French cognac producers are set to pay for the removal of their vines in a bid to address a significant drop in demand for the premium spirit. The decision comes in light of rising tariffs linked to ongoing trade tensions involving the European Union, the United States, and China, which have adversely affected cognac sales.
According to the head of the UGVC (Union Générale des Viticulteurs de Cognac), Anthony Brun, the organization will compensate its members with 6,000 euros (approximately $A10,220) per hectare of destroyed vineyard. This payment is in addition to the 4,000 euros already offered by the French agriculture ministry. Brun emphasized the necessity to “realign the volume of production with demand,” highlighting the challenges faced by the industry.
Declining Sales and Financial Strategies
The UGVC estimates that the total volume of cognac sold has plunged by over a third in the last three years, with projections indicating sales will drop to around 140 million bottles by 2025. The financial strategy to support vineyard removals will involve borrowing funds over a ten-year period to cover these compensations. While Brun did not disclose the exact number of hectares expected to be removed, the initiative signals a significant shift in the cognac industry.
The recent trade disputes have not only impacted sales in traditional markets but also led to an anti-dumping investigation affecting brandy sales in China. As a result, cognac producers are seeking to stabilize their operations in an increasingly competitive environment.
Future Prospects and Market Expansion
Looking ahead, Brun noted that recent trade agreements between the European Union and both the Mercosur bloc and India could potentially open new markets for cognac. However, he cautioned that building lasting demand in these markets would take considerable time and effort.
As the industry grapples with these challenges, the decision to pay for vine removal reflects a proactive approach to align production with current market realities. The hope is that by reducing output now, producers can better position themselves for future growth as trade relations evolve and new opportunities arise.
