11.30.2009  
 

Ontario Wineries Form New Group

Tax levy causes rift; largest producers find alternative to provincial wine council

 
by Hudson Cattell
 
Ontario wine organizations
 
Peninsula Ridge president Norman Beal called the split a "natural evolution" of Ontario's wine industry.
 
A tax levy included in the Ontario government’s newly announced wine policies has caused three of the largest members of the Wine Council of Ontario to withdraw from the trade organization. As an alternative, Andrew Peller Ltd., Vincor Canada and Colio Estate Winery formed their own association: the Winery and Grower Alliance of Ontario.



Three other wineries also have joined the alliance and are expected to leave the council: Kittling Ridge Estate, Diamond Estates Wines and Magnotta Winery. Another alliance member, Pelee Island Winery, will retain its membership in the council.



All seven wineries produce Cellared in Canada (CIC) wines as well as premium VQA wines. The majority of the members of the Wine Council of Ontario consist of small to mid-size wineries that make VQA wines but are not permitted to make CIC wines. While the council’s membership will still include about half of Ontario’s more than 140 wineries, the departing wineries will take with them about 75% of the council’s funding.



CIC wines are blended wines that must contain at least 30% Ontario wine content and may consist of up to 70% imported wine. These wines, which typically sell for less than $10 per bottle, compete with similarly low-priced imported wines in stores operated by the Liquor Control Board of Ontario.



In Ontario, 44% of the wines sold in stores are Ontario-made, and 56% are imports. Of the domestic wines, 79% are CIC wines, and 21% are VQA. Adding to the economic importance of CIC wines, approximately 60% of Ontario’s grape crop goes into these wines.



The VQA wines, which cost much more to produce, are the premium wines that have been responsible for the recognition and success of Canadian wines, including ice wines, in world markets.



In the fall of 2008, there was a 4,000-tonne (about 4,400 U.S. tons) surplus of grapes in Ontario, and the provincial government made a one-time subsidy payment of $4 million CAD (about US$3.78 million) to growers for their uncontracted grapes. At that time, the Ontario government asked the Grape Growers of Ontario and the Wine Council of Ontario to work with government agencies to develop a “sustainable strategy,” a long-term plan to strengthen the Ontario grape and wine industry.



Meetings began early in 2009 and, while there was agreement between the grower and wine organizations on many issues, they were unable by August to reach consensus on a long-range plan, other than to agree that the government and the LCBO could do more to support the industry.



On Oct. 13, Ted McMeekin, minister of consumer services, released a comprehensive government plan for the industry. “VQA wines,” he said, “are recognized around the world for their quality and taste. We’re building on this success so that our wine and grape industry continues to succeed in the years ahead.”



Among the many proposed marketing proposals came a major surprise, a proposed tax on CIC wines sold through the approximately 300 privately owned winery stores in the province, with the revenue used to finance support for Ontario’s growing VQA sector. It was not until Nov. 16 that the amount of the tax increase—10%—was announced. The withdrawal of the wineries from the Wine Council of Ontario followed.



In effect, the split in the council creates two lobbying organizations: one with large wineries making CIC wines, and the other with smaller wineries making VQA wines. The alliance, which plans to fight the tax that is scheduled to begin in July, intends to develop a coordinated approach to wine content and grape pricing in Ontario.



For many years, grape prices have been set annually through negotiations between the Ontario Grape Growers and the Wine Council of Ontario. There has been some talk about developing a new method for determining grape prices and, according to a fact sheet released by the alliance, “The new model must take into account both price and quality. Preliminary meetings with growers and the Grape Growers of Ontario confirm that we can work together on a new approach that will transition to market-driven pricing within a regulated framework.”



Another major surprise in the government’s plan was a way to put greater emphasis on VQA wines by introducing legislation that would altogether eliminate the domestic content requirement for blended wines by 2014.



Despite the withdrawal of the large wineries, the Wine Council of Ontario is not about to disappear. Douglas Tindal, a spokesman for consumer services minister McMeekin, has stated that the government will continue to put its cash behind the council. The council may well add new members from wineries that previously did not want to join because of CIC-producing membership.



Jim Warren, who is president of both the Ontario Viniculture Association and Fruit Wines of Canada, would like to see the council broaden its membership beyond producers of VQA wines, and thus represent much more of the wine industry. One thing is certain: The council will focus on VQA wines.



Norman Beal, president of 20,000-case Peninsula Ridge Estate Winery and a past president of the council, has been quoted as saying that the split is a “natural evolution” of the industry. Allan Schmidt, president of Vineland Estates Winery and currently vice-chair of the council, told Wines & Vines, “It’s unfortunate that this new tax has caused a split among a few Wine Council and CIC members. Although regrettable, I do understand and support their need to challenge this new tax on import content for now. But I look forward to the day when we can welcome these wineries back into the Wine Council of Ontario to proudly represent and market their VQA wines. They are quality companies and quality people.”

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