NY Wine in Supermarkets - Less Wine in Australia

Two news stories are in the headlines today, both of which are indicators of important issues facing the wine industry in BC. The first is a an editorial in the New York Times supporting NY Governor David Paterson's attempts to open up that state's retail wine business so that its existing "standalone liquor store" provisions are removed and that state supermarkets also be permitted to sell wine and beer. Here in BC, we are still struggling to get our retail system to New York's current stage. Currently, we still have an unworkable mix of government retail and private stores all serviced by the government wholesaler who is in a conflict of interest. Just this past December of 2009, our laws were amended (sensibly) such that private stores no longer need to be associated with a bar or hotel license (hallelujah). However, all of those stores are bound by standalone provisions ... similar to New York's current laws. Supermarket sales are not even on the agenda. The second issue is the global glut in the wine industry. Australia's wine industry has grown by leaps and bounds over the last decade. However, global economic conditions and uncontrolled growth have resulted in a serious glut of wine in Australia. Australian regulators and wine industry groups are trying to figure out how to reduce production by 25% in order to restore economic balance to the industry. So far, BC's wine industry has escaped these global problems due to our protectionist system which creates inflated retail prices disconnected from the world economy and which discourages competition by making entrance to the market exceedingly difficult. However, the BC industry should be watching these issues carefully. Sooner or later, our system will have to change in order to comply with Canada's trade obligations. When that happens ... look out.

U.S. Seeks to Repeal Border Wine Markups

Interesting political moves in the U.S. may end up having a beneficial effect for Canadian wine consumers and, perhaps, a broader effect that is harder to quantify on the Canadian wine industry. This story in the San Jose Mercury News indicates that there is currently a coalition of U.S. wine producing states that are lobbying Canada to eliminate its excessive border charges on Canadians bringing back wine from the U.S. As most wine enthusiasts know, the charges at the border verge on the ridiculous. In BC, anyone exceeding their miserly duty free allowance of 2 bottles generally has to pay an extra 100% tax and markup in order to bring any additional bottles back. Most Canadian wine lovers hate this system, as do U.S. wineries who lose a lot of potential sales due to the markups. The U.S. effort is described in more detail in this press release from New York Senator Charles Schumer who is lobbying on behalf of the NY wine industry.

This effort could have broader implications for the BC (and Ontario) wine industries. Currently, wine purchased directly from BC wineries escapes all BCLDB markup while wine purchased by a BC wine consumer directly from a Washington (or Oregon or California) winery is subject to full markup at the border. The differential treatment creates serious trade agreement problems which should have been addressed years ago. Unfortunately, the economic consequences of bringing BC and Canadian policies into compliance could be far-reaching and, frankly, I am very concerned about the effects on the BC industry. For consumers though, this is likely to be good news ... the large numbers of BC consumers who are sourcing their wine through Alberta (which has sensible border markups) would finally be able to stop doing so.

UPDATE (Feb 17 2010): This issue has now been covered by the trade publication, Wines & Vines: Canada's Wine Duties Hinder Trade. You may also wish to review this related analysis: BC Wine & Trade Agreement Trouble.

Ontario & BC to Remove Cellared in Canada Designation

A story in the St. Catherines Standard by wine industry reporter, Monique Beech, indicates that Ontario will join British Columbia in removing the "Cellared in Canada" (CIC) designation from marketing in retail stores and from the labels of wine bottles. The BC LDB has already changed is signage in retail stores to remove the CIC description and replaced it with the more accurate "Bottled in British Columbia from International and Domestic Wine". Consumer surveys had found that the old CIC labelling was misleading to consumers, many of whom thought they were purchasing 100% Canadian wine when they bought this product.

Update (Jan 27, 2010): This story has now also been covered by Wine Spectator: Canadian Wine May Soon Be More Canadian. An interesting point brought up in this article was that the CEO of Andrew Peller admitted that 60% of his company's revenue comes from CIC wines. Considering that CIC wines are the least expensive segment, that would mean that by volume, probably 70% or more of sales are CIC.

LCBO Privatization & Shipping Laws

Two new articles raise some interesting questions about the future of liquor distribution in Canada.

The first is an article just published in the January edition of Ottawa Life which thoroughly outlines the many historical and structural problems with the liquor monopoly in Ontario, the LCBO. The author, Michael Pinkus, has no doubt added considerable weight to the privatization arguments that are already being discussed in Ontario.

I reported on this earlier and have been following the discussions in the Globe and Mail (the only Ontario news source easily obtained in BC). What is surprising, actually stunning, to me is that a number of people have written into the Globe with the opinion that it would be foolish to privatize the LCBO because it rakes in so much money for the government every year. One of the letter writers was an economics professor who implied that he would flunk any of his students who suggested a short term sale at the expense of long term revenue.

Time for a reality check ... let's do Liquor Taxation 101. Provincial Governments in Canada do NOT make money from liquor because they operate the retail stores. They make money from liquor because they impose very high "liquor board markups" at the wholesale level. These markups are basically hidden taxes which are included in the price of the bottle at the retail level. British Columbia (which has more private stores than government ones) and Alberta (which has all private stores) both include these markups at wholesale. The Provincial Governments make their money regardless of whether the sale is made in a government store or a private store. In fact, the revenue that government makes from liquor on a per capita (per person) basis for 2007/2008 was as follows: $192 for BC, $190 for Alberta, and $139 for Ontario. So you can see that in the provinces with privatized or partly privatized systems, government actually makes far more money than in Ontario (38% more money in BC and 37% more in Alberta). So I am afraid that the only one flunking this economics test is the professor.

The second article is forthcoming. Ian Blue, Q.C. of the Toronto law firm, Cassels Brock, has written a follow-up article to his earlier article "On the Rocks: Section 121 of the Constitution and the Constitutionality of the Importation of Intoxicating Liquors Act". The earlier article argued that Canada's archaic shipping law restrictions are unconstitutional according to modern legal standards and should be struck down. The follow up argument is fascinating and was mentioned briefly at the Wine Law Conference that was held in Vancouver in November. Mr. Blue focuses in on an ancient Supreme Court of Canada case, Gold Seal, that was decided many, many years ago and which upheld the restrictions. However, Mr. Blue raises some very interesting questions about the legitimacy of this decision. He has found evidence that the Federal Minister of Justice at the time as well as two Supreme Court judges may have acted improperly in relation to the decision and that the authority of the case may have been undermined. Watch for this article in the upcoming issue of the Advocates Quarterly, No. 36.

Vancouver Province: No Benefits for Liquor Tax Increase

Vancouver Province provincial affairs columnist, Michael Smyth, wrote a good column in this past Sunday's paper entitled "Expensive Booze Only Benefits the Tax Man". I spoke to Michael on this issue before he wrote the column and he quoted me. Michael hits the nail on the head in this column ... it is very unlikely that BC would see any benefits from raising the taxes on liquor in this province which are already at absurdly high levels by international standards. It is simply not acceptable for government to penalize a responsible wine drinker with tax levels of 130+ percent. Drinking wine in moderate amounts is actually good for you. We do not impose these levels of tax on other activities which are fine if done normally but which can be harmful if they are abused (e.g. eating junk food, driving a car). Why is it ok for wine drinkers?