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Subsidising wine

FT- Subsidising Wine_01-05-15The EU has now increased the sum available for promoting wine over the period 2014 to 2018 by 121 per cent to 1.15bn

“Making good wine is just the beginning – selling it is what’s difficult.” So says Silvana Ballotta, and she should know: she runs Business Strategies in Florence, helping small and medium-sized wine companies to expand internationally.

A common, and to my mind justified, complaint of wine producers outside Europe has been that their EU counterparts have long been cosseted by subsidies to guarantee a minimum price or even paid to have their unwanted produce distilled into industrial alcohol. In 2008, all this changed: the EU decided that the funds once poured metaphorically into the European wine lake should be spent instead on promoting European wine outside Europe, creating new markets and making it more competitive with the likes of Australian Shiraz and California Chardonnay.

Some 522m was spent promoting European wine outside the EU between 2009 and 2013. And now – rather amazingly considering how many misappropriations have been uncovered – the EU has increased the total sum available for the period 2014 to 2018 by 121 per cent to 1.15bn a year. (Wine exports from the EU are worth 8.6bn.)

Illustration by Ingram Pinn of the EU subsidising the price of wine©Ingram Pinn

France, for example, is to be allotted 280.5m every year between now and 2017 – very much less than the other two big wine producers of Europe, Spain and Italy. Perhaps this is in response to the discovery, as part of the EU audit into how the money was spent, that “one beneficiary presenting an amount of 3,405 was classified as ‘informative travels for journalists, importers, market co-ordinators, etc to the area where the wine is produced’,” but turned out to be the cost of three VIP tickets for the tennis championships at Roland Garros “which cannot be considered as a wine promotion action”, as the report concludes drily. The French were also highlighted unfavourably for claiming 2.4m between 2009 and 2012 for the promotion of champagne, a name that is already world-famous and has been fiercely protected for years.

The country that had the most money to spend last year, 353m, was Spain, although the EU pointed out that far too high a proportion of funds, 88 per cent, was given to six big companies that already had a presence in export markets. The whole point of this initiative is to make life easier for small and medium-sized companies.

Spain’s budget has been slashed from this year but Italy has 334m to spend annually up to 2017 – good news for Ballotta. She has worked at the World Bank and, usefully, for the EU. Since 2009 she has been helping smaller Italian companies find EU matching grants to promote their wares outside Europe (whereby the EU funds 50 per cent of approved projects). She speaks disapprovingly of the 14m that some of Italy’s biggest wine companies managed to claim in 2009.

Her work has typically involved grouping small companies into a larger entity so as to qualify for the minimum EU grant of 100,000, nursing them through the process of attacking Asian and US markets and, crucially, helping them account for themselves afterwards. The Veneto (Prosecco, Amarone, Soave and cheap Pinot Grigio) takes the lion’s share, then Sicily, Tuscany and Piemonte. “Getting the money is the easiest part,” she says, “but 10 out of the 15 people in our office spend their time auditing. If there’s a missing boarding pass or comma on a report, then things are very difficult. And if they forget the EU logo [on promotional material], the EU won’t pay.” Indeed, in Italy at least, there seems to be far more emphasis on the process than the results.

Wine exports from the EU to Asia have been increasing but it is difficult to argue this is as a result of the sort of initiatives that Ballotta and her like have been organising. She does realise what a blunt instrument she is working with. “We find wine producers filling in forms proposing a campaign in, for example, Shanghai, getting the grant, and then asking, where’s Shanghai?” she says. “Typically, they get the money and then we have to nurse them through how to spend it. And we have to be careful that everything is co-ordinated and the recipients aren’t all trying to court the same importers. Many of them don’t speak languages, get the funds to go to an Asian wine fair and just sit there. Not even a prostitute sits and waits.”

The most obvious beneficiaries of the EU strategy have been the organisers of wine fairs in Asia; Asia has the least saturated target markets and the easiest way to make contacts is at a fair. These have mushroomed across China – rare is the month when I am not invited to one of China’s third cities for the wine event of a lifetime.

Hong Kong Vinexpo, the Asian version of Bordeaux’s wine-trade fair, started off with just one floor but had grown to such an extent last year that Italy alone occupied a whole floor.

A more recent Chinese problem has been organising grand dinners to accompany the fine Barolo and Brunello being represented. “You can’t serve lamb in pineapple sauce with fine Barolo,” says Ballotta. She is opening an office in Shanghai, to be run by a Chinese woman who used to represent Château Mouton-Rothschild but wants to move on to the wines of Italy.

In the US, the approach is very different because Italian wine is so well known there and trade fairs are less important. Instead, efforts tend to be focused on tastings for sommeliers. Any half-decent restaurant can be depended upon to come up with suitable food matches.

EU funds may be used for advertising and at one stage it was the summit of many small producers’ desires to see their wine feature in a glamorous ad in one of the world’s top wine magazines. But now that little effect has been noted, most of them are questioning the value of this particular approach, according to Ballotta.

She sees potential in Central and South America, even though Brazil has protectionist measures in place. But, if all goes as expected, the next target market will be the UK, which the EU is expected to add to its permitted spheres of subsidised wine promotion shortly. Good news for organisers of UK wine fairs, presumably.

Source: FT