Tag Archives: wine tariffs

Trump Administration backs off 100 percent European wine tariff

But we’re still stuck with the 25 percent wine tariff, and perhaps for at least another six months

wine tariff

Higher prices: This 1-liter bottle of French rose, about $12 before the tariff, now costs $2 more on sale at one national retailer.

The Trump Administration said Friday it would not raise its European wine tariffs to 100 percent, which would have included most of the region’s wine. That’s the good news.

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.

Winebits 632: Sommelier cheating scandal, wine tariff, wine lists

sommelier cheating scandalThis 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.

Trump Administration may hold off on 100 percent tariff on French wine

wine tariffsBut still no word on whether the U.S. will delay imposing a 100 percent tariff on all European wine

U.S. officials say they will hold off on escalating a trade war and won’t impose a 100 percent tariff on French wine and Champagne, cheese and handbags. President Donald Trump had threatened the new duties to retaliate for a French tax on U.S. tech firms, including Facebook and Google.

The tech giants, despite ample evidence that the tariff would hurt U.S. companies, opted to protect their billions of dollars in profit at the expense of U.S. jobs, and supported the president’s decision. Their backing was seen as the final impetus in imposing the 100 percent duty.

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 bad news: CNN emphasized that there was no official word from the White House that it would delay the tariff. This approach has not been unusual in Trump’s on-going tariff broadsides with other countries over the past three years, and it wouldn’t be surprising if the U.S. changed its mind and the tariff went into place.

In addition, it’s unclear whether this compromise will delay the the proposed 100 percent tax on all European wine, part of the on-going trade dispute about unfair subsidies to European aircraft producer Airbus.

One week in: The 25 percent European wine tariff

European wine tariff

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.

More about the 25 percent European wine tariff:
• Preparing for the 25 percent wine tariff
• Do new U.S. wine tariffs mean the end of most $10 European wine?
25 percent European wine tariff went into effect today

Drawing: “Don Quichotte” by Manu_H is licensed under CC BY 2.0

Do new U.S. wine tariffs mean the end of most $10 European wine?

wine tariff

The European Union gave plane manufacturer Airbus illegal subsidies, so we may not be able to buy $10 French or Spanish wine.

It’s a question no one can answer yet, but some retailers and importers think the wine tariff will do just that

The U.S. slapped a 25 percent tariff on wine from four European countries this week, and some fear it may be well be the end of most $10 European wine in the U.S.

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.

That means every bottle of wine from those four countries, save sparkling and those with more than 14 percent alcohol, will cost at least 25 percent more. And France and Spain account for about one-quarter of U.S. imports.

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?

“It’s going to be the consumer who decides about price increases, not the Italian producers,” says Giulio Galli, an Italian wine importer in San Antonio. “If you look at something like $8.99 pinot grigio, the consumer is just not going to pay $15 for it.”

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.

Winebits 596: Tariffs, wine writing, wine prices

Wine pricingThis 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.

Land, Kendall Jackson, land: The biggest factor in California wine prices

California wine prices

Jackson Family Estates doesn’t want to make $10 wine, but there it is.

Real estate, not foreign tariffs, determines California wine prices

Consider two wines: Both white Rhone-style blends, both from respected wineries, both speaking to varietal character and terroir, both well-made and enjoyable. One costs $24; the other costs $12. So what’s the difference?

Vineyard land prices in California. The $24 wine is Eberle’s Cotes de Robles Blanc from Paso Robles, where land goes for $30,000 to $35,000 an acre. The $12 wine is McPherson’s Les Copains White from Texas’ High Plains, where land goes for less than $5,000 an acre. Otherwise, save for a fancier screwcap on the Eberle, the wines are the same – mostly the same grapes, the same style, and the same flavors (some lime and stone fruit, very clean and crisp).

We’ve spent a lot of time on the blog over the past couple of weeks discussing the Jackson Family Estates proposal to raise a tariff wall to keep cheap imports out of the U.S. What we haven’t discussed is the role that the cost of California land plays in all of this.

More than anything, that’s why California wine prices are as high as they are. The land – even in the less famous regions like Paso Robles – can be some of the most expensive in the world. Equally as important, a lot of vineyard land in Europe — even quality land — was paid for decades ago, so the price of a bottle may not include the cost of the loan to buy the land. In some parts of California, the cost of the mortgage is the difference between a $50 and $60 bottle of wine.

And the more demand for California wine that there is, the more money people will pay for California vineyards. And higher land prices in California mean more expensive grapes and more expensive grapes mean more expensive wine. It’s that simple.

That’s because all else is mostly equal: The cost of labor, the cost of the bottle, the cost of shipping, and it doesn’t matter whether you’re in Texas, California, or France. In fact, California might have a slight edge in some production costs, since it’s the center of the U.S. wine business. So, in the end, the price of the land in determines California wine prices.

Jackson Family, like other big California producers, likes high land prices. High prices make the company more valuable. So when it says it can’t afford to make $10 wine, it’s being honest – but it’s also crying crocodile tears. It has decided premiumization is the future of wine, and it doesn’t want to make $10 wine. Smaller producers, faced with the same land price constraints, aren’t nearly as sanguine. Many have told me they see their wines being squeezed out of the market by companies like Jackson Family, who can work on smaller profit margins on an $18 bottle and undercut the smaller producers.

The irony? There’s plenty of cheap land in California to make $10 wine, which is where Barefoot, Two-buck Chuck, and much of the state’s cheap wine comes from. It’s in the Central Valley, where a ton of grapes can cost as little as $300, one-sixteenth of the price in Napa. And, in another irony, premiumization has made this land even cheaper – so cheap, in fact, that some farmers are replacing grape vines with almonds, which offer higher profits.

In other words, Jackson Family Estates could do what E&J Gallo (Barefoot), The Wine Group (Franzia), and Bronco (Two-buck Chuck) do – use Central Valley grapes to make $10 wine. But it’s easier to ask for a tariff wall and punish U.S. wine drinkers. Which should demonstrate exactly where Jackson’s interests lie, and it’s not with the wine drinkers.