FOUR-MONTH SUSPENSION OF TARIFFS ON EU WINES IS ESPECIALLY GOOD NEWS FOR ROSÉ

Patrick Walsh, founder and proprietor of Provence Wine Imports, a small importer and distributor located in the Boston area and focused on wines from Provence and the Rhône Valley, heaved a huge sigh of relief when he read the news. After all, an unexpected 25% tax levied on the sole products that one’s business imports is tough.

But that is exactly what happened when the Trump administration imposed the tariffs on still wines, whiskey, cheese, and olives (as well as aircraft) from France, Germany, Spain, and the UK in October 2019.  On March 5, that was undone by the United States and the European Union.

“‘Surprise!’ was what I felt,” said Brice Eymard, Director of the Conseil Interprofessionnel des Vins de Provence (CIVP), in a recent telephone conversation.  “We hoped that the tariffs would be reversed under the Biden administration, but no one thought this would happen so quickly,” Eymard added

“It’s great news, and I am really excited,” Walsh told me in a recent telephone conversation. “I had read the day before yesterday that the US had announced its suspension of tariffs on [single malt] Scotch whiskey,” Walsh said. “After the UK news, I had high hopes for news about the EU.”

On March 5, President Biden and European Commission President Ursula von de Leyen agreed to a four-month suspension of duties on both European products and US products. This agreement was viewed by all as an opportunity to heal the trans-Atlantic relationship and to find common ground on the decades-long Boeing-Airbus dispute.  The effects were also celebrated on the local level immediately.

“This past year-and-a-half has been a struggle,” Walsh said, words echoed by everyone I spoke with, on both sides of the Atlantic.

“The tariffs definitely affected the sale of French wines in the States,” said Patricia Allen Lornell, proprietor of Off the Vine Sales and Marketing, located in the Boston area.  Lornell, who has worked closely with several major Provence rosé producers in the past ten years, underscores that before the wine even arrives in the store or restaurant, it must line the pockets of at least three entities:  the producer, the importer, and the distributor.  One or more of these links must take a hit or the price is simply too high for the consumer, Lornell added.

After the tariffs were imposed in October 2019, Aurélien Pont, owner of Lucky Wines, a French company that specializes in marketing and managing social media for wineries and related businesses, confirmed stories I had heard about orders being abruptly cancelled. “Ships were already loaded and in the middle of the Atlantic when the tax [was announced] and the customer in the US canceled the order…. [t]he boats then turned around,” Pont recently wrote to me.

The smaller producers were at a distinct disadvantage as they lacked the flexibility to shift to different formats that were not subject to the tariff legislation, such as bottles larger than two liters or bulk shipping. For example, Pont wrote that some of the leading Provence rosé producers (e.g., Aix Rosé and Minuty, to mention just two) raced to have their wine shipped in bulk containers that were not subject to the new tax.

By April 2020, 22% of the rosé from Provence was exported to the US via bulk shipping, up from 1% at the same time the previous year, according to Cécile Garcia, Export Communication Manager for CIVP, as reported in WineBusiness.com.  With bulk shipping, the wine is bottled in the US, thus avoiding taxation of bottles less than two liters in size. This approach is not one embraced by producers for their premium rosés.

As if the wine market could adapt to more stress, Covid-19 surfaced and the concomitant shutdown of restaurants and bars in the US and France (and around the globe), effectively smothering the on-premise wine market. According to Eymard, CIVP Director,  small producers were much more affected by restaurant closures than the region’s large producers.

In addition, the off-premise market (i.e., retailers) was also initially depressed due to stay-at-home ordinances imposed to curtail the pandemic.

To really understand the impact of this double whammy of the 25% tariff and Covid-19 closures of both the on-premise and off-premise markets on Provence’s rosé business, consider that at least 90% of the wine produced in Provence is rosé, most of which is exported and the largest recipient is the US!  Furthermore, France and the US are where most of the world’s rosé fans reside and, of course, they weren’t venturing out of their houses for a long part of this period to buy a bottle of pink!

“I think the US is seen as a very promising market and much of their marketing has been geared towards the US,” said Elizabeth Gabay MW, international rosé expert and author of Rosé: Understanding the Pink Revolution. Indeed, according to CIVP, the US is their first export market, comprising 45% in volume of its exports. 

Unsurprisingly, sales of Provence rosé were off in 2020.  They were approximately 7% lower, primarily due to the aforementioned two factors. In France, however, off-premise sales for rosé (e.g., supermarkets, convenience stores, wine and spirits shops) were, eventually, up 2% over typical sales, and the export market in the UK, Germany, and Belgium was up 6% over previous years. 

Regarding exports to the US, Eymard reported that volume was down 6% and value was down 15%.   I can report, anecdotally, that the shelves of stores in the northeast were not chock-a-block with 2019 rosés. Except for Whispering Angel.

The 2020 vintage of Whispering Angel marks its 15th vintage.  It is the top selling Provence rosé in the US, a position it has held for as long as I have been writing about Provence rosé (a little over a decade). On average, for each bottle of Provence rosé sold in the US, five bottles of Whispering Angel are sold.

In a recent conversation with Paul Chevalier, Vice President, Château d’Esclans at Moët Hennessy, he explained that because Whispering Angel has such strong brand recognition, it did not experience the negative effects of the past year like the smaller, more boutique brands. What Whispering Angel lost in the on-premise market in the US, it made up in the e-commerce sector (i.e., etailing). Whispering Angel (like other popular brands, e.g., Veuve Clicquot Champagne, Tito’s Vodka and La Marca Prosécco) faired very well and, in fact, grew 9% during this period.

“Customers know Whispering Angel,” Chevalier said.  (The full interview with Paul Chevalier will be posted next week.)

The pandemic and consequent stay-at-home orders began in March 2020 in the US and France, immediately after one of the world’s largest trade and media wine conferences, Wine Paris 2020, which took place in mid-February 2020. Unimaginable to anyone at that time, Wine Paris 2020 was the world’s last significant wine conference as the March 202wine conference, held in Düsseldorf every year and undoubtedly the world’s most important and largest wine event, was cancelled. Wine Paris 2021 was postponed to June 2021 and ProWein 2021 was cancelled.

For rosé, in particular, such cancellations and postponements have been a crushing blow.  The latest vintage of rosé always has a narrow window of appeal.  Despite all efforts to dissuade consumers from the notion that the most recent vintage is always the best, that is what they want.  Immediately. In the past, when rosés were not particularly well made, demanding just-produced rosé made sense but, with today’s exceptionally well-made rosés, there is no longer a rational basis for this view. In fact, many rosés benefit from some time in the bottle and are actually better the next year. Still, tradition reins and the media reinforce this view; there is a lot of fanfare about the release of the latest vintage. I get it.

Wine buyers who had planned to attend Prowein 2020 had nowhere to go to taste the latest vintage, 2019, (which was an exceptionally good one and still is!). Producers faced a market that was increasingly closed.

CIVP took action to address the crisis for its producers in several ways.  As the chief trade and marketing organization for the three largest appellations in Provence, it represents over 647 wineries and trade companies from Côtes de Provence, Coteaux d’Aix-en-Provence and Coteaux Varois en Provence. About 96% of Provence’s Appellation d’Origine Protégée (AOP) wines are produced by these three appellations. Eymard explained that they focused on expanding the online presence of Provence rosé by holding more educational webinars such as the one I recently attended, entitled “Rosé Any Way: A Look at Provence Diversity.” Some of these webinars allowed participants to interact directly with winemakers. A drawback, of course, is getting the wine to the trade and media participants; for some of the events, small sample bottles were made available but this is expensive and largely impractical. Social media activities, including programs with chefs and sommeliers, were emphasized more and social media influencers (with established digital followings) were incorporated into the online presence. Eymard emphasized in today’s telephone call that the benefit of this online campaign was that the audience could be larger and geographically broader than the typical in-person event.  Although these programs were effective and some will likely be kept, CIVP looks forward to returning to in-person events.

Months later, in December 2020, the Trump Administration introduced more tariffs, to begin on January 12, 2021. In response to the EU’s announcement that it would tax additional US goods, the administration extended its tariffs from all still wines from France, Germany, Spain, and the UK that are under 14% alcohol by volume (ABV), to still wines above 14% from France and Germany. Also, wines in larger format packages would be taxed.

At that point, Walsh had to ask his customers in the southern Rhône Valley, where wines tend to have alcohol levels above 14%, to hold on to the wines he had already ordered. Knowing that a new administration would soon be moving into the White House, Walsh was hopeful that the trade wars would begin to subside.

“Fortunately, I’ve had great customers [on both sides of the Atlantic] who have been very understanding,” Walsh made clear.

Now, with spring around the corner, warmer temperatures herald rosé and outdoor eating. With Covid-19 cases finally beginning to move in the right direction, vaccinations increasing, there is a tentative optimism in the air, shared by business in general but particularly by the hospitality sector which, of course, directly affects the wine business.

With the March 5^th announcement of a tariff suspension on EU wines, the pent-up emotions exploded.

“The timing for rosé is perfect,” Chevalier agreed “one hundred percent,” adding that “April, May, June, and July are when the vast majority of [trade] sales take place.”

Eymard also welcomed the timing.  He said that 40-50% of expected shipments (by volume) had already left Provence for the US; but, with greater certainty about the direction of Covid and, now, with the tariff being suspended (albeit temporary), buyers will likely feel more confident and be more motivated to place their orders.

“I think June will be a very strong month for exports to the US,” Eymard added.

“This is great news for rosé,” Walsh said, barely containing his excitement and relief. “Sommeliers and retail buyers had already started reaching out to me, before the tariff news, because they anticipated the return of outdoor dining.” They anticipated a huge demand for rosé and were ordering as many as two and three times the typical number of different brands.

Still, wine importers (and importers, in general) face huge hurdles getting their product to the market. As made clear in today’s New York Times front page article (Sunday, March 7, 2021) entitled “Logjam at Sea as Virus Roils Global Trade,” there are not enough ships and containers, and they are not in the ‘right’ places around the world.

Chevalier told me that container prices have doubled.  Off the top of his head, he said they have gone from about $1500 to $3000 per container. Delays are rampant as ships wait to get into port and then wait to have the containers unloaded.

Walsh, too, has experienced container shipping challenges and added that, on the US side, there were now trucking problems.  A shortage of drivers has developed due to many of them befallen by Covid-19.

In Provence, the response to the US tariff suspension was similarly a mix of excitement and relief.  As in most of the rest of the world, even in perpetually sunny Provence, the past 12 to 18 months has been stressful.  This is a region with an economy largely tied to tourism, of which hospitality is a big part.  That is, restaurants, cafés, and bars where wine constantly flows. Covid has greatly impacted the tourist and hospitality sectors for long stretches (although, I am told that the number of tourists from the EU compensated for those not able to travel to Europe).

There was also palpable stress from Brexit, Gabay pointed out. With the suspension, albeit temporary, of US-imposed tariffs, Gabay echoed the sentiments of others I spoke with: “I think [there is] a big sigh of relief.”

Pont, who keeps his finger on the pulse of the rosé market, expressed optimism.  “For me, the question of customs tariffs was one more twist in this very complicated year. Of course, in Provence, we know that the product is good, and the market is buoyant…. everyone here is very confident.”

“However, [we] are fully aware we have only four months before review!” Gabay said. Walsh summed up similarly, adding “We have to cross our fingers.”