EU's farm chief to unveil ambitious wine shake-up

Keen to fend off tough competition from New World exporters like Chile and Australia, Europe's farm chief plans to divert some of the subsidies paid to EU winemakers to get them to abandon vines and focus on quality.

The debate will begin next week when EU Agriculture Commissioner Mariann Fischer Boel publishes four broad options to shake up the industry, which was last reformed in 1999.

Her comments in recent months have made her thinking clear: many of the existing subsidies should be scrapped or simplified, and production must fall.

That won't go down well with some governments, particularly the main wine countries of southern Europe like France, Spain and Italy, also the world's top three producers.

Earlier this year, thousands of winemakers took to the streets in southern France to demand help from Paris to cope with low demand and fierce competition from New World rivals.

For many years, hefty production subsidies skewed the balance between EU wine supply and demand and led to huge surpluses that could not be easily sold. The EU is the world's biggest producer, consumer, exporter and importer of wine.

More recently, Europe has lost part of its traditional export markets to cheaper wines from countries like Australia, Chile and also the United States, and seen a surge in imports.

Fischer Boel has said wine reform might prove more difficult and divisive than the 2005 sugar reform, itself a marathon negotiation over steep price cuts that faced heavy opposition from countries whose sugar industries now face collapse.

"As with sugar, a lot of people have realised that it (wine) is overdue for reform. There isn't the same level of external drivers on wine as there was on sugar - but there is a general recognition that things need to change," a diplomat said.

Fischer Boel will publish her paper on June 22 and EU ministers should debate it briefly in July. Only towards the end of this year can a formal proposal be expected and the reform negotiation would probably take place in mid-2007.

One of the biggest drawers on the wine budget of some 1,2-billion euros a year is so-called crisis distillation, an emergency subsidy used to correct market imbalances by distilling surplus wine into biofuel or industrial alcohol.

It is almost certain to be a main target for abolition. Fischer Boel's idea is to use the money saved to offer cash incentives over five years for producers to dig up their vines, so cutting the EU's vineyard area and production.

"Crisis distillation is becoming a depressingly regular feature of our common market organisation for wine," Fischer Boel said in a statement earlier this month.

"While it offers temporary assistance to producers, it does not deal with the core of the problem - that Europe is producing too much wine for which there is no market. That is why a deep-rooted reform of the sector is needed urgently."

Another cornerstone of the plan is for country allowances based on historical output. EU countries would get more leeway from Brussels to control vineyard abandonment and perhaps also some extra cash per hectare of vines they remove from production - even more incentive.

Vine planting is strictly controlled in the EU, both by area and approved varieties. New plantings are not allowed until mid-2010 except under particular circumstances. Fischer Boel's idea is to extend that ban until 2013 and then scrap it.