SPEAKERS CONTENTS INSERTS
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THE STATUS AND PROSPECTS OF AMERICAN WINE PRODUCTION
LIVESTOCK AND HORTICULTURE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
AUGUST 10, 1999, LODI, CA
Serial No. 10633
Printed for the use of the Committee on Agriculture
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LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
Page 3 PREV PAGE TOP OF DOCMICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California 1
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
Page 4 PREV PAGE TOP OF DOCLEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on Livestock and Horticulture
RICHARD W. POMBO, California, Chairman
JOHN A. BOEHNER, Ohio,
BOB GOODLATTE, Virginia
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
BOB SCHAFFER, Colorado
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
Page 5 PREV PAGE TOP OF DOCBOB RILEY, Alabama
COLLIN C. PETERSON, Minnesota,
Ranking Minority Member
TIM HOLDEN, California
GARY A. CONDIT, Pennsylvania
CALVIN M. DOOLEY, California
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
LEONARD L. BOSWELL, Iowa
KEN LUCAS, Kentucky
1\ Deceased July 16, 1999.
C O N T E N T S
Pombo, Hon Richard W., a Representative in Congress from the State of California, opening statement
Radanovich, Hon. George, a Representative in Congress from the State of California, opening statement
Thompson, Hon. Mike, a Representative in Congress from the State of California, opening statement
Page 6 PREV PAGE TOP OF DOC Cotta, Joe, president, Lodi-Woodbridge Winegrape Commission
DeLuca, John, president, Wine Institute
Downs, Pete, vice-president, government affairs, Kendall Jackson Vineyards
Lange, Randall, chairman of the board, California Association of Winegrape Growers
Lucas, David, Lucas Winery
O'Connor, Kris, executive director, Central Coast Vineyard Team
Olagaray, Diego, president, Lodi District Grape Growers
Schmidt, Herb, vice-president, public affairs, Robert Mondavi Winery
Shelton, Tom, chief executive officer, Joseph Phelps Vineyards
Villareal, Juan J., under secretary, California Department of Food and Agriculture
THE STATUS AND PROSPECTS OF AMERICAN WINE PRODUCTION
Page 7 PREV PAGE TOP OF DOCTUESDAY, AUGUST 10, 1999
House of Representatives,
Subcommittee on Livestock and Horticulture,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 10:10 a.m., in the Hutchins Street Square, Lodi, CA, Hon. Richard W. Pombo (chairman of the subcommittee) presiding.
Also present: Representatives Ose, Radanovich, and Thompson.
Staff present: Christopher R. D'Arcy, subcommittee staff director; Brent W. Gattis, legislative assistant; and Danelle Farmer, minority consultant.
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. POMBO. The subcommittee will come to order. Good morning.
I would like to welcome my colleagues here this morning and ask unanimous consent that they be allowed to sit with us to participate and work with this subcommittee.
This morning the Subcommittee on Livestock and Horticulture will exercise its oversight jurisdiction with regard to wine production in the United States and relating matters.
I would like to take this opportunity to welcome my colleagues, Representatives Radanovich and Thompson, to my district, to thank them for their interest in today's hearing.
At the start of the 106th Congress, this subcommittee expanded its jurisdiction to include, among other things, wine and wine grape production. I have specifically asked for this jurisdiction, because I want to bring increased attention to American wine production and to raise the profile of this very dynamic and productive sector of the agricultural economy of our Nation and especially to our State of California.
Page 8 PREV PAGE TOP OF DOC In spite of the pride we all feel in American wine production, I was surprised at the lack of official attention paid to winemaking by the House Committee on Agriculture. In fact, after reviewing the entire record of this committee, there has been only one hearing devoted exclusively to wine production, and that was 8 years ago.
Today will be an important step toward giving your work the attention it deserves. There is no better place in America to hold today's hearing than right here in Lodi. I am proud to represent California's 11th district that includes the Lodi-Woodbridge region. In fact, it is the Lodi wine region where Robert Mondavi got his start. This region is the No. 1 producer of cabernet, zinfandel, chardonnay, and sauvignon blanc. As California leads the Nation in wine production, it also leads in innovation, marketing, and growing of wine grapes.
America's expanding production stands at about 531 million gallons a year, worth an estimated $17 billion. About 90 percent of America's wine is produced here in California, where it generates about 112,000 jobs annually with an additional 40,000 to 50,000 during harvest time, and where it attracts roughly 10 million visitors annually to our wine-growing areas, bringing with it an important revenue and economic development.
In the area of trade, U.S. wine exports represent an outstanding success story. In the last decade American wine exports have increased by an amazing 448 percent to a current level of $537 million a year. And the trend looks even better, with a 26 percent increase in the last year alone.
There are many reasons for the growth in America's wine production and the increased demand overseas, not least of which being the universal recognition of the quality of the products. But one aspect that I find especially interesting is the increased body of evidence pointing to specific health benefits associated with wine consumption. These studies document what many Europeans have always known: That moderate mealtime consumption of wine assists in digestion and could reduce the risk of a wide range of ailments, from cancer, heart disease to Alzheimer's.
Page 9 PREV PAGE TOP OF DOC And since exceptional wine comes from exceptional grapes, it is my hope that the United States and more specifically California can be at a leading edge of viticulture fundamental research so important to grape production.
Your story, the story of winemaking and grape growing in America, is one of success, adaptability, sound marketing, and quality production.
Today's proceedings will enable us, Members of Congress, to better understand your work and help promote your continued success. I look forward to hearing your vision and goals for American wine production and ways that we can assist you in achieving them.
I welcome all of our witnesses and guests here this morning, and I look forward to today's testimony.
I would recognize Mr. Thompson for any opening remarks he may have to make.
OPENIG STATEMENT OF HON. MIKE THOMPSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. THOMPSON. Thank you very much. First, let me say thank you to the Chairman, Mr. Pombo, for having a hearing and having it here in Lodi. I couldn't agree more: It is a wonderful place to have a hearing.
I represent a wine-growing region myself, which would also be a pretty nice place to have a hearing, the Napa Valley, which makes some wine up there as well as you folks down here. As a matter of fact, last year we sold about 9 million cases for about $2 billion a year, and we did a pretty great job with the vintage coming up this year as well.
I also agree with the issue. It is very, very important. If you look at the multiplier factors and consider indirectly what California's wine district does for our economy nationally, it is pretty impressive. It is responsible for about 560,000 jobs, and it means about $45 billion of economic interest to the U.S. economy. And that is very, very important. On a State and local basis it is worth about $3.5 billion in State and local taxes, which is important to California and helps toall of the good things that we all rely on, from transportation and infrastructure to education in California.
Page 10 PREV PAGE TOP OF DOC I am also here not only as a member of the Agriculture Committee, but as the co-chairman of the congressional wine caucus. And I am glad Mr. Radanovich is with us, and hopefully we can use the wine caucus as a forum to be able to spread the good word that this wonderful industry is doing.
And I was particularly impressed when I came into town and saw the headline of your local newspaper that talked about the importance of this hearing as it pertains to direct shipping of wine, something that is important to all of the wine producers that I am familiar with, and something that we are battling right now in Congress.
And I would like to take this opportunity to publicly acknowledge and thank both Mr. Pombo and Mr. Radanovich for the great work they did, albeit we weren't successful on the floor of the House. But if there is anybody I would like to go over the cliff with, it is these guys. They did a great job. They were wonderful advocates for a wonderful industry.
We were able to get some amendments in that bill that I think will help us in the long run, and I think we laid the groundwork for trying to mitigate some of these problems in the conference committee. But, again, it is going to be an ongoing battlea constant battle with Senator Thurmond and the Senate and in regard to the excise taxes, market accessibility programs.
We are in good company, though, and I look forward to working with both of you in something that we can do on a bipartisan level, and it is something that will not only benefit respective districts but California and the Nation. Thank you.
Mr. POMBO. Thank you very much. I had forgotten you grew a little bit of wine up there.
OPENING STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
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Mr. RADANOVICH. Thank you, Mr. Chairman, and I do represent an extremely fine wine district in California, and I am in Mariposa.
Good morning and thank you for holding this hearing today to provide us with the opportunity to hear from some individuals from the wine industry. I look forward to the testimony from my peers and other experts in the wine production community.
California has become synonymous with quality and excellence, and I am proud to represent the interest in the industry so essential to the economy of our State and Nation.
The supply of California wine has magnified in recent years. Nearly 80 percent of all counties in California produce wine grapes, and 90 percent of U.S. exports wine derive from California. Furthermore, over $10 million in economic activity is generated by the State wine industry each year. These conditions have led to 3 out of every 4 bottles of wine sold in the United States to originate from California.
Many issues surround wine and its production, but I want to focus on current and Federal actions impacting the individuals in the industry every day. Particularly I will require to alleviate the unnecessary burden of Federal taxes.
Wineries are especially impacted by heavy estate taxes. Passing a winery onto the next generation must not be wrought with this significant tax on taxes now in the way. My sudden desire to inherit my winery should be an easy transaction to complete. To achieve this end, the State tax relief is included in the tax cut bill just approved by both Houses in Congress.
The wine industry has been under attack for several months. The 21st Amendment Enforcement Act approved in the House last week will give State attorneys general the ability to take producers to Federal court for violating State alcohol laws.
Page 12 PREV PAGE TOP OF DOC Fortunately, an amendment was approved to ensure that with our Nation's commerce clause, which the U.S. Supreme Court has stated must be applied with the 21st amendment.
With respect to exports, I believe the U.S. wine industry does an impressive job of marketing its product with the limited amount of Federal funds it receives from public and private partnerships associated with wine in foreign countries and allows it to compete in the global marketplace.
However, Federal funding for the Wine Market Access Program is in jeopardy due to an approved amendment last week under the Senate agriculture appropriations committee. I, along with my colleagues, will work to retain the over $300 million in back funds for fiscal year 2000 approved by the House.
On the positive side, Representative Thompson and Mr. Pombo and I formed an active wine caucus to ensure that the positive message of wine is brought to Capitol Hill. We have had wine tasting, educational seminars, and a valley of information network to ensure that the message of wine and wineries is widely accepted. We also firmly believe that positive legislative accomplishments will emerge in those wine caucus efforts.
Mr. Chairman, I look forward to hearing from our friends in the wine industry today and to working with you to spread the word about wine. And I appreciate the ability to do that. Thank you.
Mr. POMBO. Thank you.
For the sake of time, I would like to request that you limit your oral testimony to 5 minutes. The lights that are before you on the table will give you an idea of what the time limit is. It will turn red in 5 minutes, so that should give you a pretty good idea of when it is time to quit.
I would like to start with Mr. Villarreal.
Mr. POMBO. I welcome you here today. You're with the California Department of Food and Agriculture. Thank you very much for being here. You may begin.
Page 13 PREV PAGE TOP OF DOCSTATEMENT OF JUAN VILLARREAL, UNDER SECRETARY, CALIFORNIA DEPARTMENT OF FOOD AND AGRICULTURE
Mr. VILLARREAL. Good morning, Mr. Chairman and members of the committee. My name is Juan Villarreal, and I am with the Department of Food and Agriculture in California.
I was recently appointed as under secretary about 4 months ago, and I am very happy to be here this morning. Secretary Lyons asked me to express his apologies for not being able to attend. He is actually in Mexico this morning, working on a bilateral border education program.
I want to thank you for allowing me to provide testimony in support of California's wine industry. As both a resident of Lodi and a member of Governor Gray Davis's administration, it is indeed a pleasure to be here this morning.
We heard a few statistics this morning, and I have a few prepared as well I think I would like to mention to help underscore the importance of the industry and its economic contribution to the State of California. As many of you know, wine, winemaking, and wine production touches our lives through rich cultural, religious, and family traditions. But economically speaking, wine production indeed contributes quite a bit of money to the State's economyapproximately $11 billion in production, supports about 100,000 full-time jobs throughout the year, and can grow as high as 150- to about 200,000 on a seasonal basis, depending on production levels.
Many of these enterprises are family-owned. About 4,000 growers run approximately 800 family wineries. About 55 varieties of grapes are used in wine production throughout the State, with an estimated grape-crush value of $1.5 billion. The State's wine grape production covers about 43 of our 58 counties throughout California, and once again, 90 percent of all wine consumed in the United States comes from California.
Page 14 PREV PAGE TOP OF DOC With respect to exports, again, California wine exports continue in their upward trend. They are the third largest export commodity in California, behind cotton and almonds. And again, it is the fastest-growing export commodity. Major markets to which we export these commoditieswineto which we export wine production is Canada, Japan, and Europe. It is interesting to note that Europe, with a steady supply, continues to show strong demand for our production.
There are concerns with respect to wine production and the future of the industry in California. We have already mentioned the issue of Internet sales of wine. We are urging careful consideration of the impact this will have on small family-run businesses who currently sell via this distribution channel.
I do want to underscore the points of the market access programs. We discussed the growth of the export industry and wine being the key player in that wine exports have increased from 1986 from $35 million to approximately $415 million in 1998 due to the assistance of the Market Access Program.
It should be noted that $90 million are allocated for 1999 for all export trade-created programs, which include many other commodities, such as dried fruits and nuts, fresh produce, et cetera. Only about 5 million of that is allocated for wine and wine promotion.
In contrast to that, the European Union allocates $55 million of subsidy money to support export promotion of their wines, and so indeed it is a stark contrast to what we do in the United States.
These are just a few of the issues that do affect wine, wine production, and wine promotion in California. And in addition to that, the recent ban of pesticides affects several of the crops grown in California. I think table grapes will be impacted by that as well.
We urge that the EPA and other Federal agencies involved use strict science in determining which products they decide to ban and derive some type of economic impact to help growers, the farmers in finding alternate uses for their products.
Page 15 PREV PAGE TOP OF DOC In conclusion, California's wine industry is truly a robust and contributing sector to the State's economy. CSFA would like to emphasize the importance of wine production and offer support to local, State, and national entities providing a beneficial future for this valuable commodity.
I appreciate the opportunity to speak to you this morning and welcome any questions you may have of me or my staff. And the Department of Food and Agriculture thanks you very much.
[The prepared statement of Mr. Villarreal appears at the conclusion of the hearing.]
Mr. POMBO. Thank you very much.
Mr. DeLuca is here representing wine as well.
STATEMENT OF JOHN DELUCA, PRESIDENT, WINE INSTITUTE
Mr. DELUCA. Thank you very much, Mr. Chairman, and members of the panel for inviting me to be on the distinguished panel. I have strong colleagues with whom I work very well in the State of California. I came here essentially this morning to say thank you, and let me put that into context with a metaphor.
Some of you know I served 8 years as a deputy mayor of San Francisco, the last 24 years with the Wine Institute. And in my days in San Francisco, we had a saying regarding our police department, and we went through Zebra, SLA, Black Panthers, strikes. We referred to them as the thin blue line that separated us and the city from chaos on the streets.
I consider the recent developments headed by the three of you with other colleagues who work very, very well with you to constitute the new thin blue line for our industry and the blue shield behind which we must operate. And in terms of the recent events, I want to thank you on behalf of our wineries, who represent 91 percent of the production in this State.
Page 16 PREV PAGE TOP OF DOC What is going on at the Federal level cannot be enforced by the activities at the State level. We actually think that what is going on right now has muscle tone on the industry and that the achievement is really the struggle.
It shows people what we stand for, what we are facing both in the private as well as in the public sector.
But there is something, I think, very important going on. And that is slowly but surely the definition in the United States of our industry, the debate is slowly changing from just a few years ago, when we were a carcinogen, a reproductive toxogen, a gateway drug, a syntax to today, whether you can trust the public to handle the new information.
The new health information that is coming out from scientists, that is a sea of change in terms of our industry. At the same time, with regard to understanding the battle that we have had almost quietly for 65 years, since the ratification of the 21st amendment, for the first time in 60 years, major papers are editorializing this relationship, and it is coming about naturally, thanks to your work at the Federal level.
You are all aware of what occurred at the NCSL, the National Congress of State Legislatures: 41 of the 48 States there voted in favor of the position we have taken on Scarborough, on Byrd, also in favor of the Wright shipments. And so even though at the time the reporters are recording votes, something very fundamental is happening in mental attitudes. As I said, it is a sense of muscle tone.
In terms of reaching out to new reporters, I think the whole generation of reporters in governments right now is speaking in different terms, talking in different terms. What is happening on the Market Access Program also puts in relief, thanks to the newspapers.
What we do face internationally in terms of the trade barriers, in terms of the European Union, are represented here, as the State has already alluded to that. So I see a direction taking place, I don't want to beat on the ash. I adhere to what Matthew said, which was to look at life steadily and to look at life hard, not kidding yourselves, and not trying to sugarcoat it. But I think what is happening is a fundamental change in terms of perception, in terms of image, in terms of our place, in terms of issues in science and health.
Page 17 PREV PAGE TOP OF DOC We used to have almost a media watch. If something came out about antioxidants and cardiovascular benefits, we sent it out to everybody. We got a little snippet in Time magazine or Newsweek. Now it is coming out so daily, we don't even have time to report it to our members. It is becoming an accepted fact. I see that as a monumental change which converts into public policy, the ability to represent us.
Mr. Chairman, you mentioned that it has been 8 years since we had a hearing. Herb Schmidt and I, Thelma Wong testified, when we had a committee on the Agriculture Committee, met as a whole. I had a dialog with Leon Panetta and Tony Coehlo at the time, asking that the Congress of the United States look into the health effects of drinking in moderation. The actual first time that that ever was launched was at that particular hearing.
So if you are the segue, if you are the inheritors of that tradition, this notion of you being there to solve it for us, I think, is a very major accomplishment, for which we are all very grateful.
Thank you for giving me this opportunity to testify.
Mr. POMBO. Thank you very much.
We have Mr. Schmidt, who is the vice-president of public affairs for the Robert Mondavi Winery.
STATEMENT OF HERB SCHMIDT, VICE-PRESIDENT FOR PUBLIC AFFAIRS, ROBERT MONDAVI WINERY
Mr. SCHMIDT. Thank you, Mr. Chairman.
I also would like to add my thanks for having this hearing. I would also like to give you a heartfelt thanks for not having us travel to Washington in August.
Page 18 PREV PAGE TOP OF DOC Mr. POMBO. We are glad to be here.
Mr. SCHMIDT. This also happens to be where Robert Mondavi went to high school at.
With your permission I would like to focus my testimony today on an overview of trade issues and recent developments. Trade is part of three areas which we call the public policy of wine, And we believe those three areas are beneficial to our States and to our country.
The other two areas are the environmental programs that the industry voluntarily participates in and also the health issues that are beneficial to our country and public helps our way. I think that others would be investing in those two issues, so I would like to discuss trade.
We learned an important aspect of trade just a few weeks ago at a wine meeting. Mr. Downs was there, Mr. DeLuca was there, and others. And that was a group to bring us all together for the future of the wine industry in the United States.
Ann Veneman, former U.S. Deputy Secretary of Agriculture and former Secretary for Department of Food and Agriculture, made a very profound statement. She said, when your companies discuss international trade in a global marketplace, they should include the United States as part of the global marketplace. It shouldn't be forced. It shouldn't be an export department and a domestic sales department, in other words.
If we do consider that the United States is part of the global marketplace, then our business decisions and public policy decisions should take into account the tariff and nontariff trade barriers that our very own country imposes on others.
The reason for that is simple. Many companies, including Robert Mondavi Winery, are now forming or have had partnerships with producers in other countries. Protective barriers will affect American companies, including ours. The wine industry, therefore, suffers dozens of trade barriers erected by our own Government, since each State can erect all types of barriers that limit free trade. The most recent example was the 21st Amendment Enforcement Act passed last week in Congress.
Page 19 PREV PAGE TOP OF DOC As you know, the World Trade Organization meeting will be in November in Seattle. This is a mass-level conference, and it deals with agriculture for the first time.
As a member of the Agriculture Policy Advisory Committee, which I am a part of with John DeLuca, we are the two members that represent wine, we are now in representation for those meetings. The United States should be encouraged to follow the Golden Rule: Do unto others as you would have them do unto you, especially our wine and alcohol laws.
Our partners, who we meet with regularly, complain constantly. And I don't mean our partners from Robert Mondavi Winery; I mean our partners of other industry members from different parts of the world. They complain regularly about to import wine into the United States is easier than to import it to 50 other countries, which, of course, is unfair.
For the first time the U.S. Trade Representative Office and the Ambassador has elevated wine to a very, very high level in the trade negotiations. Never before has our industry enjoyed the response and opportunity to provide input in the trade negotiations. This is especially true in our negotiations with the European Union. Ambassador Barshefsky and Ambassador Scher deserve our thanks. Assistant USTR Jim Murphy deserves some type of medal for his creative and dedicated leadership on the wine trade issues with Europe.
A lot of us have tried to create things in this industry on a lot of different issues. Jim Murphy has managed not to trade issues, which is very important. Over the past few years, Mr. Murphy has encouraged us to participate in a very meaningful way. He developed a strategy, conveyed it to us, then got our input and followed through. While we are now in the middle of trade negotiations with Europe, we have come a long way from where we were 3 years ago.
The European and American industries now discuss the issues together on a regular basis. We have created a new industry group called the Worldwide Wine Producers solely to deal with the World Health Organization and the World Trade Organization.
Page 20 PREV PAGE TOP OF DOC The Governments of the new Worldwide Wine Producers, which include everyone that produces wine except Europe, will meet on a regular basis, using industry representatives for periodic updates on market and trade issues. The key thing here is that our representatives are listening to us and responding, and that is a very strong step forward. Unfortunately, in Europe the negotiators are not as close in touch with their producers.
At any rate, my time is up, but I will be happy to answer any questions now or in the future. Thank you.
[The prepared statement of Mr. Schmidt appears at the conclusion of the hearing.]
Mr. POMBO. Next we have a Mr. Pete Downs, who is the vice-president for Kendall-Jackson. Mr. Downs.
STATEMENT OF EDGAR B. ''PETE'' DOWNS, VICE-PRESIDENT, GOVERNMENT AFFAIRS, KENDALL-JACKSON VINEYARDS
Mr. DOWNS. Mr. Chairman, thank you very much. Members of the committee, distinguished guests and staff, I am going to drop back a couple paces here and talk about something that is even more fundamentally interesting as a whole, and that is the ability for us to do research that can improve basic qualities of wine and grape production in the United States.
Today in the United States, grapes are grown in over 40 States, and there are wineries in 43 States; that is 86 Senators. That is pretty impressive. We have the opportunity through the American Viticulture and Enology Research Network, AVERN, and the American Vineyard Foundation, which is AVF, to really bring this country together over a single common issue, and that is research on the basics of grapes and wine.
Page 21 PREV PAGE TOP OF DOC Australia currently contributes about $10 million per year to research for their grape and wine industry, which is less than a third the size of ours. The United States has been behind for a number of years in basic research that will help develop he fundamental things necessary to grow our industry. Grapes in the United States are the single highest value fruit crop in the United States and the sixth largest crop overall. That is a very, very powerful message.
The American Vineyard Foundation is a voluntary organization that last year was able to generate over a million dollars in voluntary funding from the industry that was then matched by some dollars that came to us both from the State level and the congressional level, which really made our research dollars go a lot farther.
AVERN is in the picture because we need to develop a national list of priorities for grapes and wine. Grapes in Lodi, we know, are grown differently than grapes in Temeca. And we know those grapes are grown differently than grapes in the central coast or north coast. But when you extend that to over 40 States that have a very, very diverse growing area, you look at how grapes are grown in New York versus California. Some of the basic research done needs to be done in those areas are fundamentally different, so AVERN came into place in 1996.
There were 17 people on the organizing committee that sat down and looked at national research priorities with the help of a survey that was done by the American Vineyard Foundation. From that meeting in 1996, we came up with the concept of six regional representatives, and those represent geographical areas in the United States.
Those six regional representatives are the ones that actually go to the people in the field, the growers and the wineries, and find out really what is important to you in your area. That survey then comes back, and we have developed a list of 10 priorities that you canif you have access to the Webyou can locate it on the AVERN Web page. And those priorities go anywhere from cork taint, which is a big problem for wineries, to pest and disease control in the vineyard, including integrated pest management and sustained agricultural practices.
Page 22 PREV PAGE TOP OF DOC I can't stress enough how important this basic research is. The reason that this came about was that we in the industry realized that we were falling seriously behind in our ability to stay up with some of the foreign producers.
Any help that we can get on a congressional or State level to assist us in really doing our own research, which we are funding, we are very grateful for that. In the last round of research that was funded through the American Vineyard Foundation, we received research proposals from 20 States. Not all of those were funded, obviously, but it is a step in the right direction.
I appreciate the opportunity to speak with you this morning and am happy to answer any questions.
[The prepared statement of Mr. Downs appears at the conclusion of the hearing.]
Mr. POMBO. Next we have Mr. David Lucas from Lucas Winery.
STATEMENT OF DAVID LUCAS, THE LUCAS WINERY
Mr. LUCAS. Good morning. And thank you for coming to Lodi; saved me a lot of driving time.
I have been in the wine business for 22 years and worked with growers and crops from apricots to zucchini. I have been involved with growers up and down California and India, Iran, Kenya, France, Italy, and South Africa, to mention a few, that taught me a great deal. I am also a third-generation grower whose parents and grandparents farmed in California, Canada, and Nebraska.
Presenting the following views of the small wineries, I contacted other small wine grape and winery owners around the State. All of these wineries grow their own wine grapes.
Page 23 PREV PAGE TOP OF DOC Here today we have representatives from all size operations. The Lucas Winery represents the smallest of the small. I would like to put that statement, however, into a more positive context based on the popular Star Wars movie. That is, that the larger wineries need small wineries and vice versa. The larger are like the mother ship providing the energy for research dollars, political support, and spreading the positive health messages about wine. The smaller wineries are like the star fighters, providing and protecting image, consumer interests, and a high profile for California wines.
When we stand back and take a look at the big picture, we are all in this together. And if I may continue the Star Wars analogy, we are facing challenges from several regions of the dark side.
As you know, we have the subject called OTS wines. These are wines with artificial wine flavors. My concern is that they are being labeled with the varietal name of the grape. For example, zinfandel, the American pie of wine industry, a grape variety that we have adopted as our own, is being mixed with nongrape compounds. This is also happening to other wine grape varieties.
As a small winery, I am a little bit concerned regarding the production of these wines and the impact on my business. In fact, it is from a small winery's standpoint that I can spin this into a positive. My concern is that of integrity, that the label has integrity, that the consumer understands what they are buying, and that we protect the integrity of our wine industry here and abroad.
Wineries have been doing their duty of education and improving the consumer's knowledge about varietal wines. It was not too long ago that we wine consumers believed that all that existed were chablis, burgundy, and rose. Wineries, wine shops, wine indicators have spent years of time and energy educating consumers. Today's knowledgeable wine consumer is asking for and expects to get 100 percent variety of wine grape wines.
Page 24 PREV PAGE TOP OF DOC As a grower, it was not too long ago thatin fact, as growers, it was not too long ago that we dealt with the issue of varietal integrity in the vineyard. We went through our vineyard vine by vine to replace vines to guarantee the varietal integrity of the fruit we were delivering to our wineries.
It was a very, very small percentage of wine, yet it was labor-intensive and expensive. It is not necessary for us as small wineries to be protected. It is as a consumer that I should know what I am buying. Varietal grape names cannot be allowed to be manufactured without a wine compound. We may have lost the fight on this one, but we do not want to lose the war of integrity and the high quality of American wine.
For small wineries another issue is that of interstate shipping, what the consumer is allowed to receive and how they are going to receive it. This is about free trade. There are dark-side forces that wish to legislate at the Federal level.
Last week the Congress passed something called the 21st Amendment Enforcement Act. That gives State attorney generals Federal jurisdiction to enforce their restraint of free trade in Federal courts. This is nonsense. It is an inappropriate use of the legislative process to enhance the monopoly of trade of one State's interests over those of another State.
I need to be able to reach the consumer with my product. And it was the wisdom of the Founding Fathers who created the commerce clause: that Congress shall have the power to regulate commerce with foreign nations and among the severaland I see there is a typo there. It states ''stare'' instead of ''States.'' Well, I do have a stare in place, so something is slippery there.
Having free access to the consumer is vital for a small winery. We cannot get the attention needed on this issue. Currently, some 30 States prohibit direct shipments, and more are thinking along those lines.
Page 25 PREV PAGE TOP OF DOC The smokescreen provided by those who wish to legislate is that interstate shipping of wine can contribute to underage drinking. We have all heard this argument. Underage drinkers, as we have also said, do not pay $10 to $60 a bottle for wine, plus pay shipping and handling, and then wait 2 weeks to consume wine as a moderate mealtime beverage with proven health benefits. This is certainly not what I did on the beaches of California. But I should point out that on those beaches with my best friends that consumed in moderation were those from families who had a culture of serving wine at the table.
Note that what is happening to wine would and could happen to other products. This issue exists only because wholesalers and middlemen and a couple of legislators want to retain their piece of the pie, because these actions do not allow any free market access. I am used to being regulated in the wine industry. I am used to that aspect in the business. But do not prohibit what we have seen in past examples. This is never a solution.
As a grower and winemaker, my operation strives to be sustainable. All of the grapes from my vineyard used in the production of my wine are returned to the soil to improve the tilth and nutrients to the vine. I no longer, for example, till my vineyard.
Now, as a standard practice, I mow the natural weed and cover crops. I now have quail and dove living in the vineyard. It drives my dad nuts. But it is easier on the environment, takes less heavy equipment, and provides beneficial habitat, all of which have a significant environmental impact beyond those I can discuss today.
This was not an easy step to take for growers, for growers like myself, for growers like Stan Lange and John, Brad and Randy Lange of Lodi, Bob Donovich of Santa Maria, and Dan Merrill of Monterey, Robert Mondavi organization, and Napa and other wineries. They have taken this with their own funds and own risk and proceeded down this path because of what they believe in.
What these growers and others like them have learned, they have learned again through their own research, the expensive research of trial and error. Even today I am not sure if it is a correct step in my own independent operation. That takes increased monitoring, more water, and creates more competition for the vine.
Page 26 PREV PAGE TOP OF DOC Be mindful of the impact also of legislation on small business owners, small winery owners, and a small farmer. I often hear we need to protect small businesses and the farmer. However, the legislation or requirements put forth do not have the means to measure the impact on my business.
I would propose that groups such as the EPA be required to do an environmental impact study on the economic impact for those who will have to deal with the regulations before those regulations are enacted.
The EPA needs direction from Congress. In fact, H.R. 1592, a recently introduced bill cosponsored by Mr. Radanovich, requires the EPA to use the latest and best science in evaluating pesticides. We need more of this. Organizations need direction from Congress. I need the continued support of Congress to provide the research that assists me down the path in sustainable farming practices, research that benefits and protects the vineyard environment, the community environment, and the global environment. It is about having the tools to change and stay in business, because once you lose a farmer, you never get him back. It is a set of skills that is passed down through generations.
Education. In the latest Star Wars movie there is a plant that is completely covered by a city. Now, think about that. We need to think about that in the contexts of children and their developing expectations. We need to be aware of the environmental message our children are being taught in schools about the environment and endangered species. And this is a positive message. I am very serious about this. Because of this expectation, they will have great expectations about the quality of the world they will inherit and live in. The public has great expectations as well.
Let me just say this, that we need to teach also in regard to the value of agriculture in our schools. I would propose that agricultural science be a required instruction, along with the environmental science. The agriculture network established by John Faust is a remarkable effort to pull together all the various agricultural interests in and
Page 27 PREV PAGE TOP OF DOCaround the State. What is also significant is that they have been successful through the Department of Education in funding the development of agricultural-related materials that can be incorporated in kindergarten through 12th-grade curriculum.
I also have a hidden agenda in this proposal and that is to create and provide professional career opportunities for people who normally would not be given the exposure to agriculture or give it a second look, such as the sons and daughters of farm workers.
Let's change the face of agriculture from the 1930 painting American Gothic, by Grant Wood, to that of a 30-something or X generation. Agriculture is not what it was 20 years ago or even 10 years ago.
We need to enhance the professional image that will attract highly-skilled people to do the research, manage the business, develop the technology, and market and distribute our products. Again, we need to teach the art and value of agriculture, of bringing together all the parts of production and the stewardship.
In closing, let me just say this: I want to have the tools to exceed expectations of my children and know that as a grower, I can grow environmental quality as well as the highest quality crop, that our vineyards can be a model for agriculture. Oh, and with all that being said, I
continue to look at my wine glass as half full. Thank you very much for your time.
[The prepared statement of Mr. Lucas appears at the conclusion of the hearing.]
Mr. POMBO. Next we have Mr. Shelton from the Joseph Phelps Vineyards.
STATEMENT OF TOM SHELTON, PRESIDENT AND CEO, JOSEPH PHELPS VINEYARDS
Mr. SHELTON.Thank you very much, Mr. Pombo. It's a great honor to be here this morning. I also represent the 156 members of the Napa Valley Vintners Association, and this year I am serving as the president.
Page 28 PREV PAGE TOP OF DOC The issue I would like to confine my remarks to today deals with the 21st Amendment Enforcement Act, which is very much in the news these days. In our minds, the issue is a very simple one: That American wine consumers around the country are being denied local access to their crop, to the products that we produce here in California.
In response to this, the wine industry itself has developed a voluntary set of guidelines to help alleviate some of the problems associated with direct shipments. Unfortunately, our voice has not been heard effectively in Congress, and we are now facing new restrictions and new problems related to direct commerce.
We need quite simply a direct relationship to produce this product of wine of California and consumers of wine across the United States. When the 21st amendment passed in 1933, it dealt primarily to give the States rights and localities over the decision of temperance.
In our mind, that right has been taken away at a local level by local businesses who have used the 21st amendment to provide business protections for their enterprises at a global level.
In truth, for most States and localities, the social issues regarding temperance have long been decided. The only thing left is that great debate: Are these businesses protected?
Structurally, the 21st amendment created what is called a three-tier system. And under the three-tier system, our product follows from a licensed producer to a licensed distributor and State and locality and then on to a licensed retailer and then to the restaurateur.
This model, which is mandated, could not foresee the societal changesand we are talking about a model that is close to 70 years old now. This model could not foresee the societal changes and attitudes toward wine. Nor could it predict the imbalance that would result from the influence of local businesses over the regulatory process.
Page 29 PREV PAGE TOP OF DOC And it is very certain to me and to my colleagues and the Napa Valley that this model could not predict nor should it survive the development of electronic commerce over the Internet. It is the most egregious example of how these local regulatory processes have interrupted free interstate commerce, which are in the interstate shipping laws and also located in franchise law. That we'll see in many States around the United States.
We are well aware of how interstate commerce has been restricted. But I think you should also realize that in many States, when a winery like Joseph Phelps appoints a distributor, it often is appointing that distributor for life; they have a lifelong partner.
The State of Georgia is a very good example of this kind of regulatory abuse. In the State of Georgia, when I appoint that distributor I am with, that distributor is for life. He can trade with me, with another distributor, but I cannot terminate that distributor, regardless of sales and marketing performance and even regardless of that distributor meeting the terms of payment under our agreement.
So you can see that we face a number of abuses. And one of the other results of the 21st amendment is that there is a patchwork across the United States. It's almost impossible to fathom for small wineries what we are dealing with. We are dealing with hundreds of State and local laws, and most wineries have to have full-time compliance officers just to figure out when we are and when we are not in violation of specific State and local regulations.
Complicating the entire factor are the States themselves. They have become dependent on revenue generated from alcohol taxes. And this issue has often been brought up in Davis, where it should be, that wineries are trying to evade and avoid State and local taxes. Nothing could be further from the truth here. I am not here to say that the three-tier system will go away; I am here to say that the mandatory three-tier system should go away.
And I am also here to tell you that all the wineries are on board saying that State and local taxes will be honored. We do not need a middleman to collect taxes for us at the State and local level. A lot of this is combined really to create this crisis right now; that has been simmering for some time. Primary among those is the fact that there's been a massive consolidation of the distributors in the United States today.
Page 30 PREV PAGE TOP OF DOC A couple of statistics to help you with that is that five distributors in the United States today currently represent 31 percent of the entire national wine, spirits and beer distribution. Twenty-five distributors represent more than 61 percent of that same distribution. This is an oligopoly. And this oligopoly is now seeking protection through Federal courts. And it is something that we must resist at all costs.
One other statistic that you should be aware of is that the 60 largest wineries now represent 90 percent of the total business in the United States. That leaves 5 percent of the business for 1,900 small wineries in California and other States.
We simply are not being represented effectively through distributors that are available to us, and many small wineries cannot survive without a direct link to their consumers. The process of the Internet is a wonderful vehicle. And currently we are being denied access to that new and emerging vehicle to our consumers.
After erecting the barriers at the State level, wholesalers found themselves frustrated, they could not enforce them because of jurisdictional issues. Having faced that frustration, many of them thought of even going to the extent of felony laws. Eight States now call it a felony if you have a direct shipment from a California winery to the consumer in their State.
When they were frustrated by jurisdictional issues, they turned to Congress to enact the Scarborough bill, the 21st Amendment Enforcement Act, which has a Senate version known as the Byrd amendment.
I think this is absolutely the wrong course of action. It is certainly going to encourage, I think, States to keep their local interests in mind and maybe rescind some of the reciprocity agreements that already exist with California wineries. Or it could encourage the States to stiffen their current restrictions on direct access to consumers in their State.
I represent the 156 members of the Napa Valley Vintners Association, and we are absolutely in opposition to the Scarborough bill and to the Byrd bill which currently exists in the Senate.
Page 31 PREV PAGE TOP OF DOC We have responded to all of the charges of the wholesalers that have been brought against us. There is not a single winery in California who voluntarily or is willing to sell to a minor in another State. We are quite willing to adopt packaging requirements that would clearly show on any package that leaves our wineries that it is a package that contains alcohol and that it requires a signature of an adult recipient. We are willing to add age verification at the point of sale. And we are now exploring technology that will actually cross-reference driver's license information with credit card information to make that age verification process a lot more secure, a lot more meaningful. We are also willing to work only with shippers who will require age verification at the point of delivery.
And please remember the wholesalers and legislators who say we are willing to leave our product on the doorstep of a housewe have a couple things to worry about, because not only do we not wish to sell to minors, but our products are perishable. The last thing that I want is a $1,200 case of wine sitting on someone's doorstep in Florida in 90-degree heat. These arguments are illogical; they do not hold water. They never have.
In the absence of reason, the wholesalers have emotional tactics to convince Congress that they need these additional protections and restraints on trade. This has never been the intent of the 21st Amendment, and it certainly violates the protections that we have under the Commerce Clause of the Constitution.
We are in a time right nowand in my closing remarks I would like to say every industry, not just the wine industry, every single industry in the United States must now face the issues of this intermediation of the promise that the Internet provides.
In most industries this debate will be done on a business-to-business level. And what we are seeing in Congress right now is an attempt by the wholesalers to prevent a business-to-business discussion and to provide protection for their businesses through legislation that will delay our access to these new availabilities for 20, 30, 40, 50 years in the future.
Page 32 PREV PAGE TOP OF DOC We need your help, gentlemen, and we need your help now to make sure that the wine industry has a seat at the table when these policies of this intermediation are discussed and resolved on a business-to-business level. Thank you very much.
[The prepared statement of Mr. Shelton appears at the conclusion of the hearing.]
Mr. POMBO. I thank all of you for your testimony. At this time I would like to recognize Mr. Radanovich for any questions that he may have on the panel.
Mr. RADANOVICH. Thank you very much.
Mr. Lucas, could you expand a little bit on the issue of flavor wines and how you think they might affect the integrity of the varietal label and give me an example of what your idea of a solution to the problem would be.
Mr. LUCAS. Well, the solution would be not to be able to put zinfandel with other flavoring additives such as berries or chardonnay with peach flavorings. I just don't think it's within the integrity of the industry. We have, and as I said, spent so much time and energy over the years to educate about the use of a variety of things.
I was at a conference in Davis about a month ago, and there was a gentleman from South Africa doing a presentation. And he couldn't believe it. He was a professor from South Africa, and he was just amazed that we would allow this to happen to the American wine industry.
So it's really an issue of where that information should appear. This is the first time we have really said zinfandel with other flavors added to it. In fact, there is a winery now with a bag-and-box product that is saying it actually assists in enhancing the characteristic in cabernet by adding these flavors.
So all of this is getting relatively distorted, and it don't look well for the future understanding for the American consumer. A lot of people say, ''Well, OK. We are going to get into the wine industry.'' This has not been the past history of beverages like this. I think it just muddies the water for future growth and people's understanding about the variety of grapes.
Page 33 PREV PAGE TOP OF DOC So don't call it zinfandel; call it what it is. Call it a hundred another names, and I can think of a few. And that's the issue.
Again, it doesn't hurt me as a small winery. I can spin this into a very positive message that will help me sell a variety of wines. But my concern is more consumer understanding and that we protect the integrity of this wine industry.
Mr. RADANOVICH. As it affects the mother ship; is that what you are talking about?
Mr. LUCAS. Yes.
Mr. RADANOVICH. I got a question for one of the members of the panel to answer. But it's kind of where do we go now from the 21st Amendment Act?
To my knowledge, most people know that Byrd is stuffing that thing in the Juvenile Justice Act. And then with the vote on the Scarborough amendment, it gives the possibility that it goes in Congress along with the Juvenile Justice.
However, the House did not pass the Juvenile Justice bill with regard to gun control. It did pass a piece of legislation that dealt with the cultural effects of guns and juveniles in the United States. So there is a slight possibility, to my knowledge, that this thing may not go to conference or is conferenceable.
There's a slight possibility that a Juvenile Justice bill would never make it to the White House for a signature. But, in addition to that, we have been assured by the beer wholesalers and the wine and spirits distributors that Senator Byrd, being where he is in the Senate, can stuff this measure on any conference bill and something like this is likely to pass.
So I am just wondering, if anyone would like to volunteer, where do we go from here, and ask for an analysis.
Mr. DELUCA. First of all, if we are in any kind of shape right now to have further decisions, it's because of the work you and Mike and Chairman Pombo have given to this issue.
Page 34 PREV PAGE TOP OF DOC We have mapped out all the scenarios. We know all the wholesalers don't like what came out of the House. Despite all the conversations to the contrary, those issues offering amendments that you and Mike worked on, do, in terms of due process, really raise the bar for any attorney general in the United States to have recourse to that.
The so-called Cox amendment, there are other members on that really do go to the heart of the constitutional issues and to Internet questions.
Congressman Thompson was absolutely right. We need to clean up some of that language, because the way it was crafted and how it was on the House floor, it does need refinement.
We have had meetings with Senator Hatch. We have had discussions with the ranking members, Conyers and Leahy, who might be the key principals with Hyde and Hatch, Conyers and Leahy, and any of the discussion should have some further safeguards to put in the measure.
I am not at liberty to discuss today in an open forum, because I think they need to be discussed and viewed privately rather than give away our game plan right now. But there are at least two further amendments that could be offered in conference that, I think, could give us the protection in terms of the ultimate outcome.
One of the benefits that's happening at the Federal level, however, is we are strengthening ourselves to do battle at the State level, which is where this is all supposed to take place, with the State legislature and the Attorney General. And I don't want to in any way dismiss that 41-to7 vote that came out of the NCSL. And Mike was the former chairman of the wine task force in that group. That is very important in that all of our 48 contract lobbyists and law firms that work for us in seven regions that are overseeing this tell us that it will be very valuable if it goes State by State, issue by issue.
Mr. POMBO. Did you want to answer that question,
Page 35 PREV PAGE TOP OF DOC Mr. DOWNS. Yes. I just want to talk about this issue as it developed over the last year, with the wholesalers starting outtalking about almost exclusively about 121 purchases, throwing in the question of payment and taxes. Occasionally the industry addressed the payment of taxes, as Tom said.
You know, there's nothing in this industry thatwe are so highly regulated we can't afford not to pay our taxes. So that issue subsided, and now the whole dialog has changed away from the under21 question to a much broader issue of violation of any State law. And that's, in my view, is a big change in thatI am very concerned about that, because they're changing the way people are looking at this issue.
I think that Tom's suggestions about dealing with companies that will certify that they will get a signature at the other end, the question of wineries not really wanting your wine left on somebody's front porch, whether there's a potential for underage pickup or not. That's certainly a very good point. I think that this snake is getting so slippery, and it's gone in so many different directions.
My concern is with what is going on in Congress now with the Byrd amendment and whether it goes to conference or not. I think that the momentum is against us. And I am afraid that we are going to get ahold of the tail, and it's going to slip away again.
So I think that there needs to be a very thoughtful discussion with legislators on how to proceed. We need to sit down with the people that originally sponsored this legislation and really have a frank and serious discussion, because I think that many of themand indeed some of the people that voted for Scarboroughdon't understand the issue. And it's unfortunate that they don't, but I am very concerned with what's going to happen. I wish I had a crystal ball. I don't.
Mr. POMBO. I would like to recognize Mr. Thompson.
Mr. THOMPSON. Thank you. I just want to follow up on one point on the Scarborough bill.
Page 36 PREV PAGE TOP OF DOC I don't want anyone to think it's anything other than
what it is, and that's a turf battle, plain and simple, no more, no less. It's the distributors not wanting to lose any partner share at all, which is actually a bit ridiculous. Because for those who use the distributors, they're not going to pull their wine out off those trucks. It's working well for them. We are going to keep it there.
We are talking about a measure that is going to stifle growth. It's going to stifle business growth. It's going to stifle economic growth. It's not going to allow people to expand. It's not going to allow people to buy the wine that they want to buy or wineries to sell the wine that consumers want in this State. It's anti-e-commerce. It's anti-California. It's antibusiness. It's a terrible, terrible, terrible bill, but it's all about turf.
And to think that the distributors are going to lose turf because of this is ridiculous. And they brought the beer wholesalers in on this, who could buy a truck and offer to deliver beer for free, and you can't do it. Those guys are locked in forever, and there's no way that it's going to affect them. They're very smart and clever in doing that.
And it's just as Pete pointed out. It's a slippery slope. It's been very dishonest. Up until the minute it was on the floor, all the talk from the proponents was that it was to stop kids from getting alcoholic beverages from over the Internet, which is ludicrous.
And as soon as they got on the floor, then they changed their arguments to the fact of just enforcing other laws. And as consumers, we ought to be concerned as well, because it doesn't just apply to wineries. It applies to the shipment and the transportation of alcoholic beverages in any State.
And any attorney general could go to Federal court for any violation of an individual driving with a case of wine in their automobile back to their home State that disallows more than a gallon of wine per month. They're subject to the same laws.
Page 37 PREV PAGE TOP OF DOC And people say, ''Well, it's far-fetched to think an attorney general would do that.'' But please remember, it's equally as far-fetched to think that kids can buy a bottle of wine over the Internet. And it's just not going to happen.
And there's a lot of attorney generals out there who have their sights set on higher office. And if they can take down a major winery and get some publicity, it's not beyond them to try and do it.
So we need to really marshal our efforts. We need toand I think everybody here, everybody that voted against the Scarborough bill also signed the letter to the President asking that when it gets there, he veto it. We need to make sure we increase the numbers there. And we need to work collectively to make sure that everybody knows exactly what this is and that we can build as much opposition with as many States as possible.
And I would like to just ask the representative of Food and Agriculture that it was pointed out that the National Council of State Legislators voted 41 to 7 against the Scarborough bill; that is a pretty strong opposition. And I know there's a National Governors Association, and it would be very helpful if we could get the Governor to pursue that organization's opposition to this antibusiness-anticonsumer bill.
Would you take that message back?
Mr. VILLARREAL. I can certainly do that, Congressman.
Mr. POMBO. Thank you.
I would like to recognize Mr. Doug Ose.
Mr. OSE. Thank you, Mr. Chairman.
Mr. Shelton, you mentioned the voluntary guidelines which you have.
Mr. SHELTON. Yes.
Mr. OSE. I don't have that in here. If you could leave a copy of that, if you have one.
Page 38 PREV PAGE TOP OF DOC Mr. SHELTON. I can certainly do that. It should have been included as attachments.
Mr. OSE. I don't have that.
Mr. SHELTON. I appreciate the opportunity to do that.
Mr. OSE. Beyond that, Mr. Chairman, I want to apologize for being late. I was on the phone and had the opportunity to tour your district, as did my staff. We drove by the off-ramp numerous times. You do have a beautiful district, I would say.
Mr. DELUCA. Mr. Chairman, could I add an addendum to what Congress Thompson said?
Our organization actually has its preponderant people who use the distribution system. And we have had the wholesalers as our partners for the better part of a half century. And, therefore, it's very instructive that our organization has been out in the very front fighting the issue on behalf of our smallest members. And one of the reasons for it is not being discussed openly.
What is happening at the State level is the temptation within our own ranks to try to continue to criminalize this behavior. And in any other business in the United States, this would be seen as private enterprise, directly shipping to the consumer: music, books, stuff, food, clothes.
Here, to have this, particularly starting in the House and spreading, the idea that a felony could be, in fact, inflicted on you for shipping a product directly to a consumer who has asked for it puts us in jeopardy with the Federal Government in terms of our basic license.
So what you have here is double jeopardy, not only as a felony, a criminal act rising to the level of assault, murder, and mayhem, if you can think of that as an equivalent, but then to be subjected to the Federal Government in terms of a license that could actually be denied.
Page 39 PREV PAGE TOP OF DOC So one of the things we have been doing in the different States has been to ask the different States, that those who are subject to the treasury be exempt from these laws.
Mr. THOMPSON. John, that's an important point that really hasn't had a lot of public discussion, but the potential for losing your Federal permityou just alluded to that. Could you elaborate on that, please.
Mr. DELUCA. After the Volstead Act was rescinded, the Federal Alcohol Administration Act created basic licenses for producers. And their licenses are the sea of the problems today.
Basic licenses were mandated for wine and spirits, for wholesalers, and for importers, but not for beer and not for retailers. I think one of the reasons beer wholesalers are in this issue is because of their concern about beer across America, where beer and retailers are not subject to license revocation by the Treasury Department.
So the felony issue for beer is not to have the same kind of import as it does for us. Treasury, the Bureau of Alcohol, Tobacco and Firearmsissued a circular that said we have jurisdiction over the wineries and the other wholesalers as well as the spirits.
If your attorneys general have any information, any evidence that your State laws are being violated, bring that information to us and we will prosecute those who are, in fact, violating the law. So far we have had only one actual referral, and it was a wholesaler. It was not one of our producers.
Tom Shelton is absolutely right in terms of the environment. We not only need to be socially responsible but to be financially responsible.
In New Hampshire, in Louisiana, in Nevada, and in North Dakota in just these past 12 months, we have submitted to the laws in terms of having to pay licenses and having the excise taxes paid in the State where the consumer is. So at every point there is the reputation. But the thing that is critical right now, and we will try to explore further in Congress between the House and the Senate, is exactly the fact that right now there is jurisdiction over us.
Page 40 PREV PAGE TOP OF DOC We don't need to use Federal district courts. In fact, you and Congressman Radanovich pointed it out to Senator Hatch in the hearing that fact, and it made an impact on him. There is a Federal remedy for all the different charges being made. And it is regulatory because there it is in place, and it needs to be implemented.
So the idea of having to force this issue to the Federal district courts is really not only redundant, but it raises the question of what is the agenda? And the agenda obviously, as you pointed out, is one of economic protectionism.
Mr. POMBO. I would just like to follow up on something Mr. Thompson said earlier in talking about e-commerce.
What this legislation is, is really the beginning of the end of e-commerce, and not just for you, because in this particular instance it may have been politically doable to go after wine because of the stars being aligned, and certain powerful groups decided this was the right thing to do it.
It may have been politically doable at this point to go after wine and to go after alcohol. But there are a number of States and local governments that have adopted laws to, say, have a boycott against the production of clothes that were produced in a particular country. There are local boycotts, local state laws that have restrictions against different things. Those products are sold over the Internet. Those products you can buy.
And what we have established is that the Federal Government can now step in and regulate commerce on the Internet and regulate sales on the Internet. And today it may be wine; tomorrow we don't know what it's going to be. And there will be an equally powerful group out there who decides for subpolitical reasons that they want us to now step in and regulate that.
When it comes to the tax issue, which I believe is really a big part of the driving force behind this legislation, is the collection of taxes. It leads to some type of a national regulatory scheme to tax the Internet. And I know many of the people who voted in favor of that legislation are opposed to taxing the Internet, and yet that's what this is going to lead to.
Page 41 PREV PAGE TOP OF DOC So it is much more far-reaching. I know it's devastating for you, especially the smaller wineries that have been hit so heavily on the Internet sales for their very survival. But at the same time it is a much bigger issue that I don't think is fully thought out by the number of members in terms of what the direct impact could be.
Mr. DELUCA. I think you bring up a very good point, Mr. Chairman. And I think one of the things that was missing in a lot of this argument wentwhether on the Senate side or House side, but more on the Senate sidewas this effect, this is much broader than alcohol and that it does go to the Commerce Clause of the Constitution.
And there was a letter done by Professor Choper, and it was sent to Senator Hatch and Senator Leahy. There was some testimony about this in the Senate hearing, but I am not sure if anyone sought this on the House side. I can provide it; I just happen to have it in my pocket. But anyway, the letter doesn't say this, but it is an interesting thing. When brought up in The Chronicle the other day that there really are only two things that an individual citizen can do to violate the Constitution: One is keep a slave, and the other is import wine or alcohol illegally, which is a very interesting thing.
Mr. POMBO. Good point.
Mr. DELUCA. And it was the distributors or these peoplemaybe it is not the wholesalers, distributors; maybe it is a bigger issuebut they have their own constitutional amendment to protect their business. And that obviously was not the intent of the congressmen.
Mr. POMBO. We would be happy to include that particular letter as part of the record.
Mr. DELUCA. All right.
Mr. POMBO. That is one of theof the articles he has in his pocket.
Page 42 PREV PAGE TOP OF DOC Mr. DELUCA. I have a card catalog here.
Mr. POMBO. Mr. Villarreal, one of the topics that you touched on in your testimony dealt with some of the recent news on pesticides and EPA.
Mr. Lucas brought up my legislation, H.R. 1592, that deals with the process that EPA is going through right now called the Protection Act. I agree completely with what you said in your testimony about EPA using good science and making sure it works.
And my opinion is that if they go through the science and if they truly come up with an opinion that a particular chemical or crop-protection method is extremely hazardous, we would take it off the market. And I have no problem with that. My problem is with the level of science that they have done at this point.
Have you looked at the legislation that we put togetherthe Davis administration looked at that legislation? We would be very happy to have your support with the administration on that. We are up somewhere around 170 cosponsors in the House on the legislation right now, but we would be more than happy to have the administration on that.
Mr. VILLARREAL. Mr. Chairman, I have, for one, not looked at the legislation. And I can't speak for Governor Davis's direct support staff. I know within California we are quite busy just trying to implement Proposition 65, which has similar consequences up and down the State to what the EPA's program is designed to do as well.
We are actively trying to work on implementing Proposition 65 in such a way that it doesn't present such an economic hardship to growers, farmers throughout California. Perhaps there is a way we can look at your legislation and see how that supports or assists us in getting good science behind implementation of DBA regulations and maybe in assessing what we have in Proposition 65 within California.
In my few short months at SCDFA, we have looked at trying to have more of an interagency task-force approach to implementing Proposition 65. It seems like in the past it was handed down by California EPA single-handedly without looking at some of the economic impacts. The legislation does allow for economic hardships to be considered in making those determinations, you probably know. But I think there does need to be some weight given to the economic impact it does have to farmers within California.
Page 43 PREV PAGE TOP OF DOC So I guess the long answer to your question is, I would like to look at the legislation, probably work with some of the Governor's administrative and legislative support people and see how maybe we can help you out in moving that forward. I think it is critical that we look at that now, because again we are getting into Proposition 65.
Mr. POMBO. It would be great if you could take a close look at the legislation. I gather many of us feel that California has some of the strictest standards in terms of pesticide use and herbicide use. And yet we are running into a situation where EPA is making decisions that go beyond what California has found to be safe, which is really an odd for us in Californiaan odd situation to be in. So we would really appreciate you looking at the legislation and possibly coming out for recommendation.
Mr. VILLARREAL. We will do that, and I will certainly get in touch with your staff and look at that issue.
Mr. POMBO. Thank you very much.
I do know that Mr. Radanovich had an additional question.
Mr. RADANOVICH. Not a question, but just to finish up on the Twenty-First Amendment Act.
There were two things that came to my mind, things that the industry can help out as we see this issue. The reason this picked up and happened so fast was because of the unfortunate circumstances that happened at Columbine High School which prompted the juvenile justice bill.
Prior to that time we had cooperation with the Judiciary Committee to the then previous carrier of the bill, which was Maryland, who was willing to wait until there was consent in the industry before they started moving this forward.
Then the criminal juvenile justice bill, that wasn't something that was required to go on the floor. The beer and spirits distributors dropped it like a hot rock and went with Scarborough. And that's how it happened.
Page 44 PREV PAGE TOP OF DOC The reason why I am saying this is because when it passed the Senate, it passed by a margin of 8 to 1.
Mr. DELUCA. Eighty-one to 17.
Mr. RADANOVICH. Yes, 8117. In the House we had a little bit more time, and so we got it to a three-to-one margin. But my point is the issues. The longer it's out there and people are informed of thisand it's a very technical issuethe more chances we have of winning, and with that, I would suggest the industry is going to own up to the underage drinking issue. And to say it doesn't happen very often, or yes, but it doesn't have to happen, because people like Hatch, who will say if one person gets it, that's one person too many. So we need to own up to it and the industry issue. And the way in which we do that is to voluntarily accept restrictions that would mitigate that.
The other issue that we are working against is theI know that the Sacramento Bee came out with a good editorial on a lot of possibilities, and the New York and L.A. Times, and those who get it go out to work for the administration, because they will get the final say on something like this. So the more time we have, the better we are. But circumstances didn't allow that. But those are two things the industry has.
Mr. SHELTON. We have a good editorial responses in the Wall Street Journal and actually a wonderful feature article in the New York Times as well, and virtually all the editorials. I think I only heard one that was negative to the wine industry. But I would like to comment briefly on it. Unfortunately, underage consumption will remain as it always has been for some teenagers: Something of a rite of passage. And regardless of the safeguards that we attempt to build in, there will always be some way around it.
But let's not mistake the facts. And the facts are that for most teenagers the preferred method of underage access is one of two ways: You either misrepresent your age with a false ID and provide it to the local retail store, or you will find someone to make the purchase for you.
Page 45 PREV PAGE TOP OF DOC In many ways e-commerce and direct mail are more secure. If we can tighten up the age verification a the point of sale and then tighten it up again at the point of delivery, I truly believe that the direction can be more secure than the current system.
Mr. DELUCA. We have that at the State level. And the bills that we have drafted in 16 States with four attorneys' general opinions and it states that we have had that; we do have those safeguards in there.
So if the battleground right now is in the 30 States where it is not legaland I find it really disingenuous that on one hand, for wholesalers to say, ''Why are you worried about what is happening at the Federal level? We are only addressing the issue of what's legal and what's not legal. And why are you guys battling to support something that's illegal?''.
To say that on one hand and then to spend hundreds and thousands of dollars per State to try to make a felony out of this at the same time that they're arguing that this only applies to where it is illegal. They're trying to make it illegal all over the United States and trying to roll back what we started in 1985, which is reciprocity agreements, State by State, under the 21st amendment, with California leading the way.
So on one hand to say no, it is only going to apply to where it is legal, and then to try desperately throughout the whole country to try to make it illegal, I think undermines their credibility.
Mr. POMBO. All right.
Mr. THOMPSON. I just want to add one thing on the minors buying alcoholic beverages over the Internet. Just remember that in California we have the ability to sell direct within our State borders for 20 years. And the Alcohol Beverage Control folks at the State level warn us that the abuse is not measurable. So it may happen, but it's just not reality.
Page 46 PREV PAGE TOP OF DOC Mr. Shelton's right. If you are a youngster and you want to buy an alcoholic beverage and get somebody older to buy it or you buy it in a place where you can buy, if you can buy it, for yourself, and that's what the problem is.
But Mr. Radanovich is correct. We do need to be able to have something imposed to have this argument. And I think it would be in everybody's best interest if we could figure out how we can require a wholesaler upon delivery require marks on the box indicating that it is an alcoholic beverage, something to be able to show folks that, in fact, this is a strong personal argument; it doesn't really happen. And until that happens, not only are your businesses going to be impacted, I just heard yesterday from one of my friends in the auction business who auctions fine wines. And he is very, very troubled by this. It is going to impact his business. We have had calls from E-Bay. They are very, very concerned about this. It is going to impact their business. And anybody who visits a winery from Florida and buy a bottle of wine, not only will the winery not be able to ship it back, but you can't even ship it back.
Mr. SHELTON. I would like to add that we are very proud of the Napa Valley Wine Auction, which was in June of this year, raised $5.5 million for local healthcare services in our county. And this auction faced severe restrictions under the Scarborough bill.
Mr. DELUCA. Mr. Chairman, the Senate Judiciary Committee meeting and then ultimately the whole Senate at the same time, that it was adopting the so-called Byrd amendment, which really Senator Byrd high-jacked from the original Hatch bill, it does also carry the Feinstein amendment. I have talked with Diane, and it's not crafted well. It's in the wrong section of the United States Code, but it has in there this question of credibility and verifiability. And we are just being very sensitive about the effects on carriers.
One of the things we are concerned about is, ultimately whatever we pass ultimately, what effect it will have on the distributing of our products, even if it is illegal on the laws.
Page 47 PREV PAGE TOP OF DOC We have right now authorized technical assistance by people who are expert on the Internet and how we can put on safeguards ourselves without legislation. And I have a number of proposals that are coming my way to evaluate. I don't think we are far away from having the ability ourselves, independent of law, on how we can monitor and govern it. I think we know we have to be socially responsible on every front, whether it's underage Internet sales, hours of sales. We work under this mine field of laws that everybody knows about. But only now are they coming to the recognition of the country. I think, in response to Congressman Thompson, we put together that list of all the laws that we have to abide with the United States.
When I first started as president of the Wine Institute, when flying over Kansas and Nebraska, they used to stop serving wine because of the air rights of those States. And in Iowa, you used to have to carry a personal permit. Every time you bought a bottle of wine or beer, they used to record it. And when you would have to show up for an interview for a job with your own personal permit, showing when you bought the wine and how much volume. Utah used to have specially colored bags. Talk about identification, the scarlet letter. You used to have to walk out with a specially colored bag to show that you are carrying out an alcoholic beverage.
Well, it is that same mindset with all these really abhorrent laws that go back to the deals that FDR made in 1933 and prohibition. And so what we are seeing todayelectronic commerce, Internet, all these different lawsderives from the fact that what we have from the better part of a half century belongs to a political process called the United States but not the common market of the United States.
And little by little we are trying to chip away at that with the Supreme Court decisions and hopefully even with the Scarborough bill that we can work on trying to bring us back to where we belong, which is free enterprise in the United States along with everybody else. But you have to be mindful of social responsibility.
We do have alcohol in our product. We can't dismiss that. So I totally accept what Congressman Radanovich said about our need to address these issues and not sweep them up under the rug. But I think we are all united on that front. And we are showing that in States when we are passing these laws.
Page 48 PREV PAGE TOP OF DOC Mr. POMBO. Thank you. Thank you very much. I am going to dismiss this panel. Thank you very much for your testimony and the answers to the questions.
If there are any further questions of this panel, they will be submitted to you in writing and you can answer them in writing for the committee record. That would be appreciated.
[The information appears at the conclusion of the hearing.]
Mr. POMBO. I'd like to call up our second panel. This is Mr. Randy Lange, Mr. Diego Olagaray, Mr. Joe Cotta, and Ms. Kris O'Connor, the second panel.
Mr. POMBO. I call the hearing back to order. I would like to welcome our second panel. And we had a special request. I am going to start with Ms. O'Connor. I don't have to tell you what the request was, but somebody wanted you to go first. If you are ready to begin. STATEMENT OF KRIS O'CONNOR, EXECUTIVE DIRECTOR, CENTRAL COAST VINEYARD TEAM
Ms. O'CONNOR. You caught me a little off guard. I want to thank you very much for having me speak to the group. I appreciate the opportunity.
My name is Kris O'Connor. I am with the Central Coast Vineyard Team, and we are a local grower group on the Central Coast of wine grape growers, and the subject is pretty much represented by Santa Barbara, San Luis Obispo, Monterey County; that's the area that has most of the acreage. And we really have grown a lot in the last decade. We currently represent, depending on the numbers that you look at, maybe 20 percent of the acreage, total, for the State. And our acreage has doubled approximately in about the last 10 years. The mission of our group is to promote sustainable vineyard practices on the Central Coast.
Page 49 PREV PAGE TOP OF DOC Our grower group represents more than 30,000 acres of wine grapes. We have large growers, small growers, so we really represent a large cross-section of the types of winery growers. And while the group is primarily a grower group, we welcome collaborative partnerships from cooperative extensions, University of Cal Poly, environmental interests, agriculture commissioners. So we have welcomed input from a lot of different groups.
The group's claim to fame is that they created a Positive Point System, which is a thousand point evaluation system for evaluating the extent of sustainable practices on the farm. It's divided into six categories: soil, water, pest, viticultural management, wine quality, and continuing education. And it's primarily a series of yes or no questions: Do you manage cover crops for weed control? Do you monitor your soil moisture and use that information for irrigation scheduling practices? Do you monitor beneficial insects in your vineyard, just to name a few. So it's a series of yes or no questions about farming. And one of the great things about it is, we can quantify that. And so we received a grant from the Department of Pesticide Information in the last few years and evaluated acreage.
And the way it worked was, John carried around a book in his truck, and he would hand it over to his neighbor. And they would get together for coffee and read the evaluation, and we would tally it up. And the end result was, they evaluated over 10,000 acres, which, considering it was kind of a word-of-mouth effort, we felt was very significant, and we learned a few things. We learned that scores were improving over time, maybe by one or two or three practices the growers were incorporating. We learned that husks, soil, viticultural, and continuing education increased over about 10 percent, but we still needed soil and water management. And so those were basic things that we learned from the 3 years.
And it makes an interesting point. It really points out that wine grape growers are willing to voluntarily incorporate reduced risk practices into their own operation, that the Central Coast vineyard operators are increasing their adoption of sustainable practices, and that growers are willing to learn about progressive management approaches.
Page 50 PREV PAGE TOP OF DOC So, you know, we have talked to different growers. Why did you do it? Why did you think it was helpful? What did you think was helpful? The growers said, ''We really appreciated having a network of other growers to talk about these practices: What was working, what wasn't working.''
It was a great education tool; just the process of going through these questions was very educational. And also it helped growers to kind of put on one page the management practices: ''Scores are very good, but maybe I need to focus on more of my soil management in helping my soil practices.''
So the team really worked very hard in about the first 3 years of developing this protocol, really building the foundation for the team. And once they really decided that it was solid, they decided to take it on to the next level, to really promote it or do demonstration projects, outreach, and education about specific practices. So in the last year, these are different things that we have done.
We have recently completed the first tailgate meetings in each county. And in that, we had over a hundred people show up, which we thought was really great for our first meeting. We had one in each county. And it was, again, one grower talking to another grower about the practices that he was using on his farm.
We have had monthly forums in which we invite maybe environmental interns to our group to talk about maybe habitat issues or oak conservation or land-use concerns. On the Central Coast there's a big threat in terms of several environmental issues with regard to law enforcement, pollution, all of the watersheds that have been listed for steelhead.
We, within a few years, would really face the threats of adjudication from the Water Quality Control Board. And, also, just driving down the roads, you can see the vineyards developing all along the highway. It's really taken a front focus in environmental issues as it pertains to vineyard development. So we have addressed those basically, again, from a grower-to-grower approach, and we really built up a lot of bridges with other groups.
Page 51 PREV PAGE TOP OF DOC We established template farms that highlight just excellent practices. And, again, we can share with growers what works, what doesn't work. We distribute newsletters to over 300 people. We have also made several presentations at industry meetings. Just in the last year alone we met over 1500 people by appearing at different meetings on different topics.
I'll finish up on a few points. The key to our effectiveness, I believe, is the grower-to-grower approach. We could be effective and carry a message that will be more effective than other people carrying that message. And this is what we've shown by our tailgate meetings. People just hang out to see how Steve was applying compost in his farm. They wanted to ask him how he did it. So he can talk about things where maybe our cooperative extension person wouldn't have that same credibility for the grower. So that's been key.
Because we are both a regional group and a national group, we can focus on issues which are of concern to our growers, and we can address those. We have also bridged a strong collaborative tie with various groups and agencies. We have NRCS with wetland restoration, habitat restoration, oak preservation, short courses. So we are building ties with different groups for more educational programs. And, again, the team is willing to listen to a revision of the Positive Point System to include oak habitat issues, recycling issues on the farm, but there are several things that we need.
We have put a lot of cash in trying to find a grower and winery who will receive grants. But in order to take it to this next level and in order to really capitalize on the momentum that we have gained in the last few years, we need to continue to build more partnerships with government and private industry in order to help support our efforts.
And also, as it was said earlier, we need better information about these practices. It's good to have anecdotal information as a foundation about the growers, well, has there been a study? We would like to have good science to back up what we are trying to support.
I really want to thank you for the time and allowing
Page 52 PREV PAGE TOP OF DOCus to participate here. And come and visit one of our vineyards. Thank you.
[The prepared statement of Ms. O'Connor appears at the conclusion of the hearing.]
Mr. POMBO. Thank you very much. Mr. Lange.
STATEMENT OF RANDALL LANGE, PRESIDENT, CALIFORNIA ASSOCIATION OF WINE GRAPE GROWERS
Mr. LANGE. Thank you. My name is Randall Lange, and I am a third-generation wine grape grower in the Lodi-Woodbridge area. My brother Brad and myself formed our farming vineyard management business about 25 years ago.
I am currently chairman of CAWG, California Association of Wine Grape Growers, which represents more than 60 percent of the State's annual tonnage of grapes crushed for wine and concentrate. I am also vice-chairman of Wine Grape Growers of America, and that is an organization of State associations representing wine grape growers throughout our Nation.
Competitive global markets, falling quantity prices, and higher U.S. production costs are driving changes in our rural landscape. Wineries have been under a bright light here in California these past few years, increasingly more important because of a necessity to look at high values, especially crops, to keep our agricultural land in production.
The Lodi district here is a very perfect example of the change that is going on in our agriculture and, of course, of wineries of the local economy. Remember that wine is the ultimate value-added product.
Wine production adds value of approximately $2 for every $1 of farming. The winery industry contributes to the U.S. economy in many diverse ways: It generates jobs, exports tax revenues, tourism, and, of course, great wines. It also is the center of intense global competition that may seriously affect the future of this business. The industry's future success will hinge on public as well as private policies that will facilitate rather than impede responses to these new competitive conditions.
Page 53 PREV PAGE TOP OF DOC The wine and winery business has enjoyed tremendous growth and success in recent years. Wine grapes are now grown in 45 out of the 58 counties in the State of California and covering more than 427,000 acres and also is in the top 10 agricultural products in this State.
However, we cannot expect these good times to continue by maintaining the status quo. There are a number of challenges facing this industry which I willand the other speakers of this panel willbriefly outline.
America's consumer base is one of our biggest challenges. Our consumer research conducted by the Wine Markets Council indicates that 11 percent of the adult population consumes over 88 percent of the wine sold. We will need to expand that base, or we will easily have our hands full of unsold wine.
We are part of a dynamic global wine market, and it requires constant change to meet the future. Although the total market has been increasing slowly, the way wine is sold has changed substantially toward varietal, more expensive wines. Table wines are coming away from the jug wines and wine coolers.
And California has showed the world how to market wines by using widely recognized and easily remembered varietal names like chardonnay, merlot, cabernet, and zinfandel. The response has been a huge increase in varietal planting here and throughout the world.
A major concern for growers right now is the potential erosion in the value of the varietal name by allowing new fruit-flavored wines to carry varietal names in a way that implies that they are premium varietal wines. We believe ATF should establish guidelines to clearly distinguish this type of product from regular varietal wines, which are required to have a minimum of 75 percent of the wine derived from the grape of the variety before being named on the label.
We believe the consumers benefit by labeling that clearly describes what is in the bottle, whether it is 100 percent grape wine or a beverage wine with fruit flavors added. And it has been very frustrating for us, because Cotta brought this to the attention of the ATF about this issue 2 years ago. And please understand, these labels that are currently on the market are there with ATF approval. So our argument is with ATF. We need new consumers, and we need new, innovative products to sell wine. We cannot afford to do it at the expense of what made it successful so far.
Page 54 PREV PAGE TOP OF DOC We are also facing tremendous pressures that change the way we farm as urban areas continue to grow into traditional farming areas. Wine grapes have a tremendous story to tell, whether it's about our aggressive pursuit of farm systems in great pest management or our efforts to maintain/restore wildlife habitat and/or conserve water use through irrigation systems. But it takes time to change, and we need technical support to help make it happen. And it needs to happen without impacting our ability to be productive and profitable. The life of a vineyard is about 25 years. Ours is an industry that requires a long-term vision and commitment, not to mention considerable financial investment.
The U.S. wine industry has undertaken a unique exercise to work together to sustain the success that we have enjoyed thus far. This strategic planning process, called WineVision: American Wine in the 21st century, began more than a year ago. And next month we will need to establish an objective to achieve our stated goals, which are to make American wine an integral part of the American culture, to be a preeminent supplier to the global market, and to be the leader in sustainable practices.
The change in business and political climate for wine coupled with wine grape production has led to a decision to move forward with this plan a very easy one. Our willingness to go through this exercise signals a strong desire to be a significant contributor to a thriving economy, a growing rural job base, and a healthy environment for all of us to enjoy.
However, we can't do it alone. We need government to be our partner, not our adversary. We need your help to make sure our policy is as fair as it is for our competition. We need your support to invest and research and provide matching funds to the industries committed to research. That will keep us competitive. And in particular, we ask for your support, for a new long-term position with the Agricultural Research Service to focus on development of sustainable vineyard practices.
We urge you to maintain catastrophic profit-sharing and expand it to meet the needs especially agriculturally. But it really won't matter if we don't have profitable farms and profitable businesses if they must be sold to make huge cash payments when they are passed down to the next generation. We support efforts to enact further estate tax relief and protect our family farms.
Page 55 PREV PAGE TOP OF DOCWe appreciate your support for the industry and invite you back here as often as you can visit and watch the continued evolution of wine and wine grape growing in California and especially here in Lodi. Thank you.
[The prepared statement of Mr. Lange appears at the conclusion of the hearing.]
Mr. POMBO. Thank you, Mr. Lange. Mr. Olagaray.
STATEMENT OF DIEGO OLAGARAY, PRESIDENT, LODI DISTRICT GRAPE GROWERS ASSOCIATION
Mr. OLAGARAY. Yes. Thank you, panel and committee Chairman. My name is Diego Olagaray. I am a wine grape grower. I am here representing the Lodi District Grape Growers. I am the current president.
And just to give you a little bit of background on the grape growing business, it was founded back about 40 years ago. And the reason it's a voluntarily grower organization and the reason it was formed is that it deals with political issues of wine grapes in our region.
Some of the issues that we deal with on a daily basis include land-water use, labor, research, and over the past 10, 15 years there's been a considerable amount of change that has taken place in our district, at one time the thriving table-grape industry. Specifically today I am going to be testifying on the issue of labor and how it relates to our local district grape growers.
One of the biggest concerns we have got in our region is the available supply of skilled farm workers, and especially when it is being utilized in our cultural practices. Harvesting and pruning of wine grapes are some of the largest uses of skilled farm laborers. I mean there's also a fair number of acreage of new development production which requires a lot of hand labor and planting, trellising and vine training.
Page 56 PREV PAGE TOP OF DOC Our districts have emphasized a quality that has greatly increased our product awareness and also our reputation of wine. To keep a success of that ability is to be able to harvest the grapes in a timely manner, at optimum maturity levels, which, in essence, make wine grapes an actual perishable commodity, since in a matter of days it could reflect high sugar levels.
It's also very, very important, since 50 percent of our wine grapes are locally harvested by hand, that we have an active supply of skilled labor force. In the past years our industry has been without a large supply of skilled farm laborers for an industry that is highly labor-intensive. However, we foresee the potential in the near future of the need for skilled farm workers due to several reasons.
One of the reasons is, as these new vineyards come into development, there is definitely going to be a need to warrant hand pickers. Another reason is, one of the concerns is with the high number of invalid or false Social Security numbers, and growers are starting to be faced with getting phone calls from the Social Security Administration on this. Another concern is the cumbersome and ineffectiveness of the H2A guest-worker program. And then, finally, I'll address the need for research funding for trying to provide additional funds for research.
Currently, a GAO study showed that 40 percent of the current field workers have some type of invalid or false Social Security number. The numbers don't correspond with the names. And soon-to-be released figures by the Department of Labor indicates as high as 50 percent. And, as I mentioned earlier, growers are receiving letters from the Social Security Administration regarding this issue.
And there is also concern about the degree that the INS is going to take to enforce their laws. More particularly during the harvest time, are they going to go in and raid some of the harvest fields.
Page 57 PREV PAGE TOP OF DOC Currently, the H2A guest-worker programthe labor certification progress of that program is cumbersome, and the program basically doesn't work for wine grape growers. Just a little personal experience, our family just doesn't grow wine grapes; we also raise sheep. And in that business we have labor associates where we obtainsteal shepherds from other countries through the H2A program. Even with a staff that does this on a daily basis, it takes them anywhere up to 3 months to break in a shepherd for us. And the only reason we are doing that is we have no other available choices.
Where with the grape industry, we haven't got 3 months or 6 months to deal with it. There's a labor shortage. We need it in a day or two, because of the perishability of the crop.
And then, finally, there's a need for research funding. America has somewhat moved away from the skilled labor force and moved on to better-paying jobs and other industries. We are going to lose that group of skilled labor farm workers. And eventually we are going to have to mechanize our operations. And there are some instances where we are capable of doing that. And there's also a concern by certain wineries that couldn't honestly go pick by hand because of the volume.
And, finally, I just want to propose a few solutions as far as the H2A guest-worker program. We are requesting that we work together and try to work toward some kind of basic reform where we would have a timely access to these workers, to where it won't happen to our harvest.
And then as far as research, for that, we want to see if we could form a joint partnership to match funds with. We could work together on that. In conclusion we have got a challenge ahead of us, and we are willing to work with you to try to achieve these goals.
[The prepared statement of Mr. Olagaray appears at the conclusion of the hearing.]
Page 58 PREV PAGE TOP OF DOC Mr. POMBO. Thank you. Mr. Cotta.
STATEMENT OF JOE COTTA, PRESIDENT, LODI-WOODBRIDGE WINE GRAPE COMMISSION
Mr. COTTA. Mr. Chairman, committee members, thank you for this opportunity. I have been a Lodi district California wine grower for more than 20 years, and I am a past president of Lodi District Grape Growers Association.
Eight years ago the Lodi growers of Crush District 11 passed a referendum to establish the Lodi-Woodbridge Wine Grape Commission. Completely funded by all district growers, the Commission's mission is to enhance the profitability of winery production with the promotion of research and education. I have been an elected commissioner since 1993, and I will be serving as chairman for this year.
The commission conducts extensive practical research trials and demonstration projects in cooperation with the University of California, California State University, and local growers. The on-farm approach we have developed within our extensive Integrated Pest Management Program has grown beyond my dreams. The program has been recognized numerous times through various awards, grants, and media coverage. It has been well-known and highly successful not only conducting effective research, but also at delivering relevant information to nearly 700 grape growers in our district.
I am one of those growers. And some of my personal experiences with IMP include predator mite releases, close monitoring of both harmful and beneficial insects in the field, cover crop to reduce dust and provide refuge for those beneficial pests, using environmentally softer and more pest-specific materials, owl boxes for rodent control, manual leaf removal to reduce leaf-hopper population, and increase in pesticides effectiveness; also newer advanced electrostatic spraying equipment that allows us to use pesticides at lower rates, developing vineyards and farms around the old oak tree and not through them. I feel that all these practices are allowing our natural habitat for both man and wildlife.
Page 59 PREV PAGE TOP OF DOC All of us involved in farming are scientists in one form or another, but IPM programs cannot be operated as an exact science. As we study the pieces to the puzzle, they don't always fit. Sometimes we have to turn them around and look at them from another perspective in order to do that.
IPM should be thought of more as a concept, where one idea may work while the other may not. You need to take into account the fact that soils, climates, native trees and plants and native pests are beneficial and will vary from area to area to area. Oftentimes there may be an area within a parcel, and compensations need to be made.
But when we begin to cooperate and work together, we can see the results that will ultimately be a reduction in chemical usage and dependency. The reason this IPM program has been accepted with open arms is because growers like myself are starving for site-specific information. We can see the logic in using less chemicals both environmentally and financially. Also, we have an awareness of future restrictions, which are imminent.
In an effort to stay ahead of the game, our IPM program has been a response to the implementation of FQPA. We feel that though FQPA's requirements are strict, for us they are achievable, providing for two things happening: First, that the EPA does not interpret the requirements under FQPA to unnecessarily restrict agricultural chemicals without proven evidence, citing actual health risks. And, second, that if the FQPA takes action resulting in restriction or cancellation of essential crop protection products because of factual health risks, that the EPA should provide for emergency, time-limited registrations until new, safer products are registered and made more available to us.
Also, as new and safer materials are developed, the registration needs to be expedited, because for us, FQPA departs from business as usual. The FQPA will cause grief among growers, suppliers of agricultural products, and others in relation to this industry.
Pesticide availability is constantly threatened, but little is ever said about replacement products and strategies that will successfully prevent destructive pest damage. These replacements could include more important and understood components of IPM, such as more efficient management, better understanding about crops and how pests interact, stimulus to breed or create pest-resistent crops, the expansion of consulting services, and development of retail markets that cater to the consumers.
Page 60 PREV PAGE TOP OF DOC The EPA and USDA could provide funding or alternative funding through the UC system in California. Currently, in the development stage is a project called IPM Centers of Excellence. These pest management centers would include approximately 12 sites across the United States. There is presently $3 million in the agriculture budget for the development of the centers. If the money were to be made available for grants, certainly U.C.-Davis would be a likely location.
As I look back on my years of farming in California, I feel that what I have started and what we have started here in the Lodi district could very well be the tip of the iceberg. The more we delve into IPM, the more questions are answered and even more questions are asked. We did not become dependent on chemicals for pest management overnight, and our independence from them needs to be ongoing and gradual. Going cold turkey, so to speak, could very well be disastrous for the agriculture industry in the our country.
With the support of innovative congressmen like yourselves, we have a much better chance of expanding our knowledge of Integrated Pest Management and getting a project like the IPM Centers of Excellence off and running. Thank you.
[The prepared statement of Mr. Cotta appears at the conclusion of the hearing.]
Mr. POMBO. I thank the panel for your testimony.
Mr. RADANOVICH. Thank you, Mr. Chairman.
Mr. Olagaray, your comments, which I enjoyed on the H2A program, a couple of us on the panel have been working pretty diligently in getting some important information since the thought of guesswork never did pass the immigration bill of 19well, when it was on the floor.
It seems to me that the deal with this is going to be restructuring and will be recognition of illegal workers here today in exchange for a permanent form of an H2A bill that would allow for taking care of this problem in a permanent way. We could modify H2A to see how it works for agriculture on a year-to-year basis.
Page 61 PREV PAGE TOP OF DOC Can you explain to me, in your view, having experienced the amnesty program back in 1986, I believe, do you support an amnesty program as a means of solving this problem, or maybe you can give me an idea of what the problem was with the previous one.
Mr. OLAGARAY. I think that maybe one of the solutionsbecause there is a fair number of 40 to 50 percent in California that are illegals, and we do provide an amnesty program. We are going to be able to provide a supply for the time being under the condition that they stay within agriculture for a number years. If we continue allowing them to go through the other industry, then we are going to be back to where we are now.
Mr. RADANOVICH. Can you give me an idea how forming H2A would be better for farm workers than, say, as it currently exists?
Mr. OLAGARAY. I think what we need to do is try to establish a system to where you have all the labor, all the housing certification all done up front. And then within a day's notice be able to obtain visas to import these in, all these laborers. It's going to take a long time; it is cumbersome. And there is some other issues on housing and such. But if you work a system where all these other requirements will be done up front and then you are just sitting there and waiting until the need for just putting everything together in just a day or two, you cold get the work force in.
Mr. RADANOVICH. Thank you very much.
Mr. OLAGARAY. You are welcome.
Mr. POMBO. Mr. Thompson.
Mr. THOMPSON. Mr. Lange, you talked with us about something that is near and dear to my heart: Estate taxes. It seems to be getting a lot of discussion on this issue in Congress.
I have a bill myself that recognizesand it probably ends up somewhere in the middleand it repeals excise tax and family-owned farms and businesses as long as there continues to be a family-owned farm or business.
Page 62 PREV PAGE TOP OF DOC Last night in my home county we had a rather lengthy discussion on estate taxes and how we can improve the issue. Does your organization have any one method for reform in favor of one over the other? Are there any discussions on the issue of estate tax?
Mr. LANGE. The issue of the estate tax, as far as it goes, we have to remember that the investment in the winery business and, as well as, the wine grape growing business, is a huge financial investment, and so you have tremendous value. But you have to remember as well that value only produces so much income. And these farms are predominantly run by family farms, just like ourselves sitting here at this table.
So you have a huge balance sheet, let's say. And then, when you have to pass it down without active planning or the tools to plan, passing it through to other generations, things that we work very hard for, that we paid taxes already for, we tend to start selling properties off. And once you sell that propertyand if you are anywhere close to any kind of developmentthat property will go someplace else, and it won't go back into farming.
And so this is the challenge to anybody in Congress right at this point in time, is to address the needs of not only family farms but family businesses as well, because other businesses face the same challenges through the year. I appreciate your concern for them.
Mr. THOMPSON. I think that's an important point that you made. If we don't do something about it through land use, the implications are going to be here soon enough. It's going to cost us as taxpayers, and urban sprawls are going to be all over along with that. And will we be willing to pay a $100,000 an acre for grapes? And that is what we have gone over, is ultimate taxation with estate tax to what we have now. It wipes you guys out.
I have a winery friend who, if he were to die today, his sons would have to figure out if they were going to keep the winery and sell the grapes or keep the grapes and sell the winery. There is a number of those scenarios in the wine industry, and it's just not good public policy. So if you have any particular ideas on how to craft whatever it is we are going to end up doing, I would like to hear about them.
Page 63 PREV PAGE TOP OF DOC Mr. LANGE. We'll be in touch with you. It needs to be said that in the Central Valley, where you two people areall of you, really, other than Mikeit's going to happen that way. We see the influx of traffic and homes and people coming over from the populated areas, and it's happening everywhere that we see. So it's something that needs to be addressed.
Mr. THOMPSON. It's not just grapes and agriculture; it's downtown businesses as well. If you have to sell your business because of high estate taxes, the likelihood of your next-door neighbor purchasing that property is very, very slim. So it will go to some out-of-town conglomerate, and it will provide an unfavorable impact.
Ms. O'Connor, I have a question for you. You mentioned your steelhead concerns in the Central ValleyCentral Coast, and that is something that impacts my district a great deal. We have been working on that for quite some time. Just let me know what you are doing. Are you using Federal monies? Have you had any access to that?
Ms. O'CONNOR. There are some. Our group has not received any yet, but any kind of educationwe are working with NRSC Quality Control Boardquick funds could be appropriated for some funds. No one particular source of funds are keeping the steelhead-water project in place. We are still at the beginning stage of how to fund our project.
Mr. THOMPSON. There's an effort to bring Federal money to for salmon StatesCalifornia, Oregon, Washington, and Alaskaand any involvement with your organization or any other organization from this area provided will be very, very helpful. I don't think everybody understands the nexus between salmon steelhead and everything elsefrom growing grapes to the building of housesis running into problems. If those listed species continue to grow, that will effectively shut down everything. So we really need to be involved in habitat restoration. We need your help with that.
Ms. O'CONNOR. And what we are seeing is, that if there were laws today eliminating essential pollutants, most of the growers that we talked to would not comply. But the more they participate with protocol, the more they participate with these practices, the more they would be able to comply with any regulation.
Page 64 PREV PAGE TOP OF DOC Mr. POMBO. Mr. Radanovich.
Mr. RADANOVICH. Thank you, Mr. Chairman.
Mr. Lange, I want to go back to a point you made about estate tax material. I know that Congressman Thompson and I had a bill regarding farms and ranches totrying to figure out how we can persuade those who otherwise would not be disposed of protecting people from estate taxes, how we can persuade them to favor the estate tax reform. It's pretty basic to me, my parents, my grandparentsyou evenbut still I don't know, and I am looking for some guidance.
Mr. LANGE. Well, it's a difficult thing to convince people to plan long term, have long-term vision, to move forward with plans of passing down your hard-earned work, because investmentsyou worked hard to establish that. As far as guidelines and things, I'll throw out an idea, and I thought about them a little bit and thought about ways of planning, ways of helping people plan and to entice them to move forward.
If a farm family takes the time to address a systematic manner of passing their hard-earned properties down to their children or their children's children, there should be some type of incentive to do that. And one of those things could be as simple as assurances to help pay for that tax bill that would replace the necessary payment to the government for this tax that seems to be always there. It's a death tax; it will always be there.
It seems that waywe would like it reformed down to zero on estate tax. But if it isn't, there has to be some way of providing incentives, to say to people, ''Get out there; do the planning because what we really don't want to do is to take the property and get it sold and involved in some other area.''
Mr. RADANOVICH. Your members support the repeal of estate tax?
Mr. LANGE. I guess I would support the repeal of the estate tax.
Page 65 PREV PAGE TOP OF DOC Mr. RADANOVICH. That's not a very complicated question.
Mr. LANGE. I truly feel that I already paid taxes on that. I have paid income taxes; I have paid property taxes; I have paid sales taxes; I have paid taxes on taxes. And then the last thing I have to do when I die is pay another tax. I think that this is a regressive tax.
Mr. RADANOVICH. Mr. Chairman, we should have him testify in Ways and Means with Gray Davis.
Mr. LANGE. Well, I didn't really come prepared to discuss the issue of estate taxes.
Mr. RADANOVICH. But it is one aspect of the whole element that we are all dealing with. We don't want to get to the end of the trail and then get thrown off the cliff.
Mr. LANGE. Absolutely. That's right.
Mr. RADANOVICH. Now, Ms. O'Connor, if I may, one thing that's always been addressed within California is water. And I noticed in your comments that you always came back to the soil and water. And I notice in your resume a preponderance of study of the water.
Do you have any suggestions as to what we might do on a statewide basis? We are not going to be able to get an answer on this today, but I would appreciate if you could give me your card, and we could discuss that.
Ms. O'CONNOR. Yes.
Mr. RADANOVICH. And that's just tearing us apart in Congress, so Mr. Chairman, I yield back.
Mr. POMBO. I want to hear her answer.
Mr. RADANOVICH. Oh, you do?
Page 66 PREV PAGE TOP OF DOC Ms. O'CONNOR. You need a card.
Mr. POMBO. Water is obviously one of those issues we'll be dealing with for a very long time, I am afraid.
Mr. Lange, in your testimony you talked a little bit about the Food Quality Protection Act and the loss of crop protection. And I have had the opportunity to be out at your place, as you know, and spent a little bit of time understanding the idea and program that you guys have, the effort that is being put forthnot just on your part, but on the part of a number of different growers in this area, to use as few chemicals as possible, and only use them when necessary. But with the recent action of EPA on two specific organophosphates, what would be the impact on an operation like yours if the EPA were to ban organophosphates, and knowing that you have fields that you manage on your own thatI believe, I was told thathad an application twice in 10 years. But what would happen if they ban those organophosphates altogether?
Mr. LANGE. Well, that's a difficult question, because in essence, I think that at this time on those two particular products that we are talking about that we have alternatives in our industry alone. It has huge ramifications for a lot of other industries but especially the crops in California. But I think at this point that it's not going to be a draconian type of measure against the wine grape growers alone. But remember that we are only talking about two products.
Mr. POMBO. What about the entire class?
Mr. LANGE. But the entire class is another story altogether, because there are numbers of products that we are currently using that there are, in essence, no replacements for at this point in time.
And Mr. Cotta indicated that there are products that could be and are coming down the tube for us to use, and that takes so very long to get it here in the first place. And our largest worry and concern is the removal of these crop-protection tools at a time when there's nothing to take their place, which would then force us into using stronger tools that are still legal to use. Now, what those are, are very, very distinct, specific compounds that we can use when we need to use it.
Page 67 PREV PAGE TOP OF DOC And you are absolutely correct in saying that we monitor our vineyards. We do everything that we possibly can do before we have to pull the trigger. But when it happens, when it's necessary because it's impacting the economic stability of the vineyard, then we have to use products to help protect our crops and our investment.
If they take some of these compounds away that are very specific to the pests that we are trying to take care of or the disease that we are trying to take care of, that will force us to use something stronger than just taking care of that individual pest. It could take what I would consider a field-kill, and take care of everything, not only the bad guys but the good guys that we have been trying to build within our vineyards for years and years.
So we are really concerned about a number of the products on the FQPA list that can be taken away from us before there are other very specific products to use in the vineyards. And that's what we are concerned about. It's the next shoe and the next shoe and the next shoe.
Mr. POMBO. I just pointed that out because both and you Mr. Cotta mentioned other products that may be coming on-line to try and make their way through the process right now.
A little over a year ago we had a hearing on methyl bromide. And one of the products that was touted as a partial replacement for methyl bromide was one of the two that was banned by EPA last week. So if you think there's something else comingif EPA is going to do science the way they did on these two particular chemicals, there's nothing out there that you can say you can use, because the science was not only incomplete, it was based on false assumptions from the very beginning. And if that's the way we are going to do science, the work that you gentlemen are doing onand ladyon trying to bring an integrated pest management program will be useless, and it goes out the window. And I don't know how you respond to that.
Page 68 PREV PAGE TOP OF DOC Mr. Cotta, do you have any further comments on the impact of your operation?
Mr. COTTA. As far as the two chemicals that you refer to, I think one is called Guthion and methyl parathion. The methyl parathion I have never used in my operation in my lifetime. And Guthion, there are many replacements for that right now. One of them is a brand name, Bravado, which is a very safe material instead of Guthion. And it does an incredible job. And we use it when we have to, but I think if those materials were going to go away now, it wouldn't affect my operation.
Mr. POMBO. OK.
Mr. LANGE. May I make a point?
Mr. POMBO. Sure.
Mr. LANGE. The thing that you have to remember about growing wine grapes is that, in essenceI am 50 years old, or almost, and I probably would have 40 to 45 years of producing a crop. And that crop is the result of all the work that we have been talking about here today, our IPM work, our integrated farming systems. Everything that we do in the vineyard tweaks the system within the vineyard. The ultimate judge, if you will, ends up in the bottle of wine that we get to taste a year later. So we get one try once a year. And I get to do this 45 times before it's somebody else's turn.
So the point I am trying to make is when you write a speech or you write a computer program, you get to do thatchange that maybe 100 times in an hour; well, we don't. And what we change in our vineyards has to happen. And we will see the results as to whether we have improved the wine or did we detract from the wine, and it takes a year's time to that. It might take multiple years of experimentation to see if it truly bears the results of that experiment. And then we have to apply it to our vineyards.
So when we talk about time, we really mean we need time. We need the time to be able to do these things so that we can make these improvements. And that's why, again, why FPQA has put a time limit on things, we feel, and it's going to rush what we need to accomplish in the vineyard. And that's the biggest thing I can stress for you.
Page 69 PREV PAGE TOP OF DOC Mr. POMBO. As one of the original sponsors of FPQA, I can tell you that the idea is a good idea. And I don't think anybody that understands the original legislation can debate whether or not it's a good idea to go down this path. The problem that we are having today is with the implementation of that particular law and what's happening right now.
And if I believed the EPA would be administering that law the way we all though they were going to, there would be no need to fix it. But what we are dealing with right now is a process question rather than anything else.
Mr. THOMPSON. I just wanted to mention that in addition to time, we have to be vigilant as far as the money for research. And we ran into this problem with bromide, where we had a lot more research work and trying to find an alternative, and money wasn't there, nor was it provided for that research. And I am glad that Parathion is not coming back down here.
But as someone who initially was going to represent grapes, I also represent pears. It's causing some of my growers to have fits right now. And the EPA claims that there's all kinds of alternatives. But people who I listen to and trust, who have been growing pears all of their lives, they're very worried about not having a backup to Parathion. And we need to be able to have the time to develop research and work on that on the Federal level and State level.
Mr. POMBO. Just to back up on something that Mr. Thompson said. It's in Washington or Oregon State that it's also that State's law that nursery products have to be treated with parathion, and now it's banned. But it's OK for this year; it's safe for this year, and next year it will be back.
Mr. Radanovich, do you have any further questions?
Mr. RADANOVICH. Nothing.
Page 70 PREV PAGE TOP OF DOC Mr. POMBO. Just to wrap up, I want to thank the panel for your testimony. And there may be further questions that will be submitted to you in writing. We will hold a committee hearing holding regular for 10 days to allow you the opportunity to answer these questions. I want to thank you for your testimony.
[The information appears at the conclusion of the hearing.]
Mr. POMBO. I want to thank you, my colleagues, for joining me here today. You've got a fairly good representation of California agriculture up here today between the North Coast and the Central Valley. It's a fairly broad representation in terms of the members who represent California agriculture. And I think by the fact that those of us sitting up here have worked together on so many different issues in the past year, it is a representation of how important California agriculture is on a bipartisan basis to the Members that represent those areas.
Unfortunately, California also has people who represent the urban areas who don't necessarily have California agriculture as their No. 1 priority.
Mr. OSE. You are referring to the dark side?
Mr. POMBO. Yes, the dark side. California comes with its own dark side. And unfortunately, other Members'issues like EPA/H2A reform and other issues that are of such great importance to California agriculture in general and specifically to the California wine industry, the record of this hearing will be very helpful in determining that. So I thank all of you for your testimony. It's been very valuable today.
Do any of you have anything else you want to say?
I want to thank you all. Thank you.
The hearing is adjourned.
[Whereupon, at 12:21 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
Page 71 PREV PAGE TOP OF DOC [Material submitted for inclusion in the record follows:]
Statement of David Lucas
I have been in this wine business for 22 years and worked with growers in crops from apricots to zucchini. I have been involve with growers up and down California, in India, Iran, Kenya, France, Italy, and South Africa to mention a few who have taught me a great deal.
In presenting the following views of a small winery I contacted other small winegrape and winery owners around the state. All of these wineries grow their own winegrapes.
Here, today, we have representatives of all size operations. The Lucas Winery represents the smallest of the small. I would like to put that statement into the positive context of the popular Star Wars movie. That is, that the larger wineries need the small wineries and the vice versa. The large wineries are like the mother ship providing energy for research dollars, political support, and spreading the positive health message about wine. The smaller wineries are like the star fighters providing and protecting image, consumer interest and a high profile for California wines. We are in this together. And, if I may continue the analogy, we are facing challenges from several regions of the dark side.
OTS WINE (OTHER THAN STANDARD WINES)
As you know these are wines with artificial wine flavors. My concern is that they are being labeled with the varietal name of the grape. For example, Zinfandel, the American pie of the wine industry, a grape variety we have adopted as our own is being mixed with non-grape compounds. This is also happening to other winegrape varieties. As a small winery I have little concern regarding the production of these wines or their impact on my business. In fact from a small wineries standpoint this issue can become a positive.
My concern is that of integrity. That the consumer understands what they are buying, that the label has integrity, and we protect the integrity of our wine industry here and abroad. Wine regions have been doing their duty of education and improving the consumer's knowledge about varietal wines. It was not long ago that we wine consumers believed that all that existed were Chablis, burgundy, and rose. Today's knowledgeable wine consumer is asking for, and expects to get varietal wines, produced from 100% winegrapes.
Page 72 PREV PAGE TOP OF DOC It was not to long ago that growers dealt with the issue of varietal integrity in the vineyard. As growers we went though our vineyards vine by vine, to replace vines to guarantee the varietal integrity of the fruit we were delivering to wineries. It was a very very small percentage of vines yet it was labor intensive and expensive.
It is not necessary for us as small wineries to be protected. It is as a consumer that I should know what I am buying. We may have lost the fight on this one but we do not want to lose the war of integrity and the high quality image of America wine.
INTERSTATE SHIPING (FREE TRADE)
Another issue is what the consumer is allowed to receive and how they are going to receive it. This is about Free Trade. There are dark side forces that wish to legislate at a Federal level. Last week the Congress passed something called the The 21 Amendment Enforcement Act that gives state attorney generals Federal jurisdiction to enforce their restraint of free trade in Federal courts. This is nonsense. It is an inappropriate use of the legislative process to enhance the monopoly of trade of one states interest over those of another state.
It was the wisdom of the Founding Fathers who created the interstate commerce clause: That the Congress shall have the power to regulate commerce with foreign nations and among the several stare U.S. Constitution. Article I.
Having free access to the consumer is vital for me as a small winery. We cannot get the attention needed on this issue. Currently some 30 states prohibit direct shipments and more are thinking along those lines.
The smokescreen provide by the 21 Amendment Enforcement Act is that the interstate shipping of wine could contribute to under age drinking. Under age drinkers do not pay $10 to $60 plus shipping and handlingand then wait, 2 weeks, to consume wine as a moderate meal time beverage with proven health benefits
It was not the intent of the Founding Fathers to limit free trade. So with one bold stroke they created the interstate commerce clause. With out this clause we would not have the free trade that has allowed our country to prosper. Note that what is happening to wine would and could happened to other commerce. This issue exists only be cause wholesalers and middlemen and a couple of legislators want to retain their piece of the pie. It is unconstitutional.
Page 73 PREV PAGE TOP OF DOC These actions will not allow me free access to markets. I am regulated in the wine industry, I am use that aspect of this business. Do not prohibit. As we have seen in past examples this is never the solution.
The Environment (Protecting the vineyard enviroment)
As a grower and winemaker my operations strives to be sustainable. All the grapes from my vineyard used in the production of my wine are returned to the soil to improve tilt and nutrients to the vine. I no longer till my vineyard. Now as a standard practice I mow the natural weed and cover crops. I now have quail and dove living in the vineyard. I no longer farm a nuclear free weed vineyard, which drives my dad nuts, but it is easier on the enviroment, takes less heavy equipment, and provides beneficial habitat. All of which have significant positive environmental impact beyond those that can be mention today. This was not an easy step to take. Even today I am not sure it is the correct step. It take increased monitoring, more water, and creates more competition for the vine. We need more research and continued funding of research that will assist me in the transition of protecting the vineyard enviroment.
Be mind full of the impact of legislation on the small business owner, the small winery owner, the small farmer. I often hear we need to protect small business and the farmer. However the legislation or requirements put froth do not have means to measure the impact my business. I would propose that groups such as the EPA be required to do an environmental impact study on the economic impact for who will have to deal with the regulations before such regulations are enacted.
I need the continued support of congress to provide the research to assist us down the path of sustainable farming practices. Research that benefits and protects the vineyard enviroment, the community enviroment, and global enviroment. It is about having the tools to change and stay in business. Because once you lose a farmer you never get them back. It is a set of skills that is passed through generations.
Page 74 PREV PAGE TOP OF DOCEDUCATION (TEACHING THE ART AND VALUES OF AGRICULTURE IN THE CLASS ROOM)
In the latest Star Wars movie there is a planet that is completely covered by city. We need to think about that message and the message our children are being taught in school about the enviroment and endangered species. Because of this education they have great expectations about the quality of the world they will live in and inherit. The public has great expectations about the world we live in and I have great expectations as well.
And we need to teach the art and value of agriculture in our schools. I would propose that agriculture science be required instruction along with the environmental science. I also have a hidden agenda in this and that is to create and provide career opportunity for people who normally would not be given the exposure to agriculture or give it a second look. Lets change the face of agriculture from the 1930 painting American Gothic, by Grant Wood, to that of a 30 something or X generation. Agriculture is not what it was 20 years ago or even 10 years ago. We need to enhance the professional image that will attract highly skilled people to do the research, manage the business, develop the technology, and market and distribute our crops.
Thank you. I want to have the tools to exceed the expectations of my children and know that as a grower I can grow environmental quality as well as grow the highest quality crops.
Statement of Randall Lange
Thank you for holding your hearing in Lodi to learn more about the status and prospects of wine production in the United States. My name is Randall Lange. As third generation Lodi grape growers, my brother and I formed LangeTwins, Inc. almost 25 years ago. In addition to farming our own vineyards we have a vineyard management business. Currently, I am chairman of the board of the California Association of Winegrape Growers which represents the growers of more than 60 percent of the State's annual tonnage of grapes crushed for wine and concentrate. I am also vice chairman of Winegrape Growers of America, an organization of state associations representing winegrape growers from across the Nation.
Page 75 PREV PAGE TOP OF DOC Winegrapes are the ultimate value-added agricultural crop. Wine production adds value of approximately $2 for each $1 of farm gate value. The winegrape industry contributes to the U.S. economy in diverse ways. It generates jobs, exports, tax revenues, tourism and, of course, outstanding wines! It is also the center of intense global competition that may seriously affect the future of these benefits. The industry's future success will hinge on public and private policies that facilitate rather than impede responses to new competitive conditions.
WINEGRAPES IN CALIFORNIA
The wine and winegrape business has enjoyed tremendous growth and success in recent years. Winegrapes are now grown in 45 of California's 58 counties covering 427,281 acres and ranking in the State's top 10 agricultural products. The value of California winegrapes was approximately $1.443 billion in 1998. The wine industry contributes more than $10 billionCAWG and Wine Institute have contracted for a comprehensive study to determine the impact of the wine and winegrape industry to the state*s economy. The study is scheduled for completion within the next two months. in economic activity to California each year. This economic activity pumps more than $626 million annually into state and local coffers from sales, excise, income and property tax revenues.
Winegrape production enhances the environmental beauty of the state, preserves highly valued open spaces and a rich agricultural heritage. It is an important attraction for more than 2.5 million people who visit California's wine producing regions each year, generating more than $300 million in tourism dollars.
California's 1998 winegrape harvest was the second largest on record at 2.5 million tons, down 13 percent from the 1997 record crush of 2.9 million tons. The top five crush regions in California are:
Page 76 PREV PAGE TOP OF DOC Central Valley (from Stanislaus county to Kern county) with 1.5 million tons
Lodi/Woodbridge with 364,610 tons
Central Coast (Contra Costa county to Ventura county) with 262,515 tons
Napa/Sonoma counties with 235,616 tons
Mendocino/Lake counties with 73,181 tons
Based on the 1998 crush, the top five winegrape varieties were:
Chardonnay with 428,827 tons (14 percent of crush)
French Colombard with 392,753 tons (12 percent of crush)
Zinfandel with 339,712 tons (11 percent of crush)
Cabernet Sauvignon with 228,450 tons (7 percent of crush)
Merlot with 201,491 tons (6 percent of crush)
Thompson Seedless, a raisin grape variety, continued to account for the largest percentage of the crush volume15 percent (489,010.3 tons).
GRAPE JUICE CONCENTRATE
Thompson Seedless represents almost 80 percent of the California grape concentrate market. Grapes crushed for concentrate represent between fifteen and twenty percent of the total state grape crush which was 3.2 million tons in 1998. Grape juice concentrate is used in alcoholic beverages. If prices are low enough, grape juice concentrate can compete with traditionally lower priced pear and apple juice concentrate as a natural sweetener for certain food manufacturing. Items that can use grape concentrate include juice and fruit flavored soft drinks, spreadable fruit preserves, cereals and bakery items, yogurt and frozen fruit desserts. The market for grape juice concentrate is worth nearly $150 million a year and is an important market for the grape growers of the southern part of California's San Joaquin Valley.
California produces about 52 percent of the country's grape concentrate. The remaining 48 percent is from Concord grapes grown in New York, Pennsylvania, Ohio, Michigan and Washington. The industry faces stiff competition from South American countries, especially from Argentina, and from other fruits, primarily apple juice concentrate, which enters the U.S. market at a zero tariff. The top suppliers of grape concentrate are Argentina, Chile, Brazil, Mexico, Spain and Italy.
Page 77 PREV PAGE TOP OF DOC The U.S. exported $70.2 million worth of grape juice and concentrate in 1998, down slightly from $73.8 million in 1997. Canada was the top importer of U.S. product, at 43 percent, and Japan took 36 percent of exports. In 1998 grape juice and concentrate represented 11.2 percent of the total value of U.S. exports of fruit juices and concentrates.
WINEGRAPES IN AMERICA
Grapes and winegrape crops are produced in more than 40 States. Grapes are the sixth largest agricultural crop in the U.S. producing more than $3 billion worth of fruit. Grapes are the highest value fruit crop per acre in the Nation, significantly ahead of apples and oranges.
As vineyards continue to expand, so do the number of producing wineries. There are over 1,600 wineries in 47 states. Wine production from grapes consumes about half of the average annual grape crop.
The Nation's top wine producing States are: California, Washington, New York, Oregon, Pennsylvania, and Michigan. California produces about 90 percent of the volume.
Wineries are almost always located in rural areas, near the source of the grapes. The combination of vineyards and wineries provide a stable, year round, and flexible base of rural employment. The wine industry directly creates 206,750 jobs paying $3,706,060,000 in wages and adds $1,523,050,000 to state and local government revenues. The economic activity directly generated by the wine industry in turn creates additional jobs, wages and economic activity as services are purchased and wages are spent. All told, the wine industry directly and indirectly creates 554,630 jobs in the U.S. and adds $41,071,040,000 to the Gross Domestic Product.
OUR PLACE IN THE WORLD
While international data is not always timely, it provides helpful information to understand America's place in the global wine market. The U.S. accounts for about 9.6 percent of the world grape production (fourth after France, Italy and Spain) accomplished on less than 5 percent of the world's vineyard acreage. The U.S. represents about 6.3 percent of the wine production (fourth after France, Italy, and Spain).
Page 78 PREV PAGE TOP OF DOC 1998 exports of wine increased by 26 percent in value to $537 million. Volume increased by 24 percent to 72 million gallons which represents approximately 3 percent of the world export market. California wine exports in 1998 expanded to 49 million gallons, representing almost 12 percent of all California wine. Top export markets for U.S. wine in 1998 were the United Kingdom, Japan, Canada, Netherlands, Switzerland, Germany, Sweden, Ireland, Denmark and Taiwan.
The U.S. ranks 27th in the world in terms of per capita consumption. In 1997, the adult per capita table wine consumption was approximately 2.3 gallons
Changing markets. The global wine market is dynamic and growers and winemakers are always changing to anticipate future market requirements. Although the total market has increased slowly, its pattern has changed substantially toward varietal and more expensive table wines and away from standard wines, coolers, and other wine types.
Nearly 100,000 acres of winegrapes have been planted between 1990 and 1999 and it is estimated that we could have more than 500,000 acres of winegrapes by the year 2000. There is a substantial portion of young, non-bearing vines that will contribute to future production increases. The California wine industry showed the world how to market by varietalsterms widely recognized and easily remembered by consumers. The biggest increases in plantings, in response to anticipated wine market demand, have been the varietals Chardonnay, Merlot, Cabernet and Zinfandel.
Varietal wines with flavors added. In order to carry the varietal name on the container label, standard grape wines are required by Federal regulations to have a minimum of 75 percent of the wine derived from grapes of the variety named. The value of these varietal names is threatened with flavored varietal wine products currently on the market which are not required to meet the 75 percent content requirement. In the last two years wine specialty products made from a formula that includes wine, water, sweetener and natural flavorings have been allowed to carry statements of composition on containers that convey the image of being varietal table wines. We strongly disagree with the BATF ruling to allow the use of the varietal name in this way. We believe these packages are misleading to consumers and exploit the integrity of the California appellation and varietal designations.
Page 79 PREV PAGE TOP OF DOC We are still waiting for the Department of Treasury's Bureau of Alcohol, Tobacco and Firearms (BATF) to clarify the requirements for the statement of composition for these types of products. In the meantime a new line of less than 7 percent alcohol fruit-flavored wine beverages has been introduced. These products prominently display the varietal name. The Federal Alcohol Administration Act, administered by BATF, covers the labeling of all alcoholic beverages, with this one exception. The labels for wines with less than 7 percent alcohol are regulated by the Food and Drug Administration. Growers are deeply concerned about the future of their investment in quality varietal vineyards if they are forced to continue to compete against products carrying the California appellation and varietal names but are only partially grape wine and water. While we all agree on the need to develop new products, we do not want it done at the expense of what has made us successfulmarketing by varietal names that are easily recognized and remembered by consumers.
Narrow consumer base. While we've enjoyed double-digit expansion in premium varietal consumption and revenues there has been a significant decline in generic jug wines (down 7 percent in 1998). Growth in premium varietals priced above $7 was up by 14 percent in 1998. However, we are not gaining new consumers. People are drinking better wine with their dinner, they're drinking less of it, and we're not bringing in new wine drinkers. Consumer research conducted by the Wine Market Council indicates that approximately 11 percent of the adult population in this country consumes almost 88 percent of the wine sold. That narrow base must be expanded for our long-term success.
An ongoing concern for the grower community is the potential threat of excise tax increases which have a negative impact on consumer purchases. We are equally concerned about the negative messages directed at consumers regarding alcohol beverages. As partners with vintners in producing quality wines of which we are very proud, it is frustrating to be a target of anti-alcohol forces who confuse alcohol abuse with moderate responsible consumption of wine with food.
Page 80 PREV PAGE TOP OF DOC Public policy should take into account the entire body of scientific literature pertaining to alcohol consumption. In particular we urge a close examination of studies that make a distinction between moderate alcohol intake and heavy intake. There is extensive scientific evidence to demonstrate reductions in overall mortality for moderate alcohol consumers. This information must be considered as part of the evaluation on alcohol.
Global market pressurestrade barriers. Major shortages of California wine due to weather impacts in the mid-nineties came at the time the market started to grow, opening up market opportunities for imported wines from many countries. Bottled imports have grabbed a larger share of the U.S. marketalmost 19 percent. Significant importers to the U.S. are Italy, France, Spain, Portugal, Chile, Australia, Germany and Argentina. California wineries imported huge tank containers of foreign bulk wines to alleviate supply shortages. Nearly 34 million gallons of bulk wine were imported 19961998. About half of the bulk wine came from France with the balance mostly from Chile, Italy and Argentina.
Imported wine growth has slowed considerably with the large harvest of 1997 and 1998. However, some wineries continue to import foreign bulk table wines for various programs. Growers would like the country of origin to be clearly displayed on the beverage container.
As highlighted earlier, exports have grown even more rapidly than imports. However, unfair policies make it difficult for us to compete with European exportsboth in the U.S. and in third-country markets. Subsidies and protectionist policies reduce the competitiveness of U.S. wines. We have worked closely with California vintners to achieve equality in the work market for wine and are asking our government to make the reduction of wine barriers a priority for the upcoming round of multilateral negotiations.
Trade barriers in this country prevent wineries from directly shipping wine to adults in other States. Direct shipment of wine to adults in other states is important for California wineriesespecially small family-owned wineries who have trouble selling their product through the normal retail distribution system.
Page 81 PREV PAGE TOP OF DOC Urban pressures. Here in California we farm in the country's most urbanized state. This brings additional challenges as cities and suburban areas grow into traditional farming areas. Not only does it mean we are losing farm land to housing, commercial and industrial development, but it means there is tremendous pressure to change how we farm from a population that is not familiar with agriculture and what it takes to produce a crop.
In winegrapes we have a tremendous story to tellwhether it's about our aggressive pursuit of alternative pest management systems, our efforts to maintain and restore wildlife habitat or to conserve water use with drip irrigation. There will continue to be demands on us from our urban neighbors to change the way we farm and there is a willingness on our part to do what we can. However, the moment of truth for each winegrower is harvestthe culmination of an entire years hard work. This is when we can assess the success of our new farming practices. We need time and technical support to make change happen without impacting our ability to be productive and profitable.
The life of a vineyard is about 25 years. Ours is an industry that requires long-term vision and commitmentnot to mention considerable financial investment. Given the challenges we face, the U.S. wine industry has undertaken a unique exercise to work together to sustain the success our industry has enjoyed since the mid-nineties. This strategic planning process, called WineVision: American Wine in the 21st Century, began more than a year ago. Next month we will meet to establish objectives and devise strategies to achieve our stated strategic goals which are to:
make American wine an integral part of the American culture
be the preeminent supplier to the global market
be the leader in sustainable practices
Page 82 PREV PAGE TOP OF DOC In an era that rarely allows the luxury of looking beyond next quarter's results, growers and vintners are investing their time, creativity and business acumen to develop a 20-year plan to accomplish common goals. The changing business and political climate for wine coupled with plentiful winegrape production around the world led to the decision to move forward with this project.
It's too early to declare success, but the willingness of the industry to look into the future and better understand how it can successfully compete in a dynamic global market signals our strong desire to be a significant contributor to a thriving economy, a growing rural job base and a healthy environment. However, we cannot do it alone. We need government to be our partner, not our adversary. Keys to our success include:
Fair trade. The industry can compete when competition is fair, but there is no way for private enterprise to compete against foreign subsidies, inequitable tariffs or untruthful labeling.
The EU program to subsidize its wine industry undermines the commitments it made during the Uruguay Round to eliminate its subsidies that provide an unfair market advantage for its producers.
The last several multi-lateral trade negotiations have hurt this industry. The U.S. was the only country to make significant cuts in duties in the Uruguay Round. Tariffs faced by U.S. wines throughout the world act as a barrier to trade.
Other types of regulations that restrict or prohibit the sale of U.S. wine range from labeling regulations to winemaking regulations to sanitary barriers. Additionally, U.S. growers are put at a competitive disadvantage if there is not a system in place to prevent mislabeling and consumer fraud. Labels on imported wine may not always accurately reflect the contents with regard to the variety or origin (appellation) and it is not always possible to verify this information if the country does not have a system similar to the regulations administered by the BATF. Many developing wine-producing countries have very limited official oversight of those industries and are not able to protect U.S. consumers from fraud. The fact that a foreign producer may be able to label any wine with any varietal of appellation and export it to the U.S. provides an unfair competitive advantage for the foreign producer over the U.S. producer.
Page 83 PREV PAGE TOP OF DOC Research. California winegrape growers are innovative, adaptive and willing to meet new challenges. Research is the critical key to maintaining the competitive edge. Funding for research at the state and Federal levels should be increased and private/public partnerships should make the most efficient use of limited research dollars. The research community should take care to avoid duplication of efforts while ensuring that critical needs are met.
You heard earlier today how the grape and wine industry has developed a national program to develop priorities for research to meet industry needs, reduce duplication and enhance efficiencies. We support the proposal to increase funding for the Viticulture Consortium. Your support for viticulture research funds and specifically for an Agricultural Research Service position at Davis to focus on the development of sustainable vineyard practices is extremely important for California winegrape growers.
Our growers are leaders in developing alternative pest management systems and adopting irrigation practices that significantly conserve water. However, we are facing numerous challenges regarding environmental issues on which we want to create solutions and maintain our reputation as good neighbors. We need technical support to help develop biologically and environmentally sound practices for grape growing so that we continue to be economically viable.
Investment in marketing and promotion. The industry must continue its investment in market development. CAWG strongly supports the Market Access Program (MAP) which provides funding for USDA matching grants to help the industry develop new markets. In a competitive world market, where governments provide strong support to their nation's winegrape growers and exporters, the United States cannot afford to lag behind.
Despite the fact that EU wine production is stronger than ever, the EU Commission continues to provide support for domestic wine production and export promotion. In addition, individual member states, specifically France, Italy, and Spain continue to provide millions of dollars more for their individual wine industries. The continued high level of subsidization for the EU wine industry remains an obstacle to the development of new markets for U.S. wine. Although the U.S. is the fourth largest wine producer in the world, U.S. wine represents just a fraction of the world total. The 15-member nations of the EU make up over 60 percent of world production, while the U.S. represents about 6 percent of production.
Page 84 PREV PAGE TOP OF DOC California has the water, the soils and the climate to produce a broad range of wine styles to please any preference. We can compete but we need continued Congressional support for the matching funds provided through MAP to help us break into heavily subsidized markets.
Other toolscrop insurance. Competitive global markets, falling commodity prices and higher U.S. production costs are driving changes in the rural landscape. More and more states are looking to high-value specialty crops to keep ag land in production. Federal crop insurance that provides adequate coverage for permanent, high-value vineyards is becoming an important risk-management tool for winegrape growers. Here in California we are fortunate to have a program that is working fairly well for winegrapes and we appreciate the leadership of the West Coast Director for the Risk Management Agency in helping to make the winegrape program an effective one.
However, the program needs flexibility to respond more quickly to changes that occur. After the floods in the winter of 1996, CAWG pursued a change in the program to close the gap of coverage between the end of harvest and the beginning of the policy year. It makes no sense to force permanent, high-value crops to be uncovered for a portion of the calendar year. We finally were able to get the change through the regulatory process so that it will take effect for the 2000 policy year.
Catastrophic (CAT) crop insurance coverage to protect farmers against a crop disaster must be maintained. CAWG has aggressively promoted participation in the program as a critical element in growers' risk management plans. In the three years that we've been educating our membership about the availability of CAT, covered acreage has increased from 15 percent to over 65 percent of the state's grape acres. The program is providing about $100 million in liability protection to California's grape growers. Entering the program at the CAT level is the first step towards a better understanding of crop insurance and subsequent investments in additional or more adequate levels of coverage above the CAT level.
Page 85 PREV PAGE TOP OF DOC Our association has been watching the development of crop insurance reform very closely. At the time these comments were prepared, the House Ag Committee was working on H.R. 2559. It has several elements we support, including expansion of pilot programs to help specialty agriculture, a structure in place for premium payments and incentives to purchase more adequate coverage at higher levels and premium discounts for good performance. We support efforts to make the program more market-oriented and incentives for the development of new products by private industry. As stated previously, CAWG has seen good results from its efforts to educate growers about crop insurance and we support language in the bill to allow the involvement of associations in helping make crop insurance accessible for their members.
Other toolsaccelerated registration of new, soft pest management tools. As the U.S. EPA continues implementation of the Food Quality Protection Act (FQPA) it is important that decisions are based upon sound science and actual use information. The California winegrape industry has just completed a comprehensive crop pest management profile to provide the agency and USDA with actual use information. The profile has also helped us assess the impact of the FQPA review and potential restrictions on winegrape pest management tools. Fortunately the California winegrape industry does not heavily rely upon any single pesticide that is potentially vulnerable under FQPA. However, the continued ability to have these pest management tools available so that they may be used for control of periodic or sporadic outbreaks could be crucial to the industry. U.S. EPA must have the resources available to accelerate the registration of new, softer products to replace chemicals that may be eliminated because of FQPA. The registration of alternatives is critical for California's specialty crops like winegrapes.
Other toolsestate tax relief. CAWG strongly supports efforts to enact further estate tax relief as a tool to keep family farms and businesses in the family. Current estate tax laws are extremely complicated and place in jeopardy many family owned vineyards and wineries by requiring huge cash payments when that business must be passed to the next generation. We need further improvement of the laws to facilitate opportunities for succeeding generations to preserve and grow the equity in these farms and family businesses.
Page 86 PREV PAGE TOP OF DOCCONCLUSION
California has a rich history of winegrape production, dating back to 1778 with the Spanish Missions. Despite the challenges we face in the industry today I believe the future of our industry is full of promise. Great California wines begin in the vineyard and I am optimistic that our integrated farming systems will continue to enhance our reputation for drinkable, delicious wines that go perfectly with foodsuperb quality at every price point.
Your support for our industry is much appreciated and I thank you for this opportunity to comment.
Testimony of Edgar B. ''Pete'' Downs
The American Viticulture and Enology Research Network (AVERN) was established in February 1996 to increase support for viticulture and enology research. Grape and wine products have potential for high added value, due to their quality, and their stylistic and regional differences, but significant basic and applied research investment is needed to optimize both quality and value to the consumer, and keep our industry competitive in the global grape and wine market. For example, we need to tailor our cultivars and production and processing systems to regional grape differences and specific market needs; we need better knowledge about, and application of, factors influencing productivity; we need to examine all aspects influencing the quality, healthfulness and style, from the vineyard through final processing, of our grape, juice and wine products. Our research investments need to tap the most effective research processes and techniques.
Key to the success of our research investments is the enhanced collaboration and communication among researchers, extension personnel and producers throughout the nation. In order to facilitate this, AVERN has developed and will maintain a working list of national research priorities for grapes and grape products. In time, research results, priority changes, and AVERN issues will be posted to the Internet for direct access by a wide range of interested parties.
Page 87 PREV PAGE TOP OF DOC The 17 member Organizing Committee from winegrowing regions throughout the US, built AVERN around a core of 6 regional coordinators. These coordinators are teaching professionals that represent each major geographical segment of the industry. The base of the organization is our networking roster of 172 viticulturists, enologists, researchers and academics that expedite communication and collaboration throughout the nation.
Grapes are an expanding high value crop, which requires a high intensity of research effort in order to meet the challenges of global competition. The U.S. grape crop, now grown in over 40 states, has more than doubled in the last decade from $1.35 billion in 1987 to $3.1 billion in 1997. The crop has increased almost ten fold in the last 28 years. Winegrapes have increased far faster than the overall grape crop and are up an astounding 23 fold over the period with a compound growth rate of almost 12 percent per year.
Grapes are now the highest value fruit crop in the Nation and the sixth largest crop overall. Grapes processed in agricultural areas for wine and juice, greatly adding to the value of the product, now make up 67 percent of the entire national crop compared with about 30 percent in 1969.
Exports of American table grapes, grape juice products, raisins, and particularly wine have grown at a high rate in the last few years. In fiscal year 1996 wine exports were up 21 percent and grape exports were up 41 percent. These two components ranked third and fourth respectively among the top horticultural exports. About a third of the raisin crop is exported.
Grapes are a high value crop that requires an intensive, stable and virtually year round work force. Most grapes are processed in family owned rural based wineries and juice plants where significant value is added. Grapes are often farmed on marginal soils and hillsides and use minimal water and chemical inputs. Even though California produces almost 90 percent of the Nation's grapes, grapes are now successfully grown in more than 40 States. Grape production in those states can be increased dramatically as local and international markets are expanding. Imports make up about 20 percent of the current market. Exports of wine and grapes are increasing dramatically and now exceed $600 million per year.
Page 88 PREV PAGE TOP OF DOCTHE CSREES VITICULTURE CONSORTIUM
Initiated in FY 1996, it currently receives a Cooperative State Research Education Extension Service (CSREES) special grant of $1,000,000. An increase to $1.5 million is proposed for FY 2000.
The 4-year-old Viticulture consortium, administered by the University of California and Cornell University, has begun to address the unmet research needs important to our industry. The consortium is an active partnership of Federal, state, and industry resources, which enhances research coordination, collaboration, improves efficiency and eliminates duplication of effort. It has catalyzed and is bolstered by explicit matching funds from both industry and state sources which have increased dramatically in response to Federal support. Research proposals have been received from nearly 20 states, including Pennsylvania, Missouri, Virginia, New York, Ohio, Michigan, Oregon, and Washington and are funded on a competitive basis. Research priorities are developed by a national network of key industry, research and extension representatives known as AVERN (American Viticulture and Enology Research Network).
AN ADDITIONAL ARS RESEARCH POSITION
ARS sponsored grape research has not kept pace with the needs of a research intensive, high value crop facing global competition based on product quality. Much of the research required is of a very long-term nature, best accomplished by the ARS. A new ARS long-term research position is vitally needed to address sustainable vineyard practices (Davis, California). One position has recently been approved to address vine cold hardiness (Geneva New York).
THE AMERICAN VITICULTURE AND ENOLOGY RESEARCH NETWORK (AVERN)
The USDA and the U.S. grape and wine producing industries have developed a national partnership, the American Viticulture and Enology Research Network (AVERN). AVERN brings together state, university, Federal, and industry resources to set national research priorities, maximize research resources, and provide for dissemination of results and information. The AVERN network is a national forum of successful partnerships developed between industry, research, and extension personnel. It helps provide the communication linkages between partners and develops priorities for national and regional research, in turn facilitating the augmentation of matching funds.
Page 89 PREV PAGE TOP OF DOC Attached to my testimony are copies of the AVERN mission statement, contact information for the regional coordinators and organizing committee, and the 10 current national research priorities.
I appreciate the opportunity to speak to you today about AVERN and the status and prospects of wine production in the United States.
The Lodi-Woodbridge winegrape region is located 100 miles east of San Francisco near the San Joaquin River Delta, south of Sacramento and west of the Sierra Nevada.
Lodi-Woodbridge has been a major winegrape growing region since the 1850's. Today, the area has more than 70,000 acres (29,000 hectares) of winegrapes, farmed by over 600 growers.
Lodi-Woodbridge leads all other California wine districts in the production of the top five premium wine varietiesCabernet Sauvignon, Merlot, Chardonnay, Sauvignon Blanc, and Zinfandel.
The region enjoys a Mediterranean climate, with warm, dry summers and cool, moist winters. Average annual rainfall is 17'' (42.50 cm). Deep, sandy clay loam soils predominate.
The region's annual yield of approximately 500,000 tons of grapes is valued at over $300 million, and comprises 18 percent of California's total winegrape productionmore than Napa and Sonoma Counties combined.
The ''Lodi'' appellation was approved by the Federal Government in 1986.
In 1991 local growers voted to fund the Lodi-Woodbridge Winegrape Commission. With its $750,000 annual budget the Commission conducts programs in marketing, grower education and viticultural research. The Commission has also launched the industry's only district-wide Integrated Pest Management program to reduce the amount of pesticides and herbicides used in winegrape production.
Page 90 PREV PAGE TOP OF DOC There are three major wineries in the areaRobert Mondavi Woodbridge, Sebastiani Vineyards, and Oak Ridge Vineyards. However, more than 40 leading California wineries buy grapes from the region including E&J Gallo, Glen Ellen, Sutter Home, Fetzer, Delicato, Forest Glen, Paul Masson, and Napa Ridge.
Smaller ''boutique'' wineries are becoming well-establishedamong them are Lucas Winery, Peirano Estates, St. Amant, Las Vinas and Spenker Vineyards.
Mission Statement. To serve the common interests of all Lodi-Woodbridge Crush District 11 winegrape producers and to enhance the profitability of winegrape production through promotion, research, and education.
Objectives:. Raise awareness of the Lodi-Woodbridge wine region among ''influentials''the wine trade, the press and consumers.
Enhance recognition of the Lodi-Woodbridge region through expanded use of the Lodi appellation on wine labels, by facilitating development of wineries in the district, and by supporting wine oriented tourism.
Provide growers with information, materials, education and strategies directed at profit improvement.
Facilitate two way communication among growers and vintners concerning characteristics of quality which enhance value of grapes and wine.
Provide vintners with information about quality characteristics and quality potential of Lodi district grapes and abilities of district growers to meet their needs.
Provide Lodi-Woodbridge growers with information concerning characteristics of winegrape quality vintners desire.
Create opportunities for Lodi/Woodbridge growers to supply vintners serving higher retail price segments, improving the relative value of their grapes in the California market.
Page 91 PREV PAGE TOP OF DOC Conduct a proactive viticultural research program to maintain Lodi-Woodbridge technological leadership in the winegrape industry.
Identify and encourage implementation of environmentally benign and economically viable pest, weed, disease, and cultural strategies through the district-wide IPM program.
Integrated Pest Management Program. In 1991, growers in Crush District 11 established the Lodi-Woodbridge Winegrape Commission as a self-help, self-taxing organization to promote the region and conduct viticultural research. Over 600 growers are involved, whose production encompasses over 70,000 acres of premium winegrapes, nearly 20 percent of California's total winegrape production. The value of this production exceeds $300 million annually.
Growers recognized the need to become proactive in utilizing sustainable agricultural practices to address environmental, social and economic development concerns.
As a result a district-wide Integrated Pest Management Program was established. It is the only program of its type in the winegrape industry. Its mission is simple: to identify and implement sustainable strategies that will reduce conventional pesticide inputs and maintain the grower's net income.
What is IPM? IPM can mean many things to many people and it is important for any group, such as the Winegrape Commission, to be consistent in its message about IPM. We feel that the following definition best expresses what our program is trying to accomplish:
IPM is a long-term approach to managing pests by combining biological, cultural, and chemical tools in a way that minimizes economic, health and environmental risks.
Farming is a long-term endeavor so we want to use management practices that are themselves long-term. By combining biological, cultural and chemical control techniques to manage a pest problem we develop a broad-based strategy that will still be successful even if one particular technique does not work. Based on our experience with chemical controls, we know that pest control decisions must take into account not only economic risks but effects on the environment and public health, too.
Page 92 PREV PAGE TOP OF DOC Five Essential Components of an IPM Program. The definition of IPM expresses the broad ideas behind the concept. It is important to also understand the framework that makes IPM a working tool. There are five essential components to our IPM program.
1. Understanding the ecology and dynamics of the crop. It is important to gather all of the knowledge we can about the crop we are growing. Most, if not all, pest problems can be directly related to the condition of the crop. The more we know about the ecology of the crop, the better pest management decisions we can make. For example, it is well known that over-vigorous grapevines can support larger leafhopper populations than vines of less vigor. Therefore one way to keep leafhopper populations at acceptable levels is to maintain proper vine vigor.
2. Understanding the ecology and dynamics of the pest(s) and their natural enemies. It is not only important to know what pests are present but also to know in detail about their life cycles, what makes their populations change, whether any natural controls are present and what effects these may have on the pests. By knowing as much about the pest as possible we may find some weak point that we can exploit.
3. Instituting a monitoring program to assess levels of pests and their natural enemies, if present.
It is vitally important to constantly monitor the pest levels in the field. This is a crucial aspect of the IPM approach. By knowing how many pests are present we can make the best decision about how much damage they might cause to the crop. If natural enemies are present we also need to know how many there are because they may take care of the pest problem for us.
4. Establishing an economic threshold for each pest.
Effective monitoring and using economic thresholds make up the of core any IPM program. What is an economic threshold? It is the level of a pest population above which if a control action is not taken the amount of damage caused by the pest will exceed the amount it costs to control that pest. In other words it is the level of the pest population at which the control measure used pays for itself.
Page 93 PREV PAGE TOP OF DOC 5. Considering available control strategies and determining the most appropriate ones based on the consideration of economic, health and environmental risks.
A wide range of control techniques is available for crop pests. They can be divided into 5 broad categories: chemical controls such as pesticides, cultural controls such as mowing and tilling, natural controls such as natural enemy releases, behavioral control such as the use of insect pheromones, and genetic control such as the use of resistant rootstocks.
It is very important to choose the right control strategy based on the economic nature of the pest problem, the cost of the particular control strategy and the effects of this strategy on the environment and public health.
IPM is an Approach and Changes with Time. IPM is not a technique or a recipe, but rather an approach to solving pest problems. Particular techniques for pest management may vary from field to field, year to year, crop to crop, and grower to grower but the overall approach is always the same, using the 5 essential components of an IPM program. It is important to point out that an IPM program is not a cookbook approach. It would be nice if we could tackle a pest problem the same way every time but history has shown us that this will not work.
An IPM program is never complete. The reason for this is that over time we learn more about our crop, our pests and their natural enemies, and refine our monitoring programs. We also improve our economic thresholds, and develop new control strategies. As we gain more knowledge, we need to use it to refine our IPM programs to make them more effective and to ensure they will work in the long-term. This is the best way to minimize the economic impacts of pests in our vineyards and minimize the risks to our health and the environment.
The Development of the Integrated Farming Approach. The way we farm, like anything else, evolves over time. IPM was developed to address an immediate problem in agriculture, the failure of pesticides to solve our pest problems, and the development of environmental side effects as a result of their overuse. Since the inception of IPM other problems related to farming have developed, such as a decline in soil quality, contamination of ground water by synthetic fertilizers, and shortages of water in regions like California where most crops are irrigated. The problem solving approach used by IPM can also be used to tackle these problems, too. This has led to the development of the integrated farming approach. The Winegrape Commission's IPM program has evolved into an integrated farming program and we feel the following definition best reflects what our program is trying to accomplish:
Page 94 PREV PAGE TOP OF DOC Integrated farming of winegrapes is a long-term approach to viticulture that combines biological, cultural, and chemical tools in a way that optimizes the production of quality winegrapes and minimizes economic, health and environmental risks.
IPM is just one facet of integrated farming. An IPM program is at the core of any integrated farming program. The other focal points are soil building strategies, nutrition management and water management.
Implementation of Lodi-Woodbridge Winegrape Commission's IPM and Integrated Farming Programs. One way to view the implementation of IPM and integrated farming is as a progression through a number of stages. The first stage is the familiarization of the growers and PCAs with the concepts of IPM and integrated farming and with specific strategies that are appropriate to their farming operations. The next stage is the establishment of demonstration sites where specific IPM and integrated farming strategies are implemented on a commercial scale so growers and PCAs can see their efficacy. The next stage is engaging the majority of the LWWC growers and PCAs in IPM and integrated farming implementation. In other words developing an area-wide program.
Stage I: Grower Outreach. Since its inception in 1992 the LWWC IPM program developed an elaborate grower education and familiarization program to carry out the first stage of IPM implementation. This program features five components:
1. Monthly breakfast meetings are organized from October to May where an invited speaker talks about IPM and integrated farming strategies appropriate for Lodi vineyards. These meetings are usually attended by 50 to 60 growers and PCAs. 2. Half day research seminars are held twice a year where five to six University and/or USDA researchers discuss the latest results from their projects, some of which are funded by the LWWC Research Committee. Attendance at these seminars is usually 150 to 200 growers and PCAs. 3. An IPM newsletter is published every two months and mailed to all LWWC growers and PCAs and other interested people. It contains a feature article on an IPM or integrated farming strategy, a profile of a LWWC grower highlighting the IPM strategies used in their vineyards, timely IPM tips, a column from Paul Verdegaal, the viticulture farm advisor in San Joaquin County, and a calendar of events related to IPM and integrated farming. 4. Field days are held one to two times during the growing season to provide hands on events such as leafhopper or mite monitoring strategies. This past summer LWWC presented an equipment demonstration day, attended by 200 growers and PCAs, where 15 vendors displayed and demonstrated equipment designed to reduce pesticide use through increased application efficiency. 5. The Neighborhood Grower Meeting program (NGM) is the most recent grower outreach innovation from LWWC. The idea behind this program was to get growers and PCAs together in a small group setting (5 to 10) so they feel comfortable interacting with each other and the LWWC Research/IPM Director. A grower host invites a group of his/her neighbors to the meeting in their house or workshop. Over a 12 month period as many meetings as possible were held, on the same topic, to provide an opportunity for every LWWC member to attend one. At each meeting Ohmart and Verdegaal traced the history of pest control and the evolution of IPM, defined IPM, outlined the 5 essential components of an IPM program, and encouraged growers and PCAs to discuss these topics. Thirty five meetings were held, from December 1995 to January 1997, each hosted by a LWWC grower or PCA, and they were attended by 330 LWWC growers and 32 PCAs. This program proved so popular among the growers that LWWC plans to do another round of NGM meetings this winter on a different topic.
Page 95 PREV PAGE TOP OF DOC Stage II: Demonstration. LWWC was able to carry out the second stage of IPM implementation when it was awarded a Biologically Integrated Farming Systems (BIFS) grant in 1995. The BIFS program has emphasized the demonstration phase of IPM implementation. Forty LWWC growers have joined the BIFS program, enrolling 56 vineyards as BIFS demonstration sites, totaling 2300 acres. There are 12 PCAs working with these growers on their BIFS vineyards and they are also a part of the program. The following things are done for each BIFS vineyard:
1. A 12-month management plan for each BIFS vineyard is developed with the grower and PCA which outlines all the management practices that are done in the vineyard. Where possible, conventional practices are replaced with BIFS practices; growers are encouraged to try at least one BIFS strategy. 2. Weekly monitoring for pests and natural enemies is done by the BIFS staff as well as by the grower's PCA. Data sheets are provided to both growers and PCAs and any pest problems are discussed by all of the parties and necessary control actions agreed upon. 3. Vineyard inputs are recorded in a database and summaries are made at the end of each growing season to assess pesticide use patterns. 4. Field days and tours are held at various BIFS vineyards for local as well as out of town groups.
Each vineyard also serves as a demonstration vineyard for other LWWC growers to come and determine the efficacy of various BIFS strategies.
What are BIFS Strategies? Listed below are the BIFS strategies being emphasized in the LWWC implementation program:
1. Weekly monitoring of vineyards. It is not possible to make wise pest management decisions without detailed knowledge of the pest populations in the vineyards. Weekly monitoring is the best way to ensure that nothing is overlooked and that the grower and PCAs have up to date information on pest numbers. 2. Use of economic thresholds. It is essential to make pest management decisions based on what damage the pest is causing and how much the control measures cost, from an economic perspective as well as from an environmental perspective. This will ensure that the best control measures are used and that controls will only be initiated when they are necessary. 3. Use of soft chemicals. As time goes on more and more environmentally friendly pesticides are being developed. Whenever possible, if a chemical application is justified, we encourage the use of a soft chemical if one exists for a particular pest. 4. Cover cropping. We encourage LWWC growers to plant and maintain cover crops. Cover crops have a multitude of benefits for vineyards and their soils, such as improved water penetration, addition of organic matter, providing a stable vineyard floor for equipment throughout the year, refuge and nectar sources for natural enemies of some vineyard pests, and nitrates if a legume cover crop is planted. 5. Reduction in the use of pre-emergent herbicides. We encourage the reduction in the use of pre-emergent herbicides in under the vine weed control programs. 6. Leaf pulling. Removing leaves from around grape bunches several weeks after bloom has many benefits, such as improving air circulation around the grape bunches which is the single most important factor in controlling bunch rot, improving spray coverage of fungicides, reducing leafhopper and mite numbers, and increasing the exposure of the bunches to light which greatly increases fruit quality. 7. Use of compost and manure. Preliminary research indicates that compost or manure improves soil quality. 8. Release of beneficial arthropods. The most effective natural enemy of spider mites in vineyards is a predacious mite that is commercially available for release in vineyards. When appropriate we recommend the release of this predator in problem vineyards. 9. Use of predictive models. There are at least three computer models available to LWWC growers and PCAs that can be used to help predict the appropriate time for pesticide application. These are a model for predicting the best time to spray for powdery mildew, and a model for predicting when the various life stages of omnivorous leafroller and grape leafhopper are present in the vineyard. 10. Drip irrigation. When drip irrigation is used in a vineyard the amount of fertilizer required per acre is usually at least 50 percent less than with furrow irrigation. We encourage the installation of drip irrigation wherever possible. 11. Owl boxes. Owls are very good predators of gophers, which are present in many vineyards and can cause damage to vine root systems. We encourage growers to put owl boxes around the edges of vineyards to provide nesting sites for these predators.
Page 96 PREV PAGE TOP OF DOC Stage III: Areawide Expansion
LWWC's IPM program is now ready to begin the third and most difficult stage of IPM and integrated farming implementation, areawide expansion. This expansion can be divided into two types. In any IPM program innovative growers are the ones to get involved first and the trend for them is to enroll only a portion of their acreage. One type of areawide expansion is to have the BIFS growers transfer the IPM approach from their BIFS vineyards to the rest of their acreage. The other type of expansion is getting the non-participating growers and PCAs engaged in IPM implementation. This has been the most difficult hurdle to get over with few, if any, well documented examples. Given the complexity and difficulty of Stage III implementation, a multifaceted program will be required. As we develop and implement this stage we will update this website with our progress.
Testimony of Thomas Shelton
Thank you for inviting me to appear before this committee. The wine industry and specifically the commercial relationship between wine producers, distributors and consumers is a current topic of national debate (attachment one). The issue is a simple one; American wine consumers are being denied local access to the wines they wish to purchase. In response to this dilemma, the wine industry has developed through model direct shipping legislation (attachment 2) a solution that would permit a direct and responsible commercial relationship between wineries and adult wine consumers.
With the 21st Amendment and the repeal of prohibition in 1933, Congress granted to the individual states and localities the authority to decide over temperance. This authority included the right to regulate the importation or transportation of intoxicating liquor. Through more than 60 years and hundreds of interpretations, the regulatory authority granted in the 21st Amendment has resulted in a torturous patchwork of state and local regulations that are designed more to protect the business interests of local distributors than to preserve the right to decide temperance. In truth, for most states and localities the social issues regarding temperance have long been decided leaving only a collection of narrowly defined, local business protections as a vestige of the once great national debate.
Page 97 PREV PAGE TOP OF DOC Structurally, the 21st Amendment created a regulated three tier model for the distribution of wine, spirits and beer. Accordingly, in most states, wine is shipped from the producer to a licensed wholesaler who then provides distribution to licensed retailers and restaurants. In some states, such as Pennsylvania and Utah, the model has been modified to permit the state to act as the distributor. This model, created almost seventy years ago, could not foresee societal changes in attitudes toward wine nor could it predict the anti-competitive imbalance that has resulted from the influence of local businesses over the regulatory process. It is certain that this model could not predict nor should it survive the development of electronic commerce over the internet.
The most egregious examples of how the 21st Amendment has been manipulated to protect local distributors from competition are manifested in local direct shipping and franchise regulations. In thirty states the direct shipment of wine from producer to consumer is prohibited. In eight of those states such a direct shipping transaction is a felony. Many states have erected a more insidious means of restricting competition through franchise regulations. The state of Georgia provides an extreme but notable example of regulatory abuse. In Georgia once a wine producer has appointed a local distributor that distributor enjoys state protected franchise rights over the producer's brand regardless of sales and marketing performance or even meeting scheduled terms of payment. Clearly the intent of these local regulations is business protection and not temperance. Many within the wine industry join me in the belief that these examples of local business protections are a direct violation of the right to interstate commerce guaranteed in the commerce clause of the United States Constitution. Currently, through the Coalition for Free Trade, the wine industry is developing an argument that will test, in Federal court, this inherent contradiction.
Complicating the controversy is the fact that through their dependence upon tax revenues generated from the sale of alcohol, the states themselves, have become partners with local distributors in the maintenance of a mandatory three tier system that has survived any real social purpose. Please understand that I am not a proponent of the elimination of the three tier system nor do I suggest that the states are not entitled to their tax. I simply propose that the three tier system will survive without state protection and that state gallonage taxes can be easily collected without the services of a middleman.
Page 98 PREV PAGE TOP OF DOC Several business factors have combined to bring this long simmering controversy to a crisis. Over the past 20 years the wine industry has witnessed a dramatic and continuing consolidation of the distributor tier (attachment 3). Simultaneously, the number of small and medium producing wineries has exploded with the extraordinary increase in consumer demand for premium wines that began in the mid-seventies. In Napa County, alone, there are more than 250 wineries.
Today, five distributors control 31 percent of national wine and spirits sales and the top 25 distributors account for more than 61 percent of total sales. Seeking to protect their investment in a national oligopoly and sensing increasing competition from the direct sales capability enabled by the development of electronic commerce, the largest distributors embarked upon a strategy of making interstate, direct shipment of wines a felony. This strategy incensed small and medium winery owners, some of whom depend upon direct commerce for their survival, because a felony conviction jeopardizes the basic permit of a wine producer to conduct business.
Frustrated in state courts over jurisdictional issues, the wholesalers through the WSWA (Wine and Spirits Wholesalers of America) lobbied Congress for additional business protection with an unprecedented legislative scheme that would grant state attorney general's access to Federal court to pursue violations of state liquor regulations. In the absence of reason, the wholesalers wrapped their argument in the emotional context of imagined alcohol sales to underage consumers. To illustrate their point they orchestrated several highly publicized sting operations to entrap wine producers in what has become a public relations nightmare. These tactics, combined with significant political contributions, an ongoing smear campaign directed by Americans for Responsible Access to Alcohol (attachment 4), and an intense lobbying effort has culminated in legislative success. Last week, the House of Representatives passed H.R. 2031 (The Scarborough Bill) which follows the Senate passed Byrd Amendment to the Juvenile Justice Act. Both bills codify the concept that states should be granted access to Federal court to pursue violations of state liquor regulation. I presume that the two bills will now be reconciled in conference as an amendment to the much publicized Juvenile Justice Act which deals primarily with gun control issues and is not germaine to the wine industry.
Page 99 PREV PAGE TOP OF DOC I represent my associates in The Napa Valley Vintners Association and the Wine Institute who vehemently oppose the Scarborough Bill and the Byrd Amendment to the Juvenile Justice Act. Our wine industry is comprised of hundreds of businesses, employing thousands of workers who, collectively, have developed a world renowned reputation for quality and social responsibility. The legislation currently before Congress is motivated by the greed of wholesalers who seek to extend an oligopoly. They have packaged their argument in the illogical supposition that teenagers are purchasing and wineries are willfully selling expensive bottles of Cabernet Sauvignon over the internet.
The wine industry has responded to these charges by calling for the model state legislation referenced above. In practice, as required by state and Federal law, our wine industry already demands age verification at the point of sale. New technologies will soon permit additional safeguards through electronic cross referencing of driver's licenses with credit cards. The industry is also prepared to ship only through common carriers who require the signature of an adult at the point of delivery. To assist in this goal the industry has developed packaging materials (attachment 5) which clearly indicate a delivery of alcohol and the requirement for an adult signature. Finally, the wine industry is prepared to remit all appropriate state and local taxes and to provide access to sales records to assure accountability.
These voluntary measures (attachment 6) in conjunction with the wine industry's long standing record of social responsibility defeat the argument by wholesalers that consumer choice and competition should be further restrained. Today, at the beginning of meaningful electronic commerce, we must not make a legislative decision that will leave the wine industry behind and thwart the potential of hundreds of small wineries across the United States.
Every industry must now confront and solve the issues of dis-intermediation contained in the commercial promise of the internet. These issues are best resolved through business to business dialogue and the development of a new distribution model. The wine industry must not be denied access to this dialogue through the legislative process.
Page 100 PREV PAGE TOP OF DOC Thank you for your consideration of my testimony.
Statement of Juan J. Villarreal
Mr. Chairman and committee members, thank you for allowing me to provide support testimony on California wine production. The California wine industry touches the lives of many citizens in one way or another, through culture, religion and family traditions. In our state, wine production accounts for $11 billion in economic activity and provides jobs for more than 100,000 full-time employees and 300,000 seasonal jobs. This does not include the related transportation, warehousing and retailing interests involved in the distribution of wine.
More directly many families in California are directly impacted by this industry as well. Historically, and through today, the California wine industry has been comprised primarily of family-owned enterprises. In fact, more than 4,000 growers run 800 family wineries throughout our wine growing regions.
As one travels through California, one is able to see approximately 55 varieties of grapes used in wine, with an estimated grape crush value of $1.5 billion. Vineyards cover 43 of 58 counties in California and produce 90 percent of all wine consumed in the United States.
Grapes are the second largest agricultural commodity in California and the sixth largest agricultural product in the nation. California's grape production ranks fourth internationally after Italy, France and Spain.
Around the world, California wineries play a crucial role. From 1995 to 1997, wine exports grew by approximately 80%. In 1997, export sales provided the industry with $375 million in revenues. Currently, the wine industry is ranked third, behind cotton and almonds, in total exports and is the fastest growing export for California, shipping products to many destinations such as Canada, Japan and Europe.
Page 101 PREV PAGE TOP OF DOC While all of the above is great news for growers, winemakers, and consumers, there is much concern about the future of the industry. Most recently, federal legislation has placed restrictions on Internet sales of wine and actions to eliminate market access program support for the wine industry are moving forward. Moreover, cheap and questionable varietal U.S. imports give unfair market advantage to overseas producers.
California's wine industry is truly a robust and contributing sector to the state's economy. I appreciate the opportunity to speak to the committee and welcome any questions you may have of me or my staff at the California Department of Food and Agriculture. Thank you.
Testimony of Herb Schmidt
Good morning Mr. Chairman. First, I would like to thank you for holding this hearing on the wine industry. On a personal note, my heartfelt thanks for holding it here in California rather than having us travel to our nations capitol in August.
With your permission, I would like to focus my testimony on an overview of trade issues and recent developments. Trade is part of three areas of the Politics of Wine which, we believe are beneficial to our country and state. The other two areas are the environmental programs our industry participates in and the health benefits of moderate wine consumption. It appears others will address those issues.
We learned an important aspect of trade recently from Ann Venaman, former Deputy Department Secretary of USDA and former Secretary of the California Department of Food and Agriculture. She encouraged us to consider the whole world when we consider trade policies for our companies. If we consider that the United States is part of the global market place then our business decisions and public policy discussions should take into account the tariff and nontariff trade barriers that our very own country imposes on others.
Page 102 PREV PAGE TOP OF DOC The reason for that is simplemany companies, including Robert Mondavi, are now forming partnerships with producers in other countries. Protective barriers will affect American companies. The wine industry, therefore, suffers dozens of trade barriers erected by our own government since each state can erect all types of barriers that limit free trade. The most recent example is the 21st Amendment Enforcement Act passed last week in congress.
In the interest of time, I will begin with a basic overview. More detailed information is available and will be provided upon request. If members of the committee have any questions, I would be happy to address them now or in writing at a later date.
As you know, the WTO will meet in November, in Seattle for a Ministerial Conference dealing with agriculture. As a member of the Agriculture Policy Advisory Committee on trade at USDA, we are now engaged in preparations for those meetings. The United States should be encouraged to follow the Golden Rule.
The USTR has elevated wine to a very high level in its trade negotiations. Never before has our industry enjoyed the response and opportunities to provide input into trade negotiations. This is especially true in our negotiations with the European Union. Ambassadors Barshefsky and Scher deserve our thanks. Assistant USTR Jim Murphy deserves some type of medal for his creative and dedicated leadership on the wine trade issues with Europe.
Over the past few years, Mr. Murphy has encouraged us to participate in a very meaningful way. He developed a strategy conveyed it to us, then got our input and followed through. While we are now in the middle of negotiations, we have come a long way from where we were only three years ago.
The European and American industries now discuss the issues together on a regular basis. We have created a new industry group called the World Wide Producers solely to deal with the World Health Organization and the World Trade Organization. The governments of the New World Wine Producers (which includes everyone that produces wine, except Europe) meet on a regular basis using industry representatives for periodic updates on market and trade issues.
Page 103 PREV PAGE TOP OF DOC The International Trade Commission is in the middle of investigating trade practices concerning wine. This also is a first, and very helpful.
The Global Wine Market is the single most important issue for the continued growth of the American wine industry. We must remember that trade barriers within our own country will significantly impact the future of American wine.
I hope this has been helpful and informative and I would be pleased to answer any questions.
"The Official Committee record contains additional material here."