Month: May 2011

Many people have been asking me about progress on wine law reform efforts. Here\’s a quick summary of where things stand.

Inter-provincial Wine Shipping Laws. A great deal of media attention was focused on this issue as a result of Terry David Mulligan\’s action a few weeks ago. If you haven\’t heard, Terry crossed the border without incident with his case of wine. In the run-up to the event, I have never seen so much attention paid to the shipping issue which is a good thing. There appears to have been minor progress in terms of some provinces, including BC, now recognizing that there is a problem. However, most provinces are still not supportive of attempts to introduce a national personal use exemption. The people in Ottawa who are pushing for reform, including Kelowna MP Ron Cannan, have indicated that they will continue to push forward. Basically, it is now a question of whether there is sufficient political will at the federal level to implement change in the face of provincial intransigence. Wineries need to help with this by directing consumers and the public to the FreeMyGrapes.ca web site where they can express support and contact their federal MPs and provincial MLAs.

Liquor Distribution Reform. This is the issue that consumers get most excited about. As noted in an earlier post, there has been some progress in Manitoba (of all places since they have no wine industry) where the government has announced that they will start selling beer and wine in grocery stores (albeit under liquor board control). I\’m not in favour of the way this is being done but at least they are considering the issues with consumers in mind. Ontario\’s position appears to be that there will not be much change: see this article \”Ontario Not Getting Corner Store Beer and Wine\”. Here in BC, we have seen no progress, although perhaps that\’s because the government is consumed with bigger problems (such as the HST, see below).

Taxes. Alberta remains the only Canadian jurisdiction with a flat tax system on wine which, in my view, is the sensible approach if you want to guarantee provincial government revenue while also encouraging selection and value for the consumer. Unfortunately, BC\’s system is almost the exact opposite – a crazily complicated formula which discourages almost all efficiencies. Our taxes and markups on wine remain some of the highest in the world and prices are consequently ridiculous which creates a drag on our important hospitality and tourism industries. Hopefully, once the government gets past the HST referendum, they will start taking a broader look at how inefficient our liquor pricing system is. In terms of the HST, I personally hope that it is retained following the referendum as I believe that it is sensible long term tax policy (and for the wine industry it is certainly preferable to the old GST/PST system).

A conference on wine law is coming up at UC Davis (which is home to the renowned viticulture and enology program) from June 2nd through June 4th. The conference will deal with changes to EU and US wine labelling laws, wine fraud, and the issue of making international wine laws compatible. There are also optional dinners and an excursion to Napa. Full info is here: UC Davis Wine Law Conference. Register by Tuesday May 24th.

The Georgia Straight has a major investigative piece today which criticizes BC\’s outdated liquor system and related laws. It\’s a well written and thoughtful piece which provides input from many industry players including the former minister, the general manager of the LDB, the head of the BCGEU, restauranteurs, retail store owners. Here\’s the article: BC\’s Liquor Rules Still Sting. A couple of points: the article does not delve into the details of some of the more egregious issues in the system … perhaps someone else will pick up the torch on that. I am quoted as favouring increased privatization (true) and the government system is defended (by others) as being useful because it ensures uniformity of price across the province. That last point has always seemed odd to me. Why is it a legitimate function of government to ensure that liquor prices are the same everywhere? The government doesn\’t do that for milk or fresh vegetables. Why on earth would they do it for liquor? Is liquor an essential service and milk is not?

Meanwhile, a potentially seismic shift comes from Manitoba where the government has announced that it will permit beer and wine sales in grocery stores (albeit under the control of liquor board employees) as well as corkage in restaurants and online social event permits: see the new release (PDF File – Province Introduces New Hospitality Strategy) and this CBC story, Liquor Sales Eyed for Manitoba Grocery Stores. While these moves will likely increase convenience for consumers to a limited extent, it makes no sense in my view to have government employees supervising the beer and wine aisle in a supermarket. That will simply drive up costs for no reason. However, it\’s a smart tactical move for the Manitoba Liquor Commission.

Hopefully, the BC government is paying attention to these issues. It\’s long past time that BC announced modernization of our rules and retail distribution system.

Terry David Mulligan\’s call to reform Canada\’s antiquated wine shipping laws has garnered more media attention than I predicted (and I think more than Terry expected). Thanks are due to Terry from everyone in the wine industry for bringing the issue to the attention of both the public and the politicians. Here are a few thoughts in terms of \”lessons learned\” from all of this.

Individual Transport of Liquor for Personal Consumption is OK? As a result of the publicity surrounding Terry\’s action, both the AGLC (Alberta liquor board) and the head of CALJ (Canada\’s Liquor Board Association) were quoted in the media as stating that it was not illegal for individuals to transport wine into Alberta from BC so long as they did so in amounts for personal consumption and so long as they personally transported the wine themselves (presumably this concession was based on parts of Alberta\’s own laws which pretty clearly state that you can do so – see here for discussion). I suppose this is progress … but why must the individual transport the wine themselves? That requirement is nowhere to be found in either the relevant federal or provincial laws. In my opinion, this is an incorrect interpretation of Alberta law … if it is OK for an individual to personally import wine then it is equally OK for that individual to import wine by having it shipped to them.

Consumers Realize the Law is Archaic … They Want Change. It\’s obvious that the law needs to be changed. The shipping law is, frankly, an embarrassment for Canada and for the development of a serious wine and food culture. If you had a law like this in France, it would be illegal to ship wine from Bordeaux to Paris. The liquor boards and provincial governments need to wake up to the fact that we are living in an internet enabled 21st century. In most places in the world today, it is possible to order almost anything online and get it delivered to your house within a few days. But in Canada, the liquor boards think it is acceptable to force consumers to use \”special order\” programs at their government store which typically result in waits of many weeks or even months before you obtain your wine. This is not OK.

Markups vs. Taxes. The real reason that liquor boards don\’t want change is that they want to charge hefty \”liquor board markups\” on wine. Liquor board markup is big business: in BC, it generates about $900 million annually for the province and on wine, it is imposed at a rate of 123%! But aside from the amounts, another real benefit for the province is that they can collect liquor board markup WITHOUT ANY ACCOUNTABILITY. This is because liquor board markup is imposed on wine as a fee at the wholesale level by the liquor monopoly. It is not a tax which would have to be passed by the legislature and subject to public scrutiny. Instead, it can be charged, increased, and adjusted, all without any scrutiny, by the bureaucrats who run the liquor board (usually on orders from the provincial government). The provinces could raise just as much money by placing an equivalent amount of tax on wine and alcohol … but then they would have to do it openly.

One Per Cent Solution? As most readers will know, a national personal use exemption has been proposed to fix the shipping law mess. This solution would make it legal for wineries to ship specified amounts of wine to consumers in other provinces (e.g. 1 case per person per month). If this solution was passed, it is unlikely to have any significant effect on liquor board revenue because direct shipping excludes most retail purchases due to the delivery delay and the cost of shipping. For example, in the United States, wineries can direct ship to about 85% of the market but that segment is only 1% of the total U.S. retail market. Canadian experience would likely be similar … and liquor board revenue would remain largely unchanged. Even if there was a detrimental effect, it would not be difficult to impose tax collection requirements on wineries who were direct shipping (this is done all over the U.S., ironically one of the companies assisting with this is Canadian). 

As a result, it\’s not that difficult to fix this problem. Canadians just need their federal government to act. Let\’s keep our fingers crossed. 

The media coverage of tomorrow\’s action by Terry David Mulligan continues as the Wine Spectator has now picked up the story: Canadian Wine Shipping Laws to be Put to the Test.

Ron Cannan, the Kelowna MP, who championed reform of the shipping laws in the last session of Parliament has also issued a press release today supporting modernization of our outdated laws (PDF File) – Time to Modernize: Supporting the Canadian Wine Industry

Terry David Mulligan\’s plan to transport wine \”illegally\” across the AB/BC border this Friday at high noon is getting a huge amount of media attention. This week, the Calgary Herald wrote this lead editorial supporting change to provincial liquor board policies on this issue: Alberta Should Allow Direct Purchases from Wineries. Hopefully, politicians at both the federal and provincial levels will pay attention to this issue and work towards quickly introducing a national personal use exemption, which was championed by Ron Cannan in the last Parliament. It seems abundantly obvious that Canadians want this change, which is a relative \”no-brainer\” in my view. In the U.S., the introduction (and success) of direct to consumer shipping has affected only 1% of the overall retail wine sales (the editorial says that it affected 1% of state revenue which is not necessarily the same). The effects in Canada would likely be similar: a tiny effect on provincial revenue but a huge boost for both consumer choice and for the wine industry.

Update: The Vancouver Sun has also picked up the editorial from the Calgary Herald: Law Needs Sober Second Thought

Note: While I am obviously in favour of getting the law changed … I am a lawyer and, as such, don\’t advocate anyone breaking the law.

Whatever your political leanings, the federal election results on Monday, which produced a Conservative majority government, are likely positive news for efforts to reform Canada\’s archaic wine shipping laws. The Conservative government had previously taken the position that it would reform the problematic Importation of Intoxicating Liquors Act (the 1928 law that prohibits interprovincial direct to consumer shipping) and had included a line item in the last budget to indicate that they would do so. While one of the proponents of reform did not run in the last election (Stockwell Day), the other major force (Ron Cannan) was reelected and will likely continue the effort. In the interim, this issue has been getting a great deal of media attention due to the announcement by Terry David Mulligan that he will transport wine across the Alberta/BC border on May 13th in an effort to highlight the need for reform. No doubt, there will be more to come on all of this.