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News Analysis |
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| October 13th 2007 |
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| The pain of the Spanish cooperatives |
by Victor de la Serna
When Spain joined the EU in 1986, a well-intentioned, but ill-advised scheme to replace old, low yielding, dry farmed vineyards with highyielding, irrigated ones, led to an explosion in grape growing and wine production. Today, Spain produces far more wine than it can sell. Many co-operatives, particularly in Castile-La Mancha, are suffering.
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The sale of a large, commercially successful but debt-ridden co-operative to a powerful Jerez winery highlights both the plight of many of Spain’s co-ops and the opportunity that privatisation may bring to a chosen few of them.
Bodega Pirineos, one of the largest wineries in the Somontano appellation, was sold last July to Bodegas Barbadillo for €19.6m ($26.7m), a figure that ‘includes the debt’ of the Aragón-based winery, according to a company statement. No figure was given for the debt, but Pirineos' delicate financial situation had been known in the industry for the past couple of years. Barbadillo is the Manzanilla giant of the Jerez-Xérès-Sherry y Manzanilla de Sanlúcar appellation, accounting for 50% of the total production in the town of Sanlúcar de Barrameda, which alone produces this type of dry sherry. Annual sales surpass €40m and it has diversified aggressively, first developing Spain's largest-selling white, Castillo de San Diego, and then acquiring the Bodegas y Viñedos Vega Real winery, among other ventures.
Bodega Pirineos was launched in 1993 to modernise and market the production of the veteran Somontano de Sobrarbe co-op. It produces about 250,000 cases yearly, but only exports 25% of its production and reportedly has a problem with growing stocks.
Pirineos was set up as a mixed-capital corporation, with the regional government holding a 35% stake, the co-op 24%, and the rest being divided among two savings banks and Viñas del Vero and Enate, the two largest private competitors of Bodega Pirineos. The stated goal of this peculiar set-up was to en sure the livelihood of the small growers who formed the fabric of Somontano.
This structure made it easier for it to be sold and survive. The co-op retains its 24% share and remains the grape-supplying partner, but the remaining 76% has been sold to Barbadillo. A key element in the negotiation was the growers’ renunciation of their legal right to have the coop acquire every last grape they produce.
Legislation of co-operatives, a legacy of the Franco era, is one of the reasons for their plight, according to private sector sources. The law ensures growers’ incomes, whatever the wineries’ financial situation. The compulsory buying of members' entire grape production has created a vicious circle: increasing yields, falling prices, mounting stocks and debt, and an increasing reliance on EU subsidised brandy or bio-fuel distillation.
The European scheme to pay for the replanting of vineyards these past few years has only exacerbated over-production. Old, low yielding, dry farmed vineyards have been replaced by high-yielding, irrigated ones, leading to an explosion in grape and wine production by co-ops in such regions as Castile-La Mancha. Quality has also suffered.
There are more than 4,000 wineries in Spain. Although there are only some 750 cooperatives, these account |
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News Analysis |
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for almost two thirds of Spain’s production. This represents about 30m hectolitres annually in recent years, as overall Spanish production has soared. There are dynamic, successful co-ops, such as Celler de Capçanes and Celler El Masroig, Montsant DO. Yet overall, the co-ops only produced 12m cases in 2005. More than 95% of their production never sees the inside of a bottle, but instead is sold in bulk or distilled.
Wineries like Pirineos or the smaller, profitable Catalan co-ops have the advantage of bottling a large part of their production. They are run in a businesslike manner with clear profit-driven objectives, even if this is not always successful, as the Barbadillo-Pirineos operation demonstrates. But most very large co-ops, particularly in Castile-La Mancha, where 224 co-ops produce more than a third of Spain's wine, are in a much worse situation.
Many of them produce only bulk wine, lack any marketing policy, and retain the old legal prerogatives. They are run commune-like, with every decision submitted to a debate and a vote by their hundreds or sometimes thousands of members, and they keep paying - albeit poorly - for every kilo of grapes brought in by members. That kind of set-up makes any external bailout practically unthinkable.
The debt load of these co-ops is said to be a cause of concern for the regional savings banks that have kept them going. And now European commissioner Mariann Fischer Boel's stated aim to suppress the expensive distillation subsidy schemes may mean that there is no tomorrow for them.
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