The Canadian wine industry will be subject to myriad changes in the coming years. There are two major factors driving this change. The first is climate change which will alter the terroir upon which grapes are grown – from major wine regions such as Nova Scotia, Quebec, Ontario, and British Columbia, Canada is warming at more than twice the global rate. The second are mutually agreed solutions by Canada and the European Union and Canada and Australia, respectively, to two WTO disputes related to the Canadian wine industry which will require Canada to remove regulatory schemes that currently subsidize the sale and marketing of local wines. These changes will be set in place by 2024 and will likely increase the price of Canadian wines for Canadian consumers. This, coupled with the trials of climate change, will likely present new challenges for the Canadian wine industry in the years to come.
Climate Change Impacts Canadian Wine Growing Regions
Globally, the wine industry is changing at a remarkable rate. Climate catastrophe is the greatest catalyst of this change with wine-making countries experiencing the threat of increased fires, extreme heat, and drought. While this means that places like Napa Valley in the United States and Swartland in South Africa need to pivot their wine-growing strategies to mitigate heat damage, it also means that other cooler climates are seeing longer, hotter summers and therefore an increased capacity for wine production. These changes do not bode well for the imported wines Canadians regularly consume. However, it does present a new opportunity of growth for Canada’s wine industry, who will see vast temperature shifts in the coming years if climate change is not effectively mitigated.
These vast temperature shifts will provide Canadian wine-makers with increased flexibility in the styles of wine they are able to produce, and the kinds of grapes they are able to grow. For instance, regions such as Quebec were previously limited to cold-weather hybrid grapes such as Vidal and Seyval, but with increased temperatures and longer summers, winemakers are expanding to include grapes which require a hotter and longer period of growth. Unless extreme measures are taken immediately, the earth’s temperatures will continue to rise and catastrophic climate events like the annually recurring California wildfires will become increasingly common. This means that even if action is taken now, global wine producers will continue to face precarity as their terroirs change.
Canada is uniquely positioned to foster a stronger domestic wine industry and balance higher cost imported wine by subsidizing Canadian wine making and encouraging consumers to purchase locally. Not only would this benefit the domestic wine industry, consumers, and the Canadian economy, but buying locally would ultimately reduce the carbon footprint of your glass of wine.
Global Trade Implications for Canadian Wine Makers
However, Canada’s obligations under WTO law, especially under the General Agreement on Tariffs and Trade, 1994, bar Canada from engaging in regulatory policy that too heavily favours local wines and Canada has already been the subject of half of all wine-related WTO complaints between 2006 and 2021.
In the first WTO dispute regarding Canadian wine policy in 2006, Canada – Tax Exemptions and Reductions for Wine and Beer (WT/DS354), the European Union submitted a formal complaint regarding the preferential taxation schemes for Canadian wine and beer. Specifically, the European Union claimed that Canada’s exemption of excise duties on Canadian-made wine contravened its obligations under Article III (2) of the GATT 1994. The mutually agreed solution achieved by Canada and the European Union resulted in Canada having to remove all customs duties on EU non-alcoholic beer, bulk wine, vermouth and fortified wines; significantly reduce the customs duties on bottled wine; and phase out all the customs duties on sparkling wine over the course of two years. Notably, the mutually agreed solution did not involve the imposition of excise duties on domestic wine.
While this solution eased tensions between Canada and the European Union, it did not exempt Canada from being subject to further scrutiny regarding its excise duties exemption on domestic wine. In the most recent WTO dispute concerning Canadian wine policies,Canada — Measures Governing the Sale of Wine in Grocery Stores (WT/DS520), Australia ascertained that the same domestic excise duty exemptions are a contravention of Canada’s obligations under the GATT 1994. In 2018, a panel was composed and Australia and Canada entered into consultations, with other wine-exporting countries such as the United States, European Union, Argentina, Chile, and New Zealand as interveners. By 2021, Canada and Australia had reached a mutually agreed solution which requires Canadian winemakers to pay the same excise fees as imported winemakers by 2022. Other regulatory measures such as differential tax treatments and preferential policies, which allow for the exclusive sale of domestic products, will also be phased out from now until 2024.
What this means federally is that Canadian wine is set to increase in price in 2022 when excise duties are imposed. Provincially, there are multiple changes as a result of the mutually-agreed solution on the horizon as well. In Nova Scotia, the “Emerging Wine Regions Policy” which provided a significant markup reduction for Nova Scotian wines will be completely removed. Similarly, the mark ups of Quebecois wines in grocery and dépanneurs will have to be increased to the same levels as mark ups in the public Société des Alcools du Québec (”SAQ”) stores. Ontario wines will no longer receive a tax subsidy in off-winery retail sales and British Columbia will have to remove their measures which allow B.C. wine to be sold on grocery shelves while all other wines have to be segregated from food. Other changes include Ontario’s Sale of Liquor in Government Stores regulation to be amended to expand the definition of “small wineries” and to reduce the amount of small wineries, single-country wines, and “quality assurance” wines that must be featured in grocery stores. This latter change will not only reduce space for domestic wine, but ultimately create more shelf space for mass-produced, commercial wines.
‘Buy local’: Yes, but a higher price?
So how do these policy changes play out in the larger picture of the Canadian wine industry? Essentially, as climate change continues to alter the landscape of winemaking, the wine from international regions that we know and love will continue to become more precarious and expensive. At the same time, because of Canada’s obligations under WTO law, we will also see an increase in the cost of domestic wines and the reduction or outright elimination of domestic wine policies, which favoured Canadian wines. This means that while climate change reduces the viability of imported wine consumption, Canada’s WTO obligations will reduce our capacity to encourage local wine buying through subsidies. All of this begs the question of whether international institutions like the WTO are prepared to adapt to the challenges of climate change and whether Canada will be able to support local industries through a shifting climate while also honouring their international trade obligations.
However, this does not mean that Canadian wine is being left to battle alone. As a reaction to this dispute, the Federal Government has already pledged in their 2021-2022 Budget a sum of $101 million over two years to Agriculture and Agri-Food Canada to implement a program that will support the domestic wine industry while also adhering to Canada’s international trade obligations. Will the Federal Government be able to balance their WTO obligations with the pressing challenges of climate change? And will these programs be sufficient to counteract the economic blow that the mutually-agreed solutions will have on Canadian wines? A keen point of interest to be looked out for in the coming months or years.