Wednesday, September 16, 2009

Canadian Wine Industry is in the Economist

The Economist has the Canadian Wine Industry in an article in this week's paper. The article is not a great one for the industry, the tone is dismissive of Canadian wines. The idea of Canadian wine does make most of the world shake their heads in disbelief.

In Canada we have moved from making the worst of plonks with subsidized grapes to being able to making drinkable wines, though most of our wines are uninspired and bland. At the end of the day in Canada we have few locations that can grow reasonable grape volumes per acre. We crop at 3.8 to 4.3 tonnes per acre in our best regions. South of us in Oregon the same grapes crop at close to 5 tonnes per acre. They are getting 25% more grapes per acre and therefore can have cheaper grapes.

Land costs are also killing us. In the Okanagan land sells for about $50 000 per acre. Not much further south in Washington the land sells for a fraction of the cost. The Okanogan Valley in the US has very little viticulture even though it has better conditions that the BC Okanagan valley.

Outside of our real grape growing regions, the volume of grapes cropped per acre is between 1 and 3 tonnes. At these very low volumes of grapes per acre, a grower on somewhere like Vancouver Island needs about twice as much land as an Oregon grower to provide the same number of grapes. At three tonnes per acre the gross return is only $3000 to $4500 per acre. With the same land you can produce about 10 tonnes of apples and sell this for $6000 wholesale and about $15 000 at the farm gate.

The Economist article raises a whole other issue
, in Ontario you can use 70% imported grapes in your wine and still call it an Ontario wine. Ultimately I suspect this means the quality of the wine could be higher and costs be lower, but it does blur the idea of where a wine is from. My sense from the article is that the labels will not make it clear where the imported grapes are from.

The Canadian wine industry survives in large part because our nation applies very high tariff barriers against wines from the rest of the world. We also apply high taxes against our domestic wines. We are paying a lot more for our wine in Canada than we would be if the level of government levies against wine was at a level comparable to many other nations. These high taxes, especially on imported wines, means that making and selling a $20 bottle of wine is a viable business in Canada. The consumers are paying $20 for a wine that would be about $5-$10 in New Zealand, the US, or Australia.

Ulitimately Canadians seem to be happy to have this protectionism so that we can have wine produced in Canada. I am not happy about the way things are and think we should look to the viticulture industry in Germany and emulate it. We can produce wine in Canada that makes economic sense without state intervention. We can make ice wines. We can also produce German white wine grapes are commercial levels instead of wasting time on marginal grapes, especially the red ones.


Davin Greenwell said...

I think the article is fair in criticizing the labeling practice, as it certainly is hoodwinking to call a 70% foreign wine "Canadian." The consumer is the only one that suffers when foreign wines are tariffed to the extent that they are and then we buy those SAME grapes, repackage, and raise the prices just so that we can have our own (naturally unprofitable) industry.

I do not accept your argument because I disagree with the premise.

If we can't naturally compete (without tariffs) because it costs more to grow here (it does), then perhaps our problem is with real estate prices (it most certainly is). You are describing the symptom of a larger, more serious problem.

davin said...

Re-reading I think I actually agree with what you're saying - I was just coming at it from a different angle. Essentially we have tariffs on foreign wines because of prohibitive land costs, and then to compete - or meet somewhere in the middle - with these foreign wines, we subsidize our costs with THEIR grapes (which are curiously not tariffed) and end up with a hodge podge of flavour, but nothing specifically 100% Canadian. Ontario seems to be fine with this as their brand. Interesting.

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