Month: January 2010

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.

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.

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.