In Vino Veritas: The U.S. Market for French and Italian Wines Is Getting Turned Upside Down

0
15


John Bojanowski is a rare breed: a Kentucky native making wine in France, where a little over a tenth of the 35,000-bottle production from his estate, Le Clos du Gravillas, is destined for sale in five U.S. states.

Now, thanks to the Trump Administration’s ever expanding trade war, the wine Bojanowski makes will cost U.S. consumers an extra 25 percent. That wine makers (and consumers) are even being penalized for a decade-old dispute that started with airplane subsidies to Airbus speaks volumes about the fragility of global trade these days.

The new tariff regime for an array of European goods—not only French wine, but Scotch whiskey and aged Italian cheese, among many other country-specific consumer products—went into effect just a week ago, too short a period for Bojanowski to notice an impact. 

“I’m hoping it’ll work out the way these things seem to work themselves out recently: swords rattled, a few small changes made, and then declare victory,” Bojanowski told Fortune. “I hope an entire wine culture won’t be held hostage over Airbus.”

What happens if his optimism is misplaced? 

“I guess we’d pull back in the U.S. market,” he said. “I don’t want that. I do a lot more work in the U.S. market since we aren’t big enough to advertise. I personally visit distributors and focus on my home state of Kentucky and on secondary markets like Rhode Island and Maine. I like the niche we have in those places.”

What’s bad for the French…

The pain is not spread evenly over Europe’s wine producers, however. The potential losses for France in the U.S. wine market may turn out to be a stroke of luck for the country’s neighbor, Italy. The two countries are the world’s two leading wine producers, combining to produce about one-third of the wine in the world in any given year. They account for more than half of all U.S. wine imports with a combined value of nearly $4 billion last year.

But Italian winemakers were spared from the increased tariffs. That means that the levy policy of Donald Trump—who famously abstains from alcohol—could reshape the U.S. wine sector for the foreseeable future. It would give Italy, which already exports more wine to the U.S. (by volume) than any other foreign country, a chance to pad that lead.

“The U.S wine market is very price-sensitive,” Zak Elfman, a U.S.-born wine sector consultant based in Spain, said in an interview. “It’s too early to know what will happen, but it’s easy to imagine consumers moving away from French or Spanish wines to wines from Italy or from non-European countries. The impacts could be long-lasting: there is no guarantee things will go back to where they were when and if the tariffs are removed.”

Like Bojanowski, Elfman remains hopeful. In addition to his consulting work, Elfman runs a small vineyard, which makes a shipment to the U.S. every spring. “I am crossing my fingers that the problems will be resolved before the shipment in the spring of 2020,” he said.

Winemakers in Italy are licking their chops at the prospect of competing in the U.S. against French rivals fighting with one hand tied behind their backs.

“When it comes to these new tariff policies I’m thankful for two things: that Italian wines were spared and that other wines were not,” Fabrizio Santarelli from Italian wine producer Castel de Paolis told Fortune. “I don’t believe there should be tariffs on any wines. But it’s no secret that this new tax regime will work to the advantage of Italian-made wine.”

Emmanuel Pageot, another French winemaker, said a producer he knows shipped three pallets (a pallet of wine is made up of 56 cases, or 672 bottles) to the U.S. The shipment left before the tariffs went into effect, but it will arrive afterwards, meaning it will be subject to the 25 percent levy. After the ship left port, Pageot said, the distributor asked the winemaker for a 15-percent discount to help offset the import tax.

“I think we need a kind of solidarity between producers to resist this kind of demand,” Pageot told Fortune. “These tariffs will put us at a disadvantage compared to the Italian producers and U.S. domestic producers, and we cannot lose on price as well.

“We all know that once a price is lowered it is very difficult to return to the previous price,” he went on. “We take risks for weather and plant disease. The importers should take the risk for geopolitical developments.”

More must-read stories from Fortune:

Trump’s tax bill has cost homeowners a trillion dollars
—Inside JP Morgan, moving on from WeWork is proving to be a messy proposition
What is Oyo? Behind Softbank’s latest high-growth, high-valuation bet
—Why the next recession may feel very different than 2008
—Trump’s tariffs were supposed to ding China, but the U.S. economy is getting hit 2.5x harder
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here