This week’s wine news: U.S. wine tariff update, which may include some good news. Plus, is this the beginning of the end of icewine?
• Big tariff losses…: The Robb Report, addressing last fall’s 25 percent wine tariff, says “The resulting price hike has made many bottles simply too expensive for U.S. sellers to import. Now, with an abundance of wine bottles in reserve, French vintners are reportedly slashing prices to stay afloat.” The story doesn’t get much more specific than that, though it does cite the French wine industry’s continuing woes. Still, one of the smartest people in the wine business told me, after the tariffs went into effect, that this was possible. Wine can’t be stored like steel, to be sold when demand picks up. It needs to be sold every vintage, and if vintages start backing up, the only way to sell them is to cut prices. We shall see.
• Too warm for icewine: Icewine is one of the wine world’s great treats – rare, expensive, and incredible to drink. Now, thanks to warmer winters in Germany, it may be going away. That’s because icewine is made by harvest frozen grapes on the coldest of winter mornings, and there haven’t been enough of those mornings this winter. The German wine trade group says there will be icewine vintage for 2019, and only one producer will make a tiny amount.
The bad news? We’re stuck with the 25 percent tariff imposed last fall until the next review, set for August.
Still, this is much more than a half empty glass. The decision seemed to reflect the wine industry’s tremendous and almost unprecedented lobbying effort against the 100 percent tariff, in which representatives from each of the three tiers testified at U.S. Trade Representative Office hearings, blitzed the old and new media, and organized public anti-tariff campaigns. In this, groups that typically disagree as often as they agree worked together for the greater good.
For example, the Wine Institute, the trade group for California producers, has been working for years to change state laws to make it easier for consumers to buy directly from wineries. This has been opposed by most of the second tier, since wholesalers have a monopoly on selling to retail and restaurants under the three-tier system and don’t want to allow any exceptions. But the two groups were side by side in opposing the tariff.
“It was one of the rare cases in the industry when everyone’s interests aligned,” says Cindy Frank, a long-time wine industry executive who has worked as an importer, wholesaler, producer, and retailer and who testified at last month hearings before the U.S. Trade Representative in opposition to the tariffs. “It’s the one issue that has worked itself all the way through the three-tier system.”
So where does this leave us?
• The tariff decision was announced on Friday afternoon. This timing, after everyone leaves for the weekend, almost always means the people announcing the news didn’t want to talk about it. Which often means they did something they didn’t want to do, and so didn’t want to have to explain their decision. Still, that aircraft tariffs were increased, when the initial dispute was about aircraft, speaks volumes. The World Trade Organization ruled in October that EU subsidies to Airbus were illegal, and that the U.S could impose tariffs in retaliation.
• Credit some of the decision to our friend, the three-tier system. Apparently, Trump Administration officials didn’t understand what three-tier was or how it worked. Their questions, said several people who testified, assumed retailers, importers, and wholesalers could easily replace European wine with imports from other parts of the world, just as they would steel or soybeans. The officials didn’t know how severely three-tier restricts how wine can be sold in the U.S.
• Economic turmoil. The wine industry lobbyists, as part of their effort, did an excellent job in showing that higher prices for imported wine would lead to job losses, bankruptcies, and lost sales up and down the U.S. supply chain, whether big or small retailers, producers, importers or distributors, says Southern Glazer’s Barkley Stuart, the chairman of the Wine & Spirits Wholesaler Association’s board of directors.
• The tariff was re-examined four months after it was applied as required by U.S. law. This was a point of confusion after the October ruling, and I reported the process incorrectly in the “Does anyone have any idea what’s going on?” post (and since updated). The next tariff review, as required by law, must come by August. In addition, the WTO is expected to announce later this year that the U.S. gave Boeing illegal subsidies in retaliation for the EU subsidies to Airbus. If that happens, then there’s political cover for both sides to negotiate away the tariffs, but no one knows if or when that will happen.
• Retailers, pricing, and rose season. As reported here and elsewhere, retailers, distributors, and importers have worked together since October to minimize the 25 percent tariff’s effect on prices. But, as one Dallas retailer told me, all bets are off on holding the line on prices when rose season arrives in the next month or so.
This week’s wine news: A comprehensive look at the sommelier cheating scandal, plus the wine tariff sinks French wine imports and wine list foolishness
• Sommelier cheating scandal: The trade website SevcenFiftyDaily takes a long, thorough, and comprehensive look at the 2018 sommelier cheating scandal – some 4,000 words. It’s mostly well done, fair, and reaffirms the suspicions that those of us had about the lack of transparency surrounding what happened: The “events of the past year raise broader questions about an organization—and the title it confers—that’s one of the wine world’s most powerful. And not just for the trade: With the 2012 release of the film Somm, which details the efforts of four Master Sommelier candidates to pass the exam, and its subsequent appearance on streaming services like Netflix, many consumers have come to view the MS title as the standard of wine culture.”
• Plummeting exports: The 25 percent U.S. tariff on some European wine has pounded French wine exports to this country, says a French government official. They dropped 44 percent by value in November 2019 from the previous month, after the import penalty went into effect on October 2019. The story also says that the “tariffs have been especially painful to producers at the lower ends of the market, where a 25 percent price hike can turn an affordable bottle into a once-in-a-while luxury.” We should know something this week or next about the next stage in the trade war after the World Trade Organization rules on a complaint by the European Union about illegal U.S. subsidies to Boeing. It was illegal EU subsidies to Boeing competitor Airbus that started this mess.
• Incomprehensible wine lists: A recent Vinepair podcast takes on a subject guaranteed to make the Wine Curmudgeon crazy: The “many wine lists floating around out there that seem to revel in being inscrutable to all but the most sophisticated and educated wine drinkers.” The podcast talks about the problem, explains why it doesn’t have to be one, and offers more pointers on buying wine in a restaurant.
The good news: The Financial Times reported yesterday that a French finance ministry official said the two sides had agreed to a “ceasefire” until the end of the year. He told the newspaper that no tariffs would come into force before then and talks would continue on digital taxation.
The WC feels like Don Quixote in the wake of the European wine tariffs — chasing the windmills of cheap wine.
Where we are with the 25 percent European wine tariff, and where we may be going
A few thoughts after talking to a couple of dozen people – importers, distributors, retailers, and producers – about the 25 percent European wine tariff (and most asked not to be named, citing the nature of the dispute):
• How long will the tariffs last? Almost all I talked to were pessimistic – one official at an important New York importer said he was an optimist, which meant 12 to 18 months. “And that’s because I’m an optimist,” he said. “Others are telling me the tariffs will be here forever, because who lowers taxes once they’re imposed?” In this, he told me, the tariffs will almost certainly change the way Americans buy wine. This was echoed by an employee of one of the biggest distributors in the country and a prestigious Dallas retailer. If $15 French and Spanish wine suddenly costs $20, who will buy it? They’ll just switch to another $15 wine
• Will anyone “win” this part of the U.S.-E.U. trade war? If winning is scoring political points, then the Trump Administration is having a victory party. And I have no doubt Jackson Family Wines is celebrating, as short sighted as that might be. But if winning is solving a problem, then no one has won and almost no one will win. As a former newspaper colleague of mine, a respected South Carolina political writer, said recently: “Tariffs are a mug’s game.” These were imposed as punishment for something that happened 14 years ago, and it’s difficult to see how taxing British wine will solve an aircraft parts dispute.
• When will prices go up? The tariff only affects wine imported after Oct. 18, so if it’s already in the country, we’re probably safe. The New York importer said his company will raise prices on wine brought in after Oct. 18 in the next 30 to 60 days. On the other hand, a Dallas retailer told me his very large chain is trying to figure out a way to absorb some of the increase for less expensive wines, since it doesn’t want to see them priced out of existence. He said large retailers, thanks to economies of scale, might be able to work around some of the the tariff’s effects.
• What’s the Wine Curmudgeon doing? Trying not to panic. The blog’s reason for being is cheap wine, and much of the world’s most interesting cheap wine comes from France and Spain. Price that out of reach, and I don’t have much to write about, do I? I can still count on Italy, and I’ve spent considerable time in local retailers looking for wine from countries not affected by the tariff. The good news is that I stumbled on a $10 Chilean pinot noir and a $10 South African white blend. The bad news? That doesn’t make 52 wines of the week. And availability is almost certainly going to become even more uneven than it is now, and we know how uneven it is now.
That’s the impression I got after spending yesterday on the phone, talking to retailers and importers in the wake of the U.S. announcement that it would tax wine imported from France, Germany, Spain, and Great Britain an additional one-quarter of its value. It’s part of a laundry list of goods and services, including olive oil and airplane parts, that are being taxed in retaliation for illegal European aid to the Airbus plane manufacturer.
I asked James Galtieri, whose Seaview Imports brings in 85,000 cases a year, 40 percent from France and Spain, if we’ll see any $10 French or Spanish wine left in the U.S. if the tariff takes effect. “Probably not,” he said. A Dallas-area retailer told me the same thing: “There’s no way anyone can afford to sell those wines for $10 if they cost 25 percent more because of the tariff.”
In fact, Galtieri said the tariff could even take down $15 to $18 wine. “Those are the kinds that could fall out of bed completely. Yes, a $1 or $2 prince increase on a $15 wine doesn’t sound like much. But $15 is the sweet spot, and people don’t want to pay more than that. So they’ll likely buy something else, and those wines will disappear from the shelf.”
A Spanish importer, one of the best in the world, was even more blunt. “I might as well close my doors,” he said.
One bright spot?
Italian wine avoided the new tariff. But Italian producers could take advantage of the situation to raise prices and still remain competitive. Will that happen?
The other bright spot? There’s still some confusion about how the tariffs will be applied. A spokesman for the U.S. Trade Representative, which announced the new duties, said: “For questions on how the increased tariff rate is applied to specific products, we recommend contacting U.S. Customs and Border Protection, which will be implementing the tariffs.”
And a spokeswoman for a custom broker in Houston, which guides companies through the import maze, said Thursday that it had not been officially notified of the tariffs, including how they would be calculated. So there is a chance, however slim, that 25 percent may not mean 25 percent.
Finally, several people told me there is a chance, also however slim, that the U.S. and the EU could negotiate a settlement to the Airbus dispute that doesn’t include the wine tariffs. That may be our best bet to save $10 European wine.
This week’s wine news: The booze business has discovered it doesn’t want tariffs, either, plus wine writing’s unique demographics and expensive wine doesn’t guarantee quality
• No tariffs, please: The Wine Curmudgeon is not the only one who understands that tariffs are a mug’s game. Most of the booze business’ leading trade groups, including the Wine Institute, have asked the federal government to drop plans to tax European Union products. The story, from Shanken News Daily, is a bit convoluted, but the gist is that even people who never agree about anything else agree about this: “Entry level, everyday products are going to be affected just as much as high-end imported products,” said the CEO of the group that represents wine and spirits wholesalers.
• An exclusive club: Tom Natan, writing on the First Vine blog, discovers one of the wine business’ underlying truths, “the uniform racial makeup of the wine writing world. … at least the part I experience at meetings and conferences — seems to be populated almost exclusively by White people like me.” He parses some intriguing numbers, including that almost one-quarter of U.S. business owners and bosses are women, but that only 4 percent of wine and spirits businesses are owned or run by women. And only one-fifth of those 4 percent are women of color. This is in marked contrast to food writing, he writes, which is much more diverse. Natan looks for reasons why this is true, but misses something else: Does this lack of diversity explain why the wine business is so obsessed with expensive wines – the kind that are preferred by its older, wealthier demographics?
• Not so fast, expensive wine: Dan Berger, writing in the Santa Rosa Pres-Democrat (in the heart of wine country, no less), warns us that “wine buyers willingly accept being fed a diet of misinformation — or no information at all. They continue to buy wines based on marketers’ fictions, accepting lies or faux facts, and believing high prices indicate high quality.” And, just to be sure we understand, Berger asks: “Can you imagine buying a car without first gaining specific details about its specifications, and without taking a test-drive? How about buying furniture off the web that doesn’t give measurements or the material from which it was made?” But, and as been mentioned here many times, wine drinkers do that regularly, because we assume that wine is different than cars or furniture.