Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 21 - Evidence - June 13, 2012
OTTAWA, Wednesday, June 13, 2012
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-311, An Act to amend the Importation of Intoxicating Liquors Act (interprovincial importation of wine for personal use), met this day at 4:20 p.m. to give consideration to the bill.
Senator Irving Gerstein (Chair) in the chair.
[English]
The Chair: Honourable senators, it is a pleasure to call this meeting of the Standing Senate Committee on Banking, Trade and Commerce to order. As you know, on Monday evening past, the Senate referred to this committee Bill C-311, An Act to amend the Importation of Intoxicating Liquors Act (interprovincial importation of wine for personal use), better known as the Wine Bill.
In our meeting this afternoon, we have three witness panels on the bill. In the first session, we will hear from the sponsor of the bill, Mr. Dan Albas, Member of Parliament for Okanagan—Coquihalla. Colleagues, we have approximately 25 minutes for this session.
Mr. Albas, the floor is yours.
Dan Albas, Member of Parliament for Okanagan—Coquilla, Sponsor of the Bill: Thank you, Mr. Chair. I would like to thank the members of the Senate for your timely efforts to support my bill and getting it this far so quickly. I appreciate that the Senate is a very busy place these days, and in the interests of time, I will briefly outline why this is such a small but important step for the Canadian wine industry.
Please bear with me, as this is obviously my first time before a Senate committee and it is deeply humbling to be with all of you today. You have been very encouraging of my efforts as a new member of Parliament, and I appreciate that warm reception.
Why is this bill important? To understand this bill, it is also important to have an understanding of the Canadian wine industry, in particular the small family-run wineries. I suspect I do not need to pass on the fact that Canadian wineries can and do make some of the best wines in the world.
The problem for small-scale producers is that they simply cannot afford to sell through provincial liquor jurisdiction monopolies; the costs of doing so amounts to what is in effect a 50 to 60 per cent commission, depending on the province. In other words, half of your entire production is sacrificed just to sell through the LCBO.
For most small producers, there are simply not enough grapes left over to survive on. They simply lack the production capacity and the volume to absorb these kinds of costs. The alternative is that they must sell direct, or what the industry calls "cellar door sales, " or they must sell outside of Canada. Why outside of Canada? There is an 83-year-old Prohibition- era legislation that makes it illegal to sell directly within Canada. In other words, an Ontario winery can sell to a customer in Japan, Texas or China but not legally in Calgary or Vancouver. Is it any wonder that with these kind of arcane restrictions that close to 70 per cent of our Canadian wine market is currently served from foreign imported wines?
Even more frustrating for Canadian wine makers is that wine tourism has become an increasingly popular activity. Literally thousands of Canadians no longer visit Napa Valley in California. Instead, they are in the beautiful Annapolis Valley of Nova Scotia, the picturesque Niagara region of Ontario or in my incredible riding of Okanagan- Coquihalla.
Yet, those Canadian visitors cannot legally purchase wine and take it home with them.
I will give a more local example. We all know of people who work in Ottawa but live across the bridge in Gatineau. If they purchased one bottle of wine here in Ottawa and brought it back home with them, they would have broken this outdated federal law. Surprisingly — probably shocking for most of those who do so on a semi-regular basis — they would be breaking this law. The penalties include not just a fine, but a potential for jail time.
I am sure many of us agree that it is not only absurd, but it is costing our Canadian wine industry sales and preventing them from expanding their operations, adding more jobs and supporting our regional economies.
In British Columbia, about 25 years ago, we had roughly 20 wineries — pretty much what exists in Nova Scotia today. Today, British Columbia has well over 200 wineries and in excess of 3,000 jobs are supported by the B.C. wine industry. Think of the potential for a province like Nova Scotia that has, as we learned at the Finance Committee, potentially 40,000 to 50,000 acres of farmland suitable for growing grapes. This farmland is affordable at roughly $3,000 to $4,000 per acre. In my area, an acre would be around $100,000, for comparison. That is before you actually invest the time and energy. It might be up to $20,000 to develop actual a vineyard per acre, on top of that.
Unfortunately, Nova Scotia only has a population of just under one million, so the ability to have access to the entire Canadian marketplace has huge potential for that province. The same can be said for British Columbia, Quebec and Ontario. Other provinces are also discovering where grapes can be grown.
While Bill C-311 may be a small step today, it could be a monumental leap for the entire Canadian industry. We already know that the Canadian wine market is bigger than what our domestic production is. Anything we can do to help increase our support for the Canadian wine industry means more jobs and more investment right here within our own great nation.
To be clear, here is what the amendment to the Importation of Intoxicating Liquors Act legislation in my bill proposes.
It would no longer be illegal for wine to be transported, or cause to be transported, across provincial borders direct from wineries to consumers, so long as it is for noncommercial purposes, in quantities that can be limited by the latter province in question.
That means you could legally transport wine back to your home province, but more important, you could order wine online and have it shipped directly to you. In effect, this will open up the entire Canadian marketplace to Canadian wineries, so they will have the exact same domestic trade opportunities as every other industry producer has all across this great country.
Over the past year, I have not met with a winery owner who has told me that any increase in revenue that would result from this bill would not result in increased capital being spent on the winery. Canadian wine makers have some exciting expansion plans if this bill goes forward. John Skinner from Painted Rock said he is considering establishing a new wine-tasting centre if this bill goes through. Dr. Anthony Holler from Poplar Grove in Penticton has said to me that in his business plan, he expects to sell another 15,000 bottles of wine a year.
I have also heard overwhelming support from Canadians all across our great country. Exceedingly rare, there has been unanimous, all-party support in the House of Commons. I have to thank all parliamentarians for that so far.
I am not certain if I should refer to the Senate or as the other other place, while we are in these chambers. I should say the House of Commons.
Tonight presents an important opportunity to move Bill C-311 one step closer to Royal Assent, and help support an emerging industry that can and will create more jobs in many regions of Canada.
I ask for your support in moving Bill C-311 forward. I am very happy to answer whatever questions you might have. I have learned a lot about our parliamentary processes, and I appreciate your input.
The Chair: Thank you for your opening comments. You said in your presentation that you can also order wine online now and it would be shipped directly to you.
I know the subject has been raised but that perhaps suggests that underage individuals might be able to use their parents' credit card and wine could be shipped and there would be no control. Do you have any reaction to that suggestion?
Mr. Albas: That is a great question, Mr. Chair. First, none of us want to see any minors having access to liquor. It obviously circumvents the law. In my home province of British Columbia, FedEx Canada has established an intra- provincial system that has protocols in place to ensure that minors cannot have access to it. Just from a more practical sense, though, in my estimation more youth would probably try other means than to use a credit card and wait three days or whatever it would be for it to be shipped. Again, whether or not they would be choosing from some of the fine wines from my province, or Ontario or Nova Scotia, I cannot say, but I would say that the real end consumer will be someone who wants to subscribe to a wine club of the month, who reads about a great new B.C. or Niagara or Annapolis Valley wine in the National Post or Globe and Mail and wants to simply try what the wine critic says is the next great wine. It is more toward that connoisseur who wants the extra choice and selection.
The Chair: We only have 15 minutes left in this part of the session before other panelists come on, so I will go quickly and ask each person to ask their questions quickly.
Senator Massicotte: Offhand, I agree this would be very good interprovincially, in particular for that industry. Personally, I would tend to think we should support it.
Some people are against it, obviously some of the provincial liquor control commissions. Why are they against it? We will ask them, but it is the revenues they will lose, the lack of taxation on that consumption?
Mr. Albas: At the Finance Committee in the House of Commons a representative from the Canadian Association of Liquor Jurisdictions raised two issues: one was international trade and the other was perceived loss of revenue. Again, the committee heard that this bill applies to both domestically created wines, so whether it is cellared in Canada or VQA, for example, or another type of premium wine in Canada, it would also apply equally to other wines as well.
Obviously, from what I have heard from the industry, they expect VQA, and especially the small family wineries would probably get the most out of this bill.
I believe that the revenue challenge is quite the opposite. There is no question that Bill C-311, if passed, will result in increased wine sales. Every winery I have heard from has talked about the frustration they have turning away interprovincial sales solely because of the IILA legislation.
Currently all of Canada's wine producing regions have HST which is applicable on the sale of wine, regardless of where it is sold to across Canada. Increased sales of wine mean more HST to both the federal and provincial governments. There is also HST on shipping, so that is another one.
We also have to keep in mind that there is a clear difference between provincial revenue and liquor monopoly money or revenue. We can look at the spinoff industries that come from it. For example, the very first cooperage in Canada is based in Oliver, just outside my riding. They make barrels for the Canadian wine industry. If you look at what goes into the average winery, there are construction jobs, more steel tanks, more sales and all the spinoffs to tourism. Often when someone comes to my area they are coming to golf and go wine tasting, staying in our hotels and eating at our restaurants. This is again a very small step.
Senator Massicotte: Given they do not agree with you — if you look at what happened in B.C., they are already putting up obstacles to nullify the benefits of your proposed bill — is this all for naught?
Mr. Albas: Again, we are removing the federal government and allowing the provinces to have jurisdiction.
Senator Massicotte: To get in the way.
Mr. Albas: I believe each province has the means to be the best judge of what is good for them. I encourage, especially the wine producing regions, to look at the opportunity as far as agri-tourism, coupled with the spinoff industries, such as making a new website to market your wines or a cooperage, as we have in Oliver. We need to differentiate and see the forest for the trees.
Some of those concerns are focusing on just one pocket versus all the benefits that will come. Again, like I said, anything we can do to support more domestic wine investment and sales will not only bring up the qualities of Canadian wines, but it will also generate more revenue.
[Translation]
Senator Maltais: I wanted to congratulate you because we have been waiting for this amendment to the act for a long time. I come from a Quebec region with many small vineyards. Those people are not benefitting from the SAQ monopoly. They are forced to sell their wine in front of their home and in a few corner stores. The tax issue goes 100 feet over my head, since we may be talking about 25,000 bottles of wine that will be moving across Canada. For once, people will be able to drink wine and not just pay taxes. I have no regrets.
You have reassured us when it comes to minors. That was something we were wondering about. You are entirely right. When a young person wants to drink a bottle of wine, they will not wait 33 days. They will go to the corner store and have someone else buy the wine for them or they will take it from their father's bar.
I want to thank you because this will help us get to know the range of wine production in Canada. In British Columbia, there are some superb wines, which have won prizes in Europe, and we are unable to buy them. We will be able to at least try them by ordering a case. I do not think that an individual can order 25 cases of wine from British Columbia. It is utopian to think that. This is about allowing people who are travelling to bring back one or two bottles, according to the law. It is mostly about introducing Canadian products.
What you are doing in the wine industry opens the door for other industries, such as fine cheeses. We still do not have that possibility. Such initiatives in the House of Commons are praiseworthy. I do not think many people around the table are against this. I have no questions. You have answered my question about minors. Once again, my hat goes off to you!
[English]
Senator Moore: Thank you, Mr. Albas, for being here and for this initiative, which I understand your colleague Scott Brison seconded and is an equal proponent of this bill.
I have a couple of questions. Does this bill apply only to wines made in Canada? I have gotten that from your comments but it does not say that, and maybe another section of this Importation of Intoxicating Liquors Act says it. Is it Canadian wines only?
Mr. Albas: That is a great question and I appreciate it. This subject came up quite a bit at the Finance Committee. To label it 100 per cent Canadian content would possibly put us at risk of a trade challenge because we would be giving preferential benefit to one particular type versus another.
However, from speaking to the industry, specifically I have heard that the expectation is that it is mainly the small producer, VQA or premium wines, in Canada that will benefit the most. For example, when you go into a liquor control monopoly obviously there are not 206 different options from British Columbia.
Senator Moore: Are we concerned about possibly not being compatible with NAFTA? Otherwise, we think this will look after itself and will be Canadian dominated.
Mr. Albas: Yes.
Senator Moore: When I first heard of this, I thought it was great, people in my province can order something from B.C. over the phone or Internet and vice versa. I think the Canadian public thinks that is what is happening here. However, it is not that way, at least given the B.C. regulations, which were passed a day after you got your bill through the house.
Today I spoke with the people in Nova Scotia, the chair of the Nova Scotia Liquor Corporation, and I did not know that Nova Scotia is the third largest producer. I knew we were in the top five, but did not know that. They are supportive but are concerned about the time to pass their own regulations so it will be clear to Nova Scotians as to what they can do.
Have you had comments from other liquor commissions? Do you have something to say about that concern and how that feathers into the ongoing commercial activity here?
Mr. Albas: I was speaking earlier how this will mainly help small producers that often do not sell. For example, in Ontario, you have 130 VQA wineries competing against each other in a small geographic area; 85 per cent of their sales are through the cellar gate or door. There is more opportunity for a wine-producing region like Nova Scotia.
We are clarifying this area is one of provincial jurisdiction. If an individual province feels, through consultation with its industry and its consumers, they would like to put some restrictions forward, certainly it is acknowledged within it. This bill was drafted thinking of them, not for them.
Senator Moore: Sure. Did you canvas all those liquor commissions in the province to see what their thoughts were or are you hoping they will catch the wave here and adjust regulations accordingly?
Mr. Albas: I think that any time you empower any organization, whether it is an individual or a province, so that they are in the driver's seat, that is exactly what this legislation does. Will it create the potential for a few provinces or an individual province to set up restrictions? Absolutely that may happen, but at the end of the day we will have far more free trade of wine in Canada than currently. I should point out it is not just a trade barrier. It actually makes possession of a bottle of wine a criminal act. I think we need to clarify at that level.
Again, close to 70 per cent of our wines consumed are imported. I have heard over and over from small and large producers across the country that this will see more investment and more sales and create more jobs here in Canada.
Senator Massicotte: The way I read the proposed amendment to the act, it basically says it allows all importation of wine and liquor from one province to the next, period, not for resell and so on. It does not distinguish it must be Canadian-made wines. I know that is your wish. We can only approve what we have in front of us. This permits all importation of wine from provinces, including imported wines from outside of Canada, which I wholly support. Am I correct in saying that?
Mr. Albas: Yes. It basically gives a personal exemption for non-commercial use of wine as defined by the IILA. We are trying to facilitate it so there will not be any trade challenges. That is something the Finance Committee heard extensively about.
Senator Massicotte: This is a good amendment. Thank you, chair.
The Chair: A question was raised about the time that provincial liquor boards might need to adapt to this new legislation. Could you tell the committee when this bill first came on the radar screen? How long have provincial liquor boards been aware of the fact that this legislation may come through?
Mr. Albas: If you speak to some wine advocates, and I am sure you will hear from some soon, they would say this has been a thorn in their side for as long as there has been a Canadian wine industry. While individual consumers have not been clamped down on or actively enforced, it has stopped their growth.
The Chair: Your bill itself, when did you first introduce your bill?
Mr. Albas: Last October.
The Chair: It has been on the legislative program since last October?
Mr. Albas: Yes. Again, it is enabling legislation. It is up to each individual province to decide as per the laws. I would urge all provinces to have a good discussion with their consumers, let them know what the pros and cons are, but also speak with their industry. Speaking about the agri-tourism, spinoff aspects, further marketing aspects of it, this will be good for the economy.
Senator Massicotte: We live in a certain regime in Canada with the provincial control of liquor. To give an example, for instance, if I lived in the United States and I wanted to import wine from Italy, is there a prohibition to that? Is that easy? Can you do it by way of credit card or shipping?
Mr. Albas: Absolutely. We have multiple cases, but I will give you an example I read in a newspaper recently. A gentleman in Ontario had two couples visiting together, one from Texas and one from Montreal. They both said, "We love the wine. Can we please send a case home? " He said, "Where are you from? " The Texan couple said "Texas, " and he said, "No problem. We will have it to you. Just fill out this form. " When the Montreal couple said they would like a case as well, he had to say, "I am sorry. There are regulations in Canada, and the law states I cannot sell to you legally. "
Think of the frustration of the wine consumer because it clearly does not seem to be fair. Also think about the frustration of someone who has probably put a large amount of his life, capital and energy into his business. The opening of a winery is extremely capital-intensive and complex. Not only do you have the grapes and complexities of creating it, but you also have the production, and there are no guarantees. For many of these small family wineries, this is a small but important step for them.
Senator De Bané: I would like to compliment you for what you are doing. In my opinion, any measure that frees initiative is always very good. With this, you allow our producers, who do not produce enough, to sell to a liquor board that needs huge quantities; he or she will be able to sell to individual people. You free the energy. It is a win-win for both the consumer and the producer. I compliment you 300 per cent.
Mr. Albas: Thank you very much, sir.
The Chair: Thank you, Mr. Albas. I know you have a busy day. We appreciate your coming over here.
Mr. Albas: Thank you very much. I got a personal exemption from the last vote.
The Chair: Honourable senators, in this second session we will hear from two organizations. We are pleased to welcome Dan Paszkowski, President of the Canadian Vintners Association; as well as Ms. Shirley-Ann George, founder of the Alliance of Canadian Wine Consumers. I suspect you might have some members sitting around this table.
Colleagues, we have 45 minutes for this session. Mr. Paszkowski, we will hear from you first, followed by Ms. George, after which time we will have some questions. The floor is yours, sir.
Dan Paszkowski, President, Canadian Vintners Association: Good afternoon. As mentioned, my name is Dan Paszkowski. I am the President of the Canadian Vintners Association, and I am very grateful for this invitation to appear here today on behalf of my members to speak on Bill C-311.
Our membership represents roughly 90 per cent of wine produced in Canada, and I feel confident in saying that our support for Bill C-311 is shared by all of the remaining 10 per cent.
There are more than 400 grape-based wineries across six provinces in Canada with 196 wineries in British Columbia, 135 in Ontario, 70 in Quebec, and 22 across the Maritime provinces.
As mentioned by Mr. Albas, the wine industry in Canada is growing. It is attracting investment dollars in rural areas and cultivating an important tourism industry that has a broad impact on the Canadian economy. Directly, our wineries pay wages, salaries and benefits to more than 12,000 Canadians.
The majority of Canadian wineries are owned by entrepreneurs and are small-volume operations focused on premium wines. The number of wineries in Canada has increased significantly in the last 15 years, and so too has the number of Canadian wines. Our growth is positive, but growth becomes a challenge when the route to market is limited to a wholesale and retail model that has not drastically changed in 84 years.
Canada is a wine-producing country that has achieved international recognition for the quality of our products. However, domestically, VQA-100 per cent Canadian wines represent just 6 per cent of total wine sales in this country. This pales in comparison to other wine-producing countries, such as Argentina, which commands 96 per cent of its home market, Spain 94 per cent, or Italy, 93 per cent, respectively.
Canadian wineries currently are only permitted to sell their wines at their cellar door or through the "bricks and mortar " provincial liquor board system. Without listings in a provincial liquor board, the only remaining option is to wait for a customer to drive down the gravel road to make a sale, although some wineries do have a paved road. In Ontario and British Columbia, direct consumer delivery between a winery and a consumer within its provincial boundaries is permitted as well.
We must sell our wine and empty our tanks before the next vintage. If wine sits in inventory, it creates additional problems for a winery owner to access financing to support other parts of their business.
Today's consumer wants the ability to purchase their favourite Canadian wines in the manner of their choosing, whether that is from retailers, at the winery, remotely by telephone or online orders. Canadian wineries know this because they are getting calls and online requests from interested consumers, but they are prohibited from making the sale because of the 1928 Importation of Intoxicating Liquors Act.
Interestingly, provincial liquor boards have also expressed publicly that the IILA is a barrier to their ability to respond to both consumer and winery demands for direct shipping of wine. It is not our fault; we are just obeying the federal law.
Bill C-311 removes the federal government as a barrier and gives the provinces the legal authority to respond to the growing consumer demand for direct-to-consumer shipping opportunities. It gives them the chance to open the Canadian marketplace to wineries across the country.
The provinces recognize that the federal law is outdated and, as a result, have established rules allowing consumers to import wine into the provinces "on their person. " Unfortunately, the restrictions are limited to personal transport, vary between provinces and are restrictive in terms of quantity. For example, Quebec permits 1.5 litres and Ontario 9 litres per trip. Nonetheless, Bill C-311 will legitimize these rules, since it is presently illegal for any individual to transport wine across a provincial border unless purchased by or consigned to the province.
Provincial liquor boards have also recognized that consumers increasingly want access to unique, small-lot specialty wines that are not available through their retail system. The private order program response is not a core part of liquor board business. It is costly to operate for liquor boards, not widely publicized and not particularly user-friendly. You have circumstances where it may take between three or four months, as noted on the LCBO website, to receive an order of wine through their private order program, which is not much different from most other jurisdictions.
We are encouraged by this alternative channel but stress that the private order program is no replacement to dealing directly with a customer and building a relationship through a direct winery purchase for these unique premium wine products.
Since the 2005 U.S. Supreme Court decision that engaged direct wine delivery in the United States, the CVA has been pushing to bring down the interprovincial barriers to wine trade across Canada. This is not new. We have engaged discussions with the Canadian association of liquor jurisdictions but in 2009 were unsuccessful in our efforts to establish direct-to-consumer opportunities for wineries. Minimal effort has taken place over the past four years. Once again, this is not new.
For the past six years, we have consulted with consumers, wineries across Canada, the U.S. industry, numerous trade and alcohol lawyers and have benefited from ongoing discussions with the Canada Revenue Agency and other federal departments. Based on this expert advice, it is important to clarify some of the more significant misconceptions about the impact of Bill C-311.
First, Bill C-311 will not result in tax avoidance. Like any other product, taxation of interprovincial sales will be applied based on where the consumer takes possession of the product. Interprovincial wine shipments from a winery to an adult consumer will require the winery to collect all taxes, levies and fees on behalf of the province. Sales tax on direct shipments would become a new source of revenue, even for provinces that do not have a wine industry.
Second, Bill C-311 and direct-to-consumer sales will not negatively impact sales through provincial liquor boards. The Province of Ontario has permitted direct sales and those grew by 77 per cent between 2002 and 2010. That represents roughly 2 per cent of total sales. During that time, the LCBO increased its share of total wine sales across the province from 82.6 per cent to 84.1 per cent.
Third, Bill C-311 will not violate international trade rules since imported wines will receive the same treatment accorded to domestic wines. Unfortunately, Bill C-311 could not be restricted to Canadian wines, as mentioned previously, or it would lead to a potential trade challenge.
Fourth, Bill C-311 and direct-to-consumer shipping will not undermine social responsibility obligations and will not mean minors will be able to access wine through online ordering. Direct shipping within the province of Ontario and B.C. has been available for well over a decade, and underage access has never been an issue. In addition, no wine will be sold below the social reference price established by the province, and couriers will require that direct shipments be signed by an adult at the point of delivery. Wineries will prevent shipping to "dry communities " through their order- fulfillment software, with couriers acting as an additional backup.
We believe that Bill C-311 will provide Canadian wineries with a new sales channel that will create a stronger internal market for Canadian wine, a solid base for the industry to sustain its growth ambitions and new opportunities for wine country tourism, new jobs and enhanced government revenues.
In closing, I would note that provincial rules permitting wine to be imported on your person are the starting point. The legal intent of Bill C-311 is simple and offers the first opportunity in 84 years for individual Canadians to visit an out-of-province Canadian wine region and return home with their wine purchase; purchase wine at an out-of-province winery and have the winery arrange for shipment to their home; order wine online from an out-of-province winery and have their purchase shipped directly to their home; and become a member of an out-of-province Canadian winery wine club and have new vintages and small-lot production wines shipped to their home.
We know from experience that these rules can be put in place very quickly by the provinces. As such, we ask that the passage of Bill C-311 not be delayed. This is not a new concept. It has been discussed for multiple years with provincial governments and liquor boards across this country. Thank you. I look forward to your questions.
Shirley-Ann George, Founder, Alliance of Canadian Wine Consumers: On behalf of Canadian wine lovers, we are pleased that you have sought the views of the Alliance of Canadian Wine Consumers. We represent an ad hoc, grassroots, volunteer organization most commonly known by our campaign name, FreeMyGrapes. We exist for a single purpose: It should be legal for Canadians to directly buy wine from Canadian wineries and have that wine shipped across provincial borders for their personal consumption. We call this winery-to-consumer, or WTC, sales.
Bill C-311 has our full support. It removes the federal, criminal penalty that today denies Canadians access to many out-of-province wines. It removes the club that the provincial liquor boards use to keep wineries from filling orders from much-needed customers. In short, it is an essential step forward in our quest to have Canadian wines made more accessible for all adult Canadians.
I have five quick points to make. First, Canadians want this interprovincial trade barrier removed. We believe there should be greater consumer choice, a single Canadian market and, in 2012, we expect that everything should be available via the Internet. Regardless of where you live in Canada, we should be able to have the ability to visit a winery and have a wine shipped to your home, to join their wine clubs, to go to a winery's website and order the wine that you have heard about through word of mouth or some online blog.
Canadians in every province and territory have supported our cause. They have signed our online and paper-based petitions. They have sent letters to their members of Parliament, and joined us on Facebook and Twitter. As a matter of fact, there is something called a "Tweet-a-thon " taking place over the course of four hours this afternoon in support of Bill C-311. It will have participants from across the country — wineries, consumers and others in the industry.
Given that the majority of adult Canadians support removing this interprovincial wine barrier, it is not surprising that the existing archaic, provision-based law has been mocked in national and local newspapers, radio, television and social media.
Second, this is affordable. Our WTC request has been carefully crafted to minimize the impact on provincial revenues. Our analysis is fact-based. We have used ShipCompliant numbers. This is the company that in the United States is tracking the U.S. impact of direct-to-consumer wine sales where it is now legal in 38 of 50 states to ship wine across state lines.
Only 0.6 of a single per cent of U.S.-produced wines are actually shipped across state lines. If we apply this number to Canada and assume no economic upside, which I think we could all agree is an ultraconservative projection, this translates into 0.001 to 0.015 per cent of liquor board revenues. This is not even a rounding error.
On the plus side, we believe that the increase in taxes and jobs and other economic benefits that the provinces will receive will more than cover any costs. The wine producing provinces — and you may be interested to know that every province today has their own wineries — will gain from increased tourism, wine sales and grape and fruit sales.
The high cost of shipping wine means that WTC is only attractive for wines that are not locally available, and will be largely used to for higher-end wines. To give a concrete example, I know someone who ordered two cases of wine to be shipped in from B.C., an illegal act, so we will not name that person. The cost was $106. It is not a trivial expense and you will not do it on your $10 bottles of wine; it is will be premium wines.
As in the U.S., this all translates to existing liquor outlets maintaining the vast majority of wine retail sales, with 98 per cent of wines continuing to be purchased locally.
Third, the vast majority of Canadian wines are simply not readily accessible to Canadians. A quick tour down the aisles of your local liquor store will clearly demonstrate that very few of the over 450 wineries in Canada are represented, and each of those wineries has multiple labels. The reality is that there will always be limited retail shelf space and that these wines will never be readily available via any other means but buying them direct.
Fourth, the greatest benefit will go to small, rural, family-owned businesses. Most of these are small wineries that cannot or will not sell their wines through liquor boards. In addition, winery and culinary tourism will increase, supporting the many small businesses, such as hotels, restaurants and wine tours. The U.S. experience demonstrates that every state that has allowed WTC has had their local wine sales increase.
Finally, this bill does not undermine the need or ability of the provinces to properly regulate the sale of wine. The provinces can still set regulations, for example, limiting the changes to winery-to-consumer sales as we have asked. They can still ensure the protection of minors through such vehicles as those Dan has mentioned, such as demanding proof of age on delivery, a system that has been proven to be effective.
In summary, we would like to thank the great Member of Parliament Dan Albas for his private member's bill and the unanimous support this bill has received in the House of Commons. Today, Canadian wine-lovers are asking you, members of the Senate Banking Committee, to also vote in favour of Bill C-311.
The Chair: Ms. George, could you testimony the committee a little more about who the Alliance of Canadian Wine Consumers are? You are the head of this organization?
Ms. George: Yes. It is a grassroots organization that has supporters who have signed up either online or through vehicles such as Facebook and Twitter. It has grown into something far bigger than just the Alliance of Canadian Wine Consumers. For example, if any members here are from British Columbia, there is a very active Free My Grapes campaign going on in British Columbia. We also have significant support from sommeliers across the country; from wine-lovers; and from the media, both mainstream and the media that follows the wine industry.
The Chair: Thank you very much.
Senator L. Smith: Mr. Paszkowski, in your presentation you said that Canadian wine represents just 6 per cent of total wine sales. Have you done calculations of what potential market growth and size could be for our Canadian wine producers? What type of numbers are we talking about?
Mr. Paszkowski: As Ms. George mentioned, it is difficult to do an exact calculation. However, we took a look at what has taken place in the United States as an example of what could take place in the Canadian marketplace. There, roughly 2 per cent of total production has entered into the direct consumer channel, and 1 per cent or half of that is in wine that is purchased at the tasting room and leaves the tasting room. Therefore, there is no knowledge as to whether that is staying within the State of California or leaving the state. The other 1 per cent has entered into the direct consumer channel; that is a consumer purchasing a case of wine at the winery and having the winery ship it back home to their state or some form of online or wine club telephone purchase.
In Canada, if we translate that into a volume amount for VQA 100 per cent Canadian wines and, as Ms. George mentioned, if you are looking at $4 a bottle in transportation charges, you will not be purchasing wines for $10; it will be for premium wines of $15 and over. We estimate that to be roughly 25,000 to 30,000 cases of wine.
It is not a panacea, but it is a very important volume for small- to medium-sized producers. That could be a fair proportion of their total sales. It is also important to large wineries, but it will be a small percentage of their total sales.
Senator L. Smith: You mentioned about 12,000 people are employed through the wineries.
Mr. Paszkowski: Directly, yes.
Senator L. Smith: Even if it affects a niche market of smaller producers, it would be interesting to look at smaller and bigger producers. If an analysis was done, that could be a marketing tool for you folks, too, and your association in terms of tourism, investment and that whole economic growth model.
Mr. Paszkowski: Absolutely. We know there are significant tourism impacts from consumers visiting our wineries. If they have access to our wines, we believe that will build tourism. As a new winery, you do not have the economic ability or the volumes to sell into the liquor board system. It is not that they do not want to, because you get great exposure to millions of consumers as they pass through one of the most visited government buildings in this country. However, if you can build that relationship with consumers and if you can make a higher level of profitability and invest that back into your wineries, you then have a capacity to enter into the liquor board system. It acts as a virtual inventory for liquor boards. This will be beneficial to everyone in the long run: Tourism, liquor boards, wineries and consumers.
Senator L. Smith: What is your sense about resistance from the provincial boards? What is your sense about that? An opened question is: Would the boards be fearful of third parties trying to push other types of products that could have the same opportunity, like movement of beer between provinces, et cetera? Do you see that?
Mr. Paszkowski: I think that is a possibility, but it is not a like product to wine and there is no reason to open it up to other products. Distilled products and beer are different from wine. They are more readily available across the country, at least most brands are. Beer is the type of product that will be extremely expensive to ship from British Columbia to Nova Scotia, for example, and the quality of the beer would change along the trip. Captain Morgan's is available almost everywhere.
Senator L. Smith: I was looking more from a negativity perspective. We hear from Quebec that the Government of Quebec or the SAQ is not happy with the fact that this bill will probably go through. Are they paranoid for no reason? That was the thought behind the question.
Mr. Paszkowski: I think they are paranoid for no reason.
Senator Massicotte: I am convinced also that if this bill passes it would help Canadians vintners from an economic point of view. It is very good. It would encourage us all for simplicity reasons but also pricing, because it would be less expensive. It is good to encourage Canadian producers. It is very positive.
The other reason I have to admit I favour this is I am against monopolies. Right now, every provincial monopoly exerts full control. I have no right to buy Ontario wine. Having said that, they get significant monies from that and they do not compete, there is no competition whatsoever unless I do it illegally.
Even if the bill passes, why will they not still maintain a monopoly to ensure you cannot trade interprovincially? That is my concern. I love competition; I think it is fundamentally important to our competitiveness, but they do not like it because they like to charge these very high taxes on liquor. What will stop them from maintaining that monopoly in spite of the bill passing?
Mr. Paszkowski: The bill does not change the monopoly system. It is a very simple amendment to allow for direct-to- consumer delivery. We enjoy having the liquor board system in this country. We work very well with them. It is unfortunate that many of them do not sell more Canadian wines. We are hoping this will encourage them to sell more Canadian wines in the future.
We do have a good relationship with liquor boards and this bill does nothing to change that. It was never our intent to change that system within Canada. It is only to provide us with a new channel to sell our products.
Senator Massicotte: In Quebec, the way I read it, we cannot import even one bottle so it will change nothing. I will not be able to buy a case of B.C. wines and get it shipped to Quebec, even if the bill passes.
Mr. Paszkowski: If the bill passes, there is a grey area in terms of online sales and in terms of the volume amount. Our hopes are that the jurisdictions will get together and there will be consumer pressure and hope to put a reasonable amount. I do not find 1.5 litres reasonable.
Ms. George: To add a perspective, this bill has a very high level of consumer support. Bill C-311 removes the federal penalty for shipping. We do not expect provinces to be willing to go up against wide consumer support and start putting in place penalties that go to consumers. First, it is expensive to enforce. How will they know that the wine has come in? Are you really going to start having consumers go to jail for buying a legal Canadian product?
We expect the liquor boards to continue to fight to maintain control of their monopoly. If you and I had a monopoly, we might do the same thing. However, we believe that the end of the day, with the consumer outcry that would result, if the provinces actually started to put in place significant restrictions in this area, they will hear the voice of Canadians loud and clear.
Senator Massicotte: I hope you are right, but I am not optimistic. Several months ago in Quebec, a person died and in his will left quite a bit of wine. The SAQ found out that this wine was imported from other provinces, so they were looking to tax the estate significant sums of money for the wine illegally shipped across provinces. Everyone was amazed. The person is dead; let his descendants at least enjoy the wine. It is amazing.
[Translation]
Senator Maltais: I want to know something, just to reassure Senator Massicotte. You probably remember that the Dow Brewery closed because people had consumed too much. They should drink from the barrel, and not by the barrel.
How much wine from the whole private sector is exported to the United States? First of all, is it exported?
[English]
Mr. Paszkowski: Yes. We are not large exporters. One reason we want this is to build our business in Canada. That is a springboard into the export market, but the United States would be our largest export market.
[Translation]
Senator Maltais: Some liquor boards were concerned about the free flow of wine, including Chilean and other kinds of wine. As a Quebec citizen, I do not think I would import a bottle of Chilean wine sold in British Columbia. I think that is uncalled for. I want to buy a bottle of wine produced in British Columbia because we do not have any in Quebec, but I can have Chilean wine by the barrel. I have no interest in moving it across Canada. We should not think that their approach is serious. It is just hot air. I do not think this is an impediment. What I like about the bill is what the member has explained to us, the free flow of Canadian products. That is what consumers are looking for. It is normal for us to be able to taste various products, from East to West.
Do small producers who sell in front of their home charge taxes? How do they inform the government about that? Do they submit annual reports? I do not know how you operate.
[English]
Mr. Paszkowski: As I mentioned in my presentation, taxes will be collected. This will be treated no differently than if you purchased a set of skis from British Columbia. The store owner in British Columbia would quote you the price of those skis with provincial sales tax in Ontario. With wine, it will be no different. The winery would include in that final price — and there is software out there to do this; it is not very difficult to do, as long as you know where the wine is being shipped — whatever the taxes and levies are in that jurisdiction.
The sales tax of Ontario, for example, if there is the 20-cent bottle fee that has to be added, whether there is an environmental levy or a bottle levy, those things would be included in that price.
The Province of Saskatchewan would be collecting taxes.
[Translation]
Senator Maltais: Why do liquor boards not collect empty bottles while beer companies collect their empty bottles and beer cans? Why should I be stuck with bottles from the Société des alcools du Québec? I am not buying the container; I am buying the content. Why should I be stuck with those bottles?
[English]
Mr. Paszkowski: That is a good question. It is collected in different jurisdictions. From what I read in the media, many Quebec residents are bringing their bottles in to the Brewers Retail in Ontario to collect their fees. I think it would make sense. It varies in different jurisdictions as to who collects the bottle levies.
In terms of your question regarding Chilean wine, I think you are absolutely correct, but in Ontario, if there is a bottle of Chilean wine that is not available at the LCBO you can private-order that bottle of wine through the LCBO; you can access that bottle of wine through another liquor board; or you could order it directly from the winery in Chile. You cannot do that with Canadian wine. You cannot order directly from a winery in this country.
Senator Massicotte: You answered that obviously you will collect all the sales taxes applicable to the residence of the consumer, but if I import wine from Europe, for example, in Quebec at least, they will not only charge me the sales tax but a significant importation fee or whatever. Will you also collect that sum if I buy B.C. wine? In other words, the price you can buy it locally is significantly different from the price in the store. Is that charge also included in your collection?
Mr. Paszkowski: No. The markup is something different.
Senator Massicotte: I am not talking markup. If I import wines from Europe to Quebec, they will charge me the sales taxes but also a significant fee — it is not markup, it is not profit, it is simply a processing fee, I guess, so they get significant sums on that.
Mr. Paszkowski: As soon as the wine enters into Canada, it has to go to first receipt at the liquor board where the alcohol is entering into the province. In the case of ordering directly from the winery, it is my understanding that Canada Customs will take care of that. On behalf of all the liquor boards, they will collect a markup — I believe it is 102 per cent — on that wine entering into Canada. However, any foreign wine that enters into Canada has to go through first receipt in the province in which it is entering. In other words, it has to go through the liquor board system and pay its pound of flesh before it is allowed to —
Senator Massicotte: It is a federal excise tax?
Mr. Paszkowski: No. Beside the HST or the PST, every liquor board charge is a markup. That is a cost of service for that wine going through their retail and distribution system. That varies across the country. It is 66 per cent, roughly, in Ontario and I believe it is 148 per cent in New Brunswick. There is the producer price, which is the FOB price, excise tax, a landed price and then the liquor boards add their markup to that.
As you move down the pricing scale you add on all the other levies — the PST, the GST, the bottle fee — and you come down to a final price. For example, in the case of Ontario, if it is a $15 bottle of wine, the producer would be getting roughly $6.75, and the markup on that would be about $6.77 to the LCBO.
Senator Massicotte: Close to 100 per cent. If I buy a case in Europe, it gets delivered but has to stop over in the SAQ warehouse, so it is not a mark up; they are not doing anything but simply stocking it for a couple of hours until it comes to me. In spite of that they will still charge me 80 per cent markup on that wine?
Mr. Paszkowski: Yes. In the case of Ontario or British Columbia, where direct delivery of wine is permitted intraprovincially within the province, there is no markup. There is no markup included. The winery does all of the work, prepares the shipping, the case, et cetera, so there is nothing. It is a cost of service based upon service provided.
Senator Massicotte: Pretty business.
The Chair: Senators, Mr. Paszkowski and Ms. George, the committee thanks you very much for your presentations today.
Senators, in this third and final session, we welcome representatives of the Canadian Association of Liquor Jurisdictions. We are very pleased to welcome Mr. Patrick Ford, Senior Director, Policy and Government Relations, LCBO; and Stéphane Garon, Director of Legal Services, Société des Alcools du Québec (SAQ).
We have about 35 minutes for this session. Mr. Ford, the floor is yours.
Patrick Ford, Senior Director, Policy and Government Relations, LCBO, Canadian Association of Liquor Jurisdictions: Thank you for the opportunity to meet with you today. The Canadian Association of Liquor Jurisdictions represents the 13 liquor boards across Canada. As mentioned, I am Patrick Ford and my colleague and I are speaking today as representatives of CALJ.
We respect the great support and goodwill that Mr. Albas' bill has seen. However, today we would also like the opportunity to clarify a few points about the bill, our support as liquor boards that we provide for the Canadian wine industry and some suggestions we may have.
We may also have further clarification about how that complex pricing structure works, which you were talking about earlier.
CALJ members sell over $1 billion worth of Canadian wine every year. The Canadian wine industry has grown rapidly and successfully, in large part due to the great wines the Canadian wine industry is making, but also through the supports provided by the Canadian liquor boards and their provincial governments.
Every Canadian province and territory has a private ordering program, as has been noted already. We are working on these programs. They vary in scope and structure, but they all allow the importation into any jurisdiction in Canada of any wine from any other Canadian province or any country around the world that may not already be on the shelves. The timelines noted in some of the earlier presentations are a little out of date. The LCBO, for example, will now assure that a wine can be imported from anywhere in Canada within 15 days.
Following on British Columbia's announcement last week regarding the ability for British Columbians to import directly into their jurisdiction, carried on their person any wine that they picked up in another Canadian province, touring, wine regions, et cetera, now every province and territory across the country has such measures in place.
As noted and discussed at some length, the bill is not just for Canadian wines given our international trade obligations. As these wines could now, under this bill, exploit the landing of wines in the lowest tax Canadian jurisdiction, we are collectively concerned as a group at CALJ that these wines — be they Chilean, French or otherwise — could impact provincial and territorial revenues and create additional competition for Canadian wines.
It is our view that the global wine industry will be better positioned to be able to capitalize on this type of interprovincial movement, seizing or exploiting the variable markup rates between the provincial jurisdictions, landing goods in the lowest tax jurisdiction and then shipping them into another.
Currently there are already businesses establishing, at least in Ontario, to see the importation of premium French wines in low tax Canadian jurisdictions then bring them into that jurisdiction. In that scenario, Canadian liquor boards get less tax, the Canadian wine industry gets incremental competition and in the receiving jurisdiction, they get zero tax.
Finally, before I pass the floor to Mr. Garon, and further to Mr. Albas' point regarding liquor board charges and some of the other discussion, every single Canadian liquor jurisdiction, province and territory, in a succession of governments, have made a decision that liquor revenues will be utilized to fund health care, education and other government priorities in their jurisdictions. It is not the same as the skis that were referenced earlier being shipped across provincial boundaries.
The Canadian Vintners Association has been reassuring Parliament, now this Senate committee and also every premier across the country that all taxes, fees and levies will be collected, but as noted in the most recent discussion, acknowledged that markups will not be collected. Last year, Canadian liquor boards remitted over $6 billion in net proceeds to the provincial and territorial governments to pay for health care and education. The vast majority of that $6 billion came from the markup revenue they collect.
That is the end in of my presentation.
[Translation]
Stéphane Garon, Director, Legal Services, Société des Alcools du Québec (SAQ), Canadian Association of Liquor Jurisdictions: I will make my presentation in French, but I would be pleased to answer questions in English or in French.
Authorities respect the process that has taken place and the fact that the bill has obtained the support of all the parties in the House of Commons. As it has been mentioned, the liquor boards agree with easy and full access to all Canadian wines. My colleague has talked about this; there are many listings. The SAQ has 400 Canadian products listed for sale. That said, the SAQ provided ongoing support to the industry during last week's meeting. Yvan Quirion, the President of the Association des vignerons du Québec — the province's winemakers association — made his presentation and used the opportunity to thank the SAQ for its support over the years.
That being said, Bill C-311 does not change the fact that the sale of alcoholic beverages comes under provincial jurisdiction. You talked about that, and the Minister of National Revenue, Ms. Shea, also repeated that several times. Unfortunately, despite the comments that have been made, not all provinces are at the same stage. Some of them are readier than others. In this context, we should keep in mind that the SAQ does not legislate or regulate. That is done by governments through their departments.
The reality is that making such changes to regulations or acts — in some cases, we are talking about acts — will not happen overnight. I do not think all bills have the luck of Bill C-311 to be introduced for the first time in October 2011, and be here in June 2012, in the final stages.
We believe that we should try to avoid any confusion. Having read newspapers over the past few weeks, I think there has been some confusion regarding the effect, and potentially the impacts, Bill C-311 could have. We think it would be important to amend the legislation so that a transition period can be planned to allow liquor boards — but especially provincial governments — to adapt to a new system. We are talking about a period of some 12 months that would help various governments do what is required to deal with this new situation where interprovincial trade is allowed.
It is also important for the federal government — once the bill has been passed — to be able to provide straightforward information and communicate clearly regarding the impacts of the new legislation and what is allowed or not allowed now that Bill C-311 will be passed.
We are available to answer any questions you may have, and I am sure you have a few.
[English]
The Chair: Thank you very much, gentlemen.
Senator Greene: You have testified that the importation of wines and liquor from outside would pass through the lowest tax jurisdiction all the time. Why is that a bad thing? Why is tax, or high tax, a good thing?
Mr. Ford: To my point I made earlier, it is a decision that is fairly consistent nationally, at the provincial and territorial level, decisions made through a succession of governments, that beverage alcohol sales would be used to generate revenue for provincial treasuries to pay for provincial and territorial programs, a sin tax, or sometimes referred to as that. Some also take the perspective in the public health community that higher prices on alcohol tend to have a depressing effect on the sale of the product. There is certainly a lot of study to suggest that. We are speaking here principally today about the fact that this is an important source of provincial revenue.
Senator Greene: Right. Provincial revenue is important, of course, but the provinces would still be able to attract or accumulate provincial revenue if the liquor boards themselves did not exist.
Mr. Ford: This is true.
Senator Greene: It is just a mechanism. You do not need to have the liquor boards in order to keep provincial revenue high.
I would like to know why provincial liquor boards do not have more Canadian wine.
Mr. Ford: I think there is certainly a lot of improvement being made in that regard. As I mentioned, the sales last year across provincial liquor boards exceeded $1 billion. In the province of Ontario, sales of Canadian wine exceeded $360 million. We heard just in the past week of a large volume of listings of Quebec and other province-produced products.
Last year, again speaking for Ontario, there has been an important distinction made already about the difference between the blended wines that are made with some imported content and the 100 per cent Canadian VQA typically wines. Last year, the LCBO sold over 1,000 different VQA wines from B.C. and Ontario, total. However, there is more work to be done, and there is certainly a commitment amongst the leadership at the liquor boards across the country to continue to sell more Canadian wine.
Senator Greene: My final question is the following: Are you opposed to this bill?
Mr. Ford: Our view is that the bill is unnecessary. It is not a question of access. We have private ordering systems. Every jurisdiction now has that capacity to carry the goods across its border. It is not about access; it is about money. It is about whether or not the provinces will be able to continue to collect the markup revenue. That is the issue, from our perspective.
Senator Greene: Thank you.
The Chair: Senator Green, you seem very satisfied with those answers, obviously.
Senator Greene: Not at all, actually. I was just going to say that my general view of this industry is that it should all be privatized, and only in that way do I think that we will have free trade in wine across Canada. I think to a lot of consumers, that would be an amazingly powerful benefit.
Mr. Ford: If I may, it is certainly a subject that has been reviewed extensively in quite a number of Canadian jurisdictions. At least one jurisdiction has done a complete migration, at least for the retail part of their business, to the private sector, albeit a licensed and controlled private-sector model. Most recently in Ontario, Don Drummond was commissioned by our finance minister to look at Ontario public services, and one thing he looked at was the LCBO and whether or not it should be privatized. This is the former chief economist of the TD Bank. He concluded that it was not a good idea at this time anyway and that the source of revenue could not be replicated in a private model. Particularly where a liquor board is able to have a measure of exclusivity, which is much of what we are talking about today, that exclusivity has got revenue attached to it.
Senator Massicotte: Mr. Ford, I want to make sure I heard this. You said that all the provincial liquor boards now agree to allow the shipment of Canadian wines free of charge to any other province. Is that what I heard?
Mr. Ford: A number of Canadian jurisdictions have had this in place for a number of years, but just with B.C.'s announcement last week, now every jurisdiction has measures in place that allow you, when you are travelling across provincial or territorial boundaries, to carry wine, spirits or beer back into your home province. It is not about shipment in that case; it is about just transporting those goods on your person.
Senator Massicotte: I cannot go to my B.C. friends and order a case of wine and have it delivered? I have to bring it personally?
Mr. Ford: That is the requirement. Provincial markups do not apply in that circumstance as well.
Senator Massicotte: That is very limiting.
[Translation]
You say that you do not disagree. We understand the comment that you need a transition period. You say the legislation is unnecessary. However, even if the legislation is passed, it in no way changes your control over the product. Yes, it does not contribute anything, but not passing it also does not change anything. It takes nothing away from you.
Mr. Garon: I will be very blunt in my answer. It goes without saying that, at the current stage, the question to ask ourselves is more or less relevant.
Here is my comment to you. If you have read the newspapers over the past few weeks, you have surely realized that some confusion is surrounding the bill. Your comment is very true. As things stand, the federal government is choosing to withdraw from an area of provincial jurisdiction. No one is against apple pie. That being said, we must keep in mind that not all provinces are at the same level. Let us use Quebec as an example because I am involved in the discussions. A certain upgrade is needed to make that type of transaction possible.
The risk is that, tomorrow morning, people will think that because the bill has been passed, they can go ahead and buy online. They would be violating the law without knowing it. We want to avoid this and ensure that a mechanism is implemented so that they can go ahead with that type of transaction. It would be unfortunate for people to think that provinces are currently able to handle this kind of trade. That is not the case.
Senator Massicotte: You are not against the bill, but you are asking for a transition period?
Mr. Garon: As I explained, our position is that the bill is unnecessary, but at this stage, I am not against the bill being passed. However, once the argument that it is unnecessary has not been accepted, we must use the argument that we are not ready to follow you where we are headed. Are you going to give us time to position ourselves and provide use with the tools to do so?
Senator Massicotte: I wish you good luck. You are asking us, as parliamentarians, to sympathize with the SAQ and give you a one-year period to learn to live with this bill.
Mr. Garon: The SAQ does not legislate. That comment should be made to Mr. Bachand, my minister who does legislate. I apply and use the legislation imposed on me. Currently, the tools I have in hand do not enable me to do that.
Senator Massicotte: You are concerned that people, perhaps senators, will import wine into provinces with the lowest taxes and transport those wines interprovincially.
Mr. Garon: Yes.
Senator Massicotte: But if they do that, it would be illegal. That is because, according to the proposed bill, the wine must be imported for personal use and in reasonable quantities. You are saying that, yes, it is illegal, but how will those people be caught red-handed? The situation is the same today. Those people are operating, but it is difficult to find the guilty parties.
Mr. Garon: Your comment is very valid. One of the arguments used in favour of the amendment has always been that the possibility of strengthening such a piece of legislation was almost non-existent. For new imports, there are currently ads in The Globe and Mail from agents saying that a certain wine — a Bordeaux or a Burgundy from a given year — is sold at the LCBO for $85. They would buy it in Saskatchewan and deliver it to you for $58. That kind of thing is done.
Currently, I would say it is difficult to understand that a province can be allowed to profit from that type of situation. Therefore, all we are saying is that we need time to get organized and ensure that the rules of the game are clear for everyone. Once that is done, we can proceed appropriately.
[English]
Senator L. Smith: Mr. Ford, you mentioned $1 billion in wine sales.
[Translation]
Mr. Garon, you said that 420 Canadian wines are listed at the SAQ.
[English]
Mr. Ford, of that $1 billion in wine sales, how much goes back to the producer, to put it in perspective? What percentage?
Mr. Ford: I can speak from the point of view of a liquor board in terms of how it operates. On $1, there would be approximately an equal split between the producer, the cost of operating the business, and the margin or profit that accrues to the province or the territory. It depends on the product — between beer, wine and spirits to some extent.
Senator L. Smith: Would it be fair to say that if there is $1 billion in wine sales across the country, $500 million of it goes back to the producer?
Mr. Ford: I suspect it may be a little less than that, but in that range.
Senator L. Smith: Just as a ballpark, what would it be?
Mr. Ford: Well over a third, for sure.
[Translation]
Senator L. Smith: Mr. Garon, you mentioned 400 listed products. I have had the opportunity to work in retail over the course of my career. Shelf positioning is very important. Compared with wines from other countries, what percentage of shelves at SAQ will be set aside for Canadian wines? Will that be the same in all SAQ stores, or will we see some bottles at one location and some others at another one?
Mr. Garon: All SAQ branches have a Canadian wine section. That said, it all depends on whether we are talking about an express or a signature store, proportionally. Canadian wines have been highly recommended by our trained advisors for a number of years.
I can tell you that, as a long-time customer — we are all customers of the SAQ — I have had a Canadian wine suggested to me several times. The SAQ promotes Canadian wines fairly consistently. That being said, it is no secret that, over the years, the SAQ has developed a very enviable position as a distributor of European wines — French, Italian wines. However, the two can coexist. They are not mutually exclusive. I would say that we are always open to increasing Canadian wine listings. Mr. Paszkowski mentioned that. Volume is also an important factor. Is a vineyard large enough to be able to supply us?
I can tell you that, according to the comment made on Monday by Mr. Quirion, from the Association des vignerons du Québec — regarding the support he received and the efforts SAQ has been investing to help him put his wines on shelves, with all the exposure and circulation that provides him — we are in a position I should not be ashamed of and the SAQ should not be ashamed of.
Senator L. Smith: Do you have an idea of what percentage of the SAQ sales Canadian wines account for?
Mr. Garon: Generally speaking, from 15 per cent to 20 per cent of our wines are Canadian.
Senator L. Smith: When you ask —
[English]
Senator Moore: Four hundred?
Senator L. Smith: No. He is saying that about 20 per cent of the total wines sold in Quebec through the SAQ would be Canadian wine.
[Translation]
You asked for a 12-month transition period. Would it be fair to say that all 13 boards in Canada will make sure to coordinate their position?
Mr. Garon: We need to be careful.
Senator L. Smith: I do not want to be unkind.
Mr. Garon: I have no problem with these comments. Patrick Ford said so, that as a board, choices have been made. Someone gave me the argument that he had bought a wine that we sell for $20 at Costco in Florida for $12. But my bottle comes with a free health care system. The board's choices have been made. Today, we can all thank our predecessors for what they did. Having said that, we are looking at the potential.
[English]
The Chair: We must go on to the next question.
Senator Ringuette: I have listened carefully to both of you. Mr. Ford, you have indicated — as has Mr. Garon — that you are worried about Bordeaux being imported into Saskatchewan and sold as an interprovincial wine via an online wine delivery system.
However, you have come forth requesting an amendment for a transition period. You have not come forward asking for an amendment to maybe eliminate the possibility — let us be upfront — of schemes that would be used, regardless of our goodwill toward wanting to help Canadian wineries. Am I wrong or am I right? Why have you not come forth with amendments to correct that situation? This is not a new bill. It was put forth in October, I am told.
Mr. Ford: This is a reality we face in this country. Happily, we do not have border controls between any of our provinces and territories. There will always be some measure of movement of wine, spirits and beer that we acknowledge and accept, and that is why all the provinces have endorsed that element to that. Our concern is more about businesses capitalizing on a measure that has been introduced to enhance opportunities for the Canadian wine industry, but the beneficiaries do not end up becoming the Canadian wine industry for a good portion of it, because of that Bordeaux or Chilean wine or other that could capitalize on this kind of a system.
What a period of transition would provide would be for each province and territory to determine how best to respond to the bill, to ensure a greater provision and greater support for the Canadian wine industry. The bill anticipates some limits or some permits or other systems that may be included within that. Some jurisdictions may conclude what they want to do is instead further enhance their existing private ordering system so that they are that much more friendly, that they have that much more e-commerce to facilitate these kinds of sales, still through a liquor board. Other provincial or territorial governments may conclude that they want to open up to a direct shipping system. That is not a liquor board or CALJ decision. We know that it is our provincial and territorial governments that will make those decisions.
Senator Ringuette: We were told earlier that the bill was introduced last October. It is a considerable amount of time for your association, which is relatively small in numbers, 14, to get together and look at the issues that you have presented to us and work on solutions to your concerns.
I understand your dilemma. However, I do not understand why, since October, you have not worked at solving your dilemma within this bill.
Mr. Garon: October to June is not that long of a life in a bill. It is a private bill. The SAQ has been talking about this since January. I have been talking about this and we have been working on this. The intricacies of government are such that sometimes the ball does not move as fast as you would like it. We are faced with the prospect of having a situation where handling it might be more difficult than suspected. I was saying, and I remember pleading this in my early years, at the end of the day, how do you unscramble the eggs? This is where we are at.
[Translation]
Senator Maltais: Mr. Garon, of the 67 Quebec producers or vintners, how many do you do business with?
Mr. Garon: Honestly, I do not have that number. I would say that they are all encouraged to submit their products. I just mentioned that Mr. Quirion, the president of the Association des vignerons du Québec, came on Monday to thank us for our work. I guess we have not done too bad a job.
Senator Maltais: I am not criticizing you; I just wanted to know how many of these 67 producers you buy from.
Mr. Garon: Unfortunately, I do not have that figure with me.
Senator Maltais: In one of the remarks from the Minister of Finance concerning the transport of Canadian wines across the country, there would be other wines because, to comply with the free trade agreement, it did not exclude other wines, from Chile, Argentina and I do not know where.
For me, someone who lives in Quebec, I do not see why I would bring a bottle of Chilean wine from British Columbia. I do not understand what that argument is based on. I do not know many Quebeckers who would order a bottle of Chilean wine over the Internet when they can already buy it in Quebec.
Mr. Garon: I do not want to speak for the minister, but I think that the situation he was referring to is that you are not buying a Chilean wine over the Internet; you are buying a 2009 Bordeaux that, once it is delivered, is worth $150 a bottle.
Senator Maltais: I am sorry for interrupting you, but that is not what I am asking. If you can buy a good bottle of British Columbian wine that you cannot buy in Quebec, I would not import a bottle of Chilean wine that I can get at home.
Mr. Garon: I fully agree with you on that. I was saying that you can import your bottle of British Columbian wine. That is what we are telling you.
Senator Maltais: A number of liquor boards in Canada require a deposit on the wine bottle. Perhaps you could add a deposit and that would compensate for the lost taxes. You took away the paper bags, which were quite environmentally friendly and biodegradable, and you are leaving us with the bottles. I find that, environmentally, it is a bit. . .
Mr. Garon: Let me be frank with you. This is a fairly specific comment, given the SAQ's sustainable development policy. I will give you the figures: 84 per cent of bottles sold at the SAQ are returned through blue bins. With the environment chair at the Université de Sherbrooke, we have already started using that glass to make cement floors with glass incorporated into them. The deposit works in some provinces, but I would say that the blue bins work even better in Quebec.
Senator Maltais: Yes, but look, we will end up with three bins; if we have one for clear bottles and one for brown bottles, we will end up with four bins. We need to stop; otherwise, we will have to buy land for the bins — in Quebec City, at least.
When you buy a majority of your wine from foreign countries, is there a deposit on it?
Mr. Garon: No, there is no deposit currently. In the invitation to tender, points were given to those who are going to use light glass. As for the issue of glass, senator, we manage that aspect of our business impeccably. Eighty-four per cent, which is more than what is returned for the deposit. I understand your point, but there is no revenue to make from that because the five-cent deposit is used for the environment, while the SAQ surcharge is used for health and education.
[English]
Senator Harb: I will be specific here. In essence, all the bill does is remove the penalty and allow the importation. It really does not change a thing as far as the provinces are concerned. You still can prohibit; you still can fine; you still can allow and you still can disallow. What Mr. Ford says is completely true. There is lots of confusion out there. People think with this bill they can import 20 or 30 bottles, and that is not the case.
You have limitations. In Ontario, you can import nine litres. If someone exceeds that, what is the penalty? Is that penalty monetary or is it jail time, like the federal law?
Mr. Ford: Even though some jurisdictions did not introduce this, senator, until fairly recently — Ontario introduced this measure about a year ago and B.C. last week — this is an activity we all know has been going on always. That is how people have moved goods. You visit a friend across the border or whatever the case may be; you are visiting a wine region. We put no limits on the frequency with which that would occur. We have agreed as a group amongst CALJ that we will all work toward a harmonized minimum standard of one case of wine on any trip that an individual may make. The Province of Alberta has set no limit, but we are looking, and I believe Manitoba may also have no limit, but we have committed to trying to establish a bare minimum of one case. That is something we are all working towards.
[Translation]
Senator Harb: To follow up on Mr. Garon's comment on the issue of transition, I think no one can prevent your organization from going to Quebec City and saying that, until an arrangement is in place with the rest of the provinces, we will apply such-and-such a bill or such-and-such a provincial measure so that there is some logic to the system.
[English]
Mr. Garon: In October 2011, we ran down the 20 to get to Quebec City; that is for sure.
Obviously, when a government decides it will regulate an area, there are checks and balances, and they are looking at how they will go about it.
I am from the private sector, and I am always surprised at the way the machine works and the time it takes. However, at the meeting that took place on Monday, CALJ made a strong statement that they will work to push their respective governments to get some kind of harmonization. There is no point to start this tomorrow with a case here, two bottles here, all these different limits or standards. We feel that at the pace it works, a year would be a way of doing it properly and the best way.
Senator Tkachuk: I have a few questions on this. Do liquor boards charge for shelf space?
Mr. Ford: There are varying practices among liquor boards. Certainly, the larger ones would have a program whereby they would sell premium shelf space to a winery, brewery or distillery that was prepared to pay for that. There are certainly better spaces within a store that have greater commercial opportunity, what we often refer to as an "end aisle, " or products that in some jurisdictions they call "shelf extenders, " where the product is promoted a little further out. There is some sale of space, as we call it, but that is not the case for the vast majority of the products there. That is also a common practice in the retail industry, particularly grocery and others.
Senator Tkachuk: I understand that, but for a small Canadian winery starting up in B.C., Ontario or Quebec, to get a prime shelf space, they would have to compete with people who are already there, and if they wish not to compete, they probably cannot get into the liquor board store.
Mr. Ford: What would be more common, particularly, in the jurisdictions that have wine producing regions within them, is they would be given, at no charge, premium space opportunities, whether you go to a BCLDB store in British Columbia, an LCBO store or an NSLC store. You see that opportunity similarly in the SAQ where they are given a place of prominence. In the LCBO, it is at the front of the store. It is on better shelving than any other region has it. There is greater linear footage provided than what their sales would normally commercially warrant. There are ways we work with particularly the small producers to ensure there are programs designed to support them.
Senator Tkachuk: Do liquor boards make money absent the taxes? If you took away taxes, would liquor boards make a profit?
Mr. Ford: Taxes represent, in most Canadian liquor jurisdictions, a relatively small portion of their total revenue that is generated. Some liquor boards do not have a tax applied. There is not a retail sales tax in Alberta, for example.
Senator Tkachuk: No, but there is a liquor tax. All the provinces have some kind of liquor store; they have some kind of liquor taxes, plus they have provincial sales tax, consumption taxes. You name it, the provinces have a tax. If you took that tax away, and it was just the difference between what you paid for it and what you sold it for, would the liquor stores make a profit?
Mr. Ford: I will explain first. The reason I was making a differentiation between tax and markup is, in part, because of a desire for some precision when talking about the different elements of the price structure, and they are complex. There are a lot of elements. They are a product of many decades of successive governments adding more.
The activities that a liquor board engages in to maximize profitability drive profit. A liquor board that encourages its customers, for example, to purchase more premium products, to buy 100 per cent Canadian VQA product rather than the lower priced blended Canadian wines, a liquor board will make more profit off that and remit more to the province. Liquor boards are incented beyond what they establish through the tax base, to term it broadly, to generate incremental profit.
Senator Massicotte: The answer is no.
Senator Tkachuk: I have heard rumours to that effect.
Mr. Garon: Rumours are rumours. For every dollar of revenue, it only costs our cost of doing business, 18 per cent. Companies that are able to run 400 outlets with thousands of products, with three unions, that are able to run at 18 per cent cost, I think it is a business that will make money.
Senator Tkachuk: I could make money if I got to keep the tax, too.
I have a couple other questions. You mentioned an example person buying wine from, for example, a B.C. winery. If I phoned the B.C. winery and asked for three or four cases of wine to be shipped, somehow there would be absent tax. Would that winery not be charging tax on that wine? Would they not be charging all the liquor taxes, and then that money would go to the provincial government of British Columbia?
Mr. Ford: Of the pricing structure, the majority of the revenue that is generated by provinces is that part of the tax that we call the "markup. " It is that markup, which, again, is the bigger piece, that would not be charged in that kind of transaction. With a winery, whether it is a direct shipment or I go to a winery in Ontario or B.C. and bring that product back home, there is no provincial markup charged on that. There are some taxes but not the bigger piece.
Senator Tkachuk: All the liquor taxes would be on there. I am not sure what is missing here. The difference would be what you would buy a bottle for and what you would sell it for, which would only be the difference between wholesale and retail. It would have nothing to do with tax. The person who owns the winery would pick up the difference, put it in his or her own pocket and then pay the liquor taxes to the Province of B.C. There is no way you can get around from not paying tax. Everyone would be paying the tax.
Mr. Ford: The tax is paid.
Senator Tkachuk: Of course, it is. I want to know whether the tax is paid. My view is that all liquor taxes imposed on liquor would be paid by that winery to the provincial government.
Senator Massicotte: What you call "liquor tax, " they call "markup. "
Senator Tkachuk: That is fine.
Mr. Ford: Whether there is a private retailer in the United States or a liquor board in Canada selling that product, both face taxes and both apply markups. In our case, we remit the vast majority of that markup, after our expenses, to the provincial government. In the U.S. retailers' circumstance, that is their profit. That is where they make their money. That is where we get caught up sometimes and want to be a bit clearer in the distinction between tax and markup.
Senator Tkachuk: I have one more question.
This is important. A person who sells liquor in the province who is not part of the liquor store apparatus, i.e., a beer parlour or a bar, and they are selling off-sale, they make money and pay all the tax.
Mr. Ford: In most Canadian jurisdictions, they would be buying the product at retail from the local liquor board. They would be selling it. They would then be marking it up from 200 to 400 per cent, depending upon the kind of establishment it is, and that is their costs, and their profit is found in that markup.
Senator Tkachuk: It is a new way to do business.
Senator Moore: This is sort of related to that. Maybe it is more to the question of Senator Greene. He asked you whether you are against the bill. I think, Mr. Ford, you said yes, because it is unnecessary. You also said it is all about the money, the loss of existing markup revenues to the provinces.
I think you said that last year $6 billion was passed over from the various liquor control boards to the provinces. What part of that $6 billion was from the wine industry of Canada?
Mr. Ford: I am not certain about a precise figure for that.
Senator Moore: Can you get that and send it to the clerk? I would like to know that.
Mr. Ford: Certainly. We would have to collect that from all the jurisdictions. Maybe if we started with the larger ones we could get it more quickly.
Senator Moore: Mr. Garon, you do not know how many wine makers in Quebec are listed on your shelves. When you were thinking about coming here to deal with the wine issue, did you not think we might ask that question? No?
Mr. Garon: 76.
Senator Moore: — 67. He did not know how many were listed when Senator Maltais asked him.
Mr. Garon: I do not have this information. I apologize.
Senator Moore: Maybe you could find that information and send it to us because it would be instructive.
The Chair: Mr. Ford, do you have one last comment?
Mr. Ford: In response to Senator Moore's question, I partially answered, maybe. It is an important piece to note that for sales that are made, including through liquor boards in the primary producing jurisdictions of B.C. and Ontario, the provincial governments have programs in place where there is some element of rebate for the Ontario wine industry and the B.C. wine industry, to subsidize some of the costs associated with retail. That figure, from a proportional perspective of what Canadian wine pays to retail through the liquor board system in Canada, is lower most certainly than it would be for imported wines.
The Chair: Thank you, Mr. Ford and Mr. Garon. On behalf of the committee, we appreciate you appearing before us.
Is it agreed that the committee proceed to clause-by-clause consideration of Bill C-311, An Act to amend the Importation of Intoxicating Liquors Act (interprovincial importation of wine for personal use)?
Hon. Senators: Agreed.
The Chair: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chair: Shall clause 1 carry?
Hon. Senators: Agreed.
The Chair: Shall the title carry?
Hon. Senators: Agreed.
The Chair: Shall the bill carry?
Hon. Senators: Agreed.
The Chair: Is it agreed that I report this bill to the Senate without amendment?
Hon. Senators: Agreed.
The Chair: Thank you very much. This meeting is adjourned.
(The committee adjourned.)