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Ontario wineries and grapegrowers are nudged towards greater cooperation

Province withholds help in the absence of joint strategies for a healthier industry
by Julie Gedeon
June 22, 2009
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Ontario wineries and grapegrowers are brainstorming on how to avoid the kind of harvest surplus that led to a CAN$4-million government bailout last year.

The province has made it clear it won't provide more financial assistance until there are joint solutions.

"Government has said no more help unless you two parties get along, and that's the correct position to put us in," said Debbie Zimmerman, chief executive officer of the Grape Growers of Ontario (GGO), which represents more than 600 growers.

Hillary Dawson, executive director of the Wine Council of Ontario (WCO), said tough economic times is making the government keener to address surplus issues. "That pressure is certainly keeping us engaged in a healthy discussion."

Both sides hope to submit a list of mutually acceptable recommendations by the end of June.

The government reacted strongly last December after the 2008 harvest resulted in 2,535 tons of grapes without a buyer.

A contributing factor was the bankruptcy of the 20 Bees winery under the helm of a grapegrowers cooperative. When it went into receivership, many of the coop's 19 grapegrowers ended up stuck without markets.

"Overall, though, last year's surplus was a simple matter of supply exceeding demand," said Dawson. "Some people speculate when they plant and sometimes there's a market and sometimes there's not."

Aggressive planting over the past few years threatens to keep supply above demand unless consumer sales rise significantly. The WCO and CCG have set a goal to increase the province's market share for Ontario wine to 51 percent from the current 43 percent.

"It's the ambition of every wine-growing region to own its market," Dawson said. "France, Italy and British Columbia dominate theirs."

Compared to B.C., however, Ontario producers have fewer retailing options. "We don't have privately owned retail outlets where smaller ultra-premium brands have the shelf space and time to become known," Dawson explained.

Wines priced for high-volume mass marketing are suited for a general listing at the Liquor Control Board of Ontario, but the only other option is the LCBO's Vintages premium listings.

"The Vintages boutiques are designed to introduce 120 new brands every two weeks," Dawson said. "A brand might not be featured again for 18 months."

Selling through the LCBO also gets pricey in terms of promotional advertising and slim returns.

In 2007, the province helped Ontario wineries by launching a 30-percent rebate to wineries on the full sale price of every Vintners Quality Alliance (VQA) product sold at the LCBO. However, the CAN$12-million program only funded sales through March 31, 2009.

Dawson is hopeful a rebate will be reinstituted once wineries and grapegrowers devise a long-term strategy. "The government wants to place the program in the context of where the industry is headed and it's incumbent upon us to make the government feel comfortable in continuing that investment."

Even with such a rebate program, boosting overall sales will be a greater challenge with an expected decline in tourism in 2009. "About 70 percent of the WCO's members sell 90 percent of their wine at the cellar door," Dawson emphasized. "We're certainly making a significant investment in trying to drive tourism, but there isn't a wine region that isn't facing challenges this year."

As far as the GGC is concerned, the government must revise the LCBO's mission in terms of selling Ontario wine. "As the dominant retail player, the LCBO needs to start opening up more shelf space for Ontario wine and play a role in educating consumers about the value of buying local products," Zimmerman said.

"If the government wants us to use this land as an agricultural greenbelt, it has to be a supportive partner," she added. "First, though, we have to figure out what size our industry should be, because there's no point of having a greenbelt if we can't facilitate a consumer market to support it."

A one percent increase in sales at the LCBO consumes about 1,760 tons of grapes, according to the CCG.

The economic value of wine grapes also supports the GGC's stance. Grapes currently account for 35 percent of the commercial fruit grown in Ontario. Grapegrowers pay on average CAN$26,000 an acre in taxes to the provincial government alone. Their grapes also generate much higher taxes than other fruit in terms of alcohol sales.

"But if the government wants Ontario to keep this industry viable, it has to take an active role in ensuring that the largest retail distributor - the LCBO -is facilitating the sale of local products," Zimmerman said.

She considers any surplus to be "artificial" until Ontario wines dominate the provincial market. Otherwise, she said it's hard to understand why 2,500 tons of local grapes were dropped when more than 44,000 tons in the form of wine juice were imported to this province last year.

"We realize consumer tastes change but some of those grapes were the same varietals and others could have probably been in used in other products if processors weren't so used to getting imported wine juice at 80 cents a litre (or quart).

"Processors like imported wine because it goes straight into bottles instead of having to be stored in big expensive tanks," she added. "It's something they've built into their business plan because of the low costs and it won't be easy to change."

Dawson agreed the ultimate goal is to get more Ontario VQA wine made and sold, but also underlined the importance of "cellared in Canada" products. Last year, about 33,000 tons of Ontario grapes -- more than half of the harvest worth CAN$79.5 million -- went into blended wines.

"About 60 percent of Ontario grapes regularly go into blended wines," Dawson emphasized.

Yet the 2,535-ton surplus couldn't be absorbed into this large market for a variety of reasons.

"For instance, Ontario doesn't have enough syrah for the "cellared in Canada" marketplace nor is Ontario's syrah priced at a point that's competitive with imports," Dawson explained. "And our grapegrowers don't wan to aspire to getting our grape prices that low."

Ontario's regulated market also prevents selling any surplus grapes at lowered prices. It doesn't allow for private arrangements between growers and suppliers.

"The price is the price depending on the variety of grapes and a scale that rewards higher sugar content," Dawson said. "It primarily rewards growing for volume because the price is per ton."

Growers have agreed to limit the amount of tonnage per acre this year to improve grape quality.

Although the wineries and grapegrowers have been encouraged to be innovative in coming up with solutions, the government has made it clear it won't be changing the regulated market in the foreseeable future.

"It's not that we're trying to nickel and dime our growers," Dawson emphasized "It's that all of our international competitors operate in free markets -- some of which are heavily subsidized by agricultural grants."

The GGC acknowledges that changes in consumer tastes have resulted in some varieties being overabundant while others are in short supply. "But everyone has to realize that it costs money to pull out and plant new vines and takes a number of years for them to mature," Zimmerman said. "So we need to do a better job with processors in figuring out a long-term varietal plans and supply chains."

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