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Ontario Grape Growers Seek Market Share

Government involvement in British Columbia wine has created measurable success

by Peter Mitham
napa valley tech group
Debbie Zimmerman, CEO of Grape Growers of Ontario, advocates modeling the B.C. tax structure for Ontario wines.
St. Catharines, Ontario, Canada—Ontario grape growers want their government to follow British Columbia’s approach to boosting sales of domestic wines.

Ontario is the largest wine-producing province in Canada, but wines made entirely from Ontario grapes—typically marketed under the Vintners’ Quality Alliance (VQA) seal—claim just 9.5% of the Ontario market. By contrast, British Columbia VQA wines—made solely from B.C.-grown grapes—claim 19.5% of the market in B.C.

“It isn’t that consumers don’t want to buy Ontario wine; it’s access to the market,” Debbie Zimmerman, CEO of Grape Growers of Ontario, told Wines & Vines this week.

Ontario wineries primarily depend on winery shops and the network of 630 stores operated by the government’s Liquor Control Board of Ontario for sales. B.C. wineries, on the other hand, sell from the cellar door, 195 government stores, 683 private retailers and 21 VQA stores with a mandate to sell wines made solely from local grapes. The latter operate under licenses the government granted to the B.C. Wine Institute in the early 1990s to ensure consumer access to B.C. wine.

In addition, a rebate program ensures that B.C. VQA wines are largely exempt from government markups when sold through government-run liquor stores—something Zimmerman would like to see in Ontario.

Ontario has a support program that cuts the markup by 30%, but it is not a full rebate.

“It’s a tax structure that’s embedded in the B.C. government’s bottom line that is privileging B.C. wines,” she said. “We think, ultimately, the goal should be to model at least the B.C. tax structure for Ontario wines.…We think that would be a step forward, and follow that with a distribution target.”

Goal set for 2020
Since 2000, the Ontario wine industry has sought to achieve a market share for local wines of 50% of sales by 2020. The amount of Ontario wine moving through Ontario’s liquor stores in the most recent fiscal year was 38.3%.

While she praises the support of the LCBO, Zimmerman said more has to be done to achieve the agreed-upon goal.

“We’re asking the government to turn the dial up so there’s more Ontario wine on the shelf,” she said.

The issue is coming to a head as growers look down the road to the 2013 vintage as well as March 31, 2014, when Ontario wineries will face relaxed content requirements.

Local is more costly
A surplus of uncontracted grapes in 2009 prompted the Ontario government, which at the same time was dealing with a consumer backlash over the so-called “Cellared in Canada” wines, now known as International Canadian Blends (ICBs)—to boost the minimum domestic content in Ontario-made Cellared in Canada wines to 40% at each winery, or at least 25% per bottle.

This was a shift from the 30% content requirement in place through 2009 and aimed to strike a balance between growers’ desire for market share and vintners’ desire to tap cheaper foreign juice to fill out their ICBs.

ICBs are credited with subsidizing the local industry, providing consumers with affordable local labels that can compete with foreign brands. A report on the province’s wine industry prepared earlier this year by Frank, Rimerman + Co. LLP of St. Helena, Calif., noted that ICB wines represent 73% of the 7 million cases the province sells each year, while VQA wines represent just 27%.

The so-called 40-25 rule expires March 31, 2014, by which time government expected the use of domestic grapes to have increased, at least in part through greater consumption of Ontario VQA wines.

This hasn’t happened, Zimmerman said.

“We’re falling backward, not moving forward. We’re nowhere near being able to accomplish what we set out to accomplish,” Zimmerman said. “The market’s not growing fast enough to absorb our product.”

Will vintners continue on path?
Government has rejected requests to extend the rule, leaving Ontario growers hoping that vintners continue to buy grapes to provide more than the minimum 25% local content in ICB wines.

“We’re not going to suggest 2014 is going to be a year of gloom and doom,” Zimmerman said. “We’re hoping they’re going to buy at least 40% Ontario product going forward.”

She points out that Ontario wines have significant economic spin-offs, more so than international juice that is simply imported into the province. Frank, Rimerman + Co. pegged the economic impact of Ontario wine at $3.3 billion. Wages account for $593.5 million of the impact, and support 14,374 full-time equivalent positions.

A report presented in September 2012 by Simon Fraser University professor Andy Hira and graduate student Matt Pelling suggested that industry won’t solve the problem by itself.

“Where the government has taken an active role, the industry has really benefitted—whether under the Ontario VQA or the current policy framework,” Pelling said while presenting the report’s findings.

‘Long-term strategy’
The report itself noted: “A commitment on the part of the government toward integrating various (industry) interests into a long-term strategy is therefore the key but missing component in the province’s industrial policy.”

Zimmerman doesn’t disagree.

“This is an industry that is certainly supporting the Ontario economy,” she said. “We’re asking the government, saying, ‘Look, you’re deriving a huge benefit from us. You need to reinvest some of that money back into our industry.’”

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