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EU awash in oversupplied wine market

“Fill‘er up?”

“Burgundy, Champagne or Bordeaux?”

Europeans are buzzing down the autobahn — but not with Bordeaux cascading down their crystal stemware. It is squirting through carburetors as fuel distilled from one of the most famous wine appellations in the world.

The European Union is awash in too much wine and cluttered with too many vineyards in an oversupplied world wine market. One way the EU is draining winery tanks is what they call “crisis distillation” — selling it to refiners for auto and truck fuel.

It is part of the latest government-financed EU scheme to put the squeeze on growers and vintners to stop making what they cannot sell. It is costing the governments too much money to support the floundering farmers.

According to Etienne Montaigne, food economics professor at Agricultural Mediterranean Institute of Montpellier (France), the EU is spending billions to right a floundering wine industry after a decade of economic disarray preceded by a rapidly falling domestic market. The French, Italians, and Spaniards are dramatically reducing their per capita wine consumption. This downward drinking trend was compounded in 2004 by an oversupply of wine in the world, not just in Europe. This was made worse in early 2008 by the global financial crisis and recessions in Europe and America, Montaigne told the recent Outlook and Issues for the World Wine Market symposium at the Robert Mondavi Institute for Wine at UC Davis.

“The high quality wines, such as Champagne, the famous wines of Burgundy and Bordeaux, were the most significantly affected by this ‘demand shock.’”

Although not all of the provisions of the latest EU government bailout program have been implanted, here are a few:

• Replacement of 175,000 hectares of wine grapes with other crops in four years.

• EU-funded support programs to promote European wines.

• New regulatory measures, including distilling surplus wine into potable and non-potable alcohol, including use in fuels and industrial alcohol.

The Europeans are not willing to drink their way through the wine surplus crisis, but they have been exporting increasingly more. This has not solved the problem because of growing global competition.

Removal of vines is voluntary, but growers who do so will get $1,400 per acre. The EU is spending the equivalent of about 5 percent of the value of EU wine exports for this program alone. This removal program represents about 5 percent of the grape production area.

Distillation and other programs to remove wine from the market account for about 21 percent of the support programs.

Montaigne also said the program includes harvest insurance and mutual funds to support growers and vintners, as well as payment for removal of immature grapes from ripening bunches.

There is currently a prohibition on new vine plantings until Dec. 31, 2016.

Montaigne said as draconian as these measures are, it is still not clear whether they will solve the problems.

The scheme to remove wine grape vineyards from production will reduce production, he said.

However, domestic and export promotion and eventual phasing out of the distillation program could increase wine supplies.

Montaigne said these “counteracting measures” cast doubt on the results of the latest EU effort to improve the economic plight of the European wine grape industry.

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