Robert Russell: An inefficient market

Robert Russell
Special to the Times

Prohibition was an experiment, the 18th Amendment to the U.S. Constitution–which banned the manufacture, transportation, and sale of intoxicating liquors– the term that at the time, presumed not to include wine and beer. However, when put into practice it was determined that it was a ban on all alcoholic beverages. Ratified by the states on January 16, 1919, it went into effect on January 17, 1920, officially known as the Volstead Act. Prohibition was difficult to enforce, and there was mass illegal production and sale of liquor by bootleggers, that supplied illegal drinking spots around the nation.

Robert Russell

This impact of wealth moving into the hands of bootleggers and criminals had consequences. Gang violence, bank robberies, and other related crime decreased support for Prohibition towards the end of the roaring 20s. However, the biggest need of the Federal Government by 1933 was increased tax revenues during the Great Depression. Congress adopted a resolution proposing the 21st Amendment to the Constitution to repeal the 18th. The 21st Amendment negated the former on December 5, 1933, ending Prohibition, when Utah became the 36th state to ratify it.

This created unfunded mandates or regulations imposed by a higher level of government on a lower one, but without accompanying appropriations to cover the cost of compliance. The result was a patchwork of regulations, with 48 different sets of laws. Some states attempted to prevent competition for local wines by banning imported wines, both from other states and other countries. In fact, Washington was one of 33 states that had already adopted Prohibition laws at the state level before the 18th Amendment. One recently read of a famous case where a resident had brought in wines, to Seattle, for home use, post Prohibition, and the authorities raided and prosecuted the crime.

As of today, forty-five states allow direct-to-consumer wine shipments from the producers, according to the Sovos Ship Compliant and Wines Vines Analytics Report of 2021. The wine lobby has sponsored legislation to allow wine shipments in Alabama, Mississippi, Delaware, and Kentucky, each failed. They bypassed Utah, another state that prohibits wine shipments. A proposed bill requires that the wine be ordered through the state liquor system, with an 88-percent markup. Wine is so expensive in Utah, that friends report driving 150 miles, every month or so, to stock their personal needs, in adjoining states.

The lobby seeks to remove a rule that allows only wineries producing up to 250,000 gallons a year to ship directly to consumers residing in New Jersey and Ohio. The state of Texas has begun auditing 1,600 wineries, asking for their shipping records. Some states go to extremes to make it difficult to buy wine online. Arkansas law has a provision that requires customers to place their first wine order in person before the winery can start shipping wine to their residences directly. Not just a local problem, there are barriers to sale and import of wine worldwide. In a Common Statement signed jointly by members of the U.S. Congress the European Parliament, 85 lawmakers endorsed the removal of all tariffs on wine traded between the two markets.

The statement cites the harmful impact of retaliatory tariffs and calls on our leaders to work towards a tariff-free wine trade environment. China recently announced a 220% levy on Australian wine imports. China is the biggest market for Australian wine growers. Chinese officials announced the tariffs would apply for five years, a crippling move for the Australian producers.

It is hard to report on the trends in the wine industry without mentioning COVID-19. In the first year of lockdown, wineries shipped 8.39 million cases to consumers, an increase of 27%. The last decade had averaged increases of about 10% per year as the trend developed. However, the value of the shipments only increased by just 15%, as the average bottle prices fell by almost 10%.

This may be due to new to wine consumers; with similar trends seen in most of the larger wine-consuming countries. Louisiana is the 29th-largest Direct to consumer wine market in the country, a smaller market, but one that is steadily growing. Wineries are limited to shipping 12 cases per household annually. This writer does not consider this option as a replacement for a professional wine shop with competent sales staff, of which we have several in our area. However, if the wine wall at the neighborhood grocery is beginning to cause boredom, one might try to broaden the palate with online shopping, or a visit to a good wine shop.

Stay healthy, and Cheers

Contact Robert Russell at rob@rlr-appraisals.com.