Finance Committee on March 27th, 2012

[Scott Brison, Liberal, Kings—Hants, NS]

On the commercial side, what are the barriers? The restaurant and hospitality industries are key to the development and promotion of Canadian wines. Tourists coming here from other countries will be spending their entire holidays eating in restaurants.

What are the barriers now to the sale of wine in restaurants? What should we be doing to address them?

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

I appreciate the question. I received a phone call from one of the hospitality associations. They are in full support of the bill because they see it as a step toward eventually opening the market for commercial use.

We started with personal exemption first of all to offer Canadian consumers a choice of the Nova Scotia wines, Ontario wines, and even Saskatchewan fruit berry wines they want. They're very supportive of this as being a general trend to open up many of these interprovincial barriers.

We need to gauge the level of economic activity, continue to make the case to the provinces that this is an area we'd like their input on, and continue to get industry to get behind it. Then maybe we'll see some further legislation.

I want to again thank you for seconding the bill and for your voice in the House of Commons on this important file.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Scott Brison, Liberal, Kings—Hants, NS]

On this issue, should we be sitting down with the responsible ministers in each province? This could be something on which we could actually move proactively in the federal government, instead of just waiting for the provinces to move. We could actually work with them to encourage movement on this issue. Should we be more proactive?

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

I believe that's an excellent idea. Any chance we have to move with our provincial counterparts when the federal government is moving out of the way to allow more economic activity and to allow more provincial say in it is a good thing for our country.

We have a marvellous country that is regionally different. The different products and different entrepreneurism we find are all world class. I hope this is a front we can continue to engage on, and I look forward to working on it.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

We'll go to Mrs. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

It's my pleasure to ask you some questions about this very important bill.

I always like to tell a story. I live in British Columbia, and my parents live in Ontario. They used to come out every summer, and there was a particular sparkling white that was very special to them. I remember that when they were celebrating their 50th wedding anniversary, we desperately wanted to have a few bottles of it at their wedding celebration, because it was so important. It turned out to be absolutely impossible. My sister looked at bringing it in through the distribution branches. We went through many avenues to see if we could provide this sparkling white that was special to them on their 50th wedding anniversary, with no success.

I always look at that and think there has to be something wrong in Canada when there are such barriers between British Columbia and Ontario that you can't share a special bottle of champagne on a special occasion.

Certainly that helped frame my thinking. Living next to Kelowna, I recognize what a great wine country we have there. Perhaps one day I'll get to Nova Scotia and also be able to enjoy some of the up-and-coming wines that are there.

I know that FreeMyGrapes.ca calculated a very minor percentage of impact in liquor board revenue. I think it was 0.001%. I know we'll have some witnesses later, and perhaps they'll have an opportunity to address that issue. The calculations I've seen have shown impacts very minor in nature.

You mentioned the red tape commission. I was a member of that commission. If you could bring those two pieces together—how your bill fits our government's goal in terms of red tape—that would be great.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you.

Through you, Mr. Chair, the IILA legislation is one of those obscure laws that leaves most Canadians I've spoken with shocked and shaking their heads in disbelief. It's almost unfathomable, when you think about it, that you can order wine from outside of Canada more easily than you can within our own country.

Canadians, first and foremost, want to support Canadians. In this case, Canadian wine is some of the best in the world, yet an 80-year-old Prohibition-era law stands in the way of that. Our government has made a commitment to support jobs and the economy, and removing interprovincial trade barriers in this case will do that exactly that.

In my region, the wine industry has expanded to custom barrel manufacturing, which I alluded to earlier, stainless steel tank fabrication, marketing aids and services, wine tourism, and more. The possibilities are endless. I'd also like to add that the Osoyoos Indian Band, one of Canada's most progressive first nations communities, also produces world-class wines. This is an industry that brings together many cultures, creates jobs, and supports agriculture in a very value-added manner.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Great. Thank you.

To get to this stage, I know that we had good support in the House, in terms of moving into committee. Again, I know it's broadly in line with our government's priority in terms of lowering trade barriers, so I wonder if you can speak a little bit to the importance of getting out of the way of an increase in internal trade and updating this clearly outdated piece of legislation.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

I can't think of a better example. The IILA legislation was created, as I said, 80 years ago, during the Prohibition era. In all that time, it has never been enforced, not even once in eight decades. In fact, there's a legitimate question as to how the federal government could enforce this law.

However, the majority of Canadians are law-abiding people. Certainly the major shipping companies comply with this legislation, as do the vast majority of wine owners. On the one hand you have a Prohibition-era law that's over 80 years old and has never once been enforced, yet on the other hand you have economic activity being blocked because this law is a trade barrier more than anything else.

Imagine being in a business, and because a customer lives in the province next door, you're forced to refuse that sale. Canadians have collectively proven to be a very trade-savvy nation, yet when it comes to the wine industry, we do not currently allow free trade within our own country. It's almost unthinkable, were it not true.

I'm very pleased to have all parties' support on this, as this trade barrier does need to come to an end.

[The Chair, Conservative, James Rajotte]

You have 20 seconds.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

On behalf of the committee, I just wanted to clarify one thing, Mr. Albas, in relation to questions from Mr. Brison. You indicated that it may be your wish at some point to see the commercial aspect or resale addressed, but this piece of legislation deals with personal consumption only. I just wanted to clarify that.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Yes, it deals only with personal consumption, subject to quantities permitted by the host province or the province in question.

[The Chair, Conservative, James Rajotte]

Okay. Thanks very much for that clarification.

I want to thank you very much for your presentation and for appearing before us. You're certainly welcome to submit anything to the committee for further consideration. Our second day on this will be April 3. You're certainly welcome to stay around to hear our witnesses.

Colleagues, we will suspend for a minute, and then we'll bring our witnesses forward to the table.

Thank you again.

[The Chair, Conservative, James Rajotte]

Okay, I'll call the meeting back to order. Ladies and gentlemen, we're on a very tight timeline. I will ask all of the witnesses to take their seats, please.

We have six presentations, and then we will have the opportunity for, I believe, a couple of rounds of questions from members. I will ask my colleagues to take their seats as well, please. Thank you. Order.

We have, presenting as an individual, Mr. Hanspeter Stutz; we have the Alberta Liquor Store Association; we have the Canadian Association of Liquor Jurisdictions; we have the Canadian Vintners Association; we have the Vintage Consulting Group Incorporated; and we have the Winery Association of Nova Scotia.

As mentioned, you each have five minutes for an opening presentation, and then we will have questions from colleagues.

We will start with Mr. Stutz.

[Hanspeter Stutz, As an Individual]

Thank you, Mr. Chair.

Thank you for giving me the opportunity to express my thoughts in reference to Bill C-311. I wish to emphasize that this is my opinion in regard to this issue and has nothing to do with the opinion of an organization.

First you have to realize where I am coming from. One of my toughest challenges as an immigrant from Switzerland and a producer of alcoholic beverages is the existing—or not existing—rules and regulations here in Canada. The interprovincial barriers are one big issue, the lack of Canadian wine regulation the other, but I understand this is not the right place and time to talk about a Canada wine standard.

We want to talk about an open—or let's start with a more open—domestic market. Since you are the Standing Committee on Finance, I assume that the growth of the economy is one of pillars in your mandate.

Let's go back to Nova Scotia.

The local farm area in Nova Scotia disposes of around 50,000 acres of unused farmland. The prices are still reasonable, because there is no shortage yet. The opportunities in Nova Scotia are obvious when you consider the following comparison of the cost of land: one acre of farmland in Nova Scotia costs between $2,500 and $4,000. One acre of farmland in Switzerland is between a rocketing $30,000 and $50,000.

Of course, we could grow vineyards along the north mountain, about 50 kilometres in length, but the question would come up very quickly: where could we sell all this additional wine, with a Nova Scotia population of approximately one million people?

This point is underscored by the present barriers we face as wine producers in selling our products in other provinces. It is easier for our winery to ship 20 cases of wine to Beijing, Germany, Dubai, or Switzerland than to ship one case to our neighbour, New Brunswick. Surely this is counterproductive to our joint goals and objectives. We are in the 21st century and we need a completely open domestic market for private and commercial trade with respect to licensees.

I support what you will hear of Janice's Ruddock's concerns about—I call them the big boys. We have to review these rules and regulations. We have to add the wording “100% Canadian” in front of the word “wine” in the bill.

Furthermore, we should limit the import of foreign products and concentrate on the marketing of our own. No wine region in the world has this policy, and we are the laughingstock of many wine-producing countries. We should strive to be world class, but with our present policies limiting our marketing opportunities, this cannot happen.

Your help is needed on this issue.

The innovative and creative small or medium-size winery has a certain disadvantage in this current environment, and the big guys are clearly laughing at us. Canada has outdated rules and regulations where wine importing, wine growing, winemaking, and wine marketing are concerned. Our competitors abroad could not be happier about all the red tape we are facing. The red tape has to go.

The wine industry in Canada has changed dramatically and has the potential to continue changing, but the rules will need to change. Your Standing Committee on Finance is challenged and should take action to change this antique modus. We should be one proud nation of wine producers. Think Canadian and out of the provincial boxes.

Thank you.

[The Chair, Conservative, James Rajotte]

Okay. Thank you very much for your presentation.

We'll hear from Ms. Martinez, please.

[Ivonne Martinez, President, Alberta Liquor Store Association]

Thank you very much.

I'm here from Alberta, which apparently is the only province that has a system that is different from the rest of Canada. With that in mind, I'll let you know that the Alberta Liquor Store Association, or ALSA for short, represents 1,200 private liquor retailers throughout Alberta, which again is the only province in Canada with a privatized retail liquor industry. The majority of these stores are independently owned or family owned, and all of them would be affected by passage of Bill C-311.

The Alberta Liquor Store Association appreciates the intent of the bill. We don't have a problem with the bill itself. We do appreciate that increased interprovincial trade is needed; however, the implementation of the bill may have many unintended consequences.

The Alberta model is an open market model. Currently, liquor retailing in Alberta is a $2 billion industry that provides thousands of jobs in private sector investments in communities across the province. Provincial revenue from sales of alcohol last year alone was $700 million. Currently, there are over 17,000 liquor products available in Alberta to anyone who wants to go to a liquor store and buy them. Mr. Albas will be happy to know that there are over 1,200 types of B.C. wines available in Alberta, and last year we sold 10 million bottles of B.C. wine alone in Alberta, so the industry is thriving very well.

To address a point, Alberta does not have limits on the quantity of wine products that people can bring with them across provincial borders for their own personal consumption or limits on their frequency of travel, meaning that you can go back and forth to B.C. as many times as you like and bring back as much wine as you like, as long as it's for your personal consumption and you bring it with you. As a matter of fact, Albertans are able to order wine directly from wineries right now, whether from B.C., Nova Scotia, or France. All they have to do is just do it through a local store and go through the AGLC, which is a regulatory body in Alberta. Wine can actually be delivered to your front doorstep, if that is desired.

As I mentioned, we do have some concerns with the bill, the main one being that it would bypass a regulatory body in Alberta, which would then lose the revenue from this domestic liquor product. Most importantly for my stakeholders, it would bypass retail stores, which would also see a decline in sales. Should the Alberta government increase taxes on the rest of the liquor products to make up for this loss of revenue, it would present a compounded negative effect to store owners and their margins of profit.

Underage drinking is also an issue for my members. Social responsibility is something that we take very seriously. As stated in the Importation of Intoxicating Liquors Act, alcohol is indeed a controlled substance, and by allowing direct sale to consumers, Bill C-311 would bypass provincial regulation, making the market vulnerable to underage drinking without any means of monitoring. Anybody, any kid, can grab a parent's credit card and basically order wine, and it can be delivered to the doorstep without having anyone ask for ID.

Bill C-311 says that the province can impose limits on the quantities of wine a person can bring into the province. As Alberta would lose its revenue on domestic wine with Bill C-311, it stands to reason that the provincial government would impose restrictions on quantities that one can bring into the province. In other words, we would be imposing restrictions on a market that is currently open and without barriers, going backwards in some ways.

Bill C-311 would provide a precedent for other domestic liquor products such as beer and spirits to follow in the same path of being able to be sold directly to consumers. ALSA is of the view that Bill C-311 would be the beginning of a slippery slope for all other liquor products to be granted the same rights. Right now in Lethbridge there's a distillery that makes rum, so from the Alberta perspective we would be pushing the idea that they should be able to sell directly to consumers as well.

Bill C-311 could potentially create serious problems with Canada's various trade agreements, including NAFTA and GATT, which call for Canada to treat domestic wine and imported wine the same in terms of tax treatment. As B.C. wines already receive preferential treatment over other wines, this would create an even bigger platform for challenges under our trade agreements.

In conclusion, we again would like to emphasize that we appreciate the goal of this bill. However, we believe that the intended outcome of this bill can be better achieved by working under the federal-provincial agreement on internal trade. In this manner, the Canadian government can achieve its goal of better interprovincial trade in wine products while engaging and consulting all the parties necessary within government, provinces, and the liquor industry to ensure a successful outcome.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Martinez.

We'll hear now from Mr. Dunning, please.

[Rowland Dunning, Executive Director, Canadian Association of Liquor Jurisdictions]

Thank you, Mr. Chair.

Good afternoon. I'm Rowland Dunning, executive director of the Canadian Association of Liquor Jurisdictions, or CALJ for short. CALJ represents provincial liquor authorities in all ten provinces and the three territories. Thank you for the opportunity to speak today.

CALJ's members believe that Canadians deserve easy and comprehensive access to the fine wines produced across this country. How much access do consumers have, you might ask?

Well, they have a broad choice of Canadian wines in their province's or territory's retail stores, amounting to $1 billion in sales just last year, and they can order any Canadian wine any time through private or special ordering services, which we have outlined in our submission.

Provinces are ensuring these programs become even better and faster. They can take wine home with them on their person and for their personal use when they visit wineries in other provinces. In short, Canadian consumers already have good access to Canadian wine, and that's why we think the proposed amendment is unnecessary. In fact, the only reason Bill C-311 exists, and the only reason we're all here today, is that some wineries feel they shouldn't have to pay provincial markups on these sales.

We would be happy to elaborate on these liquor board supports for Canadian wine and on the private order systems that allow consumers to order any wine from any Canadian winery through their home province's liquor retailer.

Every province and territory does apply a markup or a commodity tax to the sale of alcohol to raise revenue and to help pay for government services such as health care, education, and other important priorities.

Yes, a portion of our markup revenue covers the cost of retailing, but most of it goes to provincial spending priorities as well as to helping offset the social, health care, and law enforcement costs that arise when alcohol is not used responsibly.

We're all for tourists visiting wineries in other provinces and taking wine home with them. However, we do have concerns with direct sales into other provinces, since this is a new and distinct retail channel. The impact on our businesses and provincial revenues from allowing direct sales could be substantial. In some U.S. states and the U.K., direct sales account for 4% to 5% of total wine sales. This is the equivalent of about $300 million in annual wine sales in Canada.

Proponents of the bill say the liquor boards could still collect a portion of their markups by adopting a permit system like that used in some U.S. states. These are cumbersome systems whereby out-of-state wineries and even consumers have to register with tax authorities and purchase permits. Our existing private ordering services are much simpler. Why would anyone want to change from the simple and convenient Canadian service to the bureaucratic American system unless they wanted to avoid legitimate provincial charges on wine sales?

Here's something else to seriously consider. Beyond being unnecessary, we think the bill may actually pose a threat to the overall well-being of the Canadian wine industry. Canada's international trade agreements require equal treatment of imported and domestic wines. CALJ's members are frequently reminded of this obligation by federal trade officials, and Canada's trading partners pay close attention to liquor boards, particularly the sale of wine.

I'm sure you all know that wine has been a focus of discussions between Canada and the EU during the current CETA negotiations. In fact, it is our understanding that the EU have asked DFAIT about this bill and its international implications and have not received a response. CALJ's members do a lot to support Canadian wine, supports our international trading partners readily assert are not entirely consistent with our trade obligations.

In the eighties, Canada lost a trade challenge about wine, and the focus of that challenge was differential markups between domestic and imported products. Proponents of Bill C-311 suggest it is consistent with our international trade obligations, as it allows for the direct sale of Canadian and imported wines; however, foreign wines would have to be sold by Canadian retailers and would be subject to provincial or territorial markups, while Canadian wines sold directly by wineries would not.

We're right back at the problem that caused the trade challenge in the eighties regarding differential markups. We believe this would be so large a concern that Canada would immediately face complaints from its trading partners. Even if direct sales from Canadian wineries paid full markups, it appears to us that foreign wineries would have to be allowed to make direct consumer sales as well.

In any trade dispute, Canada would face complaints not only about the new provisions allowed by the bill but also about all of the measures that support Canadian wine. In such a dispute, Canada and Canadian wine have much to lose.

In summary, and on three key messages that I would like to bring to this committee's attention, CALJ believes Bill C-311 is both unnecessary and potentially harmful to the Canadian wine industry.

First, it could create an unfair system whereby some wineries would pay provincial charges and others would not. Second, it could significantly undermine provincial revenues. Third, it could result in trade complaints that would significantly damage the domestic wine industry.

Thank you for allowing us the opportunity to present our views on this matter.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Dunning.

We'll now hear from the Canadian Vintners Association.

[Dan Paszkowski, President and Chief Executive Officer, Canadian Vintners Association]

Thank you, Mr. Chair.

My name is Dan Paszkowski, and I'm the president of the Canadian Vintners Association. On behalf of CVA members, I am grateful for the invitation to appear here today. I'm pleased to discuss Bill C-311, a proposed amendment to the Importation of Intoxicating Liquors Act .

CVA membership represents roughly 90% of all wine produced in Canada. We strongly support Bill C-311 and are encouraged by the support that direct-to-consumer wine delivery has received from consumers across Canada and from all parties in the House of Commons.

Canada has more than 400 grape-based wineries and 1,000 grape growers producing in six provinces. We have 196 grape wineries in British Columbia, 125 in Ontario, 70 in Quebec, and 22 across the Maritimes. The majority of Canada's wineries are small-volume, premium-focused operations that have significant capital invested in their vineyards, wineries, sellers, retail operations, tasting rooms, and increasingly in cellar door restaurants.

We are a young and growing industry. Each vintage, more wineries are opening and more wines are available for sale. While growth is positive, we are challenged by our limited sales channels and the physical brick-and-mortar limitations of provincial liquor board retail stores. In 2011, VQA 100%-Canadian wine sales represent a mere 6% share of the wine market nationally.

Consumer demand for our wines is thriving, and consumers expect to be able to purchase the wines they want in the manner of their choosing: from retailers, at the winery, and remotely by telephone or online.

In our support for direct-to-consumer wine delivery, we have engaged in discussions with consumers and wineries across Canada; with legal and trade experts; with federal and provincial regulators, liquor boards, and elected officials; and with NGOs focused on alcohol in moderation.

In response, we are recommending two minor amendments to the bill that we believe will enhance its clarity, satisfy consumer demand for choice in wines and how they are delivered, satisfy regulatory requirements, and create a new source of government tax revenues. In the interests of time, the amendments we are recommending are included in our written submission.

To comply with our international trade commitments, Bill C-311 must meet national treatment obligations. As such, imported wines must be afforded the best treatment provided domestic wines, but only once they have landed in Canada. Bill C-311 meets this obligation, but to be clear, it does not permit foreign wineries to ship directly to Canadian consumers.

Bill C-311 essentially legalizes the following: out-of-province tourists can buy wine at a winery and transport it home either on their person or by having it delivered; out-of-province consumers can order wine online directly from an out-of-province winery and have it delivered. This would permit Canadians to bring back or have delivered wine that was purchased outside of the consumer's home province. As is normally the case, these purchases would be taxed in the province in which the transaction takes place.

While there is limited concern with tourists bringing wine back home with them after an out-of-province trip, provincial governments and liquor boards have expressed concern about the prospect of Bill C-311 extending direct delivery to out-of-province winery wine clubs, online purchases, or liquor board retail stores.

Interprovincial wine shipments from a winery to an adult consumer would require the winery to collect all taxes, levies, and fees on behalf of the province in which the consumer places the order. It It is important to note that in November 2011 the chair of the New York State Liquor Authority testified that direct-to-consumer wine shipping has generated higher local and state sales tax revenues, providing benefits to the state, consumers, and local wineries.

The Province of Ontario, as do most wine-producing provinces, allows its wineries to sell directly to in-province consumers. This has not led to a displacement of wine sales through the Liquor Control Board of Ontario, whose share of retail sales increased from 83% in 2006 to 84% in 2010.

It has been argued that Bill C-311 will stimulate arbitrage opportunities based on varying provincial tax structures across Canada. Differences in tax rates and wine prices are nothing new in Canada, and Bill C-311 will not eliminate provincial authority addressing these concerns.

Finally, the intent of Bill C-311 aligns perfectly with regional efforts to break down trade barriers between provinces. The Trade, Investment and Labour Mobility Agreement between British Columbia, Alberta, and Saskatchewan, the Quebec-Ontario Trade and Cooperation Agreement, and the Partnership Agreement on Regulation and the Economy between New Brunswick and Nova Scotia are examples of efforts by Canadian provinces to seek new partnerships, expand trade opportunities, and collaborate on issues of mutual importance.

In closing, with a few minor amendments Bill C-311 will provide Canadian wineries with a new sales channel that will create a stronger internal market for Canadian wine, a solid base for the industry to sustain its growth ambitions, new opportunities for wine country tourism, new jobs, and enhanced government revenues.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Paszkowski.

We'll hear from Mr. McWatters, please.

[Harry McWatters, Time Estate Winery, Vintage Consulting Group Inc.]

Thank you.

I'm Harry McWatters and I'm the president of the Vintage Consulting Group. I've earned my living in the wine business for almost 45 years as a producer, grower, and consultant, and I was the founding chairman of VQA Canada.

Some of the things I'd like to address here have already been touched on, but the first thing is that this bill—and I commend Dan Albas for bringing this bill before the House—brings clarity to what can and cannot be done from a federal perspective, and hopefully, then, the provinces will follow suit to create clarity for the producers who will take advantage of this in the future.

Today I can speak most authoritatively for British Columbia, where we have approximately 200 producers, most of which are very small family operations. Some actually advertise that they will ship across the country, while others clearly state they won't do it because it's a federal offence, and even though people have not been prosecuted, they're not of a mind to break that law.

One of the things that is unique to this is that the small producers often do not have sufficient quantities to be able to appoint an agent or a distributor in other jurisdictions; therefore, even if they were to apply for the listing, they really don't have the inventory to support a meaningful listing in other jurisdictions. This would give them the opportunity to ship those unique products to other regions—and I'm not specifically talking about British Columbia—that have tried unsuccessfully to source wines from other wine-producing regions in Canada.

As a winery consultant, I have one client in California who, if it weren't for this kind of business, wouldn't be in business. He's a third-generation producer, producing a unique style of dessert wine. People aren't interested in buying case lots or multiple case lots in other jurisdictions, but his business survives from his cellar-door sales and the one or two bottles that are shipped as a result of mail-order business. I see this as a great opportunity for our small producers from coast to coast.

I should also add that I do have clients from Vancouver Island to Nova Scotia to Mexico, so I am involved in consulting in a number of jurisdictions.

One other aspect that I think is important, and it was alluded to, is the advantage the large producers may have of shipping non-100% Canadian wines. I can speak authoritatively for the three large producers in British Columbia, and all three, with their multiple outlets, sell only VQA wines from their wine shops, thus allowing for the purchase by their visitors of 100% British Columbian or Canadian-grown product from those particular outlets.

I think this bill is long overdue—80 some-odd years overdue—and I think it's a wonderful opportunity for us, if by no other means, to unite this country from coast to coast through wine.