Unlike New World rivals who concentrate wine-making and distribution within just a few companies, Europe's domestic vineyards are scattered among more than 250,000 farmers making wines under numerous labels.
Without the financial clout to market key brands, domestic wines are losing ground in European countries such as the UK where wine consumption is surging. That situation is also unlikely to change, because EU subsidies and labelling rules have killed the incentive for creating big wine companies. "If we don't improve our structure, we won't be able to respond," said Miguel Garcia, wine specialist at the European farmers' union Copa.
French, Italian, and Spanish winemakers still dominate the cross-border European market. But imports from outside the EU surged to $836m in 1996, or 14 per cent of the total, from just $133m, or 4 per cent, in 1986. The UK alone has boosted non-EU imports five-fold to $425m, while its consumption of French wine is stagnant at about $600m.
The wine divisions of big Australian industrial companies such as Fosters and Southcorp, which produces home appliances and plastic bottles, are among those spearheading the southern hemisphere's marketing assault on Europe.
Consolidation of Europe's small winemakers is unlikely. A proposal by the European Commission to cut subsidies, which encouraged excess production of poor-quality wine, was rejected by those countries anxious to keep small farmers employed.
In 1995, France, Spain, Italy, Portugal and Greece consumed 9.5 billion litres of wine, down 24 per cent from 12.5 billion litres in 1985. Consumption in Ireland, the UK, Benelux, Denmark, Sweden and Finland rose 25 per cent to 1.5 billion litres from 1.2 billion in the same period.
A particular problem for European producers is the Appellation d'Origine Controlee in France and similar rules elsewhere in Europe. They restrict the use of geographical identities to high-quality wines originating in small areas, which can prevent a popular wine from being mass-produced.
"You can't produce enough of a wine to create brand name recognition while the new wine countries can create large amounts of high-quality wine under a single brand name," said Arend Heijbroek, food and agribusiness research manager at Dutch investment bank Rabobank International.
Australian producers have created wide recognition for their brand names, such as Penfolds, Jacob's Creek and Wolf Blass in the UK and increasingly in northern Europe.
They work together to build the image of Australian wine through the marketing organisation Wine of Australia. And investment is being poured into vineyards, as shown by Southcorp's plan to spend about $100m to double red wine production in the next five years.
Northern Europe is the main target for the bulk of Australian wine. This is mainly because per capita consumption is much lower than in southern Europe, so there's more room to grow. Northern Europeans are drinking more wine because incomes have risen, they eat out more often, their travel has changed tastes and people have switched from beer for health reasons.
California producers are also making big inroads and the South Africans, Chileans and the Argentineans increased their wine exports to Europe 12- fold in the 10 years to 1995. Californian wine exports have risen 30 per cent a year in recent years.
"California will be a big competitor; it has a huge amount of surplus wine," said Michael Paul, European director for Southcorp Wines. "South Africa is exporting a lot, but it all happened too fast, and they aren't organised to make the most of their potential, while Chile and Argentina are sleeping giants."
The South African wine industry is also gearing up for a marketing push. In December, the KWV co-operative representing 5,000 wine producers in the Cape region, said it converted into a private corporation with the intention of becoming "a world class" wine company.
Some French wine producers say the industry is waking up. "It has realised the need to strengthen its identity," said Philippe Pascal, head of Veuve Clicquot Ponsardin Champagne, part of LVMH Moet Hennessy Louis Vuitton SA. "In Champagne we have known this for many years."
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