But the European Commission rebutted criticisms made by the ECA in, insisting that the audit period of 2009-13 represented the “running in period” for measures that member states are now implementing more effectively, and defending a new €1.16bn wine investment/promotion budget.
The EU wine industry is the world’s largest, producing around around 158m hectolitres of wine a year, and special funds are now earmarked for investments in processing, winery infrastructure and marketing
But the ECA says investment measures specific to the sector are not justified since support already exists under EU rural development initiatives.
ECA criticizes promotional fund use as 'effective subsidy'
Jan Kinst, who penned the report, said the co-existence of specific funds for the wine world with rural development support schemes, “is a source of complexity, which in some member states has resulted in implementing delays or in an excessively restrictive scope of the eligible investments”.
“Also, when the EU contribution incites enterprises to proportionally reduce their own funding for promotion actions, it becomes essentially a partial subsidy of these companies’ operational costs,” he added.
“This is not an efficient use of public money,” Kinst said of the promotional funding used to promote the bloc’s wines in third countries.
He was summing-up findings from the ECA’s new report: ‘Is the EU Investment and Promotion Support to the Wine Sector Well Managed and Are Its Results on the Competiveness of EU Wines Demonstrated?’
The ECA said its auditors found there was a lack of sufficient relevant information to show direct results attributable to the investment – which saw member states spend €522m from 2009 to 2011.
EU wines even lost market share in key target countries: ECA
The Court added that the effects of the investment were not easily separable from rural development measures.
“In the case of promotion actions, although wine exports to third countries have significantly increased in absolute terms, the audit revealed that EU wines have lost market shares in the main three countries targeted by promotion actions and that exports of EU wines not eligible for support also increased,” the ECA wrote in a release.
Point out that member states found it difficult to spend the €522m initially handed to member states for 2009-2011, the ECA said there was a risk the new €1.16bn fund for the EU-27 is “set too high, endangering the application of sound financial management principles”.
On the basis of its report the ECA recommends that the European Commission monitor the absorption of funds and assess whether the wine sector needed additional investment aid compared to other agricultural sectors.
For the promotion measure, the court recommended measures including limiting the eligibility of brand advertising and suggested the Commission favour more SMEs with promotional funds.
“In order to minimize the risk of deadweight the Commission should ensure that member states in their selection procedures require beneficiaries to clearly demonstrate their need for EU aid and that normal operating costs are not financed by the EU budget,” the ECA said.
The court also criticized EU member states for insufficient auditing in regard to promotional aid handed out, and said nation’s should better evaluate the results of different promotion projects.
European Commission points to 'steady rise in exports'
But the European Commission insisted in a reply to the ECA that it now has tools in place to improve the monitoring, implementation and control of measures under amendments Regulation EC No.555/2008 governing promotion and investment in third countries.
Accepting that it is difficult to disentangle the effects of wine funding from regional development grants, the ECA said the two should be viewed as complementary measures.
“It is worth highlighting the steady rise in exports, in terms of value and volume, in an increasingly competitive global context, in spite of the downturn in 2008 and 2009 following the economic crisis,” the Commission said.
BeverageDaily.com approached pan-European wine trade body Comité Européen des Entreprises Vins (CEEV) for a comment but no one was available this morning.