Bio-terror Rules Could Raise Import Wine Prices
|Merrick Dowson, president of Adventures in Wine in Daly City, air-freighted pallets of European and Australian wine before regulations requiring greater documentation went into effect last December.
Chronicle file photo, 2003, by Chris Stewart
Enforcement of the rule, which is hampering the shipment of Burgundys and Champagnes in particular, was postponed until November 1, 2004 as the U.S. Food and Drug Administration weighs how to protect the food supply without disrupting the wine trade.
"If this problem isn't fixed, I think over time you'll see substantially higher prices for foreign wines (because of) the more limited supply here," says Stuart Pape, a legal adviser to the California Fine Wine Alliance, a group of importers.
Champagne may seem an unlikely threat to our national security -- regardless of one's feelings about the French.
Under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, the FDA and U.S. Customs Service are required to track every commercial shipment of food and beverage that enters the United States so they can track the perpetrator in the event of a biological contamination.
Each foreign food producer is assigned a registration number that must be included in the "prior notice" documents that accompany all shipments. For importers who work closely with manufacturers, that's not a problem.
But wine is less straightforward. Both old collectible wines and current releases are bought and sold on the "parallel" or "gray" market, which helps keep prices down by making more wine available. An estimated $200 million to $300 million in parallel-market wines enter the United States each year, including current releases of popular brands such as Billecart-Salmon Champagne and Louis Jadot Burgundy. When U.S. demand exceeds the supply from official importers, the parallel market kicks in. Parallel marketers buy wine originally designated for a different country and sell it to importers in the United States.
A U.S. importer or retailer may acquire gray goods from a broker in Europe, from a private collector or at auction. But parallel marketers are having difficulty getting producer registration numbers from virtually every region, including Italy and Australia. Burgundy and Champagne are particularly tough. Many wineries there have close financial and personal ties to an official importer and don't want to help rivals on the parallel market.
A chilling effect
K&L Wine Merchants, with stores in San Francisco and Redwood City, has passed up 15 to 20 shipments of Burgundy this year because of uncertainty over the federal rules, says K&L Burgundy buyer Keith Wollenberg.
A Swiss broker recently offered Wollenberg 10 cases -- an unusually generous amount -- of Burgundy from a winery that enjoys a loyal following among K&L customers. But the broker couldn't get the winery's registration number, so Wollenberg canceled the order.
"There are customers who ask for that Burgundy and I don't have it," he says, declining to name the winery. The lot ranged in price from $25 to $150 per bottle retail and included the well-regarded 2002 vintage, says Wollenberg.
"The Burgundy market is very vintage driven," he says. "When a vintage gets good press, a lot of people are looking for the wine" and trading on the parallel market heats up. But it's increasingly difficult to get the wine across the border.
K&L has taken a conservative approach by refusing to import any goods that lack a producer registration number, even though the FDA has not been enforcing that requirement.
Others have been importing wine while attempting to comply with the FDA guidelines, but have canceled orders or rushed shipments because of the ever-shifting rules.
In its "interim final rule" last December, the FDA established a four-stage phase-in that was supposed to end August 12 with full enforcement. But the requirements for each stage were unclear and several deadlines got pushed back, so importers never knew what they could bring in legally.
Mannie Berk, president of the Sonoma-based importer Rare Wine Co. and an activist in the Fine Wine Alliance, rushed many shipments air-freight to beat the deadlines, and in other cases canceled orders. "My position was to do my best to comply with the law, but it's been a real burden for us over the last nine or 10 months," he says.
The import slowdown forced Merrick Dowson, president of Daly City importer Adventures in Wine, to eliminate two positions since December, bringing his staff to 10, he says. Twenty percent of his business will evaporate if the FDA begins strictly enforcing the producer registration requirement, as it is supposed to do November 1, he says.
Importers have been actively lobbying the FDA for an exemption, and the FDA is weighing possible accommodations. Family Winemakers of America, whose membership is comprised of U.S. wineries, has submitted comments supporting the importers.
At a meeting at FDA headquarters in June, Berk and others asked that importers be allowed to use the producer's name and address, as well as the registration number of the foreign broker, in lieu of the producer number.
Alternatively, they offered to provide advance notice of fine-wine shipments of at least five days, rather than the few hours required of other products. They also offered to submit to extra scrutiny at the border.
Labels already on file
The importers made the case that wine, unlike most comestibles, is already subject to rigorous governmental controls. The U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) must approve every label of every wine sold in the United States and TTB keeps images of the labels on file. Since the winery and importer are listed on the label, importers say an adequate paper trail already exists for tracking suspicious shipments.
Further, they argue that requiring an impossible-to-get registration number will both stymie legitimate competition and encourage black market activity that evades regulation altogether.
"That's a bizarre outcome under a law designed to increase the safety of the U.S. food supply," says Pape, managing partner of Patton Boggs in Washington, D.C.
Regulators appear to be sympathetic to the importers' arguments, but haven't decided what steps to take, if any.
"We have to look across the entire spectrum and make sure we're being consistent and equitable" among all commodities, says Leslye Fraser, an associate director at the FDA who ran the June meeting.
One potential problem is that all wines, not just fine wines, have labels on file with the TTB. So if the FDA allows fine wine shipments to cross the border with incomplete paperwork, importers of supermarket brands may request the same leniency.
"We're looking at whether there are things we could and should do with respect to wine, but we have not made any decisions yet," says Fraser. Guidance on the matter will be issued before November 1, she says.
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