Private clubs, middle ground?

The Prohibition is known as the noble experiment ... that failed! The lesson learned from the experiment that legislating morality and person conduct is difficult. Not only is it difficult, it has proved to be counterproductive, since drinking increased during the 1920s, with an estimately 100,000 speakeasies in New York alone. While the Prohibition was repealed, states are empowered to make their own legislature when it comes to how it regulates alcohol. The focus of this blog is on how Arkansas has exercised this right.

Arkansas operates on a “local option” system, under which each county or city may determine whether alcoholic beverages may be sold in that area.  The 1969 law allows a private club to exist in a dry county as a nonprofit corporation with certain purposes “other than the consumption of alcoholic beverages.” Then in 2003, the law was amended to add three more purposes for private clubs — community hospitality, professional association and entertainment. The map below represents the unofficial "wet-dry" status of the counties in Arkansas.

"In a wet county, the retail sale and manufacture of alcoholic beverages in legal. In dry counties, only a private club permit may be issued." It is interesting to note that "most of the wet counties have dry areas within their borders such as townships or cities." Every year these areas can put local option on the elections through petition during November General Elections

The issue gets complicated due to the private club permit provision within the regulation. For example, Cleburne County is “dry;” that is, alcoholic beverages may not be sold to the general public. Even so, alcoholic beverages may be legally dispensed through non-profit private clubs, provided certain criteria are met by those establishments.  This bothers people and organizations, such as The Dry Counties Coalition, who believe if the county has voted to be “dry,” it should actually be dry. In order to accomplish this, Arkansas General Assembly would need to actually change the law.  

The bizarre practice of "voting dry, but drinking wet" is a consistent theme with American's relationship with liquor. On the one hand, our nation sees it as a sin, an immorality that is not good for individuals and society. However, people want to drink and so they do. Further, because of this desire, alcohol regulations can have economic effects on an entire town. In fact, Arkansas Legislature highlighted this conflict in their alcoholic beverage control law which states that "such activities will be strictly regulated, but then acknowledges the importance of tourism and conventions to the state; the competition among states for them; and proclaims that visitors to the state must be provided “accommodations, services and facilities” to allow Arkansas to be competitive with other states."

An example of the detrimental economic effects of being dry is the history of Monmouth, Oregon, which was the last dry town on the West Coast. OBP's historical piece is an insightful reflection on the turmoil regarding this issue. Ultimately, the economic impact on the town was just something that cannot be ignored. In fact, it even lost its supermarket due to population loss. It seems holding onto the dream of a dry county makes no sense if you don't have any people left.

Summary of: “GRAPES OF WRATH? HOW THE UNITED STATES CAN REDUCE THE NEGATIVE EFFECTS OF WINERY WASTEWATER”

Grapes of Wrath is not only a John Steinbeck novel relaying the trials and tribulations of Okies on their way to California pushed out of their homes because of the Dust Bowl, but also a 2009 Law Journal article by Kristen Cunnhingham that discusses the negative effects of winery wastewater. What a clever title. (Non-bluebooked citation: GRAPES OF WRATH? HOW THE UNITED STATES CAN REDUCE THE NEGATIVE EFFECTS OF WINERY WASTEWATER, Kristen Cunningham, 20 Colo. J. Int'l Envtl. L. & Pol'y 223)

This blog will give a brief summary and overview of said article.

I. The Economy of Wine: The article begins with an introduction to the increasing size and scale of winemaking in the United States, and California in general. Citing a 2007 report by Congress, the article notes that the winemaking industry contributes more than $162 billion annually to the American economy. That’s a lot of money. California alone produces 95% of the wine in America, and 61% of all the wine consumed in America. Given those numbers, the economic impact of winemaking, in the United States and California, is massive. With all industries that can create massive positive economic impacts, there is generally a strong push by local, state, and federal government to encourage growth in that industry (even if that impact means increasing consumption of Alcohol. Let’s party!). However, beyond encouraging a “nation of drunkards” thirst for booze, encouraging winemaking as an industry also presents environmental problems. The article presents this information as a way to introduce the idea that, this potential economic growth must be accompanied by the regulations that take into account winery wastewater and its effect on natural resources.

II. Wastewater Concerns of Winemaking: Some of the concerns that winery waste water include:

·         Discharges of high levels of sugars: It doesn’t take much imagination or insight to realize that winery wastewater will likely include high levels of sugars. But what environmental effect do those sugars have when released into the natural environment? Well, as the article explains, microbes in the water are suddenly provided with an enormous food source, the associated consumption gives rise to increased oxygen consumption creating an oxygen-deprived environment that can suffocate the plant and animal life that depends on oxygen for respiration. (I’m not a biological expert, but this reminds me of the “dead zones” that occur due to fertilizer discharge – which I understand to basically mean that fertilizer that is not absorbed in farms makes its way into groundwater, and then ultimately into areas like the Gulf of Mexico, after traversing the Mississippi, and ultimately leading to massive growths of algae fed by fertilizers and ultimately altering the environment for other aquatic plant and animal life. Rant over.)

·         Unforeseen Chemical Reactions: Additionally, these sugars can combine with other chemicals typically found in water and result in dangerous chemical reactions. For example, sugars combined with chlorine - typically found in drinking water sources – can result in carcinogenic compounds that have been found to cause increased risk in cancer for humans. (I’m not trying to ruin your fun when drinking wine, I promise)

·         Improper, insufficient wastewater treatment and filtering

III. Technological Innovations: Cunningham next looks at two wastewater treatment technologies that can help alleviate some of the aforementioned concerns and promote sustainable practices.

I’m no expert, but both technologies seem to involve treatment that involves adding bio-matter that can feed off of, or react with the sugars in a way that can result in an easy to remove the end-product, or

IV. Current Domestic Laws: In this section, the article looks at the Clean Water Act (“CWA,” which we are discussing today!), and California’s wine regulations.

·         Clean Water Act: After a brief discussion of the CWA, the article notes that under the CWA, wineries are categorized as point sources because they discharge directly into waters of the United States. However, they are categorized as a general food producer, not a more specific regulation directly focused on wineries. The author proposes that a more specific category could be more effective to address the concerns raised directly by wineries.

·         California’s Regulations: California, as a major wine producer, has some regulations which wineries must comply with at a more specific level. If a winery’s discharge, but not grape growers, will affect the state’s waters, it must apply for a General Waste Discharge Requirement permit (WDR) with the Regional Water Board. If given a WDR permit, the winery must publish a description of their project, provide that to the board, and give notice to local residences and businesses. Ultimately, the permit sets effluent limitations and prohibits discharge to surface waters.

V. International Models: The article next summarizes some regulations established by South Africa, the European Union, and Australia, how they differ and how some of those methods could be implemented in the US.

VI. Proposals: Lastly, the article presents some proposals to regulate the wine industry and its wastewater. Some proposals include:

·         Adding the wine industry as a subcategory within the CWA, with apple/citrus juice producers to ensure that winery effluents meet stricter and standards specifically focused to the concerns presented by wineries.

·         Promoting a national policy to favor sustainable wine production (following the EU’s lead), and provide subsidies for following newly established “agri-environmental” measures.

·         At the state level, follow California’s lead, and require permitting specific to winemaking discharge.

VII. Conclusion: Ultimately the article concludes that the growth of winemaking needs to be addressed with preemptive law and policy action to protect the nations water resources from the potential harmful effects of increased winemaking.

Drink up!

Costco will not Lend a Hand in Neighboring States' Efforts to End State Monopolies on Liquor Sales

Last fall, Costco (COST) contributed almost all of the $22 million spent in a campaign to end the state monopoly on liquor sales in Washington. Voters passed Initiative 1183 on November 8^th, dissolving the state-owned liquor stores and replacing them with licensed, private-party distributors and sellers. Despite their success, Costco has announced that it will not contribute financially to liquor initiatives in other states. If similar efforts come to Idaho and Oregon, a lawyer for Costco Wholesale Corporation says, “We’re going to be cheering on the sidelines.”

Costco’s victory inspired supporters in neighboring states with similar liquor controls and caused lawmakers to take notice as well. Referring to liquor regulations that date back to Prohibition, Oregon Republican Representative Bill Kennemer said, “Things have changed since 1930, and it would be good to have another review about what we’re doing.” Oregon’s liquor laws only allow the sale of hard alcohol in stores run by state-licensed agents. Idaho has similar liquor laws. However, with Costco out of the picture following their victory in Washington, one article speculates that ballot initiatives are unlikely this year.

In the meantime, state officials have been working to preempt such efforts. In Oregon, the Oregon Liquor Control Commission proposed to allow grocery stores to open “store within a store” liquor operations and allowing some liquor stores to sell beer and wine. Grocery chains, however, think that the proposal is insufficient to satisfy their desire to break into the liquor business. Additionally, an Oregon House committee will spend the summer and fall dissecting the issue and potentially drafting legislation to open the liquor system to private parties. However, the article previously mentioned also speculates that the Legislature will want to ensure that the broadening of the liquor market won’t cause social consequences like an increase in drunk driving and alcoholism, or reduce the state’s revenue from liquor sales.

Where do these state monopolies on liquor come from?

Following the repeal of Prohibition and the ratification of the 21^st Amendment, states were given the freedom to craft their own alcohol regulations. Some states chose the “license” model, in which manufacturers and sellers obtain licenses from the state in order to carry on their business, while others chose the “control” model, in which the state maintains a monopoly (to varying degrees) over the alcohol market.

The theory behind the “control” model was that it enabled the state to prevent the evils Prohibition was aimed at extinguishing (“intemperance,” crime, adultery, spousal abuse, prostitution, gambling, etc.) by controlling the location, operating hours, and even advertising of liquor stores.

Washington, Oregon, and Idaho are all examples of states that chose the “control” model. They each opted to keep hard liquor under the complete control of the state and allow for its sale at state-owned liquor stores only (beer and wine, however, is sold at grocery stores). The passage of 1183 in Washington eradicates the State’s exclusive control over hard liquor and instead passes it on to distributors and sellers that possess the proper licenses.

The push (and push-back) to end state monopolies: 

There are several parties that are interested in the eradication of the state monopoly on liquor. First, consumers are interested in ending monopolies like those that still exist in Oregon and Idaho, because it gives them the option to buy hard alcohol from retail giants like Costco, that provide large quantities at a lower cost. Second, there are private parties, including grocery stores, that wish to capitalize on the liquor market by selling or distributing hard liquor. 

Opposed to the eradication of state monopolies on liquor have traditionally been the states themselves, that fear that relinquishing control on hard alcohol will mean an increase in alcoholism and drunk driving and a decrease in the state revenue generated from state-owned liquor stores. 

Apathetic parties don't see the difference- if consumers want alcohol, they are going to get their hands on it. This begs the question...are "control" states more concerned with revenue, or public health? 

            

Wine-O Canada

While the United States deals with its own challenges regarding shipping of wine across state lines, our neighbors to the north face a similar problem. Though the laws of some of our own states may seem archaic and overly stringent, they pale in comparison to at least one Prohibition-era law still on the books in Canada. Under the 1928 Importation of Intoxicating Liquors Act, provinces are able to prohibit individuals from carrying wine and alcoholic beverages across provincial lines, let alone receive direct shipments from out of province wineries. Presently, some in Canada are trying to remove this vestige of the Prohibition-era, but are facing significant pushback from the provincial liquor boards.

History of Prohibition in Canada

The temperance movement was not unique to the United States, and our country was neither the first nor last to prohibit alcoholic beverages. Russia, Iceland, Norway, Finland, and Canada each had their own prohibition eras. Just as in the U.S., however, each faced the same fate as a result of opportunistic bootleggers and organized crime.

Much like the United States, religious and women’s groups were the lead proponents of prohibition early on, hoping to cure the social ills they believed to be caused by intemperance. Canada’s first prohibition on the sale of intoxicating liquors occurred during the War of 1812, when an Act was passed as a temporary war measure to prohibit the exportation of grain restrict the distillation of spirituous liquors from grain.

In 1878, the Canada Temperance Act was passed as a local-option measure, prohibiting the sale of intoxicating liquors in those localities that decided to adopt it. In 1898, an official, though non-binding, federal referendum on prohibition was held, receiving just over half the votes for prohibition. Despite its popularity, however, the government chose not to introduce a federal bill on prohibition. Therefore, Canadian prohibition was enacted through laws passed by the individual provinces. By 1921 every province except Quebec and British Columbia had declared for prohibition. However, the provinces repealed their prohibition laws, mostly during the 1920s.

Advocates of the temperance movement realized that they would not be able to keep the population from drinking entirely, but were able to pressure all of the provincial and territorial governments to curtail the sale of liquor through the tight control of the liquor control boards.

In 1928, the federal government passed the Importation of Intoxicating Liquors Act. This Act gives provincial liquor control boards monopolistic power and control over the importation, inter-provincial shipment, distribution, and retailing of wine and other alcoholic beverages in Canada. Taking liquor across provincial borders is a federal offense. Though it appears that no one has ever been prosecuted under this law, in the current era of internet ordering and transcontinental shipping of wine, it may prohibit individuals from easily accessing and enjoying wines from other regions, and prove to be a detriment to Canadian wineries.

The Legal Argument

Under existing law, Canadian wineries can ship to liquor stores, but not directly to customers. Alcoholic beverages cannot be sent or taken across provincial boundaries unless prior arrangements have been made to consign he shipment through the liquor control board of the destination province. Customers are not allowed to directly import wine from another province, but rather must either only purchase that which his local liquor control authority makes available, or use the special order system of the liquor control board in his home province, a process involving extensive paperwork, waiting for shipments, and paying provincial markups.

Canadian legal scholars make the argument that just as the U.S. Supreme Court found state laws prohibiting direct shipment to be unconstitutional in Granholm v. Heald, so too are Canada’s restrictions unconstitutional under its constitution. One scholar reasons that prohibitions on the inter-provincial shipment of wine are contrary to § 121 of the Constitution Act of 1867, which requires that products made in one province must be “admitted free” into other provinces.

Current Action

Presently, a Member of Parliament is attempting to pass a bill that would change the existing law and allow for direct shipping of wine and other alcoholic beverages. Bill C-311, an act to amend the Importation of Intoxicating Liquors Act, was introduced in the House of Commons last fall by British Columbia Conservative MP Dan Albas. The bill has passed committee and will return to the House of Commons for further debate.

While trade between provinces in Canada is a federal responsibility, liquor sales themselves are regulated by the provinces. Therefore, even if the bill passes, the provinces can control how much people bring in. Presently some jurisdictions place volume limits on the amount of wine begin shipped or require it to be on one’s person.

Groups such as the Alliance of Canadian Wine Consumers argue that current laws encourage Canadians to buy foreign wine, thereby hurting domestic wineries. Some argue that privatization of the distribution and sale of premium wines will expand opportunities for the domestic wine industry and provide Canadian consumers with a greater level of convenience and a wider selection.

However, not everyone agrees with the proponents of the bill. Canada’s provincial liquor boards say that the amendment is unnecessary because they can order wine from outside of their borders for their customers. The executive director of the Canadian Association of Liquor Jurisdictions told MPs last week that he and the Association have concerns with direct sales into other provinces since this would be a new and distinct retail channel. Such a change allowing direct sales would have a potentially substantial impact on the jurisdictions’ business and the provincial revenues.

It is clear that while winemakers and consumers stand to benefit from a change in the law, the provincial liquor control boards are fearful that they will be squeezed out of the distribution chain, and thereby lose profits. Canadian constitutional scholars have a strong argument for allowing direct shipments and transportation to take place, and it is the hope of many that current legislation will eradicate this remnant of the Prohibition-era.  

Combatting Alcohol’s Adverse Effects in California: An Alternative Funding Approach

Despite receiving hundreds of millions of dollars in general fund revenues from the Alcohol Beverage Tax, and spending even more hundreds of millions on state and local efforts to combat alcohol’s adverse effects in the state every year, some lawmakers in California believe that the alcohol industry should pay more towards the public costs of alcohol-related “illness and injury, criminal justice, lost productivity, and impacts on the welfare system, fire and law enforcement response, trauma and emergency care, and the foster care system, among other costs.”

In the legislative “findings and declarations” of AB 1694 of 2010 is an alternative approach to funding programs seeking to combat the adverse effects of alcohol in California: Assembly Member Beall notes that “[t]he alcohol industry currently does not pay any fess at the state level to offset or mitigate the enormous costs its products impose on California.”

The California Supreme Court in Sinclair Paint, 15 Cal.4th 866, 877 (1997), approved of regulatory fees on industries causing specific harm to society in California, especially where the revenue from the assessment is used exclusively for mitigating the adverse effects of that specific harm. This is true because assessments on those persons or entities causing harm to society “help in mitigation or cleanup efforts . . . by deterring further manufacture, distribution, or sale of the dangerous products, and by stimulating research and development efforts to produce safer or alternative products.” Id.

After Sinclair Paint, the California Legislature has clear constitutional authority to impose regulatory fees by a simple majority vote of both houses. The same reasons in favor of regulatory fees in Sinclair Paint can be applied to the alcohol industry in California. Consider the following: (1) alcohol is a potentially life-threatening substance with many varied adverse health effects and other social costs; (2) costs to society at large associated with alcohol consumption are undoubtedly in the billions of dollars every year; (3) a regulatory fee imposed on the alcohol industry to specifically help mitigate the adverse effects of alcohol on society would satisfy the Sinclair Paint test.

Imposing a regulatory fee on the alcohol industry – instead of increasing the Alcohol Beverage Tax generally – will provide large sums of revenue for state and local programs seeking to combat the adverse effects of alcohol in California. Alcohol producers, distributors, and sellers make up a multi-billion dollar alcohol industry in the state and a regulatory fee across the board on the industry will potentially bring in billions of dollars every year for state coffers.

Unfortunately, the true intent of AB 1694 of 2010 may be less altruistic than the above explanation would have us believe. The state and local departments of alcohol and drug programs are currently funded via the state’s general fund, and Alcohol Beverage Tax revenues are deposited in the general fund. As a result of perennial budget deficits, the State of California has reduced funding to may state and local programs providing health and human services, including the departments of alcohol and drug programs. In order to increase the Alcohol Beverage Tax, however, the California Legislature would have to pass a bill by a two-thirds supermajority vote of both houses, essentially foreclosing any possibility of its passage.

But a regulatory fee only requires a simple majority vote in both houses of the state legislature in order to receive legislative approval, greatly increasing its chances of success.

Clearly though this is just a tax by a different name: instead of departments of alcohol and drug programs being funded from the general fund with revenues from the Alcohol Beverage Tax, the departments will now also be funded by a regulatory fee paid by the same persons and funding the same state and local programs.

Legislative gymnastics notwithstanding, the persons left with the bill will ultimately be consumers of alcohol if bills like AB 1694 of 2010 are successful in future years.

Taxing “Alcoholic Beverages” in California

In my last post, I wrote that arguments in favor of raising so-called “sin taxes” on all types of liquors, including beer and wine, sparkling cider and wine, and distilled spirits, are largely founded on prohibition-era and earlier thinking about alcohol and its presumably undesirable effects on society. In this post, I will analyze California’s “alcoholic beverage” tax structure to show just how much in taxes currently paid on alcohol in California already goes to programs and other efforts in the state to combat “alcohol-related illness and injury.”

As the chart below shows, California already imposes sizeable taxes on beer and wine, sparkiling cider and wine, and distilled spirits at expontentially increasing rates. This likely reflects a public policy of discouraging consumption of stronger intoxicating liquors,  presumably because of the increased harm to society caused by such liquors, even though “distilled spirits” are available for sale throughout California in the same quanities as “beers and wines” and “sparkiling ciders and wines.”

* BEVERAGE TYPE	* TAX RATE               PER GALLON	* CAL. REVENUE and TAXATION CODE §§
Distilled Spirits (100 proof or less)	$ 3.30	§§ 32201 and 32220
Distilled Spirits (over 100 proof)	$ 6.60
Beer	$ 0.20	§§ 32151 and 32220
Wine	$ 0.20
Sparkling hard cider	$ 0.20
Champagne and sparkling wine	$ 0.30

* California State Board of Equalization, Alcoholic Beverage Tax, Special Taxes: Tax Facts, Aug. 2010, available at www.boe.ca.gov/pdf/pub92.pdf.

A tremendous amount of all types of alcohol is sold in California every year, generating large sums of money for many state and local programs in California seeking to combat the effects of alcohol on society. Indeed, California’s “alcohol beverage tax” provided over $226 million in general fund revenues for the state in 2011 alone. And the California State Controller projects revenues from this tax source will increase by 4% in fiscal year 2012-2013, generating an additional $9 million for state coffers. See John Chiang, Statement of General Fund Cash Receipts and Disbursements, Office of the California State Controller, Feb. 2012, A2, available at www.sco.ca.gov /Files-ARD/CASH/fy1112 _feb.pdf.

Further, the State of California in 2011 appropriated well over $1 billion for state health and human services including funding for the California Department of Alcohol and Drug Programs which “is responsible for administering prevention, treatment, and recovery services for alcohol and drug abuse . . . .” See http://www.adp.ca.gov/. The state also appropriated over $135 million in the same year to local departments of alcohol and drug programs to provide even more assistance to communities seeking to combat the effects of alcohol on society in California.

Nevertheless, Assembly Member Beall in his AB 1694 of 2010 insists that costs to society associated with alcohol-related problems are high enough to justify increased taxes on beer and wine, sparkling cider and wine, and distilled spirits across the board, noting among other things: (1) The use of alcohol is a factor in the majority of child and spousal abuse cases; (2) Eight out of every ten felons sent to state prisons are alcohol abusers; and (3) The use of alcohol is closely associated with mental illness and contributes enormously to the cost of treating the mentally ill.”

But a fundamental flaw underpinning Assembly Member Beall’s justifications for his bill shows just how much prohibition-era and earlier thinking about alcohol still affects the debate about alcohol regulation in the United States. What the bill overlooks is that “costs to society” from myriad sources, many less accepted and less valued than alcohol, contribute to – among other problems blamed on alcohol – child and spousal abuse, sending felons to state prisons, and serious mental illness in California. By singling out alcohol consumers as especially deserving of paying more taxes towards the public cost of these broad based social problems is one more example of our attempt to demonize alcohol and, ultimately, those who consume it.

New TTB rule allows multi-state labeling of imported wines

The Alcohol and Tobacco Tax and Trade Bureau, the federal agency that collects excise taxes on alcohol, recently announced a new rule that will allow the imported wine labels to include multi-state appellations of origin. According to the rule announcement released in March,

This amendment provides treatment for imported wines similar to that currently available to domestic wines bearing multi-state appellations. It also provides consumers with additional information regarding the origin of these wines.

Section 4.25(d) defines appellations of origin for American wines as:

• The United States;
• A State;
• Two or no more than three States which are all contiguous;
• A county;
• Two or no more than three counties in the same State; or
• A viticultural area as defined in § 4.25(e).

American wines can include an appellation of origin on a label if at least 75 percent of the wine is derived from fruit or agricultural products grown in the appellation area indicated. Prior to the announcement of this rule, there was no identical rule for imported wines.

With this amendment, imported wines coming from two to three contiguous political subdivisions are also allowed to use a multi-state appellation in their labels if:

• All of the fruit or other agricultural products were grown in the indicated political subdivisions, and the percentage of the wine derived from fruit coming from each political subdivision is shown on the label with a tolerance of plus or minus 2 percent; and
• The wine conforms to the wine laws of their place of origin.

The Australian Wine and Brandy Corporation (AWBC) submitted a petition to TTB to amend the definition of an appellation for imported wines to permit the labeling of Australian wines with multi-state appellations.

Wine funds: what does it mean to buy "wine futures?"

Two former investment bankers, Brian Mota and Timothy Clew, have teamed up to create a private-equity wine investment fund, the only fund of its kind in the US. It's called "The Wine Trust Partnership" or "TWT Partners." The fund buys bottled wine and wine futures (wine that has been made but has not yet been bottled). These purchases are made directly from négociants to lock-in lower prices and secure significant quantities for investment of the most sought-after producers. Clew noted "[t]his was an opportunity to take Wall Street-type disciplines and apply them to an asset class that was largely devoid of that type of thinking."

The fund is different from other wine funds in that it's structured as a private-equity fund instead of as a hedge-fund. Once money is invested, it cannot be touched for eight years which allows the investors the flexibility to not sell during a down market (versus a hedge-fund model which tends to hold investments for a much shorter duration).

The genius of a wine fund is caters to investors seeking to invest in "hard assets," investments with intrinsic value, like gold or commercial real estate. "Returns from wine investment have consistently outperformed other asset classes," said Miles Davis, a partner at London-based Wine Asset Managers LLP.

TWT Partners is also unique in that the fund purchases wine futures. Wine futures are also called "en primeur." Wines are purchases early while the vintage is still in a barrel, usually 18 months prior to the official release of the vintage. En primeur wines can be purchased at much lower prices compared to what they will be once bottled and released on the market. Additionally, purchasing en primeur wines allows companies like TWT Partners to secure wines that have very limited quantities and be difficult to get after they are released.

Wine Not Help Small Business?

When it rains it pours. It seems that legislatures like to get on a bandwagon and roll with it. OpenMarket.org, a blog of the Competitive Enterprise Institute, featured a lengthy list of proposed alcohol laws in their Alcohol Regulation Roundup.  Many of them focus on beer and breweries, but quite a few affect the wine industry. For example, the recently filed Arizona referendum hoping to raise taxes on all alcoholic beverages. Part of the referendum calls for an increase in wine taxes by 20 cents per bottle (making wine taxed at $1.04 a gallow!).  However, the money is said to support alcoholism-related social programs. In New York, lawmakers are pushing to legalize wine in grocery stores. The economy stimulating goal is clearly repented in the title of the legislature, the "Wine Industry and Liquor Store Revitalization Act."

One might think wine and immediately think deep pockets and rich snooty people make and drinking the delicious elixir. But notions like these make it easy to forget that there are many small wine makers, who are more economically vulnerable and were hit heaviest by the Great Recession. Enter Alabama House bill sponsored by Representative Becky Nordgren, R-Gadsden.  The Alabama House’s Economic Development and Tourism committee bill hopes to even the playing field to allow small farm wineries to be competitive. 

The bill has stalled since its first reading early last month, but Nordgren stresses the powerful effect this bill could have. Currently in Alabama, wine manufactures can only sell on their premises, and this bill would allow farm wineries to sell to wholesalers or distributors.  America's alcohol operates under a  three-tier distribution system. The distribution system emerged after the prohibition, with the historic rationale to assure that alcohol taxes are duly paid and collected by the government. Further, it is believed by some that the system "serves the interests of everyone in the value chain: consumers, states and their revenue collectors, local communities, brewers, wholesalers and retailers. Consumer choice would suffer if retailers were owned or controlled by a supplier or distributor, as they would feature only the brands offered by these suppliers and exclude others."

However, Nordgren says the current structure systematically disadvantages small business. While small farm wineries can currently sell bottles of wine on their premises, they struggle distributing their product because they don't produce large enough quantities to entice distributors. She thinks that if you allow farm wineries to self-distribute, you will give them the leg up needed to grow to a size that would distributors would be willing to work with.

But are Alabama small wineries really in an economic position that ensure this legislation will serve its purpose? While I am doubtful, Nordgren and supporters are not. A similar experiment in North Carolina was met with great success. The state had 19 wineries before the bill, and in the five year period after the bill was passed the number reached a whopping 99. These wineries equated to jobs and taxes for the state, and a 2011 study by Frank, Rimmerman & Co. of St. Helena, California estimated

 "the total economic impact of the wine industry was $1.28 billion. During the five-year period, the number of jobs in the North Carolina wine industry increased from 5,727 to 7,575 and wages paid increased from $158 million to $237 million. Production increased from 470,000 cases to 529,000 cases, and the number of wineries grew from 55 to 89. Wine-related tourism produced $122 million in 2005 and increased to $156 million in 2009. In the final year of the survey, the North Carolina wine industry paid $65 million in federal taxes and $51 million in state taxes.

John Copety, Wills Creek Vineyard owner, believes that the Alabama would have the same effect on its' state wine industry as its equivalent did in North Carolina. He confidently proclaimed that not only are "people ... going to buy wine,” and “[he'd] prefer them to buy wine from Alabama and not California.” As a Californian, I may not want this for selfish reasons, but I can't argue with a state trying to revitalize their economy.

Napa Valley adds its 16th Sub-American Viticulture Area: Coombsville

            In December, Napa Valley’s 16^th sub-AVA (American Viticulture Area) was approved by the TTB (Alcohol and Tobacco Tax and Trade Bureau). Coombsville is located in the southeastern part of the Valley- approximately ten minutes from downtown Napa.

            American Viticulture Areas are defined as “delimited grape growing regions distinguished by geographical features, the boundaries of which have been recognized and defined” by the TTB. An AVA can be displayed on a wine label if at least 85 percent of the wine is made from grapes grown inside of that AVA and the wine is fully finished in the state in which the AVA is located.

            In 1978, the TTB set up a procedure to establish AVAs. Any interested party may petition the TTB to establish and AVA if the application contains the following information:     

1.     Evidence that the name of the viticulture area is local and/or nationally known as referring to the proposed area;

2.     Historical or current evidence in support of the boundaries of the viticultural area;

3.     Evidence relating to the geographical features, such as climate, soil, and topography, which distinguish the viticultural area from surrounding areas; and

4.     The specific boundaries of the area based on features found on the topographic maps of the U.S. Geological Survey. (27 C.F.R. § 9.3(b) (2010))

Napa Valley is an example of a larger viticulture area that has been divided into smaller “sub-AVAs.” This division of the larger AVA reflects the desire of vintners and growers to express the differences in growing conditions and wine characteristics within the larger AVA (Richard Mendelson, Wine In America). The Napa Valley American Viticulture Area includes the sub-AVAs of Atlas Peak, Calistoga, Chiles Valley, Diamond Mountain, Howell Mountain, Los Carneros, Mount Veeder, Oak Knoll, Oakville, Rutherford, Spring Mountain, St. Helena, Stag’s Leap, Wild Horse, Yountville, and now Coombsville. 

On December 14^th, the TTB approved the Coombsville sub-AVA, and it became effective on January 13^th. One article reports that the petition for the sub-AVA was made by Tom Farella and Bradford Kitson. They had previously petitioned for a sub-AVA called Tuolcay, which was slightly larger and crossed into Solano County, but the TTB denied the application because the name did not have sufficiently broad acceptance. The area has officially been referred to as “Coombsville” on maps since 1870. It was named after Nathan Coombs, who was one of the founders of the city of Napa and one-time owner of 2,525 acres east of the Napa River.

The Coombsville sub-AVA is characterized by its temperate climate (moderated by its proximity to the San Francisco bay) and its soil, which is primarily composed of weathered volcanic rock (from nearby Mount George) and alluvial deposits (loose unconsolidated soil which has eroded, been re-shaped by water, and re-deposited in a non-marine setting). The area bordered by the Napa River on the west, the Vaca Range on the east, Monticello Road on the north and Imola Avenue on the south. The principal variety grown in Coombsville is Cabernet Sauvignon, which grows on the hillsides, but the sub-AVA also features Merlot, Chardonnay, Syrah, and Pinot Noir in the lower, cooler sites.

According to another recent article, the wines produced from grapes grown in the Coombsville district, especially the Cabernets, are characterized by moderate ripeness, fine tannins, and savory notes such as anise, black olive, and cedar.

Coombsville is home to a couple dozen wineries- mostly small and family owned. There are about 1,300 acres of vineyards, and due to a water shortage and subsequent ban on new plantings, the area will likely remain characterized by small vineyards, with residential neighborhoods and horse ranches in between. 

EU Passes New Rules for Organic Wines

(First off, I want to acknowledge the similarity in subject matter from my last post, which touched somewhat on organic wine and wine labeling. I will not deny this. What can I say? If you have an interest, you have an interest.)

                

             Anyhow, on Feb. 8, 2012 , the EU’s Standing Committee on Organic Farming agreed to new rules governing “organic wines.” The ruling will now officially allow organic winemakers to label their wine as “organic wine.” These new rules will apply to the 2012 harvest, and wine with these labels must show the EU-organic-logo and the code number of their certifier, and must respect other wine labeling rules. Before now, standards across Europe existed only for wine produced from organically grown grapes, but not organic production methods. These previous standards allowed only a declaration describing such wine as “wine produced from organically grown grapes.” Argue amongst yourself whether this is a substantial difference or not, but this is what the EU agriculture commissioner Dacian Cioloş had to say:

                “I am pleased we have now developed regulations that, as is the case for other organic products, clearly differentiate between conventional and organic wine. Consumers can rest assured that stricter rules have been followed in the production of ‘organic wine.’”

                This represents an extension of organic standards from just the growing of grapes, but not the wine making process itself, to the entire process “from grape to wine.” These new regulations set out a host of wine-making practices and substances for organic wines, as well as being made with organic grapes. The new rules are thus more consistent with the “organic” objective and principles and understood by consumers, which is generally seen as using more holistic, sustainable and “caring” methods of growing and producing. It is believed that this will help wines produced from the EU to compete in the international organic market that is currently dominated by wines from other countries, including the United States.

                In the United States, organic wines are regulated under the Organic Foods Production Act of 1990. This power is vested in the United States Department of Agriculture (USDA), which has authority over domestic and imported agricultural products to be sold, labeled, or represented, as organically produced. The USDA has established the National Organic Program (NOP) under the Agricultural Marketing Service (AMS). However, pursuant to the Federal Alcohol Administration Act (FAA), the Tobacco Tax and Trade Bureau (TTB) regulates has authority the labeling and advertising of distilled spirits, wines, and malt beverages, both domestic and imported. Thus, any use of the organic labeling is to be reviewed by the TTB under the NOP regulations established by and interpreted by the USDA and AMS.

                So, how does all that relate to the new EU standards? According to an FAQ set up by the EU, organic products imported into the EU are done so under “equivalency rules, meaning that they have been produced according to a standard equivalent to the EU one and that they have been controlled under a control system of equivalent effectiveness.” All in all, this is a good thing, as more and more countries and consumers have come accustomed to, at the very least, a presumption of what a product affixed with an “organic” label, really means. As these products proliferate and consumer demand continues to grow, equivalency amongst these standards is essential to protect consumers, growers, and producers of organic products (including wine).

                A positive step in that direction came on February 15, 2012, when the EU and US signed an organic equivalence arrangement. Under this agreement, the EU will recognize USDA’s NOP as equivalent to their own program, and vice versa. Presumptively, this will also apply to organic wines.

Faking It: How to Commit and Prevent Wine Fraud

     The country’s news outlets are abuzz with the latest wine fraud scandal. Rudy Kurniawan of Arcadia, California, was arrested on March 8 by the Federal Bureau of Investigation in Los Angeles on charges of trying to sell fraudulent wines. According to The New York Times, the wines, if genuine, would have been worth $1.3 million, and included numerous bottles of wines purportedly from various famous estates, such as Romanée-Conti and Domaine Ponsot. Mr. Kurniawan is a well-known wine collector, and is an authority on fraudulent wines.

     The complaint alleges numerous charges, including Wine Fraud – Scheme to Defraud a Finance Company, Wine Fraud – Scheme to Defraud the Finance Company and a New York Auction House, Wine Fraud – Attempt to Sell Encumbered Wines At An International Auction House, and two separate counts of Mail Fraud for attempting to sell counterfeit wines.

     Wine fraud is as old as the industry itself, and is the reason wine laws came into existence in the first place. Ensuring that a consumer knows what product he is getting is the main purpose of many wine laws, and such laws protect not only consumers, but producers who desire to create and maintain reputations for high quality wines.

What Makes a Wine Fraudulent?

     When one goes to purchase a bottle of wine, she usually assumes that the information provided on the outside matches the contents on the inside. While numerous items are purported to be things they are not, it is difficult to discern a fake wine unless it is opened, thereby ruining its value if it were in fact real (at least until recently, see below). While it is alleged that Mr. Kurniawan engaged in counterfeiting bottles by creating fake wine labels using vintage stamps as well as old corks and foil wrappers, there are various ways to create a fraudulent wine.

Label Fraud

     Bottles of wine have numerous distinctive features that can make creating fraudulent wines a laborious process. Winemakers put their individual touch on everything from bottles to labels, but also items that are not readily visible when examining a bottle of wine, such as corks.

     One who wishes to engage in wine fraud may obtain bottles of expensive wine, fill them with less expensive wine, find appropriate corks and seals, and then pass the bottles off as the real McCoy. One may also create counterfeit labels of expensive wines and place them onto bottles of less expensive wine. In either case, the purchaser is not getting what he bargained for.

Grapes

     One may also market and sell grapes as certain types, when in fact they are not. No one is immune to such activities, as even Gallo Wine was the victim of fraud when French producers sold them purportedly 100% Pinot Noir grapes that were actually cheaper Syrah and Merlot grapes.

Blending

     While blending wine is not in and of itself illegal, and blended wines are growing in popularity compared to their single-grape counterparts, some blending practices are in fact fraudulent. Wine laws tend to include regulations on how much of a particular grape must be used in order to state that the wine is from that grape, and also address the issue of mixing grapes or wines from different regions.

     Mixing wine with other substances, such as water, sugar, or milk, also occurs, as well as mixing wines of differing vintages in order to create a more balanced final product. While some in the industry find no problem with such practices, others see it as sullying not only the wine, but also the industry itself.

     Other potentially fraudulent practices include humidification, or “adding water to wine.” This is a technique used by winemakers to make their wines taste better. The water is used to help balance extremely ripe grapes that have higher concentrations of sugars and phenolic compounds, but also has the effect of dropping the alcohol volume, sometimes below certain tax thresholds. 

     Wine fraud could also take the form of one stealing expensive wine and replacing it with cheap wine (leaving the actual owner none the wiser), or trying to collect insurance on lost bottles that never existed in the first place, as this wine educator and sometimes investigator notes.

Preventing Wine Fraud

     Besides the usual ways of dealing with claims of fraud, some wine-specific suggestions and examples have been offered to combat the unique problems of wine fraud.

• There have been suggestions to change the way the rarest wines are sold at auction by revising the auction conditions of sale to address the issue of counterfeiting.
• Websites exist to help the industry fight back against counterfeit wines and offer authentication services, for $249 per opinion (or at a discounted rate if you foresee yourself requiring their services on a regular basis).
• Areas that produce numerous excellent wines, such as Italy, have gone so far as to train Carabinieri officers to become sommeliers so that they are better enabled to tackle wine crimes.
•  Recently, scientists at UC Davis published a study that used non-invasive methods to determine what is inside a bottle of wine by examining the molecular structure of its contents.
• And of course, there’s an app for that.

     For those of us who can’t afford fancy new techniques, websites also give quick tips on how to spot counterfeit bottles. While many will never purchase a bottle worth faking, it is important that the industry and the government take steps to prevent wine fraud in the future, ensuring that consumers know what they are purchasing, and producers are able to protect their product and reputation. 

Utah relaxes its stance on alcohol regulation

Utah is not the first state you think of when you are craving a nice cold beer or a glass of wine. In fact, Utah may be the last state you think of due to its infamously strict regulation of alcohol. Until 2009, anyone who wanted a drink had to first purchase a membership at a private club (what we know commonly as a “bar”). This fee requirement had the effect of restricting patrons to one or two local bars, which, as you can imagine, decreased the amount of alcohol consumed at bars in Utah. No one wants to go for a drink at the same bar 5 nights a week. When Governor Jon Huntsman Jr. ended the old membership system in 2009, navigating the bar scene got much easier for patrons and bar owners enjoyed increased profits, free from the constraints of the fee system. However, business slumped in 2011 when Utah outlawed drink specials. Happy hours were already illegal but bar owners had managed to draw customers in with daily drink specials. Now, there’s no such thing as a $2 pint in Utah. In the same year, Utah also expanded its ban on kegs by outlawing mini beer kegs called “Chubby’s.”

Similarly peculiar are the rules governing the service of drinks in restaurants. Backroom bartenders pour the drinks and mix the cocktails behind the “Zion curtain,” out of view from customers. “Zion” refers to the powerful dry Mormon constituency in Utah and the curtain symbolizes the separation between patron and bartender in eateries. Patrons are also forbidden from ordering a “double” and must order food with their drinks. This constantly changing maze of liquor laws is tough for bar and restaurant owners, and a bit annoying to out-of-town visitors who just want a drink, but the tide may be changing.

More recently, a bill which could relax liquor laws in Utah made its way through a House of Representatives committee. HB 193, introduced by the liberal state Representative Brian Doughty, would require that at least two members of the state’s five-member Alcoholic Beverage Control Commission be “consumers of an alcoholic product.” How much alcohol one needs to consume before qualifying for the position remains unclear. Originally, the bill called for a “regular” drinker, which means “happening or occurring not less than once a month.” But that modifier was dropped in the amended version because it was too hard to define. Mr. Doughty believed that the monthly drink requirement would have ensured that whoever was hired had an up-to-date perspective on the sale and service of alcohol in the state. In an interview with the New York Times. He explains: “I didn’t want someone to be able to say, ‘I had glass of wine or a beer 10 years ago, and that makes me a consumer of alcohol.’ ” Because a majority of the state’s population is Mormon and does not drink at all, however, the modifier may be unnecessary.

If the bill passes, the hope is that liquor laws will be written in a way that does not hinder business. Already, there is a growing demand for good beers in touristy ski towns, and Utah microbreweries have answered the call. Even though beers in Utah can only contain 3.2% of alcohol if sold on tap, microbreweries like Wasatch Brewery, are undeterred and simply sell higher strength beers as liquor. Some of the favorites? Polygamy Porter and Evolution Amber Ale.

Fancy wine labels: would you pay more for a wine you can't pronounce?

A recent study by Antonia Mantonakis, an Associate Professor of Marketing at Brock University's Faculty of Business, suggests that consumers are willing to pay more for wine with names that are more difficult to pronounce. To test her theory, Mantonakis assembled two groups of test consumers and each group was given two bottles of identical wine. One of the bottles was labeled with a more easily pronounced name (Titakis Winery) and the other was labeled with the harder-to-pronounce name (Tselepou Winery).

Both wine names are Greek, begin with a T, and have three syllables. Tselepou, however, is harder to pronounce and has more unusual letter combinations. The test consumers consistently rated the Tselepou Winery bottle higher. Additionally, after the tasting, the groups were given a survey to assess their wine knowledge. Those with more advanced wine knowledge showed more of a willingness to buy the wine from the hard-to-pronounce winery. One would think the opposite, as a well-versed wine connoisseur should be able to discern that the wines are exactly the same. As Mantonakis points out:

It’s interesting how consumers perceive things. Something like the sound of a name can elicit a thought, and that thought can influence the perception of how something tastes.

This same theory is true for high-end, gourmet cheeses. Previous studies have shown that consumers rated cheeses with difficult-to-pronounce names in Brush Script font as more valuable and gourmet.

Mantonakis is continuing her studies of this phenomenon. She is currently working to determine if wine labels themselves have a similar impact. Early research shows that test consumers are more likely to think a wine is award winning if there’s a photo on the label.

Savvy vintners appear to be taking note of the effects that fancy-sounding wine names and labels can have on consumer choices. For example, Vincent Arroyo Winery in Calistoga is using tin labels for its Napa Valley port, which retails for $22 per bottle. The theory is that the tin label gives the bottle a prestigious look that consumers are willing to pay for. With the tin labels priced at less than $1 per label, this may be an inexpensive strategy for enticing consumers to purchase the wine.

Screen printing labels directly onto the bottles is another way wineries are trying to distinguish their labels from others. According to label printer, Monvera, less than 1% of wine labels are screen printed today. Monvera markets their screen printed labels as a great want to make wine labels stand out from their paper counterparts. Screen printed labels can extend the length of the bottle because they aren't limited by the paper square on a traditional label.

Some wineries, however, take advantage of a different type of marketing to appeal to consumers. Instead of a marketing strategy that alludes to a product's prestige, these wineries attract customers because of their fresh and funky feel. Recently, more and more wines are being released under names such as "Fat Bastard," "Monkey Bay," and "Smoking Loon." These wines seem to be gaining popularity and seem to call into question, at least in part, the application of Mantonakis's research to consumer purchasing habits. Perhaps consumers are "willing" to pay more for wines with harder-to-pronounce names, but when it's time to make a purchase, they go for the "Goats-Do-Roam."

Immigration: Effect of Whine on Wine

Debate over the current state of American immigration remains a hot topic in the political arena. It is no secret that farmers often rely on immigrant labor. Therefore, it is no wonder that farmers support immigration reform. All across the nation, farmers are suffering because of the insistence of some that undocumented workers be driven out. In a recent Legal Ruralism post, I noted how all across the country, farmers face farm labor shortage concerns from a wide range of agriculture, from dairy to berries. California wine is no exception.

In California, farmers are worried about their grape harvests (and subsequent raisin production). Individuals, such as Roy Beck (the executive director of Numbers USA, a nonprofit that supports lower immigration levels) suggest that farmers resort to mechanization of harvesting. Some vineyards have headed this suggestion and replaced grape harvesting jobs with machines. No only have some vineyards implemented mechanical harvesting, some find this method superior to handpicking for a variety of reasons (most notably its cost effectiveness). But for others, mechanical picking does not adhere to the spirit of wine making while others possess vineyards not suitable for machine work (as the machines could cause damage to the vines and soil).

Proper agriculture labor involved with wine growing is both physically difficult and requires a level of skill and sophistication. It took several strikes by the United Farm Workers union for grape growers labor conditions to improve beyond the horrific depiction in Steinbeck's "The Grapes of Wrath." This should have made the cost of grapes increase, but instead they stayed the same. America likes things cheap, and we constantly undervalue the effect proper compensation of lower tier employees has on the end cost of a product. Wineries in Napa and Sonoma have the capacity to pay their employees a fairer price as their grapes yield a higher value. In turn, these wineries possess a lower reliance on undocumented labor.

Some fear that undocumented workers take American jobs. When it comes to agriculture, this argument simply does not hold up. The Gray Report blog astutely points out, "[i]f we didn't need them, we wouldn't hire them, and they wouldn't come." Wine Geeks fears about what would happen if the labor force vanished. They logically predict that,

Prices will skyrocket. Production will drop. Small mom and pop wineries, the kind that we winegeeks love to praise, will be forced out of business because they cannot get enough people to harvest the grapes and they can’t compete with the gigantic companies who harvest by machine. This is but one aspect of our society that has become increasingly dependent upon the work of those who are foreign to our soil.

It is clear that immigration reform is needed in order to accommodate both the quantity of workers wanting to work in the United States and the amount of work that needs to be done. Personally, I believe this country craves more creative policy suggestions. For example, The Gray Report suggests issuing visas for guest workers, which would permit multiple entries and be renewable. After consistent presence and lack of criminal activity, they would be able to obtain a higher level of green card. These kind of solutions help fulfull the immigration enforcement primary policy objective, while providing labor for the work that needs to be done.

Despite the policy shift, there also needs to be a cultural shift. There is no way for wine to remain as cheap as it currently is without relying on machine harvesting or underpaying the workers who pick the wine. As a country we simply need to come to terms with this understanding and move on. I suggest doing so over a glass of nice California wine with some close friends.