Europe’s wine producers could use a drink.
On top of being battered by coronavirus restaurant closures at home, they’ve been muscled out of their chief export market in the U.S. due to a bitter, tit-for-tat trade dispute between Brussels and Washington that is more to do with airplanes than grapes.
As they clamor for the end of punitive wine tariffs, Europe’s vintners will be the first to feel whether President Joe Biden intends to repair the fraught transatlantic trade relationship, and herald a return to the friendlier cooperation of the pre-Trump era, with all its significance for geopolitics and diplomacy.
In the short-term, however, it looks like plus ça change. Indeed, winemakers look increasingly like frontline pawns in the trade war, as the new U.S. administration bides its time on Europe and weighs up whether Brussels looks like a realistic trade partner on key strategic topics like Russia and China.
Only last month, Washington began collecting fresh duties on wine imports on top of the 25 percent tariffs already in place on French, Spanish and German wine, all of which were imposed as part of a long-running trade fight with the EU at the World Trade Organization over state subsidies for airplane giants Boeing and Airbus.
That’s despite intensive lobbying to settle the dispute from the wine sector, which knows that the escape valve of exporting to America — by far the thirstiest customer of EU wine outside Europe and the U.K — could help make up for the disintegration of drinking at bars, restaurants, celebrations and on holidays across the Continent.
“It’s a diplomatic urgency to make sure that these tariffs for wines exported to the United States stop as soon as possible,” said Bernard Farges, the president of EFOW, a group representing the specially protected EU wines that make up the bulk of the bloc’s transatlantic exports.
Although most of the wine grown in the EU is also sold in the bloc, the U.S. is as crucial a market for EU producers as the U.K. is, with each country accounting for around a fifth of the total exports outside the bloc. The next biggest drinkers, Russia and China, don’t even come close, according to Eurostat.
But fancy French wines from Merlot to Pinot Noir have been hardest hit by the U.S. tariffs, which have helped push the volume of French wine exports to a 15-year low, according to French government stats.
French wine exports to the U.S. have dropped in value by 18 percent, according to data from FEVS, the French wine exporters’ federation, published Thursday. The group priced the drop in French wine exports to the U.S. at €386 million in 2020.
With Biden’s new administration settling into the White House, wine lobbies and EU politicians are pressuring EU trade chief Valdis Dombrovskis to uncork the trade barrier.
The Latvian commissioner, who oversaw a retaliatory move to slap tariffs on around $4 billion worth of U.S. goods last year, has framed resolving the Boeing-Airbus row as a possible first step toward creating warmer trade relations with the U.S. across the board.
The head of the European Parliament’s agriculture panel, German center-right lawmaker Norbert Lins, recently demanded “a moratorium on sanctions on both sides of the Atlantic,” and urged the Commission to “seize on the new momentum in Washington” under its new leader.
Dombrovskis said in a speech at the U.S. Chamber of Commerce earlier this month that the EU wants “to act quickly” to negotiate a solution to the aircraft subsidies dispute and said he was “eager to work on mutual suspension of all tariffs and countermeasures.”
His colleague Janusz Wojciechowski, the EU farm boss, on Tuesday echoed that message, describing European farmers as “victims” of the trade fight in front of an American online audience.
Nevertheless, the wine sector is still waiting for real change.
“We are realistic and we knew that Biden cannot just arrive and the day after eliminate or suspend these tariffs,” said Ignacio Sánchez Recarte, the secretary general of European wine exporters lobby group CEEV. He nonetheless warned that the import duties are damaging EU exports “extremely” with every passing week.
At the same time, multiple waves of COVID-19 in Europe have brought restaurant closures and restrictions on social gatherings resulting in 30 percent less wine being sold in the EU, according to CEEV.
Spaniards drank 20 percent less Rioja in 2020 than they normally do, mainly because of restaurant closures, according to figures provided by the DOCa Rioja corporation, which regulates Spain’s oldest designation of origin scheme.
If Europeans are quaffing vino during the bleak winter under the shadow of COVID-19, it is also more likely to be the cheaper stuff, the CEEV has calculated, which is a bad trend for the sector.
“No one in the wine sector believes that this crisis will go away from one day to another and we are all very much convinced that the long term effect will be even bigger than what we can envisage right now,” said Lucia Segurini, wine policy officer at the major EU farmers’ lobby Copa-Cogeca.
Industry experts believe that Europe’s wine business won’t return to its pre-pandemic health for at least another two to three years.
As the Continent braces for a third wave of the coronavirus, some are also worried that the EU’s major wine competitors in the New World are capitalizing on Europe’s difficulties in exporting to America.
“It’s not just the wines we are not able to send there, but it’s the market share that we are losing there, and to recover every dollar that you lose in exports will cost you five times more to recover it,” said Sánchez Recarte. “Definitely non-EU wines have won.”
Europe’s major global challengers such as Argentina, Australia, Chile and New Zealand seem to be less badly hit, and some have increased their sales to the U.S. during this period.
The extremely high tariffs that China imposed on Australian wines late last year could also spell heightened competition for European sellers, as Australia looks for alternative outlets.
Aussie exports to the U.S. and to Europe are on the upswing, according to data from Wine Australia.
However, the outlook isn’t entirely grim for the EU, because Italy — Europe’s biggest wine exporter in terms of sheer volume — and Portugal were spared from the U.S. tariffs on wine (but not on other foodstuffs like cheese).
“I think Italy is making the most of it to take up a part of the market in the United States,” said Thomas Montagne, the president of CEVI, the European Confederation of Independent Winegrowers.
There are also fears that the wine that is neither being knocked back in Europe nor flowing to the U.S. is only collecting in cellars to exacerbate a vintage EU problem: overproduction.
“What hasn’t been sold won’t be sold. There is too much wine on the market,” Montagne said.
Europe’s swelling bodegas risk pushing down prices for producers and recall the so-called wine lakes crisis that hit the EU in the mid-2000s, when countries like France and Italy made too much wine, prompting a major farm policy overhaul in Brussels.
That is despite the Commission recently extending EU measures aimed at encouraging producers to take wine off the market by distilling fine wines down to pure ethanol and ripping up vines before grapes have ripened.
The measures have been in place since last year and will be until mid-October this year, after the European Parliament waved them through this week. But the wine sector and some MEPs have long criticized them because they don’t include any additional EU funding, meaning the prices offered to farmers to distill the wine are too unattractive, they say.
MEP Christine Schneider, who represents the major wine-growing region of Rhineland-Palatinate in southwest Germany, has been calling for more support for winegrowers and pointed out in an email to POLITICO that EU wine stocks are higher than they have been since 2009.
“I call for sales-promoting measures to regain the sales we have already lost and to strengthen the sales of European wines worldwide,” wrote Schneider, a member of the center-right EPP group.
But even though the EU invests hundreds of millions of euros every year in promoting wine and other farm produce worldwide, the pandemic has made that strategy more difficult.
“We cannot activate promotion now: Nobody is able to travel, restaurants are closed, there are no fairs, so we need to wait for the reopening,” CEEV’s Sánchez Recarte said.
Whether or not Biden acquiesces to Brussels’ pressure to revoke the U.S. wine tariffs, the greatest gift to the industry would be the reopening of Europe’s restaurants when the risk of COVID-19 recedes — and that can’t come soon enough, winegrowers say.
“Everyone has put some money aside,” Montagne said.
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