Monday, November 5, 2007

Wine Sales to be Nationalized - FedWine

A bill recently introduced on the House floor may soon change the way the finest American wines are sold.

A bi-partisan joint effort by several members of the House, all professing to be hard core wine enthusiasts, the proposal if adopted would entail the following:

First, the establishment of a “cru” system for American wines similar to France’s 1855 Bordeaux classification that ranks properties/chateaus according to reputation and quality of their wines, on a scale of “first growths” (highest) on down to “fifth growths” (the lowest, but still classified).

The best American wines would be classified as “Tier One,” the next level “Tier Two,” and so on down to “Tier Five.” It is estimated that about 1-2% of wines produced in the United States would be classified in one of these tiers.

Second, the establishment of criteria that must be met for each tier. The bill as currently drafted calls for a new federal office to be created that would consist of a panel of experts, appointed by the President, who would develop and implement the criteria.

Third, once a wine was suitably classified within one of the tiers, distribution and sales of the wine would then become nationalized. The same government office created for the development of the classification tiers would also be responsible for overseeing sales of the wine to the public. For now, the makers of the bill are referring to this office as “FedWine Agency,” or simply “FedWine” for short.

While there are still many details to iron out, the basic provisions as set forth in the bill as it currently exists call for tiered wine to be bought and sold through brokers. The release price of a wine would be determined by a careful study conducted by FedWine, at which point all existing stocks of the wine would be purchased by FedWine.

FedWine would then offer the wines to the public through licensed wine brokers who would establish prices based on current supply and demand for each wine. Consumers would issue an order to purchase a particular wine through a broker either at whatever the market price was at the time, or for a specified maximum price they would be willing to pay. A commission would be paid to the broker for their services.

An unusual provision in the bill also allows consumers to sell wine through the same brokers, either at the going market rate or for a specified minimum price the consumer would be willing to accept.

Confused? It is indeed a totally different system for purchasing wine, that’s for sure. Here are some answers to anticipated questions that may arise:

Q: Is participation in the tier system voluntary or mandatory?

A: Mandatory. Do you think Lafite or Latour had a choice when they were placed into the ranking system? A winery cannot elect out of this process.

Q: So in other words, the winery would be forced to sell their wine at a price set by a government agency, this so-called “FedWine?”

A: You got it.

Q: What if they undervalue a wine? What if they say the 2008 Dominus is only worth $15 a bottle?

A: I severely doubt such a travesty would take place. On the other hand, what if they overvalue it? It goes both ways. But FedWine will most assuredly have only experts within the agency who are well familiar with the market price of a wine.

Q: This sounds no different than the way the stock market operates. Wines released to brokers? Who then buy and sell based on a wine market?

A: That is correct. And why not? We are only talking about the top 1-2% of wines that are out there, and let’s face it, we all know these are nothing but trophies and people don’t really drink them. Or if they do, they only drink them to show off. Or, they are purchased as investments. It’s no different from stocks. So why shouldn’t they be treated as such?

Q: So what you are saying is that if I am currently on the mailing list of a winery whose wines get included in this tier system, say, uh, Sea Smoke for example, I will no longer be able to purchase them? I will have to submit to the mercies of the market and brokers?

A: Yes, that is correct. The top wines, which these congressmen who made the bill consider a national treasure, will be in effect nationalized.

Q: That smacks of communism to me.

A: Take it up with the people who made the bill.

Q: I can’t believe this. So what should we be looking for when this happens? The New York Wine Exchange in the Wall Street Journal showing the highs and lows for the day, bottles traded, 52 week high and low prices and the change from the previous day?

A: I couldn’t have said it better. With the internet, why even bother with the Wall Street Journal? You can get instant quotes off the web if you are so connected. Other less fortunate people will have to suffer a 20-minute delay.

Q: I have a bad feeling about this.

A: That’s not a question.

And so you have it. More will be passed along to you as the bill progresses; right now it is in only the very early stages and no one has tried to attach other unrelated measures to the bill that benefit their own constituency as of yet. For example, as of now the wine will not have to be transported from the wineries over a bridge to be built in Alaska for the purpose of transporting the wine. We’re not saying this won’t happen, but it hasn’t happened yet. Stay tuned.

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