The Institute for Justice’s recent Supreme Court victory striking down numerous state laws prohibiting direct shipment of out-of-state wines received lots of favorable media attention. Brooks v. Danielsen is a lesser known case, but could be just as important for vintners and consumers right here in Virginia.
The case evolved from Bolick v. Roberts (yes, that Mr. Bolick), a 2001 challenge to Virginia wine laws. The case was vacated when the laws were revised and it eventually developed into the current controversy. At issue are the state’s preferential distribution rules that it grants to in-state wineries and denies to those from out of state. The first of these is that Virginia wineries are permitted to sell directly to retailers and restaurants without using a distributor; out of state wineries are required to use a more costly, three-tiered system of winery to distributor to retailer. The second advantage comes from the state’s ABC liquor stores, which have a monopoly on hard liquor (but not beer and wine) sales within the state. If individual stores decide to sell wine, they are only permitted to sell wines made in Virginia. Wines made anywhere else in the nation or the world are completely excluded.
á la the direct shipping case that went before the Supreme Court, these preferences are highly dubious under the Commerce Clause. That’s why District Court Judge Richard Williams struck them down in April of this year in Brooks v. Danielsen. He ruled that ABC stores may not continue to sell only Virginia wines and that in-state wineries may not continue acting as their own distributors. The reasoning is sound, but it has Virginia wineries in an uproar and seeking an appeal and a temporary stay. The small producers argue that they don’t produce enough each year to make working through a distributor possible and won’t be able to stay afloat without state protection.
The producers’ complaints have some validity. Direct sales to retailers are a large portion, perhaps 40%, of many smaller producers’ sales, most of the rest being sold to consumers in the wineries? tasting rooms and at festivals. Online sales make up only 1.5% of sales for wineries around Williamsburg, according to Beverage Journal, so they probably won’t be enough in the short-term to offset lost sales. Thus, even though Virginia wineries have the potential to benefit greatly from the increasingly free direct shipping market, gaining access to other states won’t immediately compensate them for their loss of in-state advantages.
Not surprisingly, this had led to renewed calls for protectionism. The editor of The Virginia Wine Gazette writes:
If the Danielsen case stands as it is, the small family owned wineries that have become an integral part of many communities would disappear. It has taken 30 years to build the Virginia wine industry to almost 100 wineries today and just one moment’s decision by a Richmond judge could rend that tightly woven fabric of families, friends and hard work to pieces.
It’s time to rally the wine troops and contact your local, state, and federal representatives and tell them that Virginia consumers want to protect the smaller family-owned wineries that do not have the production or resources to interest and/or use an outside distributor for greater retail and restaurant sales statewide.
To paraphrase a famous quote: “Give us liberty to drink Virginia wine, not sour grapes!” [JG: Hey, I promised I wouldn't make any sour grapes jokes. I have no control over what the Virginia Wine Gazette chooses to print.]
I’ve heard some brazen claims in favor for protectionism before, but this is ridiculous. In the name of consumer freedom we must make it harder to obtain wines grown anywhere but in Virginia? The mind reels.
A far better solution would be to get rid of the distributor requirement entirely. Instead of lobbying to preserve an unconstitutional protectionist scheme, Virginia wine lovers should demand that all wineries be allowed to sell directly to retailers without a middleman. This would decrease the cost of wine to consumers, give them access to a wider array of producers, and allow in-state wineries to continue their current selling practices. Since it wouldn’t discriminate between in- and out-of-state producers, it wouldn’t run afoul of the Commerce Clause. The Virginia Wine Guide advocates this much more sensible approach:
Meanwhile, the wineries are hoping they will not face a suspension in such sales until the problems identified by the case can be fixed by the 2006 Virginia General Assembly, which will begin meeting in January. A major “fix” would be state legislation that allows everyone — in state and out-of-state wineries — to engage in self distribution within some kind of limitations, yet to be ironed out.
Even if that “fix” never comes to pass, the situation may not be as dire as it seems. All of the restaurants and retailers that have been selling Virginia wine will suddenly find themselves in need of distributors. Though distributors weren’t interested in the smaller wineries before, perhaps they will be in the changed legal climate. The small producers might even try forming their own distribution company to promote their wines. If politics fails, entrepreneurism may yet save the day.
For consumers the choice is clear: fewer legal barriers lead to lower costs, more variety, increased competition, and higher quality. If the in-state wines are really that great, they’ll be able to hold their own in the market, or will have to improve until they can. Virginia wineries, quit your whining. Show us what you’re made of.