EU sets sights on bold plan for draining wine lakes

BRUSSELS (Reuters) - Europe's farm chief unveiled an ambitious five-year plan on Wednesday that offers generous cash rewards to winemakers to encourage them to dig up some of their grape vines, hoping to drain the EU's substantial "wine lakes".

Under a scheme to start in August 2008, if EU farm ministers agree, subsidies to abandon vineyards would fall gradually each year in a carrot-and-stick approach to promote early "take-up" similar to that used in the EU's recent sugar reform.

Authored by EU Agriculture Commissioner Mariann Fischer Boel, the plan would scrap crisis distillation -- an emergency subsidy used to correct market imbalances and a huge drain on the EU wine budget of 1.3 billion euros ($1.77 billion) a year.

The EU is the world's largest producer, consumer, exporter and importer of wine. In recent years it has lost part of its traditional export markets to cheaper wines from Australia, Chile and also the United States, and seen a surge in imports.

Apart from fending off competition from New World wines by focusing more on quality than quantity, Fischer Boel's idea is to divert subsidies to discourage large unwanted surpluses that usually end up being turned into industrial alcohol or biofuel.

"We currently waste too much money, over a third of our budget, getting rid of surplus wine instead of improving our competitiveness and promoting our wines," Fischer Boel said.

"I am convinced my proposal will reinvigorate the European wine sector and allow us to take our rightful place as the world's biggest and best. So let's leave behind the rhetoric and do what's best for our wine growers and consumers."

Fischer Boel's ideas have annoyed several EU governments, especially the main wine countries of southern Europe such as France, Spain and Italy -- the world's top three producers. Together, the trio accounts for 80 percent of the EU vine area.

EU wine policy was last reformed in 1999.

CASH TO DIG UP VINES

A cornerstone of the plan is to remove the least competitive producers from the market and help them start other activities.

That would done by offering them a large amount of cash: 430 million euros has been earmarked to finance this in the first year alone, but that amount falls to 59 million in year five.

Winemakers who wish to leave the sector will be offered a subsidy if they dig up their vines, with a target of 200,000 hectares as the total vine area to be removed from production.

To protect the environment, countries may limit the amount of vines dug up in mountainous and hillside areas and may also stop digging up vines when the total abandoned area has reached the equivalent of 10 percent of their vineyards.

BAN ON PLANTING NEW VINES

Vine planting is strictly controlled in the EU, both by area and approved grape variety. New plantings are not allowed until mid-2010 except under particular conditions. Fischer Boel's idea is to extend that ban until 2013 and then scrap it.

That particular idea has incensed producers of some of Europe's most famous wines, labels that include Chianti, Rioja, Chablis and Burgundy, who say Fischer Boel's proposals jeopardize centuries of wine-making tradition and expertise.

Before that liberalization came into force, the quality producers say, the reform would have made conditions tougher on the EU wine market, forcing small traditional hillside vineyards to relocate to the plains and become more industrialized.

Other proposed measures include a ban on using sugar in winemaking, a practice used by countries with cooler climates such as Luxembourg and Austria to increase alcohol content.

Existing vine areas planted with non-approved grape types will have to be dug up, unless the wine produced is for consumption by the winemaker's family. No imported wines or grape musts would be allowed to be blended with EU wines.

The plan also envisages country allowances based on vine area, output and historical expenditure, allowing governments more leeway to control vineyard abandonment.

Within that cash, a large proportion will be set aside to promote EU wines in foreign markets -- nearly 20 percent in year one, and falling progressively by the end of the reform period.