Vineyard & Winery Management

January - February 2012

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NEWS IN FOCUS Shipping laws and any new regu- lations that might be brought on by the government's fiscal problems. Envi ronmental regulat ions, water shortages, extreme weather patterns and climate change as lim- iting factors on supply. Demand: Industry leaders expect U.S. consumers to drink more wine and explore new options. Looking at the Internet survey on industry trends, 71% expected things to improve in the coming year, up from 60% in 2010 and a gloomy 31% in 2009. An improving economy was expected to have the biggest posi- tive impact on the industry. On the flip side of that, slow econom- ic recovery was also the biggest potential constraining factor cited, with pricing pressures at No. 2. Three new concerns showed up in this year's survey: a possible grape shortage, problems from unusual weather and rising oil prices. The top concern cited in the sur- vey was profit margins, followed by cost of materials/gas, and pric- ing. Rounding out the list of seven things that can keep a wine execu- tive up at night were distribution, new consumer values, energy/ water management and inflation. imports exceed exports in a similar category, the incentive is for more exports, which pushes up demand for domestic grapes. In terms of bottled wine, there generally are more imports than exports and the drawback cre- ates relatively small incentives for increased exports. For bottled wine, the export incentive amount- ed to approximately 10% of the export price. During the three-year period from 2008 through 2010, the U.S. imported about 630 million liters of bottled wine annually, with total duty and excise tax coming to about $220 million a year. Approxi- mately 190 million liters of bottled wine were exported. Meanwhile, firms claimed drawbacks on only about 35% of the export quantity. Yet in terms of bulk wine, the The Lowdown on Drawbacks The federal "drawback" program that provides tax incentives aimed at boosting wine exports gets little publicity. But it has a surprisingly big impact on grape prices, a new study shows. It's too early to tell whether the overall impact on growers is good or bad, said John Aguirre, president of the California Associat ion of Winegrape Grow- ers (CAWG). But it looks like the subject merits fur- ther study. "What is clear from the report is that the p r o g r am d o e s have a very sig- nificant influence on the econom- ics of importing bulk wine as well as exporting bulk wine," he said. T h e s t u d y , nificant movement in bulk wine supply and wine grape prices. The impact on growers depended on where the grapes were grown, what price wines they were des- tined for and the import-export bal- ance. Under the drawback program, CAWG president John Aguirre notes that the federal "drawback" program has a major impact on the economics of bulk wine imports. commissioned by CAWG and conducted by the Uni- versity of California Agricultural Issues Center, found that use of the program expanded rapidly over the past decade, which meant sig- 14 VINEYARD & WINERY MANAGEMENT JAN - FEB 2012 the United States government will refund 99% of import duties and federal excise taxes on imports of non-sparkling wine of 14% alco- hol or less, when- ever firms match imp o r t s wi t h exports of wine of similar color and price. The program is administered by the U.S. Bureau of Customs and Border Protection and only compa- nies that import and export wines can take advan- tage of the draw- backs. Re s e a r c h e r s found that when expor ts exceed comparable imports, the draw- back creates an incentive to import more wine, which lowers demand for domestic grapes used to pro- duce that wine. Conversely, when impact has been greater. The pro- gram acted as an incentive for bulk wine imports from its inception in 2001 to 2007 – a time when bulk wine export volumes exceeded bulk wine imports. The use of drawbacks for bulk wines climbed rapidly, with the average value of drawback payments coming to about 40% of the per-liter price of imported bulk wine. The average value of drawback payments received was about 40% of the per-liter price of imported bulk wine. Meanwhile, the study estimates that between 2004 and 2007, the program probably low- ered prices for California grapes destined for inexpensive wines by 2.7%-5.7%, especially for growers in the Central Valley. On the other hand, with bulk wine imports growing substantially in recent years, there's an impetus for more exports, and the study indicates the program may contrib- ute to a 10%-20% rise for grapes used in economy wines. Aguirre would like to see more study on the issue so growers can make more informed decisions. "Growers look at a lot of things when you think about the long- term," he said. "What should I plant? Where should I plant? I can assure you that people hadn't been thinking about the relative position of export and import volume." WWW.VWM-ONLINE.COM

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