Name: RESEARCH, EDUCATION & COMMUNICATION COMMITTEE MEETING
Start: 2025-07-15T12:00:00-07:00
End: 2025-07-15T14:00:00-07:00
Location: Lodi Winegrape Commission

MONDAY, MAY 12, 2025. BY STUART SPENCER, EXECUTIVE DIRECTOR, LODI WINEGRAPE COMMISSION.

Over the past two years, an estimated 600,000 to 800,000 tons of California winegrapes – enough to fill 500 to 650 million bottles – were left rotting on the vine. There simply weren’t any buyers. This crisis has hit independent growers the hardest. Nearly 80% of California winegrapes are grown by independent farmers, and in the Central Valley, where the impact of cheap subsidized imports is most severe, over 90% of growers are independent.

At the same time, the state’s largest wineries were importing millions of gallons of bulk wine, much of it entering the U.S. virtually tax-free through a loophole in the federal duty drawback program. These imports, often supported by foreign subsidies and protected by non-tariff trade barriers, distort the global wine market and put domestic growers at a distinct disadvantage.

Yet recent coverage of proposed tariffs on imported wine has largely ignored the perspective of California’s winegrowers. These unfair trade practices not only undercut American farmers, but also threaten the long-term viability of rural winegrowing communities.

THE EUROPEAN UNION’S MASSIVE SUBSIDIES

The European Union (EU) spends over one billion euros ($1.13 billion USD) annually propping up its wine sector. These funds are often matched or supplemented by member countries and local governments, bringing total direct subsidies to an estimated two billion euros ($2.26 billion USD) annually. These extensive subsidies fall into a handful of categories that significantly distort the global wine market, harming winegrowers around the world.

Crisis Distillation

In recent years, the EU has revived crisis distillation, a flawed policy scrapped in 2012 for fueling overproduction.¹ Under this program, governments purchase surplus wine and convert it into industrial alcohol. Instead of letting supply and demand balance naturally by market forces, this subsidy props up excess production and distorts global wine markets. Hundreds of millions of euros have been spent buying unsold wine from producers who, with guaranteed bailouts, have little incentive to scale back.

Vineyard Removals – Grubbing up Vines

In 2024, France launched a vineyard removal program to address declining wine consumption and a growing surplus. The French government allocated €120 million to pay growers €4,000 per hectare (about $1,820 USD per acre) to uproot approximately 30,000 hectares (74,000 acres) of vines – roughly 3.4% of the nation’s vineyard area.³ While the program aims to tackle long-term structural issues, its effectiveness will be limited by its short-term scope, as its replanting ban ends in 2029.

Vineyard Planting Subsidies

In addition to subsidies for removing vineyards, the EU also spends over €500 million annually to support the planting of new vineyards. Depending on the region, 50% to 75% of vineyard development costs are reimbursed. Often, older vineyards are replaced with higher-yielding ones, worsening the problem of overproduction. It’s a destructive cycle – spending millions to destroy surplus wine through crisis distillation while pouring obscene amounts of money into expanding the very vineyards that created the oversupply.

Special report 23/2023: Restructuring and planting vineyards in the EU – Unclear impact on competitiveness and limited environmental ambition.

A 2023 European Court of Auditors review of the vineyard replanting scheme concluded, “The five member states we visited funded all eligible requests, and did not use criteria to select projects to foster competitiveness. These member states also funded projects for which a structural change could not be observed.”⁴

The table below from the European Court of Auditors illustrates how the EU’s vineyard redevelopment policy fuels structural oversupply. Although total vineyard area is shrinking, wine production has barely declined. As the European Court of Auditors explains, “the restructuring measure speeds up the normal renewal of vineyards,” with older, less productive (but often higher-quality) vines being replaced by younger, higher-yielding ones.

The European Court of Auditors warns that while the EU’s planting authorization scheme limits total vineyard acreage, it does not restrict actual production. As the report notes, “the overall vineyard area has declined in the EU, but production has remained stable.” This is largely because “new vine plantings and the restructuring of old vineyards can increase plant density and boost yields,” effectively undermining the policy’s goal of reducing oversupply. The report also criticizes the program’s limited environmental ambition, stating that “the restructuring measure showed little ambition in terms of environmental sustainability.”

Worsening the situation, the EU extended this vineyard restructuring program by another 15 years in 2021 and is now set to continue through 2045. The EU already accounts for 60% of global wine production, and by doubling down on these flawed policies, it is locking in a structural oversupply that affects winegrowers worldwide. This persistent glut shifts bargaining power away from growers and vintners and into the hands of large corporate retailers, who drive down prices and erode margins – particularly at the value end of the market. A striking example came last year, when Carrefour, one of Europe’s largest supermarket chains, offered bottles of red wine for just €1.66, cheaper than a bottle of water or can of soda.

Wine Marketing Subsidies

The European Union and its member states spend hundreds of millions of euros every year on aggressive marketing and promotional campaigns to boost wine exports, especially to the United States, their top target market. These funds support a wide range of activities, including advertising campaigns, trade shows, media junkets, public relations tours, tasting events, wine dinners, retailer partnerships and influencer promotions.

A telling example can be found in the April 30th issue of Wine Spectator, which features 15 full-page ads and 3 partial-page ads (see them all here) backed by a combination of EU and Italian government money. At a cost of $39,661 per full-page ad, that’s more than half a million dollars in subsidized advertising in just one magazine issue. In contrast, there is only a single full-page ad from a U.S. vintner, and that came from Trinchero Family Estates, promoting their Italian import portfolio. And not surprising, the 108-page issue features extensive coverage of Italian wines, and many 90+ point reviews.

This imbalance reflects a broader trend: taxpayer-funded European wine promotions flood the U.S. market, giving imported wines (and their importers) a significant market edge over American producers who must fund their own marketing efforts without government subsidies. Ironically, many of the loudest voices opposing tariffs on imported wine are U.S. importers who benefit directly from these European subsidies – subsidies that distort competition and disadvantage American winegrowers in their own backyard.

AUSTRALIA’S UNFAIR TRADE PRACTICES

Australia’s Wine Equalisation Tax (WET) imposes a 29% tax on the wholesale value of all wine, domestic and imported, but the structure overwhelmingly favors Australian producers. Through the WET rebate Australian wineries can claim up to $350,000 AUD annually in tax credits, significantly reducing their tax burden.⁵ Imported wines, however, are fully taxed without access to the rebate, placing them at a clear disadvantage. This is particularly problematic given that the U.S. has a free trade agreement with Australia, yet American producers are not receiving equal treatment in return. The WET effectively acts as a non-tariff trade barrier, creating an uneven playing field and raising questions about compliance with free trade principles.

Meanwhile, in the U.S., the Craft Beverage Modernization Act (CBMA) allows imported wines to qualify for the small producer excise tax credit, the same as domestic wines. This levels the tax treatment for imports, including those from Australia. Yet, much of the bulk wine flooding the U.S. market from Australia is being sold below production cost – a classic case of dumping, and a potential violation of international trade rules. The combination of domestic subsidies, tax advantages and anti-competitive pricing enables Australian wine to undercut American producers, undermining the intent of fair trade and directly harming independent U.S. growers and vintners.

U.S. TRADE POLICIES FURTHER SUBSIDIZE IMPORTS

Additionally, several of California’s largest wineries and grape buyers have been importing millions of gallons of cheap foreign bulk wine that is undercutting demand and price for California-grown grapes. Much of this wine may be entering the U.S. at prices below production cost, which raises concerns about dumping under international trade rules, or is coming from countries with lax environmental and labor laws. This practice pulls the rug out from under the whole industry leaving little or no outlets for excess wine even at lower prices. In 2024, while thousands of acres went unharvested, we had over 38 million gallons of bulk wine imported.

The sight of floor stacks filled with foreign-sourced wine at local grocery stores adds insult to injury for California farmers. This is particularly painful in Lodi, where unharvested grapes wither on the vine while our Safeway, Target and Raley’s shelves showcase cheap foreign wine.

And to make it worse, the federal government has been subsidizing imports since 2004 through a loophole in our duty drawback program that allows millions of gallons of foreign wine to show up in the market paying virtually no excise (alcohol) taxes.

WINE INSTITUTE’S IMPORT PRIORITIES

Further aggravating, Wine Institute, which claims to “protect the future of California wine” supports this duty drawback loophole that benefits a handful of global wine companies at the expense of thousands of independent growers and vintners across the state. And they have also been one of the leading voices against tariffs on imported wine claiming that “wine isn’t a commodity like steel. You can’t replace a Sonoma Pinot noir with something else.” Yet that’s exactly what’s happening under the flawed duty drawback policy, which treats wine as interchangeable under the substitution clause, as if California Chardonnay is the same as Chilean Sauvignon blanc.

Clearly, California winegrowers are not playing on a level field. The EU’s extensive market supports and financial incentives are perpetuating a structural global oversupply that is impacting winegrowers across the world. And to the dismay of many California winegrowers, much of the recent reporting on trade and tariffs has neglected these facts and ignored the growers most impacted by these policies.

The current broad-based tariff approach has fueled uncertainty and damaged the global standing of American wine. In Canada, where the government controls alcohol sales, American wines have been pulled from shelves entirely. Yet, for the first time in decades, international wine trade is at the center of serious conversation. This moment presents a critical opportunity to confront unfair trade practices and harmful subsidies that distort the global wine market. The U.S. should not offer open access to our market when basic principles of fair trade are being ignored. In some cases, targeted tariffs may be the only way to compel other wine-producing nations to engage in meaningful reform.

TIME TO LEVEL THE PLAYING FIELD

The reality is clear: American winegrowers are not competing on a level playing field. Foreign producers benefit from a web of government subsidies, tax breaks, marketing support and trade barriers that artificially lower the cost of imported wine and erode the market for American-grown grapes. Meanwhile, our own policies, from duty drawback loopholes to import-friendly tax credits, further tilt the scales against independent U.S. growers. Yet many of the industry’s loudest voices have chosen to ignore the devastating impact these practices have on the hardworking farmers who are the backbone of American wine. If we truly want to protect the future of American winegrowing, we must demand fair trade, defend our growers and stop turning a blind eye to policies that sell out our farming communities.

FOOTNOTES

WHY MANY CALIFORNIA WINEGROWERS ARE CALLING FOR TARIFFS ON IMPORTS