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Study on the socio-economic and territorial liberalization of planting rights for the vineyards

This studies the planting rights in different countries and especially the cases of : Italy, Hungary and Germany, analyses the impact on the socio-economic and territorial liberalization of planting rights and the national regulation framework applied by every country/region. In Italy there are 5 principles applied in regulating the planting rights: the limited life duration (spend) the usage of vineyards only for producing qualitative wines, stabilization on the demand, ability to control the sector administratively, no transfers between extra-regions, no entry in the market for new comers. The possibility of speculation in some different areas, problems in restructuring of some local companies, limitation of new june winemakers (absence of national reserves to give them access to free planting rights), the abandoning of not favorable grounds are issues that have to be addressed. National reserves play an important role in the influence of the rights prices, theirs involvement in the market and the usage of the noble vines. The study case in Hungary considered the different aspects of this problematic: political, socioeconomical, institutional, access to new comers. Foreign investors in the sector had access to the market after 2004 and there approach was based on the financial aspects of the brands. The usage of all the ground, with no regards to the surface conditions. The actual planting rights did not restrict the development of vineyards, but it limited the quantitative accumulation of surface. In Germany the internal market is open, liberalized, based on concurrence, but still segmentated. The system of regulation is adapted to the regions reality. There are no central governmental institutions that are involved in the sector, but there are limitations done by local reserves. The market is very active, and the german wine sector has a specific fiscal regulation (every wine exploitation has to justify their rentability on a minimal 10 years orizont).

1.

Italy

In Italy there is a heterogen and regionalized system with a big diversity of noble wines. Under the actual legal we find a 7.4 % potential of planting. Use of planting rights in Italy has followed closely the legislative developments at EU level. Italy is characterized not only by a variety of vineyards, but also by heterogeneous practices in the management of planting rights in different regions. The planting rights should be used before the end of the second year following that of the authorization and the extent of the validity of planting right (maximum 8 years). In case of no use in these time limits, the right planting integrates the regional reserve.

The transfer shall not increase the production potential. The objective is to produce quality wines (PDO, PGI): 2 HYPOTESES a. the planting rights are associated with the ability to plant the exact same category of geographical indication, or a category superior to the previous. And the surface that are irrigated with no irrigated once, is applied a reduction factor of 15-30%. Planting rights can be suspended by the local authorities temporary. The existing rights did not stop the increase of the planted surface on a specific area, but with consideration for the PDO and PGI wines. On a free market the price will decrease significantly, and will be influenced by intermediaries, without a system of control at the national level for the production potential. It`s also necessary to have a local instrument and the transfers must be entered in the register area

naming or geographical indication. The existence of rights to plant vines is not sufficient in itself to ensure a balanced supply and demand. In Italy, administrative complementary performed by different regions better achieve this adjustment. The regions used planting rights to manage the growing potential of both quantitative and qualitative. Italian wine regions have played a role in the preservation of wine production potential. Veneto: the current system of planting rights has not prevented the regions where the demand for wine is growing to develop. Not only the planting rights control the viticole potential of the region. To preserve the equilibrium on the market they developed a qualitative viticulture by implementing: triennial plans, authorization of planting, blockage of the transfers between regions, market monitoring by appellation. The speculation is facilitated by the lack of transparency in the identities of the buyers and sellers and the absence of information on the availability of the planting rights. The application of EC Reg 1493/99 has made the market more active until 2003. Vendors rights were located mainly in lowland areas where viticulture was marginal and offered quality wines generally modest. The area where the demand was stronger concerned the provinces of Treviso and Verona, while in the basin of Vicenza, the demand was in balance. The average size of the rights transferred is rather limited: in 80% of cases, the surface does not exceed 1 ha. Thus, half of the purchases and sales for average areas less than 0.5 ha. Replanting rights are redeemed to growers, most (73%), for the production of PDO wines, mainly due to the orientation of the winemakers grape production more qualitative. In 2003, the majority of planting rights (57%) were transferred within the same province. It was, therefore, an essentially local market. Only 22% of transactions were carried out at regional level (Veneto Region) and just over one fifth of the offer was constituted by rights from other regions, including Emilia-Romagna, Puglia and Sicily.

THE DISCUTION MOVED FOR `SURFACE PLANTED` TO `PRODUCTION POTENTIAL`, after 2000. The abandonment of the wine is almost always the main reason cited for the sale of rights, which in turn is determined by factors such as the age of the entrepreneur, the lack of successors, the existence of another activity and the lack of available labor to work in the vineyards. The study revealed four types of markets in the territory of Veneto: Market 1: contains the province of Rovigo and southern part of the province of Padua in plain area. Demand is dominated by buyers who use the rights to plant vineyards for the production of wines with a geographical indication (IGT). The rights offering from other regions are negligible. The vendors are mostly farmers over 50 years, and transactions surfaces of small and medium dimensions are higher than elsewhere. Market 2: includes the production areas of quality wines in the province of Verona (excluding that of Soave) and Treviso. Demand is mainly determined by the buyers who are winemakers (nonspecialist) or specialized growers who use rights for the production of PDO wines. Among them, there are a greater number of companies with tools bottling and young entrepreneurs. The percentage of royalties from other regions is the most significant. Similarly, the share of sales of advanced age is lower. Finally, it appears a greater proportion of transfers on larger surfaces. Market 3: includes mainly the province of Padua. This market is characterized by the highest significant new winemakers and the lowest share of skilled winemakers. The offer consists of a very high level of local farmers, while planting rights from other regions remain marginal. Market 4: includes the area of Soave and that of Vicenza. The application consists mainly specialized buyers who use planting rights almost exclusively for the production of PDO wines. The role of cooperatives in the intermediation of rights is more important than the rest of the Veneto region. Prices of planting rights in Veneto evaluated significantly since 1990, the peaking up in 1995 when the values of 7000-8000 /ha. The highest average price was reached in 2004 - 1.41 /m with a decrease of this values, in the years to follow. Data on minimum and maximum prices in the two periods investigation contribute to reinforce the idea of a segmented market, with little transparency and typical characteristics of monopolistic competition, including micro-areas. The presence of types of buyers influences negative impact on the price of rights: those who only produce grapes and those who plant vineyards for wine with geographical indication (IGT). These factors suggest a greater propensity to invest in the vineyard and thus a greater willingness to pay for necessary rights. The buyers of PR have to demonstrate the need for a expantion of surface and the yield. There is no possibility to have a `unique price`, do to the big differences between the terrains. The demand on the market was dominated by companies from small and medium size (4.5 ha). Unlike most other Italian wine regions, the Veneto Region has experienced a significant expansion of areas under vines. Transfer replanting rights to other regions (Puglia and Sicily) have

facilitated the adaptation potential of the wine. The governance potential complementary mechanism helped the adaptation of qualitative and quantitative potential of the vineyard. Sicily Region is characterized by a great diversity in terms of territorial morphology, traditions, culture, landscapes, location. The harvest can extend from July to November. He is the only Italian region with characteristics as heterogeneous, from east to west of its territories, Pantelleria volcanic islands in Etna. Sicilian production is divided between 65-70% in table wines and musts, wines 25-30% Geographical Indication (IGT), 4-4.5% in appellation wines. There is a strong specialization of semifinished products and finished products the existence of a high level of quality, but the quantitative impact is still small. Most of the exploitations have over 5 ha and the average of one is 2.45 ha. The Reg. EC. 1493/1999 and 1227/2000 of the EU have maintained the interdiction on planting new vines for wine grapes. The ban has been extended until 2018, in the framework of the reform of the wine CMO in 2008, looking for an market equilibrium, through a rigid control of the production potential. The rights are distributed to plant vineyards with a high qualitative indication (IGT, POD). There is a big diversity of intermediaries, even agencies that anime the market. The transfer of rights is allowed only in the same particular zone. In the triangle province Trapani, Palermo and Agrigento, the land market is blocked. The supply of land around the volcano Etna considerably scarcer, and prices have reached levels higher than elsewhere in Sicily, with quotes from 60 to 80 000 / ha. In the area between Castiglione di Sicilia and Adrano, there are amounts of 100,000 / ha. Do to the market transparency, the opening of a burse of rights, and the double control (by the regional authority and a confirmation by the government of Regional Sicilia) the buyers are protected. The system of replanting rights allowed some control of the area planted in Sicily. In this region, planting rights have not represented a barrier to competitiveness, as this region had an area excess about the prospects of marketing of wines in Sicily, Italy and in the world. It should be noted ad-hoc intervention of the regional government in the management of replanting rights by controlling the production potential and the protection of vulnerable areas. Need for institutional management of transfers: the protection of the territories and landscapes has been permitted by the border closure transfers; open borders transfers took into account the economic incentives in response to wine crisis. Replanting rights were not a barrier to the installation of new wine projects or expansion of existing projects wine. Planting rights have not "stiffened" the market. Flow inter-regional transfers allowed other Italian regions to adapt the quantitative and qualitative potential of their vineyards.

2.

Hungary

In Hungary the viticole potential decreased because of a number of reasons: privatization of markets, companies, cooperatives. A lot of producers abandoned their vineyard because of the lack of profitability on the market, after the Berlin wall collapse. In the transition period, agricultural activities and market development had

risks that made it very difficult to obtain bank loans for investment. The state did not helped enough the vine sector, with subventions on the surface, that did not cover the real need. The system of planting rights was introduced in 2004 when it joined the EU, then Hungary established the national reserve, and issued right only for the noble vine to produce qualitative wines. Before 2010 the state did not intervenes in the market of rights, and the players used the direct negotiation. Also, the rights are not limited to a certain province, give the possibility to produce in different regions. Because they changed the legal framework 2 times, in 2004 at the adherence at the EU and 2008 with the reform of the CMO, the national reserves have this specific rules: if the buying took place between may 1996 and april 2004, the buyer has to plant before the end of its 13 campaign; if the rights were purchased in the period 2004 and 2008 the buyer has to utilize it for planting before the end of its 5 campaign. ARDA release the right in advance, and to be used to plant qualitative vineyards. The market of planting rights appears after 2004 when 12 500 ha become private property. They did not limited the transfers between regions, but considered the development of qualitative wines. The market was free in the period before the reform of the CMO (2008), and the trades have been under the supervision of the COMMUNAUTES of wine. Overall the existence of the planting rights did not pose an obstacle to any vineyard development. ARDA introduced some new regulations according to the specifications of the reform of CMO. The prices of rights changed, under the influence of the national reserve, form 80-200 in 20042006 to 100 000 HUF (400 ) in the period 2006-2008 to 120 000 and 150 000 HUF/ha (430-540 /ha) now. Over 11 153 ha have been restructuralised and replanted under the COM mesures. The absence of a registration before the ARDA regulations , limited the access of young winemakers to free planting rights.

3.

Germany

In general, mechanisms and rules applied in Germany for the planting rights are adapted to regional realities. We do not find here the phenomena of speculative transactions related to planting rights as we have encountered in other parts of southern Europe.

In Germany, the implementation of specific rules for the transfer of planting rights wine prevents fragmentation of adjacent vineyards. It is a way to manage the growing potential in maintaining consistency and the quality and diversity of landscapes. Transfer of planting rights in Germany restrict the relocation of vineyards to the plains, facilitate the preservation of production potential and perpetuate the landscape. The market is smaller and the institutional management of planting rights in Germany is manly being controlled by the regional government. The absence of regional reserves in some states is not an obstacle to the development of regional viticulture because the rental market land wine is very active. The transfers between regions are restricted, exception making Hesse. Due to a special tax, the vineyards must demonstrate a return on the horizon at least 10 years. Beyond this period, when profitability is not to the appointment, farms are taxed at a higher level of taxation, as they are then regarded as leisure activities. So, in a way, it prevents the plantations without economic prospects. In all the regions the buyer must declare the usage of the rights: to produce qualitative wine or the produce wine with geographical indication. In the region Rhenanie-Palatinat every year over 1100 ha are replanted. Only 250 ha are form rights, which represents 4% from the cultivated area. The <principle de la parcelle> In the Bade-Wurtemberg region, replanting rights can only be used in the plot torn. There are no transactions outside the vineyard parcels already in place. Administrative authorization requests must be submitted to the competent regional authorities, including within the same holding. A statistical analysis brings up a transfer level of planting rights extremely reduced in some regions. In the period 2000-2009, these transfers have covered 40 ha/year, of which 1 ha/year in Sachsen-Anhalt, 4 ha/year in Bavaria, 6 ha/year g.U. Wrttemberg and 29 ha/year g.U. Baden. Transfers of planting rights between different vineyards are made through negotiated prices in the open market (spot market). In general, prices of planting rights located in areas with steep slopes have lower levels than those resulting from transactions in lowland areas. Also prices fall was cause by an overproduction of wine. The role of intermediaries is limited do to the open market approach. Any replanting must be completed within 8 years after harvesting, the unused portion at the end of 8 years are automatically transferred to the respective regional reserves. Regarding the allocation of planting rights, the Lnder have established the following criteria: a) In Bavaria, priority is given to young wine aged under40. If requests arrive at the same time, we proceed by drawing of lots. b) In Hesse, the priority is given to the planting of varieties specific to the region and has an aptitude for viticulture above average. c) In Saxony and Saxony-Anhalt, the applications are approved if the plots are located in the hills or terraces. The arbitration request is done by draw of lots (Saxony) or in the order of arrival (Saxony-Anhalt). d) The amount of planting rights allocated per

application is limited and must be between at least 0.1 ha and a maximum of 1 ha, Bavaria, and less than 0.5 hectares per applicant per year, Saxony and Saxony-Anhalt. e) No reduction coefficient is applied when planting rights shall be allocated from the reserve. The operation of regional reserves does not increase the transfer of planting rights in different regions and does not impede the development of projects wine because there are planting rights under sufficient applicants. The absence of regional reserves in some states does not hinder the development of viticulture, wine proceed as leasing the land wine. From the structure of imports, exports and consumption, German Professor Hoffmann presents the German market as a very open and competitive, but also segmented. He opposes a market of imported bulk wine less than 5 / l, produced in the countries of southern Europe, segments which may better position the German wine from 8 / l. The market for bottled wine is relatively stable, but the bulk market is much more volatile. Stabilizing the market require a storage policy. With no planting rights we would have no technical justification, because assemblies in wines of different origins. This limitation would yield an effect of limiting production, unnecessarily increasing costs of wine production, thereby reducing their competitiveness. The price effect of a vine as roughly equivalent to the price of arable land bare, added planting costs and the price of the right. A other argument focuses on the inefficiency of planting rights to protect areas of slopes and hills. For some vineyards, given their location, production costs are too high, that they could not be covered by an increase in selling price sufficient increase should have been permitted by the name, the reputation of these vineyards and marketing partner. The main criticism of Professor Hoffmann is the system of planting rights prevents the growth of productivity of some of the vineyards and the access of their products to market wines in bulk at low prices.

Questions: 1. It is indeed a political and strategic choice. What will be the correct approach for the

new `planting rights` regulations on the EU level? 2. 3. 4. terrains? 5. Market replanting rights needs to be analyzed in line with other policy measures wine Did the planting rights been a factor in slowing the development of farms? How should the planting rights be obtained? It is necessary to maintain the regulations for young winemakers and for different

(uprooting, green harvesting, distillation, etc)? 6. 7. 8. The regional reserve may play a role in boosting socio-economic and territorial? During the past decade, the transfer market replanting rights lacked transparency? Do the efforts made by regional authorities to improve control mechanisms worth (in

recent years, fraud motivated by weak institutional mechanisms of control are almost non-existent)? 9. 10. 11. What will happen to small wine producers? How will the total vineyards be affected by the lake of planting rights? What will happen with the qualitative vineyards? Will the market evolve to a single

priced wine with no geographical indication or no controlled origin?

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