The president directed the treasury secretary, in consultation with the attorney general and the chair of the Federal Trade Commission, to submit a report within 120 days assessing “threats to competition and barriers to new entrants,” including unlawful practices; consolidation in the three tiers of production, distribution and retail; and unnecessary regulations such as bottle sizes, permitting and labeling. Treasury’s Alcohol and Tobacco Tax and Trade Bureau, or TTB, was given 240 days to initiate rulemaking to correct any identified problems, including “reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries.”
Faced with tight deadlines, the TTB issued a call for public comment on the questions raised by the executive order. The bureau requested comments by Aug. 18, though the docket on Regulations.gov will be open through Oct. 1, so there’s still time to chime in. As I write this, more than 400 comments have been submitted, from trade groups, wineries, distilleries, breweries and individuals, including some who fear any changes in regulations will make alcohol easier to obtain and lead to social and public health problems.
The Wine and Spirits Wholesalers of America praised the status quo, calling the post-Prohibition system “a success story” that balances social responsibility with business growth.
“It is easy to blame the proverbial ‘middleman’ as an unnecessary bottleneck in the alcohol supply-chain system, but that belief does not accurately reflect business today,” the wholesalers group said. “Independent wholesalers are an important link in getting products in front of retailers and ultimately consumers.”
And yet wineries argued that consolidation in the “middleman” wholesale sector has effectively squeezed the funnel through which an increasing number of products are trying to flow to market. This problem is especially acute since the country is in effect 51 or more separate markets, as the constitutional amendment repealing Prohibition explicitly gave states authority to regulate distribution of beverage alcohol.
“Consolidation in the wholesale tier has left many wineries unable to find distributors in many of the country’s top markets,” said the Wine Institute, a California winery association. “This problem is especially acute for small and medium sized wineries.”
In 1995, there were 3,000 distributors across the country serving 1,800 U.S. wineries, the group said. Today, fewer than 1,200 wholesalers serve 11,000 wineries. (Wine America, a national trade association of wineries, put the number of distributors as fewer than a thousand.) In 2010, the top 10 wholesalers accounted for 58 percent of U.S. wine sales. A decade later, that portion was 80 percent, with the top three distributors accounting for a whopping 63 percent of all wine sales in the country.
“The consolidation of the wholesale tier has led to less consumer choice and fewer abilities for producers to get their products to market,” Wine America said. Franchise laws in 20 states (including Virginia) that effectively prohibit a winery from changing distributors are another barrier to competition, the Wine Institute said.
A small but promising response to consolidation in the distribution tier has been direct-to-consumer shipping. Today, 47 states allow direct shipping in one form or another, though different state regulations and fees make it difficult for wineries to navigate the various requirements. Several small wineries commented that some uniformity of shipping standards would help them expand their market reach despite the consolidation of wholesalers.
The TTB also received at least two dozen identical comments from individuals urging the agency to “hold the line” against any relaxation of regulations. These commenters blamed pandemic measures meant to help businesses, such as home delivery of cocktails or other beverages from restaurants, as contributing to alcohol abuse. They also repeated the discredited trope that direct shipping of wine to consumers promotes underage drinking. Teenagers aren’t going to place an order over the Internet and wait a week or more for UPS to deliver their wine when they can buy alcohol from a nearby convenience store.
Comments filed to the TTB cover many other issues, such as standardized bottle sizes and nutrition and ingredient labeling. They range from mundane regulatory requirements to transformational issues. President Biden’s directive to examine competitiveness in the economy has given the regulators at the Treasury Department an opportunity to make profound changes in the way we produce, distribute and purchase our tipple.
Let’s hope they’re wine lovers.
Postscript: Burgundy lovers lost an icon Aug. 20 with the passing of Becky Wasserman at her home near Beaune, France. She was 84. Wasserman, an American broker who championed small family domaines at a time when Burgundy was dominated by larger negotiant houses, introduced two generations of American consumers, chefs and wine professionals to the joys of Burgundy’s wines and cuisine. The words Becky Wasserman Selections on a label are as close to a quality guarantee as one can find in fine wine.
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