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Phantom Children
Unless this column is your only source for information about the wine world AND the Supreme Court of the United States, you've probably heard by now that the Supremes recently rolled up their robes and stomped around a bit in the bizarre field blend that is U.S. alcohol regulatory policy. I curled up with the decision, and a few other fun texts, and had myself a time.
The Court ruled that New York and Michigan were in violation of the Commerce Clause of the Constitution when they enacted laws that allowed in-state wineries to ship directly to consumers but required out-of-state wineries either to work through the three-tier distribution system or, in the case of New York, set up a New York-based office -- a prohibitively expensive affair. The majority opinion, delivered by Justice Kennedy, concluded that "if a state chooses to allow direct shipment of wine, it must do so on evenhanded terms." Discrimination based on the wineries' being in or out of state was ruled unconstitutional.
This was a victory for the little guy, the small winery that might very well get lost in the ever-expanding portfolios of the ever-shrinking number of distributors. The decision noted that "between 1984 and 2002, the number of licensed wholesalers dropped from 1600 to 600," while the number of wineries in the United States has broken 3000. Small wineries that don't make enough wine (or money) to attract notice from the distributors have found a new marketplace: direct shipment, particularly through the Internet. The ruling again: "From 1994 to 1999, consumer spending on direct wine shipments doubled, reaching $500 million per year, or three percent of all wine sales." And that was six years ago. (Of course, the little guy may be making a decidedly unpopulist $75 Syrah, but if he makes only 400 cases, he remains a little guy for our purposes here.) It was a blow to the wholesalers, distributors, and retailers who would rather not see their system bypassed.
Or maybe not. Justice Kennedy wrote that "the current patchwork of laws -- with some states banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity -- is essentially the product of an ongoing, low-level trade war." Now that it's an all-or-nothing proposition, the war for the states will heat up. There's still an easy, if expensive, way for the wholesalers to win: lobby each state's legislature to ban direct shipments altogether. Tom Wark's wine blog Fermentations recently posted a lengthy list of contributions from the Wine & Spirits Wholesalers Association to various politicians and political groups during the 2004 election cycle. (Did I mention the list was long?) It runs to something just shy of a million dollars. About the Association, he wrote that its "most important mission over the past decade has been to prevent wine lovers from being able to buy wine direct from retailers or wineries."
That's not how they put it, of course. Wark also provides the text of some prepared remarks read by WSWA president and CEO Juanita Duggan at the Association's 2005 convention in Orlando. They're worth reproducing here, if only in part: "Let me ask you the same question I asked a roomful of police chiefs in Albuquerque last year: What would you do if you saw a guy parked near a school with his trunk open, putting bottles of alcohol in brown paper bags, and handing them out to kids? Their answer -- lock him up, of course. But you can only lock him up if you can find him. And chances are you can't find him if he's selling that same alcohol on the Internet."
She goes on to say that "controlling access to alcohol is our moral obligation.... The issue is one of morality.... It is a stark choice between regulated versus completely unregulated sales of alcohol.... The economics of the sale and distribution of alcohol in the United States derive from our unique moral legacy. It's not sales or margins that are at stake. It's our moral credibility."
Strong words, words that find an echo in the halls of government. Right after the Court's ruling, Nida Samona -- head of Michigan's Liquor Control Commission -- said she would urge the state's legislature to prohibit all direct sales. She didn't mention money either (though Fermentations made note of her associations with the Michigan Beer and Wine Wholesalers Association). Like Duggan, she wanted the prohibition because it was the best way to keep the demon wine out of the hands of minors. (As I'm writing this, I'm just finding out that she's backed off her original statements and is now "leaving her mind open to looking at other alternatives." Fermentations again.)
But even if she's backing off, the "what about the children" argument was still advanced by the states, which, wrote Kennedy, "aided by several amici, claim that allowing direct shipment from out-of-state wineries undermines their ability to police underage drinking."
That claim brought up one of my favorite paragraphs in the decision: a Supreme Court justice talking about the young people of today. Kennedy started off with the data: "A recent study by the staff of the FTC found that the 26 states currently allowing direct shipments report no problems with minors' increased access to wine." Data presented, he started opining. "First, minors are less likely to consume wine, as opposed to beer, wine coolers, and hard liquor." Amen. "Second, minors who decide to disobey the law have more direct means of doing so." Fake IDs and of-age buddies, anyone? "Third, direct shipping is an imperfect avenue...for minors who, in the words of a past president of the National Conference of State Liquor Administrators, 'want instant gratification.' Without concrete evidence...we are left with the states' unsupported assertions." Kennedy went on to note that minors could just as easily order their alcohol from in-state wineries, or if they live in Michigan, from retailers licensed to deliver directly to consumers. Duggan and company have a solution for that, but what came before must have been hard on their eardrums. Their phantom problem had failed to terrify the Court. (And there's reason to believe they knew it was a phantom. When the Coalition for a Responsible Michigan formed, in part to fight direct sales of alcohol over the Internet, a Michigan pollster who collected data on the issue went on the record saying, "The point is that we know there are no ways of knowing that kids aren't doing these things. This is a preemptive strike. Why make it a problem? Why even make the potential of a problem?")
My other favorite part of the decision came in Justice Stevens's short dissent, which comes before Justice Thomas's much longer dissent in the text. In it, Stevens notes that "the notion that discriminatory state laws violated the unwritten prohibition against balkanizing the American economy -- while persuasive in contemporary times when alcohol is viewed as an ordinary article of commerce -- would have seemed strange indeed to the millions of Americans who condemned the use of the 'demon rum' in the 1920s and 1930s.... Today's decision may represent sound economic policy and may be consistent with the policy choices of the contemporaries of Adam Smith who drafted our original Constitution; it is not, however, consistent with the policy choices made by those who amended our Constitution in 1919 and 1933." Point noted. I'll take the contemporaries of Adam Smith any day.
Here's something you might be interested in.
Phantom Children
Phantom Children
Unless this column is your only source for information about the wine world AND the Supreme Court of the United States, you've probably heard by now that the Supremes recently rolled up their robes and stomped around a bit in the bizarre field blend that is U.S. alcohol regulatory policy. I curled up with the decision, and a few other fun texts, and had myself a time.
The Court ruled that New York and Michigan were in violation of the Commerce Clause of the Constitution when they enacted laws that allowed in-state wineries to ship directly to consumers but required out-of-state wineries either to work through the three-tier distribution system or, in the case of New York, set up a New York-based office -- a prohibitively expensive affair. The majority opinion, delivered by Justice Kennedy, concluded that "if a state chooses to allow direct shipment of wine, it must do so on evenhanded terms." Discrimination based on the wineries' being in or out of state was ruled unconstitutional.
This was a victory for the little guy, the small winery that might very well get lost in the ever-expanding portfolios of the ever-shrinking number of distributors. The decision noted that "between 1984 and 2002, the number of licensed wholesalers dropped from 1600 to 600," while the number of wineries in the United States has broken 3000. Small wineries that don't make enough wine (or money) to attract notice from the distributors have found a new marketplace: direct shipment, particularly through the Internet. The ruling again: "From 1994 to 1999, consumer spending on direct wine shipments doubled, reaching $500 million per year, or three percent of all wine sales." And that was six years ago. (Of course, the little guy may be making a decidedly unpopulist $75 Syrah, but if he makes only 400 cases, he remains a little guy for our purposes here.) It was a blow to the wholesalers, distributors, and retailers who would rather not see their system bypassed.
Or maybe not. Justice Kennedy wrote that "the current patchwork of laws -- with some states banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity -- is essentially the product of an ongoing, low-level trade war." Now that it's an all-or-nothing proposition, the war for the states will heat up. There's still an easy, if expensive, way for the wholesalers to win: lobby each state's legislature to ban direct shipments altogether. Tom Wark's wine blog Fermentations recently posted a lengthy list of contributions from the Wine & Spirits Wholesalers Association to various politicians and political groups during the 2004 election cycle. (Did I mention the list was long?) It runs to something just shy of a million dollars. About the Association, he wrote that its "most important mission over the past decade has been to prevent wine lovers from being able to buy wine direct from retailers or wineries."
That's not how they put it, of course. Wark also provides the text of some prepared remarks read by WSWA president and CEO Juanita Duggan at the Association's 2005 convention in Orlando. They're worth reproducing here, if only in part: "Let me ask you the same question I asked a roomful of police chiefs in Albuquerque last year: What would you do if you saw a guy parked near a school with his trunk open, putting bottles of alcohol in brown paper bags, and handing them out to kids? Their answer -- lock him up, of course. But you can only lock him up if you can find him. And chances are you can't find him if he's selling that same alcohol on the Internet."
She goes on to say that "controlling access to alcohol is our moral obligation.... The issue is one of morality.... It is a stark choice between regulated versus completely unregulated sales of alcohol.... The economics of the sale and distribution of alcohol in the United States derive from our unique moral legacy. It's not sales or margins that are at stake. It's our moral credibility."
Strong words, words that find an echo in the halls of government. Right after the Court's ruling, Nida Samona -- head of Michigan's Liquor Control Commission -- said she would urge the state's legislature to prohibit all direct sales. She didn't mention money either (though Fermentations made note of her associations with the Michigan Beer and Wine Wholesalers Association). Like Duggan, she wanted the prohibition because it was the best way to keep the demon wine out of the hands of minors. (As I'm writing this, I'm just finding out that she's backed off her original statements and is now "leaving her mind open to looking at other alternatives." Fermentations again.)
But even if she's backing off, the "what about the children" argument was still advanced by the states, which, wrote Kennedy, "aided by several amici, claim that allowing direct shipment from out-of-state wineries undermines their ability to police underage drinking."
That claim brought up one of my favorite paragraphs in the decision: a Supreme Court justice talking about the young people of today. Kennedy started off with the data: "A recent study by the staff of the FTC found that the 26 states currently allowing direct shipments report no problems with minors' increased access to wine." Data presented, he started opining. "First, minors are less likely to consume wine, as opposed to beer, wine coolers, and hard liquor." Amen. "Second, minors who decide to disobey the law have more direct means of doing so." Fake IDs and of-age buddies, anyone? "Third, direct shipping is an imperfect avenue...for minors who, in the words of a past president of the National Conference of State Liquor Administrators, 'want instant gratification.' Without concrete evidence...we are left with the states' unsupported assertions." Kennedy went on to note that minors could just as easily order their alcohol from in-state wineries, or if they live in Michigan, from retailers licensed to deliver directly to consumers. Duggan and company have a solution for that, but what came before must have been hard on their eardrums. Their phantom problem had failed to terrify the Court. (And there's reason to believe they knew it was a phantom. When the Coalition for a Responsible Michigan formed, in part to fight direct sales of alcohol over the Internet, a Michigan pollster who collected data on the issue went on the record saying, "The point is that we know there are no ways of knowing that kids aren't doing these things. This is a preemptive strike. Why make it a problem? Why even make the potential of a problem?")
My other favorite part of the decision came in Justice Stevens's short dissent, which comes before Justice Thomas's much longer dissent in the text. In it, Stevens notes that "the notion that discriminatory state laws violated the unwritten prohibition against balkanizing the American economy -- while persuasive in contemporary times when alcohol is viewed as an ordinary article of commerce -- would have seemed strange indeed to the millions of Americans who condemned the use of the 'demon rum' in the 1920s and 1930s.... Today's decision may represent sound economic policy and may be consistent with the policy choices of the contemporaries of Adam Smith who drafted our original Constitution; it is not, however, consistent with the policy choices made by those who amended our Constitution in 1919 and 1933." Point noted. I'll take the contemporaries of Adam Smith any day.
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