Is time running out for the beneficio?

A system set up nearly a century ago to regulate Port production is now skewing the economics of grape growing in the Douro, finds Richard Woodard. But what will it take to make changes?

Adrian Bridge, CEO, The Fladgate Partnership
Adrian Bridge, CEO, The Fladgate Partnership

Eighty years since the beneficio system was set up to regulate Port production, there are growing calls for it to be modi­fied or scrapped altogether.

The beneficio – a ‘licence’ which tells each vineyard own­er how much of their crop can be used to make Port – is set ­annually by the regulatory body, Instituto dos Vinhos do Douro e Porto (IVDP). By law, Port ­producers must hold stock equivalent to at least three years of sales, with many exceeding this comfor­tably because of the need to mature premium pro­ducts, such as aged tawnies. So the beneficio has to take into ­account sales forecasts several years into the future.

The IVDP set the 2013 ­beneficio at 100,000 pipes, capping Port production at just over 70m Litres of finished product, although global sales this year are likely to top 80m Litres. With the price of brandy needed for fortification rising steeply, final consumer prices are being driven up as well, leading to a projected fall in demand for cheaper Ports. Put simply, the industry is wary of producing more Port now than future market demand can cope with.

Beneficio economics

First introduced in 1933, the beneficio was originally designed to maximise production in the highest-quality, A-grade vineyards. When demand rose, permitted production trickled down to the lower-grade vineyards to keep pace. When demand fell again, that process should, in theory, have been reversed – except that large numbers of small growers would have lost the right to produce Port. Their potential financial ruin was seen as politically and socially unacceptable.

Meanwhile, the Douro table wine sector has grown enormously in recent years – and some complain that Port is effectively subsidising it. How so? Adrian Bridge, CEO of The Fladgate Partnership, calculates that it costs about €650.00 ($879.00) per pipe to grow grapes in the Douro; Port grapes fetch about €900 per pipe, table wine grapes about €225. Growers can afford to sell at a loss, the argument runs, because of what they earn from their Port production.

Many growers in low-quality vineyards have no interest in producing Port, and their corporate clients often don’t want their Port grapes anyway. But by acquiring a grower’s Port production, the company effectively buys that grower’s beneficio, substituting its own, higher-quality grapes for those of the grower and making Port from them instead.

It’s the kind of loophole that, for many in the industry, makes change inevitable. “The beneficio system needs to be scrapped,” says Bridge. “Good farms lose money in ­order to help ensure that marginal properties are ­allowed to make Port.” At the very least, he would like to see the beneficio extended to cover table wines too, so that “everyone plays by the same set of rules”.

Sogrape’s George Sandeman, however, believes scrapping the beneficio would lead to stocks being devalued and, in time, put the sustainability of viticulture in the Douro under threat. It would also destroy the livelihoods of large numbers of the Douro’s 38,000 grape growers, warns Paul Symington, chairman and joint MD of Symington Family ­Estates. Describing the idea of scrapping it as “absurd”, he advocates serious reform instead.

Principally, he wants premium Port vineyards to be allowed to produce more, and lower-grade vineyards less. But: “Who is going to sell this idea to the thousands of farmers who have had Port licences for generations? I do not know of any politician who would even think of doing that. And, in any case, how would these people live once their licences were removed?”

Politically unpalatable

To be politically palatable, many believe, radical change would have to be accompanied by a transitional compensation scheme for growers, and preceded by an in-depth study. But compensation and investigation cost public­ money – and where will that come from? “Bear in mind,” says Symington, “that the government in Lisbon is in a desperate struggle to make sure they have any money at all to pay pensioners and keep the ­hospitals and schools open, so they are rather unlikely to embark on what might be a very expensive exercise, and one that would ­create ­further poverty and might create serious ­social ­unrest.”

So what will happen? Symington’s grim conclusion is that market forces will do their work, and vineyards will be abandoned, in a process only prolonged by the cushioning ­effect of the beneficio. Sooner or later, the ­government will be forced to act. His fear is that it will be too late to save “a large chunk” of the Port industry. 

And Bridge’s prognosis is starker still: “I give the system until 2020. By then, enough people will have merged or gone bust for reality to be accepted.”

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