Wine-makers in the sleepy valley of the Loire, long steeped in tradition, are slowly waking up to a harsh reality. If they want to keep up with the New World winners, they'll have to play them at their own game. John Lichfield reports

Pierre Aguilas is a jovial, passionate man. He is a wine producer in the Anjou district of the Loire, and president of the committee which oversees all the "appellations contrôlées", or officially approved quality wine-growing areas, along the banks of France's longest, and most beautiful, river.

Sitting in the office above his cellars overlooking the smiling hills, vineyards and woods of Anjou, Aguilas insists that he is "not a revolutionary". He is, however, about to launch a revolutionary idea which will set the corks popping and barrels rolling in the proudly conservative world of French wine.

"I have a secret which you can reveal to the British, if you like, but you must not, on any account, tell the French," Aguilas says. He is only half joking.

Next year, Aguilas, 59, and a few other luminaries in the regional wine industry, plan to launch a proposal for what he loosely calls "Australian" wines from the Loire. Grapes from almost all the Loire wine-growing areas would be brought together to produce white, red and rosé wines, labelled simply "Vin du Val de la Loire" - Loire valley wine .

The wine would be custom-designed to appeal to the middle-market tastes of the new, young wine drinkers in northern European countries, and especially Britain (the biggest market for French wine outside of France). It would be of high, consistent quality. It would be clearly branded with cheerful, simple labels, promoting its association with a river which is redolent of la France Profonde: its stately châteaux, its charming villages, its sloping vineyards.

Such a wine would, in terms of strict French oenological tradition, be an imposter, an interloper. There is no such thing as "Vin du Val de la Loire". There are dozens and dozens of Loire wines - 28 appellations contrôlées in the Anjou area alone, which is is the smallest of the four principal Loire wine-growing regions. All these areas have their own styles of wines, their own traditional grape varieties, their own preciously guarded titles, protected by law since 1936.

The Loire, in turn, is just one of 10 wine-growing areas in France, which between them produce 466 fiercely different wines, all of which have a right to have their appellation protected. (There are also some 120 lesser vins du pays.)

If Aguilas's idea is implemented - in the Loire or elsewhere - the old names would certainly not disappear, although the more marginal ones would find it harder to justify their existence, to say the least. The better appellations would continue, maybe even thrive, for those who wanted to produce and drink them. However, an unspecified chunk of Loire wine production - and eventually French production - would move into a new market, the lucrative and expanding one dominated by Australian and other "New World" producers, for wines standardised at a predictable level of taste and quality.

This is, in French terms, heresy. Why is Aguilas, the high priest of the Appellation Controle in the Loire, proposing it?

"You will hear many opinions about the state of the French wine industry," Aguilas says. "I will tell you in all sincerity what I know to be the truth: French wine is in a deep crisis, which will only become deeper unless we do something quickly."

France has known, vaguely, for years that its old, effortless domination of the world wine trade is doomed. New World wines of startling quality have been siphoning off the new, and old, wine drinkers, who want to spend, say, seven to 10 quid on a bottle of wine and be sure of what they are getting. French wines, with their jumble of appellations - which are sometimes wonderful, sometimes less than wonderful, occasionally disappointing and frequently confusing - have been losing ground.

There have been endless debates on what France should do to preserve either its traditions or its market share - or, more preferably, both. In 2001, the last French government appointed a six-man committee - which included Aguilas - to study the problem. The committee's proposals - that France should fight a war on two fronts, by improving the quality of its appellation wine and by creating an entirely new range of quality, generic wines - shocked the purists.

Nothing much was done, the government changed, and now the crisis is undeniable. In the last 10 years, France's share of an expanding British wine market has shrunk from 33 per cent to 25 per cent. The New World's share of the UK market, meanwhile, has risen from 15 per cent to 37 per cent - more than half of it from Australia.

Moreover, French wine sales to America - especially in the middle price range - had slumped long before the rise in the value of the Euro or any Franco-American hostility. Alarmingly for French wine producers, their biggest market of all - France itself - has been turning away from wine, towards beer, fruit juice, fizzy drinks and water.

For decades, there have been surpluses of the cheapest, most basic French table wine. In the last two years, something truly shocking has happened. There are now permanent surpluses (ie unsold stocks) of wines from regions such as Beaujolais, Macon and even Bordeaux: in other words an appellation contrôlée wine lake.

As a consequence, the ideas put forward by the committee on which Aguilas served are being resurrected. The intention is to strengthen, and parallel, the system of Appellation d'Origine Contrôlée, not to weaken or abandon it. The proposals amount, nevertheless, to a radical change, not just in the labelling of French wine, but in the official French mythology of wine.

It is the traditional French view that good wine is not made; it grows from the soil. In recent years, to boast their difference from New World wines, the French have invented (or rediscovered) a wonderful word - terroir - which cannot easily be translated into English. It means, roughly speaking, soil conditions, plus lie of the land, plus micro-climate - all the factors which decide why a particular patch of ground produces better wine than the land next door.

The system of Appellation d'Origine Contrôlée (AOC) is the legal expression of terroir. In other words, the wine producers who own approved patches of land and who use the approved grape variety within the approved boundaries of the appellation are allowed to use the name. No one else can. An appellation can be the whole of a region - such as Burgundy - or a tiny fragment of land, no larger than half a football pitch.

The individual wine-grower is a custodian of the terroir and its traditions: he does not so much "make" the wine as encourage it to achieve the full potential of its terroir and "typicité, the characteristics which differentiate it from other wines. The same appellation can produce both wonderful and terrible results - hence the unpredictability of French wine, which is charming to the connoisseur, but infuriating to the dinner-party host, who expects to get what he or she paid for.

The New World approach to the production of wine of all qualities, however, originates from the consumer, not the soil. Generalisation is foolish, of course: both Australian and American wine companies are now also using the notion of terroir to produce expensive, high-quality wines to rival those of the French. The makers of middle-range Australian wines, however, base their product on a popular grape variety, such as chardonnay, rather than a single vineyard. The company decides the style, quality and taste of the wine that it wants to achieve, based on consumer demand, and buys the grapes it needs - from wherever it can find them - to create a reliable, standardised product.

It is just this approach - creating so-called vins de cepage (wines based on a grape variety) or vins d'assemblage (wines assembled from different areas and different kinds of grapes) - that Aguilas and his committee are proposing to introduce more widely in France. Generalisation here is doubly foolish: such wines have already been produced in France for a decade or more, usually in the less "noble" regions such as Languedoc or the Ardèche, and frequently with great success.

The difference in the new approach - for which the "Val de Loire" wines would be a test case - lies in the fact that generic wines would become an official part of the French wine industry, taking over an unspecified chunk from the wines now marketed as AOC or vins du pays. A half-dozen new, readily identifiable French labels would be created, to rival the Jacob's Creeks and the Rosemounts of Australia.

This would amount to an admission - a suicidal admission, the wine purists argue - that the terroir approach is successful only at the upper end of the wine market (where French wines are still broadly dominant). Nonetheless, the idea has now won the broad approval in recent weeks of the main association of Bordeaux wine producers, the wine traders of Burgundy, and the main French wine exporting association.

The most rooted opposition has come from traditionalist wine writers and experts and the Confederation Paysanne, the small farmers' organisation which was founded by, among others, the anti-global campaigner José Bové. The purists say that such an approach would be a betrayal of everything (ie the terroir approach) that has made French wines prized throughout the world. It would also be commercially senseless, they claim, to adopt and rely on a method in which the New World, with its large and economically efficient scale of production (80 per cent of Australian wine is controlled by five companies) will always have the edge over France.

The Confederation Paysanne sees the proposals as an attempt to import the Australian commercial model to France, driving small wine-producers and cooperatives out of business. This would allow a few big companies to "profit from the name of French wine, while trampling on the values which gave France its reputation," it says.

Paul-Eric Chauvin, 32, a small producer in the Anjou region and a member of the Confederation, goes straight to the heart of the problem: how can you persuade small French producers to give up their creative and commercial independence? "At the moment, we grow the grapes, we make the wine, we sell the wine. If we have to go over to vins de cepage (generic wines), I would end up as just a grape farmer. That's not what we want."

Patrick Baudouin is also an Anjou wine-producer - an award-winning one, who has received glowing reviews for his Coteaux de Layon (sweet wine) and Anjou Blanc (dry, fruity wine) from Decanter magazine in the UK and from popular wine sites on the internet. Baudouin, however, is part of a new (and unpopular) movement of wine producers in France who say that the problem is not the profusion of appellations, but the fact that the appellation contrôlée system hides a multitude of abuses and promotes a kind of lowest common denominator wine within each region.

The chief abuses, Baudouin says, are the use of chemical insecticides and weed-killers on the land and the excessive use of added sugar in the wine.

"How can you boast about the importance of terroir when you are destroying the character of the soil with chemicals, as the majority of French wine producers do? How can you boast about terroir and then stuff your wine with beet sugar from the Somme, hundreds of miles away, or cane sugar from the West Indies, thousands of miles away?" he asks.

Baudouin broadly supports the suggested new two-tier structure of the French wine industry, but suggests that the real test - and the real selling point - for both types of French wine should be their natural, non-industrial, chemical-free, unpolluted qualities. In other words, France should live up to its often dubious claim to be a more "natural" producer than the wine-makers of the New World.

If Baudouin's wines are anything to go by, nature knows best. We had lunch on an island on the Loire. He brought three bottles of his wine with him - just to taste a little of each, of course. They were sublime.