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| February 7th 2007 |
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| Subsidies are trade barriers with a social veneer |
by Joel B. Payne
"Subsidies are trade barriers with a social veneer".
Politicians tend to postpone delicate matters. Their principle aim is not to solve difficult problems, but to push the right pawns forward to insure the permanence of their own elected office. It is thus not surprising...
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...that the reforms necessary for the European Union’s wine market have been postponed until the summer.
The original goal was laudable: 1) To increase the competitiveness of European wine producers, strengthen the reputation of quality wine, recover old markets and win new ones; 2) To create a regime that operates with clear, simple and effective rules to ensure a balance between supply and demand; and 3) to preserve the finest European traditions while reinforcing the social and environmental fabric of many rural areas.
However, as the European foreign trade budget spirals downwards, taxpayers’ money is being wasted on relics of the past rather than investing in the future. Paying grape farmers in France, Italy and Spain to produce wine that no one wants to drink merely because they would strike or, worse, vote for the opposition party if their wants are not met, is pandering to the public. Viewed cynically it is actually a form of bribery, hoping the troublemakers will keep mum.
It is a scandal that national television chains, tipped off by a public relation’s office, follow angry mobs as they break down gates and drain large tanks of foreign wines. The police follow to maintain control, as it is said, but make no arrests. If the French want to indulge the pubescent urges of their farmers – a desire that seems to be as much part of Gallic wine tradition as the finest vineyard sites - let them do so; but it is understandable that the British, Dutch, Swedish and other European countries are no longer willing to pay for it.
Structural changes will come in time anyway. Wouldn’t it be wiser to invest the majority of the 1.3 billion Euros spent annually in distribution and communication in order to aid those with a future to compete in the rapidly changing world of global markets? Europe is proud to export its cars, chemicals and computers to emerging nations, but would rather erect barriers – and this is essentially what subsidies are - to prevent the barbarians from breaking into Europe’s soup kitchen.
It has been more than a year now since the European Commission created a panel of experts to ponder reform. Unveiled last June, the plan included a proposal to grub up 400,000 hectares of vines. Opposition by France, Spain and Italy essentially put the proposal on ice. Meanwhile, most European wines continue to struggle against those of the New World in the all important British, American and German markets – and are encountering increased competition in the emerging markets of Russia, India and China. At the same time, European domestic consumption is falling and, potentially more threatening, the youth no longer sees wine as integral part of their lifestyle
California went through a phase of overproduction from 2001 to 2004. During those years, enormous volumes of grapes were left on the vine due to a lack of demand and acreage was reduced by ten percent. Prices fell, and many investors lost money, but the laws |
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of supply and demand regulated the situation and most observers expect the industry to be back in balance within a few years.
Similarly, Australia today sits atop a vast lake of unsold wine, but few realistically are waiting for the government to step in and bail them out. Even fewer want it. Instead, they have learned to mothball vineyards, sell off excess wine in bulk, even if it be at a loss, and set their sights on new markets.
Sure, the excess in those markets was partially responsible for the severe price compression that we have seen in many markets as supply has outpaced demand. On the bright side, these events have put an untenable European model out for the count. Binding the hands of those with ideas, preventing the successful from buying or planting the vineyards they need and criminalizing wine advertisements, while at the same time pandering to those who are unable to sell yesterday’s newspapers is proving to be not only backwards, but also untenably expensive.
With presidential elections set for June, officials in France maintain that the proposals are too brutal. Why? They’re at least being offered something. When textile mills are moved to China, the workers here are left with little or nothing other than the dole. Asking the unemployed to work for the monies the state pays them is an idea that appeals to many, but to date it has found no majority in parliament. If it ever happens, though, I would rather they keep the streets clean, tend the public parks or help at nurseries caring for the children of the workforce. They needn’t be making wines that none of us want to drink - at least not with my taxes.
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