NAFTA negotiations have commenced under a commonly held view that the 1994 agreement could use some “modernization”. Much has transpired in continental commerce and economics over the last 20 odd years, so like a solid house where the owners are disinclined to move, the consensus is that renos are about due.
But reopening the NAFTA is also seen as an opportunity by some to redress long standing grievances. There are those that have felt concessions made in the original agreement were unjustified and have vehemently complained about them ever since.
The US wine industry has impatiently awaited an opportunity to revisit the NAFTA for some time.
Sure, the fact that provincial liquor boards hold a monopoly on alcohol sales in most provinces has been a long, festering sore point for the US wine industry. Besides restricting points of sale to only provincial liquor board outlets, the regulations and policies of those boards create a host of other perceived barriers disadvantaging foreign wines. These relate to cost-of-service mark-ups, restrictions on foreign product listings and distribution, discriminatory shelf positioning, maximum or minimum price points, to name a few. All are highlighted annually in the Office of the US Trade Representative’s report on Canadian discriminatory trade practices.
Even Ontario’s recent efforts to move closer to the 21st century and allow wine sales in grocery stores has been deemed suspect, but mostly through guilt by association.
Earlier this year the US — joined by the EU, Australia, Argentina and New Zealand — initiated a WTO trade challenge against BC’s regulations offering grocery shelf space to only 100% BC wines. Ontario wisely refrained from adopting similar openly trade non-compliant regulations, providing instead imported wine with an alternative retail channel to the LCBO through grocer sales…but under narrow conditions. The US wine industry suggests that these conditions disproportionately favour home (Ontario) product, and the US government is closely monitoring implementation amongst the 70 odd grocery outlets.
But the real source of consternation dates back to Article 804(2)(b) of Canada-US Free Trade Agreement. Later incorporated into the NAFTA, this provision allows for the grandfathering of 292 off-site private wine outlets in Ontario which were in existence as of October 4, 1987.
Only a handful of wineries have benefitted from this historical retail advantage: Constellation Brands, Andrew Peller, Colio Wines, Magnotta Winery, and Château des Charmes. The vast majority of existing provincial kiosk wine stores belong to the first two, with Constellation Brands holding more than 164 Wine Rack stores and Andrew Peller registering 104 Wine Shop outlets.
They are the ones offering those sample wine shots as you exit your local grocers, presenting an opportunity to negotiate the grocery cart full of bags and kids with a slight buzz.
The rationale behind the grandfathering provision for kiosk wine retail outlets was the perceived need back in the late ’80s to protect the fledgling Canadian wine industry from US competition.
According to the April 2015 report by the Premier’s Advisory Council on Government Assets, Striking the Right Balance: Modernizing Wine and Spirits Retailing and Distribution in Ontario, imported wines enjoy a favourable position in the Ontario marketplace. Imported wines account for approximately $1.5 billion in sales (or two thirds of the total), with Ontario wines accounting for the remaining third – about $700 million annually. Imports comprise around 75% of wine sales at the LCBO; 96% of Vintages sales are foreign imports.
So the home-grown industry is well acquainted with foreign competition.
Today, there are more than 180 wineries in Ontario producing about 71% of total Canadian wine volume. That translates into 17,000 acres of vines in eastern, southern and southwestern Ontario, with a focus on premium vinifera and French hybrid crops in Niagara, Lake Erie North Shore and Prince Edward County. The Ontario grape industry boasts that for the first time in 30 years, grapes are the most valuable fruit in Ontario in terms of farm gate value, comprising 35% of the total farm value of Ontario commercial fruit crops.
That’s the very point of the US wine industry.
They argue that Canada’s now thriving and well-established wine industry is no longer in need of the overt protectionist practices conceded by US negotiators in 1987. They contend that the NAFTA is indeed in need of modernization, of the kind that would remove past discriminatory trade practices in bilateral wine trade. Without exception.
Canadian negotiators have been put on notice. More favourable wine access terms are a priority objective for the US in these negotiations. The arguments for maintaining past discriminatory practices to benefit a nascent Canadian industry no longer carry the same weight.
Changes are afoot, changes that the average Canadian consumer would not necessarily protest. And Ontario’s wine industry needs to prepare for such change, for adjustment to even more import competition.
Where some might see reason for distress, this may instead be an opportunity for Ontario grape and wine producers to seek enhanced exposure to the lucrative American market. Quid pro quo. Negotiations are about the
Change is inevitable. Ontario wines will be up against more Mondavi Cabs in their home market. The difference however is that the provincial industry is more mature now, more established and more competition savvy.give-and-take, after all.
If the status quo is no longer available, wouldn’t the Ontario wine industry want to be in a position to set the context for change, and perhaps even benefit from it?