EU winemakers face major subsidy changes from 2008

KREMS, Austria, May 30 (Reuters) EU winemakers will face major changes to the way they receive subsidies from 2008 if governments can agree on a wide-ranging reform that aims to cut production and put an end to Europe's notorious ''wine lakes''.

Determined to get producers to abandon some of their vines and focus on better quality, EU Agriculture Commissioner Mariann Fischer Boel is finalising a plan due to be published on June 22 for aligning EU wine supply far better with demand.

It aims to help Europe fend off tough competition from New World exporters like Chile and Australia. The EU spends some 1.3 billion euros a year subsidising the wine sector, which was last reformed in 1999.

There is no idea to alter that amount of cash.

EU governments, along with the wine industry, will get the chance to discuss the plan's various options until the autumn, when the European Commission will draft a formal reform proposal for publication in December or January.

''Then we have the first half of 2007 to have an in-depth discussion with the member states and I hope we can manage to finalise it before summer 2007,'' Fischer Boel told reporters on the margins of an informal meeting of EU agriculture ministers.

''Then we need implementation, so that would be from 2008.'' Keen to stop the EU from relying on distilling surplus wine into industrial alcohol and biofuels, Fischer Boel wants to use a ''carrot and stick'' approach similar to the one she wielded in last year's sugar reform, to cut back on unnecessary production.

CRISIS DISTILLATION For many years, hefty production subsidies skewed the balance between EU wine supply and demand and led to huge surpluses that could not be easily sold. The EU is the world's biggest producer, consumer, exporter and importer of wine.

Although that balance has narrowed since the mid-1990s as the focus has shifted to quality wine, Fischer Boel has often complained of the large amount of cash that the EU spends on ''crisis distillation'' around half a billion euros a year.

In contrast, marketing and promotion of quality wines only eats up some 14 million euros annually.

''In my view, what we need to do is to spend more money on marketing wine. We have to use the money that's spent now on distillation in a more intelligent way, to promote consumption,'' Luxembourg's Agriculture Minister Fernand Boden told reporters.

For wine, a complex sector with several different subsidy types, a key area likely to be targeted will be ''grubbing up'', or digging up, vines permanently -- by offering cash incentives for winemakers to abandon land they don't really need to use.

Another idea is for ''national envelopes'', or country allowances based on historical production, with national leeway to control vineyard abandonment and essential distillation.

Although it remains the major player on the global wine market, Europe has recently lost part of its traditional export markets to cheaper wines from countries like Australia, Chile and also the United States and seen a surge in imports.

''A reform has to restore European wine production to be competitive with imports that we have seen from the new wine producing countries,'' Fischer Boel said.

''I want to make a bold reform because just changing minor things wouldn't improve anything,'' she said. ''But there are many cultural feelings on wine I would consider it even more difficult than the sugar discussion.'' REUTERS SY VV1525