No, 100% Tariffs On European Wines Won't Be Good For California Wineries

Posted: Jan 18, 2020



I am writing to you to argue against the proposed 100% tariffs on European wines. As a partner in and General Manager at a California winery that just celebrated its 30th anniversary, it might seem surprising that I would opposed these tariffs. But I believe that the net effect that they would have on California wineries would be negative.

We sell about half our production direct, and half through a network of state-licensed wholesalers. This distribution system is mandated by law and known as the “3-tier system.” A producer like us cannot sell directly to restaurants and retailers in other states, and our ability to sell directly to consumers, while growing, is still restricted. So, our success is dependent upon the health of this distribution network. None of the 50+ distributors that we work with represents exclusively domestic wines; all have a diverse portfolio including wines that will be impacted by the proposed tariffs. Many get the majority of their business from European wines. For those distributors, the proposed tariffs amount to a death sentence. Sales will fall, in most cases dramatically, impacting their ability to represent our wines. In my experience, distributors react to the loss of a major supplier (a similar impact to these tariffs) by attempting to source new wines for their portfolio, rather than by selling more wine from their existing suppliers, many of whom are unable to increase production in the short term. If they do look for wines from other parts of the world, they will inevitably be distracted by the massive task of finding these new producers, integrating them into their portfolio, and educating their sales team on their new items. That will mean less focus for us, not more.

What’s more, the rising number of “franchise” laws, currently affecting wine sales in about 20 states, means that we don’t even have the freedom to leave a distributor who isn’t performing well (or isn’t able to maintain their sales team and delivery schedule because of a market disruption) to find another who could do a better job. In nearly half the country, if the work of our legally-mandated representatives is impacted by these tariffs, we have no recourse. Beyond the impact on wineries and distributors, other related businesses will be caught in the crossfire. Restaurants are famously low-margin businesses anyway. Increasing the costs of their wine programs will push some out of business, further reducing outlets for our wines. Wine retailers, too, including both independent and chain outlets, will be forced to source different wines (which comes with its own costs) or double the costs of their inventories. And American consumers will be faced with higher costs and fewer choices for products that they would like to buy, leaving less disposable income in their wine budgets.

Why wouldn’t the wine community just switch its sources to other, non-tariff countries? Wine is not a commodity, where a customer can simply swap in a wine, even one made from the same grape, from one part of the world for another and expect them to be comparable. Wines are products inextricably tied to the place in which they are produced. And the disruption of 100% tariffs on wines from the world’s oldest wine regions would have cascading impacts that would reach deep into a whole network of American businesses, investors, and consumers.

Even those of us who make wine in California.

Respectfully,
Jason Haas
Partner & General Manager
Tablas Creek Vineyard
Paso Robles, California

Source: Tablascreek.typepad.com
December 23, 2019



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