These are the days of wine and taxes, at least in Ontario, and the resulting struggle is ripening into a battle over economic policy, greenbelts and even environmentalism.
The province has set up a huge greenbelt around Toronto, and now, through a selective tax increase on low-cost blended wines made partly from foreign wines, is trying to encourage people to sip pricier products made entirely from local grapes. The goal: to boost the fortunes of grape growers while ensuring the future of agricultural land – to keep it from sprouting subdivisions.
But the big wineries aren’t convinced. They say the tax will lead consumers to buy even cheaper, totally foreign wines instead of their blended varieties, damaging their business and undermining farmland preservation.
“It will be catastrophic, putting the majority of the province’s grape and wine industry at risk,” Andrew Peller Ltd. and Vincor Canada, two of the largest wineries, asserted in letters to grape growers in February.
The issue is so divisive that the companies selling blended wines recently bolted from the Wine Council of Ontario, an industry group that backs the tax move, to set up a rival trade organization.
The new tax amounts to about 62 cents on an $8 bottle. It goes into effect on July 1, and the $12-million to be raised annually is being earmarked for promoting upscale, locally sourced wines. The levy is based on the view of the government and boutique wineries that there is no future for agricultural land in peddling cheap wine – plonk. To prosper, they believe, vintners should specialize in brands with a better pedigree, those labelled Vintners Quality Alliance, the appellation for premium domestic wines using 100 per cent Canadian content.
In announcing the tax, Ontario’s Ministry of Consumer Services said viticulture is a key to “Ontario’s award-winning greenbelt, and it is crucial that the industry have a long-term plan that focuses on wine made from Ontario grapes.”
Environmentalists are raising a glass to that. “By drinking Ontario wine, you’re preventing the greenbelt from being paved over and you’re kicking back at rampant urban sprawl,” contends Rick Smith, executive director of Environmental Defence, a conservation advocacy group.
The tax increase applies on a category of wines designated as “cellared in Canada.” Despite a name with overtones of rustic Canadian winery basements, the product is actually 70 per cent made from foreign wines, topped off with a modest government-mandated 30 per cent Ontario content. Within the industry, they’re referred to euphemistically as “value priced” and often sold in jumbo four-litre and 1.5- litre bottles.
The so-called cellared wines, which is where 60 per cent of Ontario’s grapes end up, are one of the best-selling categories in the Canadian market, although they haven’t shown much recent growth.
“It’s not so much that all the people who are buying them are cheapskates. The people buying them are not terribly fussy around what they want to drink,” says Billy Munnelly, who writes a wine blog. He also issues an annual book on the best affordable wines, based on the view that most of the trade has become insufferably snobbish. But even he has given positive mention to these ultra-cheap, often-sweet offerings only once in 20 years.
Disdain over the category is just wine elitism, says one producer. “They’re insulting 60 or 70 per cent of the consumers out there that buy wines under $10,” says Anthony Bristow, chief operating officer of Andrew Peller.
The cellared bottles are inexpensive because bulk wine is available on the world market for near-giveaway prices of $1 or even less per litre, shipping costs included, making it economic to blend with a bit of locally sourced wine that typically costs twice as much to make. The huge price differential arises because warm country vineyards have twice the productivity of vines in cooler climates, such as Ontario’s, whose grapes are also less sugary and more tart, one of the factors that give Canadian wine its distinctive taste.
“The costs are way less,” observes Mr. Munnelly. “There is a huge glut of wine around the world because they’re making more than we drink, or we don’t drink as much as we should.”
But Mr. Bristow says the tax will encourage price-conscious drinkers to buy cheap foreign wines directly, rather than the cellared ones that have some local content, in the process harming the greenbelt.
The notion of preserving farmland by drinking upscale comes with a cost. Wines made entirely from Ontario grapes retail for an average of about $14 a bottle, although price doesn’t seem to have discouraged buyers recently. VQA sales volumes are up 17 per cent in the past year.
Not all wineries sell cellared wines. Four large producers of the approximately 100 in the province dominate the market because they have grandfathered rights under the free-trade agreement to run about 300 off-site wine stores. There, Ontario’s big markup on alcohol in government liquor stores doesn’t fully apply, providing an attractive profit margin.
Vincor, the biggest winery, is also irked that the government has earmarked the money from the new levy to fund programs supporting wines made entirely from local grapes. That will aid the small and medium-sized craft wineries specializing in the upscale end of the market.
It “does not make sense” to tax one winery to give to another, according to one letter the company issued to grape growers. Vincor, a unit of U.S. international wine giant Constellation Brands Inc., also makes premium Ontario wines and would benefit from their promotion, but proportionally less than smaller rivals. It didn’t respond to a request for comment.
Others in the industry accuse the big wineries of exaggerating the harm of the tax. “We haven’t exactly found it compelling that they’re going to be absolutely devastated,” says Hillary Dawson, president of the Wine Council of Ontario, long the established voice of the province’s wine industry.
Among boutique wineries, support for the tax is broad. “I think it certainly would help maintain the land base. We have so little land in Canada that we can grow food or grow wine on, that we need to protect it,” says Donna Lailey, proprietor of Lailey Vineyard Wines in Niagara-on-the-Lake.
Ms. Lailey has watched many of Ontario’s prime fruit farms turned into housing subdivisions and says that based on cheap wines, it is “not economically viable having land in agricultural production.”