Tag Archives: wine economics

Follow-up: The foolishness of taxing European wine

taxing european wine

“Who needs this stuff? Let’s buy more expensive California wine, because that’s what the Americans say we should do.”

Taxing European wine, and the economic fallacy behind the Jackson Family Wines proposal

Know two things about the proposal by the man who runs Jackson Family Wines to put up a tariff wall to keep cheap European imports out of the U.S.:

First, Barbara Banke, the chairwoman of Jackson Family Wines, told Wine Business Monthly in February: The wine business “seems tougher this year and it probably will be tougher next year. It doesn’t seem like it’s as easy as it was.”

Second, the suggested retail price for the company’s flagship product, Kendall-Jackson chardonnay, is about $17. But you can find it for $10 or $12 without too much trouble, which no doubt causes much consternation at company headquarters.

Is a pattern emerging here?

The Jackson Family proposal for taxing European wine has nothing to do with free trade, the so-called “level playing field,” or any other political rhetoric. It has to do with profit – Jackson doesn’t want to sell $10 wine, so it doesn’t want anyone else to sell it, either.

Which I completely understand. I don’t agree with it, but I understand it. So why hide the company’s true intentions behind complaints about unfair trade? Because who would agree to tax $10 European wine to protect one company’s profits? Hardly anyone who doesn’t work for that company.

Which brings us to the Wine Curmudgeon’s wine supply and demand primer. California’s role in the world wine market is important certainly, accounting for about 280 million cases a year. But it’s not as important as Californians like to think.  The French, Spanish, and Italians combine for almost 1.8 billion cases a year, while the total production of Chile plus Argentina is some 11 percent higher than California’s.

So what makes anyone think that the so-called “level playing field” would change anything? The rest of the world already has plenty of wine of equal quality and that will probably still cost less, even without the offending tariffs and subsidies. Why would a European buy €15 or €20 California wine (assuming anyone in California could sell it for that little, given California’s pricing structure) when they could still buy €8 or €10 European wine in the supermarket?

And this assumes that California can somehow produce enough wine to export. Which, as I mentioned in the first post, it doesn’t. We drink almost all the wine made in the U.S. in the U.S., and that doesn’t look to change anytime soon. They’re pulling out vines in California, not planting new ones to sell cabernet sauvignon to France and sauvignon blanc to Chile.

So there may not be much demand in the rest of the world for California wine, even if there was enough supply to export it, tariffs or no. The Jackson Family proposal ignores those basics, because it doesn’t help their argument.

Fortunately for those of us who care about wine and not wine company profits, I’m here to make sure those basics aren’t ignored.

Photo of “IMAG0970”by thirstforwine is licensed under CC BY-NC 2.0

Winebits 243: Wine economics

We seem to have a theme this week, no?

? Consumers want to pay less: And no less than the guy who runs influential importer Frederick Wildman says so. Richard Cacciato told Shanken News Daily that, after the recession, ?[w]e saw a radical change in purchasing patterns almost overnight. ? Labels that were being sold for $75-$80 were repositioned down to $50-$60. For wines retailing at more than $20, we found ways to bring them in under $20. That created a perceived value in these products. ? Cacciato also says the recession forced Wildman, hardly known as an importer of cheap wine, to restructure its business to allow it to focus more on grocery stores and mass market retailers like Costco. If Wildman is doing this, what does it say about the increasing importance of grocery stores in the wine business?

? Why does it cost that much? Tim McNally looks at why a bottle of wine costs what it costs, and discovers that it may not have as much to do with the actual expense as we think. ?Wineries are trapped in pricing given the types of grapes they are working with, and where they are located. A great bottle of Napa Valley Oakville Cabernet Sauvignon may be perfectly acceptable to you in the $75 range, but move just a few miles north to Alexander Valley in Sonoma and that won ?t fly. ? We also hear about Tim ?s brief foray into the banking business, which sounds like it was a lot of fun.

? Bring on the sweet wine: California winemakers who want to sweeten their product can ?t add sugar; it ?s against the law. Instead, they add grape juice, and that mostly comes from the Thompson seedless table grape. And guess what prices for Thompsons are doing as the 2012 harvest begins? Going sky high, reports the Western Farm Press, with prices as much as 23 percent higher than 2011. Some of this is being caused by what looks to be a smaller Thompson crop, but it also points to increased demand as wineries ramp up production of sweet wine.