France plans to convert 200mill. litres of excess wine into industrial alcohol, mostly AOC wines for the first time in history. Is there a lesson in it for India By Subhash Arora

The French wine industry plans to convert over 200 mill. litres of wine into industrial alcohol. The government has decided to approach the EU for an assistance of 300 mill. Euros to complete the process. In spite of several measures taken by the government to limit production and increase sales, it has been saddled with over 250M liters of surplus this year. This includes 100M litres in Bordeaux alone. The proposal comes from the Confederation of French Wine Co-operatives which represents 110,000 winemakers who account for half of French wine production. Agriculture Minister Dominique Bussereau announced last week that the proposal will be discussed with the wine industry.

It has been a common practice in France to convert excess wine into industrial alcohol. In 2002, 270 m litres were consigned to distillation. But so far they have been table wines or VDP quality wines. Robert Beynat, CEO of VinExpo, the bi-annual, largest and most popular wine show in the world said, ‘Generally, distillation is for the worst products'. But what is shocking is that for the first time the AOC wines (the highest French Appellation) - 200m litres of them ‘will go down the drain' and be converted into alcohol for use in the pharmaceutical industry or even as car fuel, confirms Onivins, the Government Department dealing with wine industry. According to Denis Verdier, head of the French Wine Cellars Confederation, ‘This is the first time in the history that French wines are being forced to call in the distillers due to the gravity of the crisis.'

AOC wine producers will get only one-fifth of the usual market price if they sell to distillers who in turn will have a guaranteed take-off by the EU. ‘Better than nothing but still an extremely low compensation of the vintner's work," said Roland Feredj of the Interprofessional Council of Bordeaux Wines (CIVB), the association of winemakers and wholesalers from this famous region. ‘It is a particular situation because the economic crisis hits all wines. The AOC sector is not sheltered from the economic downturn or the drop in consumption', he says.

French wine has been reeling under the over supply situation for 5 years due to several factors. Export of wines has been on the decline. Last year saw a drop of 25% in the export market. Most of the drop has been in its major importing countries, Germany, US and UK where the drop has been 30% in terms of value. The fall has been also because of a particularly strong 2003 due to the release of an excellent 2000 vintage. Its top tier of producers still make great wine, and no one sees any real threat to this sector. But the wine industry, in general is in trouble. Modern France hasn't marketed its wines using the skills with which it makes its wines. Aggressive producers from Australia, USA, Chile and South Africa have edged France out of its traditional lead in world wine exports. Even at home, the consumption is on a steady decline. The average Frenchman drinks 50 litres of wine a year – only half as much as in 1961. A study for VinExpo published last Thursday has predicted that the United States will overtake France as the leading overall wine consumer by 2008 - although the French would still lead on a per capita basis.

The government has also unveiled a package for the wine-industry that includes 70 m Euros in grants and tax breaks for producers, subsidized early retirement for 500 vine growers, and permission to rip out some vineyards in regions that have consistently produced surplus wine. The strategy is to balance the supply and demand equation by reducing the supply.

Meanwhile, a variety of other efforts are under way. For one, the French government recently somewhat eased the country's stark conservative laws on wine advertising, known as Evin Law. In a broader initiative, the government is also taking a fresh look at traditional French wine labeling, questioning whether the "appellation" system, with separate label requirements and agricultural and vinification rules for each of nearly 450 wine-growing regions, making French wine too extraordinarily complicated for the average consumer to grasp. Seeking to demystify and simplify the complex wine labels, the government agencies already encourage the non AOC producers to mention the name of the varietals as in the New World wines..

So what is the lesson in this tough situation for Indian wine industry? Firstly, if you compare this surplus of 250 m litres with our total annual consumption of about 400,000 cases (under 4 million cases) you realize how miniscule our wine consumption is. And imagine if only an insignificant 2% of the AOC wines being converted could be transferred to India at one –fifth the cost and thereby meeting all the consumption demand!!! Also imagine the immense profit potential for the importers and wine producers and bottlers who could strike a tough bargain by committing bulk imports.

But what is more significant is the impact on the possible scenario for the Indian wine industry. Indage, Sula and Grover are established producers who know how to count their marbles. But the mushrooming growth of the new wineries need to have a strong marketing plan. And the industry has to join hands in promoting wine consumption which has taken a quantum jump during the last 3 years since the Delhi Wine Club was formed but a growth rate of 25-30% is insignificant for a small starting base and we need to talk about 40-50% growth and steps to achieve this growth.

We need to create Brand India by constantly improving quality, and taking part in the international wine fairs like VinExpo or Vinitaly as a wine producing Nation. It pains me to see small countries like Ukraine, Tunisia and Uruguay taking part in the international wine shows while all and each of our producers following their individual paths of growth without getting together and with the help of the Government taking the country flag flying at these shows.

Mr.Sham Chougule, Mr.Rajeev Samant, Mr.Kapil Grover, what'd you say ??!!

Subhash Arora