Woodinville, Wash. -- The debate about the potential privatization of the Washington state liquor trade is highlighting fault lines in the state’s fast-growing wine industry. Controversy triggered by I-1100, a November ballot initiative spearheaded by Issaquah, Wash.-based Costco Wholesale Corp. and supported financially by Wal-Mart and Safeway through Modernize Washington, is pitting the Washington Wine Institute and some small wineries against the Family Wineries of Washington State and some of its member wineries.

The Family Winemakers group advocates liberalization of the state’s wine industry and challenges the Washington Wine Institute’s (WWI) role as prime advocate of the state’s wineries with legislators in Olympia and WWI’s privileged relationship with the Washington State Liquor Control Board. Government, for its part, appreciates a unified voice from industry, as Rick Garza, deputy administrative director for the Washington State Liquor Control Board, made clear at an industry meeting in Woodinville last month.

The Family Wineries of Washington State (FWWS) has endorsed the initiative and it would like to see broader consultation with the state’s wine industry, which has grown to more than 600 wineries from just 170 in 2001. It suggests including itself, the Walla Walla Valley Wine Alliance and the Washington Association of Wine Grape Growers (WAWGG) in discussions. (WAWGG has voiced neutrality on the issue, “to better represent the diverse constituency of members who sit on both sides of the debate.”)

Not all small wineries support the initiative. James Mantone, of 5,000-case Syncline Wine Cellars in Lyle, Wash., withdrew from membership in FWWS when the organization backed the initiative in July. “There are good things in there that I could support, but I feel that it tries to encompass too many radical changes under one initiative,” Mantone said.

He is particularly concerned about the potential elimination of uniform pricing and the ban on extension of credit by wineries. “(These provisions) have allowed the Washington wine industry to flourish,” he told Wines & Vines. The issue of credit, while it sounds attractive, he said, would put smaller wineries at unnecessary risk unless safeguards were in place giving them recourse in the event of non-payment by purchasers.

“Without any limits or methods to enforce payment by retailers or restaurateurs, there’s no recourse for wineries if they’re not paid,” he said. “I think that’s a huge giveaway. … It sounds idealistic, but in reality, I have a hard time with extending an interest-free loan that I have to finance with no recourse for me to collect.” (The measure would not force small wineries to extend credit, but wineries that did so might face delayed payments without recourse.)

Mantone, who is also president of the Columbia Gorge Winegrowers, said he’s discussed the issue with other winery principals who are “astounded” that the Family Winemakers of Washington State has come out in favor of I-1100. The Columbia Gorge association, which represents wineries in both Washington and Oregon, hasn’t commented publicly on the initiative.

Mantone added that wineries in Oregon are largely uninformed about the impact of the potential changes on Washington State’s wine industry. “The few that I’ve talked to are pretty unaware,” he said.

The privatization battle is stirring debate not only at the state level but at the municipal level, because proceeds from the state’s liquor revenues are shared with counties and cities. Reports suggest that a city such as Pasco in the heart of the Columbia Valley could lose as much $735,000 annually if the state gets out of the liquor business.

A bid has also been made to remove the Washington State Liquor Control Board from the debate. Seattle’s Stefan Sharkansky filed a complaint with the State of Washington Executive Ethics Board, alleging that Rick Garza and other senior WSLCB officials violated ethics legislation prohibiting the “authorization or use of public facilities in campaigns for or against a candidate or ballot measure.” In particular, Sharkansky charges that the WSLCB, “authorized Garza to travel around the state making speeches urging citizens to vote against the liquor privatization initiatives 1100 and 1105.