wine and it is has all that to a large extent but it is not marketing it red. eVectively. Q526 Lord Cameron of Dillington: Those may or Q525 Lord Cameron of Dillington: I would like to may not have been decisions taken by the talk to you about labelling. It seems to me that the businessman responsible for producing and restrictions on labelling sum up the worst aspects of marketing the wine. But what worries me is the fact 3714281017 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul that there are so many restrictions on the label by the Mr Paul: I was involved in this around 2000/2001, EU regime. What you are saying therefore is that because we were getting such a high incidence of there ought to be total freedom? Or maybe not? corked wines. Corked wine is a fault in either the tree Mr Paul: Yes, I am saying there should be total or the process, which means that wine either does not freedom but obviously the legalities have to be on taste very good or tastes totally flat. Of course, if it there. It has to say where it is from, the alcohol tastes flat, the consumer just thinks it is a boring wine, strength has to be on there, and of course we are now when it actually is not; it is just the cork. To take for getting into the discussions about “units of alcohol” example an incidence of 4%, if you think of the labelling and whether there should be any health market—that is six million cases of wine coming into warnings on the back label. That has all got to be the UK—it is totally unacceptable. The cork industry taken into account. But apart from that there should to us in the trade did not appear to be taking the be freedom for anybody to say what they want on a problem seriously enough. Then you had plastic label. Let us give an example here, if you are a corks coming in, and then of course the move to Burgundy producer. There is a lot of discussion in screw caps, which was led by Tesco as an initiative. At Burgundy about whether they should be allowed to that time all the consumer research said that screw put Chardonnay on the label, because some caps were seen as cheap and should not be used. Burgundy producers want to be able to tell people However, screw caps are now much more acceptable, that their Chablis is a Chardonnay. As a marketing particularly for white wines. Wine makers always did person, my view is that that is the last thing they want send their samples round the world in screw caps and to do. Why would they want to tell people that all they have done for years and years, because they Chablis is (in inverted commas) is a Chardonnay? know they are not going to get a corked wine. Of That is like saying that Champagne is just wine with course, the Portuguese are now doing a lot more bubbles in it. You destroy your image in that way. work on improving the quality of the cork, which is However, that should be a business decision. a good result all round. I have to say that the amount of cork that goes into wine bottles is a reasonably small proportion of the amount of cork that is Q527 Lord Cameron of Dillington: We are talking produced, so I think to blame the wine industry for about the EU regime? aVecting the wildlife in Portuguese forests is a little Mr Paul: Absolutely, so if a Burgundy producer bit strong. wanted to say Chablis and then Chardonnay in big letters, they should be allowed to do so. Q530 Chairman: Do you have anything to say about the rise of the back label? Tesco on their own brands Q528 Viscount Ullswater: Could I ask about bottle have a back label, which gives about eight diVerent shapes? Is there any kudos in bottle shapes? Those to bits of information in a very concise way. Is this me look like Bordeaux bottle shapes. Would because consumers want the information on the Burgundy be very upset if you started using a back label? Burgundy bottle to sell a Bordeaux wine? Mr Paul: I think there is some information that needs Mr Paul: The interesting thing is that, from a design to go on a label, and it is easier if it goes on the back perspective, labels look much better on bottles with than on the front, because obviously it gets in the way shoulders than they do on Burgundy bottles. of the design on the front. Tesco have done research Generally, marketing people prefer bottles with into this; some consumers never read back labels, shoulders, but again there should be total freedom. others do. The issue with labelling is that you have to The New World has a real problem, because in most appeal to everybody on a back level; some never read of the New World countries there is a glass monopoly it and some want probably even more than is on it. and that is why Australian bottles tend to look all the Tesco have come to the decision they have. They are same—pretty dull, whereas if you go to Italy every a pretty professional outfit and I am sure they have town seems to have a glass factory and that is why researched that pretty well. you get these kind of olive oil bottles on the wine shelves. That is an aside, but generally speaking New Q531 Lord Plumb: You spoke earlier of World would go for shoulders for design purposes. protectionism, but would you like to spell this out a bit, protectionism both internally and externally, and Q529 Lord Plumb: Could I just ask about corks and how this compares with protectionism that may exist screw tops? We have heard evidence from the World in various parts of the world where they are Wildlife Fund—and I could not for the life of me importing fairly large quantities. You did not think why they were concerned about wine—but, of specifically refer to protectionism as such, but in the course they are, because the cork trees are coming market place you were making the comparison down. That is their argument and I wonder what the between the wines that are coming in and the varieties market is looking at at the moment. and so on, with the wines that are produced 3714281017 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul internally. There are protective measures which the argument all France has to do is take this incredible EU has implemented for quite a long period of time. provenance and start marketing it in a way a hundred Really, my question is how this compares with times better than it is at the moment. It is purely a protectionism in some of the New World wine marketing problem. The potential is there. markets. Mr Paul: Protectionism exists, if you like, informally Q534 Chairman: You were talking about the in the New World, in the sense that, if you are a aspirational nature of trading up to the higher levels. French producer wanting to sell your wines in But a lot of French wine is not at that level, is it? Can Australia, you might find that pretty tricky—finding the European producer fill the sort of Jacob’s Creek, a distributor, finding a retailer who would be middle range, £5 a bottle market? bothered with more than just the top-end stuV—and Mr Paul: That requires much greater flexibility in obviously marketing your product to consumers who wine making practices and vineyard practices. It also are patriotic in the sense of buying their own product. requires much greater freedom in terms of cross- The same is true in New Zealand, Argentina and regional blending. The argument I was using before Chile. Only the top-end wines tend to get through. was on a generic level. Let us use Bordeaux or Here of course—without wanting to be impolite Burgundy as an example. To get down to the about our own wine industry—we are very open to individual producer potential, they are obviously not imported wines and I think there are something like going to get together with each other all the time, they 24 countries on our shelves at the moment. This, in a are competing with each other. What can they do? way, is by far the most open of the markets. Eire is the They need much more freedom to be able to come up same, but Scandinavia has the monopoly system, with styles of wine and labelling of wine that actually which means there is not exactly competition at the appeal to the consumer. It is far too rigid. For retail end. Most of the other countries in Europe have example, blending allows the wine maker to perform. their own wine industry to protect, but it is about the Even in Australia, a Chardonnay only has to be 85% consumer favouring their own products as much as Chardonnay; it can be 15% something else. That is a anything else. In the New World I would say there is huge flexibility. no kind of formal protectionism but the informal one is very powerful. Q535 Chairman: That is what is missing at the moment in the European structure? Q532 Lord Plumb: We find that in other products Mr Paul: Absolutely. The point was made earlier too. about the landholding. If somebody only has two Mr Paul: Yes. hectares, what can they do? Somebody who has 10 hectares and could plant another 10 to produce some Q533 Chairman: We have European wines losing interesting blend which could sell at £5 or £6 a bottle, market share in Europe and overall consumption of then they should be allowed to do that. The issue is: wine in Europe going down. What do you think the who is going to decide whether that person should be EU wine producers have to do to reclaim some allowed to plant and that person over there should ground? not be allowed to plant? Mr Paul: Let us say you were in charge of the whole of the French wine regime. My message would be that Q536 Lord Plumb: Is that due to the regime itself? Or all these New World people have come in, they have is it individuals who are traditionalists—they work in increased consumption, they have increased interest a certain region, this is their wine, this is the way it is in wine. There is far more excitement now in wine produced and they are not going to change? Is it a than there has been; it was a pretty jaded market in commercial problem? Or is it a political problem? the early eighties. The New World has come in and Mr Paul: I think that is a very interesting point. I was done that, they have provided a platform for the talking at a Brewers’ conference recently and, if you French or the Italians or the Spanish to say, “OK, we talk to brewers, they accept that the reason they are have had all that stuV, now let’s get onto the real in business—apart from having fun and making great thing” or something like that. The overall marketing beer—is to make an acceptable return on investment. premise is pretty straightforward. What is interesting That is fundamentally why you are there, otherwise if you do research into Australian wine drinkers is you go out of business. I would suggest that in that you find that Australian wine drinkers segment France, Italy and Spain, the majority of companies— into people who drink Australian wine up to, say, £5 not in percentage value but in volume—would not a bottle and then buy something else when they want understand that as a motive why they are in business. to trade up or for special occasions; and the I do not mean that pejoratively. If you are a family something else they go and buy is French or Italian. company, your main objective is maybe to hand this Even the average Australian wine drinker is actually over to your son or it may be that you just want to buying into premium French wine. If you take, that make great wine. The idea of making a return on 3714281017 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul investment and having a business plan, which most pricing accordingly? They do seem to be powerful beer people would accept is the norm, actually does and important. not exist in wine. If you look at the co-op system, the Mr Paul: Yes, they are. They are important, but objective of the co-op is to get rid of the wine at the remember that a supermarket, just like a producer of end of the vintage. There is no incentive to make wine, is marketing-oriented and will try to sell that better quality, because they are paid by the hectolitre. wine for the highest possible price they can get away The proﬁt motive, which is what drives business with. That is just the normal rule of business. The fundamentally, does not exist in wine to the same consumer will then decide whether they come back extent that it exists in other categories, and that is for more. crucial to understand. The point is very valid: if people are not bothered about making a return, you Q540 Chairman: The attraction of New World wines can say, “Lucky old them, what a great position to be for supermarkets, I suspect, is volume and in”. But how can people who do need to, compete consistency? They can get both? with people who do not need to? Mr Paul: And service.

Q537 Baroness Jones of Whitchurch: As you were Q541 Chairman: If the supermarkets, say Tesco, saying earlier, over the hill comes Tesco and waves a want to sell French wine, do they not run into the cheque guaranteeing income over a number of years. problem of getting guaranteed volumes and Presumably, as you were saying, those supermarkets guaranteed consistency? themselves can change production methods, Mr Paul: That is why I raised the issue of service. practices and all those issues you have been raising. What supermarkets found was that generally the They have the power to make that change which the New World companies took time to understand how actual producers themselves would not necessarily retailers went about buying wine. When the buyer initiate? arrived in the winery, everything was ready. They Mr Paul: That is absolutely right and that is why knew who Tesco were. It sounds an obvious thing to major retailer involvement in wine has been so do, but sometimes buyers say they go down to the beneficial, because it has not just changed the market south of France and the wine maker would be oV place, it has helped the person who wants to get on in playing boules or something, or the samples were not wine develop by giving them advice, by sending in right, or all they wanted to do was have a long lunch. perhaps wine makers. The supermarkets, it seems, I am exaggerating for eVect, but in the New World it are extremely well qualified to be able to go into a would be “bang, bang, bang” and the sales guy from winery and make recommendations; it is almost a the distributing company would actually fly out there free consultancy. two days beforehand so everybody was primed as to what this buyer was going to want. This does not sound like rocket science, but in the wine trade it was. Q538 Baroness Jones of Whitchurch: Would most It is about an attitude. It is not so much just about producers want one of those supermarket contracts? what the product tastes like. Remember that the Or are some of them a bit sniVy about it and think it average buyer for a supermarket probably spends is beneath them? 75% of their time on administration and 25% on Mr Paul: Having worked for French people in the buying, so they cannot aVord to deal with hundreds past—I am going back a while now—the idea that of people who maybe do not know who they are, or you might want to have your wine in Sainsburys a shipment that does not arrive because the bottler rather than in Harrods—why would I want to do broke down. They just cannot deal with that kind of that! I think that is breaking down now, but I am sure issue, and the New World companies behaved in there are still people who take that attitude. You have what one could call generally a more acceptable way to remember that supermarkets here are much more from a business perspective. sophisticated than in many parts of the continent. They look far better here and the wine range is Q542 Lord Bach: You made a very interesting point obviously pretty sophisticated, whereas maybe in a about how Old World wine makers are not so French market town the supermarket is seen as V attracted by the profit motive, that it is not so much performing a di erent task. a motivator for them as it is for others. Mr Paul: That is a sweeping generalisation. Q539 Viscount Ullswater: Are you saying that the price in a supermarket is equivalent to quality? You Q543 Lord Bach: Could one put on that particular were talking about buying your £5 bottle of comment that one of the reasons for that in the Australian Chardonnay and, when you want to modern world, why they have not had to, is because impress your friends, you spend more. Are the the EU tax payer has been subsidising them, so they supermarkets making a judgment on quality and do not have to, or up to now have not had to, face 3714281017 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul reality. I do not mean the very top of the market, the innovators, who have a market, to realise their wonderful wines. I mean the whole mass of wine that potential. In some instances this must mean allowing we have been talking about a lot, where the motive them to plant more. It has to be so, otherwise you are that encourages business generally has not had to restricting the entrepreneurs who could help to turn apply because in the end the EU tax payer will fork this round. What I said earlier was: how do you out. I am putting it in a particularly crude way but decide whether somebody who wants to plant more there must be an element in it. has a sustainable business plan or wants to plant Mr Paul: The co-op system, if you like, works in the more on the basis that he hopes he might be able to sense that the objective of that company—that co- sell it somewhere some day? op—is to just get rid of the wine at the end of the vintage and the growers know they will be paid for Q547 Chairman: The market will do that, will it not? that wine, irrespective of what happens to it. That Mr Paul: The market will do it, but only after he has does not work in the New World. been allowed to plant. On balance, I think you have to allow people to plant, because I cannot see any Q544 Lord Bach: Do you agree that this needs to way round it. change? Mr Paul: It has to change because, for a start, you get Q548 Lord Cameron of Dillington: Going back to this huge issue of surpluses, which is ultimately what Lord Bach’s question about grubbing-up, (the other it leads you into. half of the equation, as it were) if there is going to be a grubbing-up scheme, it will be re-introduced between Q545 Chairman: Can you go over the co-op system now and 2010 or 2011—this is what the current again for me? It works on the basis that the producer proposal is. Various Member States are saying that sells to the co-op and what he gets from the co-op is they want to direct where the grubbing-up should not related to how much the co-op then sells the take place. Do you think it should be entirely at the ﬁnished article for? choice of the producer? Or should there be any form Mr Paul: The grower knows that at the end of the of direction as to where these grubbing-up grants year he is going to get paid according to how much he should go or should be targeted? brings into the co-op. It is not a question of him being Mr Paul: I suppose from an idealistic point of view it paid by the hectolitre. At the very least you need should be at the discretion of the producer, providing someone to say “we do not need that much, could they are not using that as a means of delaying the you produce half the amount next year but at a higher process. We are talking here as if the surplus is an EU quality”. It sounds a very obvious thing to be able to issue. The biggest single problem that the wine say. In other words, it is not market-led. category has in the UK—you could also argue world- Traditionally, co-ops have been selling to the local wide at the moment—is the Australian surplus. The market, they may been selling within France or Spain Australians got terribly optimistic in the late nineties, or Italy, so as a whole it is market-led because why and the huge irony of the wine category is that the would anybody produce wine that was not being country that revolutionised the way we look at wine, drunk somewhere. But now, of course, we have the by introducing such obvious things as talking to the situation where there is a surplus that is not being consumer, is now behaving—and has behaved for the drunk anywhere. last few years—in a more production-driven way than some of the worst parts of the Old World. Q546 Lord Bach: Keeping with supply and demand, Therefore, we have almost an absence of a role which you have just touched on, we have been told model, because the Australians were role models and that the problem is that the EU produces more wine that is a huge issue. Then, of course, the Californians than it can sell, so supply exceeds demand. I am had a surplus and they just grubbed up. The particularly interested in your views about the Californian surplus will not exist this year. The capacity of grubbing-up to help solve this particular Australians are far more optimistic. They believe issue. You say you would favour that in that, if they have a surplus, that is an opportunity; commercially non-viable areas. Would you also and that has created huge problems. favour the continuance of restrictions on planting rights, which some people say—we have heard Q549 Chairman: What are they doing with their evidence to suggest this—that that may prevent surplus? eYcient producers from actually entering the market, Mr Paul: They are discounting it and distorting the so it may be a backward step rather than a market. If you look in the UK over the last few years, forwards step? you have had most of the Australian brands and Mr Paul: I agree, I think it would be a backward step. companies discounting like mad to try to move wine, If you want to encourage a more market-driven wine because this is the easiest market to move large industry, you have to allow those people who are quantities of wine and that has distorted this market 3714281017 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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14 March 2007 Mr Michael Paul place. What I am really saying is that that is a to be able to produce wine that the consumer will marketing problem, which the Australians and want to drink? Californians are dealing with in their diVerent ways, Mr Paul: Yes, but that is the market behaving as whereas in the Old World you have always had a markets should behave in the end. surplus, there has always been a wine lake. This issue now is that the wine lake tends to be more drinkable Q551 Chairman: I suppose the question is: what do wine than it used to be in the past. In the past the the people who are presently producing that type of industry got rid of it somehow but now it is a bigger wine do in that situation? Mr Paul: problem from a marketing perspective, because it is There will be always people coming into the more drinkable wine and therefore can come onto the market at a lower price level. There will always be people who want lower-price wines. What I am market. The fundamental issue of wine round the saying is that, if the average price of wine is now £4 world is that it is not profitable. Even the top and it went to £4.50, that would add £6 a case on 150 Australian companies, even when they did not have million cases to the profitability of the industry. But it a surplus, were not making an acceptable return on would not necessarily aVect the volume of wine going investment. The concern, therefore, is that if, New through at lower levels. It would just mean that on World companies cannot make a return and Old average people are spending just that bit more. World companies, if they decide they need to make a return, cannot make an acceptable return and if Q552 Lord Plumb: Can I just ask you about Eastern retailers even in this market, are not making the kind European wines? Do you see a glowing future for of return they can make on wine as they can make on them? other categories, then actually that will be the biggest Mr Paul: If they can find a reason for the consumer single issue going forward, which is why we have to to buy them other than that they are just not very spend our time trying to get the consumer to trade up expensive. But that is tricky, because the consumer to sustain the growth we have had for the last 10 expectation of an Eastern European wine is that it is years. quite drinkable but it is cheap. It is going to be very diYcult to break out of that mould, however good the wine is that is produced. Q550 Chairman: If the consumer does trade up, that Chairman: This has been a somewhat diVerent tone has quite a significant implication for the distribution to some of the tones we heard last week. Thank you of wine. There are going to be areas that are not going very much, Mr Paul. 3714281018 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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WEDNESDAY 21 MARCH 2007

Present Bach, L Miller of Chilthorne Domer, B Brookeborough, V Palmer, L Cameron of Dillington, L Plumb, L Greaves, L Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V

Memorandum by the United Kingdom Vineyards Association (UKVA)

(i) The United Kingdom Vineyards Association (UKVA) represents the growers and makers of the majority of grapes and wine in England and Wales. We thank you for this opportunity to provide evidence on the reform of the EU wine sector.

(ii) Before answering the speciﬁc questions prepared by the committee, we would like to draw to the committee’s attention the main EU wine reform issue of concern to the producers of English and Welsh wine (wine made from grapes grown in England and Wales; not to be confused with British Wine, which is wine fermented in the UK but made from imported grapes or must).

The Elimination of Planting Restrictions

(iii) The elimination of any hindrance to new plantings in the UK is the UKVA’s primary objective in the reform process. Whilst many EU wine regulations restrict how our members are permitted to operate, we have proved over recent years that we can produce wine of the highest quality, and make and sell that wine within the current regulatory system. In the UK we see a need for rural diversiﬁcation. For growing numbers of farmers and land owners, vine growing for English and Welsh Wine represents a real, sustainable development opportunity. We wish to see our industry be able to expand without regulatory obstacles. At the current rate of planting, we will shortly exceed the 25,000 hl de minimis limit that exempts the UK from the EU-wide planting ban. If we became subject to that ban, it would curtail any further development of our industry just when wine production in the UK is making great progress without any subsidies.

(iv) The planting ban is due to expire in 2010, but there are forces within the EU that are looking to extend the ban to 2013 or even later. We are concerned not just about the potential for the ban to prevent planting, but also its adverse eVect on vineyard business planning and, hence, disincentive to investment in our industry. If the ban is removed, businesses will be able to make expansion plans with certainty.

A. The Need for a Regulation

1. What is the nature of the case for having a wine regime at all?

1.1 English and Welsh wine makers and grape growers have never benefited from the market support measures that are central to the current EU wine regulations. The small but flourishing English and Welsh wine industry has made excellent progress despite, not because of, EU wine regulations. Whilst many member states are consumed with getting their share of the wine budget, we are far more concerned in seeing a reduction in red tape and disadvantageous restrictions to permit our industry to continue to grow and develop. The wine reform should seek to promote quality wine production and increase competitiveness. In the medium term, we believe all EU producers would benefit from the reduction in bureaucracy that we seek. We therefore support deregulation subject to minimal, necessary, responsible regulations to protect consumers and the environment. 3714281018 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2. Why should wine quality be regulated? Why cannot consumers choose between wines as they do between other products? 2.1 Wine quality should only be regulated to the extent that it is preventing inaccurate or fraudulent labelling. Where a GI has eVectively become a “brand” with signiﬁcant value, it should be possible for producers in that GI area to have more local control over the way that brand is exploited. 2.2 However, the whole area of labelling should be focused on the consumer rather than the producer. Currently, many producers are prevented from putting much useful information on a label, such as vintage, grape variety or region of production, which can only be helpful to the consumer provided it is accurate.

B. The Market

3. Given the existence of a wine regime, how might a better balance be achieved between the supply of and demand for wine and wine products produced within the EU? 3.1 A balance will only be achieved when the focus is on the consumer—ie demand. The current market mechanisms support producers that are producing wine that nobody wants to drink. These measures must be removed. 3.2 Similarly, those producers that are making wine that consumers wish to drink should be permitted to expand. For this to happen, planting restrictions need to be removed. 3.3 The New World has given the EU an object lesson in the importance of focusing on the consumer rather than a “traditional product”. The result is that New World wine has been winning over consumers at the expense of EU wine. 3.4 Of course, many of the world’s best wines are made in the EU and enjoy strong demand. These producers will no doubt continue to produce excellent wines based on the traditions they embody. However, this should not mean that all traditions are supported, if the resulting wines do not enjoy consumer support.

4. Is the EU wine industry, within the current regime, sufﬁciently competitive within the global wine market? How can it be made more so? 4.1 Others will be able to provide detailed data on how poorly EU wines are currently competing. However, the core problem is as B3 above: it is necessary for the EU wine sector to focus on what the customer wants. 4.2 With the exception of the UK, every EU country shows falling wine consumption whilst USA, China and India are all very large, growing markets. Subsidies given to EU growers provide an excuse for compensating tariVs to be applied by importers thus reducing EU competitiveness in these markets.

C. Structural Measures

6. Are current measures (eg grubbing up, restrictions of planting rights) an appropriate means of bringing supply and demand into balance? What further measures need to be taken in these or other areas? 6.1 These current measures have been tried for several years, and the results speak for themselves—surpluses are increasing, “crisis” measures are becoming the norm and EU wines are losing market share. 6.2 One cannot beat market forces of supply and demand. The EU wine market must be permitted to respond to demand by deregulating planting rights and permitting producers to compete on a level playing ﬁeld with the rest of the wine world in areas such as oenological practices and labelling. 6.3 We recognise that some measures may have to be put in place to reduce the “pain” during the transition, but the aim must be, as the Commission indicates, to deregulate. 3714281018 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7. How signiﬁcant an issue is illicit planting for the supply situation? 7.1 Commenting from a UK perspective only, it is not an issue in the UK.

8. Is there a case for the continuance of remedial measures (“crisis distillation”) to deal with exceptional market conditions? 8.1 These measures should only be considered if they really will apply to genuinely exceptional market conditions. In the past, they have tended to become an ongoing part of subsidising those producers that make wine for which there is little demand.

9. What alternative outlets (ie other than wine sales) exist for excess production? 9.1 No answer provided.

10. What is the potential impact on wine producing areas of liberalisation of the market? How sensitive are these economies to change? 10.1 There are producing areas that rely substantially on subsidies to survive. However, this cannot be beneﬁcial to the tax-payer or the EU wine sector in the medium or long term. We recognise that measures may be required to soften the transition, but this should not stop the necessary changes being made.

D. Marketing

12. Given continuance of an EU wine regime, what are your views on labelling and quality issues? Are current arrangements conducive to consumers understanding what they are buying? Is there scope for rationalisation and simpliﬁcation? 12.1 Labelling is extremely important for consumers. Making labels more understandable has been one issue that has helped New World wines increase their market share. Customers expect to know the vine varieties, the vintage and the source of the wine, regardless of its quality rating. 12.2 Quality ratings would seem to be a good idea, but in practice they are not usually overly useful. Anyone with a reasonable understanding of the appellations of European wines knows that it is often not enough just to know how the quality system works. In Burgundy and Bordeaux, for example, knowledge of the individual producer or chateau is also essential. 12.3 The important element in labelling is to ensure that it is accurate and not misleading. Quality would probably be better delivered at the local/regional level, where all producers involved have an interest in increasing quality, rather than through national or EU regulations.

13. What part has marketing played in the rise in sales within the EU of wine produced outside the Community? 13.1 Marketing and targeting what the consumer wants has been fundamental to achieving such high market penetrations. The doubling of the UK market in the last 12 years has been from “New World” wines, which are clearly and understandably labelled. 14. What lessons might be learned from the penetration of non-EU wines into the EU market? 14.1 Focussing on customer requirements has been all important. Other respondents will be able to provide you with a much more detailed view of how the New World has achieved its success. 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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E. Wine Making Practices (WMP)

15. How suited are current regulations on WMP to a competitive global market in wine? What changes would you like to see? 15.1 The current regulations on EU oenological practices put EU producers at a disadvantage to New World producers. Where consumers perceive a quality product that uses traditional and more restrictive practices, it is sensible for those producers to continue to build on their heritage. However, other producers need to innovate and adapt to customers’ requirements and for that they need to be able to compete on a level playing ﬁeld with the rest of the wine world. 15.2 The OIV is recognised as the inter-governmental body that sets out acceptable oenological practices. The EU should adopt OIV practices as the Commission has suggested. It is also important that ﬁnal acceptance of individual practices lies with the Commission so that the issue becomes less politicised.

16. How should enrichment (with sugar or must) be regulated? Should there be financial aid for enrichment? 16.1 Some maximum needs to be set on enrichment, but this issue should be viewed in relation to the quality of the resulting wine. In certain years and for some varieties, producers in Northern Europe may need to enrich by up to 3.5% above. Without this, they would be unable to make the quality of wine they would wish, as alcohol (ethanol) is important in the balance of a wine and also as a carrier for a number of flavour and aroma compounds. 16.2 It seems slightly odd that enrichment is singled out by the Commission without any mention of acidification. Enrichment and acidification are simply opposite ends of the same spectrum. In cooler climates, grapes may not produce the desired level of sugars so musts are enriched to achieve balance. In hotter climates sugars are adequate but the grapes often lose acidity and, therefore, musts are acidified. Both are important in producing the required quality of wine. 16.3 In the process of seeking to balance the EU wine/grape market, we see no place for artificial subsidies.

F. Environmental and Social Impact

18. To what extent and how should reform of the EU wine regime take into account concerns over the potential for alcohol abuse? 18.1 Whilst alcohol abuse is a serious subject, it is not central to the current EU wine reform process. This reform already covers a very wide and complicated set of issues and we feel that the issue of alcohol and health should largely be addressed separately. This reform should concentrate on measures to ensure the future prosperity of the EU wine sector, which represents a very signiﬁcant part of EU agriculture. 6 February 2007

Examination of Witnesses Witnesses: Mr Robert Beardsmore, General Secretary, Mr Robert Lindo, Chairman, United Kingdom Vineyards Association, Mr Michael Roberts, Proprietor of Ridgeview Wine Estate and Mr Owen Elias, Winemaker at Chapel Down, examined.

Q553 Chairman: Good morning and welcome. whether there are groups that fall outwith your Thank you all very much for ﬁnding the time to come organisation? along and help us with our inquiry. It is really nice to Mr Lindo: I am Robert Lindo, Chairman of the know that we have UK vineyards and that it is not United Kingdom Vineyards Association, and I am a quite the esoteric foreign adventure that perhaps a grower and a producer as well. I produce about few years ago it would have seemed. Could I ask you 200,000 bottles of English wine a year. to introduce yourselves, who you are and whom you Mr Beardsmore: Robert Beardsmore. I was the represent. Particularly, it would be useful to know the General Secretary of the UK Vineyards Association extent to which you represent the UK vineyards, until the end of last month but, as I have been 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

european wine: a better deal for all: evidence 145 involved in the process, I have come along today Mr Roberts: If I could go back to 2004, which is the rather than my successor, who is sitting behind me, set of oYcial statistics I started with on this? I am not taking on something only three weeks in. So I have sure whether you would prefer us to talk in hectares been General Secretary for two years, up to the end or acres, to be honest with you—perhaps I will use a of last month. mixture of the two until you get bored. 1880 acres Mr Elias: I am Owen Elias. I am a winemaker for were planted at the end of 2004, producing English wines. Our brand is Chapel Down and we are somewhere in the region of 1.9 million bottles. That the biggest commercial makers of wine in the is spread amongst 330 vineyards, so by definition the country; we do about 500,000 bottles a year, and majority of those are very small vineyards—many are growing. hobbyist. The commercial vineyards, if I take the Mr Roberts: I am Michael Roberts. I am a grower and representation of my own body, which is the English a producer of sparkling wine and a consultant to Wine Producers, which is a marketing body, people who want to plant new vineyards. I am also comprise probably 20 or 25 really truly commercial Chairman of the English Wine Producers, which is a vineyards. Others are selling wines, yes, of course; but grouping of commercial vineyards; it is a marketing- the ones really where the livings of many people orientated organisation. derive from it probably represents about 25. Since 2004 there has been a very significant growth in planting of the three varieties that represent Q554 Chairman: Are there significant vineyards that champagne—that is Chardonnay, Pinot Noir and fall outwith your organisation? Pinot Meunier. Because of the success of two or three Mr Roberts: As far as we are aware, inside the UK vineyards in England who have won some very Vineyards Association, inside the English wine significant prizes, including Best Wine in the producers, the majority of the production of the wine International Wine Trophy—which is the best wine in England falls. There is a lack of registration in the world—three times in eight years, it is knowledge—the statistics are not total—but we can becoming significantly known as a producer of see from what the Wine Standards Board does collect sparkling wine. Because of the financial model that that in fact we certainly control the majority— goes along with sparkling wine as well, which shows control is not the right word, actually, they are it to be truly sustainable—it is a very high added— members. value product and can be made at a profit and produce good returns for changing the agriculture scene. We have seen significant plantings, so much so Q555 Chairman: The other thing I ought to do is to that in fact in the years 2005, 2006 and what is point out that this is a public session and that it is scheduled to go in in about six weeks’ time, for 2007, webcast, so there is a faint possibility that someone we have increased the acreage by about a third— out there may be listening! We have not had any about another 600 acres—and so we will have got up evidence that that has ever occurred, but it is formally to 1000 hectares. We have added to the production, possible! What we will do, if you do not mind, is have and nearly all of this increase, say 90% odd, is for the a question and answer session. To put this in context, making of sparkling wine, and that will have we are coming towards the end of our inquiry now. increased the volume up by about one and a half We have had a number of evidence sessions here and million bottles, making the total volume of bottles in Brussels, trying to cover producers, the trade in its produced in the UK about 3.3 million. Prior to the various guises, consumers and the interests of planting of these three years of grapes the Member States, as well taking direct evidence from predominant wine in the UK was still wine. Probably the Commission and the European Parliament. We out of the 1.9 million bottles, perhaps only about were very keen to have your view, not only because of 350,000 was sparkling wine. As I say, data have not the UK dimension, but because you operate been collected nationally on the diVerentiation of V e ectively outside any constraints that the EU sparking and still wine, but our best estimates would presently impose. be putting it around the 300,000 bottle mark of the Mr Lindo: We wish! 1.9 million. So that will have grown, by the plantings that we put in, to just under 2 million bottles, and Q556 Chairman: You are not involved in anything there is (probably a conservative) forecast now, going like the same degree of regulation. So can I start oV. to 2015, that by that time we will be producing about Can you give us an idea of where the UK industry is 5.6 million bottles of wine. and could you give us a brief sketch of the UK industry, the extent of production and, I suppose, Q557 Lord Cameron of Dillington: Can you translate almost the velocity of growth, because I understand the bottles into hectolitres, please, because that is that has been fairly good. A technical point—is how where the boundaries are? long does it take to get from planting, a farmer Mr Roberts: 3.3 million bottles, is what we are at with making the decision to go down the route of having the current plantings, that happened in 2005 and vines to actually producing stuV that is drinkable? 2006. Those current plantings, when they come into 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias full production, will produce 3.3 million bottles, as well with the production in the UK. It is which happens to equate almost exactly to two and a interesting—and why it has been so attractive, I half million litres (or 25,000 hectolitres). So we are at think, to the farming community—that more that level. But, of course, to answer the last part of recently, whereas I said there were 330 vineyards with your question—how long does it take—the planting 760 hectares (or 1800 acres), new vineyards are going of grapes in 2005 will start to produce a proportion in and they are going in at multiples of sometimes of their crop in 2007 and a full crop in 2008. So the 100s of acres; they are bigger and they are going to be, planting that has gone on in 2006 and 2007 will not and are, more productive; they are going to be be in full production until 2010, at which time we will capable of generating better economies. So we are certainly be at that limit that is imposed, where we are seeing perhaps a diminution in the number of considered to be a wine producing country. vineyards but an increase in the overall acreage.

Q558 Lord Plumb: My Lord Chairman, could we Q561 Lord Greaves: Who is doing the investment know how far north you go and where there are in this? plantings? Mr Roberts: I can cite several examples at the moment Mr Roberts: There are vineyards in Leeds, but the that I am particularly involved with. We have majority, if you look at a pin map of every location, someone who grows a very significant amount of are concentrated probably within 60 or 70 miles of salad crop. He wants to diversify from salad crop and the south coast, going along the whole of the south he has gone to grapes, and he is going to end up coast from Cornwall to Kent. If there was a heavier planting 200 acres. concentration anywhere, it would be in Hampshire, Sussex and Kent rather than anywhere else; but it is Q562 Lord Greaves: So the investment is taking fairly heavily spread through those counties in the place by existing farmers? south. Mr Roberts: Yes. Chairman: Lord Palmer. Q563 Lord Greaves: And not by some outside group Q559 Lord Palmer: How many people are employed going in? in the UK wine industry altogether? Mr Roberts: No. Mr Roberts: I wish I could answer that question; I Mr Lindo: There is some new money as well— really cannot answer that question. Mr Roberts: Yes, that is true. Mr Lindo:—with entrepreneurs who sense an Q560 Lord Palmer: Roughly? opportunity, and it is entrepreneurs at the moment Mr Roberts: I would suggest that it is something who are doing that. approaching 1000 people. To put it in perspective, Mr Roberts: An orchard and asparagus grower and a this change to sparkling wine has caught everybody’s potato grower are planting, and they are planting, by imagination, because we have been establishing historical standards, very large proportions of land. recognition throughout the world for our sparkling And they are doing it because, when they look at the wines, with huge requirements for production end results, they look at the finished goods value per demands—the demand far exceeds supply—from acre; we are talking about £22,000 an acre—that is at overseas and from within the UK. But, to put it in the finished level. So there is production involved in perspective, as a nation what we would like to make that and thereis the sellingside of it,of course, andthis sure that we can hang on to is the fact that we are able is because it is sparkling wine. The area that we have in to produce world-class world-beating sparkling southern England is not dissimilar to Champagne;it is wines. And yes, we are the largest importer of at the extreme of wine-growing but because of that it sparkling wines in the world; we actually import 100 produces a quintessential sparkling wine. It is also in a million bottles into the UK of a combination of very high-cost area and, by virtue of its wine-growing champagne and sparkling wine; 40 million of those conditions, it is a generally low volume area. are champagne itself and 60 million are sparkling Champagne is on the doorstep of Paris, it is high-cost wine, particularly from the New World. It is a large and they concentrate on making a very high added- market of which, if you took a very low average price, value product but, correspondingly, have enough the retail value would be about £1 billion a year. You resources to market the product and we see that it is can see sparkling wine production of about four one of the best-marketed products, to sustain a million bottles that we have here. We would still be profitableinvestment. We cansee that happening,and representing a very small proportion of the whole, certainly from my own company’s point of view—we plenty of opportunity still existing let alone the only make sparkling wine—we have been profitable demand from overseas. But it would indicate that we since we were able to get the vineyards into would be aiding the UK economy quite substantially production, which we started in 1994, and by 2000 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias were able to startselling the wine. So we were ablethen would see any further ban being a tremendous to generate a sustainable business, which is expanding disincentive to investment in the industry because it very substantially. So I hope that paints a bit of a would restrict what you could do, and again you scenario: a great increase in interest. And we do also pointed out that present production is very much know, of course, that we have had the eagle eyes of the lower than the consumption in this country. Would Champenoise themselves actually looking at some of you consider, perhaps, that the restriction, if it is the parcels of land. Obviously a lot of that is hearsay, extended, should only be extended to those countries but I can say from direct evidence that I have been which are in surplus? visited on two occasions by champagne houses to talk Mr Roberts: I think that would be a fair answer to it. about the land and what we produce and how we We would prefer to get rid of the planting ban when produce it and the quality and so on. So they certainly it actually runs out in 2010 and not to extend it on for have expressed interest, I know that for a fact—that is this compromise proposal to 2013. There are some not hearsay. specific disadvantages of continuing the ban in any form because it precipitates planting; it makes people Q564 Chairman: Can I just ask about the average want to plant quicker and not miss the gravy train, if side of commercial holdings? Put the hobbyist to one I may put it that way, whereas in fact there should be side, what would be the average acreage, hectareage, controlled planting of acreages so that we can cope of commercial vineyards? with and digest the new quantities as we go along. I Mr Roberts: It is changing so much at the moment, think the planting ban is negative because even inside but I would say that you are talking about 35 acres areas—and we will use France as an example—there or something like that at the moment; but it is going are pockets who would dearly love to expand but upwards and will probably end up at about the 100- expansion, because of the planting ban, the purchase acre mark. of quotas, eVectively makes it actually more expensive. The planting ban reduces competitiveness. Q565 Chairman: Which is vast in terms of— So in reality I would prefer to see being led by the Mr Roberts: In terms of what we have been doing. consumer as being what causes the planting ban—“I Mr Lindo: It is vast for the EU but it is small will not plant any more because I cannot sell any compared to places like Australia, where it is more”—that is the real answer to it. generally thought (in Australia) that 150 acres is the Mr Lindo: It is probably the only answer. minimum size to make a profit because they are making a low-priced product. Q568 Viscount Brookeborough: Presumably, if you Mr Roberts: Of course, in Champagne many of the lifted the planting ban on its own, that would not holdings are very small because it is the nature of work either because you would have more people Champagne where the growers, because of the producing table wines for crisis distillation, so it breaking-up of the land, there are small would have to be hand in hand with other things? accumulations, but the people who are making the Mr Lindo: Crisis distillation, I think, is the cause of wine, the negociants, are an accumulation of many, most of the problem really. many hectares—several hundred. Chairman: Lord Ullswater. Planting bans. Q569 Viscount Brookeborough: Yes, but if you Q566 Viscount Ullswater: If we can get to some of remove the planting ban, you have to do something the EU restrictions, I think you have told us that by about of the other things. Mr Lindo: the year 2010 you will reach the limit of the de minimis Absolutely, yes; that is right. Mr Beardsmore: restrictions at the moment which you enjoy, allowing If it is going to be removed, the you to plant virtually unrestricted. market support measures have to go at the same time. Mr Roberts: Can I just say that it would be fair to say that I think we have to achieve that in a five-year Q570 Chairman: Yes, just let the market deal with moving average on that basis, so there will be a time that. Is there a case for some crisis distillation for real period to get to that. crisis situations? Mr Lindo: Not in our view, not at all really; I do not Q567 Viscount Ullswater: What I am trying to elicit see that as a solution even in the short-term or the from you is whether you believe that the ban should medium term, particularly not the long-term. The be removed in 2010. There seems to be word that it EU cannot operate in isolation from the world may be that some countries are pressing for it to be market, somebody will fill every gap. Whether you extended to 2013. I understand that you sell all your are distilling it or grubbing up, trying to control domestic product within the market place, so you are supply is not the answer to sorting out the economic not producing surpluses. I can imagine that you well-being of farmers anyway. 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Q571 Chairman: I will have some diYculty with this specific. But, no, we are not keen on seeing the market but I will try and put an argument together. Because regulatedintermsofhowitissoldandisallowedtosell of the nature of wine being a multi annual crop, that and constraining producers in that way. you will get a harvest every now and then which over- supplies the market. If you do not have crisis Q573 Lord Bach: Do you think it is a practical distillation, a number of producers, who would proposition that there should not eVectively be a wine normally stay in business, would be driven out? regime at all after these discussions and negotiations? Mr Lindo: I think the thing is that you do not have to Do you think that is a realistic position to take, given pick every grape; you only have to pick the grapes the vested interests that there are just a few kilometres that can make wine that you can sell. So in a big year across the Channel, and elsewhere in Europe too? it is not mandatory to pick every grape and make Can I just ask this question combined with it? You wine out of every grape, you can leave them there or are obviously a success story. But will the time come V take them o , green harvest or whatever, to control when you are such a success story that you the size of your crop. That is what we do; we control yourselves, or your successors, may find yourselves the size of our crop. There is a vineyard model really rather attracted by the idea of regulation and where people can sell a certain amount and what they protection? cannot sell they will sell to another producer, another Mr Lindo: In our own business we are planning for it. wine maker, and he will make wine out of that pretty I would not like to say we laugh, we say that we are much the same as in New Zealand. It regulates the enjoying the current market conditions. But we are market by people only having to sell wine that they planning for angora goats to return! You probably can sell; they do not have to try and sell it and all know that there was a boom in angora goats a few therefore drive the price down. So I do not think it years ago, and then that disappeared, and the next applies even then. thing was ostriches. So we are not assuming that Chairman: Well done! Lord Bach, Deregulation. these conditions will last forever, but we are running our business to allow for a downturn in prices and to Y Q572 Lord Bach: What you said in your written become more e cient and all the other things. And in evidence about deregulation to us is music to some of the last resort we do another business—if it stopped our ears—maybe not to everyone but to some of us. If being profitable, we would do another business V you take the small but flourishing English and Welsh before we got to say that we could not a ord to. I wine industry, it has made excellent progress think that is just ordinary, prudent running of a despite—not because—of EU regulations. Although business really. you do not answer with a “yes” or “no” the question Mr Roberts: You are almost inviting us to say that we what is the nature of the case for having a wine regime would like to restrict, to keep our competitiveness, at all, am I right in reading your real answer as being and I think we really do have to see what happened that you do not see any case for having a wine regime in the rest of the world while Europe watched over at all? the last 12 years. The rest of the world took the wine Mr Beardsmore: I think we want to see things business by storm and they really went to town, consumer-led and in that context there does not really looking for the consumer, taking the rough with the need to be a wine regime—there obviously still has to smooth—and many people in Australia, New be some regulation in the food and drink sector to Zealand and California have gone out of business as protect consumers from anything that might harm well as coming into business. They have done it and public health. So the only areas that we really see there they have reacted accordingly. The last thing they needing to be any regulation is obviously issues that have had to help them is any form of restrictive protect people from harm—making sure that wines practices, and I think it is the restrictive practices are analysed before they go on the market and that which would be the death knell. If we required them, type of element, and also to prevent fraud in labelling. we would no longer be a healthy industry. Wedo not really want constraintson whatyou canput Mr Elias: At the moment because we are a new on the label, as long as it is accurate, so that buyers are industry, there is no history of what we can or cannot V buying what they think they are buying. But beyond produce. So we have quite a range of stu , and we that it is diYcult to make the case for anything that is need to allow that flexibility to stay, we need to be actually aimed at regulating the market, the way the able to plant new varieties; if global warming is market actually works. We have seen the results of happening, maybe Sauvignon Blanc is next. We have that in the last two or three decades, and that element to keep moving and not restrict and say this is what does not work. So, do you need an actual wine regime? we do and this is the only way to do it. Possibly not, in as much as the Food Standards Agency and agencies like that will deal with food Q574 Lord Bach: So the regulation you argue for is issues. But, though there maybe some that are wine absolutely minimal? 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Mr Roberts: Yes. through supermarkets; he is successful at it but it is hard and he would like to have an alternative crop. Q575 Lord Bach: Have I understood that right? As an addition, I should say that the 200 acres that Mr Roberts: Yes, correct. he has ended up planting is 200 out of 1450, so it is Mr Beardsmore: If I could just make a point, you a proportion and a signiﬁcant one, but not as if he is asked—is it feasible to go down a minimal getting out of salad crops. regulation route? Q578 Viscount Brookeborough: Could I just ask very V Q576 Lord Bach: In the real world? quickly, does it a ect his Single Farm Payment by Mr Beardsmore: Given what we have, yes, on the changing to vines? continent. I think it is worth making the point that we Mr Roberts: I think it does actually. have a surplus in Europe as a whole—obviously some Mr Lindo: It does from grassland. To answer that would be able to produce more and others are part of your question, ours was grass and it has gone producing a product that nobody wants. But, into vines and you just lose that thing that we do not whereas in a lot of industries the market falls away, really care about very much, about £20 an acre. so the people who are at the wrong end of this sort of thing happening could lose their businesses and the Q579 Viscount Brookeborough: Still eligible but not eVects that that has, this situation is slightly diVerent. claimed. There is a huge wine market and they are losing out Mr Lindo: It is not eligible; apple trees are eligible but on the continent competitively with the New World; vine trees are not, as it happens. If an animal can but they are not actually losing out like you would in wander around freely underneath an apple tree, I many industries, with a developing country, with a think you can still keep it in the scheme. low cost base—they are losing out to Australia and California. So, whilst we accept that there may need Q580 Viscount Brookeborough: Eligibility and to be some provisions and it would aVect the transfer claiming are actually two diVerent things. If to a diVerent way of regulating in some measure or something can be eligible, it depends on whether you another, there is actually an opportunity there. Yes, are entitled to claim it? some people may fail. But, if you can increase, if you Mr Lindo: No, not entitled to claim that; you lose can innovate, if you can actually meet the mark, the that. same as places like Australia have, basically there is Viscount Brookeborough: You could remain eligible still a big market there—it is not that the market is in case you want to go back. disappearing. It is not that we are just in a completely Chairman: We need to come back to that later. diVerent cost scenario, because Europe is up against Lord Plumb. a lot of New World countries, which are western economies with similar cost bases to Europe. Q581 Lord Plumb: Lord Chairman, Lord Bach’s question, is a very important one. You obviously Q577 Lord Palmer: You mentioned in your opening meet with your counterparts in Europe on a fairly remarks that some people were stopping growing regular basis. If you were to say, “We want minimum salads and converting them into vines. Is that the regulation”, would you be a lone voice? norm? Or does quite a lot of the expansion come from Mr Roberts: Inside Europe, inside traditional France? a pure arable farmer? Mr Roberts: There certainly has been. There are two Q582 Lord Plumb: No, not just traditional France; places I can recall—and I am talking personally. We we have other countries in Europe producing wine— are very un-industrialised as an industry; we do not the Hungarians and various other countries. have a massive collection system for data and so on, Mr Roberts: Yes. I take France in particular because so we have talked from our own personal experience, it is seen from the outside as being probably the most and we probably are small enough to be able to know controlled, because of its appellation structure. The what is happening. There are two growers that I can successful bits of France are the development of the think of who have replaced cereal growing with Pays d’Oc, for example, and the Languedoc and the vines—but there are probably far more than that. areas where they started to introduce more novelty in Every farmer seems to be looking at his land and their winemaking. They have actually brought in making sure that he is diversifying his mix of crops New World winemakers to show them some and is looking to see how he can blend and get, technical diVerences in how to make the wine, presumably, a safer situation. The salad one, in moving away from tradition. I am sure those people particular, is a very successful salad grower but it is would love to have more freedom; they certainly extraordinarily diYcult to compete with Spain and would love to have more freedom to plant more places like that, and he ﬁnds it hard work. 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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Bordelais would say, “No, we will keep it as a and market mechanisms, I think you would get a control.” There is a very interesting fact about completely diVerent discussion. champagne-growing, that although champagne is so Lord Plumb: It sounds not dissimilar to the CAP. successful there are obviously structures inside the Chairman: Let us move on to labelling and quality. tax system in France, which I do not understand Lord Cameron. totally, which means that they will not always sell all their grapes because it puts them into a tax band or a Q584 Lord Cameron of Dillington: On labelling, you security payment band, or whatever, which actually say that of course it should be consumer-focused and, reduces their income. So they actually put those into providing no one is telling any lies, that is good blocage and the CAP decides, so it is not actually part enough and there should be no regulation at all. But, of their income. So there are infrastructure reasons at the same time you do say, on the question of for not changing inside France, which are to do with Geographical Indications—and I quote your social security and taxes. submission—that “where a GI has become a ‘brand’ with signiﬁcant value, it should be possible for producers in that GI area to have more local control Q583 Baroness Miller of Chilthorne Domer: Could over the way that brand is exploited.” It seems to me you just deﬁne “blocage” for us? that to do that you do enter the realms of state Mr Roberts: In champagne in particular there is a control, and I wonder how you would see this being regulation that says you will only grow so many implemented? tonnes per acre. One of the ways of overcoming the Mr Roberts: I think the ultimate control is the brand planting ban has been to gradually increase that. owner. This commercial thing that we are talking Thus, if I talk in tonnes per hectare, it was in fact 10 about, being led by the consumer, means that, if you tonnes per hectare until about 1999. Then it moved own a brand, it is valuable to you, you give the up to 11. Recently, as of this last harvest, it went up consumer what he wants, unless you are very silly, to 13 and it has now been allowed that they can move otherwise you will lose the quality of that brand. So it up to 15, but the extra two have to be put into you will strive for quality or you will strive for price blocage. Blocage means that you can pick it, you can values and so on, and the things that that brand make the wine, but you have to store it as bulk or vin means. In fact, a strong brand does not need more clair, ready to be bottled at some point in the future, intervention by the state—it needs less—or does not when, in this case, it is controlled by the champagne need it. But what it might well do—and champagne appellation saying, “We have had a bad year”, like was a very good example, because they run that 2003, and they will bring out all the blocage and add appellation with far more vigour and strength than is it to this year’s harvest to make it back up in body. imposed by the EU. In other words, the rules that are Mr Lindo: It is a good example of a successful region applied by champagne are much deeper and stronger that expanded within the rules by bending them a bit than the European wine regulations. So there is a set and increasing their production. of rules which they can change from time to time, like Mr Beardsmore: If I may, in answer to “would you be the ageing on lees moved from nine months to 12 and a lone voice”? There is an organisation that we are on to 15, because they felt that the quality of the wine part of, which is pan-European. It does seem that was diminishing. much of the discussion that has gone has been about how they are going to divide up the pool of money, Q585 Lord Cameron of Dillington: How are these because the Commission has already indicated that at rules actually imposed upon the grower and least in the medium term it is not going to disappear, winemaker? it just may be spent diVerently. Therefore, people Mr Roberts: They cannot use the word champagne. who are used to getting money shared out by diVerent So they have a tasting regime every year. A year after market mechanisms are now concentrating on how bottling they take aside bottles with special seals on they will get a fair share, as they see it, from that. If and in 12 months’ time the committee will come you read through the European regulations, it is along and taste those wines and, if they do not meet quite clear in the current regulations that much of the approval, they cannot be classed as champagne. what is written is only there because there is money at So the brand has a huge value in the sense of, stake in terms of how it aVects the payouts. So, whilst hopefully, protecting the customer; but it is also we may be a reasonably lone voice in saying that making sure that people are adhering to a quality straight away, that is because most of the argument, scenario. Champagne is actually a huge area, of certainly from the dealings that I have had, is that course; it produces 300 million bottles and it is over they are worrying about how the money gets sorted a large geographical area, but it is still imposed by a out. If that was out the way and you asked them what small set of people, the CIVC. That is what we are level of regulation they wanted aside from subsidies trying to say. Trying to impose a condition from 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Brussels, because it is such a huge area—from things we can to maintain our market place and our England to Bulgaria, to wherever, there will be so position in the pecking order of people who are many diVerent areas, and changing conditions looking at us. That is a small issue unit. If in larger because of climates and so on—the idea that they can grape-growing regions it has to go for a bigger unit impose restrictions which will always add quality will than that, fair enough, but in this country it works not be true at all. fine with people regulating themselves, although we do have a quality wine scheme, to which we all submit Q586 Lord Cameron of Dillington: So they would our wines for tasting and testing. say, “We decree that the champagne mafia should be Chairman: Competitiveness. Baroness Miller. able to impose their own rules on anyone wishing to call themselves champagne”, i.e. using the GI. Q589 Baroness Miller of Chilthorne Domer: One of Mr Roberts: One would hope that inside this mafia the things in your submission that I do not think organisation there was some democracy of some anyone else has raised with us, but it does seem quite description that meant that the growers and the a big point, is the fact that some of the new growing winemakers inside champagne could make changes markets, like China and India, are imposing tariVs that they desired. now against EU wine because of the subsidy regime in Europe. I wondered if you would like to expand on Q587 Lord Cameron of Dillington: So would the EU that? Also, it does seem strange that other witnesses be justified, therefore, in trying to impose some sort we have talked to have not seen this as an issue when, of democracy so that it is not just the old established if it is an expanding market, it must be quite an issue, growers who control exactly how it is all done? must it not? Mr Roberts: I am talking about a personal belief here. Mr Roberts: I think it must be, yes. If we are going to I think the trouble is that, if you let natural order produce five and a half million bottles or if the prevail, it may be the strong will out, but sometimes European Union as a whole has all this spare, and we there is a justifiable reason; and, if you try and impose have China growing from a capacity of one litre per things, you nearly always get it wrong. person to ten, or something like that, there is a huge market, and the same in the States. So we must be Q588 Lord Cameron of Dillington: Can I move on to able to export there without a disadvantage of cost. I quality and what you say about quality? Again, in had not registered the point until we met with Russell your submission you say, “Quality would probably Mildon, who is part of the Agricultural Directorate. be better delivered at the local/regional level”— which you sort of answered—“where all producers Q590 Lord Palmer: He is still there. involved have an interest in increasing quality, rather Mr Roberts: Yes, I am sure he is. He made the point than through national or EU regulations.” To some actually, that I had not registered, and it is a valid extent we have discovered that not everyone is totally point, that, if you give subsidies to any industry, then interested in quality; in other words, there are some it gives an importing the country the right to impose producers who are virtually producing their wine or a tariV to get rid of the trade advantage you have grape juice for distillation purposes, because they created by giving that subsidy. As far as I am aware, know that there is no real market for the wine in their those do exist already; there are tariVs on European area. I am not certain that everyone is necessarily as imported wine for that reason. But, certainly, market-orientated as perhaps your submission accepting the whole system through the indicates? Commission’s proposal, if it were implemented, Mr Lindo: Is that not the whole point of market would prevent any other country under—it used to reforms, that these people will not be doing it any be GATT, did it not, but whatever the equivalent of more? We are talking about how to change this the TariVs and Trades Agreement is now—from situation, not perpetuate it. I have been laughing at using that as an excuse for imposing a tariV. I would wine raconteurs for years, talking about people have thought that much more than an excuse to distil growing grapes to run buses in Norway—it is wine; an excuse to sell it would be a greater idea. And, ridiculous really that that is seen as a mechanism of if we do not have the disadvantage of a tariV, we can. controlling grape production. What we would like to I picked that up from him and I totally understood see in an ideal world—it certainly happens in this what he meant and I can see why. country—is that the smallest possible unit is the person. For us, we have individual brands and, to be honest, I do not really mind too much about the odd Q591 Lord Cameron of Dillington: Is the only real poor bottle of English wine under somebody else’s subsidy in the distillation process? If you are actually brand because it is not my brand. We have worked growing wine to sell it you do not have any subsidies, totally on building our brand on quality and all the do you? 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Lindo: Not in this context, no. We were saying may be so, but are there not also producers who may earlier, and I should have mentioned this, that in fact qualify, for subsidies for distillation. I think it is some of our wine has been modernised by rural answering the question that the chairman raised development grants. We put the current success of earlier on the point of over production and therefore the English wine industry down that actually. But, if crisis distillation. But some would see that as anybody wants to aim money at this, aim it on providing a haven rather than a straitjacket. Would improving the quality of production, investment in you see it that way or is that not so? equipment, investment in training and knowledge Mr Beardsmore: I think there are undoubtedly and marketing. If money is going to be spent in producers that have that as a comfort zone. Primarily making the EU wine sector competitive, that is where it is the money side, so it is the market support it would make it competitive; just keeping people measures as opposed to necessarily the oenological aﬂoat with terrible equipment and machinery and practices themselves. So that helps them on one side bad practices is never going to work. to actually receive money. There is also, of course, the Lord Plumb: My Lord Chairman, what Mr Roberts second issue that it is not a competitive market; has said is, I think, very important. We are in the eVectively it is like a quota system because of the business of trying to reach a conclusion on how the planting bans in place. So I think it is undoubtedly European regime should be changed, modiﬁed, done the case, and it is why we accept there may be some away with, whatever. What you have just said, I pain if things do become more deregulated, as we think, relates more to WTO than it does to the certainly hope they will do. But, again, in terms of the European regime. Ought we to be concentrating sustainability of the European wine industry, we more on that from a world point of view rather than think it has to go that route at some point. I do not just Europe? We have our responsibility in Europe think there is any doubt that what you are saying is but the issue can be far greater than that which we are correct. looking at. Chairman: This is where I come in and say that my Q594 Viscount Ullswater: I presume that Britain is a predecessor always used to point out on occasions member of the OIV? such as this that we are a European Scrutiny Mr Roberts: No. Committee! Mr Lindo: Sadly, no.

Q592 Lord Plumb: I have just said that! But at the Q595 Viscount Ullswater: Would you consider that same time we are looking at future trade and we the OIV is a reference body for oenological practices? cannot ignore the fact that there are products that are And would you be content—obviously you would going to aVect the European regulations. want to sit at their table—to see them as being the Mr Roberts: That is the point that, I got the gatekeeper for the practices of winemaking, either impression Russell Mildon was making. It was a new ones or restricting old ones or getting away with point at a meeting we had with Defra and it was one perhaps some practices? of those points that went around the room and Mr Beardsmore: I think most people would be very disappeared. But I have to say that I thought it was comfortable with that. It would help if it became extraordinarily important, and I think he felt the totally global—it would help to have the USA in same, that this was probably one of the more there as well, for example—but it includes most of the signiﬁcant factors. New World countries which are applying a lot of the Chairman: Lord Plumb. Winemaking practices. techniques to which we would like access. So I think the general answer is yes. Q593 Lord Plumb: My knowledge of the practice of winemaking is fairly limited, but I have had the Q596 Lord Plumb: Why are we not included in OIV? privilege of seeing it made at “Three Choirs” on a Mr Lindo: Defra cannot aVord it. I asked the number of occasions, and indeed enjoyed the visits. question this week because we are trying to get a In fact, as part of that I think I managed to get quite grape variety properly named, and one of the things a bit of wine out to Strasburg, which goes back a bit. that is holding us back is that we used to be members You say in your evidence that, whilst there are wine but that was cut as part of a costings review. producers in other parts of Europe who operate proﬁtably under the current restrictive practices— Q597 Lord Greaves: How much are we talking something we discussed and questioned a number of about? people on from other European countries—there are Mr Lindo: I do not know how much it costs, but it is others who are fettered by the present regulations a handicap that we are not a member of that body; we and prevented from developing their business in a are wine producers and we are trying to negotiate way as to compete with New World products. That things and we are not even there. 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Mr Beardsmore: It is an issue that we have to go Mr Beardsmore: At some point it is going to aVect the through another trade body to get access to the OIV organoleptic characteristics. If you are putting in to get an answer on something. only sugar, it comes up with nothing except alcohol at the end of the day because it is fermented out. The point of what we were saying is that these sorts of Q598 Chairman: So, if the Department were levels, although they are acceptable, have been interested in securing an entrepreneurial regime for worked out over a number of years and the position wine and within that a strong representation of at the moment—which we support—is that you are English winemakers, then there would be a very allowed to acidify, you are allowed to chaptalise strong case to be made that we ought to be members? within certain limits, and I do not think it is Mr Lindo: Absolutely. unreasonable, if you are going to have regulation at Mr Beardsmore: I believe there would be a very strong all, to have some upper limit on it. What they are now case, and, not only that. There is this idea mooted, suggesting, and it seems quite arbitrarily, is to alter it particularly if the Commission goes down the line in the one direction and not in the other. The one that the OIV is the gatekeeper of oenological thing that I think everybody would agree is practices, that the European Union might sign up as important is the quality of the wine at the end of it a member. Whether the OIV would accept that or not and what it tastes like, and in that respect both the is in question anyway. But, even if they did, I still south of Europe and the north of Europe need these think we would want to see—and obviously the measures. Of course, chaptalisation is done by huge individual countries, like France, Spain and Italy areas of Europe, Bordeaux and Burgundy; you would be there individually—us there individually as would not have it without them. What we are saying well, because we know that there are the discussions is that we support the status quo. This has been built that we are talking about now, which are across on for a number of years as to what reasonable levels Europe, and we do not necessarily just want Europe are and what they are doing at the moment is an as the one representative. arbitrary attack on one end of the climate spectrum.

Q599 Viscount Brookeborough: Enrichment and Q602 Viscount Brookeborough: When they are acidification. You point out that some maximum acidifying it, are they using a natural process? needs to be set for enrichment. If enrichment is a Mr Beardsmore: Acidification is usually done with natural additive, why does that maximum not occur tartaric acid, which is as natural as sugar. It is when the wine becomes of the right quality? extracted, usually from grape must, it is the main Mr Lindo: Personally, I happen to agree with you. If source of tartaric acid. you look at the practice in New Zealand, there is no limit on sugar, there is no limit on the additions of red Q603 Chairman: It comes from grape must. and white grape must. That does not mean that Mr Beardsmore: I believe it is almost the only source people are going to add vast quantities of sugar, of tartaric acid. because the quality of the wine would suVer. So setting an arbitrary limit is not realistic. It is just that Q604 Viscount Brookeborough: If you would like to you have a whole range of wine-making practices see the subsidies go for the grape must especially, that are open to you. You do not have to use the limit would you be happy to see that and therefore more of every one of them but it gives the wine-maker the sugar being used? What would be the eVect on the freedom to make it taste as nice as it can, not make as overall market of not using grapes? much as you can, which would be the result of Mr Beardsmore: Can I be clear? The price— unlimited sugar additions. Q605 Viscount Brookeborough: Yes, the price of Q600 Viscount Brookeborough: The paper that we sugar is cheaper; and, if there are no additional funds have here says that some maximum needs to be set on to support grape must, then more people would move enrichment, that is the UK vineyards? to sugar. Would you be happy with that? And what V Mr Beardsmore: I think the view that we take on this would be the e ect on the overall market with is where are we starting from. What we are removing grape must from the market? supporting is the status quo, whether or not there Mr Beardsmore: I do not know, I do not have the should be some limit. Nobody would want wine that figures as to how much grape must is used. ° was made if half the alcohol came from sugar. Mr Elias: We have a limit at the moment of 3 %in most years and what the EU was proposing was that that would come down to 2°% and we do not Q601 Viscount Brookeborough: Would they know necessarily think that is a good idea. What they were the diVerence? also talking about was taking sugar out of the 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias chaptalisation process and replacing it with RCGM, back in June they used that same line of argument. or grape must. At the moment we do use RCGM and They also said that chaptalisation, that is using sugar sugar but RCGM is six times more expensive than as opposed to using grape must, was not an sugar. For example, at this harvest we used 18 tonnes authorised practice under the OIV. We have already of sugar for chaptalisation. It cost us £10,000; if we said we are happy with the OIV as being the had done it with RCGM, it would have cost £52,000. gatekeepers of what you can and cannot do. We That is the level of diVerence that you get. You do get eventually got through to the OIV to find out exactly a little bit more volume with RCGM, but that is the what the rules were, and it was quite interesting to position at the moment. note that it is not an authorised practice to use sugar, so they have not put it on their list as authorised. But, Q606 Lord Cameron of Dillington: That is an when the message came back to us, we had a note RCGM with subsidy? from the OIV specifically saying, “We do not have a Mr Elias: I do not know, we pay more in England view on the use of sugar”. It may not be authorised than they do in France, I am sure, apparently it is but neither was it unauthorised, and the email that £2.50 a litre. came back was absolutely clear, “We do not take a view on the issue of chaptalising”,—i.e. enriching Q607 Chairman: We had an interesting interchange with sugar as opposed to grape must. If we move with the Commission on this point and they fell back towards the OIV, we might not have a problem with on an argument that the definition of wine was that it the European definition of wine. was a natural product of grape juice, full stop, and Q611 Lord Cameron of Dillington: Because this is that did not include the definition sugar-added. So, if quite clearly a matter that is going to be pretty you want to sweeten it, you go back and use the must pertinent to the UK wine industry, have you made because you maintain the natural cycle. What is your any eVorts to get allies in other Member States? We answer to that? know for a fact that Hungary is on your side, you just V Mr Lindo: There is a di erence between sweetening said that probably Northern France is; and Germany and enrichment. Which did you mean? is. The Commission, though—it was the one thing they were really determined they were going to Q608 Chairman: I meant enrichment, yes. stamp out. Mr Lindo: All I can say is that it is called Mr Beardsmore: There is bound to be a bit of a north- chaptalisation after a Frenchman called Henry south divide for obvious reasons. Chaptal, who invented it and it has been traditional in France since wine-making began. Q612 Lord Cameron of Dillington: I suggest that you do a bit of diplomatic negotiation. Q609 Chairman: I am not arguing about that. I am Mr Beardsmore: We were hoping it might go through arguing the Commission’s point, that the definition under the German Presidency. of wine that they are working from is that it is a natural product made from grape juice. Q613 Viscount Brookeborough: Why do you think Mr Lindo: We will have to increase those grubbing up acidification has not been addressed by the costs because not many of their areas do not reach it Commission? And who is behind the failure to at the moment. You cannot define something that address it? exists and change the definition of it. Mr Beardsmore: I think they have a perfectly reasonable argument that, in looking at surpluses, Q610 Chairman: They would then say that you can one of the things you can do with surplus grape must get the enrichment through must. is use it as the source for enrichment. But it is a very Mr Beardsmore: There are two issues on enrichment. isolated view that does not look at the most One is the issue of limiting how much you put in and important issue in terms of the longevity of the the other one is whether you should use a grape must. European wine industry, which is the quality of the From our perspective as an industry, it is quite clear product that is being produced and whether there is to us which is the priority. We do not want them to a market for it. start eating away at, again, another regulation as to whether you can add three and a half or two and a Q614 Chairman: It is something to help out the half or two or whatever. As regards rectified grape Mediterranean producers? must or using grape must, there are some cost Mr Beardsmore: You said it. implications but they are very much secondary; and, whilst nobody asks for cost increases, it would not be Q615 Baroness Jones of Whitchurch: Can I ask you, the end of the world from the UK industry is all of the wine that is produced commercially in the perspective. When we first met with the Commission UK what you would describe as good quality? 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Mr Lindo: That is a very good question. We have a regional wines coming through the schemes, because quality scheme and you can choose to join the quality we tend to do the tastings together. We get more scheme, which means that you can produce a quality applications for regional wine than quality wine, wine which has been tasted and tested by a chemist. although, again, it does not tell you the volume of Then, if you pass that and you are eligible with a few wine it relates to. We think the vast majority is going other details, it gets labelled as English vineyard through one of the two schemes but they are not any quality wine. actual ﬁgures for quality wine with GI.

Q616 Baroness Jones of Whitchurch: That is what Q619 Baroness Jones of Whitchurch: Sorry, you have you would look for on the bottle? You would look for lost me a little bit here, so there are GIs in England? English vineyard quality wine? Mr Beardsmore: Yes, they are mostly county names at Mr Lindo: Yes. We have a regional wine category, the regional level, or it is English vineyards or Welsh which has been manufactured to accommodate the vineyards at the quality level. grape varieties that the EU will not allow us to put forward for quality wines. It is nothing to do with the quality of the wine, it just that they are not eligible for Q620 Baroness Jones of Whitchurch: So there cannot the list of quality wine grapes that the EU allows us to be that many of them by definition from the way you use, so we have a regional wine. Now that has a lower have described it? Mr Beardsmore: alcohol content in it, for some unknown reason, but Yes. In terms of pass rates, again we that is still tasty but it relies on a producer to provide do fail wines—there is no point in having a scheme an analysis certificate of what is in it, an independent unless you fail them. Of course there are some poor one. The final thing is a thing called UK table wine, wines out there. We failed, by one means or another which has been avoided like the plague; it is last year, almost 10% of wines that went through the something which has either failed all of those— scheme. But, again, because I see the paperwork and Mr Elias: That is just rubbish. I know where those are from, in terms of volume they Baroness Jones of Whitchurch: Finish your point. are almost always from the smaller ones, which you may say is sad to say, but it is an issue of the expertise and the equipment they have got. I cannot tell you Q617 Chairman: He has just realised he is in favour exactly how many go through, but it is the vast of distillation! majority. Some do fail but, again, it is the smaller Mr Lindo: What I am saying is that, because it has not batches of wine rather than the big batches which passed a tasting test or independent analysis—by might be going through at 10,000 litres at a time. right it may have done, the chap may be competent— there is no proof, nobody has tasted it and said it is good, nobody has analysed it and said it is good. You Q621 Baroness Jones of Whitchurch: Did you want cannot put the grape variety on, that is the main to do a defence of table wine? reason why, you are not even allowed to put the Mr Elias: No, I wanted to do a thing about the vintage on, so no vintage, no grape variety, no tasting marketing of wine. At Chapel Down we are a and no analysis. Could I finish the rest of the answer national brand and that is how we market ourselves. perhaps, and then come back to that. If you want to We do not market ourselves as Tenterden Vineyard look at the quality, then that is the quality echelon. or as Lamberhurst Vineyard. We do estate wines from them, but our main thing is the brand and that Q618 Baroness Jones of Whitchurch: What is our reputation and what people are buying. You percentage are in those roughly? I know you do not can buy bad English wine but, if we put a bad wine have a vast army of people collecting data, but how out on the market, whether it has been through a many are in that top quality? scheme or not, our reputation goes to zero. The Mr Beardsmore: If I could give you one or two quality wine scheme has raised the quality of wines in numbers, because we are the recognised industry England but it is not the be all and end all of a wine. body so we administer the schemes—actually I administer the schemes! At the moment I have got the Q622 Baroness Jones of Whitchurch: Do you production figures for 2005 in front of me, which is participate in the scheme? the latest one we have from Defra. Total wine Mr Elias: Yes, we participate in it. One of our biggest production—it was a low year—12,800 hectolitres; selling wines is a UK table wine. We sell it at Waitrose and quality wine, 5,200 hectolitres roughly. The for £6.99. It does not have a vintage, it has got a name figure that I cannot give you is regional wine, because “Chapel Down Flint Dry”. We do it for that because regional wine is classed as a table wine, but it is a table sometimes it is a non-vintage product, so we do not wine with Geographical Indication if you fit it into have to change our labels. We can alter it, but we sell the regulation. All I would say is that we get more on the brand and on the quality, not necessarily 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

English vineyards quality wine. We do that as well, detriment. The Australians rue the day, in some but it is not the be all and end all. respects, it has been successful, because now people see an Australian shiraz and it does not really matter Q623 Baroness Jones of Whitchurch: That is leading who made it. Hence the concentration on trying to do into the next question I was going to ask, which is what the French have been doing, which is to create what lessons have you learned? You are all little terroirs and have Coonawarra wines and Clare businessmen, you will have done some research. Valley wines to do some diVerentiation, because they What do you have to put on the label to make it sell? have a marketing issue in themselves. We went What is the kind of thing the consumers really want? through a phase, certainly when we started to market Mr Lindo: I would make the point that the most our wines, when we really made no reference to the important thing on our label is Camel Valley, and fact it was English at all; certainly, if there was a that is the name of our vineyard. The most important “Brand English”, it was a detrimental brand rather thing for us is that we built that brand over a long than a positive brand. We created a brand of our time, and that is what sells our wine. I agree with business and other historical branding and that has what Owen was saying with regard to his brand, but become important. But since 1998 or 1999 the success I was trying to say to you that, if you did not know of English wines means now that “Brand England” is anything about anything and you wandered into a becoming a valuable brand and people are looking shop—Owen’s shop even—and you were deciding for English wines, so I am using this as things change what to choose, you would be better oV with in brands. One of the things is that, I am afraid, something that had been tasted and analysed than people still believe England is a country and, of something that might not have been. course, inside Europe it is not a country, so we do have a problem. The country is the United Kingdom Q624 Baroness Jones of Whitchurch: One of the and, because we fall through this thing that in fact things that we have been told—and we touched on England is only a region, we have lost a layer this before—about labelling is that one of the reasons eVectively in our nomination category, because we the New World wines are successful is that they have could have had English table wine, which is what we much more information; they tell people much more would have had in France. French table wine is a about it, what food to serve with it, lots of things that respectable product. But, as much as we love the consumers would like to know. Do you do that? generic whole, UK table wine has no cachet and we Mr Lindo: Yes, we are allowed to do that. We are have lost a layer, I am afraid. German table wine and allowed to put advisory information on the label as French table wine are accepted as being good well as mandatory, which includes things like what to products; as you say, English table wine would be serve it with. I think labelling is terribly important, accepted as good under a classiﬁcation. but it is something that everybody trying to sell a product has to go through. Q626 Baroness Jones of Whitchurch: One more Q625 Mr Roberts: It probably has been labelling as question then. What is your relationship with the much as quality of the wine as well. But New World’s supermarkets? dominant growth of UK-wide consumption has been Mr Lindo: It is very good, there is a great demand because people could start to relate to the label, and from supermarkets. The majority of us have built our suddenly it became that they could relate to a variety. reputations on being part of our local food and drink Varieties have been so very important to the growth community. The “buy local” thing is timed of New World wines—to be able to say beautifully for English wine. We are part of our local “chardonnay”, and they know what chardonnay food and drink communities and many supermarkets means. In France it is very parochial and very want to be seen to be part of local food and drink chauvinistic; you buy from a chateau down the road, communities for obvious reasons, so there are a lot of you buy Loire wines when you are in Loire, you do products they want to sell for that reason. At the not even buy Burgundian wines and you know that moment there is far more demand from supermarkets chateau over there is French with a funny hat, or than can be satisﬁed by even the large producers. whatever it is, and you know the wine and you go and buy it. On the shelf and supermarkets here, Bordeaux wine looks the same and it has got a similar label on Q627 Lord Plumb: Can I ask about prices related to it and a confused new buyer says, “Well, I don’t know marketing. The Chancellor is to get on his feet in one from the other, it does not really have a back about 10 minutes. What is the tax on a bottle of wine label and does not tell me anything about it”, so they at the moment? move to wines they could understand. That was how, Mr Beardsmore: £1.29 duty on still, and then as we refer to it, “Brand Australia” was created to its sparkling is £1.65. 3714281019 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias

Mr Lindo: There is VAT on both of those figures. am not going to fork out £6.99 for a bottle of English table wine. Q628 Lord Plumb: You expect them to be reduced Mr Elias: I would. presumably! Mr Lindo: I can explain that to you. The market Mr Roberts: I have to say I am hoping, touch wood! conditions are quite diVerent. If you take the number of people in our country, there are 50 million people; Q629 Chairman: I am indulging myself purely here, I we are producing two million bottles, it would take 25 have never bought a bottle of English wine in my life. years to give everybody one. The supply and demand Mr Lindo: We should have brought some with us! potential is overwhelming. So, if somebody does Q630 Chairman: I was rather hoping you would, but want a bottle, then they are going to have to pay the never mind. On the way home on Thursday evening, price to get a bottle and we have to meet the quality I will go to Tesco and do the weekly shopping and to satisfy that price to get them to come back twice. pick up my ration of New Zealand Sauvignon Blanc. When Mike here has won his international gold Mr Roberts: Change your allegiance and go to medal and somebody pays £20 for a bottle of his Waitrose. wine, they are getting a real bargain, because his boxes of wines cost a lot more. Q631 Chairman: We do not have them in Lord Cameron of Dillington: We are doing the Aberdeenshire. Chairman’s personal shopping. Mr Lindo: This is not an advert, but most of us do mail order. Q634 Baroness Jones of Whitchurch: You are saying Q632 Chairman: Seriously, it must still be quite a big that, if you were producing more, the price would step to get someone to buy their first bottle of go down? English wine. Mr Lindo: Not for a while, not for a long time, but Mr Roberts: We were saying this earlier about the there is a lot of potential there. profile of where we get to the five million bottles, Chairman: Grubbing-up—before we get on to my which is a significant move from where we are. One purchasing of household equipment! of the things that we put into a marketing plan which is very, very important, is that we get a huge and Q635 Lord Palmer: The Refreshment Department disproportionate amount of press coverage wanting here does stock English wine, including a very, very the extraordinary grape performer, because we do good sparkling wine—I cannot remember which one not have the depth of pockets of the Champenois and it is. Is there a dedicated Defra department for wine so on, who can spend a lot of money on creating pull growing? Or is it pot luck? through marketing projects and so on, so we are very Mr Beardsmore: We have a dedicated route into grateful to that. What we do get, and we hear it on the Defra. Obviously we do not always know exactly end of the phone all the time, is people saying, how they split things, but yes, we have the wine “Where can I get it?” The hotel at Kabul sells out of group—and two of them are sitting behind us. We English wine frequently, but I digress. It is a problem know where we are going when we need to. and it is a great disappointment. But, in fact, what Q636 Lord Palmer: The Commission’s everybody sees is how much demand will increase Communication suggests that a major part of reform because of availability, it is because there is more should be grubbing-up—I love that expression too— wine, because we can fill Tesco’s supermarket but there should also be “national envelopes” in shelves, because we can fulfil and become generally which Member States could take action to available, lots and lots more wine does get sold. I am restructure their wine industries and deal with crises. afraid we will not get into that position for another Do you have any reservations about the suggestion? four or five years and, of course, we would not get Might it lead to unfair competition from existing EU into the position if we had a planting ban, that is suppliers? really the answer. We would never get to the position Mr Lindo: Basically, our position is “no subsidies”. where we could have the demand fulfilled for That is the worst place to put subsidies, to pay people everybody, because you do have to have critical something. That is our position on it. maths to get onto the supermarket shelves on a nationwide basis. Q637 Viscount Ullswater: Would we get any money Mr Elias: We do supply Waitrose, Sainbury’s and in a “national envelope?” It sounds rather nice, does Tesco, but our wines are on allocation as well. it not? Mr Roberts: Is it brown paper or not! Q633 Chairman: If I am going around my Tesco’s Q638 Viscount Ullswater: I think Mr Beardsmore is store and I have got my bottle of New Zealand quite right in suggesting that, whatever “profound Sauvignon Blanc at—what is it? £5 or something, I reform” it is called, there is no money to be saved, it 3714281019 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 March 2007 Mr Robert Beardsmore, Mr Robert Lindo, Mr Michael Roberts and Mr Owen Elias is all parcelling money out on a diVerent way. Would may become production related; but, as things stand England, Britain, get any money in the future? at the moment, that is what we drop out of, that is the Mr Elias: We have done our grubbing already of bit we do not adhere to. unsuitable varieties and replaced them. We have Q640 Lord Greaves: Could I ask, Lord Chairman, taken out hybrid varieties, we have taken out the other things being equal, where would you see the branches that are not productive, and our growers industry in 20 years’ time—or whatever timescale you have done that as well. We have paid to have it done want to think on? and we have done it. No subsidy, it is a commercial Mr Beardsmore: Could I make a comment. We had decision—they were growing grapes that we could one of the top viticulturists in the world here in the not use, so we said “give us some of the power” and summer last year, Dr Richard Smart. He has been that is what we have done. involved in a number of growth areas, certainly New Q639 Chairman: Do you have concerns that Zealand and now Tasmania—that is his homeland at “national envelopes” will be used to provide a the moment. Talking about how far we can go, he backdoor route for productions? made the point that in his view we hit a threshold— Mr Elias: Yes, I suppose, possibly. There are two he said it was 2,500 hectares, but there is nothing sides to it. From a personal point of view—because it magical about the numbers—at which point, he said, is very diYcult to have a global view of this as a in New Zealand the growth was absolutely whole, because perhaps we all each have diVerent exponential. He thinks that they are getting not far ones. This idea was expressed in Bordeaux, this from it in Tasmania and that the same thing will “envelope” business, and the partners objected to happen again. His view was that he cannot say that it these brown paper parcels. But I took a view really will happen in England and Wales, but we are on the that in fact there is a huge change in Europe same sort of mark. We have not hit that threshold historically. We should not underestimate the yet, but if we do we could go from substantial growth tradition and the change in terms of a village or an potentially to exponential growth. Mr Roberts: area because of the concentration on agriculture. It If you draw the graph of the history of New Zealand on the same axis, then we are at about does need help and my own view is that if that help V can be redirected in any way that persuades them that 1983 and they took o in 1992. The graph is very these changes to a market economy are capable of much the same, the history is the same in terms of being done, I would be happy with the help that has varieties and changing to a world-class variety, and been given to them to make the change. If it makes 20 years is a very short time in wine-growing, but it is them become willing to make the change, I am very the time that it probably does take to get into being happy that it should be done, that is a personal view. world volume. Mr Beardsmore: If I could come back to the question Q641 Chairman: I suppose also that it is the fact that, of whether we would get any money or whether we over 20 years or so, the impact of climate change is are likely to get any. Clearly the size of the envelope signiﬁcant, and that is going to take out a lot of the would be rather small given our production. I know Mediterranean wines? the Lord Chairman made a comment at the Mr Beardsmore: One other issue that is key to being beginning that we are outside a lot of the regulation; able to go from growth to a much faster growth—and that is only partially true. Because we are below we saw it in New Zealand—was that they had a 25,000 hectolitres on a ﬁve-year rolling average, number of wines there that were very good but they obviously that exempts us from the planting ban, had to have a world-beating wine, and everybody which is extremely important. But all the market knows that Marlborough Sauvignon Blanc is top of management measures that go with it, and eVectively its class. We have now got an equivalent in the UK any subsidies that go with it, that is the bit we are with sparkling wine. There are lots of other wines as exempt from. Yes, we are not involved in well, very good still wines in England, but you have to have that one wine, particularly if you are a small distillations, we do not need to be anyway. But V everything else we are still in; all the other regulations producer, to make a di erence and for people to apply to us, it is only the money bit and the planting notice you. So it is very positive in that respect. ban that go side by side that we are exempted from. Q642 Chairman: I think that just about ends it, unless Coming back to the issue of whether we would get there is a critical bit that we have missed out which any money, at the moment we are not even included you think we ought to know. in that. That is the bit we are exempt from, we can Mr Lindo: Thank you for the opportunity to speak plant but we do not have any hand-outs, so my to you. suspicion would be “no”. Depending on how the Chairman: Thank you. It was very interesting and regulations are changed, that may be diVerent and it very good. Thank you. 3714281020 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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WEDNESDAY 2 MAY 2007

Present Bach, L Moynihan, L Brookeborough, V Plumb, L Cameron of Dillington, L Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V Miller of Chilthorne Domer, B

Examination of Witnesses Witnesses: Mr Julian Dyer, Senior Wine Buyer, Sainsburys plc and Mr Dan Jago, Category Director—Beers, Wines and Spirits, Tesco, examined.

Q643 Chairman: Good morning, both of you, and the wine laws precede the EU, so it does go back some welcome. I take it that you know each other? way. When you are dealing by and large with the Old Mr Jago: We do! We have heard of them! World producers, you are dealing with a much more fragmented production base in terms of a plethora of choice—generally the size of producers and the Q644 Chairman: Thank you very much for finding dramatically diverging styles of wine that there are the time to come and talk to us, it is really helpful. I available and really the general lack of customer always have to start these sessions by explaining that understanding of a way through that choice. it is being web cast, so there is a possibility that Generally—and I will give you more detail in a somewhere out there in the ether at some time minute—when you are dealing with New World somebody may be listening to this. Also, there will be producers—not all New World producers—you are a transcript and you will get the opportunity of dealing with newer companies, largely English— looking over that and correcting anything. Can I speaking, who are thinking first of the customer explain what we are doing. The Commission has before they make their wine and then actively indicated some preliminary thoughts, a targeting the relevant markets in the UK, the relevant Communication on the reform of the EU wine retailers on trade, oV trade, with strategies to sell regime, as you will be aware, and we have been those wines to those outlets and therefore to the looking at that, if for no other reason than because it customer in a much more targeted and focused way. costs ƒ1.5 billion a year, which is quite a bit of So they are turning the paradigm on its head and money. Of course, we also have an increasing interest in our own British/English wine industry. We have thinking customer first and then product later, spoken to representatives of the Member States in whereas generally the prevailing attitude amongst Europe, we have spoken to the Commission, we have Old World producers is, “Here is my wine, I have spoken to various interest groups here. I suppose you made it, now why do you not like it?” That is a bit are in a way key, because you are at the interface unfair, because there are a lot of new emerging Old between the consumer and the producer in many World producers who are changing their spots and ways, and it is really, I suppose, how the market is are starting to think a bit more forward and starting going to develop and reform and change in which we to understand the need to retail and market their are most interested. One of the messages that we have wines accordingly, but the prevailing attitude in the picked up from some elements in Europe is that really New World is basically they are a step ahead of that, there is not too much of a problem and what problem a bit more sophisticated when it comes to the there is is really the problem of the consumer in not marketing of wines and a bit more sophisticated in recognising the great qualities of European wine and terms of how they deal with the likes of me and Dan, drinking stuV from the New World, in which case the and have had the greatest success in the last 10 years. European wine industry continues to decline, but That said, it is quite interesting when you look at the never mind—enough of that from me! Could we start market share stats that the gap in terms of growth has by both of you giving us a rough indication of how closed dramatically; the wine market is now relatively you see the distinguishing characteristics between the flat. It is flat by volume, up about three or four European wine producers and New World wine percentage points by value; and, if you look at the producers when you deal with these two very New World versus the Old, the total market, the New diVerent industries. What are the main diVerences World has grown about 2% and the Old World is that you see? declining about one. So the convergence rates are Mr Dyer: Speaking generally—because there are really getting close, and in fact I can actually show obviously details behind the generalisms— you, because you can look at this and see what I generically, clearly the Old World is a lot longer mean. I think this is it in terms of volume. You can established. I was looking back, and in fact a lot of see that this is 1990 and this is 2006, and the dark 3714281020 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago splodge is New World wine share and the lighter is Q645 Baroness Miller of Chilthorne Dormer: Can I Old World wine share. You can see 1990 to 1995 the ask you how you structure your buying team. At very big splodge is getting bigger, and in fact the last two senior level, do you have a red buyer and a white years—a bit of an unfair comparison because you go buyer? Or do you have a New World and an Old five year, five year, five year, one year—you can see World buyer, for instance? that there has been some kind of levelling oV. So, in Mr Dyer: There are slight diVerences between the fact, going forward, and certainly with what we are Sainsburys and the Tesco model but broadly we split seeing in terms of our sales, I would not be surprised up with buyers looking after various countries. In if you now see a stabilisation in terms of erosion of terms of Sainsburys what we do is make sure that Old World and increased sales of New World. There each buyer, by and large, has Old and New World are some further dynamics behind that, such as quite representation. That clearly gives a better spread of a short vintage in Australia—30% down this year and work, so you do one vintage in the Northern likely to be tighter again next year as well. That is my Hemisphere in October and you do one vintage in the opening position. Southern Hemisphere in February/March, and make Mr Jago: That sums up almost everything I think sure that we have five wine buyers and we split up the there is to say about it. The history of finance, the world amongst us. So we do not do it by colour and history of the hereditary process in terms of farming we do not do it by Northern or Southern hemisphere. and agriculture in the Old World, France and Spain Mr Jago: The model at Tesco is slightly diVerent in particularly, versus the publicly funded large that we have two distinct streams. We have what we corporate activity that has driven the New World call the product development stream: they are people development of wine production, are accountable for who go out and find wines, taste in vineyards, work a great deal of the ways in which people have brought with producers and growers and agents to actually product to market. Historically the Old World has develop the product and the packaging. They will very much felt, as Julian says, that “This is my then pass that over to a buying stream. So you have product and I expect you to understand it and buy a pair, and the buying manager will partner the it.” And, as the Beaujolais were famously quoted as product development manager. The buyer will then saying, it is the customer who is wrong and not the conduct the commercial negotiations, making sure producer, whereas the New World very much came at that the product and the supply chain and the it from an alternative angle and very clearly said that logistics and all the things that seem to take up 90% they were prepared to invest ahead of sales, which is of the time, not 10% of the time, get done eYciently. much more of an FMCG basis for selling products, So we have four on each side, including currently a to introduce the customer and expose the customer to Master of Wine who, for nine years, has been based the product ahead of what might be a customer’s in Australia for Tesco. We sent Phil Reedman out understanding of it. We have seen an increasing there a long, long time ago when we started to see the switch of customers’ use of wine from what was emergence of the Australian wine industry and he has regarded as a slightly ethereal, heavy, if you like, been based in Adelaide for nine years working for us. snobbish area of interest in investment and “a cup of Interestingly enough, we are dispensing with that tea just as well, does it not, with supper”, to a much role; Phil has in fact resigned and we will be basing his more mainstream product, and I think the fact is that replacement back in the UK because the needs, the wine is fundamentally an alcohol beverage made availability and the slightly evangelical state of the from grapes that works extremely well with food, and Australian wine industry perhaps is maturing. customers are beginning to realise this. We are seeing a transition of younger consumers, particularly women, from RTDs—ready to drink—or Alcopops into the rose´s of the New World, which are sweet, easy to understand and easy to drink. Certainly, the Q646 Lord Plumb: It is a very interesting point and New World started very early by saying, “We will tell I wonder to what extent there is integration between you what it is made from and we will tell you what it the grower and yourselves. Do you give advice, for tastes like before we tell you anything else,” and the instance, on possible changes that you see necessary Old World has been very slow to understand that, yet relating to the grower? has also not necessarily managed its historical value Mr Jago: Yes, we like to. I think particularly the in its brands; but the brands in the Old World are Australian model is a good one for us where we ship Rioja, Chablis, Chaˆteauneuf du Pape, Margaux, and a lot of our own—label wines in bulk to the UK and the brands in the New World are Lindemanns, bottle them in the UK, for a number of reasons; but Hardys and all the others. But the consumer finds it we are very actively involved in developing the styles easier to understand the way in which FMCG and in fact we would be specifying styles, before the products are marketed than the very complex way of harvest is made, with many of the producers we the traditional market of wine. work with. 3714281020 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago

Q647 Lord Plumb: Is there any financial integration? Mr Dyer: The supermarkets make up between 65 and Mr Jago: No, not in terms of formal financial 70% of UK wine sales, which have been developed integration of any sort at all, no. really over 15 years. In terms of the way in which we Mr Dyer: By and large producers understand that we, work with our producers, our sole interest is making as retailers, really understand what the UK customer sure that we meet our customers’ needs first and is after in terms of style and benchmarking. So clearly foremost, in terms of range, depth, quality and style, an extreme example is own label, where we have and we will do everything we can to work with direct control over the quality and style of those producers who understand that, to get those wines to blends and work closely with producers on making shelf. There are lots of diVerent levels in terms of those wines, to other wines where we give advice on those styles: on the one hand you have base—level style and say, “We think we need more fruit, we need wines, commodity products where you have perhaps less oak, this is the kind of style the customer is after” more of a relationship which is not that close, so you to branded wines which you buy oV the shelf where might pick wines from diVerent producers each year you have less say in it. But we try, by and large, to give to match a certain price point, to core own—label advice about what we think will sell in the UK market products, where you are working very closely with because generally customer styles do vary around the those producers to come up with styles and the world in terms of what some customers might need. quality you want, through to high—end wine, over £7 to £15 typically, where you are sourcing wines to add depth, range, authority and choice to the fixture. And Q648 Chairman: Is that particularly in relation to we have a diVerent relationship with all these New World wines? producers all the way through the chain. I do not Mr Dyer: We tend to have a greater say and think we try and change the way they work but involvement in New World generally because they clearly those producers who are more proactive in are much more open and flexible, but we do adopt understanding our needs and aspirations tend to that approach where possible in the Old World, work more closely with us, particularly if they have particularly across our own label. the wine quality and the wine style.

Q649 Viscount Brookeborough: You mentioned only Q651 Lord Cameron of Dillington: I know from the the UK market. What about your stores in other food perspective that you obviously try to encourage. countries, Tesco in particular? Is it a very diVerent So do you make one phone call and you encourage taste? more cooperatives in the European wine industry Mr Jago: It is enormously diVerent. I am, in fact, who will get together to produce the wine for you? responsible for working with 12—and soon it will be Mr Dyer: We would not do that. We do not have a 13—countries, and we have just finished putting to policy to reduce our supply base, so we are not bed our range for the United States, and it is saying, “Because you are European producers we do fundamentally diVerent, both the styles and flavours not want to work with 25 producers in France, we that they want from their wines and the range of would rather it was two, so therefore you are not wines that they want to have included within their going to grow as much.” We, frankly, will work with range. We then compare that with Korea and whom we need to to develop and put in place the best Thailand and Central Europe and they are very range of wines that we feel fill the store. The fact is diVerent in all places, although there is a rapidly that in Australia we have a far smaller supply base emerging acceptability for New World wines in some and in California we have a far smaller supply base of the more traditional, the maturing wine-drinking than we have in lots of Old World countries. On the markets; so, if we look at Central Europe where they one hand, it is a challenge but we are not doing our drink domestic wines, they are beginning to customers a service if we say, “Actually we do not understand that New World brands are enhancing to want to do that, so we will have less choice in the the wine-drinking population. ranges in the fixture”. So buying from the Old World tends to be a bit more complex, but that does not mean that we do not actually try and do our best to Q650 Lord Cameron of Dillington: To some extent put those products out on the shelf. you touched on my question. Supermarkets are a Mr Jago: The growth in wine over this period of time comparatively newcomer to the whole wine market has come about as a result of the supermarkets place, but you are now a huge percentage of it, making wine more accessible fundamentally—easier particularly in this country. Can you tell me what to get hold of, easier to understand—and they have influence you think you have on wine producers and been merchandised in a way with which customers what changes you feel that you have made to the way are familiar. They understand how to stock a they operate, their margins, the varieties and so on, supermarket shelf pretty eVectively, and I think it was both in the Old World and in the New World? really the lead of supermarkets and retailers generally 3714281020 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago taking the lead in terms of making wine a hero area— Q653 Lord Ullswater: I would like to ask you about this has created a customer acceptance and the wine consumer because I would like to know what understanding for wine, so we have to look at it that is your experience of the British consumer when way around. I think there have been some challenges purchasing wines. You said a moment ago that you recently placed on the supply industry, that they have had to get to know the needs of the consumer and I been rather slow to develop and innovate compared would be interested to know what your judgment is to the retailers who have led the increased of the needs of the consumer. You also said a minute penetration and consumption of wine over the last ago that the tastes of consumers in the UK and the few years. Wine is very much a meritocracy, and I USA were very diVerent, that your oVering would be think that those who are good and work hard and very diVerent in the two countries. So where does understand the needs of our customers are the ones taste lie? And, when Mr Dyer showed us that bar who generally succeed in the market place, and the chart of the introduction of the New World wines, willingness to learn rather than the willingness to has that been done by the supermarkets? Have they teach is important in understanding one of the conditioned wine consumers’ tastes or how has that principal separations between the Old World and the come about? Y New World. Mr Jago: I personally would consider it very di cult to condition people’s tastes with regard to something that has such a diverse base of styles and characters Q652 Lord Cameron of Dillington: Would your and colours and ﬂavours as wine. We regularly Continental counterparts be answering these canvass our customers, regularly we talk to them questions in the same way, in terms of percentage of about what they like, what they do not like and which the market place? We are big wine buyers in this particular style they like. Every four weeks we run a country, as are other countries, but I wondered tasting panel, which is made up of 140 customers whether the whole market place is diVerent than selected at random who have said they profess an there? interest and understanding, and they all come and Mr Dyer: I think it is a bit more democratic here taste a range of wines and tell us a little about what because we are more catholic in our tastes and we they like and what they do not like, and it is very have a small but growing domestic industry. But revealing. Their tastes change with age, particularly, largely we as consumers will pick and choose those and I think that is common in that we tend to start products which oVer the best value and meet our sweet and develop more complexity as we get older. needs better than the others, whereas a lot of other One’s disposable income also has a great impact on countries in Europe have strong domestic markets what you are prepared to experiment with or what and they will tend to favour those wines accordingly. you can aVord to experiment with. I think there is no So, if you walk into the average French supermarket doubt that retailers have led a consumer awareness of 90% of the range is French with a very small sort of certain new styles, particularly wines from California forfeit section for stuV that is not from France. In and Australia where we have made them more fact, it is even smaller than that—if you go to a accessible in the belief that those styles will be French supermarket in the Loire, 50% of the range is appealing to customers, and they have responded by from the Loire Valley, 30% is from Bordeaux and buying them in droves, as we have seen. So I think it there might be a four-foot bay from Australia and is proven that the view that we could lead their tastes South America. So we tend to be quite catholic in our was exploratory but actually the end result is that we tastes and, therefore, I think the UK market has been were probably quite right in terms of understanding seen in the world as a good test ground for new that people were looking for something more than products and is one of the most open markets and the slightly traditional style of the Old World, as it one of the most competitive markets. That is some of was considered, and still is considered to be. the feedback that we get in our dealings around the world. Q654 Lord Ullswater: Can I continue with this? Mr Jago: Many producers will certainly use the UK Does the price or where the wine comes from have as a proving ground for their products that they do importance to the customer? We were given a small not always take elsewhere. The analogy used to be piece of evidence about somebody who might that, if it were successful in the UK, it would then be naturally, for their own consumption, buy Australian worth taking to the rest of the world. Certainly some chardonnay but, if they were going out to dinner, of our Western European non—wine—producing would take a bottle of French wine with them, which neighbours—Scandinavia and Western Europe— I ﬁnd rather intriguing. watch the UK market with great interest in terms of Mr Jago: It is absolutely true. I came to Tesco from understanding what the next trends will be, because 15 years of a wine importing and distributing we are regarded as being fairly fast-moving and business and we did a lot of work with the trade. It is innovative. very interesting that, if you have somebody at home 3714281020 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago who will drink Australian chardonnay, universally, Q655 Lord Ullswater: Could I make a or Australian Shiraz, when they take a client out to generalisation, upon which I would like you to lunch they will almost certainly choose Chablis and comment? Would people who are going in to buy St Emilion. There is a natural tendency to consider wine in the supermarket consider that the price levels what is right and on special occasions people indicated quality? That is a complete generalisation, undoubtedly trade up and, when they trade up, they going on from the Australian chardonnay to the trade back to tradition because there is still this view rather more expensive red wine that they might take that the heart and history of wine is based in the out with them to dinner? appellations and DOCs of the Old World. So, yes, Mr Jago: I think it is fair to say that they would. It is what people say and what people do are always a fairly complex process of selection when somebody diVerent things in wine, and it makes it a very goes into a store—they start with colour, they then complex subject. move through to a series of either country or grape Mr Dyer: Just a point to endorse and carry it on variety; price and promotion are incredibly further is that wine is now no longer just about important to a lot of customers these days, and price special occasions, it is about every day consumption. is one of the defining levels of perceived quality, It is that growth of consumers who by and large come although if it is an expensive Chaˆteauneuf and it is an into the New World because they were not drinking expensive Australian chardonnay there are diVerent wine before. Ten years ago we were a nation of beer levels of understanding of what quality really means. drinkers and we are now a nation of wine drinkers, Mr Dyer: It is a very daunting fixture, the wine and who would have thought that would ever fixture. If you go into the average store, there are happen? It is these new styles of wine that they are hundreds of wines, 40 to 50 feet of red and white, and after for every day drinking. I agree entirely that, it is daunting. If you are not a wine expert, where do when it comes to celebrations or entertaining you start? That is why price becomes very important customers, in the main they do by and large revert to because it is one of the guarantors of quality—the traditional styles of wine, be it Chablis, Chaˆteauneuf. more you pay, the better quality wine. That is why There is also a slight age gap as well, because it tends Press recommendations are very important, because to be younger consumers who traditionally—it is a it is something that stands out on a shelf and says, bit funny, that word—have bought the New World “This wine has been recommended by so and so”. So wines because they are easier to understand, they are recommendation and price are two of the most labelled more easily, they are in English, whereas it is important levers there are in terms of predetermining the more traditional, high—end knowledgeable what the customer will buy. consumers, who tend to be older, who are happy to experiment and buy some of the Old World wines, Q656 Baroness Miller of Chilthorne Dormer: Can I where there is less signposting on the labels. ask one very short question on that? What, then, was Mr Jago: I think your age and when you were the message in the Press release from Tesco yesterday introduced to wine is critical in this as well. about the £100 bottle of wine? Generally—and this is a matter of generalisation— Mr Jago: It was interesting that one, because actually people over the age of 40 started drinking wine with we have had a £100 bottle of wine in the business for German wine, because it was the then equivalent of more than four years, so it was interesting to see what the New World—it was sweeter, it was easier to the Press interpreted on the basis of what the Press access, slightly lower in alcohol, slightly more release was. There is a general trend from consumers acceptable for parents, to introduce their parents that to spend more on wine and certainly on less special way, or maybe French wine, or maybe Spanish, if it occasions than they used to. I think for us the was red; and those under the age of 40 in general have purpose of that message is to say to people, “Your been introduced to wine through the New World— traditional wine merchant is not the only place where their parents were drinking Australian wine and you can access good wine”, and you would expect us discovering that style of wine. It tends to be a fairly to do that. As in many things, supermarkets have indicative style of where people start their drinking, become top-to-bottom suppliers of products rather although it is not indicative of where they end up, than just bottom. because there is a general view that, as people become Mr Dyer: If you visit Sainsbury’s in Pimlico, you will more and more interested in wine and become more find a range of wines above £100! and more exploratory with wine, they work harder into the complex areas of the Old World than the Q657 Chairman: I am afraid, as far as I am New World. One of the challenges that the New concerned, they can stay there! Can I just ask you World producers face is to create a range of wines about labelling? How important is labelling, what that have complexity and heritage and history, which does the customer look for in a label? What does the they do not have, versus those, for instance, of customer want on the label? And how does what the Bordeaux. customer wants relate to the EU labelling rules? 3714281020 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Dyer: Labelling is incredibly subjective and not been good at this and, when you look at the specific very objective; some labels work, some labels do not; regulations regarding size of lettering, the size of there is no rhyme or reason to it. I will give you my relationships between produce of and appellation,I anecdote of what a good label looks like and then I think they have been quite restrictive—you are not will go into some of the detail. A good label needs to allowed to put in Rioja the word “Rioja” any larger look like a wine label—not a lot of them do. A good than certain other parts of the brand name. This is wine label needs to look more expensive than you are quite interesting because it does restrict what you paying—not a lot of them do. And you need to be could do with regards to creating branding. There is able to read it—not a lot of them do. Generally, those no reason why Chablis should not be in letters two labels that work well tend to adhere to those three key inches tall on a bottle because that is what a tenets and be very simple and very classic. My role consumer will look for first and foremost in trying to model for a brilliant wine label is the traditional understand premium wine. I think there have been French claret label—a bit of white, white rectangle very traditional views, particularly within France with a chateau on it, simple lettering, it is beautiful. based on protectionism, and I think there is a view— In fact, that model has been adopted by some New and I am sure we will come on to this if we have World producers to market their wines, so even if it time—an understanding of how the appellation is a classic New World label, like Jacob’s Creek, it is system has both worked and comprehensively failed very simple—a white background, nice, easy—to— to support and protect the members of its read lettering, looks classy, looks like it has come community. from somewhere that is an estate rather than just a Mr Dyer: Just one other point to make, because it generic appellation and it is a good, easy—to— was a good point that Dan made. If you go into a understand label. That follows on to what works well typical New World fixture, take Australia for from the New World and the Old World. From the example, there are fewer producers out there; there New World they generally say, “What does the are four big producers and a few smaller ones, but customer want?” They want to know what is in it, there is a lot less choice in terms of producers and hence the grape variety; they want to know what it brands as there would be, say, from France. tastes like, and increasingly putting tasting notes on Therefore, when you look at the fixtures, there is a lot the back; and they want to be able to read it and look of commonality—Lindemanns, there are a lot of attractive. By and large Old World labels are ranges of wine which look similar; Penfolds, Jacob’s predetermined by wine regulations around what you Creek. Go to Californian Gallo, there are huge can and cannot say, so, for example, a lot of the Old swathes of ranges that look similar and stand out and World you cannot say what grape variety is in it. The are easy to understand from a customer’s perspective. classic is what grape variety is in Chablis? It is If you then go to the Old World, where there are a lot chardonnay, but you cannot say that and so it is more producers and a lot more choice, no producer potentially alienating some of those customers, and is really having a massive part of the shelf. So you are more hidebound by what you say on the therefore little things just look a bit more messy and label. The New World has genuinely been front foot a bit less standing out, and therefore there are less forward because they have been able to say, “What signposting visual clues on the shelf. I am sure that is does the UK customer want? Let us label it and a role to play as well in terms of what a customer, who accordingly make it as simple as possible.” There are is not a wine expert, may or may not pick up. a lot of examples of bad labels from the New World and there are a lot of examples of great labels from Q658 Viscount Brookeborough: I think my main the Old World, so I think it is a bit of a red herring, question has been answered, but if I could just ask this one. But there is no doubt that putting a grape you a couple of other questions. First of all, to what variety on a label is a massive bonus, so that is what extent does the level of alcohol make a diVerence in the New World tends to do, without exception, be it the purchaser’s mind? I think it is right to say that Californian, South American or Australian wine— wine has, over the last 15 or 20 years, got generally grape variety has a key part to play. more alcoholic. Mr Jago: I think brand recognition is also quite Mr Dyer: It is really interesting this one. It is not as important. The New World has been particularly important as you think. When I joined the wine trade good at understanding that, if your label is diamond- and joined Sainsburys buying team in the late 90s, shaped and bright yellow, you can spot it from 30 feet alcohol was quite important and I can remember, on away; and, when faced by, in some of our larger some of our own label wines, there was one Spanish stores, 3000 fronts of bottles of wine—say, 1000 wine where, due to a vintage being not as warm, it wines for three facings of each—you have a lot of went down from 14% to 12.5, and the customer wine from which to find your bottle. If you happen to letters we got were amazing, saying, “You have know that you like that particular chardonnay, you reduced the alcohol, you are paying less duty, it is an can go and find it quite easily. The Old World has not outrage.” We had to write back saying that actually 3714281020 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago we do not pay less duty and actually it is to do with Mr Jago: We have heard of them! the vintage. But there was clear recognition that alcohol was important. What you see now in fact is a Q660 Viscount Brookeborough: I spoke to the lady trend towards lighter styles of wine, fresher styles of on the till while my wife was paying for everything, wine. If you look at the huge sales we have of the pink and I just asked her how she knew which wines to wines from California, the white Zinfandels and the stock and how she decided to organise her shelves white Grenaches, these are all about 8.5, 9, 9.5%— and everything else, and actually only about 15% of not that strong. Increasingly we see customers it was French wine. But she said that one of the staV writing in and saying, “Actually I would like a wine watches every food and wine programme—not an that is not as strong,” In fact—and it will not be a individual, but at all times there is somebody secret soon—we are launching a range of own—label watching every food and wine programme wines which is slightly lower alcohol, around about throughout the week—because “If we do not catch 10%, because we think there is a big customer on by Saturday when they all come shopping, we lose franchise for wines that are not alcoholic, do not out.” To what extent does that aVect it? Does the make you feel a bit woozy after a couple of glasses— trend change? you can drink a couple of glasses at lunchtime—but Mr Jago: I think the trends take a lot longer to deliver all the flavour cues you would expect of develop and mature than that. I would love to think stronger wines. In fact, this plays right into the hands that we, as a retailer, reacted as quickly as that. I of the Old World, where traditionally they have had think in terms of where our range is positioned and lower alcohol levels because some of the viticultural what promotions are on and oV, we decide that fairly areas have been cooler, therefore they are getting less far in advance, and certainly how products are sugar in the grapes and therefore less alcohol in the merchandised on shelves and where they go and how resultant wines. So you could argue that that is many are faced centrally on a fairly regular basis. I playing back into the hands of parts of Europe, think it is important for us—and we have a large particularly Italy and Northern France. So alcohol is customer insight within our business, who spend a lot important, but it is not the only thing and I think of time talking to customers and asking them about there is a trend that we are coming down now with what they think is important to them, and that alcohol rather than going up. applies to food and to various other things. I think Mr Jago: Certainly when I joined the wine industry in understanding your customer is what supermarkets the late 80s, no one ever looked at the alcohol levels have proved to be extremely good at and, if we did in wine, it was almost irrelevant, and I think probably not understand what customers want but at the same legislation then was not the same as it is now, where stage assisted them in leading and changing their it has to appear in front and centre in terms of legal behaviour, I think we would not be in business for packaging. But our consumers have in this instance very long. probably not said to us they want lower alcohol Mr Dyer: I have just a couple of comments to make. wines, but we are working extremely hard to lead Recommendation is key, as I said earlier, because their taste down to a more approachable and wine is so confusing. So, if a TV programme accessible route for reducing alcohol levels whilst mentions a wine or a mainstream journalist mentions retaining flavour. In terms of viticulture and a wine and you stick up some point of sale saying, “So-and-so selects,” you will get some pretty good vinification it is quite diYcult to make lower alcohol uplifts. But it is short burst and it is simply on the wines; there are strong EU regulations that prevent basis that it provides a bit of navigation whilst the people from de-alcoholising wine before it is brought customer is at the fixture. There are, none the less, into the EU, so Australians have had regulations for some bigger trends taking place, one of which is the many years that says they may not reduce their growth in rose´ wine, which is spectacular—the wine alcohol via technology. There are also some of the market is flat but rose´ is growing at 30%, which is challenges around what you can and cannot say. You huge, driven by more sophisticated marketing by the have heard Julian describe a range of lower alcohol likes of us to get these out to customers, having better wines—there are fairly strict regulations on what you summers over the last few years so more people want can call low, what you can call lower and what you to drink rose´, and better quality rose´s coming on to can call no, and it tops out at about 2%. So it rather the market, and the real growth of the Californian rules out the ability to be able to say, “This is a lower wine rose´ style. These are trends that are taking place alcohol wine” legally on the label if it is 9% rather and clearly we need to make sure that we are at the than 12%. front edge of them to oVer the best to our customers.

Q661 Baroness Jones of Whitchurch: You have Q659 Viscount Brookeborough: I was in Marks & touched a little already on the question I wanted to Spencer the other day in Lisburn. ask, which really follows on from the last question. 3714281020 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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How much are people, individual consumers, in the UK, to get people to drink it more with food, objectively discerning about what wine they like? to actually understand the wine styles better and to And how much of it are they told what they should experiment more; that is what a lot of the retailers like, either by recommendation or by the little blurb now are dialling into, to try and push that one. So we that you write, “This is a good wine to eat with fish” give them more information, that is the way to look or whatever you write on the label on the at it. supermarket shelves? How much are you driving people’s tastes rather than just relying on your tasting Q662 Baroness Jones of Whitchurch: When we were sessions—and presumably Sainsburys do something talking earlier about the labelling, how much similar? It seems to me that people are massively research is there? Do you do detailed customer confused and, therefore, it is an open door for you to research about what they would like to see on the tell them what they should like. label? Mr Jago: Wine is enormously confusing, there is no Mr Dyer: Yes. two ways about that, and all the evidence says that a personal recommendation is the strongest Q663 Baroness Jones of Whitchurch: As you were endorsement of a product you could ever see. If one saying, it is sometimes deliberately obscure. Is there of us says to somebody, “I think this is a delicious in the public domain something that we could go wine; we had it yesterday, it was absolutely back to the EU and say that these are the changes that wonderful, great value,” from Sainsburys or from British consumers are demanding in labelling, for Tesco, they will go and buy it and there is very open example? accessibility and influence possible in wine. I think we Mr Dyer: Actually specific, I am not sure of anything have to be responsible in that and try to find a in the public domain—you might want to diVer, Dan, balanced series of suggestions or recommendations or know something I do not—but we commission a and we will put up journalists’ recommendations. lot of internal research. Our suppliers, particularly Whilst I do not think they account for an enormous the brands, commission a lot of research into what percentage of sales’ uplift on a particular product, does and what does not make a good wine label and people do find it much easier to navigate. But what we should do, but I have not seen anything in previous experience is generally the biggest defining the public domain on labels. There is a lot of wine point and why people buy a certain wine before research on sales—white and rose´, up down; price—if they have tried it and liked it they will go countries up down; price points up down; colours; back to it again; and promotions will be where they every which way you want. But I have not seen any start to experiment with new wines that they have not empirical statistical research to say that this is what a tried before. So recommendations are important but good label does or does not look like. they are not above and beyond anything else. Mr Jago: As you pointed out earlier, it is so subjective Mr Dyer: The wine industry is considered to be flat, as well that it would be quite diYcult to come up with so clearly we have an interest in making sure that we something that was definitive, and I have not seen are driving value and encouraging customers to trade market research on what makes a good label and up and trade across diVerent categories and try new what makes a not—good label. Those with the things. If you look at most supermarket own labels money to fund them tend to be focused on their own these days—Sainsburys, Tesco—we are pretty good product, and certainly we undertake research on at putting taste and food recommendations on packs, own—brand packaging with customers. But it tends so every own—label product will say, “Try this with to be within our own customer sphere. We have a this; this goes great with that”, to get people to think thing called the Wine Club, which actually is an opt- that this is part of a food occasion and not just a drink in club which now has 568,000 members, and they get on its own, and to get them to trade up and try a mailing every four to six weeks, which has lots of diVerent products. All the marketing that we do information about wine and about labels and styles around the store is around saying to customers, and we use that quite aggressively to interact with our “Look, if you like this, try that.” We do drinks customers to get them to understand a bit more about festivals and wine festivals during the year, where we what we are trying to do to get their feedback, and we put up point of sale and say, “If you have thought do get quite a strong dialogue, and the style of labels about this, why do you not try that?” We do that in is not something that comes up very often. our media in the Sainsburys magazine and other customer drops, just to encourage them to break out Q664 Chairman: Does your back label compensate of their repertoire, because a lot of customers buy a for the confusion and lack of information on the relatively small number of products. So it is all about front label? trying to engage, educate in the right way and to get Mr Dyer: Yes. All our back labels, whether they are them to experience wines outside their common New World wines with a very simple front label or purchase repertoire. That is the future of wine retail Old Wine wines with a relatively simple front label, 3714281020 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago provide what grape varieties are in it, what the we see the graph that you showed us, with the alcohol level is, what it will taste like and what you increasing volume of wine coming in from New should drink it with, and obviously any other legal World areas. Do I take it that you are saying that constraints, such as that it contains sulphites, et quality wines are coming in now more from the New cetera, et cetera, and we have a fairly consistent World than was hitherto? And are they replacing the standard across all own label. quality wines with which we are familiar from some Mr Jago: We are looking at back labels currently on of the European countries? Are they exploiting that Tesco brand products where we have had similar market, which you can understand them wanting to levels of information for some time. With the do? But how do we balance, therefore, the table wine, changing legal requirements in terms of back which is the familiar wine, which is increasing in labelling, with current voluntary know—your— consumption, with the higher—priced wines and the limits legislation, with the increasing likelihood of the quality wines which are still more so perhaps in pregnancy message being again voluntary but competition, from what you have said, than hitherto? required, if you like, with the units of alcohol Mr Jago: I think it is a fairly complex question, but I legislation within that. It is becoming plus recycling, think one of the things that you as a Committee will plus all the information you need, plus a bar code— be looking at is an understanding of the definitions the back label is increasingly becoming a desert of between quality wine and table wine, which are very usual consumer information and the home of much European—driven legalistic terms designed to technically and legally, shall we say, controlling separate those who abide by the law from those who information, and I think that is a real challenge do not abide by the law, or those who produce within because if you look at the bottle it is only so big. certain qualitative guidelines. The New World does not have the same regulations around it and they Q665 Chairman: Your back labels are very good. certainly do not define their wine as being table wine Mr Jago: I think it has become genuinely quite a versus quality wine, and neither do we as retailers. If challenge to get enough information on to a label and you look at the traditional Vin de Table or Vino de we are experimenting with ever decreasing font sizes, Mesa versus Appellation Controˆleé, we sell V and as I get older I find I have to take my glasses o Appellation Bordeaux at under £3 a bottle. We also more often to read them than I did before! sell Appellation Controˆleé Bordeaux at £100 a bottle, so there is a fairly broad reach, and our consumers Q666 Lord Ullswater: Can I just introduce one certainly have no understanding of the diVerence further thing? What about the international between a Vin de Pays and an Appellation Controˆleé. competitions and the awards that are given at As far as they are concerned, it is the way in which the international competitions, which you can then put product is marketed and the price it sits at that on your wine bottle? Does that influence sales? defines its qualitative hierarchy rather than Mr Jago: The dominant ones are UK—based now, necessarily any form of legislative burden or support with the International Wine Challenge, the National that is being given, particularly within the EU. I Wine and Spirit Competition and Decanter being would like to make the point that I have always felt three of the primary ones. Most of the others tend to that one of the problems that the EU legislative be national specific, so Australia will have its own set environments, Appellations Controˆleés, particularly of competitions and California likewise. Yes, DOCs, have is that they have been generally customers love endorsements from that forum, they protecting their members rather than protecting the have said this frequently, and we will use all of the quality of the product. If you look at Bordeaux, my recommendations and medals and awards that we get understanding was that two years ago the in our material and on our literature, and there is Appellation Bordeaux Controˆleé actually rejected 30 nothing like sticking a few big gold medals on the wines out of a production of, I think, somewhere in front of a bottle of wine to make people steer towards the region of hundreds of thousands of wines as not it—I think that has been proven. being suitable for membership of the Appellation Controˆleé. These were individual wines which were Q667 Lord Plumb: The Lord Chairman is always tasted by the committee, and one would suspect that reminding us that we are an EU Committee and, there are probably a great deal more wines than that therefore, we should look at this whole business in which might not live up to the consumers’ that context. You did say that there seems to be a expectations of quality Bordeaux. small but growing domestic market, nevertheless, but the Chairman reminded us also at the beginning in his opening remarks that the cost of the wine regime at Q668 Baroness Miller of Chilthorne Dormer: the moment is something like ƒ1.5 billion. You see Without disclosing any commercial confidentialities, the dilemma we have as a Committee in looking how would you really see the wine trends in terms of therefore at the EU wine regime and that cost, when demand now, looking back perhaps a couple of years 3714281020 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago and then into the future between EU and New faster than the New, but a lot could depend on what World wines? happens in the next few years with vintages and Mr Dyer: Clearly it is well documented, the growth of currencies—and anything really. New World wines in the last 10 years, frankly, taking advantage of a relatively fragmented and split EU Q669 Viscount Brookeborough: We have talked production base to really advance their sales in the about Old World/New World. What do you see as UK; taking advantage of good grape prices and good the most significant constraints on English wine strategy. One thing I just thought of, as Dan was producers? Are producers currently suYciently talking, was actually the role that trade bodies have responsive to depth, quality—all the issues that you to play as well, because some of the trade bodies from were mentioning earlier that were important? Does the New World have been extremely dynamic and demand outstrip supply? Or is it the other way round unified in terms of uniting industry to understand at the present time? Do you see English wines and what the customers want and assisting the producers French wines being pitched as premium products in to develop that. A good example, I buy Australian future? Would you give us your overview of the wine, the Australian Wine Bureau organises the English wine situation? buyers’ visits, gets us all out there, hosts conferences Mr Jago: The English wine industry historically has and has done a tremendous job over the last 10 years been a hobbyists’ pursuit. There are in many ways, in terms of working with the industry jointly to like some of the more regional Old World producing develop wine sales. There is no such body in Europe. regions, an awful lot of people who do it because it is France is OK—that actually works together as an fun to do and a little bit interesting, and they put industry to drive sales in the UK. A great example for something in their cellar and give to their friends and me was a talk I gave at an Italian seminar a few years that is about it. Large commercial operations within ago. I met up with the guy who ran the Italian Trade English production are almost non-existent. The one Commission, and I said, “What is your focus for the that tried hardest probably, Denbies down in Surrey, year?” He said, “It is the wines of Valtelina,” which is did not work, I think it is fair to say, although there a tiny province in north—western Italy near the Alps, seems to be a significant re-interest in English wine which produces very little. But they give them a pot right now. It is warming up; there is no doubt about of money, so that is what was going to be his focus for it. We have some very good south-facing chalky soil the next six months in the UK—completely on the South Downs and all the way through to unacceptable if you are actually trying to engage with Dorset, and I think there are a lot of people from customers on Italian wine. It is that kind of approach, traditional agriculture where the vines are an represented many times throughout Europe, which is opportunity. I think we burden English wine hampering a unified approach to UK. That said, if production in terms of the duty regime. The you crystal-ball gaze, I do think that the New World European countries seem not to have that sort of is slightly running out of steam. It has flogged the burden placed upon their agriculture and yet we insist mainstream consumer brands extremely successfully as a country on placing it upon our domestic and they will continue to be viable. But it has not had production, and I think that is something that much attraction driving sales over £5, which is, as we seriously needs to be looked at if we are going to have said, where the Old World is strong, and there support it. As we start to see the growth in desire by are some problems coming up. The Australian consumers for more aromatics and lower alcohol, the vintage this year is down 30%. OK, there is a lot of UK market, funnily enough, is absolutely perfectly wine still in tank, but the vintage next year will placed to produce that style of wine and we as a probably be small again. They have had no rain for retailer are certainly encouraging and supporting as goodness knows how long, and they have had some hard as possible people who are doing that. But it is frost problems, so they will probably have a smaller expensive. A really good bottle of English wine is £10 vintage next year. So, potentially, supply could be and there is very little of it. It is quite hard to come by. slightly constrained—wow! That would take a big player out of the market in terms of driving some big Q670 Lord Moynihan: You could sell a lot more? volumes through the UK. I think the Old World is Mr Jago: We could sell an enormous amount more. starting to get its act together in terms of it has the If I could get good, fresh, bright, not bone dry right styles of wine, some good growth from Spain English wine that I could sell at £5 or £6 a bottle, and this year, some pretty good growth from Italy. If we occasionally promote, I could sell mountains of it can just go that extra mile to engage with customers without a doubt. But there is not enough, simply. and make them really understand the quality and the range and breadth of styles, we could see a bit of life Q671 Lord Cameron of Dillington: Bearing in mind back in the old warhorse yet. Crystal-ball gazing, I that we are looking at the EU wine regime—and you would say growth will be neck-and-neck and, if have probably answered this already but you may anything, the Old World might be growing slightly have something more you want to add to the 3714281020 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago question—what do you see as the underlying causes it were, and the lives of supermarkets and the of the diVerences between your relationships with EU business of buying wine and selling it, how much do producers and New World producers? the regulations and restrictions in the EU aVect the Mr Jago: From a Tesco perspective, I would go back production and marketing of EU wines from your to my earlier comment about the way in which these point of view? businesses and industries have historically been Mr Dyer: For me, not directly, although indirectly. If financed and structured. The European market is you are looking at a southern French wine, a Vin de pretty much family and dynastic: the New World is Pays d’Oc, you like the quality, the quantity is good corporate and large and, therefore, has found the and the price is right, you can buy it. However, ability to deal with retailers on a much more behind that, there are some things which are professional level perhaps than some more obstacles; for example, it has to come from quite a relationship-driven styles of the Older World. Every small region and that could mean that the quality time I read through the questions I kept coming back next year will not be as good if there is a problem with to my comments about being product-driven versus the vintage conditions in that particular area or the being market-driven. The New World has made itself prices go up or down. If you look at the New World a market-driven business. The Old World has model, where a lot of wines are more generic than absolutely made itself a product-driven business. that, a great example is south east Australia, which is When I used to supply Sainsburys, Julian and I used not just from south east Australia, it is basically from to joke occasionally about the idea of the traditional anywhere. That enables big producers to come up French producer coming in and saying, “This is my with consistent quality, year in, year out, to pick and wine; I’d like you to buy it”, whereas the New World blend wines and to come up with a style at the right producer would come in and say, “The answer’s yes. price point. Indirectly, that puts them in a better What’s the question?” It really is as stark as that position, because that means they can come up with historically. The important diVerence, and the consistent styles year in, year out, which are more opportunity for the Old World, comes from heritage likely to maintain a place on the shelf, whereas if you and history. One of Australia’s greatest wines is a are an Old World producer from a smaller area, you wine called Grange and one of the reasons it has such know the vagaries of the individual climate or region authority in the marketplace is that it has been going or pricing that is going on there. since 1951. That is a long time in wine. If you look at how long some of the chaˆteaux of Bordeaux or the vineyards of Burgundy have been going, or the great Q673 Lord Bach: It is simply that and no more than estates of the Loire, they have an enormous amount that? It is an important issue you raise, but no more of history and heritage and provenance. They have than that? I was very interested in your comments been through consumer cycles on more than one about how you thought the Old World was slowly, as occasion and I think they have the opportunity to it were, getting its act together, that potentially there revert to that with some authority. If they do not seize was some life in it yet. Is that because there is a view that opportunity, then, by the time they do, the New that the old restrictions have to alter and are going to World will have grown up and got it itself. alter? Or is it in spite of the fact that those regulations Mr Dyer: Also, some of the big, more sophisticated and restrictions are still in place? How important are producers with a plethora of product will say at the those regulations and restrictions in selling Old beginning of the year, “OK, how much can we grow World wine? Mr Dyer: with you? What do we need to do to facilitate that A tricky question. We have had pretty good growth? How can we support that with promotions? growth from the Old World in the last year with the How can we support that with marketing? How can current regime that is in place. I suppose you would we support that with new product developments?” It call that working with the current regime that is there. is that level of service and engagement which is Unquestionably, with more flexible regulation— lacking from a lot of the Old World, largely because rightly or wrongly, and I do not have a view on that— the producers tend to be smaller and more diverse. that would give you more ability to source wines from That no doubt has played a big role in New World more regions within the Old World. Maybe if there growth in the last few years—just a more were a constraint on the supply of Pinot Grigio from sophisticated approach to targeting what they have northern Italy, you could source it from elsewhere to our customers and doing it better than other and come up with a blend—who knows? It would people. give you more flexibility. At the moment we are working with the regulations that we have. Mr Jago: It is about commercial opportunity. For Q672 Lord Bach: Let us come back to the maze of example, you are not allowed to bottle Rioja restrictions and regulations that the present EU anywhere outside Rioja, therefore we cannot have system is made up of and the reform proposals that bag-in-box Rioja, which I think customers have said we are looking at in the round. In your daily lives, as they would like, but we work within those 3714281020 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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2 May 2007 Mr Julian Dyer and Mr Dan Jago regulations. When we design new labels, we know Mr Jago: It could be, but I would rather be held that legislation says we have to have, from Chablis, responsible for changing UK consumption from the lettering in relation to the size of the region of below 10 litres per head to well over 20 litres per head production. I think you work within the regulations. in less than 15 years. I think the Old World and the If they were not there, we would probably try to be New World have both been beneficiaries of that. As more innovative and we would probably try to find to whether we have flooded the wine market to the new ways of communicating with the consumer that detriment of the Old World— we cannot do at the moment. Beyond that, it does not present restrictions beyond those with which we are Q677 Chairman: Keep on flooding! Mr Jago:—I suspect one would argue with that. Yes, comfortable because they have existed for some time. it is almost certainly easier to deal with companies who understand the way you operate your business. Q674 Viscount Ullswater: There are hundreds, Yes, there are a lot of regulations in Europe that thousands of geographical indications of the Old make it much harder to buy from those places. But, World. We, as a Committee, have understood from ultimately, we try to follow and work with consumers’ desires and that tends to be the way they the evidence we have heard that people might know want to go. Customers like things to be easy as well, a dozen of them. funnily enough. Customers do not like things to be Mr Jago: Yes. made more complicated for them. Mr Dyer: We could not and should not be pushing water uphill for our customers. Generally the quality Q675 Viscount Ullswater: The trade seems to know available now at the prices we have is a great position about the other 10 thousand but is that something that we are in, because we are oVering better quality which you have to contend with and get on with? Or wine at better prices and that is better for the does it set a restraint on your trade, do you think? customer. If that means that New World wine has Mr Jago: It is not a restraint on our trade, as I think grown over the last 10 years and has had to wake up I said earlier. We tend not to worry too much about and change its wine making styles—something on what the regulation and appellation and controlling which we have not commented yet—there has been a nomenclature of a wine is, if you like. We sell lot of change from wine-making styles from Italy to absolutely wonderful wines that would be classified bring them up-to-date. as Vino da Tavola from Italy which are probably better than many of the DOCs from the same region. Q678 Chairman: I am going to come in with the last It is just that, increasingly, producers try to work question—the Chairman’s prerogative. Do you have outside. The Italians produce an IGT as a new any suggestions on how you get the Old World quality classification, if you like, specifically because producers just to become more sensitive to the a lot of producers said they would not produce within market? the DOC and DOCG regulations. They needed Mr Dyer: Be more open-minded. Take a look above another way of producing varietal wines, so, rather the parapet and see what else is out there. Really than amending the existing regulations, they created understand what customers are drinking. Produce a whole new category. I think that was fairly classical modern styles of wine that are in tune with today’s and indicative of the way these things are done. palate. Be competitive on price. Work collaboratively as an industry. Those industries that do well work together. Australia is a great example: Q676 Baroness Jones of Whitchurch: It could be it is one industry; they are in it together. In France, argued that the reason British people now like so Italy, Spain it is each against the other. Mr Jago: much New World wine is because it was so much One wonders, if there was harmonisation of European duty rates, if it might encourage European easier for you, as buyers, to buy it. You had nice big countries to look a little further afield in terms of a suppliers, reliable sources of it, et cetera, so somehow level playing field for the price and sale of wine. It is you have flooded the market with these great new much easier for them to sell to their local village and wines and persuaded people that this is all drinkable their local supermarket when they do not pay any V stu and so on, and you have altered the market. I duty for that produce in that region; whereas can see, objectively, that it must be easier to deal with knowing full well that, if they come to the UK, they some of these suppliers than it is to deal with the pay £15 a case before it gets to the consumer in duty plethora of smaller estates around Europe and all the probably tends to make them err towards staying complexities you have just been talking about. You domestic rather than going international. could be responsible for this dip in drinking of the Chairman: Thank you both very much indeed. That Old World wine. Is that possible? has been very, very helpful. 3714281021 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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WEDNESDAY 16 MAY 2007

Present Brookeborough, V Palmer, L Greaves, L Plumb, L Jones of Whitechurch, B Sewel, L (Chairman) Moynihan, L Ullswater, V

Memorandum by the New Zealand Winegrowers

A. The Need for a Regulation

1. What is the nature of the case for having a wine regime at all—ie as distinct from allowing the industry to adjust itself to competitive pressures (eg via increased efficiency, rationalisation, diversification, etc)? There is always a need for some level of wine-specific regulation to recognise and govern the particular characteristics of the sector for the benefit of consumers and producers. Whether a wine regime such as exists in Europe at present, with elaborate controls on the market and the commercial freedom of producers, is needed is entirely dependant upon what the objectives of that regime are. If the objective of the regime is to pursue social policy objectives, then there is a justification for its continuation provided that it complies with WTO obligations. If the objective is to facilitate a commercially viable, consumer-oriented wine sector, then there is not. From a New Zealand perspective, the EU wine regime as it is presently structured appears to go far beyond what is necessary to protect the interests of consumers. It also tends to undercut the competitiveness of those EU producers who wish to operate on a purely commercial basis in favour of those whose operations are partially or wholly dependent upon market intervention for their survival. It does this first by perpetuating a structural surplus that acts as a dead weight upon both the EU and the international wine market. Second, it weaves an incredibly dense and complex web of bureaucracy around producers, stultifying their innovation and ability to adapt to changing market conditions and consumer preferences. Indeed, a vast and deeply entrenched bureaucracy that has little reason to be connected to market realities would appear to be one of the principal products of the wine regime and one of the main barriers to its reform. The principal thrust of regulation governing the New Zealand wine sector is consumer, rather than producer, oriented. The sector is not subject to any of the controls of production potential or market interventions that are found in the EU wine regime. Nor are there qualitative controls on wines bearing a geographical indication, as there are in Europe. This comparatively light-handed approach has facilitated the rapid development of the New Zealand wine sector, by allowing producers to innovate with techniques, grape varieties and regions and to respond rapidly to the market. For New Zealand, the result has been for the sector to structure itself around high-quality production, which is where it has been most successful. Given the long history of wine in Europe and the embeddedness of its wine regime, we could not speculate on whether a comparable system would have similar results in Europe. However, in our view it is clear that there is much in the existing European wine regime that impedes the commercial success of European wine producers.

2. Why should wine quality—eg relating to Geographical Indication—be regulated? Why cannot consumers choose between wines as they do between other products—eg on the basis of brand names or other information which might provide a guide to quality? We note that regulation of GIs does not necessarily equate to regulation of quality. Within Europe, quality factors for GIs are regulated, such as the conditions of production for quality wines produced in a speciﬁed region. This is not the case in many other countries. In New Zealand, the wine sector has never sought government control over quality factors, as it has been felt that producers are best placed to create and determine the quality of their products. Our industry is acutely aware that if quality standards were to fall, consumers and consumer gatekeepers (media, wholesale buyers etc) would pick this up very quickly and we would lose our place in the market. We acknowledge that the situation may well be diVerent in the unique historical and geographical contexts of European wine production, particularly where production and marketing structures are highly dependant upon the existence of formal quality controls. 3714281021 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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We do not believe that the regulation of geographical indications inherently conﬂicts with the development of brands or other information. Geographical indications (GIs) are one of a number of factors that consumers take into account in purchasing wine, and controls on GIs serve to protect consumers from misleading information as to the origin of wines. GIs also create and protect a form of collective intellectual property right that can be of value for producers. However, the wine regime privileges GIs over all other information on the label, for example by preventing some producers from indicating the origin of a wine; by restricting label information for wines that do not have a GI; or by restricting information such as grape variety names on labels that do bear a GI. This tends to distort the messages that consumers receive and, in many instances, creates confusion.

B. The Market

3. Given the existence of a wine regime, how might a better balance be achieved between the supply of and demand for wine and wine products produced within the EU?

Since wine is an agricultural industry, the balance between supply and demand will always ﬂuctuate. Nevertheless, within Europe oversupply is endemic. This is directly related to the fact that the EU wine regime is premised upon intervention in the market to maintain the incomes of wine producers. Interventions in the market such as distillation and private storage aids perpetuate overproduction by providing an economic incentive for the continued production of wine that would otherwise have no market. Such interventions have been applied in various EU wine countries for over a century, and their major achievement appears to have been the carrying over of the problems of the late 19th century through to the present day. The promotion of overproduction has never been eVectively curbed by measures to control production potential such as controls on planting or “premiums” for grubbing up grapevines. Indeed, controls on production potential, no matter how sweeping, are never likely to achieve long-term equilibrium between supply and demand while producers continue to receive incentives to produce wine for which no market exists. Conversely, if market interventions were removed, then equally controls on production potential could be removed. Producers would be left to produce wine as they liked and to succeed or fail on their own merit. This might eventually achieve a more “natural” relationship between supply and demand. This approach is, or course, premised on a policy objective of achieving a commercially viable, consumer-led industry rather than using the wine regime as a social policy tool.

4. Is the EU wine industry, within the current regime, sufﬁciently competitive within the global wine market? How can it be made more so?

No comment.

Approaching this question from the perspective of a country exporting to the EU, we believe that many market distortions and barriers to trade remain within the EU wine regime. We are not optimistic that there will be a signiﬁcant improvement in this situation as a result of the current round of WTO negotiations.

C. Structural Measures

See above. 3714281021 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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7. How signiﬁcant an issue is illicit planting for the supply situation?

We are not in a position to comment on the signiﬁcance of illicit planting. However, we note that the notion of illicit planting does not exist in any other part of the wine-producing world. It is purely an artiﬁce of the EU wine regime. If there were no market interventions, and consequently no need for controls on production potential, the issue of illicit planting would not exist.

8. Is there a case for the continuance of remedial measures (“crisis distillation”) to deal with exceptional market conditions?

The perception from outside the EU is that “exceptional” market conditions giving rise to crisis distillation are in fact the norm for some sectors of the EU wine industry. Certainly, the existence of such measures (and the funding to support such measures) presumes that “exceptional” conditions will occur on a regular basis and that producers will be supported whenever a case for the existence of such circumstances can be made. From this viewpoint, the “safety net” provided by crisis distillation in fact acts as another incentive towards production of wine without a market and the creation of business models premised upon EC largesse rather than commercial saleability. In New Zealand, dealing with unforeseen market conditions is a risk of doing business, and an economically sustainable business model should take account of such risks. New Zealand wine producers do not expect or seek assistance from the Government to save them from ﬂuctuations in the market.

9. What alternative outlets (ie other than wine sales) exist for excess production?

With respect, we believe that the question of disposing of excess production addresses the result of the EU wine regime, rather than the causes of its problems.

10. What is the potential impact on wine producing areas of liberalisation of the market? How sensitive are these economies to change?

No comment.

D. Marketing

All Governments mandate certain items of label information for public health reasons and as a baseline for consumer choice. In our view, above that baseline, a producer should be able to freely use any information they like on a wine label provided that is it not misleading to the consumer, detrimental to public health or in breach of intellectual property rights. This is not the approach taken in the EU wine regime, where all important label information must be specifically regulated. We find it diYcult to understand why marketing- based decisions must be passed through a filter of bureaucracy, nor can we discern any benefit to the consumer from this requirement. This view applies to the control of quality issues on labels in particular. Regulatory controls above this baseline simply create unnecessary bureaucracy and restrict the information that is available to the consumer. 3714281021 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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13. What part has marketing played in the rise in sales within the EU of wine produced outside the Community? Marketing has played a crucial role in the success of the New Zealand wine industry. However, this marketing is only one factor in the success of New Zealand wine, and of non-EU wine sales within the EU generally. In this regard, it is pertinent to note the disparity between the modest marketing budget available to a very small and unsubsidised wine country such as New Zealand and the vast marketing resources that can and have been mobilised by EU wine producers and regions to market their products or assist their entry into overseas markets.

14. What lessons might be learned from the penetration of non-EU wines into the EU market? The key lesson in our view is the importance of listening to consumers and providing them with what they want. This has been crucial to the success of non-EU wine producers in the past 30 years. Being consumer-led does not mean that wine will inevitably become a commodity catering to the lowest common denominator. In fact, the international wine market is highly sophisticated and there is strong consumer demand for products at all quality levels.

E. Wine Making Practices (WMP)

15. How suited are current regulations on WMP to a competitive global market in wine? What changes would you like to see? From a New Zealand exporter’s perspective, the EU wine regime in respect of winemaking practices is unduly restrictive. For example, New Zealand wines with a total alcohol content (ie actual alcohol plus the potential alcohol content of unfermented sugars) of more than 15% are not permitted to be sold in Europe. This restricts sales sweet wines and wines with naturally high alcohol content, for no discernable reason. European wines with more than 15% total alcohol content are permitted for sale in Europe. The EU wine regime is also not well adapted to react to innovative winemaking practices in a timely manner. This perhaps reﬂects, and to some extent perpetuates, a certain degree of unease regarding new practices among certain sectors of the EU wine industry; for example towards oak chips which, while not commonly used in New Zealand, is a legitimate and widely used winemaking practice in other parts of the world.

16. How should enrichment (with sugar or must) be regulated? Should there be financial aid for enrichment? Enrichment with sugar or must are legitimate and long-standing winemaking practices. As such, in our view they should be regulated like any other winemaking practice in accordance with the requirements of the Codex Alimentarius. From the perspective of a country where no financial aid is made available for winemaking inputs, it is extremely diYcult to understand what justification there could be for providing financial aid for enrichment of any sort.

F. Environmental and Social Impact

17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Are measures needed to support good environmental impact? Should they be selective? The wine sector in general has an impact on the environment that can be both favourable and unfavourable. Unfavourable impacts include production of waste materials, carbon emissions, noise and landscape eVects. Favourable impacts include preventing erosion, promoting regional development and sequestering carbon by planting grapevines. While it is important that unfavourable eVects are managed and favourable eVects promoted, regulatory measures are not the only, or necessarily the most eVective way of achieving these objectives. The New Zealand wine industry’s successful environmental sustainability programme, Sustainable Winegrowing New Zealand, has been developed on a voluntary basis and driven by producers who truly believe in the value of environmental sustainability. We believe that an industry-based approach has been far more eVective than a regulatory programme because it has allowed the programme to evolve rapidly and adapt to the particular demands of diVerent regions. 3714281022 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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One of the key environmental issues inherent in the EU wine regime that does not exist elsewhere is the impact in terms of carbon emissions of systematically providing ﬁnancial aid to support the distillation of many billions of litres each year of wine that has no market and would probably not have been made without the existence of such aid.

18. To what extent and how should reform of the EU wine regime take into account concerns over the potential for alcohol abuse? Harmful use of alcohol is a serious issue, and regulatory measures are an important mechanism for addressing this issue. However, whether or not the EU wine regime is the most eVective vehicle for such measures is not a matter upon which we are qualiﬁed to comment. June 2007

Examination of Witness Witness: Mr Philip Gregan, Chief Executive Ofﬁcer, New Zealand Winegrowers, gave evidence.

Q679 Chairman: Good morning, Mr Gregan, and Zealand wine industry in the 1980s, when we were thank you very much for finding the time to come and loosing millions of dollars virtually every month, talk to us. We are virtually at the end of our inquiry there were plenty of people who thought we should into the reform of the EU wine regime. I suppose it shut up shop, go home and forget about making wine would be fair to say that the New Zealand industry for ever and a day. However, we did not; we went on has been a beacon that we have been looking towards and we worked out what we were good at—which as a model of something rather diVerent from what was producing high quality wine and not producing happens across the Channel. It is very kind of you to cheap wine—and the day we made that decision was come along and give us a briefing on how your the day we knew the path forward. We have industry is developed and what you think the responded to a lot of challenges. I come to Europe challenges and opportunities are. Let me just explain once or twice a year and I have a look at the how these sorts of things work. The first thing I have European industry and what is going on. I see many to tell everybody who sits there is that the things that are similar. There are many things that are proceedings are being webcast. That raises a slight diVerent of course—the scale is much, much possibility that somebody might actually listen to it. greater—but I think at heart the issues are the same. We have never actually found anybody who has but The issues are about how you respond to the market you never know; the theoretical possibility exists. place, and there are all sorts of questions about Also, afterwards you will get a copy of the transcript timing and the period over which you need to adjust and the opportunity exists to correct it for the record. to change. In our case it was one short, sharp The way we tend to work is that, if you would make intervention from the government and we have an opening statement, then we will just carry on with received not one ounce of assistance in the past 20 V a question and answer session. years. That one intervention made all the di erence Mr Gregan: from our perspective and we have succeeded because That sounds fine by me. Perhaps I can V introduce myself first oV so you know who you are of it. We then moved forward o our own bat and speaking to. I am CEO of New Zealand essentially that is what the submission that you have Winegrowers, which is the Trade Association for in front of you says and that is what we have done. New Zealand grape growers and wine makers. I joined the industry in 1983 directly out of Q680 Chairman: You say you come over to Europe university—at that time the industry was bankrupt— once or twice a year and see similar issues and and I have been there ever since. In the Trade challenges. What is your rough assessment of the Association I took over as CEO in 1991 and I mentality of the wine industry in Europe? You made suppose I have lived through the trials and the a strong point about the importance of the market tribulations of the 1980s and the successes of the past and getting your product right and interacting with 10 or so years. I have sat in front of many select the market. Do you pick up that sort of feel about the committees in our own Parliament talking about the European wine? issues facing the New Zealand wine industry, so I do Mr Gregan: There is a huge divide in Europe between not feel completely uncomfortable here. I suppose those people who are succeeding—they can come the thing that we have learned coming from what was from all diVerent regions throughout Europe—and a fairly protected market place is that the market is a those who are not. Those who are not tend to be very wonderful thing. If you have faith in your product wedded to the status quo and high levels of and your product is good, you will see through and regulation. Those people who are succeeding in the you will succeed. I can assure you that in the New market place, whether it is producers from 3714281022 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Champagne, Bordeaux, Burgundy, Rioja, northern the right thing to do and most people in the industry Italy or wherever, tend not to be wedded to the highly would say that, if they are going to take money from regulated model that the European industry has had the government, then the government is going to start to live with for a long time. That model from my to want to intervene in the wine business; and that is perspective is aimed at addressing the lowest the last thing they want. Having said that, taxation common denominator, trying to help those people on wine is an issue in many countries around the who are not succeeding and, up until now, keeping world. New Zealand is no exception and from that we them in the industry, keeping them going. However, have sought relief unsuccessfully, particularly for they are producing products that nobody wants, so it some of our small producers, and we continue to do is very diYcult to keep them in the industry. I think that. There are models of relief for small wine makers the refreshing thing about some of the reforms that in Australia, Canada, United States and we would have been proposed now is that they are going to be like to see a similar thing in New Zealand. shown a way out of the industry and I think that is very positive. There is no doubt there are two camps Q683 Lord Moynihan: What percentage of the in Europe in the industry, and then there is a third market is supplied by New Zealand wine? camp which is all the bureaucrats associated with the Mr Gregan: By volume, 55% of the market is New current system. They have a huge investment in Zealand produced product; by value it would be maintaining the system as it is because that is what higher than that. 45% from oVshore, 80% of that their livelihood depends upon. from Australia, with France being our number two foreign supplier, Italy, Spain, the normal list of Q681 Chairman: What would you say would be the European countries. role of the state in the regulatory framework? Mr Gregan: The role of a state is to provide a level of Q684 Chairman: Are you importing the reds? regulation necessary to ensure fair play in the market Mr Gregan: Reds and Champagne; port, sherry and place so that there is no fraud taking place, that white wine to supply to the bottom end of the market, products are honestly labelled; it is that level that the because we cannot produce wine cheaply. We had a New Zealand Government has largely adopted in bulk wine industry in the 1980s and we got rid of that New Zealand. If you go beyond that, you get into because that is not where we are competitive. If you questions of favouritism or how many places are you want to produce wine at a price, do it in a hot climate going to intervene to try to achieve some noble goal country, such as Australia or Spain. which a group of bureaucrats or a group of politicians have deemed to be the noble goal. I am not Q685 Lord Moynihan: So it was a straightforward sure that that is the right way of doing things. economic decision? Mr Gregan: Yes, absolutely. Q682 Lord Moynihan: Can we focus for a moment on the economic factors behind the industry in New Q686 Lord Moynihan: The return on capital Zealand? Your memorandum states that wine employed for the quality wine producers is production has only been subsidised on one occasion satisfactory, it does not require subsidy? (we will come to that, because I think the Committee Mr Gregan: That is correct. would like to explore it in greater detail) but, apart from that programme, is the lack of subsidy a Q687 Lord Plumb: You will be aware of course that function of the underlying economics of the industry? one of the Commission’s proposals at the moment is Or is it a failure on your behalf not persuading the to take 400,000 hectares of vines out of production. government to subside the industry? In other words, That is one of the proposals which of course does not have you on regular occasions made pitches to go down too well with some of the wine growers in government and made the case for subsidy? Or do various parts of Europe. You did talk about a you receive any indirect support from the programme where you were taking the vines for sweet government? It would be quite helpful if you could wine out of production. Was that done with a stick run through the history of any attempts that you and and a carrot? Or was it just the stick saying “We’ve your colleagues have sought in terms of support or got to do it”? How long did it last? And was any whether the underlying economics now are so robust encouragement given to replant after that? By that there is no case to be made and logically there encouragement I mean incentives in any form to do should be no case to be made internationally by other just that. The ban on new planting, for instance, is governments. seen diVerently in diVerent countries. Italy said they Mr Gregan: In general terms, we have not made any are not worried about that; they will presumably ﬁnd approaches to the government in the past 15 years for their own way. It does vary throughout various parts direct support of any kind. The philosophical of Europe. We are a European Union Committee position in the industry is that we do not think that is looking at the situation in Europe, conscious of the 3714281022 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan fact that a lot of people who are grubbing-up their changing and that would only cover 3 or 4% of New vines say, “That’s fine, we grub-up our vines and all Zealand’s wine sales. we are doing is letting in the New World wines”. What you said earlier almost proves the point. You Q692 Lord Palmer: What is the rate of exchange of took advantage of that over a 10 year period—you the New Zealand dollar at the moment? might say “Why not?”—and you are doing all that Mr Gregan: Currently from our side, the UK pound without subsidy. These are the sorts of things we is about 0.36, so that would be about 2.7 (or want to get at to make the comparison. something like that) New Zealand dollars to the Mr Gregan: The last intervention by the New pound. Zealand government in any form of agriculture was V in 1985,. They made a one-o payment for the Q693 Baroness Jones of Whitechurch: You said that grubbing-up of 1500 hectares of grape vines in New you took out about 25% of the land, was it? Zealand. That was 25% of our vineyard area. I think Mr Gregan: The vineyard area. the total payment was about 20 million New Zealand dollars at that time. There was no ban on replanting. Q694 Baroness Jones of Whitechurch: Then some In fact in some vineyards the chainsaw went through people started to replant. What we are being told in one day and a gang of people planting new grape the European equivalent of that when the scenario is vines came through the following day. There was no put forward is that there would be wide scale poverty, incentive to replant but there was no disincentive. people would find it very diYcult to find other activities once they pull out of that market. What Q688 Lord Plumb: Planting in the same areas? happened to the people who did not replant? Was Mr Gregan: Yes, the same vineyard. What happened there a crisis of poverty amongst rural farmers in was that they took out grape varieties that were New Zealand? legacies of the past and planted grape varieties that Mr Gregan: No, because they switched to other forms people thought were the future. We pulled out of agriculture or they replanted. They may have gone Muller-Thurgau, which is a grape variety from into kiwi fruit production or apples or other Germany, and Chasselas, which is from Switzerland, alternatives available. I do not know whether that is and we planted Pinot Noir from Burgundy, Merlot the situation in Europe but certainly it was in New from Bordeaux, et cetera. Zealand. It hurt people; there was a lot of pain, but there were other alternatives. Q689 Lord Plumb: You mentioned just one disincentive and that is taxation. What is the level of Q695 Viscount Ullswater: Did they change the tax on New Zealand wines? geographical disposition of where wine is grown Mr Gregan: We have a VAT tax of 12.5% on goods through that grubbing-up? flat-rated across everything. In addition, we have a Mr Gregan: It changed it in that in some of the flat tax on wine of 2.30 dollars per litre. It is not a longer-established areas there were more grape vines percentage ad valorem tax. If you like, you can that were grubbed up because they had more vines characterise that as being an incentive towards that were unsuitable for the market as we perceived it quality wine production because, if you are selling a in the future. So yes, it did, in a relative sense. wine for 20 dollars, the tax rate is the same as if you are selling one for eight or 10 dollars. That is actually Q696 Viscount Brookeborough: You are obviously V one di erence between Australia and New Zealand; in favour of letting consumers decide what is the they have a percentage tax, we have a flat rate. quality wine and providing them with more information by the labels in particular. Why do you Q690 Lord Plumb: Would you want to change it? think that the GI system has acquired such a hold in What sort of figure would be acceptable? the EU wine market? And is it not the case that some Mr Gregan: That is what the government keeps of the third countries are even introducing that to a asking us. certain extent? Mr Gregan: Geographic indications are very Q691 Chairman: I do not think we want to intervene important to us. For us the term Marlborough on a in the internal politics of New Zealand. label is important and it means something to Mr Gregan: Our response to that is that we think consumers. We do not buy into everything that goes there needs to be a targeted intervention providing along with the concept of GIs in terms of the some assistance, or relief of the burden if you like, on European system of appellations which is to impose the taxation of small wineries. We see that as being, production controls that are specific to a particular if they are selling wine through their cellar door, then area and limiting the types of grapes you may grow. they would not pay any tax or there would be a That is the part we do not buy into. I think it has refund of the tax. We do not see the overall rate taken such a hold because they believe their own back 3714281022 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan labels. Back labels on wine are full of flowery Q701 Viscount Brookeborough: Your comments on language and they say, “These grapes were harvested the artificial distinction between quality and table on 7 May as the sun rose over the misty hills” et wines are well taken by us. Would you agree that it is cetera, et cetera. That may well be true, but what does this tendency in the EU wine sector to divide wine it mean? With the appellation system in Europe what into “sheep” and “goats” that has allowed the New they are doing is prescribing a set of rules which says, World producers to gain such a foothold? “We know this is the best way to produce quality Mr Gregan: I think it is one reason, yes, but it is a wine in this place” and that is based on history totally artificial division. In the market it is largely. In New Zealand for a start we do not have the meaningless. It has been an attempt to control the history, so that is very diYcult for us to do. But in this market through regulation and the market finds out, age of global warming do you change the rules it sees through regulation. because the climate is changing? Do you say that you can no longer grow Pinot Noir in Burgundy but you Q702 Viscount Brookeborough: What more do you should in fact be growing the Bordeaux varieties think should or might be on bottles? What more does because the climate has changed? The climate now is the consumer like to see? Suggestions from you as to simply not what it was 50 years ago or a hundred what particular foods your particular wines go with? years ago. It is a very prescriptive regime and we do How much eVect does that have? not buy into it because we are young, we are new and Mr Gregan: We find consumers, particularly in new we believe that innovation is the key to success, not markets around the world—Asia in particular—are abiding by a set of rules that some committee has very thirsty for knowledge about wine and how it come up with. should be consumed. Whether putting all that information on a label is the best way to go about educating people is another matter. Associated Q697 Viscount Brookeborough: Therefore you materials and promotional literature are probably a would use the GI system purely as an aid where you far better way to do it, but from our perspective think it suits. You promote the GI system where you producers should be able to put on labels whatever think it is suitable to do so? they want to put on them so long as they are not Mr Gregan: Yes. putting anything on them which is misleading.

Q698 Viscount Brookeborough: Otherwise you use Q703 Viscount Brookeborough: Are you adapting varieties? your labels to the diVerent markets for the same Mr Gregan: Yes. We use the GI with the variety. The wine? What is your opinion of the British consumer? length is important because then you develop a name Is that opinion of what they would like to have which becomes associated with particular grape diVerent from, for instance, what you might export to varieties. The two things are important but one is not France or America or indeed Asia? more important than the other. Mr Gregan: We think the British consumers are very intelligent people because they buy so much of our wine! In general terms our labels are the same Q699 Viscount Brookeborough: If you had too many wherever we sell the wine. What diVers is the such names it would become confusing. promotional material and promotional events that Mr Gregan: Yes. We are having this exact debate in we run. That is what varies, it is not the labels. New Zealand at the moment. Q704 Viscount Brookeborough: With most drinks Q700 Viscount Brookeborough: So you would not that we have—maybe not with household water but over-encourage those GIs to increase in number by bottled water, orange juice or whatever—there is a reducing the size of the area indicated by each of complete analysis on that bottle of everything from them? calcium, to bubbles, to everything else. Why is it that Mr Gregan: Correct. We are going through this at the wine is one of the very few drinks that does not have a moment in New Zealand. The policy that we are comprehensive analysis? And does that matter to the telling our wine makers is that regional geographic consumer? indicators, such as Marlborough or Burgundy in the Mr Gregan: The reason why wine, beer and spirits do New Zealand instance are valuable. You will confuse not is because of the process of fermentation. V the market place if there are a hundred diVerent Fermentation e ectively destroys the ingredients that Geographic Indications under the Marlborough go into the product. name. We cannot tell you not to do that but our view is that you had better concentrate on the higher Q705 Viscount Brookeborough: You have level ones. enrichment. 3714281022 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan

Mr Gregan: Yes, but eVectively it is converting those Mr Gregan: If you look at most consumers—it does products into something else and that is the historical not matter whether they are in France or in Italy or argument as to why beer and wine do not have in Spain or Korea—they do not care one inch about ingredient labelling. Having said that, we have whether it was produced on the northern side of the degrees of ingredient labelling in New Zealand, so we hill or the southern side of the hill. What they want is have to label the alcohol, we have to label allergen an enjoyable product. At the very top end of the declarations (egg whites or fish products or milk market—the top 3 or 5%—yes, they are vitally products that have been used to fine the wine); we interested in that but the rest of the market is not. have to label sulphur dioxide, which is an allergen. So Europe has deluded itself into thinking that the rest we have a measure of ingredient labelling. Personally of the market is interested in all that flawed theology. I think a lot of that labelling is a complete and utter The whole regulatory system is based on the fact that waste of time because nobody ever reads it and I it is interested in it and it has perpetuated the think it is enormously confusing. I have a daughter production of wines on that basis. The problem is who had a mild allergy to peanuts. We could not give that the market does not see it that way. The market her any biscuits because every packet of biscuits said here does not, the market in Denmark does not, the they may contain peanuts. That was because they market in the United States does not, nor in New were produced in the same plant as biscuits that did Zealand. The top of the market, a very small part, contain peanuts. I have grave doubts about the does, but not the bulk. Why would they be? labelling requirements that we are seeing. Q708 Baroness Jones of Whitechurch: Can I ask you Q706 Viscount Brookeborough: Do you think the about the World Wine Trading Group? Whose consumers who are now beginning to understand initiative was that? Mr Gregan: such things as food miles and so on are interested in I was there at the beginning. It is a wine miles from New Zealand? Do you think this grouping of New World countries who came may aVect the market in the future? together; our first meeting was in Geneva in June 1998 in the YMCA. We sat down to see if we had any Mr Gregan: My personal take on food miles is that it issues of common interest apart from a great dislike is a little bit like Y2K, so I have my doubts about it, of the European model of wine regulation; we all severe doubts. Having said that, the wider issue of took that for granted. We sat down and said, “Yes, sustainability and the environment eVect we think is we do; we want to facilitate trade”. The first thing the very, very important. Consumers want to believe, if group did, which was industry and government they are drinking a glass of New Zealand wine, that together, was to share information about their rules by doing so they are not destroying the environment regarding governing wine production in each and that the people who have produced that wine country. That led to the grandly—titled Mutual have been treated in a socially responsible manner. Acceptance Agreement on Oenological Practices, Food miles I put in one little box, but the wider issue signed by the World Wine Trading Group. What that of social and environment of responsibility we see as says from a New Zealand government perspective is critically important. that we, the New Zealand government, accept that the United States government will not let its wine Q707 Chairman: When I go home at the weekend, I makers poison or commit fraud on its public and get to the airport, get in the car, drive to my local therefore we will accept wine made into the New supermarket and buy my modest number of New Zealand market place on the basis of the rules Zealand Sauvignon Blanc Marlborough bottles. I do governing wine production in the United States. that because I know exactly what I am getting. I am Obviously that applies between all the parties. That is getting it week in, week out, month in, month out. It exactly what was done within Europe at the time of tastes the same today as it did three years ago. That the formation of the European Union because there V is why I buy it. When you mention that sort of thing were all these di erent systems governing wine to European wine producers they throw up their production and they said they recognised they were hands in horror because you have to know exactly not going to poison each other but there are V where it was made, and the taste diVers depending di erences. We think it is a great model and we think upon which year and the slope and goodness knows the European Union should sign an agreement with what. Because we have been a non-wine producing the World Wine Trading Group countries because country what we want is predictability and certainty then it would solve a lot of the technical issues about of a product, whereas the more traditional producers wine making. It would be good for everybody. basically have a theology about wine, do they not? What you have done is to seize the opportunity of Q709 Baroness Jones of Whitechurch: It is a bit of going in for a mass produced product at a medium misnomer really; it should be the New World Wine range price and you have scooped the market. Trading Group? 3714281022 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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Mr Gregan: That is what it was, it was the New World niche and succeed in that. If you do not, then go ask Wine Producers, but we decided we had grandiose a regulator for help, but we believe in our product. ambitions and we needed to market ourselves and we wanted Europe to join. We thought it would be a Q714 Lord Plumb: Why would they be banned? great idea so we changed the name. Mr Gregan: Typical wine-making rules in Europe. There are technical issues. For example, we cannot Q710 Baroness Jones of Whitechurch: Could an sell sweet wines in Europe because of technical wine- individual country in Europe join in theory? making rules. To give another example, in Europe the Mr Gregan: Yes, absolutely; we welcome all comers. potential alcohol is limited to 15% unless you have a derogation from European Commission. We do not Q711 Baroness Jones of Whitechurch: The rules that have such a derogation, although we have tried to get you have just described, who polices them? Is it it. They say they want to have a bi-lateral wine trade policed? You say you do not want America to poison agreement with us. We are happy to negotiate that, us, how do you guarantee that? but they are busy with wine reform and other things Mr Gregan: In the United States the government has at the moment, so we have not quite got round to a system of control of inspection of wineries. It doing it. requires a slight change in thinking. In New Zealand every winery is audited each year to make sure that Q715 Viscount Brookeborough: You brought up the what is on the label is in the bottle. The premises are alcoholic content. It would appear that wines have inspected for compliance with health rules each year. generally become stronger over the years? Each country has a system in place and what the Mr Gregan: Yes. governments in other countries are saying is, “We accept your system”. It is not up to New Zealand to Q716 Viscount Brookeborough: Where do you think police United States’ wines coming into our market; that is going? And do you think that there are some it is up to the United States to make sure that they are people who, if they were going to lunch or something, compliant with the US rules. You only sign an might beware of 15 or 16% and might want eight or agreement like this with the countries you actually 9% or even less? Do you think there is a useful market think are going to enforce their own rules. that the consumer wants? Mr Gregan: High alcohols are a major problem. That Q712 Baroness Jones of Whitechurch: This has arisen because viticulture has improved and we memorandum, or whatever it is, it has quite detailed are getting the grapes riper. There is a market rules in, does it? backlash against high alcohols and New World wine Mr Gregan: It is a formal treaty registered with the makers in particular are looking at ways, particularly WTO. It has disputes provisions and all sorts of in the vineyard, to get the sugar levels down while still things as you would expect to see in a normal achieving ripeness. I think a lot of German Rieslings, government-to-government treaty. for example, are about nine or 10%. They have a fantastic opportunity in the market place, given the Q713 Baroness Jones of Whitechurch: Do you use it high alcohols that apply to many wines. It is a major to give preference to New World wines coming into issue but the market is addressing it. New Zealand? In other words, would you be able to say that you have an agreement with Argentina Q717 Viscount Brookeborough: Is this to do with because they have signed up to the same set of rules as weather conditions and perhaps over-ripening? us; the EU operates on diVerent rules so we will give Mr Gregan: It is not over-ripening and it is not preference on imports to Argentina because you like weather conditions; it is in the vineyard issues around their rules? management of the vine, exposing the grapes more to Mr Gregan: If I were the United States and we were the sun to get the grapes fully ripe. This is leading to a very powerful country, I may be able to do that, but higher alcohols. There is also better management of we are not and so the answer is no. We accept into viruses in the vines. It is a viticultural issue. New Zealand wines from the European Union basically on the same basis, because our government Q718 Viscount Brookeborough: Are you really does not believe the European Union is going to saying that the consumer would rather have the taste poison its consumers. In fact we allow wines into that they like but that comes with the consequences New Zealand that, if we tried to sell into Europe, of it being higher alcohol, that it is diYcult to balance would be banned from sale in Europe, so the the two? European Union operates on a slightly diVerent Mr Gregan: Consumers have not actively sought system. What we want is a vibrant, vital, exciting higher alcohols. Wine makers, in their quest to wine market and that comes through competition. If produce quality wine, a by-product of that has been you believe in your product, you can carve out your higher alcohols. The wine makers and the 3714281022 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan viticulturists are now aware there is a market Mr Gregan: The UK is our biggest market, so about backlash against the higher alcohols and are looking 30% of our wine comes into this market place, 25% to still produce the same quality but seeing if they can into the United States, 25% to Australia, 4% into do it with lower alcohol. Canada and the rest to various markets. The total value of our wine exports this June year end will be Q719 Viscount Brookeborough: The quality is the about £280 million and that will double over the next taste? five years. Mr Gregan: Yes, the quality is the taste. Q724 Lord Greaves: Presumably this increase in Q720 Chairman: We have been told that one of the exports that you are forecasting is increased recent growth areas is the lower alcohol rose´ wines. Is production? that your experience as well? Mr Gregan: Yes. Mr Gregan: Rose´s are booming around the world and they do tend to be lower on alcohol. Q725 Lord Greaves: Will that go to the same places? Or will the destinations change? Q721 Lord Greaves: Taking you back to the imports Mr Gregan: Those figures I gave before added up to and exports and so on and the balance of the trade, roughly 85%. We think over the next five years 80 to you have nearly half your home market and about 85% will continue to go to the three major markets. half your product is exported, so that suggests that Asia long term represents a very significant your imports and exports are in some sort of balance. opportunity to the international wine industry. We How does that match in terms of volume and price? have done some promotional events in Korea, Mr Gregan: Our exports in 1990 were about 5% of Shanghai, Tokyo and Singapore recently. I do not our production. Last year I think they were 55%. In think it is just about New Zealand wine but there is a three years’ time they will be 75% and in 10 years’ very strong level of interest about wine and I think time it will probably be 90%. On imports, our long term they are very, very good markets, they are traditional supplier of imported products has been just going to take time to develop. Australia and that is because they produce a diVerent wine style from ourselves, so in many ways we are not competing head on, we are complementary. New Q726 Lord Greaves: It will all be the same sort of Zealand has never exported up until about five years wine in general that you are producing and ago a significant quantity of wine to Australia. exporting, will it? Mr Gregan: Australia is now our third largest market. We have From our perspective Sauvignon Blanc become the largest supplier of imported product into and then a little bit more Sauvignon Blanc and then Australia. It is the same reason that they are being some more. Pinot Noir is our second most exported able to sell in New Zealand, we are not producing a variety, and then I suspect aromatic whites, such as product which is directly competing with their Pinot Gris and a little bit of Cabernet and Merlot. product. Some of our grape growers do not like the imports into New Zealand; but, if we want to sell a lot Q727 Lord Greaves: They are the products that work of product oV-shore, you have to accept that the quid at the moment for you and you think will continue pro quo is to allow imports into our market place. to work? The other part of the equation is that, if we want to Mr Gregan: Sauvignon Blanc accounts for 75% of be able to sell our wines into the UK, for example, if our exports by volume. That is wonderful but it is a UK firm wants to come and buy one of our wine also a risk, so we are working very hard to promote companies, then that is the same part of the trade that Pinot Noir and Pinot Gris and other varieties as well. is taking place. We fundamentally believe in open If the world loves your product, you have to enjoy the markets. ride; that is what we are trying to do.

V Q722 Lord Greaves: Are there tari s against Q728 Viscount Ullswater: I think you said it was the imported wine? oenological practices that had driven you to get this Mr Gregan: New Zealand has a trade agreement with World Wine Trading Group established in the New V Australia, so it is 0%—a zero rate of tari . Because World countries. Did you consider that the OIV had many years ago we decided we loved Champagne so anything to oVer you, because it looks as if you were V much, there is a zero rate of tari on Champagne. slightly side-stepped there? Are you in competition V Products in all other markets face a tari of 5%. with them? Where do you see the OIV? We have taken evidence that the OIV are setting standards for Q723 Lord Greaves: In terms of your exports, where oenological practices, which most countries then will do your exports go now? accept. What is your take? 3714281022 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan

Mr Gregan: I have not attended an OIV meeting for and Argentina. It was not anti-OIV. It had an agenda about two years but from 1992 for the succeeding 14 which may have reflected some of the OIV’s years I attended OIV general assemblies. limitations but it was not set up to replace that organisation. Q729 Viscount Ullswater: Is New Zealand a member? Q732 Viscount Ullswater: In the evidence we read we Mr Gregan: New Zealand is a member of the OIV. noticed there was something called the Focus The New Zealand industry is a partner with New Vineyard Group. Zealand government in that membership. We have Mr Gregan: Yes. recently upgraded our participation into a number of the expert groups. We are sending some of our Q733 Viscount Ullswater: Can you just explain a industry experts along to those. The OIV is an little bit about that? Is that a government initiative? organisation that is struggling with the Is it a World Wine Trading Group initiative? internationalisation of the wine industry. It was a Mr Gregan: It is an industry initiative. As an European body and it is struggling to come to terms organisation we fund viticultural research and with its role, not as a European body, but as an oenological research. The challenge with any international body. The United States walked out of research is actually, once it is completed and you have the organisation because of that struggle. New the Holy Grail—the answer, to get people to pick up Zealand and Australia stayed in on the basis that we on the research. The Focus Vineyard is about are better being on inside of the tent than on the research to practice, providing practical hands-on outside of the tent and attempting to make change. It guidance as to the best practice in vineyards and is not a standard—setting body and, speaking as an wineries, reflecting the latest research that has been industry person here, the New Zealand government carried out. It has done its job done very well, we would not recognise the OIV as a standard—setting think. body. It provides guidance to countries. We think it has a very important role to play but that is as long Q734 Viscount Ullswater: Does it keep the industry as it operates as an international body and not as a looking forward? functionary of the European Union. It is still coming Mr Gregan: What is the total quantum of knowledge to terms with that role. It has definitely made some about wine production that is out there and how progress but people who go there, the government much is currently being used? There is obviously a big delegates, are by definition government people; they gap between the two and it is really bringing people are the bureaucrats who have a vested interest in up to speed and, as new research comes in, it will maintaining the pre-eminence of geographic deliver those research results in a practical way to indications on wine labels. They are the people who grape growers and wine makers. have a vested interest in maintaining only those wine practices that are permitted in their individual Q735 Chairman: I take it you have read what the regions. As soon as you say there might be another Commission is saying about the possibility of way of doing something, they throw their hands up in reforming the EU wine regime? horror and say, “This is not possible” and they start Mr Gregan: Yes. to literally cry about the evils of irrigation or the dangers of oak chips. Q736 Chairman: What do you think of it? Mr Gregan: I think it is a step forward. I do not mean Q730 Viscount Ullswater: Your World Wine to preach from the other side of the world, but they Trading Group is more the market—orientated body have had a series of interventions for many years rather than a historical hangover from practices that which have perpetuated over-production. World went on in the last hundred years? over-production of wine is about 30% and it is Mr Gregan: Yes, it is. As the name says, World Wine virtually all here in Europe. The question is why. Part Trading Group, it is about facilitating trade. The of the market has moved away, but also Europe has OIV is not a group about facilitating trade. It could continued to produce wine for which there is no be. product, and things like crisis distillation and normal distillation and bans on planting and all those sorts Q731 Viscount Ullswater: But it falls short of that? of things have perpetuated the status quo. I think Mr Gregan: Yes. When the World Wine Trading payments to get people out of wine production—to Group was set up, it was specifically said that it was say “Pull up your wines”—that has to be a significant not being set up in opposition to the OIV because step forward. There are so many interventions; there some of the member governments would not have have been subsidies on sugar; there have been participated in an organisation that was set up in subsidies on grape musts. You have to do all of those opposition to the OIV, notably South Africa, Chile things and that is what I think Mrs Fischer Boel was 3714281022 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan attempting to do, to address a wide sweep of issues. New Zealanders are putting screw tops on the bottles Once you have one intervention by regulators that and causing trouble. Is that fair? cascades, you have another one and then you have Mr Gregan: No, we do not think so. The cork in New another one and then you have another one. I cannot Zealand had 100% of the market five years ago. think of any more that the European Union could Screw caps now have 90% of the market. have so they have to try to pare it back some way. I think it represents a step forward but they still do not Q742 Lord Plumb: In white and red? believe in the market. They think they can define the Mr Gregan: Yes. Why? The industry got sick of five market; the market defines itself. or 10% of its product being aVected by cork taint. The World Wildlife Fund blames the wine industry Q737 Chairman: They like to blame the consumer, for the problems in the extremadura with the cork do they not? forest, but they are blaming the wrong people. What Mr Gregan: The consumer is terrible person; they they should be doing is blaming the cork producers know what they like. That whole EU wine regulation because they produced a totally inferior product. If is about production. It is not about the market. It is there are issues about protecting the environment, saying, “This is how we are going to produce wine, you do not protect that environment by paying these are all the controls we are going to put in place people to produce inferior corks; you do something and then you, the market, you have to take what we about providing funds that are going to help the give you”. The market has not liked it; it has moved environment. You do not oZoad the problem onto away. the wine industry by saying, “Here’s a second rate product,” and that is what they were attempting to do Q738 Viscount Brookeborough: If the EU were for years. There are all sorts of issues there and we modernised as you think that it should modernise, it have no stance on whether cork or screw cap or would not actually be very good news for you? plastic is the best way to go. Our stance is that you Mr Gregan: Somebody at the European Commission should seal the wine with the product that is best said exactly that to me yesterday. We are slightly going to preserve the quality, and maybe sticking a conflicting. We like to see Europe tied down with rotten old piece of bark is not the right way to do it. both hands behind its back being unable to compete; But they are going to lose market share around the but, if you follow our philosophy in a healthy wine world because they were a monopoly provider and market and self-belief, actually a healthy wine they have abused the monopoly that they had in industry in Europe is good for the wine market. place. That is about as honest as I can be about it. Ultimately that is what we come down to. If the reforms enliven and increase competition in the wine Q743 Viscount Brookeborough: Screw top obviously market, that is good for wine. If we then can succeed has an advantage if the wine will survive it in that you in getting a little bit of the action, we are more than can seal it up again? happy. Mr Gregan: Yes. Viscount Brookeborough: Are there some Q739 Viscount Brookeborough: What other developments in creating wines that will survive alcoholic drinks are produced in New Zealand? being opened and then re-opened in a few days time. Mr Gregan: The whole gamut: gin, beer, whisky— Chairman: I do not think that is necessary actually! maybe not whisky now. The dairy industry in New Zealand produces whey alcohol, which is very high Q744 Viscount Brookeborough: I just wondered quality alcohol, which is the basis of vodkas and gins. whether you could go back to the cupboard in three You may have seen a vodka brand called 42 Below, or four days’ time? which you may or may not have seen, which has been Mr Gregan: I have a little bit of advice. We are very successful and has just been bought by Bacardi. masters of wine in New Zealand and the answer to That is a New Zealand vodka brand. that intractable problem is to actually go and put the wine in the freezer. Q740 Viscount Brookeborough: Although in Europe there is crisis distillation, do you distil any wine for Q745 Chairman: Is there anything else you think you any reason? really ought to tell us but we have not asked you? Mr Gregan: No. Mr Gregan: The New Zealand wine industry is very small; Europe is very big and there is so much more Q741 Lord Plumb: I have a question on technology: history here. I think the best wines in the world are screw top, plastic or cork? We had representation in still produced here in Europe. There is no doubt writing from the World Wildlife Fund, extremely about that, but the worst wines in the world are also worried about pulling down forests because a lot of produced here and there is no point perpetuating cork trees were going and so on. Now these wicked their production. I think that what Europe has to do 3714281022 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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16 May 2007 Mr Philip Gregan is to move from basing its regulatory model on approach the law in Europe—unless it is specifically assisting producers to a regulatory model which is permitted, it is specifically disallowed. The common based on facilitating a competitive market place. law in the UK and New Zealand is diVerent. With the That is a big change and it is going to take time. But, European model, if they cannot say you can do it, unless they do, you are not going to solve the you cannot. By definition that is fixing things and problems and you will invite me back here in 10 years’ that is not the right way to do it. time and I will be saying exactly the same things to Chairman: Thank you very much indeed. That has you because the market will move on but regulation been a very refreshing session. Thank you for does not; it is fixed. Particularly with the way they coming. 3714281023 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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MONDAY 21 MAY 2007

Present Brookeborough, V Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V Plumb, L

Examination of Witnesses Witnesses: Mr Claude Magnier, Regional Director, Mr Bernard Clarimont and Mr Jean Franc¸ois Solere, Regional Directorate of Agriculture and Forestry, examined.

Q746 Chairman: Good morning, gentlemen. service of the Ministry of Agriculture which is Mr Magnier: (Through an interpreter) Welcome to responsible for applying the state policies, national the Languedoc/Roussillon region. I have heard that policies, and for developing these policies on a it is your first visit to this region and it is a great regional basis in collaboration notably with the pleasure to welcome you here. I have had very little Regional Council. It has the role of co-ordinating the contact with Mrs Harris prior to your visit, so I five departmental directorates of the Agriculture and would like a little more information about your Forestry Commission, a role of orientation, analysis objectives here and the framework of your questions, and looking ahead to the future. It also has an if possible. authoritative role for controlling public aid and controlling the application of public policies. There are six departments within this structure. Q747 Chairman: First of all, Mr Magnier, can I Agricultural economy and the foodstuVs industry is thank you very much for finding time to see us. the first department, which contains the wine making Although it is true that this is the first time this industry. The second is the territorial and rural particular sub-committee has visited Languedoc, it is development sector. Vegetable protection is the not true that it is the first time as individuals that we third. Agricultural training for a school level is have visited. But, unfortunately, this time we have to number four. A regulatory department for labour is do some work. Can I very briefly explain what we are number five; and, finally, agricultural statistics and a about. We are a sub-committee of the European global administration department. There are roughly Union Select Committee of the House of Lords and 100 oYcials working within the entire structure. A our job is to scrutinise proposals coming from the European Union and to scrutinise the response of our brief word about the region, seeing as you have come own Government. Every year we identify about three here for the first time as a sub-committee. You are in or four topics that we want to look at in greater a very beautiful region, which has five departments— detail. For example, recently we have looked at four departments along the coast, along the nuclear safety and nuclear waste and at, biofuels, and Mediterranean, and one more northerly department now we are looking at the reform of the wine regime; away from the sea, which is La Loze`re, which is a and in the near future we will be looking at the CAP mountainous department, a highly contrasted region Health Check. We chose the reform of the wine where we go from zero metres altitude to 2,000 regime, not because of Britain’s great and glorious metres. A very high demographic expansion wine industry, but really for three main reasons. One, characterises the region at the moment. It is a very obviously it is a regime which takes up a great deal of attractive region for people coming to live here: the resource. Secondly, it is an area where the industry is sun, the sea, the mountains, and some stunning undergoing considerable challenges and adaptation countryside and landscapes. There is a very high level in the face of declining consumption and greater of population flow, especially in the summer period. competition from outside the EU. Thirdly, because in The population level is increasing in the region by some areas of the EU the whole social and economic 25,000 to 30,000 inhabitants per year. There are fabric of regions is very heavily influenced by the obviously consequences of this, firstly relative to growing of vines and the production of wine. I hope property and land, a very high proportion of land that gives you a rough idea of where we are coming being sacrificed from agriculture, a very high cost of from and our interest. the land now. And there are obviously relative threats Mr Magnier: Thank you for those details. I am the to the environment, quality of water for example, and Regional Director of Agriculture and Forestry. I am there is a need to preserve the natural environment. accompanied by Mr Solere and Mr Clarimont, who There are many major programmes relative to is the Head of Department notably for questions infrastructure on the previous basis, for example relating to wine. I will give you a brief explanation relative to water treatment to handle the new about the DRAF, the Regional Directorate of populations. There are two highly dominant sectors Agriculture and Forestry. This is a decentralised with regard to agriculture in this region: wine 3714281023 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Claude Magnier, Mr Bernard Clarimont and Mr Jean François Solere making, which we will go into in more detail in a France. A brief look at the current levels of minute and, which represents 60% of the agricultural production. There are roughly three million product in this region; and, secondly, we have fruit hectolitres of AOC wine, the first category, 10 million and vegetables, which represents 15% of the regional hectolitres of Vin de Pays, which from the production. Those are two sectors which are Community point of view is table wine, and three undergoing serious diYculties at present, wine million hectolitres of standard table wine, grape juice making and fruit and vegetables. Finally, there is a and must. The production at present is still orientated mountainous sector in the hinterland dedicated to towards the AOC and quality wines. This is a cattle and sheep farming. There are also cereals, for document from a study which took place five years example wheat, and rice in the Camargue. The Gard, ago but which is still pertinent. The market is broken which is the neighbouring department to the north, is up into segments here and the Languedoc/Roussillon France’s leading rice producing county. That is a wines are primarily based in the first two segments, brief overview of the Languedoc/Roussillon region. the widest segments. This is independent of the My colleague is now going to present the regional regulatory categories we saw earlier about AOC, wine producing sector. table wine, et cetera. This segmentation is uniquely Mr Clarimont: I am going to present the key points based on pricing. This is the underlying weakness of relative to the wine making sector in the region. There the Languedoc/Roussillon wines. It relates to the fact are 25 estates and 72% of all the agricultural estates in that we have not been able to create an identity to the region make wine. 44,500 people work in the wine bring them up into the higher pricing segments of industry, which represents 6% of the regional wine. There has been a great amount of eVort in employment but only 30% of the potential wine improving the quality of grape varieties, as I said making area, the regional SAU, the useable earlier. Nearly 60% of the entire Languedoc/ agricultural surface, is actually used because there is Roussillon vineyard has been replanted for the a highly intensive cattle and sheep rearing activity in purposes of quality improvement. There have been the mountainous zones. Firstly, there are two slides very high levels of investment in wine making representing the history of wine production in the companies. For example, in 2006 in the co-operative Languedoc/Roussillon. sector there was ƒ300 million of investment just in Mr Magnier: We will give you copies of these slides terms of wine making equipment. If we look at the afterwards. evolution of the regional wine pricing, the two Mr Clarimont: You will see here that in 1980 there bottom curves, which represent the table wine and were roughly 400,000 hectares of vines planted in the the Vin de Pays de De´partement, the other table wine, Languedoc/Roussillon. Today we only have 260,00 which are red and black, we see that the two curves hectares remaining. The production volume has also are pretty much identical which means that the Vin de declined. We have gone down from 35 million Pays from the department have not been able to hectolitres in 1980 to 16 million hectolitres roughly at create a diVerentiation on the market between the Vin present. This is due in parallel to a drop in the surface de Pays de De´partement and table wines. The blue area cultivated and also a drop in yields. The drop in line is perfectly parallel to the two others but ƒ20 yield is due to an improvement policy relative to the higher This is the Vin de Pays d’Oc, which are in types of grape varieties planted and improvement in reality single variety wines, mostly sold to export, the way they are produced. You can see here a history which are mostly sold in bulk, and we see that they of the grubbing-up policy in Languedoc/Roussillon have not been able to diVerentiate themselves either and you can see a very high level of grubbing-up after from the pricing fluctuation aVecting the table wines. the Dublin Accord. For the last two years you will see The two lines are very much linked. These curves are the increase where the grubbing-up policy has started very important for understanding and getting a up again. Here is the background of the planting picture of the wine-making situation at present in subsidised by the European Union. You will see the Languedoc/Roussillon. The Vin de Pays d’Oc trend over the past 10 years of between 6,000 and represent roughly four million hectolitres sold 8,000 hectares being planted a year. The wine annually. These are in direct competition with New producers in Languedoc/Roussillon are organised on World wines. The dotted line above is an AOC wine a co-operative basis. Two-thirds of wine is produced from the Corbie`res region to show that the prices of in co-operatives in Languedoc/Roussillon, and quality AOC wines are relatively linked to these two producer groups, whether these be groups of private curves aVecting the table wines. The AOC wines are producers or co-operative groups, represent 80% of produced mainly in diYcult areas with very, very low the vineyards in the Languedoc/Roussillon. The yields. The AOC wines, like the Corbie`res we see regional syndicates today are becoming more here, have yields of roughly between 40 and 50 federated and the four remaining inter-professional hectolitres per hectare. The Vin de Pays d’Oc wines syndicates are being federated at present into the can go up to 80 hectolitres per hectare in terms of single syndicate you see at the bottom, Intersud de yield. So you see the income generated by the 3714281023 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Claude Magnier, Mr Bernard Clarimont and Mr Jean François Solere producer for these two products is very diVerent. The totally collapsing because the people who consume AOC—producing regions are in a very, very delicate these types of wines is a relatively elderly population economic and financial situation and are very and this population is declining. This market is sensitive to grubbing-up policies and arguments. We declining in France at a level of between 800,000 to are in a very diYcult agricultural environment where one million hectolitres per year and this reducing there is no substitute product for the vines. We will market is supplied to a level of 75% by the talk about this in more detail when we talk about Languedoc/Roussillon. So the market for local restructuring the Languedoc/Roussillon wine Languedoc/Roussillon wine is shrinking by 500,000 industry. This slide, which you may well know, is the to 600,000 hectolitres per year. Here is the Vin de relative price of red table wine in Italy, France and Pays d’Oc, which was the blue line on the other graph Spain. You will see that over the past four seasons the which was parallel to the others but a little higher in price of table wine in Spain has stabilised around the price. On this market, even though there are 2.60/2.70 mark, and after a certain level of fluctuation diYculties relative to the price of the products, the the French and Italian prices also have stabilised at volumes being sold are increasing, so the global this level. There is a global eVect which causes a direct revenues of the producers in this sector are stable or eVect on the pricing levels of wine. As we see here, the improving slightly. This is the sector which has pricing levels are tending to merge together to a ensured a certain level of stability in the regional wine market wide standard. These are the curves relative producing sector. Vin de Pays is a small zone table to the AOC wines in the region. There are two types wine, there are little production areas, and we will not of curves you can see here. On the top, the grey curve, talk about these because they are relatively is the Coˆtes du Rhoˆne which have a certain level of insignificant in the overall figures. This may have a market awareness. There were diYculties after 2003 very local importance in certain areas from time to because of a bad harvest but you can see the curve for time but in the global picture they are insignificant. In the Coˆtes du Rhoˆne is starting to climb back up the light of this crisis I will talk about the measures towards the ƒ90 to ƒ100 per hectolitres level. All the put forward for the coming years. The first measure other AOC wines from Languedoc/Roussillon, the is to place the accent on early retirement for the three varieties given here, Coˆteaux du Languedoc, producers. They have added value to the early Corbie`res and Coˆtes du Roussillon, are currently retirement package bringing it up to ƒ7,000 per year. fluctuating around the ƒ60 per hectolitre level. Here This is not the European ceiling but is ƒ1,500 better is a group of graphs which represent the change in the than what was previously on oVer. Another element incomes of our producers over the previous harvest of the pre-retirement package is to invite the years. The top right graph represents a global view of producers to grub-up their vines and take part in a the revenues for producers in Languedoc/Roussillon. programme for restructuring the land use. Producers This is a break down of the top graph. The middle who take early retirement, grub-up their vines and blue graph is table wine. The yellow graph in the take part in the restructuring programme are given middle is an illustration of the prices of wines and the ƒ240 per hectare grubbed-up and restructured up to volumes sold, not produced. Therefore, this is the a level of 10 hectares per estate. This is a variable income generated by the volumes sold. These are element of the early retirement package to incite bulk wine sales. In 1999 there were revenues of people to work towards the restructuring of land use. roughly ƒ260 million. In 2002–03 we were around the The restructuring is a key challenge for two reasons. ƒ200 million to ƒ210 million level and in 2006 below Firstly, wine making estates are generally very ƒ100 million. Therefore, there has been a very violent modest smallholdings. A standard professional wine- and fast drop of income and revenue for our making estate working with a co-operative represents producers. Departmental Vin de Pays—this is from between 12 and 15 hectares. Secondly, the average the two curves that were matching each other on the surface area of a wine-making parcel is roughly half previous slide—you see here the revenues are being a hectare in the Languedoc/Roussillon. You will see reduced slightly but are relatively stable compared to that with the size of the estates and the size of each the above graph. Even though we have prices which parcel making up the estate, after the grubbing-up are based on the table wine pricing, we have not got procedure there is not a lot of potential for the drop in production in terms of volume as we have conversion of the land even when the former estate is for the table wines. In spite of all of these conditions located in a high potential agricultural environment. the label of departmental table wine has ensured a These are not dimensions which make it possible, for certain level of market awareness which has helped us example, to produce wheat and cereals. In zones avoid the serious drop of the other table wines. I am where irrigation is possible conversion towards fruit talking about access to the market, which we do not and vegetable production is also very limited. For have with the standard table wines at present. The example, it is a totally diVerent profession, you market is mostly national, French therefore, for the cannot turn a wine maker into a fruit producer, it standard table wines, a market which is currently requires diVerent skills. Secondly, the fruit and 3714281023 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Claude Magnier, Mr Bernard Clarimont and Mr Jean François Solere vegetable sector is also currently in diYculty. There Mr Magnier: Over the past 15 years, in terms of are cereal co-operatives in the area who wish to surface area we are in a negative balance of 120,000 increase their production but, as we said earlier, the hectares that have been lost. size of the estates and the fact that these estates are broken down into small parcels of half a hectare is an Q749 Chairman: You made the important obstacle to their use for cereal production. The other distinction between wine produced and wine sold. sector is the agro-environmental measures, which is Could you give us those two figures. What happens currently being established. As we said earlier, there to the wine that is produced and not sold? are many parcels after grubbing-up which do not Mr Clarimont: There are two elements. After a oVer a viable agricultural alternative. Notably this production year, after a harvest, there is an concerns the lower mountain zones which are very automatic increase in stocks for the year and also we dry, which are generally AOC production areas. make use of distillation to evacuate a certain element These zones after grubbing-up present a high level of of the production. environmental risk with regard to drying up and, therefore, forest fires, which is why they have to be Q750 Viscount Ullswater: Is this ordinary maintained for the purposes of the environment. The distillation or crisis distillation? third element with regard to wine-making estates is Mr Solere: With regards to Languedoc/Roussillon an incentive to property exchange. This does not and its potential in terms of table wine, the highest necessarily concern people who are on the early levels of distillation have been recorded since 2005. retirement plan, this concerns all wine producers. Under Article 29, therefore, standard potable alcohol Notably this will be deployed by the local authorities, distillation in 2005 and 2006 was one million in both the regional and departmental councils. The first years and under Article 30, crisis distillation, 900,000 section was about the smallholdings and the wine- hectolitres in 2005 and the same again in 2006. making estates, now I will move on to the companies. Mr Magnier: Roughly 10% of the production, There is a major challenge relative to restructuring therefore. the co-operative sector of wine making. As we said earlier, there are roughly 300 co-operative wineries in Q751 Lord Plumb: Could I ask a question about the the area. These co-operatives will be severely aVected producer groups. You said that 80% of the producers by grubbing-up policies. Mechanical grubbing-up are members of a producer group. Are those groups leads to an increase in fixed charges per hectolitre also dealing with the processing of the wine? Is that produced. We have provided supported mergers part of the whole co-operative set-up? Or is that a between co-operative wineries and this level of separate entity from the producer group itself? support is relative to help with investment further to Secondly, the Director said there is an increase in the a merger between co-operative wineries. These are population in the Languedoc region of 25,000 to the key elements of the forward looking policies and, 30,000 people each year, and that is quite a lot of if you have any questions, you are more than people coming into a region like this. Are they not welcome to ask them. wine consumers? Could I just add to that—does the Chairman: Thank you very much indeed. Languedoc region import New World wine, because it seems to be a big problem that New World wines are coming into various regions and obviously Q748 Viscount Ullswater: You explained on the aVecting consumption? graph how the prices had gone down, but I am Mr Solere: We come back to the producer groups. wondering how many people went out of business Most of the producer groups are active in the Y because the prices were no longer su cient for a marketing sector and they organise bulk sales. Some livelihood. groups also take care of packaging and the sale of Mr Clarimont: My colleague has the figures. bottled wines. The actual vinification procedure is Mr Solere: This is a study that was carried out in 2005 run by the co-operative itself and not the producer about the number of wine estates which highlighted group. an acceleration in the reduction of the number of Mr Clarimont: Or the wine producer himself as an wine-making estates. We are more concerned with independent wine maker. the acceleration in the reduction of the number of Mr Solere: On the distillation side, the groups are not wine-making estates. In 2000 there were 31,000 wine- involved in that, it is based on the co-operatives making estates in the region and in 2005 there were themselves or the independent wine makers 25,000 wine-making estates remaining. This was a themselves. Relative to the New World wines, the structural inquiry based on the number of wine- main competition is, in fact, on the export markets making estates in business. In terms of employment so, for example, they are in high competition against in the wine making sector, we estimate that 3,500 jobs New World wines on the northern European have been lost in the same period. markets. The 80,000 hectolitres of Vin de Pays table 3714281023 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Claude Magnier, Mr Bernard Clarimont and Mr Jean François Solere wine produced are generally sold in bulk and are volume purchases. These large volumes are then based on the entry-level pricing to the market, we taken out of the region and packaged in the country have not developed any significant branding which of consumption. The first restriction we are subject to would enable us to access higher pricing levels. is the pressure of the purchase price of the wines and we feel the competition here. With the varietal wines, Q752 Lord Plumb: That was really my question, I which are on an international level in terms of think. quality, we have seen there is a very high level of Mr Solere: It is diYcult to evaluate the market share demand but given the rigidities felt within the of New World wines in Languedoc/Roussillon markets the prices are subject to a significant drop, because we have a diVerent approach in terms of which was why I raised the question of evaluating the market. We evaluate production competitiveness. I come back to your question, what locally and the market in terms of consumption in the can we do to increase the competitiveness of the country. Most of the wine in Languedoc/Roussillon wines. We are working on the production side of is sold in bulk. things whereas the competition is very much targeting the market side of things. Q753 Viscount Brookeborough: What proportion of Mr Clarimont: We consider ourselves producers or the producers of grapes are part-time farmers? raw material but we have not been able to develop Mr Clarimont: That is a good question. The brand networks and, therefore, we have a very weak proportion is quite high, in fact, and very diYcult to footing at the wine merchant level of trading. identify sometimes. Many people in Languedoc/ Roussillon have a behaviour that is more of a Q756 Viscount Brookeborough: So your wine landowner than that of a wine producer. People who merchants are not marketing your goods properly? have inherited a vineyard, for example, keep the vines Mr Solere: That is a good question! alive because they consider it part of their Mr Clarimont: When we compare Languedoc/ inheritance, part of their patrimony. Roussillon to other wine-producing areas in France, we note that the trading level is very, very weak. We Q754 Viscount Brookeborough: So what is their have not been able to identify an image or identity to other employment? If they are part-time farmers and create any significant margins, which has ensured we are talking about the fact that it is diYcult for that the wine trade in Languedoc/Roussillon has them to diversify or change, what is their other remained very weak. employment that sustains them in business? Mr Solere: First, I will give you the figures and then Q757 Chairman: If we can, I would like us to focus answer your question. Out of 26,000 estates there are on the Commission’s Communication towards a 11,450 that are considered as professional estates. sustainable European wine sector. To start that oV,I Mr Clarimont: For the part-time producers and their would like to ask you how you see that other activity outside wine making, as I said earlier Communication, if it is carried forward into definite these are people who have often inherited the estates proposals, aVecting the region? In particular, have and these are generally people who simply have you anything to say about the three policy areas of another standard job or are shop owners or things stopping crisis distillation, the continuation of like this who keep their few hectares alive producing grubbing-up and the ban on new plantings? grapes and delivering their grapes to the co- Mr Magnier: We have taken a lot of time to think operative. about the CMO proposals and a lot of thought has come from the professionals in the sector. The first Q755 Viscount Brookeborough: This is to do with the sector we are considering is the production potential competition of New World wines. You mentioned in the region, notably in terms of Vin de Pays table that you have a problem with your identity and yet wines. Everybody agrees with the statement that we you have been producing wine for many hundreds of have to grub-up surface areas of vines. The forecast years and the New World has only just started. The over the coming years is roughly 50,000 hectares to be New World wines have a totally diVerent method of grubbed-up over the coming five years. The objective labelling and identifying themselves. Do you feel that is to retain the quality potential present in the region. you are constrained by the restrictions that are placed This is totally in sequence with the programme that on your label to do with grape varieties in Vin de was presented earlier, the land use question and how Table and Vin de Pays? to use the grubbed-up land in the future. Another Mr Solere: One of the key problems is access to the question is the aspect of temporary grubbing-up. market. As we said before, the main part of This temporary grubbing-up procedure already production is bulk production. Wine merchants who exists in the region, which is known as deferred come to this region to buy wine, be they national or quality conversion, where lower quality varieties of international wine merchants, are interested in large grapes are grubbed-up and three to five years later 3714281023 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Claude Magnier, Mr Bernard Clarimont and Mr Jean François Solere these are replaced by higher quality varieties. There policy with regard to maintaining the land just for fire are subsidies for grubbing-up the vines and there are protection purposes. also loss of earnings subsidies for the parcels that have been grubbed-up. The second element is the desire to control market production conditions, keep Q761 Chairman: Can I check that I have understood control of crisis management situations or levers, your position on the Fischer Boel Communication notably crisis distillation. Keeping in mind this desire correctly. It seems to me that you are saying you want to keep control of crisis distillation, on this basis we control over crisis distillation, you want crisis are looking for new outlets for the distilled product, distillation to continue, you want a grubbing-up for example biofuels and things like this. That is also scheme in place, and I do not quite see whether the accompanied by other preventative measures, such as initiative on grubbing-up comes from the producer or green harvesting or viticulture of fallow land. With you want to control itself, so you can say to the regards to enriching the must, the desire is that the producer, “No, you cannot grub-up”. And on the must does not come from third party countries removal of the ban on new planting rights I do not outside the European Union but is produced in the think I have heard what your position is on that. region. The third element is sale of products from the Mr Solere: With regard to grubbing-up, the vines. In terms of aid we want to move towards less profession was opposed to the grubbing-up policy aid for grubbing-up vines towards more aid for and, if it accepts this policy today, it is because it is marketing and restructuring the co-operative forced to on a theoretical perspective of structural structures, as I said earlier. The fourth element, adjustment, but we know that the structural which is very much held in the heart of the regional adjustment of the industry remains theoretical and authorities, is defending the local territory and the grubbing-up dynamic, as it were, will be applied developing the regional territorial identity. The in relation to the profitability of each estate. With professionals are very much attached to the idea of a regards to the pricing levels reached today, we production basin, a production region, and a consider that a family estate in Languedoc/ regional brand has just been developed and launched, Roussillon today is no longer profitable. Given that which is Sud de France, South of France. There is a the production system at the present time is very very high demand for a certain level of regional fragile, we consider that in this context the industry branding. Those are the four elements. will be very, very reactive with regard to a grubbing- up policy which will help them get through this Q758 Chairman: That regional branding, which current period. With regards to the professionals who segment of the market is it aimed at? will remain in the sector, the question remains what Mr Magnier: All segments of the market but mostly level of competitiveness remains for these producers. Vin de Pays and AOC wines too. This also gives rise to the question of the land use programme for managing the estates, therefore Q759 Viscount Ullswater: Could I ask a bit about the increasing levels of productivity and controlling grubbing-up. You say that you will contemplate production costs, notably at the co-operative winery grubbing-up 50,000 hectares over the next five years. level. Whether the decision to grub-up is collective or How will that be distributed in the region? Will it be individual, the overall change is to be met by the according to the wishes of the farmers, bearing in entire industry within the production area. mind some of the areas that you are concerned about Mr Clarimont: In the market segment curves I with the fire risk in the lower mountain regions? Or presented earlier, we are in the lower segment of the will it be controlled from the centre? market. For our market sector the main challenge is Mr Magnier: As we said earlier, the average age of controlling production costs. When you are in this wine producers is quite high, 30% are over the age of segment the profitability of your estate is simply 50. The central theme here with regard to this based on controlling costs, which is why we have question is based on early retirement, so the taken up the strategy of supporting the investment grubbing-up aid is especially directed and applied to costs relative to co-operative wineries. We cannot the early retirement scheme. With regards to the jump from one segment to another very quickly, grubbing-up policy, that is also linked to the early which is why we are concentrating our eVorts on retirement scheme. controlling the production costs. With regard to the grubbing-up procedure, what we want to do is Q760 Viscount Ullswater: So there are no encourage certain producers to stop their activity but environmental concerns about losing vines in one without necessarily grubbing-up the vines, working particular area? towards replanting and redeveloping the vineyards, Mr Magnier: Any land that has not found another which comes within the framework of maintaining use after the grubbing-up procedure will be eligible the quality potential which is part of the European for aid with regard to the agricultural conversion Union Directive. 3714281023 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Claude Magnier, Mr Bernard Clarimont and Mr Jean Franc¸ois Solere

Lord Plumb: The Director said that the grubbing-up awaiting future conversion. To be very direct, our development, if 50,000 hectares was going to be taken major challenges are, firstly, social with regards to the out of production, is very much related to the people involved and, secondly, environmental. There retirement package and, therefore, it would not be a is also an element relative to the industry, therefore question of replanting. If you are going to grub-up some eVorts will be concentrated on converting into and take the ƒ240 per hectare for grubbing-up, as diVerent types of culture but the primary objectives you said earlier, surely it does not mean that they are social and environmental. The eVorts with regard want to be replanting if they are going to retire. What to the wine industry in Languedoc/Roussillon are will they diversify into? The whole of the CAP now is very much based on increasing market based on cost compliance under Pillar 1 and Pillar 2. competitiveness through working on the reduction of Where does this money come from? Does it come costs involved in production, notably at the co- from the Environment side, Pillar 2, as you see that operative winery level. This is why, with regard to the development? Or does it come from the payment side, funds available under Pillar 2, we have reserved the which is for further production? maximum level of credits available, which is not enough. We have reserved or set aside ƒ18 million for the 2007–13 period just for investment into the co- Q762 Chairman: That is the last question! operative sector further to mergers between diVerent Mr Clarimont: The conversion of the land will be very co-operative wineries. We have also set aside certain Y complicated, very di cult. In general, in the plains sums for reorganising the use of land further to the areas we can envisage restructuring the use of the grubbing-up policies under Pillar 2. Under Pillar 2, land, conversion towards cereal production, for ƒ3 million have been set aside for the reorganisation example. There will certainly be a small proportion of of land use. A final figure which is very important: this land which will be converted into fruit there is ƒ50 million being made available for the production. What will happen is that, when certain reorganisation of the vineyards, an annual figure of producers stop their activity, a small portion of their ƒ50 million by the European Union, for the land will be taken over by other wine producers who replanting of grape varieties in the reorganisation of wish to expand their estates. Another factor that we the vineyards in the Languedoc/Roussillon. did not express earlier is that many producers live on Mr Magnier: I hope we have been able to answer your their estates, the estates are not farmed by third questions. Thank you for being attentive listeners. I parties, and therefore it is their home. That means wish you every success with your mission in that, when they stop their wine-making activity, they Languedoc/Roussillon. will still maintain their estate simply as part of their Chairman: Thank you very much for giving us the personal patrimony. Part of the land will therefore be benefit of both your time and, perhaps more transferred into infrastructure, regional importantly, your expertise and knowledge. Thank development, and part of the land will be unused and you very much indeed. It has been a very helpful, will be left to wait for a future potential use. At useful session. I just have to say I come from Scotland present there are a number of parcels throughout where, of course, we do not produce wine but we Languedoc/Roussillon that are unused and are produce something else that we drink! 3714281024 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

192 european wine: a better deal for all: evidence

MONDAY 21 MAY 2007

Present Brookeborough, V Sewel, L (Chairman) Jones of Whitchurch, B Ullswater, V Plumb, L

Examination of Witnesses Witnesses: Mr Jean-Louis Alaux, President, Mr Jean-Marie Fabre, Secretary General, and Mr Jean-Luc Fabry, Director, FVIA, examined.

Q763 Chairman: Good afternoon, thank you very for roughly one century, so for a long time. Before the much for inviting us. last century there were only family companies, there Mr Alaux: (Through an interpreter) First of all, it is were no co-operatives. Today these two categories a great pleasure to welcome you to the Palais du Vin. have two diVerent axes of production. The co- I know you were welcomed this morning but I am operative system by necessity has had to choose welcoming you again. I am the head of a federation production based on high volumes and low pricing. which represents some 1,000 companies. Each They are frequently positioned on what we know as individual member of the federation would be the hard discount market. As for many independent delighted to welcome you themselves, they are very wine makers, they are positioned on a very highly open to the world. Our economic vision is very liberal competitive market. The family that I represent to a in many ways. Our aim is to accompany our members certain extent is also present on this market but the as far as possible in the international market. I am fact that our members have individually decided to entirely at your disposal should you have any put their names on their products, to add their own questions that you wish to ask. individual signatures to the products, shows they have chosen a production based less on volume and Q764 Chairman: Can I first of all thank you, Mr more on quality. The combination of co-operatives President, for your welcome and for finding time to and private family enterprises should mean that we talk to us and the incredible amount of eVort that can have access to the entire market. The problem is your two colleagues have put in to help us today. that over the past 25 years the policies that have been Mr Alaux: It was done with great pleasure. applied in France have not been very eVective with regards to the market approach in the wine industry. Q765 Chairman: I see that it clearly helps to be called In addition, wine making in Languedoc/Roussillon is Jean in order to make it into the federation! I have no not what we would call a millionaire’s game. We problem with that. cannot earn the same amount of money as one might Mr Alaux: It is not obligatory! expect in Champagne, in Burgundy or in Bordeaux. In generations past, children have inherited their family estates but this inheritance does not Q766 Chairman: As long as it helps! This is the first necessarily mean that the skills have been learned formal session we have had and I think it would be along with the inheritance. If we combine the fact useful if we try to get into this session a lot of the that the policies have not been well adapted, plus the informal conversation we have had earlier in the day. insuYcient capacity of many wine makers to adapt Mr Alaux: It is over to you. their production to the market through their insuYcient knowledge, we arrive at a conclusion of Q767 Chairman: Thank you very much. I would like certain diYculties. Here we believe that the problems to focus on two things: firstly, the present state of the are not forever, we are in a position to find solutions wine industry in this region and, secondly, how that V which can resolve the problems that we have would be a ected by any proposals for the reform of observed. the wine regime. Could I start by asking you where the wine industry is at the moment in Languedoc/ Roussillon, what diVerences and changes you have Q768 Chairman: Could I just take you forward on had in the recent past and where you are going in the discussion about the reform of the wine regime, the future? and in particular your views on the three elements of Mr Alaux: There are two types of families in the wine crisis distillation (the cessation of crisis distillation) industry in Languedoc/Roussillon. There is a sort of grubbing-up and the removal of the ban on family company, an independent company, which I planting rights. represent, and then there is also the co-operative Mr Alaux: That is very important. Personally, I very system which is much more closely related to the much appreciate the way things have been presented industrial framework. These families have co-existed by the European Commissioner. She has an art of 3714281024 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Jean-Louis Alaux, Mr Jean-Marie Fabre and Mr Jean-Luc Fabry simplifying to the maximum, but when you are in the Q770 Lord Plumb: Still on grubbing-up, do you field and you are defending a profession that you love think that the 400,000 hectares which the deeply things become a little more complicated in Commissioner has proposed to take out of reality. Having said that, I am going to start with the production is about the right amount? Is this an question of grubbing-up. There are two ways of acceptable level? Or is it too much? looking at this question. In this establishment three Mr Alaux: We know the world figures of wine years ago we were favourable towards the policy of consumption, we know very well that worldwide applying the grubbing-up policy, unlike our wine consumption is increasing and we agree fully to colleagues in similar federations. But, as we entered grub-up the parts of the vines that do not correspond this period of mutation, as I call it, and not crisis, to market requirements. I will fight literally to the when things were changing rapidly, I preferred to say death to ensure that Languedoc/Roussillon remains to my members that we were entering a period of a major wine producing area. I understand from the heightened competition and it is better for us to grub- Commissioner’s words that it would not be a bad up the parcels of vines that are not highly productive, thing if Languedoc/Roussillon disappeared as a which do not bring added value, and concentrate on wine-producing area. If the proposal was, “Let us the areas where we do well and can sell wines with grub-up Languedoc/Roussillon but we will inject added value. Finally, the grubbing-up within each something new, an alternative”, then maybe we company is the responsibility of each individual would start listening, but at the moment that is not enterprise, each individual entrepreneur. This the case. The problem in Languedoc/Roussillon, as enabled the company, therefore, to have money we spoke about earlier, is a problem of marketing coming in, to amputate the part of its vines that were skills in addressing the international market. We not ensuring suYcient revenues and to reinvest and bring a very small contribution to the overall excess come back to the market with the remaining wine production. If we look at total international production. This was why we considered grubbing- wine production, I am in contact with wine producers up an interesting measure. That is on an individual in Australia where they are starting to grub-up vines basis. But, if we take it from a global point of view, I and with producers in Argentina where they are am much more prudent because the European starting to grub-up vines. I cannot let it be said that Commission’s simple viewpoint only takes into Languedoc/Roussillon is the worst student in the account the viticultural economy, whereas the wine- class and is being asked to make the greatest eVort, it making industry in Languedoc/Roussillon is is happening everywhere. The biggest problem at certainly an economic factor but also is integrated present is marketing. We have been used to into the questions of regional and environmental marketing our wines in a certain way but that no development. The question is much more complex if longer corresponds to what the world expects. We we are looking at grubbing-up from a global point of need the means to take our products to the market in view. As far as grubbing-up goes, it is an interesting the conditions the market wishes. With regard to measure where it concerns adding vitality to an crisis distillation, we do not make wines like you individual company, bringing it up to a competitive make cars, planes or another industrial product. The level, but a far more delicate question when we are weather, the rain, the sun, et cetera, means that looking at it from a global point of view. sometimes we have higher levels of production one year than the next, we are not the bosses in that department. We need a tool which can remove the Q769 Viscount Ullswater: Before we leave grubbing- excess production if there is any and enables us to up, could I ask whether you think that grubbing-up maintain the price for which the wine is sold. I cannot should therefore be controlled by the producers or by go and look my vines in the face and say, “This year the Department of Agriculture, bearing in mind the you are only going to produce this much”, it is social concerns and the environmental concerns? impossible to do that. Mr Alaux: It has a strong social and environmental dimension. We have asked this question ourselves. We consider it a State-wide question because, if the Q771 Chairman: I suppose the question is—who decisions were taken locally, these decisions would should pay for it? Should it be the industry or the probably be taken with a little less fairness and a little State? V more local interest. Here nobody wants to live o Mr Alaux: I recognise the pertinence of your question V subsidies, the wish is that each company can live o because this is another question that we have asked its own work. This is why we have defended the idea ourselves. that this CMO must be the last but it must be very eYcient. We need to stop this situation, we need to do it once and for all and take a position on the market Q772 Chairman: I cannot come up with any original as it is in its own reality. questions! 3714281024 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Jean-Louis Alaux, Mr Jean-Marie Fabre and Mr Jean-Luc Fabry

Mr Alaux: My colleagues will support the fact that I allocated per hectare under production and per estate am far from the first person who will go running to and all or part could be paid to marketing companies the State to ask for subsidies or aid of any sort, but anywhere in the world to help these producers market the wine-making industry goes well beyond the fact their wine at the place of consumption. We are of just making wine. It represents a great deal of talking about Languedoc/Roussillon, we cannot employment and a great deal of work. There are compare with Champagne, they do not need this type many companies which are not directly involved in of tool. If this type of aid could be pushed forward in making wine but are suppliers to the wine industry. I the upcoming CMO proposals, which could cover a cannot imagine being asked to pay taxes to the State, period of five to seven years, if it was applicable and to Europe, without these bodies showing solidarity active, you would probably never again hear requests with the persons they are taking the taxes from in for subsidies to the European Union from return. I am not saying that everything should come Languedoc/Roussillon. from Europe or the State but, if when we need it help is not forthcoming, what is the point of having Q778 Viscount Ullswater: I am surprised to hear Europe or the State? We are not looking for a fight, that, quite honestly, because it sounds as if it is a we are not looking to cause trouble, we want Europe continuation for market support for ineYcient for peace, but Europe for peace is not enough, the producers. They will just remain in business for bodies that Europe represents also need to show another five to seven years and will not have solidarity to its members who are paying the taxes. restructured. Mr Alaux: After this five to seven year period there Q773 Viscount Ullswater: Would you suggest that will be no more aid, so after that period they will the part of the budget which went into the country die anyway. envelope was available for distillation? Mr Alaux: The smallest amount possible but not Q779 Viscount Ullswater: Can we not reach that systematically. position now? Mr Alaux: No, they have got no aid for marketing Q774 Chairman: Can you just say something on the at present. banning on planting? Mr Alaux: It is something I consider logical. Q780 Chairman: Do you think that, even if you give aid on marketing (and marketing is about much more Q775 Chairman: To maintain the ban? than promotion), there will nevertheless be some, Mr Alaux: No, to free the planting rights. maybe a significant number of, producers who will not be able to operate economically and will have to Q776 Lord Plumb: I just wonder if we can get a leave the industry? broad view of this. The Commissioner has been given Mr Alaux: There will be some who will fall by the the mandate from the Council of Ministers, as with wayside naturally. What would be very interesting anything in the CAP because of the total reform of would be the international aspect of such aid. I work CAP, to curb some of the cost of supporting the with a wine broker in London called Charles Wells various projects that they are responsible for and, as and, if I was allocated a certain amount of aid, I could far as wine is concerned, the total cost of supporting apportion some of this to Charles Wells to help him the wine regime, as we understand it, is something hire someone to sell more of his wine, take it to the like ƒ1.5 billion a year. If you had the opportunity to market and therefore create a virtuous circle where I say how you would reconstruct the wine industry am better paid for my wine, et cetera. within that limit, which would be on a reducing scale, to improve the position for the producers and keep Q781 Chairman: What would happen if Charles them in business, what would be your proposal? Wells came back to you and said, “With the product Mr Alaux: This too is an extraordinary question. you are giving me, I can sell X amount, but if you Chairman: Which you have asked yourselves! change the product I can sell 3X the amount”? Mr Alaux: We could imagine any situation. We have Q777 Lord Plumb: You believe in simplicity, don’t to remember that people here are generally highly we all! professional. They are not producing just any old Mr Alaux: We have already asked this question of product in a bottle, they are producing high-quality ourselves! I will give you my point of view on this products that they are very proud of. On a long-term question. Unlike the CMO agreements, I would be basis the vineyard has been established for a given very happy if there was only one single aid for the type of product over a period of time and it is Languedoc/Roussillon region. This would be to give impossible to change things just like that. The highest an aid per hectare under production. This aid would level of impact on a vineyard is the changing of the be allocated to each wine producer and would be weather from one year to another. 3714281024 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Jean-Louis Alaux, Mr Jean-Marie Fabre and Mr Jean-Luc Fabry

Q782 Baroness Jones of Whitchurch: We heard this change the fridge that year or renovate the house, we morning that the price of wine, even quality wine, is continue employment, maintaining the environment, going down. So is there not an imperative for an maintaining public services—and we pay taxes too. awful lot of people to get out of the wine business for anybody to be able to make a profit? Q785 Viscount Brookeborough: At the end of the day Mr Alaux: If there were no doors and windows in this they are like family farmers everywhere. establishment we could think that way but we are Mr Alaux: Yes, but the fact that is very important to entirely aware of the situation throughout the world understand is that, if we look at international at the present time. We know that in China there is an consumption, we need to be able to provide every increase in consumption of over 7% per month, family industry, every family wine-producing notably in the Shanghai region, the United States is company, with the same marketing resources and plus 8°% per year, et cetera. means as are used and deployed by major groups around the world, because today the price that wine Q783 Baroness Jones of Whitchurch: France is is sold at in Languedoc/Roussillon we cannot take going down. enough added value from the wine at the price it is Mr Alaux: France is going down, absolutely, it is sold and, therefore, we cannot take this step forward normal. That is the case in Italy and Spain too. Why? because the wine is sold at too low a price. Historically in these regions, France, Spain and Italy, the liquid available in the past was wine, it was on Q786 Chairman: What we know about European site, it was what was there. But now we have shops wine consumption is that it is declining, the only where you can buy Coca-Cola, whisky and all sorts countries in which it is increasing are the northern of things, so the choice is more and the way people European countries which are not wine-producing consume liquids has changed in these areas. It is countries themselves. I think this is a fundamental totally normal. fact because in the wine-producing countries, Mr Fabre: International consumption is increasing. particularly in France, wine is part of the culture—it comes from the ground, the climate, the wine- Q784 Viscount Brookeborough: That wine which producer mixes his soul with the elements to produce was used here under those circumstances is not the wine. The consumer in the north of Europe does not sort of wine that you are able to sell on the other have that background at all. The high status markets. consumer will always go for the top-of-the-range Mr Alaux: It is a little more complicated than that. French wine. What has happened in Britain is that Why? The Languedoc/Roussillon vineyard has the medium range market has seen a major undergone the highest level of restructuring of any penetration by New World wines because the vineyard in the world. Roughly 70% of the entire consumer goes into the supermarket—and 70% of vineyard of Languedoc/Roussillon has been our wines are sold through supermarkets—finds a restructured and transferred from a philosophy of bottle of wine that he likes, goes back week after high levels of production towards an objective of week, month after month, year after year and wants quality production. Over the past 30 years levels have that wine to be exactly the same. dropped from 25 million hectolitres to 16 million Mr Alaux: Yes, exactly. What is the question? hectolitres, thanks to European Union aid. We have gone from a very high level of local production and Q787 Chairman: The question, is that in the New consumption towards a higher quality production World the wine producers engage in a dialogue with which is not just consumed locally but on a wider the supermarkets and it is the basis of the basis, but not wide enough because we have not got supermarkets saying, “The customer wants this, can the marketing tools to address all of the markets. you produce it?” and they do. The wine producers in Many of the wine-making estates in Languedoc/ the New World do not have the history to say, “This Roussillon are family companies and they do not is a first class historic-based product of high grade have the structures of major international groups. I and you ought to appreciate it”. have got a lot of contacts with people in the United Mr Alaux: I really felt your question coming anyway! States, for example, in California or in Australia, and The main diVerence between French wine and wine here we see the major groups are made up of from elsewhere is the internal regulation. An example investors, bankers, pension funds. The way these of what you can do in other countries and cannot do groups operate is certainly more modern, more in France is that we are not permitted to add aromas. active, but, when the price of wine drops, they remove If there is a diVerence in a flavour, taste or aroma their investments, put the money elsewhere and the from one year to the next in other countries, they can vineyard collapses. In Languedoc/Roussillon, when inject this aroma. If there is a little bit of sun missing there are diYculties, we are talking families. We try in California, they can inject an aroma to replace the to stay in place, we do not change our car, we do not missing sun and we cannot do this in France. 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21 May 2007 Mr Jean-Louis Alaux, Mr Jean-Marie Fabre and Mr Jean-Luc Fabry this Palais, in this house, because we are avant-garde, Mr Alaux: In the long-term, yes, but if we remove we are looking to the future, we have been asking for these constraints immediately we destroy a whole a long time to have the same opportunities in these economy, we need time. terms as our competitors on the bottom of the range and middle of the range wines only. For the rest, the Q795 Chairman: You are in a very diYcult position wines above this category are considered as wines and I think you have been remarkably frank and produced by specialists in their own right. honest with us. What I want to ask is—do you think that your views are similar to the views of people in V Q788 Viscount Brookeborough: Who is controlling the co-operative sector? Is there a big di erence? these regulations? Are they being controlled by those Mr Alaux: We have certain levels of support within strong groups who produce very superior wine? the co-operative sector but this does not represent the Mr Alaux: There are several layers of control. We majority. could have a whole meeting just on the question of regulation and the many layers of control. Wine is Q796 Chairman: So much more conservative, with a probably the product that is most strictly controlled small ‘c’? in France. Mr Alaux: It is more diYcult for us to evolve. For example, all of the producers that bring wine to the co-operative are never in contact with the market. Q789 Viscount Brookeborough: Who has the most vested interest in maintaining the status quo? Q797 Baroness Jones of Whitchurch: I was going to Mr Alaux: It is not in my interest. ask a similar question, which is that there must be an Viscount Ullswater: Who beneﬁts? All-France independent wine growers association. Is his colleague lobbying within that organisation for Q790 Viscount Brookeborough: That is the point. the sorts of changes that he has talked about? You are the biggest wine-producing region in the Mr Alaux: Independent wine growers? world. Mr Alaux: Yes. Q798 Baroness Jones of Whitchurch: Yes. Mr Alaux: Yes. It is the French Association of Q791 Viscount Brookeborough: And you suVer more Independent Wine growers. than anybody else. Mr Alaux: But it is us who want to change the most Q799 Baroness Jones of Whitchurch: They share the too. views that have been expressed today? Mr Alaux: I am the Vice-President. Q792 Viscount Brookeborough: But somebody is stopping you? Q800 Chairman: Do the other members of the Mr Alaux: It is probably we who are preventing us to French Association agree? Mr Alaux: changing as well. I am being frank. They wholeheartedly agree with, me otherwise I would have been far more moderate in what I have expressed to you today with regard to Q793 Chairman: I can see that. Languedoc/Roussillon. Mr Alaux: One single example: until recently a co- operative winery director was paid on the number of Q801 Chairman: What percentage of total wine hectolitres viniﬁed in the winery with no incentive, production in France is independent and what therefore, to promote low quality production but, on percentage co-operative? the contrary, high volume. When we criticised this Mr Alaux: There are 36,000 wine producers in situation the main labour unions in France came and France, 54% are independent and they represent 70% complained to us and caused trouble for us. I will give of the value and 80% of employment. you one example. We tried to get through this complicated situation and unlock the situation but it Y Q802 Viscount Brookeborough: And they cannot is very, very di cult. We would have appreciated far change the regulations? clearer directives from Brussels, notably with regard Mr Alaux: No. There is one single reason: in the past to the examples I have just spoken about. all wine makers in France were independent, 100 years ago certain of them grouped together to make Q794 Viscount Ullswater: Does that not indicate co-operatives and at this point in time in France the how the New World has penetrated this market agricultural unions started to develop and all the because of these constraints and that the sooner these wine makers who remained independent did not feel constraints are removed, the more competitive they the need to join this union movement. The situation can become? today, therefore, is the French state only recognises 3714281024 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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21 May 2007 Mr Jean-Louis Alaux, Mr Jean-Marie Fabre and Mr Jean-Luc Fabry bodies that are represented by unions and which were such as yours agree with your point of view in Italy, formed well in the past. in Spain? Mr Alaux: There is a European Federation of Q803 Lord Plumb: What is the relationship between Independent Wine Makers. The Swiss, Italians, your organisation and FNSEA? Spanish and Portuguese have a very independent Mr Alaux: In a nutshell, there are certain agreements spirit and each of these countries, with the possible when it comes to taking control of the Chamber of exception of Italy, fiercely defend the financial Agriculture in each de´partement, but when it comes independence of each individual company; financial down to applying a viticultural policy they are never autonomy for each individual company. in agreement. The FNSEA is far too interested in applying for aid relative to agriculture, so through this point of view it also maintains its membership. Q805 Chairman: Thank you very much indeed, that Here this is not a union, this is a federation and every has been a very, very helpful and useful hour. member is free to contribute or not. We are heavily in Mr Alaux: Thank you for taking an interest in the favour of financial autonomy for each individual wine-making industry in Languedoc/Roussillon. company. This house is open to you and, if you need anything at all, you can count on us and our friendship. Q804 Viscount Brookeborough: Through your Chairman: Thank you very much. We are very much international contacts with other countries within indebted to you and your colleagues, thank you Europe, are you aware whether or not similar bodies very much. 3714281025 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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TUESDAY 22 MAY 2007

Present Brookeborough, V Sewel, L. (Chairman) Cameron of Dillington, L Ullswater, V Plumb, L

Examination of Witnesses Witnesses: Mr Alain Vironneau, President, Mr Denis Johnston, President of the CIVB Economic Commission and Member of the Board, and Mr Philippe Casteja, Former President of the CIVB, President of the Federation of Exporters of Wines and Spirits, Conseil Interprofessional du Vin de Bordeaux, examined.

Q806 Chairman: First of all, could I start by saying, Europe has to take on board the realities and create even on the record, thank you for this absolutely a situation whereby there are genuine criteria magniﬁcent meal and for the conversation. adapted to the change in consumption and not just Mr Vironneau: (Through an interpreter) Thank you pinned to the producer and his vines. That is where for coming. in Bordeaux we are very attentive to the reform. We expect a lot from the reform insofar as Europe should give an opportunity to the wine industry and to Q807 Chairman: I usually have to start oV these growers to be able to pursue a conquering attitude sessions in a very dreary committee room in the and gain market share, so that the 125,000 hectares House of Lords and tell the people who are giving under vines has a club in the market. That is why we evidence that we are web casting, broadcasting the are attentive and expectant. Very much along the proceedings, and that there is the possibility that same lines as regions such as Champagne, we have someone who cannot sleep might actually be listening here in Bordeaux a very real capacity for to what is being said. I have never actually found development to go out and gain market share. there is anybody who listens to what we say but it is a theoretical possibility. At least today it is not even a theoretical possibility. I wonder if I could start by Q808 Viscount Ullswater: Could I perhaps ask a asking a general question. We have had the question on that. Why is it that the New World wines Communication from the Commissioner and we are have managed to penetrate the market quite so waiting for the proposals in July. As far as you can successfully? see, how do you react to those proposals for the Mr Vironneau: 95% of consumers have not got a clue reform of the wine regime? Are they sensible? Are about wine. For a long time wine was very much like they reasonable? Do they direct a way forward? Or is cereals and meat, a consumer product, because the there some underlying major criticism that you majority of wine consumption around the world was would like to make? If I could, I would ask you to by occasional wine drinkers. We will leave aside the answer in terms of both Bordeaux and also the wider icons, the Grand Cru and the top 5%; they have held French wine interest as well if there is a distinction. their market share and recognition for donkey’s years Mr Vironneau: We were fortunate in Bordeaux to and increasingly, whether it be France, Spain, Italy, have already met with Mrs Fischer Boel and Mr Hungary or even California, we are moving into a Milton who works closely with her from his home in market segment of so-called premium wines. We are Serres. What we are looking for, and I have already moving to a situation where we will only have a two- made a declaration to this extent in the European tier situation of premium wines and the icon wines, Parliament and Strasbourg, is a winning attitude the super-premium. The New World wines started by from Europe, a conquering attitude. What do we copying the old world wines by identiﬁcation through mean by a conquering attitude? First of all, to take on the grape varieties and their bottling and labelling board that we have now reached cruising speed on techniques. We have seen the appearance on the globalisation and Europe needs to have the same market of very standardised products with labels that facilities and tools as the rest of the competition and are easy to pronounce, for example Merlot, Cabernet to give the French economy the capacity to face Sauvignon, et cetera. international competition outside. We want to see that this European reform takes on board and integrates the organisation from the Community of Q809 Viscount Ullswater: Chardonnay. markets, the OCM. One of the insuYciencies is that Mr Vironneau: Whereas in Bordeaux, literally for the wine producer is a producer, out there with his centuries, producers have been producing Merlot, vines, he is somewhat removed from the world of Cabernet Sauvignon, Cabernet Franc, but we are not consumption. Trends and tastes change every six or allowed to put it on the label. Whilst it is not allowed seven years and we are still not in there, therefore in Bordeaux to be written on it, in an equal and free 3714281025 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Alain Vironneau, Mr Denis Johnston and Mr Philippe Casteja market, having put Merlot and Cabernet in the blended areas, such as Bordeaux. Where the blend bottle, We should put it on the label. Why should it was compulsory, for example in Bordeaux, the law not be allowed to do so? said that, if you wanted to put the blend, you must put the exact blend with the exact percentages, which is very diYcult to fulfil. For this reason nowadays Q810 Viscount Brookeborough: We were told information is possible thanks to the European rules yesterday in Languedoc by the independent and the French have changed their rules themselves. producers that they would like reforms along that line, but they say that they cannot get them through. If Bordeaux also would like to do it, what on earth is stopping these reforms? Q812 Viscount Brookeborough: So you have no Mr Casteja: Maybe I can add something about the problem with labelling? New World and the so-called Old World. At the start Mr Casteja: We have less problems but I believe we you must remember that the French, Italian and will get through these problems in the very near Spanish wine oVers are very confusing for new future. It is not such a key issue as it was three or five markets. In fact, the oVer was addressed to people years ago. who knew their way around wines. We are facing, and have been facing over the last 25 years, new consumers. These new consumers did not have a clue Q813 Chairman: On labelling, economic liberals— what it was about and wanted something simple. and I would not necessarily say that I am a total They wanted a product that they could easily economic liberal—would say that you could put understand. That is why the answer has been— anything on the label so long as it is true. What is excuse me for thinking it is the French influence— wrong with that? that they have taken the Merlot, the Cabernet Mr Johnston: When you put the name on the bottle, Sauvignon or Shiraz for the United States in order to say Merlot, you have to put 100% of Merlot in the use words which were known to make the oVer easy. bottle. When we say in the “Old World”, French or Mr Casteja: That was the French way. Bordeaux people in general, about New World wine Mr Roberts: Just to make things crystal clear, the coming on the market and being so strong, let us face problem is—this may be obvious—what makes it, if you take our market, if you take our volumes, 30 Bordeaux into a Bordeaux is that it is made up of years ago and today, our volumes today are far larger Merlot grapes and Cabernet Sauvignon grapes. than they were 30 years ago. The New World is an answer to new consumers and the market finds its balance over time. For example, in 2006 French Q814 Chairman: I appreciate that. wines gained 2% of the market in the United States Mr Casteja: The French rules, the AOC rule, was and the Australians lost 1% and Chile 2%, so things 100%. For example, the United States, and are not the same forever. It depends on the way you California to be more particular, has a rule of 25%/ present it, the bottle can be half empty or half full. We 75% and nowadays the European law is 85%/15%. speak of wine! Now I think we are adapting our On top of that the European law rules out the French production to these new consumers. This is why, way, that is to say we must accept the European law coming to your last question, we are introducing the that is, if we put Merlot on our label, for example, we grape varietals on the back labels mainly to give some only have to be sure of having 85%, we have to fulfil information to the public. As I and the President have the European law, not the French law. That means all said, the public nowadays is not a connoisseur type of the French system has to change a bit to match the public and they need the information, the back label, European laws. It is a bit diYcult. which says we put some Merlot, Cabernet Sauvignon and Shiraz which is aged in the barrel and so on. Q815 Viscount Ullswater: It has got to be. Q811 Viscount Brookeborough: But I understood Mr Vironneau: One of the weaknesses of the French your President to say that there were restrictions on wine trade is that you have a lot of criteria on what you could put on the front label. competition. You have the European laws, you have Mr Casteja: The rules were that it was not possible European moves to help the criteria on competition until two or three years ago. The French rules, but because of subsidiarity you have the national law together with the European rules, have made it more which can introduce criteria which are even more open to use the grape varietals. Grape varietals in stringent than the criteria accepted and laid down by general for France and Germany were used for the Europe which does not help the competition of the German Cepage or the Alsatian Cepage for some Member State. I have a dream: let us dream that specific type of wines and it was not possible for the Bordeaux can adopt the European criteria, why not? 3714281025 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Alain Vironneau, Mr Denis Johnston and Mr Philippe Casteja

Mr Johnston: Because we are in France! Mr Vironneau: Why is consumption going down in Mr Vironneau: That is dreamland. England and in France? Because of a repressive policy against wine consumption and against alcohol Q816 Chairman: Can we go back to this business generally. There is publicity to drink in moderation. that you have got Bordeaux, the Premier Cru, the Why has nobody followed the example of Canada, icon wines, the sophisticated consumer, and at the where many people have said that moderate wine top end of the market you can sell whatever basically. consumption is good for your health? Why has There are these poor people we have been seeing in nobody followed up on the French paradox? Why Languedoc/Roussillon who really do not have that has nobody followed up on medical research saying marketing strength. So how does the French industry that wine consumption is beneficial, particularly for respond to consumers in the middle range, where at cardiovascular disease? Why has Europe not the moment the New World is dominant? You most benefited from all of that drive showing the beneficial V likely do not have to do that but there are a lot of your e ects of wine? compatriots who will either succeed or fail depending Mr Casteja: I just want to add something on why upon whether they can capture that market. consumption has gone down in France. It is because Mr Vironneau: That is a key issue when one realises we have come from a country that was drinking wine that within the next five years your middle range of like water to drinking for pleasure, and you must wines costing between $5 and $25 a bottle is going to remember that. The way of living now means we can account for 95% of the wine market. We have a big drink tap water. part of the wines produced in Bordeaux which fall within that segment and that is why there is going to Q818 Viscount Brookeborough: Do you think that be a communication campaign to try and put over the the strength of alcohol has anything at all to do with message worldwide with distributors, importers, it, when wine has perhaps been becoming slightly wine merchants and wine waiters holding a glass of stronger and people are turning to recreational the Bordeaux wine saying, “This is value for money, drinks which are of a much lower alcohol level, like V you can a ord it”. There are the Lamborghinis and cider and other things? the Rolls-Royces, we have got them. But we have also Mr Vironneau: On the world scene wine consumption got the Ford Pop, if I may stretch a point. 95% is is going up from one year to the next by 2% on Ford Pop. There is a 95% segment out there of people average. World production is more or less stable at who want to drink Bordeaux wine who would like to around 270 million to 280 million hectolitres. World think that every time they open a bottle in the middle consumption in round figures is 240,000 hectolitres, segment they are opening Chateau Petrus but, of which means that you have 30,000 hectolitres course, they are not going to. Everyone in Bordeaux worldwide which are generally distilled for the is aware of the challenges and the issues. There are pharmaceutical industry, cosmetics and chemicals. 10,000 growers, 400 wine merchants and they work in You are left with 30,000 hectolitres which weighs on perfect understanding on the economic, social and worldwide consumption and production. I was in the political planes. There is a joint determination to States recently in the Napa Valley, where I tasted push through the reforms both nationally and on the some Californian wines with an alcohol content of European plane to maintain the activity of that 16.7%. Similarly, in Australia where you find wines industry. In addition to economics and politics, wine produced, for example in Hunter Valley where is a cultural thing. Wine is symbolic of sharing, it is a rainfall is 200 millimetres a year, you can imagine symbol of peace and it is very rewarding for our what eVect that has, compared to, on average, 1,100 chairman to see British parliamentarians and you or 1,200 millimetres of rainfall in Bordeaux. We are from the House of Lords, who have not got the way down on the alcoholic content compared with tradition of a wine-producing country, coming over Napa Valley and Australia. That is related to the here to talk to us on the social, political and economic whole set of climatic, hydrological and geological aspects for the reorganisation of a universal culture factors involved. When you have a very dry, hot for recognition by Europe of what is the wine culture climate, you are going to have very small grapes. based on the sharing of values and peace and When you have red wine, you can see it is red because conviviality. I am quite convinced that, because you of the colour which comes from the ripeness of the are here, you will fight the good fight for wine. grape, which means that your alcoholic content is automatically going to be lower than tiny grapes that Q817 Chairman: We will indeed. It is interesting that I have seen in Australia and the States compared with we are not a wine-producing country but we are the Merlot that is three or four times the size because increasingly a wine-consuming country. What of the temperate climate and rainfall and the fight for worries me as a European is that Europe is getting a the vines for survival; where you automatically get declining share of that consumption and in your own much lower alcoholic content in a glass, you are country consumption of wine is declining. going to have a red wine and not a claret. We must 3714281025 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Alain Vironneau, Mr Denis Johnston and Mr Philippe Casteja not forget also that we are talking about 95% of way that sometimes this is viewed in supporting a consumers who know nothing about wine; they are regime or an organisation that is not necessarily coming from sweet non-alcoholic beverages, soft satisfying either the producer or the consumer at the drinks. Because of the ripeness of the grapes in the end of the day. Bordeaux region there is a degree of sweetness that is Mr Vironneau: First of all, may I say to you that you found in the wine to attract the consumer who is have opposite you at the table three gentlemen who coming from sweet, soft drinks. represent Bordeaux; they are not the voice of France. Mr Casteja: May I just add something. I think you We are here as representatives of the region of are right when you say the consumer is maybe Bordeaux, of 125,000 hectares, which has its own looking for a low alcohol product. We see it today on economic club. France has other production regions a number of Bordeaux wines, a number of consumers with an autonomy of management and production. of New World wines who are coming back to We are the voice of Bordeaux. There are three main European wines, to our Bordeaux wines in general if thrusts for the realisation of my dream: firstly, access they are lighter in alcohol and are not jammy in taste, to criteria of competition to compete on an equal they want things that can be drunk. The consumer footing; secondly, freedom of management and of the will certainly turn away from these products which economics of production; thirdly, as far as Europe is will be too heavy. concerned, and this may be the most important one Chairman: I think we are having an absolutely for you, a question of communication, marketing fascinating discussion about wine generally and and promotion of the product. Instead of using Bordeaux in particular, but I think we have got to European funds to subsidise destruction and pulling remind ourselves, as my predecessor always used to up vineyards, could they not be re-geared and re- say, we are an EU Committee focusing on the streamed on the same constant budget to create possibility of the reform of the wine regime. So we better communication for the marketing and ought to try and focus on what the Commission is promotion of wines. This brings us back to a general saying and the likely direction of the reform. picture of the whole policy and political issues of agriculture in Europe with the WTO. I will give you an example: at Cancun, the meeting of the WTO, the Q819 Lord Plumb: Can I say, first of all, I am very northern countries were very severely criticised by the much a wine consumer. I enjoy a good wine. I am not countries of the southern hemisphere for their as worried as some of my colleagues about the subsidising of agricultural production, which more alcohol content and I particularly like red wine. I or less doomed the farmers of the south to disappear. realise today that we have been fortunate to sample A concrete example is the production of rice between some of the king of wines and we are among experts, the USA and Korea. Rice produced in the USA and and this is great. I wonder if you would take us a little delivered to Korea is sold for less than the price of further into your dream world because we are here to rice produced by the Koreans, so rice producers in study the whole of the wine regime, to make Korea are going bust. The whole question is one of representations to the whole of the House of Lords as competition in agriculture and, therefore, of we make our report. We want to make sure that we viticulture and wine growing. The wine grower is not are presenting a report that is meaningful and will, as the delinquent, he is there to be attentive and far as possible, make sure that there is still a strong contribute to what Europe can do to ensure wine industry in the whole of Europe. We have got to competition of viticulture within the general look at it as a whole. I wonder if, in taking us a little framework of agriculture. The basic question is—do further into that dream, you might just reflect and we want in Europe to have a competitive viticulture think that one of the major concerns of the European and competitive agriculture on a par with the Union, one of the major concerns of the Council of competitiveness of industry, such as aerospace, and Ministers of the European Union, is the cost. We other industries that are competitive on a European understand the cost of the whole of the wine regime footing? Do we want a competitive industry within to be somewhere in the region of ƒ1.5 billion a year. wine and agriculture that has freedom of If, as you take us further, you reflect on that, how management, that meets the criteria of competition would you see the regime as it moves forward? If I with support from Europe? Yes or no, is that what we understood you correctly, you said that within your want or not? dream you saw the possibility of France adopting a Chairman: I think that is a very powerful statement. European regime which was a meaningful regime which would then be acceptable to all. How would you change that? What would you do and, therefore, Q820 Lord Cameron of Dillington: I have two how would you reflect this, bearing in mind that we questions. The first question is to get on the record as a group, I think, have come to the conclusion that what we discussed at lunch, which was the question the demand is there and you have got to consider the of marketing, which other growers in the south or in possibility of the waste of resources, if you like, in the other countries seem to think is about promotion and 3714281025 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Alain Vironneau, Mr Denis Johnston and Mr Philippe Casteja advertising. I hope that you understand marketing move forward. That has all the advantages because it was what I spoke about earlier, which is researching will boost wine production in the Bordeaux area with the consumer needs and their tastes and, therefore, wine growers who have now reached a level of adapting the process of the growers. I think the maturity where they know how to get out of the answer to that was probably just Yes. But maybe you situation and move on. Above all, by boosting and could confirm that. My second question is—if the safeguarding the wine industry and wine profession reform is successful and some of your second level in Bordeaux, Europe is going to save a lot of money growers have to withdraw and maybe there are other with useless subsidies. We do not want subsidies, we areas of the industry in Bordeaux that are made want to hold our head high. redundant, what other economy is there locally? And how would you mitigate the problem of Q821 Chairman: Before I ask Viscount unemployment? Is there other work? What do you Brookeborough to come in, for the record can I go think the European Union could do, particularly back to what we were saying over luncheon and ask with the Second Pillar money, to promote a diVerent you what your view is of crisis distillation and rural economy? basically to answer the charge that there is no Mr Vironneau: In reply to the first part of your justification for the European taxpayer to give money intervention, I would simply confirm that I agree for crisis distillation where it is the result of either a wholeheartedly, marketing means adaptation. As I bad decision made by the producer or weather said at the beginning of our lunch, every seven years conditions, after all, we do not subsidise the or so, it is not a seven year itch but a seven year strawberry producer when his crop is damaged by change, there is a change in taste and market trend frost. and it is for the grower to be advised of that so he Mr Vironneau: I cannot speak on strawberries, I can adapts to it. My confirmation is yes, marketing speak on wine. I will give you some facts and figures. equals adaptation. That is where Europe can have a Taking the example of France, ƒ450 million for crisis role to play by ensuring free competition in the face distillation, ƒ140 million for restructuring of vines of outside competitors when you are in the and vineyards either by pulling up or replanting to adaptation mode. Our understanding, within the part get better quality vines, ƒ300 million for the of the reform concerning the grubbing-up of vines, is destruction of vines and of vine and wine products that we see from Europe there is an input of social and ƒ14 million for communication. What I am support for those growers who want to retire or who saying—is instead of giving ƒ300 million to destroy are going to have to retire. In partial reply to your things, why not spend it to build things? Use the same question on what other economies and other constant budget but use that ƒ300 million going to activities there are, there is an increasing awareness destruction for communication and marketing in the within the wine profession of the tourist sense of adaptation and research. phenomenon. France, and I say this without any animosity or boasting, is one of the prime tourist Q822 Chairman: So you do not have crisis destinations, which doubles its population every year distillation? with 70 million tourists. In this part of the world we Mr Vironneau: That is part of the overall package. do have a very strong tourist attraction. Obviously Mr Casteja: The budget remains unchanged, it is the there are the beaches and the mountains, but there is same constant budget but it has to be used in a the possibility of attracting tourists to the wine- diVerent way. growing areas for recreational, instructive, Mr Roberts: They do not want money for distillation, educational tourism so that people can find out what keep the money and use it for marketing purposes. wine is all about, and see where it comes from; and Mr Casteja: Keep it steady. that can provide economic activity to the growers. Coming back to the question of pulling-up of vines, Q823 Chairman: Keep the same money but use it there has been a definite eVort to regulate wine diVerently? production by encouraging the pulling up of vines, Mr Vironneau: We have no help. To come back to the but we found it did not work because the majority of facts and figures, on the European reform of wine vines that were pulled up were pulled up by people production we are talking about France, Spain and who were retiring in any case or they were not quality Italy as the three main countries. But do not forget plots producing quality wine, so, “Let’s pull it up and there is Bulgaria just over the other side of the retire and take the subsidy from Europe, thank you”. frontier with 330,000 hectares of vines, with What could be thought as a crisis within the competitive criteria and costs that are on a Bordeaux area is behind us, the growers want to completely diVerent stratum as compared with the move on head held high, they want to be able to have three countries of France, Spain and Italy. Europe is a liberal policy, proper market regulation, the change faced with a whole lot of economic and political put forward with the support of Europe for a quality choices. France has its handicaps and has made its 3714281025 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Alain Vironneau, Mr Denis Johnston and Mr Philippe Casteja mistakes, OK, but we are not there as a spokesman of Mr Casteja: These people who have two jobs are Europe. There are convictions firmly expressed as a either members of the co-op and bring their grapes to European that Europe has an economic role to play. the co-op or they have a really small estate. It is very encouraging to see you gentlemen coming Nowadays wine growers make a lot of investment, from the UK, as a non-wine-producing country, to tractors are expensive, everything is expensive, so it France, as a wine-producing country, to lend your means that there are less and less small estates. European support so we can obtain what we are looking for—liberality of policy and market Q826 Viscount Brookeborough: This is diVerent for regulation to solve problems such as this. Do you Bordeaux? want to see European agriculture/viticulture like Mr Vironneau: The trend is far more towards Swiss agriculture that goes on pretty chocolate reconsolidation and regrouping of vineyards. Ten boxes? You cannot dissociate agriculture and years ago you could practically count vineyards that viticulture from the European scene and there is no were 100 hectares on the fingers of one hand but now reason why agriculture and viticulture within Europe there are dozens that have 200 hectares. should not be as competitive as industry, as aerospace and the rest. I do not want to be on a Q827 Lord Cameron of Dillington: What do you chocolate box. think about the possible ban on adding sugar to wine? Q824 Viscount Brookeborough: Firstly, you spoke Mr Vironneau: That is going to be a very critical issue, during lunch and mentioned that the Bordeaux a very thorny issue, because it is a technical issue. region could manage itself if it was allowed to. We Now we are coming to the technicalities of wine have spoken about grubbing-up and you have talked production and the question of enrichment of wine as about grubbing-up vines that are already useless. In a result of negative or unfavourable climatic our country we had a similar problem with fishing conditions. We have four main ways of doing it. We boats in the 1970s when we managed to could add in saccharose, we could add in decommission everything that had gone on the rocks concentrated must, we could use reverse osmosis or in the last 10 years. Surely this is just a matter of concentrated grape juice. control. You said you could do it. Why would you consider grubbing-up useless vines when that is a Q828 Lord Cameron of Dillington: Just to come back matter of control for yourselves? Secondly, you on that, if he is a free market man on a lot of other talked about tourism—and I am delighted about things, are you a free market man on the adding of tourism because I am involved in it, and you would sugar? be competing with us because, now we have stopped Mr Vironneau: Yes. In Bordeaux we dedicate part of shooting each other, we are going to look for the the concentrated must for the possible necessary tourists! The people who do go out of the business enrichment of wine. For reasons of traceability and because of reforms presumably will be the marginal food safety you are only allowed to use rectified people. Are your marginal growers all full-time concentrated must. If you use non-rectified professionals? Or are they part-time? If so, what concentrated must, even those must be endogenous proportion of your growers are part-time? And what and not exogenous. The use of concentrated must is their other employment at present that they can entails the possibility of material in there which could expand on? be detrimental to health. The main problem is there Mr Vironneau: Europe has already paid a pretty high is no facility on the industrial plane within the region cost for taking fishing boats out of commission. of Bordeaux to provide endogenous rectified concentrated musts. There is only one facility in the Q825 Viscount Brookeborough: I did not have one! whole of the South of France, which is quite Mr Vironneau: My hobbies, not in alphabetical incapable of providing the quantity necessary. order, are wine, my family, economics and photography. Economics means that I was interested Q829 Chairman: So he is in favour of sugar? in what was happening in fishing and I know full well Mr Casteja: No. that the decommissioning of fishing boats cost a Mr Vironneau: The other diYculty comes from the bomb. There are fewer and fewer part-time growers fact of what is Europe doing. It is very diYcult, as we because the estates and the wine-growing properties have explained, to get endogenous rectified have grouped together, so we have fewer and fewer concentrated must in France, so what you do is you people who spend the morning in the vines and in the go to Spain which produces exogenous rectified afternoon go out; it is a minimal segment. The concentrated must far cheaper than you could majority of people are those who are going to simply produce in France. As far as the addition of sugar is retire when they reach the end of their professional concerned, the first measure reduces yields, cuts back lifetime. on the yields, so we do not have as much wine 3714281025 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Alain Vironneau, Mr Denis Johnston and Mr Philippe Casteja around. The second measure reduces the addition of result to say we do not need to add saccharose or sugar to one degree of alcohol. There is a further sugar, but for the moment it is impossible. possibility that it may be in the interests of the French Government to protect the producers of sugar beet. Q830 Chairman: I think we are just about there, are That is my emphasis on enhancing and increasing we not. Can I say that this has been absolutely production within the region of endogenous outstanding. It has been challenging and it has been concentrated musts to give the self-control and enjoyable. I do have to say, sir, it was a magniﬁcent autonomy of management to the industry. The performance. So well done! simple answer is we cannot now aVord a ban on Mr Vironneau: My Lord Chairman, thank you for additional sugar but Europe could help by the criteria your kind words. As for us, it has also been extremely of competition between exogenous Spanish motivating and has further whipped up our concentrated musts and the endogenous Bordeaux enthusiasm and our hopes particularly if, as you say, concentrated musts so that the emphasis is put on the we can say that the British are saying they want wine self-suYciency, the autonomy of Bordeaux industry. growing in Europe. That would shake them. Thank We are exploring all of those avenues for the ﬁnal you very much. Chairman: Thank you. 3714281026 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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TUESDAY 22 MAY 2007

Present Brookeborough, V Sewel, L (Chairman) Cameron of Dillington, L Ullswater, V Plumb, L

Examination of Witness Witness: Mr Gerard Cesar, Member of the French Upper House, examined.

Q831 Chairman: First of all, Senator, thank you vines planted in Spain and Italy without planting very, very much indeed for finding the time to come rights. As an example, there is the region of La and see us. You obviously know who we are and how Mancha in the south of Spain which produces wine the House of Lords works. We are a sub-committee solely for distillation and it is unthinkable to carry on of our European Union Select Committee. We are in that way. To our knowledge, Mrs Fischer-Boel has looking at the reform of the wine regime, I think on her agenda to submit her report to the European really for three reasons: firstly, it takes up a lot of Commissioners on 4 July. My plan is to produce my money, ƒ1.5 billion; secondly, it is now looking report by 20 June and consequently to meet with Mrs almost as one of the odd ones out of the regimes as Fisher Boel to explain my point of view. many of the CAP regimes have been reformed; and, thirdly, we are beginning to get a wine industry of our Q832 Lord Plumb: 4 July is the report to the own, so we have an interest. European Council, not to the European Mr Cesar: (Through an interpreter) It is a pleasure to Commission. be here. Just to introduce myself: before joining the Mr Cesar: Mariann Fischer-Boel from Denmark will Senate, the Upper House, I was an MP with two be presenting that to the European Commissioners. mandates before they were both interrupted by the It is to the Commission, not to the Council. The Socialist Government in 1991 and 1998, when I Council of Ministers is scheduled to meet on 16 July judged it more judicious to join the Senate. I have and by that time the Presidency of the European also been a County Councillor and Mayor of my Union will have switched from Germany to Portugal. town, and also President of the co-operative that you will be visiting tomorrow. I have been in that co- Q833 Chairman: Anyway, let us move on. operative for some 20 years. Much to my regret I will Mr Cesar: Next week I will be working with my not be able to accompany you to see my own, so to Italian colleagues, having already taken all the speak, co-operative because I am going to have to necessary oral evidence for my report, so you are attend a meeting on the status of farmers and tenant getting first shot at these proposals! To sum up very farmers that is being held for two days in Paris. I was quickly, there are three thrusts in my report: the issue working in my vines this morning, which is why I of grubbing-up, the issue of savings on the European have got my cuts! Why is the Senate interested in scale and the question that we have already discussed European reform? Mainly because it is a very around the table—the destruction of distillation important reform for France as one of the biggest facilities for by-products from wine, mainly the marc wine producers in Europe, and Bordeaux is the and the lees, that distillation being financed biggest in France. There is support for that reform essentially by Europe for reasons of protection of the and we are favourable to that reform in principle. I environment. Germany does not do it in the same do not want to mix the cost aspects with the aspects way as France. There are specialised plants in France of territorial development and employment. I am the for that particular form of distillation of the residues, Vice-President of the Economics Committee of the simply because 40 or 50 years ago the marc and the Senate and also the Chairman of the Sub-committee lees were not destroyed; they were recovered by the for Viticulture within that overall committee. We growers, who put in a little bit of water, a little bit of have already had the opportunity of welcoming the sugar, stirred it and came up with jug wine that was European Commissioner, Mrs Fischer-Boel, to the a very strong competitor of quality wine elsewhere. area to explain to her how we feel about the proposals Also, you can get brandy. As you know, the in the reform. The sticking point is the contradiction production of these distilleries for residues produce with the proposals, such as they are understood from alcohol for industry, chemicals, pharmaceuticals and Mrs Fisher-Boel, between grubbing-up 400,000 cosmetics. I want to keep those facilities in operation hectares of vines within the European Community so as to make sure that the residue from the growing and then giving total liberalisation to planting. That production of wine is used sensibly, particularly is a contradiction in terms that we find very diYcult bearing in mind the threat of global warming. There to swallow. There are roughly 200,000 hectares of is an important factor in maintaining the existence of 3714281026 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Gerard Cesar those distillation facilities. One cannot continue the Commission passes it down the line to the producing wine solely for the purpose of distillation. national envelope.

Q834 Lord Cameron of Dillington: What do you Q837 Viscount Ullswater: Are you in favour of that? think about the abolition of crisis distillation? Mr Cesar: No. If you do not counteract that Mr Cesar: In answer to your question: Yes, I am in transmission down to the national envelope, what is favour of crisis distillation because, if there was no the point of having Europe? Why is Europe there if it aid from Europe, the distillation facilities would just passes the buck? It is all very well to have an open disappear and that would lead to an inherent threat market and musts coming in from Argentina and to employment. Again, it is a throwback to the other countries being transformed into wine in the comparison with Germany. Germany has a wine European countries, but Europe needs to ensure that industry but it does not have the concentration of there are the same conditions and criteria for surface area planted environments. It produces 10 production right across Europe and, therefore, to million hectolitres of wine but does not distil the reorient policy and money to the new markets that residue. What does it do? It spreads it in the field. My are coming up: Russia, India and China. point of view is that, if you do away with the distillation facilities, irrespective of employment, Q838 Chairman: Can I just check that I have what do you do with the residues? Imagine what it understood what you are saying. As I understood it, would be like if you took all the marc and the lees you started by saying that you believed a reform of from the 125,000 hectares just here in Bordeaux and the wine regime was important and that the present spread it over the neighbouring countryside; the system was unsustainable? tourists would love it! There is a further advantage of Mr Cesar: Yes. That will be put in my report. maintaining distillation facilities, whether they be private or co-operative. With alcohol you can Q839 Chairman: Then you mentioned three produce biofuels, ethanol, and this can be used mixed particular policy dimensions. They were crisis in with or used as a fuel for the automotive industry. distillation, which you believe ought to be supported? If you do away with the distillation facilities, then say Mr Cesar: Yes. bye-bye to the production of biofuels and ethanol. Q840 Chairman: Grubbing-up, where you are not in Q835 Lord Cameron of Dillington: From what you favour of grubbing-up? have said, you do not want to seem to encourage the Mr Cesar: Not in favour, except for vines that were reduction of the surplus wine production in France. planted illegally. Surely, we have to change and take some of these vineyards out and the only way to do it is by a Q841 Chairman: Get rid of the illegal ones? commercial tool which is the lack of crisis distillation Mr Cesar: Neither Italy, nor Spain, nor Greece has money and funding? the same virtuous approach as France, even with Mr Cesar: The answer to your question is; No, I am financial aid. not in favour of reducing the surface area of vines because, if we did so, we would be faced with even Q842 Chairman: For legally planted vines no fiercer competition from Australia and Latin grubbing-up? America. It is unthinkable that Spain does not pull up Mr Cesar: No grubbing up. vines, because it has 200,000 hectares of vines producing wine, not for consumption but solely for Q843 Chairman: Thirdly, the maintenance of the distillation, and those 200,000 hectares had no ban on new plantings. planting rights given, whereas as a region Bordeaux Mr Cesar: It all depends on what producing areas you produces AOC wines for consumption in the export are talking about. Just as an example, if you go to the market and not distillation. There is a distinct Margaux, you will find there is the possibility of diVerence. planting an extra 100 hectares. There is a market and a demand for Margaux wines, so why not give the Q836 Viscount Ullswater: Would you consider that right for planting in the Margaux area with the part of the budget for distillation should be approval of the CIVB. controlled by the Commission? Or should it form part of what might go into the national envelope for Q844 Lord Plumb: Do I take it that you are not in each country? favour of the national envelope? Mr Cesar: From my findings I have seen that the Mr Cesar: Yes and no: transfer to a national envelope Commission has a definite tendency to pass the buck but the role of Europe is to serve as the co-ordinator. to the national envelope under the principle of Within that national envelope, to come back to my subsidiarity. I have noticed that right across the CAP, example, if there is reason to replant 100 hectares in 3714281026 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Gerard Cesar

Margaux because there is a demand and the export with the illegal plantations. Secondly, I think you market is there, yes, OK. Just a further point on said very early on that the lifting of the planting ban grubbing-up: it behoves Europe to organise pre- was contradictory. I wonder if you could explain that retirement plans for those growers who want to a bit more because, if we did not have crisis retire, and that would be on a purely voluntary basis. distillation, then that would not be contradictory, because there would be no point in planting anything Q845 Chairman: Would that be linked with that was not commercially viable. I fail to see why the grubbing-up? two are contradictory. They only remain that way if Mr Cesar: Yes, and that would be temporary you go for crisis distillation, which keeps the very grubbing-up. There is a distinction between a people we are talking about in business. Lastly, you permanent grubbing-up, where you lose all have given lots of examples from Bordeaux but we replanting rights, and temporary grubbing-up, where have been in Languedoc for the last two days and the you are just freezing the replanting rights for X situation is entirely diVerent, because there are many number of years, but it will always be under the aegis more marginal growers and many more people who and control of the CIVB. might be able to go out of business, be it early retirement or any other form, with grubbing-up and Q846 Lord Plumb: Senator, is that on the basis of the so on. Could you explain that? figure which we had yesterday of ƒ240 per hectare on Mr Cesar: When you talk about Languedoc/ a temporary grubbing-up basis? Roussillon and what you call marginal growers, Mr Cesar: No, we are talking more of ƒ600 from when they come to retirement or because of Europe and then the central government and grubbing-up, you need to have a retirement or pre- regional government would put money in the kitty as retirement envelope to help those people and that will well. You have probably already had this figure that aVect things like the co-operatives. has been more or less agreed between Europe, central government in France, regional government and CIVB, that within the Bordeaux region there are Q852 Viscount Ullswater: What you did not do in 10,000 hectares for grubbing-up. For the first year translating to the Senator was ask why do you need that will be ƒ15,000 per hectare and in the second a ban on planting if it is not going to be commercial year, again based on a voluntary basis, it will be only to harvest the grapes. 2,300 hectares. Mr Cesar: You have to plant when there is a commercial market and, if there is no outlet, there is Q847 Chairman: So we have voluntary grubbing-up no planting. and I think the Commission has always based it on voluntary grubbing-up and grubbing-up, being at the Q853 Viscount Brookeborough: Yes, but you can initiative of the producer? Mr Cesar: Yes. only make it commercial— Mr Cesar: If there is no outlet, there is no planting. Q848 Chairman: In that case there is not that much diVerence between you and the Commission, is there? Q854 Lord Cameron of Dillington: Who decides? Mr Cesar: First and foremost, right on the front page Mr Cesar: You cannot plant vines to distil. of the report will be the grubbing-up of those vines that were planted without proper planting rights and they are getting the most money out of Europe for Q855 Lord Cameron of Dillington: Who is deciding, distillation. the plant grower or the state? Mr Cesar: As you know, the OCM was first Q849 Lord Cameron of Dillington: But that would introduced in 1999 and the next project is due to not be voluntary? come into application on 1 August 2008. In the Mr Cesar: That obviously presupposes that there is a meantime we are going to have the 2007 harvest and political will at the level of the Member State. there are going to be measures put forward to growers between now and 1 August 2008. I want to Q850 Chairman: Would you pay them to grub-up if make sure what those measures are going to be, and they are illegal? then it is back to grubbing-up illegal vines in Spain, Mr Cesar: No. Perhaps the Spanish or Italian Italy and Greece, the necessity of maintaining Governments should be willing to pay. distillation facilities if they go out of the window and there is no crisis distillation. But what happens when Q851 Viscount Brookeborough: Surely illegal a crisis occurs and there is no distillation facility plantations come outside the reforms and there has to available? You do not get any brandy, is Europe be another mechanism within Europe for dealing there to finance alcohol for brandy? 3714281026 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Gerard Cesar

Q856 Chairman: Let me put another model, which is uncultivated, they have got scrub, they have got trees, basically an economic liberal model, which would be they are a haven for wildlife, they have not had the basically saying let the market decide; and, if you let soil erosion that people believed they would and it the market decide and have a market-led reform by has become an environment for people. removing entirely crisis distillation,—so, if you do not sell into the market, there is not something to fall back on,—you abolish the ban on planting rights and Q858 Lord Cameron of Dillington: You mentioned those who plant and get it right and are producing that there are growing markets in the rest of the wine that the market wants thrive and those who get world, and in Britain the market has been growing it wrong go out of business. Possibly, you have a very fast over the last decade or so. But why has grubbing-up scheme for a limited period in France failed to capture this market in the past? recognition that you have to have a transitional Mr Cesar: It is simple. There is one example in period between a controlled market and a free Bordeaux— market. The one thing we have got to recognise about people leaving the industry is that it will not just be people retiring, there is a need surely to facilitate people leaving the industry if (a) they are uneconomic Q859 Lord Cameron of Dillington: Bordeaux sells and (b) they are producing inferior wine—another very well almost everywhere, but it is perhaps the definition of uneconomic—that the market does not non-top 10% of wine that I am thinking of. want to deal with? Mr Cesar: In answer to your question, taking oV the Mr Cesar: Speaking as a liberal, a member of the new top 10%, mainly because of competition from the so- UNP party, and not for a socialist regime— called New World wines—Australia, South Africa, Argentina, Chile, New Zealand, California. There they have big wineries with big budgets and big Q857 Chairman: And I am a member of the money for marketing. When you come to the Socialist Party! Bordeaux region there is nothing in comparison, Mr Cesar: That is not a problem, people from all nobody has the financial means for advertising, colours and all horizons. Nonetheless, as a former promotion and marketing. That is where Europe has trade unionist, I am for the organisation of the a role to play by helping the promotion, by market but not for leaving the market free for expanding its credits notably for exports, as I have everybody to do just anything. As a rapporteur in already said, to new emerging countries such as parliament on the orientation of agriculture for the Russia, India and China. Concomitant with that is to whole of France, which encompassed the whole combat alcoholism. As you know, France has an Act principles and problems of CAP (that was six days of Parliament called the Evin Act, which was brought and nights of parliamentary debate), the question I in against alcoholism. There is confusion in many would like to throw back to you is; what would be the minds between wine, which is a foodstuV, and landscape in the countryside of Languedoc/ alcohol, which is not. The Evin Act has really hit the Roussillon if there were no longer any vines, if all you wine industry in France; whereas you have were left with was land which would not even be youngsters who do not drink wine, they drink eligible for subsidies from the CAP? I agree with you alcohol, they take drugs, mix in a bit of soda and are that we very definitely need a transitional period. in hospital on Saturday night. Chairman: I do not know the details of what would happen to the land but let me tell you what I think the model of the economy would be. It seems to me that the economy of Languedoc/Roussillon is incredibly Q860 Lord Plumb: Can I just say that I think my dynamic in that the population is growing very Lord Chairman answered the Senator’s point on quickly, so that would indicate there are significant what happens in regions where, if you are taking economic opportunities there, and I would have away the business of people who traditionally have thought that those people who would be displaced been producing a lot of wine, it is all a matter of from wine-growing could either find their economic diversification, and I think we see in Languedoc in activity in other forms of rural employment or particular that there are opportunities. We were told translate into totally new jobs as a result of the there are 25,000 or 30,000 extra people going into buoyant economy of the region. that region every year and so on. Having said that, we Viscount Brookeborough: Can I just add a comment, have a saying in England which says that you cannot because I have been to the port region of Portugal on live oV a view. In other words, hills and uplands are several occasions and there, where vineyards have where people are living, if they cannot make a living become uneconomic, and they are on much steeper out of what they have got, they will very quickly tell slopes where the roots have to go down 40 metres to you, “We are producing nothing, however beautiful get water, where those vineyards have become it is, so we cannot live oV a view”. We have to 3714281026 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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22 May 2007 Mr Gerard Cesar recognise all of that. This is not one massive change harvested, so there is something of a crisis down that is going to suit all. If there is going to be reform, under. That is market driven. then obviously there has got to be some variation between the regions because of the diVerent product Q861 Chairman: Yes, absolutely. and the diVerent methods of production. Mr Cesar: I am sorry that I have to leave you but Mr Cesar: Very good, thank you. There is thank you very much for coming, my Lords. information from big wineries in Australia that they Chairman: Thank you very much indeed for coming. are pulling up their vines and they have not yet Bon Chance! 3714281027 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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WEDNESDAY 23 MAY 2007

Present Brookeborough, V Sewel, L (Chairman) Cameron of Dillington, L Ullswater, V Plumb, L

Examination of Witnesses Witnesses: Mr Claude Mailleau, Departmental Delegate, and Mr Jacky Bonotaux, Economic Specialist, Agricultural Ministry Local Ofﬁce, DRAF, examined.

Q862 Chairman: Can I, first of all, thank you very of the wine industry across France. It is structured on much for finding the time to come and meet us; we do a national basis. Essentially you have two main greatly appreciate that. As you have heard, we have sectors: a bureau that handles all the economic had a very rewarding and interesting time in France, aspects that is directly attached to the Ministry of both in Languedoc and now in Bordeaux. As you Agriculture; and, secondly, the institute you have know, the focus of our work is on the Commission’s already heard of, the INAO, the National Institute Communication indicating possible proposals for the for Appellations d’ Origine, which covers all the reform of the wine regime. Our interest is clearly how agricultural and technical aspects of the appellations. that will aVect the European wine industry. That may There are those two key sectors. As you know, you be thought a bit strange coming from a country that have professional bodies such as the CIVB, which is does not have a history of wine production, but there composed of three forms of membership: growers, are three things to be said: first of all, we have a brokers and wine merchants. Their role is to ensure history of wine consumption; secondly, the regime at the development and the promotion of the products the moment costs a great deal of money, ƒ1.5 billion, of the vineyards. They are not there for policy- and it sits a little bit oddly with the way other aspects making; policy-making is on a national scale. One of of the CAP have been reformed; and, thirdly, we do the main features is that Bordeaux and its vineyards have a very small but growing wine industry are almost exclusively AOC wines. We have a total of ourselves. I wonder if we could start by asking you to 57. That forms a triangle, in decreasing order of give your view of the current situation of the wine prestige and reputation, from the top six, like Saint- industry in Bordeaux, its strengths and the challenges Emilion and Margaux, down to the bottom of the it faces. Then perhaps you could consider the triangle, the simple appellation of Bordeaux. Within Commission’s proposals and how they are likely to that you have the wine syndicates, or wine guilds, impact on the wine industry, with particular whose job it is to define and propose particular levels reference to the areas of the possible end of crisis of yield, the number of hectolitres per hectare for distillation, the new grubbing-up proposals and the each harvest, which is then ratified by the INAO. view to abolishing the plan on new planting rights. That gives you some idea of the complexity of the Mr Mailleau: (Through an interpreter) First of all, structure, it being a profession that is essentially my Lords, please accept our apologies for the absence driven by those involved within the profession, the of our Regional Director, Mr Bova, who was very growers, but under the control of the relevant recently appointed on 18 May as Agricultural ministries. The definition of strategy, whether it be Adviser to the Prime Minister. local or national, is often a complex issue leading to contradictions both within those who are the Q863 Chairman: Give him our best wishes and professionals and between the profession and the good luck! ministries. I will now hand over to Jacky Bonotaux Mr Mailleau: You are going to have a duo with us. who will give you a breakdown of the strengths, Jacky is the economic specialist, so he will field all weaknesses and challenges on the economic plane. your questions on the economic aspects of the wine Mr Bonotaux: I will take this in three stages: first, an industry. I am the County Director, not the Regional introduction to the vineyards in Aquitaine within the Director, and I will field your questions on technical context of agriculture; secondly, in comparison and aspects. I have just one quick clarification. I will not contrast to the rest of France and other French wine- give my personal view on the proposals of the producing regions, before looking at its potential Commission but the viewpoint of the Ministry of development and strengths and weaknesses. If you Agriculture. As you know, Bordeaux and its take the surface area of the Gironde, it is one million vineyards are known throughout the world and it has hectares. Half of that is forest, so we take the other considerable weight in the economy both of the half and we divide that into two: 250,000 hectares Gironde and of the region of Aquitaine as a whole. It consist of roads and urban development and 250,000 is linked very much to the whole of the organisation hectares are given over to agriculture in the widest 3714281027 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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23 May 2007 Mr Claude Mailleau and Mr Jacky Bonotaux sense of the term. Therefore, you take the last quarter particularly when you look at the co-operatives and of the 250,000 hectares under agriculture and half of the treatment of eZuents. As far as people and that, 125,000 hectares, is planted with vines. It is employment are concerned, we are one of the leading 12.5% of the total surface area of the region. areas for agricultural colleges and wine colleges for Although it only accounts for 50% of the surface area the training of people moving into the industry, and from agriculture, it accounts for 90% of the GNP of it can be rightly considered that the growers in the agriculture. If we extend that to the level of the Gironde are probably amongst the best informed and region, wine growing amounts for 40% of the the best trained. agricultural GNP of Aquitaine. That gives you some Mr Mailleau: In a couple of words, the strong points idea of its economic weight. There has been a are the impact on the economy, the impact on complete change over the last 10 years from 1998- employment and also the quality and reputation that 2005, going from agricultural farming to wine goes hand-in-hand with Bordeaux and its vineyards. farming. If you compare wineries in Gironde with the There are two weaknesses: the fragmentation of the rest of France, the average size of a winery in Gironde commercial organisation and the diYculty of is twice that of the average in France. One of the reorienting the product to adapt to market results of that specialisation, from being a wine farm requirements, tastes. Do you have any questions, to a wine entity, is that the producers in Gironde have having been bombarded with a lot of statistics? become specialised wine producers, wine growers, whereas wine farms in other parts of France will do a Q864 Chairman: That is extremely useful. I will ask little bit of stock breeding or mixed farming. But here my colleagues if they have any questions on the once they are into wine they focus only on wine. One context-setting session. What sort of economic of the other contrasts between Gironde and the rest activity, other than agriculture, is taking place that of France is that there has been a move from family absorbs people who were formerly employed in estates to corporate entities. Corporate entities now agriculture? account for 70% of the wine-producing vineyards, the Mr Bonotaux: What happens is that you get people exact opposite of what happens in the rest of France, who were in agriculture who have gone to wine- where it is still 70% family. The other striking growing but not the other way round. contrast is the people who are employed in the vineyards. In the rest of France it is essentially family, therefore they are family members rather than proper Q865 Lord Cameron of Dillington: What is the employees, whereas here it is employees from the economic activity in the small towns? outside that account for one employee out of four Mr Mailleau: I will try to answer your question. The within the agricultural sector as a whole, whereas the immediate other agricultural activity that springs to surface area is only 7%. They account for 25% of the mind is forestry but, if you take forestry in the whole employees on 7% of the surface area. Another of the Aquitaine region, that accounts for as many striking contrast is when you look at vinification. In people as are employed in wine just in Gironde,— the rest of France, and we will leave aside 35,000 people in both. As for the other activities, they Champagne, half of the wine is produced in co- are rural activities which are essentially linked to the operatives: in Gironde 75% is produced by private wealth being created by vineyard activity: the wine entities. In the rest of France the majority of the presence of shopkeepers, the presence of craftsmen. wine is sold in bulk, in Gironde it is practically all in When you go to the southern part of the area where bottles. They grow it, they ferment it, they bottle it there is more traditional rural activity, such as stock- and they sell it. That is not, in any sense of the term, rearing, you find a much lower density of activities to denigrate or deny the importance of the co- revolving around those rural activities. The magnet is operatives in Gironde because, of the six million definitely the wine. If you take a straight comparison hectolitres produced, the co-operatives account for of 100 hectares, in cereal growing you are employing 1.5 million. The co-operatives alone represent as two people, in wine growing you are employing 27. Mr Bonotaux: much as, if not slightly more than, the second most In comparison with the rest of France, important wine-producing region in France, the it is 27 in the Gironde and 15 in the rest of France Vaucluse, which produces 1.4 million hectolitres. because they grow it, they vinify it, they bottle it and they sell it. Gironde co-operatives produce 1.5 million. To sum up, Gironde is the biggest wine-producing area in France. It is number one for production. It is number Q866 Lord Plumb: Relative to the economy, could I one for employment and represents ƒ1 billion ask what the situation with employment is. Are positive input to the balance of payments. One of the young people leaving the area and going into other shortcomings is the disappearance of agricultural industries. Or are they staying in agriculture and in activity in the county. A strong point is an accent on viticulture? 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23 May 2007 Mr Claude Mailleau and Mr Jacky Bonotaux pension which is available to them as they retire from diVerent ﬁnancial solutions to weather the storm but the farming industry? very few actually gave up the ghost. Mr Mailleau: Up to 2000 there was a steady growth in the wine industry, with a development both in the Q871 Viscount Ullswater: The 10,000 hectares which planted area and also in the job opportunities and went into grubbing-up, was that a temporary employment, which meant that young people were grubbing-up scheme and could they then replant attracted to the industry. But with the crisis that vines within a number of years? growth curve ﬂattened and came to a dead stop. Mr Mailleau: It is permanent.

Q867 Chairman: What is the crisis? Q872 Chairman: Could I ask about the level of Mr Bonotaux: The general trend, given the health- distillation. How much went into distillation—crisis giving properties of Bordeaux wine and the impact distillation. on boosting your cardiovascular attributes, means Mr Mailleau: In 2005 300,000 hectolitres and in 2006 that people retire much later, they stay on their 500,000 hectolitres. properties and continue in their activity far longer than in other parts of France. Q873 Viscount Brookeborough: We have heard from various people that there is a crisis, and yet only Q868 Lord Plumb: So we have got to keep drinking maybe 100 people went out of the business. Bordeaux wine! Agriculture as a whole throughout Europe has Mr Mailleau: That is linked to the increase in the changed a lot and in most sectors in the United planted surface area. Between 1998 and 2000 we went Kingdom many more people have gone out. It would from 110,000 to 125,000 hectares under vines. That appear that, if you are speaking for Bordeaux as was accompanied by an increase in production opposed to Languedoc, things are getting a bit tight totalling 6.5 million hectolitres per year but the as opposed to being in absolute crisis. At present this marketing, the sales, did not follow and topped out at is without deregulation or without getting rid of crisis 5.5 million hectolitres per year and prices went distillation, without getting rid of the planting ban through the floor. and without grubbing-up. To a certain extent it appears that the crisis is not as big as people talk Q869 Chairman: What was the response of the about in Bordeaux? industry to that? Mr Bonotaux: Just two indicators which would flash Mr Mailleau: The response came in three ways. First up a red light on the dashboard: if you compare the of all, a restructuring of the vineyards, ie in the price of a barrel of wine, 900 litres of wine (called a medium term, a programme for grubbing-up of the tonnelet) between 1998 and today, in 1998 it was vineyards to a total of 10,000 hectares. That was the ƒ2,200 for a 900—litre barrel of wine and today it is first response. The second response was to try to level ƒ950, less than half. If you take the price of land over out to adjust the diVerence between production and exactly the same period, in 1998 a hectare in sales, 6.5 and 5.5, by using distillation. Thirdly, to Bordeaux appellation, (we are not talking about the develop quality and to boost sales by making the top of the tree, we are talking about the grass roots), product better suited to the market. Obviously there ƒ35,000 per hectare in 1998 and ƒ18,000 in 2007. So was a fourth concomitant one on quality, by a somebody who bought a hectare in 1998 and paid restriction and limitation on the yields per hectare in ƒ35,000 was expecting ƒ2,200 for a barrel, and now the vineyards. that product has lost 50% of value and so has land.

Q870 Chairman: Have you got any figures on how Q874 Lord Cameron of Dillington: Almost all the many people left the industry as a result of producers we have met are telling us, “Why not leave restructuring? us to manage our markets and succeed and fail Mr Mailleau: Obviously it is very diYcult to give you according to our own ability to produce for the a precise figure. It is even diYcult to estimate. There marketplace”. In other words, all the controls that were relatively few people who gave up altogether. Of politicians put on them only get in the way. It seems the 8,000-odd growers, maybe 100 stopped and to me that for Bordeaux—it is not quite the same for abandoned the whole thing. The others said, “We will Languedoc/Roussillon—the best thing that could just have to weather the storm. How do we weather happen would be for politicians to say, “OK, you are the storm?” Depending on their situation they found on your own for the whole of Europe”. various solutions to try to maintain their activity. Mr Mailleau: There is a shady zone there. They have One of the solutions was to sell land. They had land their own organisation, as was explained to you at the which was not under vines, so they sold it for building beginning of the session, and the State does not get so purposes. They sold equity or they arranged short- much in their hair. But, since they have run into term loans with their suppliers. They tried to find diYculties, there has been an increasing number of 3714281027 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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23 May 2007 Mr Claude Mailleau and Mr Jacky Bonotaux growers who are going back to the Government Q880 Chairman: Yes. asking for help. Mr Bonotaux: If you come back to the specifics of Bordeaux vineyards, crisis distillation is anecdotal. It is the first time in a century that we have used Q875 Lord Cameron of Dillington: But why does the distillation because the vast majority is AOC wines. Government give it? In many other wine-producing regions, particularly Mr Mailleau: The message you are hearing is perhaps Languedoc/Roussillon, it was table wine, where their not quite as cut and dried, it is a complex and production was over twice the usual production of sometimes contradictory situation even within the AOC wines here, so they had to distil. It is the first industry. Do not just take one side of it, even within time in a century and the quantity is infinitesimal. It themselves it is complex and sometimes even is anecdotal. contradictory. Q881 Chairman: A straight market analysis would Q876 Viscount Brookeborough: Do you see the new be that, in order to protect your AOC wines, you proposals from Brussels as being a way of solving want to remove the lower end from the market. I was your crisis? going to say the rubbish but I do not mean that in a Mr Mailleau: This is not my personal opinion; this is pejorative way. The rubbish will depress prices. Mr Mailleau: the view of the Ministry. Are you talking about rubbish wines here or elsewhere? Chairman: I would never dream of talking about Q877 Chairman: We appreciate that. rubbish wines here in Bordeaux! Mr Mailleau: The Ministry’s opinion is that it is not logical to grub-up vines and then to liberate planting Q882 Viscount Ullswater: On the financing of this rights. If you liberate planting, that could again lead reform, it has been proposed that crisis distillation to the imbalance between the area of production (and should be discontinued. Would you wish to see the actual level of production) and sales, leading to a money put into a “national envelope” which in a drop in price and increased diYculties for all of those crisis could be used for distillation by Member involved. Somewhere along the line there is the States? impression that the proposals of the Commission Mr Mailleau: All I can say is that the current position would lead to a situation of “may the best man win”, is to maintain the OCM as it is under the first pillar. but those who are in diYculty at the moment are essentially the growers who have invested, who have Q883 Viscount Ullswater: You still have not said a drive for quality and a respect for the environment. how you will resolve your so-called “crisis” here. Those who seem to be sailing through the crisis are Mr Mailleau: In 2007 for Bordeaux it is practically those who have not worried so much about respect back to a balanced situation between production and for the environment, who have not invested so much sales as a result of a reduced production of the 10,000 and who are not that bothered about the quality. hectares that were grubbed-up and also by severely restricting yields. Production has gone down and sales have gone up. The current position is that the Q878 Viscount Brookeborough: Yesterday we did light is very much at the end of the tunnel even if the hear the same opinion but, yet again, it was cherry- prices have not yet got back up to where they were picking certain parts of the proposals, in that it was five or six years ago. talking about the ban on planting and the grubbing- Chairman: The trouble with a light at the end of the up without taking into consideration the third leg, tunnel is that it could be a train hurtling towards you! which is crisis distillation. If that is not there, then you will not get over-planting because it will be uneconomic and, therefore, you do not need a ban on Q884 Lord Cameron of Dillington: If you had lots of planting. money in Pillar 2 to spend in this region of Bordeaux, Mr Mailleau: We did not talk about distillation. The what could you do to diversify the economy, not only current wish of the French Government is to in the countryside but in the towns, to create other employment? maintain distillation to have that safety net. Mr Mailleau: Not much. Wine tourism. Diversification in the wine profession is, again, Q879 Chairman: That will mean that the more anecdotal. uneconomic, lower-quality producers will survive? Mr Bonotaux: Obviously, when we were talking Q885 Viscount Ullswater: If this land was removed about distillation, that was across the whole of from growing vines because of the financial aVairs, France. what would happen to the land? Would it return to 3714281027 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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23 May 2007 Mr Claude Mailleau and Mr Jacky Bonotaux agriculture and grow cereal crops? Or would it just lie Q891 Chairman: We have heard that and recognise fallow with the social consequences for people? that. Can I just ask you, what is the position on Mr Mailleau: Obviously we have already had the grubbing-up? figures for employment and you can imagine, Mr Mailleau: The French position is that grubbing- therefore, the direct impact on employment. There is up leads to a loss of means of production. It means a also the social impact that, when vine growing is loss of capacity. It also involves a somewhat flourishing, it attracts people into the country, even contradiction, in that why allow people to pull up urbanites, to villages and brings life to a village. But, their vines and say, “All right, here we go, here is our if you reverse that, you can imagine that that leads to policy on grubbing-up” and then say “planting desertification of the villages and, on the one hand, rights”? Why do you pull up to replant? you could get land lying fallow and have a rural wasteland as we have had industrial wastelands. Q892 Chairman: Let us take it step by step. If you There is no geography yet for the grubbing-up, so we had grubbing-up and a continuation of the ban on are going to have something of a patchwork. It is not planting rights, what would be the response to that? as if you can say, “We will put a square of 10,000 Mr Mailleau: That is much more coherent, much hectares there”. It will be a bit here, a bit there, it will more logical. be dotted around, so it is diYcult to see direct social or economic consequences. Q893 Chairman: The justification for having grubbing-up and removing the ban on planting rights Q886 Chairman: Can we just pause for a moment. is that that is a means by which you can get either the We have been having a fascinating discussion but I ineYcient, ineVective, or uneconomic producers out just want to pause and take the Commission’s of production, and create the opportunity but only proposals to see what your view of them is. As I the opportunity, at the producer’s risk, for coming understand it, you are saying that the French into the market and trying to make a go of it, so you position at the moment is that there should be get a dynamism into the industry. maintenance of crisis distillation. Is that correct? Mr Mailleau: We understand the principle but I am Mr Mailleau: At least for the system to be continued not sure in real terms whether that would be what for crisis distillation, yes. would happen. Chairman: The politics are too diYcult! Q887 Chairman: OK. Could I just put one point to Q894 Viscount Brookeborough: Do the producers in you on crisis distillation? This is basically an Bordeaux agree with the policy that you support? insurance policy; and, if it is an insurance policy, why Mr Mailleau: The policy has not been dreamed up in should the taxpayer pay for it and not the industry? an oYce in Paris, it is based on the feedback of Mr Bonotaux: Solidarity. information through the structure of the industry in the field. Q888 Chairman: The European model of agriculture, I know, I know. You have got some of Q895 Viscount Brookeborough: My other question the richest operators. is; when we talk about social consequences and Mr Mailleau: You are trying to lead me down diversification, people going into diVerent jobs, in a avenues of negotiation which are really beyond my way we have spoken about it as if this is the first time ken and purview. It is true that, when you look at the that farmers have ever been asked to go and do use of crisis distillation, there has been some abuse of something diVerent. In a way it could be insulting to crisis distillation in neighbouring and friendly their education and to what they are to suggest that countries of France. they can do nothing else. Other areas have gone through reform in farming sectors and we are going through that in the United Kingdom and people are Q889 Chairman: But not in France? diversifying, they are becoming part-time farmers, Mr Mailleau: Not in Bordeaux. Not really in France. and they are finding they can do jobs other than Mr Bonotaux: Just to give you a quick example, there farming. Why can that not happen here? have been growers in Bordeaux and in Gironde who Mr Bonotaux: Just a quick comment in reply on the have preferred to sell their barrel of wine for less than social consequences and diversification. There is a the distillers oVered them. diVerence that has to be made between wine-growing and, shall we say, agriculture generally. Wine- Q890 Chairman: We have heard that, yes. growing, particularly with an AOC as in Bordeaux, is Mr Bonotaux: Because they were proud of their a long-term investment. You plant a vine, you are not product, they were producing wine to be drunk and even allowed to pick a grape oV it for three years, so not to be distilled. you have already got a three-year investment before 3714281027 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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23 May 2007 Mr Claude Mailleau and Mr Jacky Bonotaux you can pick your first grape, and you have all the saying that possibly there could be a hectarage other facilities of the winery itself. It is a medium to payment removing the support at the moment on the long-term investment. It is easier to transform a farm basis of crisis distillation as one example and paying with a meadow of sheep than it is to transform a it in a similar way to the way the Single Payment is vineyard. made for agriculture under the CAP. Is that Mr Mailleau: It is not a question of insulting the something that is worthy of support? We are a sheep farmer but at a macroeconomic level there is a committee who will come forward with our own loss of richness. You said it could be insulting. report and we were reminded yesterday that the Viscount Brookeborough: I wanted a diVerent word Commission will first hear the proposals from the because I did not mean that they were insulting Commissioner, who will make her statement on 4 anybody. July, and then on 16 July the Council of Ministers are going to consider the proposals. There is not much Q896 Lord Plumb: I think we can understand your time to be doing a lot of thinking between now and reluctance to say whether you would agree with the then other than to come forward with some definite policies as set out by the Commission for the reform proposals on what is going to happen. of the wine regime. Having seen what we have seen in Mr Mailleau: I am not sure that I am the right person a very short time across the area of Bordeaux, the or in the right position to answer you on that, vineyards at the moment look extremely healthy, and particularly with the recent change in government. I we have seen two very good examples, a co-operative have not got any purview to come forward and give and an independent wine producer, that are both the ministerial position. extremely eYcient, so one goes away believing there is no crisis in the wine industry in Bordeaux. You Q898 Chairman: We appreciate that. used the word “solidarity”, which is one we have Mr Mailleau: I would prefer the answer to your heard over many years, particularly as someone who question be given to you from somebody much has been so involved in the development of Europe higher up on the ministerial ladder. and the Common Agricultural Policy. There is another word which is coming very much to the fore Q899 Lord Plumb: I fully appreciate that. I was and that is “subsidiarity” rather than “solidarity”. merely making the point that it was an independent Subsidiarity in that you, in the application of grower who made the suggestion to us. I am not measures that are suitable for this region to get the saying this is a suggestion from us. It was a grower benefit of wine production, are really in competition who suggested this, which I thought was interesting. with New World wines, not just with other wines that Mr Mailleau: If you listen to the people in the are produced within Europe. I wonder how you see profession, in the wine trade, you will get a whole this. Having seen the graph of the consumption of hodgepodge of proposals, you will get a complete French wine as a whole compared with New World kaleidoscope of solutions, some of which will be wines, the consumption goes down for France and it completely in opposition and in contradiction. For goes up for New World wines. You have to look at example, I could introduce you to a grower who that as a whole in the context of the proposals for grubbed up 50 hectares of vines and he has gone back reform in the first place and then decide in a region to his former profession as a stock breeder who is where you are obviously eYcient that you can make going to benefit from European aid under the Single the best of the market. Payment, but that is not representative in any way of Mr Mailleau: You also have to take into account the a trend; it is a one-oV case. type of product that needs to be marketed to meet market requirements. We are aware that there are Q900 Lord Plumb: I am a stock breeder and I am consumers out there who are not looking for the type beginning to think that I should start growing vines! of wine that Bordeaux produces, hence the decision Mr Bonotaux: I quite agree with you because if you of the French Government to say that perhaps the look not at the sales of wine but the sales of vines, money has that has been allocated, buttonholed, for who is interested in buying vineyards? Foreigners, grubbing-up, or at least a large part of it, could be put headed by the Japanese, followed by the banks, to better use for the promotion and aid to exporting followed by the insurance companies. Before you get of French wines, to better marketing, better excited, when I said that one hectare was currently communication and sales and exports of French ƒ18,000, that is for the bottom of the market. If you wines. want a hectare in Pomerol, which is not even the best but just adjoining Saint-Emilion, it is not ƒ18,000, it Q897 Lord Plumb: One of the independent wine is ƒ1 million per hectare. producers we met said we could remove subsidies but Chairman: That is telling us something. how could we maintain support either through Pillar Lord Cameron of Dillington: If banks are buying, then 1 or Pillar 2 from the European Union. He then was your industry is doomed! 3714281027 Page Type [E] 19-07-07 00:32:53 Pag Table: LOENEW PPSysB Unit: PAG1

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23 May 2007 Mr Claude Mailleau and Mr Jacky Bonotaux

Q901 Viscount Ullswater: Could I just follow up “We say no nationally but we say yes locally” is one with one question on grubbing-up. Does the French of the contradictions. They are saying, “We are Government support a scheme of grubbing-up to capable of managing our liberty but then we are help older people retire from the industry? frightened of our liberty. We want our liberty but we Mr Mailleau: If it were a properly measured, want to be protected”. That is where we get into the concerted programme taking account of the delicacy and complexity of politics, as you say. necessary distinction between vine growing areas of table wine as against AOC wines, if it were measured, Q903 Chairman: I think that is a very, very astute if it were concerted and properly thought out, maybe. observation! Any other comments or questions? No. Is there anything that you feel you ought to say to us that we are missing? Q902 Chairman: We have heard that some Mr Mailleau: I want a last word before I go under the producers are concerned that their ability to compete guillotine! A glass of Bordeaux, otherwise nothing! with particularly New World wines is limited because they are not allowed to engage in the same wine- Q904 Chairman: We can all agree on that. making practices as the New World producers. What Mr Mailleau: No. I prefer to stay with my closing is the attitude of the French Government towards words because, as a State representative, it is diYcult allowing European producers to compete on—a to know whether we should let them go on their own dreadful term—a level playing ﬁeld? way or hold the reins. Mr Mailleau: As you know, new wine-producing practices are discussed within a European Q905 Chairman: I understand. Thank you very programme but what happens on a national level—it much indeed. is not the government that lays down the law, it only Mr Mailleau: Thank you. We apologise for not does so after ratifying the proposals that have been having been crystal clear or precise in our answers to fed up from the producers themselves after your questions but we did our level best. discussions with their syndicates, et cetera. That can Chairman: No, that has been absolutely perfect. You lead to some paradoxical situations, such as the use have given us a very clear idea of your position and of oak chips where grass roots said, “We forbid this we all recognise that it is a very complex area. Thank nationally but we may allow it in certain niche areas”. you very much. 3714281028 Page Type [SO] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

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Written Evidence

Memorandum by the Australian Wine and Brandy Corporation

Introduction 1. The Australian Wine and Brandy Corporation (AWBC) appreciates the opportunity to provide a submission to the House of Lords European Union Committee’s inquiry into the reform of the EU wine sector. The new regime may have signiﬁcant implications for Australia’s wine trade with Europe and is thus of considerable interest to our wine producers. 2. The AWBC welcomes proposals from the European Commission (Commission) for much-needed reform of this sector, particularly in the area of wine labelling. We have set out below our initial comments on the current approach favoured by the Commission.

Background 3. The AWBC was established in 1981 to provide strategic support to the Australian wine sector. It is an Australian Government statutory authority directed by a board appointed by the federal Minister for Agriculture, Fisheries and Forestry. 4. AWBC’s responsibilities include: — Export regulation compliance; — Maintaining the integrity of Australia’s wine labels and winemaking practices; — Deﬁning the boundaries of Australia’s wine areas; — Strategic marketing of the Australian wine sector; — Negotiating to reduce trade barriers with other countries; and — Providing high quality wine sector statistics and analysis.

Comments 5. The AWBC is pleased to submit the following comments on the proposed reform of the European wine sector as outlined in the Communication from the Commission to the Council and the European Parliament “Towards a sustainable European wine sector”. 6. While welcoming the Commission’s stated intention to initiate much needed reform of this sector, it is apparent that the current preferred approach is unlikely to move the sector towards a more market-based orientation. 7. The Commission’s analysis of wine sector reform focuses on four main options: Option 1, Status quo with limited changes; Option 2, Profound reform of the wine CMO; Option 3, Integration of the wine CMO into the model of the reformed CAP; and Option 4, Deregulation of the wine market. Options, 1, 3 and 4 were dismissed as not constituting an adequate response with Option 2 preferred as the best option for the European wine sector. 8. It is disappointing that the other options are not being pursued further. As the key objective of the reform is to increase the competitiveness of the EU’s wine producers, it is surprising that option 4, which envisaged deregulation of the wine market, was not explored further. The stated aim of the reform is to counter the success of “new world” exports. A market-based approach has been central to Australia’s success in recent times. Australia’s wine producers are competitive as they must respond to the market and adapt to changing consumer demands. Accordingly if there is a genuine desire to emulate the recent success of Australia and other “new world” producers, it is surprising that the Commission did not go further down the deregulation path. In contrast, the reform option preferred by the Commission encompasses continuing high levels of public sector regulation and monetary support for EU producers. 9. As profound reform of the Wine CMO is the only option currently on the table, our comments below focus on Option 2. 3714281028 Page Type [E] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

218 european wine: a better deal for all: evidence

Support measures

10. The AWBC strongly supports the goal of reducing excess production and market intervention as these mechanisms currently distort markets for wine. We welcome the philosophy underlying the proposed grubbing-up and producer-retirement schemes, but question whether they will, in fact, address overproduction if they remain linked to vineyard conversion policies. 11. We also welcome the proposal to eliminate market support measures, such as distillation and storage aids, and general shift to green box-type decoupled support. Such measures would enable producers to respond more readily to market signals and would—if taken far enough—reduce the structural surpluses that have long plagued the European wine sector and global marketplace. 12. At the same time, and given the considerable level of support, it will be important to ensure that all programmes the EC proposes as “green box” are truly “green”, and do not eVectively continue to provide production incentives. We would encourage the Commission to focus on targeted green box measures that do not interfere with market signals and to reduce the overall level of support. Both the magnitude and design of support structures and market intervention should be kept under constant review in order to tackle the problem of overproduction more eVectively. 13. Transparency in the new system will also be important. Any devolution of responsibility to Member States would need to be done within a framework of robust horizontal rules that prohibit distortionary measures such as production-linked payments. The use of “national envelopes” should not inadvertently allow production- and trade-distorting policies to be reinstated. Monitoring and compliance are critical, especially to ensure full WTO-consistency of new measures. 14. The elimination of export subsidies would help to generate a more sustainable industry in the longer term, and would reduce the impact of the EU’s structural surpluses on world markets.

Labelling

15. We have expressed our concerns in the past about the problems created by the current labelling regime laid down in Regulation 753/2002. The reform of the sector provides an excellent opportunity to improve labelling rules with the creation of a single legal framework. 16. A more flexible system, with “truth in labelling” at its core, and one that fosters innovation and market responsiveness, would benefit European and third-country producers as well as consumers. 17. To that end, more flexibility in labelling such as the proposal to enable the use of particulars such as variety and vintage on wines that do not carry a geographical indication, is welcome. Likewise, the introduction of a single set of rules for all wines (both still and sparkling) would also be positive, as would adaptation of the current policy on trademarks and more flexibility on the use of languages.

Geographical indications

18. We welcome the intention to create a new system for the registration of wine GIs. It should mean that only those names that fully meet WTO TRIPs Agreement requirements are registered as GIs, and that third countries should receive GI protection on an equal basis to products and producers in the EU.

Conclusion

19. The AWBC appreciates the opportunity to provide this submission to the House of Lords European Union Committee’s inquiry into the reform of the EU wine sector. 20. This reform process provides an excellent opportunity for the EU wine sector to adopt more market-based transparent policies which reduce the level of trade-distorting support. 21. We remain interested in following the details of the implementation of this reform as they are advanced. February 2007 3714281029 Page Type [O] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

european wine: a better deal for all: evidence 219

Memorandum by the New Zealand High Commission The New Zealand High Commission welcomes the opportunity to provide input into the Committee’s review of the EU wine regime. This submission provides information about New Zealand’s experience and current policy regime. In New Zealand producers being free to produce what customers want has created a wine industry that is market-oriented and innovative. Regulation guards consumers’ rights and safety through consumer protection and food safety laws.

Background New Zealand has a small but vibrant wine industry, which despite having its origins in the late 19th century has developed as a significant industry only over the past three decades. The industry has focused on ensuring high quality levels, and as such has been able to enjoy sustained high returns for its product on the global market—for instance in the UK, New Zealand’s biggest single export market for wine, New Zealand product attracts a higher average retail price than wine from any other country. Because the New Zealand wine industry had never been subsidised in the same way as pastoral farming, it was not aVected by the removal of production-linked government subsidies that formed the core of New Zealand’s well-known agricultural policy reforms of the 1980s, which brought significant change to the agricultural sector. These reforms did, however, contribute indirectly to the growth of the industry, as farmers were motivated by market forces to maximise the return from their land. Dry and stony land ill-suited to its historical sheep grazing usage was planted with new vineyards as demand for New Zealand wine grew. The New Zealand wine story is not entirely positive—the sector has had diYculties, and in the past the government intervened to assist when those reached crisis point, as is the situation in the EU today. In the mid-1980s the sector was burdened with a large oversupply of sweet wine types, which consumers no longer favoured. The government funded a short, sharp structural adjustment in the form of a vine-pull programme. Some producers chose to plant new varieties of grape vines that were in greater demand, while others left the industry. Today New Zealand has 530 vineyards, covering a total area of 22,616 hectares, nearly 3.5 times the area covered 10 years ago (figures as at June 2006).

A. The Need for a Regulation

New Zealand’s wine regulatory regime is very diVerent from that of the EU. The wine industry in New Zealand developed largely without government intervention or subsidies, which has made grape-growers and winemakers responsive to market forces and has promoted innovation. New Zealand, along with other members of the World Wine Trade Group, believes that the global wine industry should be treated like any other economic sector and allowed to develop and evolve to meet consumer preferences. For this to be possible, the wine regime should be designed to avoid distorting the market or artificially encouraging production in certain directions. Government intervention must support basic requirements such as product safety and consumer protection, but regulation should not stifle producer (or consumer) choice. In New Zealand wine is subject to a few concentric layers of regulation. First, there is wine industry-specific legislation: the Wine Act 2003. This legislation requires winemakers to apply hazard analysis and critical control point (HACCP) principles to manage food safety risks, provide standards for identity and truthfulness of labelling, ensure that importing country requirements are met, and deal eVectively with fraud should this arise. The HACCP regime is consistent with current EU legislation for foodstuVs and aYrms the obligation of wine business operators to produce and sell wine that is fit for purpose. Second, as a foodstuV, wine is subject to broader food regulation, including the Australia-New Zealand Joint Food Standards Code, which includes standards of identity and additive labelling. Finally, as consumer goods, wine is also subject to even wider consumer rights law, including the Fair Trading Act and common law torts such as “passing oV”. 3714281029 Page Type [E] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

220 european wine: a better deal for all: evidence

New Zealand sees wine quality as a subjective issue for consumers, and as such one where regulation is generally inappropriate. Like other new world producers, New Zealand’s wine industry labels its wines primarily on the basis of varietals, vintages, and brand names. This labelling approach has been highly successful in many markets including in the UK. Consumers appear to have found varietal labelling easier to understand than geographical indications (GIs). GIs have a role; Champagne and Marlborough are both examples of regions from which wines enjoy an excellent reputation thanks to high-quality production. But GIs should not be privileged over other labelling options. New Zealand believes that the “decoupling” of the current regulatory link between GIs and the ability to include certain terms and factual information on labels would be a major positive step from the proposed EU reform, that would likely be of signiﬁcant beneﬁt to British wine consumers and producers. Given the complexity and inconsistency of the EU’s GI regime, it remains to be seen what will result from the Commission’s proposal to introduce an EU level of consideration for registration of GI applications for wines. This should enable the Commission to ensure that only wines that fully meet requirements under TRIPS (WTO agreement on trade-related aspects of intellectual property rights) are registered as GIs. The EU’s GI system for wine with that of other products (PGI/PDO) has apparently shown little selectivity in ascertaining if products conform to TRIPS article 22.1, and it is unclear what the implications of the proposal to harmonise the systems for wine and other products will be.

B. The Market

3. Given the existence of a wine regime, how might a better balance be achieved between the supply of and demand for wine and wine products produced within the EU?

4. Is the EU wine industry, within the current regime, sufﬁciently competitive within the global wine market? How can it be made more so?

New Zealand wines have benefited from the dynamic global wine market in recent years, and are a good example of how a competitive industry can exist with minimal government intervention. The demand for New Zealand wines continues to grow rapidly, and production is continuing to expand to take advantage of this demand. The industry’s focus, however, remains on high-quality wines to maintain good returns. In New Zealand’s experience letting the industry respond to market demand is a good way of balancing supply and demand. While preserving their reputation for top quality wines, New Zealand’s winegrowers have responded to market signals by expanding production of wines with a proven reputation (eg Marlborough sauvignon blanc), as well as experimenting in new winegrowing areas where diVerent varieties have been found to succeed (eg over the past decade Central Otago has emerged as one of the world’s pre-eminent growing areas for pinot noir). It is worth noting that imported product makes up around 45 per cent of the wine consumed in New Zealand— import tariVs are only 5 per cent (zero on wine from Australia—by far the most important source of imports— and champagne). Our experience is that a healthy industry producing quality wines and a relatively unprotected market can co-exist well, maximising consumer choice. There is clearly a problem of structural oversupply within the EU. The current market management measures are too eVective at isolating producers from the full eVects of the market, and thus block the most fundamental incentives for supply to be reoriented to meet consumer demands. There is no doubt that some EU wines are among the best in the world, and benefit from a strong traditional reputation. The volume of low-quality wine is however, eroding this reputation in the eyes of some consumers, opening market opportunities for more innovative new world producers. A greater ability for wine producers to respond to market signals, rather than conflicting government incentive measures, would foster the competitiveness of the European wine sector. However, the magnitude of the proposed future levels of expenditure on the sector, despite the emphasis on less trade-distorting forms of support, could still have a distorting eVect. Ensuring a high level of transparency in wine support will also be important to the EU’s trading partners. A useful step, in designing the final suite of measures, would be to encourage subsequent review of the consistency of the signals that the total package sends to producers. 3714281029 Page Type [O] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

european wine: a better deal for all: evidence 221

The EU, as the world’s largest net exporter of wine, stands to gain when the World Trade Organization negotiations achieve their mandated goal of “substantial improvements in market access”. Current tariVson wine in developed countries oVer little real protection for domestic markets, but do act as “nuisance tariVs” adding unnecessary costs to major wine exporters. Major gains should also be possible in emerging markets where the current tariV levels are higher. New Zealand respects the EU’s goal of ensuring that wine producers have adequate incomes, as for all other residents. We do not consider that it is necessary or desirable, however, for this very broad and important social objective to be pursued through sector-speciﬁc legislation. Best policy practice, as recommended by the OECD, is for policy measures to be focused on single objectives—which would point to wine sector legislation focused on winemaking, with household income objectives implemented through horizontal social welfare schemes. That is the situation in New Zealand.

C. Structural Measures

7. How signiﬁcant an issue is illicit planting for the supply situation?

8. Is there a case for the continuance of remedial measures (“crisis distillation”) to deal with exceptional market conditions?

9. What alternative outlets (ie other than wine sales) exist for excess production?

10. What is the potential impact on wine producing areas of liberalisation of the market? How sensitive are these economies to change?

11. How effective have current arrangements been in supporting diversification of rural economies away from the wine sector? What contribution will the European Agricultural Fund for Rural Development make, post 1 January 2007, to development of the rural economies of wine-producing regions? What further measures might need to be taken? New Zealand sees the overall direction of the Commission’s “profound reform” reform option as a very positive one. It carries on the fundamental shift in policy toward market orientation that was such an important part of the recent years” reforms to the wider EU common agricultural policy, which started with the “mid-term review” package in 2003. New Zealand fully supported that policy direction⁄not only in principle, but based on our own experience. In our view, if the final suite of wine reforms that is agreed is similar to the Commission’s proposals, there is the potential to enhance significantly the position of the EU wine industry within the global wine market. New Zealand supports the Commission’s desire to reorient the wine regime towards non-trade distorting support measures, such as structural adjustment through removal of excess production to address the unsustainable surplus of wine. As noted above, the New Zealand government funded a vine-pull programme in the mid-1980s when our wine industry had reached a similar crisis point, which helped the industry to transition to a more sustainable basis. A grubbing-up programme in the EU would help to counteract the eVects of previous years of production-linked subsidies. However, supply and demand can only be brought fully into balance by removing artificial incentive measures that increase production above the level that is demanded by consumers. We acknowledge that there are societal concerns associated with the reduction of winemaking in particular regions, and note that it is the intention of the Commission to address these issues. Decoupled income support through a transition period, for example, might be appropriate as a temporary measure. We would in any event encourage the EU to focus on targeted, “green box” type measures that interfere with market signals as little as possible, consistent with the broader CAP reform direction. The EU’s fundamental reforms to other aspects of the CAP recognised the importance of ensuring that producers are oriented to respond to consumer demand. The freedom to innovate and to maximise their incomes are no doubt also important objectives for EU winemakers. New Zealand’s economic policy reforms of the 1980s forced rural communities to diversify away from traditional farming activities. Food and wine tourism is an example of a new activity that has grown in popularity over the past two decades, helping to boost rural incomes. We understand that this has also been the experience in some parts of the EU (eg Provence, Tuscany). 3714281029 Page Type [E] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

222 european wine: a better deal for all: evidence

D. Marketing

13. What part has marketing played in the rise in sales within the EU of wine produced outside the Community?

14. What lessons might be learned from the penetration of non-EU wines into the EU market? New Zealand’s approach to the regulation of wine labelling is far less prescriptive than that of the EU, and allows greater flexibility for producers to label and market their wines. Consumer protection and industry- specific legislation, of course, prevents producers from providing misleading information to consumers about their product, but producers can choose whether they want to promote the origin of the product, the variety, the specific brand, or a mixture of the above. New Zealand’s philosophy is that any information that helps consumers to make an informed choice when buying wine should be allowed on wine labels. Our experience has been that consumers, particularly those new to drinking wine, find the varietal labelling approach easier to understand. For example, if they know that their preference is for a sauvignon blanc, then a wine labelled with that variety is easier to identify than having to know which particular GIs are generally produced from the sauvignon blanc grape. For many consumers, GIs hold meaning that informs their decision-making. However, for a large category of worldwide wine consumers, a GI is less meaningful than is a variety. An ongoing emphasis on GIs as the main (or sole) identifier of a wine is unlikely to support improved competitiveness of EU wines in the long term, particularly in third-country markets. The proposed reform presents the opportunity to break the linkage that currently exists between GIs and the ability to include varietals (and other identifiers such as vintage) on a label. Giving all wine producers the choice of what to include on their label should help to encourage innovation in the sector, and break down the artificial barrier between “quality produced in a specific region” wines and table wines. This current categorisation of EU wines suggests that table wines are not quality products, and therefore limits their value. A more flexible labelling system with truth in labelling as its core objective would benefit both EU consumers and producers. In this regard we would like to highlight our positive experience in regard to labelling within the WWTG (World Wine Trade Group). The active members of the WWTG are currently Argentina, Australia, Canada, Chile, New Zealand and the United States. These countries are important for New Zealand’s wine trade, accounting for just under half of New Zealand’s total wine exports, and around three-quarters of total wine imported into New Zealand. In January 2007 the group signed a labelling agreement (World Wine Trade Group Agreement on Requirements for Wine Labelling), which gives exporters common wine label options that can be used in all WWTG markets. It is expected to help facilitate trade between the members, as well as reduce labelling costs for wine producers. The WWTG has also signed a mutual acceptance agreement in relation to wine-making practices, detail of which is included in the following section of this paper.

E. Wine-Making Practices (WMPs)

15. How suited are current regulations on WMP to a competitive global market in wine? What changes would you like to see?

16. How should enrichment (with sugar or must) be regulated? Should there be financial aid for enrichment? As outlined above, New Zealand does not impose heavy regulations on WMPs, but focuses on ensuring that wine is safe for human consumption (eg through regulation of additive levels and labelling) and consumers are not deceived. This is in contrast with the prescriptive EU approach, which we believe significantly limits the ability for winemakers to develop new techniques, given the lengthy approval process for a new WMP to be approved. An emphasis on product safety and truth in labelling would better allow for innovation in winemaking. We would expect simplification of the rules to be welcomed by both producers and consumers. New Zealand thinks it is inappropriate for any production-linked financial aid to be given to producers, such as aid for enrichment. Enrichment is just one of many legitimate WMPs. In terms of international cooperation on WMP another key achievement of the WWTG (World Wine Trade Group) has been the Mutual Acceptance Agreement on Oenological Practices (MAA), which entered into force in New Zealand on 1 March 2005. The objective of the MAA is to ensure that WWTG markets cannot 3714281029 Page Type [O] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

european wine: a better deal for all: evidence 223 be closed on the basis of objections to winemaking practices of a WWTG member, unless there are legitimate human health and safety concerns. The MAA recognises that uniform oenological practices cannot take account of all local conditions, climatic variations and traditions that exist amongst the parties. It further recognises that parties have established acceptable mechanisms for regulating wine-making practices and that grape growing and wine-making practices will continue to evolve. The MAA is open to signature and adherence by other wine producing countries.

F. Environmental and Social Impact

17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Are measures needed to support good environmental impact? Should they be selective?

18. To what extent and how should reform of the EU wine regime take into account concerns over the potential for alcohol abuse? As with any land-based business, wine production has the potential to have positive and negative impacts on the environment. New Zealand does not distinguish between types of business activity when applying its environmental management regulations, which apply to all activities that use natural resources (ie soil and water). The New Zealand wine industry is a good example of how an industry can act together to make a positive contribution to the environment. The industry developed a set of sustainable wine growing standards in 1995 (known as Sustainable Winegrowing New Zealand), and is currently looking to develop these further. There is also considerable interest among wine producers in seeking certiﬁcation as carbon-neutral (with one winery having achieved this status so far). New Zealand has a range of health regulations, policies and programmes to minimise, and deal with the consequences of, abuse of alcoholic beverages (not only wine). The wine industry is also active to ensure that wine is consumed in a responsible fashion. Because of the lack of government ﬁnancial support for the wine industry, New Zealand does not face a dilemma about the appropriateness of supporting an industry that some consider to be harmful, and the government does not seek to deal with alcohol abuse by regulating the grape-growing and wine-making industries. June 2007

Memorandum by the World Wildlife Foundation (WWF)

Summary WWF’s report “Cork Screwed? Environmental and economic impacts of the cork stoppers market”, produced in May 2006, highlights the decline in the cork wine stopper market, and shows that an increasing use of alternative stoppers (plastic and screwcap) is likely to reduce the market demand for cork, and therefore the incentive to preserve and manage cork oak landscapes of global importance. If the demand for cork stoppers is not maintained, three quarters of the cork oak forests could be at risk from land abandonment, conversion, ﬁre and desertiﬁcation; over 60,000 jobs and extremely valuable ecosystems could be lost. WWF recommends that European wine labelling laws are changed to require that information about the stopper type is included to inform consumer choice. It is critical that the future of the cork market is secured so that cork oak forests will continue to produce sustainbly harvested cork. Cork products should be encouraged because cork is a renewable and biodegradable natural resource.

Background WWF is working to conserve the cork oak landscapes in the Mediterranean. These are unique and native only to four southern Mediterranean countries and three EU neighbourhood countries, covering 2.7 million hectares across Portugal, Spain, France, Italy, Morocco, Tunisia and Algeria. They are a mix of forest and agriculture, representing one of the best examples of the interaction between people and nature, and being extremely important areas for biodiversity. As well as a having a huge diversity of plant species, these cork oak forests are important habitats for threatened species such as the Barbary deer, Iberian lynx and Spanish Imperial eagle. The cork oak forests are of European importance, listed in the EU Habitats Directive as these habitats are in need of conservation measures, and the Mediterranean is globally important area for 3714281030 Page Type [E] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

224 european wine: a better deal for all: evidence biodiversity, being a WWF priority ecoregion and an IUCN hotspot. These landscapes also provide an important source of income for people in these regions. Damaging policies, poor management practices and changes in the cork market have resulted in the degradation and loss of these special habitats. WWF is working to reverse the damaging trends and to improve conditions for the environmental, social and economic balance of these areas. This work involves working on market and policy issues, and demonstrating how management can be improved and these landscapes restored. The main income from these landscapes comes from the production of cork and livestock. The most important source of income from cork is from the production of wine stoppers, accounting for about 70 per cent of the income from cork. Therefore, these cork oak forests are dependent on the market for cork stoppers continuing. WWF produced a report in May 2006, which looked into the environmental and economic impacts of the cork stopper market. This showed a decline in the cork stopper market and showed that an increasing use of alternative stoppers (plastic and screwcap) may reduce the market demand for cork, and therefore the incentive to preserve and manage cork oak landscapes. The report looked at current trends, and found that by 2015, if this threat is not addressed, the Mediterranean could lose three-quarters of its cork oak forests, and associated wildlife and livelihoods, due to fire, degradation and desertification. If these forests lose their value for people, they are likely to be converted or abandoned, both of which are damaging for biodiversity. The sustainable use of natural resources in Europe should be supported by the European Union, and cork is a predominantly European product. Whilst plantations of cork oak forests exist outside of Europe, these would be non-native plantations, and form an extremely small proportion of the total cork stopper production. This report can be found on the WWF website: http://www.wwf.org.uk/filelibrary/pdf/corkscrewed.pdf

Specific Response to the Questions

2. Why should wine quality—eg relating to Geographical Indication—be regulated? Why cannot consumers choose between wines as they do between other products—eg on the basis of brand names or other information which might provide a guide to quality? WWF is concerned that consumers cannot choose between wines on the basis of the stopper type used, because this information is not on the label. However, the use of cork has significant environmental benefits, compared to the other stoppers, and the increasing use of alternative stoppers is occurring without consumers having the ability to influence this, or consumers being able to choose their wines according to their stopper preference. Annual research by Wine Intelligence (“Closures: The Consumer View”) shows that consumers in the UK prefer cork, but that they are becoming more neutral to other stopper types, probably because they are becoming more common in stores. Information about the stopper type would be useful for consumers, and should be presented in a manner which would not cloud the compulsory particulars and confuse the public. For further explanation, please refer to WWF’s response to question 12.

12. Given continuance of an EU wine regime, what are your views on labelling and quality issues? Are current arrangements conducive to consumers understanding what they are buying? Is there scope for rationalisation and simpliﬁcation? Current labelling arrangements are not conducive to consumers understanding what they are buying, so that some consumers could inadvertently be contributing to the decline of cork oak forests. It is clear that the future survival of cork oak forests rests largely on the market for cork stoppers. WWF has been discussing these issues with UK wine retailers, and informing the wine trade through communications in the wine trade press, to raise awareness of why cork is important (for environmental, social and economic reasons), so that the wine trade can make better informed decisions. WWF is encouraging the wine trade to use cork. However, the wine stopper is not visible to the consumer, and the consumer does not know the environmental implications of buying wine with cork compared to wine with a plastic stopper or screwcap. WWF is concerned that consumers cannot choose wines on the basis of the stopper type (the hidden packaging which has signiﬁcant environmental impacts). In our discussions, it has become clear that the retailers can inform consumers on their own label wines as to the stopper type (and some UK supermarkets are currently doing this), but that this is the minority of wine sales, and does not have a global reach. If a retailer wants to inform people about the environmental, social 3714281030 Page Type [O] 19-07-07 00:40:16 Pag Table: LOENEW PPSysB Unit: PAG8

european wine: a better deal for all: evidence 225 and economic importance of choosing cork, they are then not able to refer them to which bottles have cork stoppers in them. Even the retailer does not necessarily know. This is a critical obstacle to addressing the threat of the increasing use of alternative stoppers on the cork oak forests, and does not oVer people a choice. Therefore, WWF believes that it is critical that wine labels inform the wine trade, retailer and consumer as to what stopper type is being used, so that if people want to choose their wine on the basis of the stopper type, and on the basis of environmental criteria, for example, they can. At present this does not happen, and the cork oak forests are at serious risk by the move away from the use of cork. When these forests are recognised as needing conservation measures by the EU Habitats and Species Directive, the European Union should do what it can to help the situation. WWF recommends that wine labelling laws are changed to require that information about the stopper type is included.

17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Are measures needed to support good environmental impact? Should they be selective? This response is focused only on the issue of the stopper type used in wines. The wine sector will increasingly have an impact on the EU environment by using alternative stoppers in wines, instead of cork stoppers, as explained above. Plastic stoppers and screwcaps are made from non-renewable resources and are not biodegradable, whereas cork comes from a renewable resource, is biodegradable, and in some EU countries can be recycled. In addition, the cork oak forests, are dependent on the income from the production of wine stoppers, and so a reduction in this market will result in the loss of these important habitats and species that live in these areas, as well as the loss of income and livelihoods, particularly in rural areas. Measures are needed to reduce this impact. The minimum measure would be ensuring that wine labels tell consumers what stopper type is being used, so that people can make informed choices, preferably with an indication about the importance of cork for the environment and social aspects. For examples of wine labelling that does indicate what stopper type is used, please refer to M&S, Waitrose, Sainsbury and Co-op own brand wines. It does not need to take up a lot of room on the label and can be very simple. The use of the CELiege “cork mark” could be considered (http://www.celiege.com/Ingles/frames/celiege—corkmark.htm) and because this is a tree symbol, it could indicate the environmental importance of choosing cork. CELiege is the “European Cork Federation”, which represents the European cork industry, promoting cork and its products. This may require changes, or clarification, to Commission Regulation (EC) No. 753/2002, which is the framework containing detailed rules on the description and presentation of wines, including labelling. A more proactive measure would be to regulate that EU wines will use cork as a stopper type, in order to help conserve cork oak forests and to recognise the environmental qualities of cork. In addition, in order to ensure that the cork oak forest is being well managed, according to environmental, social and economic considerations, Forest Stewardship Council (FSC) certification is an important tool. Working with the wine industry and governments across Europe, WWF is encouraging the promotion and production of FSC cork through: — Promoting the certification of cork oak forests in the seven cork producing countries, and chain of custody certification of the cork industry companies that produce cork products, including cork stoppers; — Promoting the development of high standards for sustainable management of cork oak forests to be endorsed by FSC; and — Raising awareness and promoting responsible purchasing of cork products through the supply chain, in particular promoting the development of the FSC cork market. February 2007

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