Thursday, December 15, 2016

In EU wine, the rich countries get the government subsidies

Smithers, are the Greeks at the door again? Release the hounds.
European wine producers receive government support, and I'm all for that. I wish American wine producers got more support from our government, rather than all our agricultural subsidies going to rich landholders to not grow grain.

However, the question is, which countries should get the most EU support?

My guess would have been three countries that make great wine but have been in economic crisis for years: Greece, Portugal and Spain. Wrong.

A new study published in the Journal of Wine Economics shows that just as in the US, the rich EU countries get the subsidies. Of course they do.

The study, by Kym Anderson of University of Adelaide and Hans G. Jensen of University of Copenhagen, adds up government support from different areas, starting with money paid directly to vintners but also including several types of subsidy that have not been included in official OECD reports.

These additional supports include subsidies for distillation of low-quality wine, non-product-specific support for rural farm regions, and tariffs on imports from non-EU countries that support domestic prices. Adding in these factors more than doubles the amount of EU support that the OECD counts.

In total money received, France is way ahead of every other country. This isn't surprising and it isn't wrong. France has a much larger population of small vintners than other countries and its wine industry is of great importance to the nation. Italy and Spain are second and third in total support, and the same reasoning applies to both (though Spain's wine industry isn't quite as mom-and-pop as France's.)

It's surprising to see EU economic basket case Greece ninth in total EU support behind economic powerhouses Germany and Austria, which each receive more than three times the total support of the Greeks. It is Germany's money, but the idea of EU support is to help struggling vintners.

However, when you look at the support per hectare of vines, or support per kiloliter of wine produced, the numbers get silly.

By both measures, No. 1 in EU support, by a large margin, is Austria. Aren't they the ones complaining about left-wing European government?

Greece has 2.25 times as many hectares of vines as Austria. But Austria receives 3.4 times as much total direct EU support as Greece! That Austria also receives nearly 4 times as much indirect support as Greece is just piling on.

By support received per hectare of vines, Cyprus is second. Good for Cyprus: it can use the help. But then come France and Germany.

Think about this: the French are supposed to be the masters of running vineyards, yet they get more government support for it than almost any other country. And then there are the supposedly efficient Germans, living on government money.

Portugal, Spain and Greece all receive below-average government support per hectare. In fact, Greece receives the lowest per-hectare support of the entire EU.

By per-kiloliter standards, Slovakia and Slovenia (which are not similar despite the names) are Nos. 2 and 3. Slovakia can surely use the money. Portgual at least gets above-average support per kiloliter and slightly more than France.

What does this mean? The French are taking their government vineyard support and making more wine, which is their prerogative, but it shows they're more interested in quantity than quality. The Portuguese are taking their government support and making less wine -- which makes a lot of sense, as they need to convert their bulk wine industries into premium production.

Meanwhile, down at the very bottom of the support-per-kiloliter table are Spain, followed by Germany, followed by Greece.

What does this mean? Well, we already established that Greece isn't getting much EU support. For Germany, it shows that as with France, they're taking EU money and using it to churn out tanker trucks of something.

How much money are we talking about? The authors say that in 2011 and 2012, the average EU vineyard received 700 euros per hectare (283 euros per acre) of government support. Wouldn't San Joaquin Valley farmers like to get that? Austria, France, Cyprus and Germany got more than 1000 euros per hectare (405 euros per acre).

The overall average amounts to about 15 eurocents per bottle of wine produced in the EU, averaging all countries. That may not sound like much until you consider what the average price of a bottle of wine in the EU is: less than 7 euros.

In most places, the best-connected at begging for government help, not the neediest, get the most money. The EU is clearly no better.

But Europeans complaining about Greece really need to take a closer look. The Greeks can use the money but the Austrians are waltzing off with it.

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Zzzz said...

There is an additional level of turd with this in that the EU money is granted to the country which then disseminates it to the regions. If you happen to be in a region that has a shitty relationship with the capital (ie, Catalonia and Madrid), then you see none of those delicious EU greenbacks and they push all the money to lesser known regions to do things like grow Cabernet Sauvignon and Grenache in the south of Spain.

I'm all for Europe's social nets, versus the lack of any in the US but they have a bad habit of interfering a great deal in the free market.


Unknown said...

Blake, how did you come to the conclusion that France is making more wine and Portugal is making less from this data?

W. Blake Gray said...

Kent: Compare the money per hectare with the money per kiloliter.

Unknown said...

Blake: Yes, the two charts suggest that yields in France are more than double those of Portugal, but that doesn't make your conclusion accurate.You said,

"The French are taking their government vineyard support and making more wine, which is their prerogative, but it shows they're more interested in quantity than quality. The Portuguese are taking their government support and making less wine -- which makes a lot of sense, as they need to convert their bulk wine industries into premium production."

First of all, the charts are a point in time. They do not shows trends. So, we get no reflection of Portugal's bulk wine industry converting to premium production.

Furthermore, higher yields in France does not necessarily mean that producers in France are more interested in quantity than quality. The difference in growing conditions and wine styles has more to do with the yield difference than different levels of desire for quality. Yields are naturally much lower in the steep, arid hills of the Douro than they are in Bordeaux or the Rhone Valley. And yet, all three regions are seriously focused on producing high-quality wines. Your analysis seems to be approached from a simplistic good guy vs. bad guy, rich vs. poor assumption. Your characterization of rich French producers largely squandering EU money on cheap wine while poor Portuguese producers make good use of the meager EU portion they receive by focusing on quality wine is an unfair, and I think mostly inaccurate assessment.

colinasvit said...

Interesting article. Please check your conversions though. There are 2.47 acres per hectare. So more like 283 to 404 Euros/acre.

W. Blake Gray said...

Colin: Oops, thanks. Usually I'm good at math.