WineLaw.ca

Here\’s a short roundup of summer news, most of it good:

LCLB okays Custom Crush Operations. The BC LCLB has sent out an advisory to wineries in the province that basically approves \”custom crush\” operations so long as they are structured properly. As readers may know, there was a fair amount of media coverage of this issue recently (particularly in the Globe and Mail). Here is a copy of the release (PDF): LCLB Approves Custom Crush. This is good news and, in my view, is a correct interpretation of the existing law in British Columbia on this issue.

Wine Bloggers Conference in Penticton in 2013. The North American Wine Bloggers Conference has announced that it will hold its 2013 conference in Penticton which is good news for the BC wine industry. They normally don\’t announce conferences 2 years in advance but they are obviously aware of the headaches in dealing with BC\’s outdated wine laws since they stated that the long advance notice was partly needed to enable \”local area supporters extra time to prepare for our invasion, such as making transportation easier for our attendees and making imports of wine possible for our sponsors\”. Is it too much to hope that by 2013, we might have more sensible wine import laws? Otherwise, we may have thousands of bloggers broadcasting how arcane our system is.

Privatization in the News Again. A revised privatization initiative (supported by Costco) in Washington state has gained enough support to make it on to ballots in November. Also in Pennsylvania (which has government liquor stores similar to BC), the state is debating whether to get out of the liquor business entirely.

House of Commons Motion to Reform Wine Shipping Laws Reintroduced. Ron Cannan, MP for Kelowna Lake Country, has reintroduced his federal House of Commons motion which supports the reform of Canada\’s interprovincial wine shipping laws. These laws currently make it illegal for wineries to ship direct to consumers that are outside their own province.

In a press release issued today, BC\’s Agriculture Minister, Don McRae, states that BC is pushing for the removal of interprovincial trade barriers affecting wine shipment between provinces. He also indicated that he asked all of the ministers to review their policies that relate to the interprovincial shipping of wine. Here\’s a quote from the press release:

Developing domestic markets and responding to consumer demands are also critical to the future success of the sector and the economy. That is why B.C. continues to push at the national level for further reductions in inter-provincial trade barriers to encourage the development of our agriculture and agri-food industries. Subsequently, I asked all ministers to review their positions on the inter-provincial trade of wine.

The full press release is here. Hopefully, there will be some movement by the provinces on this issue which will help Ron Cannan\’s efforts to reform the federal law which currently prevents wineries from shipping direct to consumers in another province: Ron Cannan\’s Motion 218.

The Vancouver Sun reports today that Prince William and Catherine enjoyed some Quail\’s Gate wines with their dinner while in the Northwest Territories on Tuesday evening. The wines were shipped specially for the occasion up to the NWT by the winery across provincial/territorial borders. Just FYI for those who have asked me about the legality of the shipment, there is an exemption in the federal interprovincial shipping law for \”the Crown\” so the shipment by Quail\’s Gate, since it was destined for the royal family, would have been legal.

Today\’s Globe and Mail has an article which highlights the trade law problems surrounding Canada\’s wine industry and, particularly, the related provincial practices: U.S. Winemakers See Trouble Fermenting in Ontario Election. I\’ll try to post some more thoughts on this later … when I have time!

The first wine law reference text in North America has just been published, Wine in America: Law and Policy. It\’s edited by leading Napa wine lawyer, Richard Mendelson. While the text is U.S. focused, most of the main issues are also applicable to Canada so the American analysis gives a good framework for discussion of the same issues north of the border. I can attest that I am already finding this book to be invaluable!

June 15, 2011 is the 90^th Anniversary of the repeal of prohibition in BC and the establishment of government control of the sale of liquor within the province. The BC prohibition commenced on October 1, 1917. It was soon judged a failure, resulting in law-abiding citizens becoming criminals for simply wanting to have a drink with their dinner. Following a referendum, prohibition was repealed on June 15, 1921. On the same date, a “government control” system was implemented for the sale of liquor within the province.

It is the 90^th anniversary and the government monopoly Liquor Distribution Branch (LDB) still controls and sells all liquor within BC at the wholesale level and still sells a vast amount through its government retail stores which have extremely high operating costs. The LDB is a $3 billion per year business in B.C. It generates about $900 million per year for the government but costs about $300 million per year to operate.

The following are some of the legacies of prohibition which make BC look ridiculous when compared to the rest of the world:

• Today, all liquor sold within BC must be registered and listed with the government. All imports of liquor must be approved by and processed through the government wholesaler. Yet, we don’t do this for cigarettes or guns.
• Today in BC, and unlike most of the rest of the world, it is still illegal to consume alcohol in a public place such as a park. BC citizens cannot legally enjoy a glass of wine while enjoying a picnic.
• It is still illegal to carry liquor across provincial borders (a criminal offence with possible imprisonment). In Europe, you can ship alcohol between countries without a problem. While Canadians cannot legally return from a vacation in another province with any alcohol, they can bring back 2 bottles per person after a trip to another country.
• We have excessively high taxes on liquor which result in prices being about double what they should be. For example, Chateau Ste. Michelle Riesling, a Washington state wine, is commonly available for $6 south of the border. It is $15.99 in BC because the standard LDB markup on wine is 123% plus 12% HST on top of that for a grand total of 135% tax.
• Wine is good for you when used in moderation as intended. No amount of soda pop is good for you but that is taxed at only 12%.
• We have arcane regulation of restaurants and private retailers such that these independent businesses are not permitted to do things which are otherwise commonplace. For example, they cannot store liquor off-site. They cannot transfer liquor between locations of the same restaurant or retail chain (even if the LDB is out of stock). They must buy nearly all their liquor from the government, usually from a single designated government store. If they order anything other than mainstream products, they are forced to order in full case lots via a slow and inefficient delivery system. As a result, restaurants frequently run out of products or encounter storage and financial issues due to the requirement to order in such large quantities.
• Restaurants and bars are denied wholesale prices entirely. Private retailers are given wholesale prices which are fixed artificially high by their chief competitor (the government stores). As a result, there is virtually no competition in the retail liquor business and consumers are denied the sales and good deals that are common in other countries.
• It is illegal for a private person to sell a bottle of liquor to another private person. Auctions are also illegal (unless done for charity).
• Citizens cannot take their own wine into a restaurant and have the restaurant charge them a corkage fee (even if the wine was purchased from a government store). This is illegal – it’s considered to be “illicit liquor”.

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.