The European wine market is heavily regulated, but quality and quantity are not the only criteria monitored by EU legislation

20/01/2014 The political economy counts more, the true

Almost half of the vineyards in the world are in the European Union where 60% of the world’s wine is produced and consumed. But the Old Continent is not only the biggest wine region and main importer and exporter, but also a heavily regulated market. Why? AAWE authors asked themselves the same question in the research paper “The Political Economy of European Wine Regulations” which has as its main thesis the direct influence of the economy on the mechanism which, from the start, has generated the structure of norms which regulate wine in the EU. In Europe, the role of EU norms take on many forms: they determine where some wines may be produced while others may not, the minimum distance between the vines, the type of vine which can be planted in certain regions and so on.

But the regulations also determine the subsidies available to EU producers, the economic help for the uprooting of existing vineyards and impose limits to planting new ones in addition to financing the distillation of surplus wine. A mass of rules which are not always efficient in resolving problems and could have contributed to creating some distortions in the industry. Just as an example, between 20 and 40 million hectoliters (equal to 13-22% of wine produced in the EU), the equivalent of 3-6 billion bottles (Eurostat, 2013) have been distilled every year over the last three decades. Many studies by the same European commission on the wine industry find the amount of distillation, which is neither effective nor efficient in eliminating the structural surpluses, results in too high an expenditure for the EU. In fact, the short-term revenue support creates a stabilization of the surplus in the long term, with the aggravating circumstances that the persisting amount of distillation could provide incentives for the production of industrial alcohol at the expense of wine.

More than 2,000 among the regulations, directives and decision about wine have been published in the EU since 1962, and a good part of this articulate legislative system is directly traced back to the logic contained in French norms introduced between the end of the 19th century and the first years of the 20th century: quality regulations like the AOC system introduced to protect historic producers, such as the rich landowners in Bordeaux, from imitations and adulterations; quantity regulations like the restrictions on training systems introduced to protect the producers from importing low-cost wines.

A few examples clarify this decisive imprint, impressed by France to the rest of Europe. In 1970 the big crisis of overproduction triggered pressure from French producers for the introduction of production control norms in the EU as a whole just like in 1930 when wine producers in the south of France (threatened by the influx of Algerian wines) pressured the French government for the promulgation of the “Statut Viticole” about production regulation. In 1976, French producers (threatened this time by the influx of Italian wines in their country) pressured their government into imposing a greater EU regulation on the production of wines within the community.

The European legislative policies, therefore, tried to regulate the quantity, price and quality of wine, but the quantity and price regulations can be understood only from a political point of view, that is by analyzing the intensity of the political pressure on the EU decision-making process. In fact, their main goal is that of redistributing resources from (potential) new wine producers and consumers to existing producers.

In an environment characterized by skewed information between producers and consumers, that is where consumers have imperfect information about the product, as in the case of wine, the EU regulations guaranteeing a certain quality and/or certain basic product information, can enhance overall welfare. In the same way, the norms which prohibit the use of unhealthy ingredients may better consumer welfare by reducing and/or eliminating the problems of skewed information. The quality regulations also relate to the distribution of revenue: according to their implementation, they can, in fact, create revenue for specific groups of producers who must face minor implementation costs for certain quality norms and for those who have access to resources or key prerequisites required by the norms. For example, the norms which limit the production of some types of wines (expensive) of a certain region, may bring with them benefits to the owners of those wineries and may damage the owners of land and vineyards in nearby areas. Other European wine quality norms have strong distributive effects on the income in that they require access to very specific goods, such as plots of land in specific regions. Other examples of quality norms with clear distributive effects are those where certain techniques are not permitted such as the use of hybrid varietals, blending different wines and so on.

When the regulations were introduced mainly for efficiency reasons, they always created profit for limited categories and induced lobbying to keep these regulations active even after their efficiency effects had diminished. In conclusion, to understand the internal dynamic of the EU regulations of quantity and quality, it is necessary to look at the interaction between the political and economic aspects of the same regulations: these norms were almost always introduced to protect existing economic revenue when the same were threatened by innovation or by the increase of wine imports in Europe.