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ON SURPLUSES AND OTHER PROBLEMS

Maturing, stronger bodies

The latest estimates released by the Office International de la Vigne et du Vin (OIV) suggest that, after shedding a fifth of its volume in just a decade and then stabilising in the mid-1990s, world demand for wine may well have edged up by a fraction of a percentage point in the course of last year, to reach an estimated 22.2 billion litres. As for production, it was down some two billion litres on an admittedly generous 1999, to an estimated 27.3 billion litres last year. The only worry is that world supply, which had reduced sluggishly, but in line with tumbling demand until 1995, is on an upward trend again. This was caused by a boost in EU yields coupled with a virtual halt to uprooting programmes within the Union, and by sustained growth in the New World. The five billion litre gap between world supply and demand is absorbed by an ailing brandy industry for the greatest part, the rest distilled into ethanol, for industrial use; that gap is widening fast and inventories are currently high, but government officials gathered in Paris for OIV's yearly working sessions are keeping a watchful eye on it.

Statistics produced by OIV each spring are literally irreplaceable, since there are no other sources for gauging the levels of world supply and demand. This year, the Paris-based institution was given a new gloss through the adoption of a novel treaty on 3 April. 'Consensus' is now the basis for key decision-taking and 'communication' the new byword for this old body, which will boast five official languages henceforth – a real change for an organisation which resisted English invasion for longer than any other. The intergovernmental body for wine has been 'preserved, reinforced and modernised', according to the French agricultural minister, who hopes that the strengthened organisation will play a more active role on the international scene.

Shortly afterwards representatives from the New World Wine Group met down under to seal a Mutual Acceptation Agreement, on 9 April, that removes one of the biggest hurdles in wine trade. The USA, Canada, Australia and New Zealand have agreed to it already, while Argentina, Chile and South-Africa have up until March 2002 to decide whether they want to join the 'fab four'. Alliance at state level is merely reflecting recent powerful marriages concluded on the ground. The Aussies are gleeful. To them, North America is a strategically growing market: the USA was second largest behind Britain, and Canada overtook New Zealand to reach third place in value last year; Australia is also the USA's third-largest supplier, behind Italy and France. The deal is far less interesting for US exporters who send only a few drops the other way round, but American officials are quietly negotiating a new Accord with their European counterparts, that will cover shipments to their largest client well beyond 2003. This is the date of expiry of current provisions, which exempt US wines from meeting all the conditions imposed by the EU on wines entering its fief. EU-USA talks may be dragging on in the eyes of many but, like top wines, top-level negotiations take a long time to reach maturity.

Similar state applies to the two remaining important batches of rules detailing the reformed wine policy of the EU with respect to international trade and to the designation and labelling of wines. Trade rules have been approved by the Wine Management Committee, but they were still not out at the time of writing. Regulations on designation and labelling have also run into difficulties recently and led the Council of Ministers to push back the deadline for their publication by another two months, until the end of May. This is not to suggest that EU officials may have been idle in some way, quite the opposite: amongst other pressing issues they had to find ways in which to dispose of the no-longer subsidised alcohol generated by market intervention: 25 million litres of such alcohol were cleared by the Management Committee, for use in the production of fuel sold in the USA, and another ten million for auction to industrial users. The matter is becoming ever-more urgent as Italy and France have both been pushing for renewed 'crisis' distillations, of 250 and 200 million litres of wine respectively. These come in addition to the 260 million of litres agreed already by the Management Committee for Spain, and would have caused some budgetary problems only a year ago.

Luckily though, this year's budget provides for additional money worth almost half a billion euros. Of the 1'153 million available for spending on wine during 2001, 267 million has been earmarked for distillation already, up 12% on last year (the rest of the increase goes mostly towards restructuring vineyards). No need to worry here either, as EU officials have much experience in juggling with these numbers. Meeting WTO commitments, not to support wine production beyond agreed limits, may prove a slightly more difficult task but, surely, there must be an easy way out of this quagmire too. So there is hardly any need for concern in the soft-spoken, well-meaning world of wine. No need for sobering details, naked truths or long ranging views either. All it takes to solve wine's economic woes is a bit more time and a few more talks, in five languages if need be. This is the age of communication after all (www.span-e.com).

© pierre spahni - first published in Harpers Wine and Spirit Weekly on April 27th, 2001.

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Pierre Spahni - Economic Research & Consultancy for Wine - Tel  +41 22 800 1607 Fax 800 1608