Ceev: the measures to support the recovery of the wine sector in EU Commission

Since March 2020, the hospitality sector (on trade) has been closed or working with enormous restrictions. In normal times, on trade accounted for 30% of the volumes and 50% of the values of wine consumed in the European Union, thus leaving an important European part without outlets. The impact of limits and closures, however, is not homogeneous and varies from country to country and from company to company, with the smallest ones suffering the most. The off trade channel (supermarkets and grocery stores) continued to operate normally, net of some minor logistical problems at the beginning of the pandemic. With the closure of the on-trade channel, sales in the off-trade channel have increased all over Europe, with a real boom in entry level wines.
Without any big surprises, the Covid-19 crisis jumped e-commerce sales by +30% in 2020, with peaks of +180% during the lockdown in Europe. Regardless, it still accounts for 1.5% of overall sales, despite companies investing heavily in it. Europe remains the top tourist destination, with EU countries hosting 478.4 million international arrivals in 2015, 40.4% of the total, numbers down 80% by 2020. A slump that has inevitably impacted wine tourism as well, and therefore direct wine sales. Estimates, for the European wine market, speak of a loss of 8% in volume and 12% in value. This is the framework, outlined by Ceev - Comité Européen des Entreprises Vins, in the report “Covid-19 Crisis and the Eu Wine Sector: Ceev Impact Analysis & 2nd Wine Package”.
The Covid-19 crisis caused an unprecedented drop in global sales, with international exports dropping 17% during the lockdown period (March-June 2020). In the year of the pandemic, imports from major markets saw a loss of $1.4 billion and 2.7 million hectoliters, but the consequences were different in individual markets. In the USA consumption in 2020 remained stable (+0.6%), but with the off trade taking important slices of the on trade, the average price and therefore values decreased. Thus, the U.S. imported the same volumes as in 2019 (+0.1%), but at decidedly lower values (-9.4%). The drop in shipments from Germany (-32%), France (-30%) and Spain (-10%) was entirely due to the tariffs imposed by the US Administration in the civil aviation dispute.
Great Britain, in the year of Brexit, has increased the share of imported wine (+4.1%), but values are falling (-3.9%), so it is difficult to weigh the impact of the Covid-19 crisis. Certainly the exit from the EU has pushed distributors to fill their warehouses, and here too domestic consumption has taken the place of on trade. In China, wine imports have been declining since 2018, but in 2020 the drop in value was dramatic: -26.7%. The country was the first to emerge from the emergency, but consumption is slowly recovering. Thus, the bill paid to the crisis by the various EU producer countries, in terms of exports, is not the same for everyone. France, hit by US taxes, lost 11.3% in value and 5.1% in volume; Spain closed 2020 with -3.6% in value and -6% in volume; Italy limited its losses both in value (-2.3%) and volume (-2.4%); Portugal even grew by 3.5% in value and 5.5% in volume; finally, Germany lost 14.4% in value and 8.2% in volume. Overall, exports from the European Union fell by 8.8% in terms of value and 5.4% in terms of volume.
At the corporate level, obviously, the impact of Covid-19 on sales was greater for those whose preferred channels are on trade and in non-European markets. This is also because the off trade has not increased its offer, and those who were not on the shelves before the pandemic are unlikely to have arrived during or after it. The reduction of the average price, in all markets, combined with US taxes, has reduced margins, while the drop in sales and delays in payments have stifled cash flow, a big problem for European wine companies. On average, wineries’ turnover dropped by 15-20%, with big differences according to product type, company size and main sales channel.
To support the sector, the European Commission has adopted extraordinary measures such as crisis distillation, aid for emergency storage, flexibility in green harvesting, advance payments to member countries, European contributions at 70%, greater flexibility in market support programs. The measures taken at EU level have therefore been implemented at national level, facilitating the use of resources of member countries. Flexibility for promotion programs has been welcomed by companies and has worked, allowing companies to better adapt to an unstable environment and demonstrating that this flexibility was necessary beyond the Covid-19 crisis. Promotion is the cornerstone of the support measures and the success of EU wine exports to Third Countries, and is too often underutilized due to the rigidity of some rules adopted in 2016. From this point of view, a harmonization of the rules would help companies to fully benefit from the measure.
Despite some limitations, mainly related to the low price set by some Member States, such as Italy, crisis distillation has been one of the most used measures and has absorbed a large part of the budget (247.8 million euros). In general, crisis distillation was used in regions suffering from structural problems and was not adequately accompanied by a reduction in yields in the 2020 harvest. Green harvest could have been a more efficient measure if more flexibility had been provided. Controlled green harvest could have increased yield quality, and would have cost less than distillation. It did not prove adequate to control 2020 yields, and the EU wine industry ended up underutilizing it (€28 million).
The crisis storage aid has been very appreciated by wine companies, because it ended up having a double positive effect, controlling the quantity of wine put on the market and supporting companies in terms of cash flow. Not all Member States have implemented it and some interpretations not in line with the EU regulation have in some cases excluded bottled wine, limiting the effectiveness of the measure. With 22.1 million euros, crisis storage aid has absorbed only a small part of the EU budget.
Despite the co-financing of individual states, it is clear that funds are not sufficient for promotion or investment actions after the implementation of crisis distillation. Most of the support has been dedicated to the destruction of products (wine or grapes), without efficiently addressing the main problems facing wineries: the destructuring of the on-trade channel worldwide and the lack of cashflow of wineries that need to invest in market presence.
The aid package on which the EU Commission has focused unfortunately does not allow to adequately prepare the wine sector to a rapid recovery already in 2021, because it is not focused on the preparation of the future, which will then come only from the market. Choosing to destroy the product has already proved in the past not to be the key to guarantee the balance of the market. It should be remembered that, despite the requests coming from the wine sector, from member states and from the European Parliament, the European Commission did not grant any additional budget resource to face this situation, especially for exporting countries which have been heavily affected by US trade sanctions. It means that most of the resources have been used in measures to rebalance the market, but without supporting the commercial presence on foreign markets.
So, the EU wine sector needs the creation of a combination of different measures to support the economic resilience of companies and to resume the journey to the markets, i.e. a “second wine package” to cope with the effects of Covid-19. The objective of which should be primarily to support the ability of wine markets to recover over the next 2-3 years. The approach, therefore, cannot be based on destroying wine production to try to control the market. Crisis distillation should not be used to address structural imbalances not related to the Covid-19 outbreak, because we risk that, as in the last year, this measure absorbs most of the EU funds, and consequently limits the ability of wineries to reposition themselves in wine markets. Bringing European wines to the market, in essence, is the only way to ensure a sustainable future to the EU wine sector. Every effort should be made on promotion and investment, which shape our future competitiveness, and emergency measures should be limited to emergencies.
The second wine package conceived by Ceev, therefore, proposes to recover the wine markets, and the competitiveness of EU wine, through measures oriented to market dynamics, to rebuild the wine routes and regain shares at global level. But also financial support to support wineries struggling with lack of cash flow and conditionality of the implementation of control measures to market trends. Some of these measures were already included in the Commission’s extraordinary measures, but will need to be further refined to increase their efficiency or to be extended beyond 2021.
Specifically, among the priority measures to get EU markets back on track is the allocation of a special budget to address the Covid-19 crisis. As the European Commission has extended the extraordinary measures adopted in 2020 until October 2021, if additional funding is not released, measures aimed at distillation and green harvest will again absorb most of the available EU funds. As a result, additional extraordinary funds are needed, as a group of member states asked the Commission at the Agri Council meeting on March 22, 2021, so that the implementation of any distillation or green harvest type measures does not indirectly jeopardize the market's ability to recover.
However, it will also take an additional contribution from the European Union beyond 2021. In this sense, the increase of the EU contribution to 70% for the measures that have been included in the support of the European Commission should remain until the end of 2023, considering that the damaging effects of Covid-19 will be long-term and structural. There will therefore be a need for flexibility in promotion and investments also beyond 2021. The greater flexibility accepted by the European Commission has allowed wine companies to adapt their planned actions to the difficult circumstances experienced.
This increased flexibility should be maintained, as mentioned, beyond 2021 to improve the implementation of promotion and investment measures; extended to allow for the adjustment of programs during the implementation period and improve their effectiveness with measurable results; and expanded in its scope to add, among eligible promotion expenses, those related to market studies and promotion activities. In addition, given the current unpredictable scenario in Third Country markets caused by the pandemic, it is essential to ensure that wineries receiving support are not penalized for actions not completed.
Considering the need to protect the finances of wine companies in order to guarantee their sustainability, it will be necessary to maintain the cancellation of late payments from National Administrations to wine companies and, in general, to speed up and make more flexible the whole administrative process carried out before validating payments. However, the “Wine Package” will only be effective if a specific support program is also developed for the rapid recovery of the on-trade channel. Therefore, an ambitious specific stimulus plan for the Horeca sector in the European Union is needed.
There are, then, in Ceev’s plan, two secondary measures, however important. The first is green harvesting, for which it will be necessary to provide for greater flexibility in order to extend, on the one hand, its real applicability and, on the other, to finance market control measures more efficiently. It is obviously more efficient to finance the destruction of grapes in the vineyard than the destruction, through distillation, of the finished wine. In this framework, exceptionally for the 2021 harvest, it is requested to include in the “Green Harvest” measure the partial destruction, elimination or non-harvesting of grapes, on the whole or part of the holding in PDO/PGI areas, where the maximum authorized yield per hectare in 2021 is at least 10% lower than the maximum authorized yield in 2020, and when no wine declassification is possible.
Finally, more flexibility is needed in the planting authorization scheme. Given the difficulties encountered by winegrowers and companies in using the authorizations granted for planting or replanting vines, and since the uncertainty of the pandemic scenario persists during the current campaign, it will be necessary to further extend the deadlines that expire in 2021 until December 31, 2022 and, exceptionally, no sanctions of any kind (administrative, financial) should be imposed on producers who, despite the above extensions, fail to use their authorizations (granted in 2017, 2018, 2019 and 2020) on time.
The last aspect concerns the role of the NextGeneration EU. The Rural Development Programs have been extended in 2021 and 2022, with a budget of €26.9 billion from the European Agricultural Fund for Rural Development (EAFRD) and have been reinforced with an additional €8.1 billion from the European Union Recovery Instrument (Euri). Taken together, the funding available for rural development policy from both instruments is significantly higher than in previous years and can be mobilized to boost the recovery of rural areas and the agri-food sector.
The financial resources available in the RDPs can be used under various measures to address the challenges of the European wine sector. For example, both instruments can support investments in infrastructure, processing, marketing and packaging of goods. Most importantly, they can be used for a green and digital recovery of the agribusiness sector by supporting investments in sustainable energy, bioeconomy or organic farming.
Wineries can apply for support from Feasr and Euri, and member states will need to include relevant measures in their rural development programs.