European Wine: A Better Deal for All...3714281001 Page Type [O] 19-07-07 00:32:53 Pag Table: LOENEW...

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)

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Minutes of Evidence

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

WEDNESDAY 7 FEBRUARY 2007

Present Bach, L Palmer, LBrookeborough, V Plumb, LJones 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. Thisrepresents around 10% of the value of agricultural production in about a quarter of Member States, with asmany again having an active industry interest. The EU also accounts for 60% of global consumption and isthe leading exporter and largest import market.

The EU wine regime was first established in the 1960s. Its aims are consistent with the objectives of theCommon Agricultural Policy, in particular, to stabilise markets, ensure a fair standard of living foragricultural communities, and ensure fair competition within the Single Market. The regime contains all ofthe 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, theresponse to budgetary pressures and concerns about structural surpluses was a modification away fromintervention by price support towards measures to better balance production and use, via the introduction ofcompulsory distillation and a ban on the planting of new vines. The most recent modification was broughtabout in 1999—and it is clear that substantial further reform is needed now in order to improve thesustainability of the sector. The relative competitiveness of the sector has been steadily eroding under strongprice and quality pressure, particularly from so-called “New World” wines. EU stocks are now equal to ayear’s consumption, despite “crisis” action in four of the last six years to aid disposal. Such actions serve todisguise but fail to address the underlying problems and the wine sector is now seriously out of line with otheralready reformed CAP sectors. The latest Commission forecasts put the budgetary cost of the presentarrangements 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 paperentitled “Towards a sustainable European wine sector”.1 The Commission intends that this consultation paperwill form the first stage of the policy making process. The objectives of reform are to bring into being a wineregime that:

— increases the competitiveness of the EU’s wine producers; strengthens the reputation of EU qualitywine 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

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2 european wine: a better deal for all: evidence

— operates through clear, simple and eVective rules that ensure balance between supply anddemand; and

— preserves the best traditions of EU wine production and reinforces the social and environmentalfabric 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

1. What is the nature of the case for having a wine regime at all—ie as distinct from allowing the industry to adjustitself to competitive pressures (eg via increased efficiency, rationalisation, diversification, etc)?

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 CommonAgricultural Policy”,2 including the elements which would need to be in place to comprise a sustainable CAP, andthis applies as much to the wine production sector as to any other. It is clear that the existing support arrangementsfor 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-termsustainability 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 tocontinue to provide a regulatory framework, but one which will allow the market to operate freely and indeedencourage and facilitate it to do so more eVectively than might otherwise be the case. In the longer term weconsider that farm incomes will be best maintained by the existence of a competitive, sustainable and subsidy freeEU wine industry.

Defra believes that there is a case for laying down rules on labelling and wine-making practices at an EU level toensure the provision of consumer information and fair competition. But such rules should be aimed at theconsumer, and wine making practices should be aligned with those set down at an international level through theOIV (International Organisation of Vine and Wine).

2. Why should wine quality—eg relating to Geographical Indication—be regulated? Why cannot consumers choosebetween wines as they do between other products—eg on the basis of brand names or other information which mightprovide a guide to quality?

Defra believes that EU wine making practices should be aligned with the OIV, thereby establishing a baselinethat meets international standards. This will allow producers the maximum opportunity and flexibility to adjustproduction to meet changing consumer demands and export opportunities. In order to allow EU producers tocompete more eVectively with third country wines, arbitrary quality-related provisions must be eliminated eg themeasures under current rules which permit reference to the vine variety on the label only of quality and table winewith a geographical indication (GI).

The use of geographical indications in the wine sector is widespread and can certainly represent an asset in anoverall food and drink market place in which consumers are increasingly interested in provenance and quality andin information to inform their choice. Indeed, the use and success of GIs in the food sector is widely acknowledgedto be based on the example of Appellation Controlee. Some GIs, such as Champagne or Port, are widelyrecognised as representing a good quality product from a particular region, and use of the term is conditional onproducers maintaining defined higher standards. Defra strongly supports the concept of marketing products basedon quality, local reputation or other specific consumer-targeted characteristics which serve to distinguish themfrom other products on the market, so long as they do actually relate to attributes that add value in the mind ofthe consumer and inform choice. GIs can help in this; but if, on the other hand, they serve to insulate the producerfrom 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 prescribedstandards are maintained. We are concerned that the underlying driver for the proliferation of GIs in the wine2 http://www.defra.gov.uk/farm/capreform/vision.htm

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3european wine: a better deal for all: evidence

sector, where there are over 10,000, appears to be a producer—rather than a consumer—or market-focus. Wefeel that use of a GI in the European wine sector may have become a matter of formula when in reality many suchwines lack the key qualifying criteria to set them apart from other products. We therefore support theCommission’s view that wine should be brought within horizontal quality policy governing ProtectedGeographical Indications (PGIs) and Protected Designations of Origin (PGOs). We also recognise there is astrong case for other approaches to marketing to be considered, for instance linking style, quality anddistinctiveness 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 forwine and wine products produced within the EU?

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

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

4. Is the EU wine industry, within the current regime, sufficiently competitive within the global wine market? How canit 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 storeand 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 wineindustry, whilst small in global terms, is enjoying a period of sustained growth and has achieved success ininternational wine competitions.

Defra believes that in order for the EU wine industry to become more competitive, it will be necessary to establisha 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 technologicalcapacity;

— 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 fromthird country wines —for example by providing for simpler and clearer labelling and delivering aconsistent 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.



5. Is it to be expected that barriers to trade in wine will continue to diminish as the result of WTO negotiations? Ifso, what impact can this be expected to have on the cost of the EU wine regime and/or on its effectiveness in protectingfarm incomes?

The Government strongly supports the successful conclusion of the Doha Development Agenda (DDA). Specificagreements cover trade with most suppliers to the EU market, and on wine these serve to oVer a good level ofprotection to established EU names, terms and GIs. The major impact of a successful DDA agreement on the winesector is likely to result from changes to domestic support arrangements, such as crisis distillation, which weexpect 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 andsustainable EU wine industry, whilst protection of GIs etc should be made more consistent with internationalagreements under WTO-TRIPs.

C. Structural Measures

6. Are current measures (eg grubbing up, restrictions of planting rights) an appropriate means of bringing supply anddemand into balance? What further measures need to be taken in these or other areas?

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 ofrural development measures should be undertaken by individual Member States in order to find the best solutionsfor local environmental and social concerns. However, it is important that such measures do not perpetuate thecurrent market instruments (such as crisis distillation), and we believe it would be appropriate to establish a listof 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 Statesconcerned 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 marketconditions?

Defra is not convinced there is a case for Community measures once the regime is fully reformed. Indeed, webelieve that their provision would risk hampering eVorts to establish a competitive and sustainable wine sector andput pressure on the Commission to intervene in the market. This would not preclude Member States from takingnationally 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 continueto be necessary for the production of certain wine spirits (such as Cognac) and food products, but its use as amethod for controlling structural surplus is not sustainable. Alcohol production for industrial or fuel uses can bederived more eYciently from other agricultural sources.

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

Defra recognises that there are socio-economic and environmental concerns about the liberalisation of the winesector in certain parts of the Community. The Commission identified these issues as a concern in its wine reformoptions paper last year and, as indicated in our answer to Question 6, Defra supports the Commission’s view thatthey are best addressed through rural development measures.



11. How effective have current arrangements been in supporting diversification of rural economies away from the winesector? 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?

Defra believes that because of the nature of the current wine support arrangements in protecting incomes evenwhen there is massive surplus production, the impact of rural development measures has been limited. Defrabelieves that this picture is unlikely to change very much in advance of a radical reform of the wine regime.

D. Marketing

12. Given continuance of an EU wine regime, what are your views on labelling and quality issues? Are currentarrangements conducive to consumers understanding what they are buying? Is there scope for rationalisation andsimplification?

Defra believes that recent successes of third country producers in capturing market share in an established marketneeds to be carefully considered. We are aware that clear, eVective labelling based around promotion of brandsand 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 willcontinue to see benefits from this, provided quality is maintained and prices remain competitive in relation to thevalue perceived by the customer. A reformed regime should not seek to compromise any legitimate marketingtactics 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 southernhemisphere producers are also increasing their penetration in northern European countries. Defra believes thatother respondents to the House of Lords questionnaire will be better able to comment on the role that marketinghas played in this success. But, the policy of many third country producers to label and promote their wines throughbrand and vine variety, with a good reputation for ensuring consistent quality, continuity of supply, strong pricingand 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 liketo see?

Defra’s position on wine-making practices is set out in our answer to Question 2. We believe that this is importantin order to establish a level playing field for EU wine producers with those in third countries. Wine makingstandards set by the OIV are the benchmark for wine production worldwide, yet the EU still seeks to filter thesepractices on the grounds of maintaining traditional wine production. Furthermore, the current process for theinclusion of OIV methods into EU legislation is slow and cumbersome and we support the idea outlined in theCommission’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 asmuch sunshine during the ripening period as countries in the south of the Community. Wine makers therefore needthe possibility of enrichment in order for their wines to achieve the necessary alcohol levels. Indeed the oppositehappens in the south of the Community where the possibility exists of acidifying wines when sugar levels aretoo high.

Defra does not agree with the ideas outlined in the Commission’s options paper, either to reduce the level ofenrichment that is possible, or to ban the use of sugar as an enriching agent. Both ideas would increase costs ofproduction 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, marketoriented wine regime. Subject to the achievement of this objective, Defra does not see a need for any financial aidfor enrichment.



F. Environmental and Social Impact

17. To what extent does the wine sector have an impact—favourable and unfavourable—on the EU environment? Aremeasures 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 positivecontribution to the environment, and that any public support should be directed towards this—rather thanassisting in the production or disposal of produce.

In our initial Regulatory Impact Assessment,4 we drew attention to the fact that the main potential negativeimpacts 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 growingcan 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 competenceof the grower. The Commission believes that around 57% of the area under vine is already subject to some formof 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 fora more environmentally and ecologically sound product. While grape production can be classed as organic, winemade from them cannot, as all production methods fall outside the scope of the EU organic standards. The EUorganic standards are currently being reviewed and wine making practices will be brought within its scope, thoughit will take a little while to put in place detailed measures. As production of “organic wine” becomes possible, itshould serve to encourage more producers to convert to organic production methods, with benefits to theenvironment 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 foralcohol abuse?

The Government is working closely with the Commission on its alcohol strategy to ensure that the harm causedby excessive alcohol consumption is reduced. The main aim of the wine reform is to improve the sustainability ofthe sector and pave the way for EU producers to win a greater share of the EU wine market, rather than to increasethe size of that market. The Commission in its Impact Assessment indicates that the abolition of the subsidisedpotable alcohol distillation and, more generally, the aim of reducing surpluses through a better market orientationof the production, are likely to have a positive rather than negative impact on public health. The Government isnot 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 RobinManning, 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 thankyou for coming to help us with the beginnings of ourinquiry—we are just at the very start of this. Our viewis that, although in the United Kingdom at themoment we do not have a big stake in a domesticwine industry, clearly it is of significance, at the veryleast, because of the amount of resource it takes up inthe European Union, and that is why we decided todo this inquiry. At the beginning of these sessions Ialways have to start with a long rigmarole, which isthat you will be aware that this is being recorded andmaybe broadcast or webcast. Also, you will get acopy of the uncorrected transcript and you canrespond to that as you wish. Would you like tointroduce yourselves and then we can get on with thequestions?4 http://www.defra.gov.uk/corporate/consult/wine-reform/defra-initialria.pdf

Mr Cowper: Yes, thank you very much indeed forgiving us the opportunity to come here today to giveevidence. I am Jeremy Cowper, and can I introducemy colleagues? Robin Manning is the Head of ourCereals and Wine Branch and knows a lot aboutCAP regimes. Simone Pfuderer is the EconomicAdviser on CAP crops regimes and also somelivestock regimes. Since the beginning of this year Ihave been the Head of our Crops, Plants and ProduceDivision, which embraces the wine regime, so I amquite new to this. In fact, we are all relatively new onthe wine sector, but we hope certainly to make acontribution to your inquiry and to learn from it,certainly from what you think and from the otherevidence that is given. Would it be all right, LordSewel, if I make some opening remarks?



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

Q2 Chairman: Yes, please do.Mr Cowper: I hope you have received the writtenevidence that we gave, which was very useful for us insorting out our thoughts, as indeed this wholeexercise has been in making us look at a number ofaspects of the regime and the possibility of thereform. Defra is the lead department for theCommon Agricultural Policy and so we areresponsible in this context for the Common MarketOrganisation in wine—the CMO, as we call it. It isone of 20 or more commodities for which a CMOexists and the aim of the CMO is to stabilise markets,to ensure a fair standard of living for agriculturalcommunities and to ensure fair competition withinthe single market. To achieve this the CMO includesmany of the classic instruments found in Communityregimes, including measures aimed at supporting andprotecting the internal market and provision to assistexports. This CMO is slightly unusual because itincludes a complex set of rules on wine makingpractices and labelling, which are designed to ensurethe maintenance of standards and protection ofconsumers. Wine is a significantly importantcommodity in many Member States. As you haveobserved, we have a small sector ourselves but inFrance, Italy and Austria it is around 10% ofagricultural production, and also in Portugal; and intotal it is about 5.4% of total EU agricultural output,and I think it is about 15% of employed labour inagriculture. Our domestic industry in England andWales is small but growing quickly, producing highquality products that are very much sought after inthe market in their own niche, and command apremium, and I believe that some are winningprestigious international awards. Because of its sizethe domestic production sector is largely operatingoutside the CMO. We have not reached the 25,000hectolitre rolling average over five years.

Q3 Chairman: Are we getting quite close to thatthreshold now?Mr Cowper: Yes, I think so; we are up to 18, 19.Mr Manning: Yes, and the maximum is probablyaround 18,000 or 19,000 hectolitres, and an issue forthe industry is the fact that they are moving towardsthis 25,000 hectolitres limit and we will be talking alittle more about this in our evidence later on.Mr Cowper: But at the moment they get no directsupport from the regime. Of course, the corollary isthat they are able to expand production up to thatlimit in response to market signals in a way that thelarger countries that are already part of the CMO arenot currently able to do. Our own industry is boundby EU rules on wine making practices and on thelabelling rules. At Defra we share a responsibility forthe wine CMO here with the Food StandardsAgency, our colleagues in the FSA, who have theWine Standards Board—which used to be part of

Defra’s family but is now part of the FSA—whoenforce the labelling rules at industry and trade level,maintain the register of UK vineyards and who checkthe volumes of wine produced. The enforcement ofwine labelling and so at the retail level falls to localauthorities, the Environmental Health OYcers andTrading Standards OYcers. Defra leads on policyand we have to bear in mind our various stakeholdergroups—five stakeholder groups—and in particular,first of all of course, taxpayers. As you haveobserved, the wine CMO is expensive, it costs aroundone and a half billion euros, about £1 billion a year,just under. It is one of the most expensive CMOs andclearly the issue of whether it is delivering value formoney is a very important one and how we can makeit less expensive and better value. As we mentioned,the English and Welsh wine industry is small butgrowing quickly. It is a good example of a sector, thatis responding to the market, that is marketorientated, as far as we can see, and we want tofacilitate the continuation of that growth. ClearlyUK consumers get through quite a lot of wine andthey need assurances that wine will be produced tocertain standards, and the FSA oversees that healthand safety are protected and that labelling is clearand contains certain basic information. We also havea stakeholder, the environment. Clearly a certainbasic framework needs to be in place to ensure thatwine production is environmentally sound. Defra—the Government—has an aim that in fact agricultural(viticultural) practice should, if possible, make a netpositive contribution to the environment, and that isclearly moving up the agenda and increasingemphasis. Then in trade the UK is a centre of theworld’s wine trade and we need to ensure thatdiscussions in Brussels and reform discussionsprovide a balance between production issues andtrade issues. So those are the sort of stakeholder basesthat we want to be sensitive to and responsive to. Wehave a fairly small new team in Defra on wine; threein full time equivalents; there are about five or six ofus who get involved from time to time. We aim tocontribute fully to the discussions in Brussels on themanagement of the Common Market Organisation,so we attend management committees and so on, andwe will be playing, we hope, an active role in thenegotiation of the revised CMO when the proposalsare received later this year. Clearly we hope that thisCommittee’s work will help us to advise Ministers intheir response to the proposals when they come out.Chairman: Thank you very much indeed.

Q4 Lord Palmer: My Lord Chairman, could I askone question? I am not sure whether I picked it upcorrectly, you talked about 15% of the workforce. Isthat the European Union which is involved in thewine sector?




Mr Cowper: If I have the figure right, it is that about15% of employee input into agriculture is inconnection with wine production.

Q5 Lord Palmer: 15% of the agriculture workforce isinvolved in wine?Mr Manning: I think there are 1.5 million wholeunits—is that what they call it?—whole work units,which is the full time equivalents involved inviticulture and wine production. But, of course, thatcovers many more people because not everybody isdoing it all the time, obviously, with the grapegrowing, and it is a family business as well. But thatis their estimate. Yes, 15% of agricultural work iswhat the Commission say; they describe that as theinput of 1.5 million annual working units.Lord Palmer: Thank you very much.

Q6 Lord Plumb: My Lord Chairman, just to followup on that, does that include the whole process, thebottling and labelling and all the things that go withit? The reason I raise that is that, if you make acomparison between food production and wineproduction, we hear it regularly said that there is onlytwo% of the people involved in producing food, butit is 10% if you add in the rest I am wondering howthat compares, because it could be a bit misleading ifyou are using that figure for wine and a totallydiVerent one for food.Mr Cowper: We think that is the agricultural bitrather than the labelling and bottling.

Q7 Lord Plumb: Really?Mr Manning: I was going to say that these figures aretaken from the Commission’s impact assessment andin it they say that the wine sector is composed of 1.5million holdings, utilising a vine area of 3.4 millionhectares, which is two% of the total agricultural area,which we referred to just now. But it employs 1.5million annual working units, which is about 15% ofagricultural work, so I think all of those figures wehave given you relate to the actual cultivation of thevines, the production of the grapes—it does not coverthe downstream end of that.

Q8 Viscount Brookeborough: But the two% in foodproduction would be two% of all the workingpopulation.Mr Manning: Yes.

Q9 Chairman: Can I again follow up something thatyou said? You mentioned that you have three fulltime equivalents in Defra working on wine.

Mr Cowper: Yes.

Q10 Chairman: How influential do you think thatwe are going to be in the revision of the regime whensome countries have the big battalions working forthem?Mr Cowper: I think our influence will, to some extent,depend on how well prepared we are and the weightof the points that we make. Clearly in some sense wehave other countries—France, Italy, Spain, Portugal,the very big producers—who will have a muchgreater interest and therefore will carry a lot ofweight. They have the detailed concerns about many,many people; in certain regions, of course,viticulture, wine production, is a very important partof the socio-economic fabric, but I do not think wecould make those sorts of arguments. None the less,I think we are an important part of the wine trade—we have some production experience—and we wouldhope, certainly as a contributor to the CommonAgricultural Policy in terms of money, that we wouldbe able to play a proper part in those discussions.

Q11 Chairman: The “It is our money” argumentcomes to the fore.Mr Cowper: Clearly the wine producing countriesobviously have diVerences between the north and thesouth,—the southern Mediterranean countries. Ithink some people may hope that the UK, with someof the other northern Europeans, may be able to—not necessarily group together but perhaps formsome kind of coherent view more about the tradingaspects and the less producer—orientated aspects ofthe regime, so that we ought to be able to beinfluential.Mr Manning: I was going to add one further point,and that is that the key player is really theCommission in all of this. Having looked at the workthat the Commission did in June in terms of theOptions Paper and the Communication, it is quiteclear that they are going to be very near to what wewant to see as the end result of this, and we are verypleased with the way that the Commission hasentered into this process. We think that they havedone an excellent piece of work in working out theimpact and working out the course that we need togo. From that point of view, whilst we are small interms of production and small in terms of the numberof people who are working in Defra on it, it will be animportant dossier for us and we will obviously seekto use our influence both with the Commission, whoI think we are very close with already, but also, asJeremy says, in terms of building alliances with othernorthern Member States, who we are likely to have alarge degree in common with, not only non-producers like the Netherlands and Denmark, butcountries like Germany, who have a substantive wine




industry themselves but who share many of the sameviews and criticisms that we do in this.

Q12 Chairman: That leads nicely on to the firstquestion. You say that the Commission has made itfairly clear that they are up for a degree of radicalform and that there is an urgent need for profoundreform because of the present structural weaknessesin the regime. Your evidence does again indicate thatthe Government shares this view. Can you brieflysketch out for us what you think the Government’sperceptions are of the strengths, if any, of the presentregime, and the weaknesses; and where you wouldlike to see the major reforms coming?Mr Manning: I will start oV on that question. In termsof the strengths of the EU wine industry, firstly thereis history and heritage—wine production started inthe European Union. We have some of the strongestbrands, some of the strongest heritage and a verystrong performance in terms of quality. Good EUwine has enjoyed a wide reputation for quality. Wehave some of the strongest GeographicalIndications—if you think of champagne and if youthink of port, world-renowned types of wine. TheCommunity is a very big exporter of wine—in 2005something like 13 million hectolitres. Then there areall the softer things associated with wine productionin the Community, such as landscape, tourists beingattracted to wine growing areas, wine growingproviding some environmental benefits in terms ofthe activity taking place in areas which may not bethat suitable for other types of production. So veryshortly they are what would seem to be the strengths.However, some of the strengths are also weaknessesbecause, when we have a system which is establishedto the extent that the wine system in the EU has beenon such a long degree of history and heritage,unfortunately there is some inertia there in terms ofmaking changes and moving and adapting to themodern world. It is quite clear that there is a loss ofcompetitiveness in the industry and one measure ofthat would be the overall trade balance. Imports havenow grown at something like 10% a year, around 12million hectolitres in 2005; and, as I said, exports arearound 13 million hectolitres. Exports are relativelyflat, imports are growing by something like 10% ayear, so we are soon going to be in the position wherethe trade is balanced. Then pretty soon, if the currenttrends continue, we will go the other way and we willbe a net importer of wine into the Community.Falling consumption is an issue. The Commission intheir impact assessment estimate that consumption isfalling by around 0.65% annually. But I think thatthat disguises a big diVerence between the traditionalwine growing countries, where wine consumption isdecreasing more quickly than that, (by about two%per year), and countries, such as the UK, where wineconsumption is increasing. The rise in imports I have

mentioned already. High taxpayer costs—we havementioned that already—the wine regime is aboutƒ1.4, ƒ1.5 billion a year, about £1 billion a year. Oneof the things which is preventing the wine industrydeveloping is the current restrictions which exist onthe planting of new vines, and this means eVectivelythat the most eYcient, the most innovative, the mostentrepreneurial producers in the Community are notable to expand their production, whereas the lesseYcient, the less market-orientated are justcontinuing to produce wine, and that is clearly anunsustainable situation. I think it is fair to say thatthere is significant over-regulation in the sector interms of what producers can put on their labels interms of the information that they can makeavailable to consumers. It is quite clear to us thatthese are issues which the New World wines haveidentified in terms of marketing and labelling, whichreally show the direction in which we ought to bethinking about going in the future. In terms of thechanges that Defra would like to see, the first thingwe would like to say is that we fully support theCommission’s analysis of the problems facing thesector and we support their objectives for the reformof the regime, and these are around increasingcompetitiveness, about having simpler and clearerrules and preserving the best traditions of wineproduction. So taking those, if you like, as headlinethemes, what Defra would like to see is, firstly,measures introduced to stabilise production, and sowe think what must happen is that there needs to bea very radical move towards greater marketorientation and that can only really be achieved, webelieve, by removing the market managementinstruments as quickly as possible. We also think thatthe industry needs to be able to grow in areas whereit can grow, where there are eYcient andentrepreneurial producers, as indeed we have inEngland and Wales; they need to have noimpediment placed upon them to allow them to growand develop markets, and so we want to see an end tothe planting ban—or at least the planting ban tocontinue no longer than its envisaged life scale, whichis 31 July 2010. We want wine making practices to bemodernised and to be able to respond much more tothe market and a greater correlation between therules that are set up on an international basis throughthe OIV and what the Community implements. Mostimportantly, we think it is vitally important that theEU re-establishes itself on the domestic market andstarts to increase its exports overseas as well. So wethink all of those things are important in order tomove the wine sector on to a more sustainable basis.

Q13 Chairman: Having said that, the Commissionidentified four options, did they not. The fourthoption seems to be nearer to what you are saying than




anything else, but it is fairly unlikely they aresupporting that, is it not?Mr Manning: I think that is a fair point. TheCommission has identified four options. Option 1 isessentially the status quo, and everybody agrees thatthis current situation is unsustainable, so that wasdropped at a fairly early stage. Options 3 and 4 aremore radical options. Option 3 is about reorientationof the current support arrangements on the basis ofthe single Payment Scheme. Option 4 is just savingmoney and having a complete liberalisation, and Ithink in time that is clearly the direction of travelwhere we would like to end up as that is consistentwith our vision for the CAP that we published lastyear. But I think we also have to recognise that we arewhere we are and that we have a regime that has beenin operation for 40 years; that we have an industry inEurope which is used to the kinds of support that ithas at the moment; and we need also to understandthat there is tremendous social and environmentalsignificance to wine production in the countriesconcerned, and so we would expect to have to do thisincrementally. So whilst our overall ambition, as yousay, is Options 3 or 4, we think it is quite likely that,when the Commission presents its proposals, theywill be based around Option 2 because that waswhere the gravity of opinion rested in the discussionon the Consultation Paper that took place during thecourse of the autumn period. To be clear, that is notwhere we would like to end up: we would like to gofurther than that. But at least it is a move in the rightdirection and Option 2 does contain a number ofmeasures which we believe will be very useful in termsof stabilising the market, which we think is the mostimportant thing.Chairman: Lord Bach.

Q14 Lord Bach: Thank you, my Lord Chairman. Itis very good to see you again, if I may say so. I wantto continue the line about which the Lord Chairmanwas asking you. We all know the resistance that willbe met to de-regulation, and I hope we know thatDefra’s view is that de-regulation is the preferredchoice.Mr Cowper: Yes.

Q15 Lord Bach: Indeed, the example of the sugarreform that took place not many years ago was basedon a very strong line from the UK government, whichin the end was one that was very largely successful.My comment is this, really—and then the question. Ifyou go in, as it were, at too low a level in regard towhat we want to see as a result of these discussionsand negotiations, then we should not be surprised ifwe do not end up with anywhere near what we want.And this is the question: surely we need to go inarguing for Option 4, for complete de-regulation ofthis industry, which is absolutely in line with the

policy that Defra, I think rightly, has put forward fora number of years. Explain to the Committee, if youwill, why it is that we do not go in with all gunsblazing as far as that option is concerned?Mr Manning: Just to reassure you, in the discussionsthat have taken place so far on the Communication,we have been one of a very small number of MemberStates who have been pushing for the most radicaloption in terms of the reform. But it was quite clearwithin those discussions that there is a wide range ofviews amongst Member States, particularly with theproducer side. There was a lot of resistance to evenmoving to Option 2. So at the end of the day there willbe a balance, and the Commission will make ajudgment. And we need to bear in mind that there areno proposals at the moment—we are talking about aconsultation document eVectively. I believe that,when the Commission comes forward with itsproposals, which is now likely to be May or June theywill centre more around Option 2 because that iswhere the centre of debate has rested in thediscussions which took place in the autumn. But I canreassure you that, in terms of what the UK wanted,we did make the point that we felt there needed to bea much more radical reform of the regime. Thedanger in just saying that we want completeliberalisation, however, would be that we lose somecredibility in terms of the discussion process inBrussels. What we must do is make sure that we donot lose sight of getting the most radical possiblereform around Option 2, if that is where theproposals come out, because I can assure you thatthere will be a lot of resistance even to proposalswhich are emanating around Option 2. So I agreewith you entirely; we want to keep the debate to asnear to the most extreme liberalisation end of this inorder to balance up the argumentation from theproducers. But we have not seen the proposals yetfrom the Commission—they are due later on in theyear.

Q16 Lord Bach: Thank you very much. Can I askyou next about your written evidence? You estimatethat the budgetary cost this year, supporting thepresent scheme, is about ƒ1.5 billion, about £1billion, with a third going to “crisis” measuresdesigned to remove the surpluses that we have heardabout. Can you give me an estimate as to how muchof that cost falls on British taxpayers? And is it alsothe case that EU consumers of wine face anadditional cost on their purchases of wine as a resultof this market intervention?Mr Manning: I will pick that one up as well. Yes, youare right, our evidence does refer to the highbudgetary costs of the regime. The budget for 2007has now been adjusted down to ƒ1.4 billion. Actualexpenditure varies from year to year; it depends onthe quality and quantity of the harvest and what the




overall prevailing market situation is. But I think it issignificant that the wine sector takes up anywherebetween two and a half and five and a half% of theannual CAP budget each year, so it is very significant.Most of the measures go to supporting the market inthe main producing countries, so they are on thingssuch as storage of wine and grape must, paying forthe distillation of wine into alcohol. The distillationmeasures, as we said in our evidence, do account forabout one-third of the budget, but that figure doesnot actually include extra money which is spent fromtime to time on crisis measures. In fact there has beena crisis in four of the last six years in the wine sectorinvolving additional expenditure on wine in order toprop up the market in certain Member States. TheUK as a recipient of the budget, as we said earlier on,gets very little from it; we largely operate outside ofthe CMO. We do get a small amount in terms of aidfor the grape must, which is about £300,000 a year,but out of a budget of ƒ1.5 billion you can see that interms of value for money in the UK it is not one ofthe top performers. It is very diYcult, Lord Bach, toactually attribute a national cost to any of thesemeasures because the UK contributes to the whole ofthe EU budget rather than to specific components,and attempts to calculate national costs intoindividual programmes would be purely notional andalmost certainly inaccurate so it is very diYcult to saywhat the UK contribution would be to any of theseparticular measures. In terms of cost of the regime interms of the market price of wine, I think that is avery fair point. The Commission’s 2006Communication, to which we have referred a coupleof times already this morning, states that crisisdistillation and private storage (a) have becomestructural rather than temporary measures and (b)about 15% of annual wine production is removed viadistillation in order to limit price decreases. So thissuggests that the various forms of marketintervention mean that EU wine consumers pay, as aconsequence, higher prices than they would beotherwise. There is some work done by the OECDwhich estimates that wine consumers in theCommunity subsidise producers by around ƒ200million each year. That sounds a lot but actually thisestimate has fallen from a peak in 1992 of ƒ1.3billion, so it is not a significant cost on consumers. Ithink it is also relevant to point out that in terms ofthe wine imported from Third Countries consumersare also paying in terms of the import duty which isapplied to those Third Country wines, so there is adirect consequence to the market. The Commission’sown impact analysis suggests that with reform—andI am reading this now—“Wine producers will have,in general, to face a price drop as the stabilisation ofthe market situation will require an important eVortof structural adjustment”, and it estimates that pricescould fall in the short term by around 20% or more

with complete liberalisation. So I think this goes toconfirm what I said earlier on, that the current regimedoes maintain prices at a higher level than they wouldbe if the regime was not there.

Q17 Lord Plumb: My Lord Chairman, can I ask, onthe other side of the tax equation, there is asubstantial tax on wine. The taxpayer is paying tosupport the regime but what is the level of tax andhow does it compare with other countries? I am told,for instance, if I use the example, that Three Choirs,which is quite a substantial UK grower of wine, at theend of the day have two pence profit left out of abottle of wine. That is not very much, is it. And theirargument, of course, is the tax that has to be paidfrom them for the privilege of growing it. It is out ofone hand and into the other, is it not?Mr Manning: That is a very good question and I amafraid we do not have the answer with us today, butwhat I can say, in terms of the duty rates of wine isthat the rates vary according to the type of wineproduced. For still wines, with an alcohol content of15% or under, then the tax is £172 per hectolitre ofwine produced. For sparkling wines with an alcoholcontent of between eight and a half and 15% the taxis £220 per hectolitre. In terms of what that means interms of revenue to the UK, as a result of the dutysystem, we do not have that here, I am afraid, but wecould of course let the Committee have thatinformation after the meeting, if you would like it.Chairman: Thank you. Viscount Brookeborough.

Q18 Viscount Brookeborough: You have given us abroad-brush indication of what other Member Statesthink of the current regime and you have also saidthat some of them would be quite aligned to our pointof view, although we will not be able to fight quitethat corner. Is the separation of these points of view,or the diVerence, very obvious in that it is those whoproduce wine and those who do not produce wine?Mr Manning: It is diYcult at the moment to be toocategorical on these things because we have notactually seen the Commission’s proposals. What wehave had is a series of meetings around an Optionspaper, and I think that in those circumstances peopletake positions in order to try and influence what theCommission produces in terms of their proposals.What I would say is, based on my experience ofattending the three working groups that were heldduring the autumn, that there are probably aboutthree diVerent groups forming within the MemberStates. Firstly, you have what I would categorise asthe key producers, mainly the Mediterraneancountries, and they are concerned about the socialand environmental impacts of change; they areconcerned about the Commission’s proposal for alarge scale grubbing up scheme and what that willmean in terms of local communities. They are very




keen to maintain the planting ban beyond the 2010date which is envisaged in the existing regime. Theycontinue to argue for a separate budget, a separateregime for wine, and they have reservations aboutmoving money from the wine regime into ruraldevelopment measures. They are very cautious aboutmaking changes to labelling because they havedeveloped their own niches and their ownGeographical Indications, and they want to protectthose as much as possible. But they do, of course,support rules on the tightening of enrichment ofwine, which is something else that we refer to in ourevidence. You then have what I would call importers/consumers of wine, and I think we probably have theUK in that category—we have a small wine industrybut I think we are essentially an importing country—who, if you like, are the mirror image of the firstgroup, and so these countries support the abolition ofmarket management instruments; they support theearly lifting of the planting ban; they want greatermarket orientation of the sector; they certainly wantto maintain the current enrichment possibilities; theysupport RDR and they want to see clearer labellingrules introduced so that consumers are betterinformed about the wine they are buying.Finally,there is a group in the middle who are, if youlike, smaller producers but also importers, and Iwould put countries such as Germany, Austria andHungary in this group, who have views which arebetween those. So on the whole—and this isgeneralisation at the moment—they would supportthe abolition of most market managementinstruments; they are concerned that the currentenrichment possibilities are maintained. They alsohave reservations about moving the money out of thewine budget into RDR, but they do support changesto labelling as GIs. I hope that is not too simplistic; Iam not trying to put anyone into any particular box,but looking at it from our perspective that is how itseems to be at the moment.

Q19 Viscount Brookeborough: To what extent havethe views of the new accession countries been takenbecause you have these new countries—Romania orwherever—and we have already seen with Hungarythat, where they used to produce mass production incooperatives, their market was severely hit, not onlyby joining our regime but by the fall oV of theirRussian markets. Is this going to happen with suchcountries as Romania and others? And are they notin line for, if you like, a double-whammy if we bringin major reforms in this country?Mr Manning: I think every country that is a majorwine producer will face some impact as aconsequence of the changes which we hope will bemade. Romania and Bulgaria are relatively bigproducers of wine.

Q20 Viscount Brookeborough: But a large amount oftheir wine, at least up until very recently, has beengoing east and not west.Mr Manning: It is diYcult to comment on that but Ithink the important thing is that they are in now from1 January and they have six months to preparethemselves for the Commission’s proposals comingout, and so they will be able to play an active part inthe reform. But looking ahead as to the impact ontheir markets, I think that is quite diYcult to assess.

Q21 Viscount Brookeborough: Do you haveanything else to say on what the Commission itselfthinks about the current state of aVairs?Mr Manning: The Commission has been verycategorical that we cannot go on as we are. Theirimpact assessment makes it perfectly clear—it is veryblack and white—that the current regime isunsustainable and that, if we carry on as we are, byaround 2010–11, which I think is the figure in theirimpact assessment, we could have eVectively a 15%production with no market in the Community, andthat situation is only going to deteriorate becauseimports are going up—exports are flat, consumptionis going down. We are very pleased to see theCommission’s very thorough impact assessment ofthe situation as regarding no change. We fullysupport their objectives and the new wine policy,which is all about increasing competitiveness andhaving clearer rules, but preserving the besttraditions of the EU wine production. I think theimportant point now would be to see what they comeout with in their proposals, and this comes back tothe point that Lord Bach was making earlier on, thatwhat we would expect to see is something which isprobably going to be around Option 2, and we willcertainly be using the time between now and when theproposals come out. And I think the work of thisCommittee will be helpful in influencing theCommission as well in terms of trying not to limit thelevel of our ambition, because if the Commissionsettles too quickly on Option 2 then there is only oneway that you are going to go in terms of the finalsettlement. So it does come back to the point thatLord Bach made earlier on.

Q22 Viscount Brookeborough: Looking at the figuresthat you gave us, 15% of the agricultural workforce,but it is 2.5% of the CMO budget. Is that not anargument from the countries that wish to stay insome sort of regime that you are really targetingsomething that uses a small percentage than the totalworkforce?Mr Manning: I think that is a fair point as well. I thinkyou only need to look at the situation on the marketwhere we are frankly not competitive. Even theproducer Member States realise that change has tohappen. I think the issue will be how that change




happens, how quickly that happens and how muchmoney is available to make that change happen.Chairman: Lord Plumb.

Q23 Lord Plumb: The Chairman will continuallyremind us during the next month or two that ourstudy is the EU regime and we should concentrateour thoughts there. But we cannot avoid knowing, ofcourse, that there is an increase in consumption ofwines from the New World, as it is so often called,and some good wines too that are coming through.The reason that is given—reading all the evidence—is better harvests in the last year or two, whichobviously has a considerable eVect, and that hasmeant the excess of supply over demand. But youhave already said, and you said earlier, thatproduction will exceed demand by as much as 15% by2010—and you say that there has been crisisdistillation in four of the last six years. The questiontherefore we have to face is what measures ought tobe taken to try to bring that under control? May I saythat one of the problems here is the problem that onehas in food production as well as in wine production,that when there is a climatic change we might, forinstance, in one year get double the quantity ofpotatoes over another year purely because of theclimate. We are not making nuts and bolts and this isthe diYculty, that you will never find a system whichsays that we have this under control year by year byyear; I think that would be asking for the moon. Onthe other hand, you have to have that sort offlexibility to have a regime that at least brings it intoa semblance of control if it cannot be complete.Where are we going? What ideas do you have otherthan those that you have already given to try tomatch supply to demand?Mr Cowper: Certainly we recognise the problem isthat it does change from year to year. But the trend iscertainly an excess of production over consumption,and one of the things we need to do is to stabiliseproduction, and to us that looks as though we needto end the market support—the support for privatestorage and crisis distillation—which is encouragingwine producers to carry on producing products forwhich there is no market, eVectively. There is a risk ofsitting here in London and commenting on wineproducers in various places and it is a generality. Ofcourse, a lot of wine producers are producingproducts which are very much sought after, but theproduction regime and the support for production inparticular encourages farmers to go on producingwines for which there is no market and they areunconnected with the market. I think a lot of whatthe Policy Commission—Sir Donald Curry’s PolicyCommission—said about reconnection of ouragriculture with the market applies here, andmeasures like private storage and distillation andoVers to take surpluses oV people’s hands in that way,

are not focusing, not helping growers focus on thereal market. Similarly, we have referred already tothe need to make the industry more competitive, andthe planting ban, which has a perverse eVect ofstopping the good producers—as well as the badones—expanding their operation, needs to go, Ithink. That is another of the issues that is getting inthe way. The labelling regulations is another matterthat is cutting oV producers from the market place—in particular, the rules that say that, unless you are awine with a Geographical Indication or a QualityWine from a specified region, you cannot specify thegrape variety, for example, or the vintage are tyingthe hands behind the backs of the producers, whereasthe New World producers have made great strides interms of producing varietal wines, so that peopleknow, roughly speaking, what they are going to getand enjoy, and those labelling rules are obviouslyhampering, the market and that is anothercompetitive point. Similarly, wine making practicesare slow to adapt because of the systems that we havein the EU, and that is why we think that moving tothe OIV, allowing more of the wine making processesthat the New World, the Third Country producers,use to be open as options to our producers would be agood thing; and to get the recognition for enrichmentwith must or sugar as a proper methodology wouldbe helpful. I think we need to encourage marketorientation but there are a number of ways of doingthis. Again, this is more of a comment than a formalproposal, but as an observation I do think thatmarket orientation requires producer groups tounderstand their market better. I would hesitate tointerfere in the French system with Négociants andall the rest of it, but I think that some of the messagesthat we put out, or the Curry Commission put out toour farmers in this country, are highly relevant inunderstanding, and getting a better connection withthe chain of supply would be a very good thing, andmeasures that would encourage producers in thatdirection and would be all part of the package, thedirection of travel is part of the package of measureswe would like to see, together with someenvironmental issues. But I think competitiveness isabout the labelling regime, the market support andthe ability to respond to consumer demand.Lord Plumb: Lord Chairman, the cooperativeapproach would have been said long before Curry.There is nothing new in it, it is a matter of getting itgoing and encouragement being given.Chairman: Lord Palmer.

Q24 Lord Palmer: I reckon my question has alreadybeen answered, both when you were answering LordSewel and indeed Lord Plumb, and it certainly cameas no surprise to me when, in your written evidence,you clearly stated, “The current regime protectsineYcient and poor quality producers and prevents




producers who have developed strong marketdemand for their wine from expanding.” Is thereanything else that you would like to add that youhave not already mentioned in replying to LordPlumb and our Chairman?Mr Manning: I think, Lord Palmer, we have cutacross your point already, but maybe to crystallise itaround your question. We think that primarily theplanting ban is of great concern. One can understandwhy it was thought a good idea to introduce it in the1980s but the fact of the matter is that it is a double-edged sword because, on the one hand, it isconstraining production, but, as I said earlier on, itdoes mean that we are actually preventing the bestproducers from expanding to meet market demands,and this is why, of everything that we are referring toin terms of what we would like to see come out of thisreport, that we want to see the liberalisation of thisplanting ban no later than 2010. I think that is veryimportant.

Q25 Lord Palmer: You do not think that is too late?Mr Manning: The market is anticipating 2010because it is in the existing regime at the moment, sothat everybody is working on the basis that it wouldend on 31 July 2010. I think you need to provide sometime for the ineYcient producers to adapt to the factthat the planting ban will disappear, and so I think2010 is the optimum time for that to come oV. So itnot only sends a clear signal that the ban is going toend but it gives people time to adjust. I think, in termsof English and Welsh production, 2010 should be OKas well. We are about 15,000—16,000 hectolitres ayear at the moment, but that is going upincrementally each year, and we would expect to bearound the 25,000 hectolitres by around 2010—2011.So, provided it goes in 2010, then that should besuYcient and would give everybody time to adjust tothat. In terms of the market management measures,we think it is also important that they disappear veryquickly because they are insulating the ineYcientproducers from the market; they are continuing toproduce wine for which they have no market on thebasis that the Community regime will take that wineoV their hands and dispose of it for them. We havementioned a couple of times that crisis distillation isno longer really ‘crisis’, it is more a structuralmeasure, having been used in four years out of thelast six. A large amount of money is spent at themoment on private storage of wine—about ƒ67million in the latest budget—and to our minds thereis no reason why we should be paying for somethingwhich in most other sectors the industry would payfor themselves. So we think it is important that thatgoes. As Jeremy said earlier on, as part and parcel ofthis there must be simplification of labelling andmarketing possibilities so that the consumers are

much better informed about the wines that they canbuy from the Community.

Q26 Lord Moynihan: My Lord Chairman, I wouldecho the remarks made by Lord Bach about theimportance in reflecting on the fact that, whilst youso readily dismiss the idea of market de-regulationfrom a practical negotiating point of view, it will, Ihope, be key to the work that you do over this year toconsider in far greater detail the implications ofOption 4, to look at them and to make sure that thestrength of those arguments in all areas is putforward in negotiation, so that that is not lost. In thatcontext can we look further at the labelling andmarketing issues? I think the direction in which youare heading may lead to a positive answer on this, butwould you support wines being branded in Europe inthe same way as New World wines are? Large scalebranding, which makes it much easier for consumers,who are not experts, to identify with the product andhence are more likely to become regular purchasers.I would be interested in your views on that,particularly when you see UK television coverage ofthe Ashes, for example, sponsored by Wolf Blass, theAustralian wine, and Friends sponsored by Jacob’sCreek. New World wines are advertising andpromoting themselves very heavily in this country.Would you support EU wines doing the same?Mr Cowper: Yes, we would certainly support EUwine producers being much more market orientated,much more adaptive and much more flexible in theirapproach, and labelling and branding clearly hasbeen very successful for the New World producers,who have operated from a very well—thought—through marketing strategy. This is not just basedaround brands, it is based around consistency ofproduct, simplicity of product, and aimed atparticular price segments in the market, and having avery good view of the distribution in the retail chainin Europe generally. We would certainly want tofacilitate that for European producers. Anotherpoint that is worth picking up about brands is thescope for a brand to cover a range of diVerentvarieties within it, so you can keep promoting thename, as you have indicated. However, I think wemust be careful about not losing our heritage, notmoving too far. Branding is one option—and brandsdoes not necessarily mean good quality, of course, itis not a panacea. I have already touched on the pointabout the scope for table wines, or the lack of currentscope for table wines, to be able to refer to the varietyor the vintage, and that is certainly hamperingpeople. There are some Négociants who have goodnames and are equivalent to brands, but in generalterms, yes, the labelling regime is a hindrance. Butthere are obviously some very powerful, historic,famous and still extremely successful AppellationGeographical Indications, which are at the heart of




the EU wine sector, which is of course still the biggestin the world and very, very valuable. If you look atthe exports one example of this is the fact that involume terms France is not at all the largest exporterbut it has huge value, and that is because thoseAppellations, those Geographical Indications, arerecognised and they do monitor quality verycarefully. So I think that branding alone is not thesolution.

Q27 Lord Moynihan: That answer rather indicates apositive response to the Geographical Indications,the GI concept of marketing EU wine. That is incontrast in your written evidence, where you suggestthat the GI system may “serve to insulate theproducer from the market, for example byencouraging the production of wine that the marketdoes not value”. Can you expand on that for us?Mr Cowper: Yes, I will. Thank you very much for thechance to do so. I do think that there are considerablestrengths in the GI system. It provides a measure ofauthenticity, it operates within local and nationalrules and, in the EU framework, and it gives someassurance and information to the consumer. It isabout provenance, and that is what consumers value;we are told that consumers increasingly want tounderstand what it is they are buying. I have touchedon some of the GIs being world-recognised assets—Champagne, Port Rioja, Barolo, whatever; there areplenty of them. GIs that do provide cleardiVerentiation and useful information and alsopreserve quality and authenticity are helpful.However, the GI system—and the material from theCommission indicates this—has become one which isvery producer—rather than consumer—orientated,and partly because of the issue about the labellingrules giving you more flexibility to describe yourproduct once you have a Geographical Indication, itlooks as though it has become rather a formula to tryto get a GI with your wine, without necessarilyhaving a good basis for doing so, either particularlyin quality or necessarily a strong link to the place, towhere you are coming from. Therefore it has beendevalued. We had some conversations with theComité Européen des Entreprises des Vins and theygave us the analogy of a tree—the plethora of GIs hasnow become a huge growth which is actually shading,cutting out the sunshine, and it has become excessive,and I think in that case, yes, the GI has become aweakness. It does not provide useful information forconsumers necessarily and I think there is anargument for saying that it builds inertia into thesystem. In order to adapt your wine or yourproduction methodology to meet changing consumertastes you would have to get agreement from theowners of the GI and that may not necessarily bestraightforward if some of the traditionalists do notwant to change it. So it can be a handicap.

Lord Moynihan: Thank you, my Lord Chairman.Chairman: I was in China recently, and the ChineseMinister was going on about how they wanted todevelop the Chinese wine industry and they tookgreat pride in the fact that they had gone to theFrench experts. I did not say anything! ViscountBrookeborough.

Q28 Viscount Brookeborough: I think in many waysyou probably have nothing left to add because, afterall, we are here in a way to find out how we docompete and you have mentioned many parts of it.So, if you have anything to add, please do. Youmentioned the inertia and so on. But are the actualproduction methods controlled by the variousdistricts and the people who administer the GIsystem? And is the lack of modernisation not entirelyin the hands of the individual vineyards? I have a littleknowledge—and I accept that is very dangerous—ofTaylor’s Port. Taylor’s is family—run, whichincludes various others such as Fonseca and so on.But they are very much behind the market and theyhave modernised their production methods in themost incredible ways, and they do not necessarilyagree that the human body crushing the grapes addsa particular flavour or whatever. Who is controllingthis? And why can Europe not modernise itsproduction of wines at a certain level? Because itseems to me that, whereas we have the very expensiveFrench wine and whatever, this is almost a diVerentproduct in as much as port, maybe. And where wehave the problem is not at a lower but at the morecommercial level such as the New World isproducing.Mr Cowper: In terms of the production rules, as Iunderstand it, there is a framework set by the EUregulatory framework, the general level about thetypes of vines that can be used and the productionmethods. Then national Geographical Indicationshave to be agreed at the national level and they alsohave to be agreed locally, whether it is the region orthe locality, and by the owners of the GI. So there arevarious levels.

Q29 Viscount Brookeborough: Does that dictate themechanisation that the actual systems use?Mr Cowper: All of those would have a bearing on it.If you wanted to propose a methodology that was notacceptable at the national level or within the EUregulations, you would be unable to do so. But at thelocal level the producers for the Commune, orwhatever it is, who own the GI would start oV byagreeing the yield that they are going to allow and theproduction methodology and so on, and then theywould get it registered with the Regional Committeewithin the national rules and so on. One of theproblems is that, because we do not import all themethodologies that are allowed by the International




Organisation of Vine and Wine, Europe does notrecognise all the production methodologies whichsome of the New World producers do, and we thinkthat the Commission is on the right lines in suggestingthat we ought to recognise that Europe as a whole,through the medium of the Commission, ought topick up more of those production methodologies tomake them options available to producers within theEU, because again we are constraining ourselves insome of the new methodologies. As you say, withinEurope, as I understand it, there are fantastic leadingtechnologies in how to produce wine, but some of themethodologies are not yet approved that the NewWorld producers are using, for example. I think oneof them is using oak chips in barrels which has onlyrecently been approved.

Q30 Lord Moynihan: Various options are beingconsidered to remove over-production. Whatpriority would the Government give to, firstly,further constraints on production—for example,grubbing—up and the restrictions on planting rights;secondly, finding additional outlets for excessproduction; thirdly, restructuring and greatersupport for rural development? Looking forward tothe 25,000—hectolitre threshold here in the UK, howexactly do you see the grubbing-up process workingin the UK in the future? And what alternative cropswould you consider suitable for cultivation ongrubbed-up vineyards?Mr Cowper: I very much hope that we do not get togrubbing up in the UK.

Q31 Lord Moynihan: Potentially in the not—too—distant future, with the steady growth and becomingmembers of the CMO, we have to consider theseissues, have we not?Mr Cowper: Yes, I suppose we might. But grubbing-up, it seems to me, would be the result of a marketfailure of an industry that was not in tune with itsmarket and had expanded too fast and needed to beencouraged to cut back or to move on to better land.I think that the Commission’s idea we should havesome grubbing-up until 2010, or whatever, a fairlyintensive encouragement to grub up and toencourage producers who are clearly not producingwhat the market wants to move to other enterprises,is an important part of it, although it is a verynegative connotation, I think—it sounds ratherunpleasant. I certainly hope that the UK industry willbe free to develop in a market-orientated way thatwill not bring that about. Where grubbing-up doestake place, I think it is important that it should gohand in hand with environmental measures so that,whatever happens to the land afterwards, it is not justleft in a bad state but it is managed in some positiveway. I am certainly not in a position to advise whatother crops might best be grown on it. I think in terms

of other uses, were you talking about other uses ofthe land?

Q32 Lord Moynihan: Removing over-productionand grubbing-up being one, obviously, and furtherconstraints on production, but additional outlets forexcess production—do you give that a high priorityin the negotiations? And the restructuring and thegreater support for rural development are the othertwo options that are being considered to remove overproduction.Mr Cowper: I think whatever other uses there areshould be market led and not artificially induced byusing taxpayers’ money to carry on encouragingpeople to produce stuV for which somehow a use willbe found. I think our position would be that peopleshould get a clear market signal that, if there is nomarket for it, then do not produce it, rather thanperpetuating market management.

Q33 Lord Moynihan: So we are going back to theidea of market de-regulation at the forefront of yourmind in that context?Mr Cowper: That is certainly what we want to get to.The Government’s vision for the CommonAgricultural Policy does envisage, not marketmanagement but moving support into Pillar 2, wherethe taxpayer, the public, can get a return for theirmoney in terms of environmental management andthe delivery of public goods rather than unwantedmarket goods.

Q34 Lord Moynihan: My Lord Chairman, theredoes seem to be a growing credibility gap between thelogic of a lot of what is said. We have very interestingevidence on eVectively going towards market de-regulation, and yet being a long way in terms of theposition that you will be taking with regard to theoverall reform of the EU wine sector, and you seemto seek minor improvements around the Option 2area as a success story. I would hope that the thrustof the very good answers that you have given on arange of issues will lead you maybe to go one or twosteps further than where you were indicating yournegotiating position is likely to be.Mr Manning: Can I respond to that? I think it isimportant to look very closely at what the optionsmean. Option 2 is all about market de-regulation;what it is saying essentially is that all of the marketsupport instruments which are there currently willgo—the planting rights will be liberated—so theindustry can respond to market signals. What it issaying is that a large proportion of the money whichis currently spent on the wine budget will be used tofacilitate the transition, will be used to go to ruraldevelopment programmes of Member States in orderto provide local, targeted social/environmentalresponses to the particular situations in which these




local communities find themselves. So that is whatOption 2 is about, and we still see that as a veryliberalising measure. The diVerence between Option2 and Option 4 is that Option 4 is eVectively sayingthat you are on your own, that your budget goes andthat is that. All along we have said that we want to getto a situation where there is much greater marketliberalisation and we spend less money on the wineregime than we are at the moment, and that iscertainly the view that we have taken in thediscussions on the proposals on the Communicationso far. Option 2 should not be dismissed as being alight option, there is still a lot in it and still a lot whichis positive in terms of getting a greater marketorientation, but I think the point you have mentionedvery clearly—and I am glad it has come out—is theactual cost of that, and so it is essentially a financialissue as much as anything.

Q35 Chairman: Can I check that I understand? Afairly broad level of agreement here and between usthat de-regulation, moving money into RuralDevelopment, Pillar 2, is the way forward, but Ithought I heard you say in one of your answers thatthe wine producing countries where this is mostnecessary are actually most opposed to themovement of money out of the wine regime into theRural Development?Mr Manning: That is exactly right.

Q36 Chairman: So that is where the fight is going tobe, is it not?Mr Manning: Yes.Mr Cowper: I think they would be concerned to focusmoney on wine—related issues rather than just goingto a general Pillar 2 point, that would be one thing.Of course they do have a much bigger interest, theyhave lots of families engaged—

Q37 Chairman: But that leads inevitably on tonational envelopes, does it not?Mr Cowper: Yes.

Q38 Chairman: If you have national envelopes andyou have rural development all done at the nationallevel with national schemes—I will try to choose mywords carefully—the opportunity for evasion is high.Mr Cowper: We have already identified that, shouldwe be in a situation where we were discussing Option2 and national envelopes, we would want to try toencourage a regime where Member States were notusing national envelopes to reintroduce marketmeasures by the back door, if you like. The directionof travel in which we want to go is towards 3 and 4.

Q39 Chairman: What is going to happen at somestage is that you are going to get some Member Statesturning round and saying, “If we do not grow wine in

X, it will be devastation; there is nothing else you cando.” What is the response to that sort of claim?Mr Manning: I think some of these concerns are veryreal, which is why we would like to see themaddressed through the Rural Developmentprogramme rather tha

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