Bill C-311: a tiny breath of fresh air

Last October, Dan Albas, Conservative MP for Okanagan-Coquihalla, introduced a private members bill, Bill C-311 on interprovincial shipping of wine, which would amend legislation dating back to 1928 – the Importation of Intoxicating Liquors Act – and effectively break the prohibition on sending (or carrying) wine across provincial boundaries in Canada.

While limited in scope, the Bill at long last breathes some life into the idea of a pan-Canadian wine market.  It also has interesting implications for domestic (BC) producers, consumers, the BC Liquor Distribution Branch and government revenues. Let’s follow the path of the bill first before exploring the implications.  Unusually, the private member’s bill was proposed a member of the governing party.  And, as evidenced by unanimous all party support on first and second readings in the House of Commons (December 2011), there is broad recognition of the need to update Canada’s antiquated interprovincial trade laws and bring them into alignment with 21st century practice. (Interprovincial trade reform is need across many categories of goods, but our focus here is wine).

And here, the news is mostly positive.  In the first week of April, Bill C-311 was reviewed by the House Finance Committee (the step after second reading), and recommended back to the House for third and final reading.  This is a substantial step forward, and is unlikely to be encumbered in its passage. The Bill will then pass to the Senate for review, specifically by the Banking Committee.  At this point, submissions can be made by stakeholders opposed to the bill (such as provincial liquor boards), so Bill C-311 is far from having a clear path to becoming law.  If it does, it will most likely take the rest of 2012 to wind its way through the legislative process.

If the Bill passes, it is good news for the Canadian wine tourist: in early 2013, she will legally be able to carry across provincial borders her case of divine Okanagan Pinot Noir to her home in Winnipeg. When she runs out, she can call the winery to order more, and the winery can (at last) legally ship to her.

But this scenario offers several questions.  What do the BC Liquor Distribution Branch and Manitoba Liquor Control Commission have to say about the shipment (which would bypass the receiving jurisdiction’s liquor board altogether)?  What price structure does the BC winery use?  And most important (to government), what are the tax revenue implications?  While the BC industry has been among the most vocal supporters of Bill C-311, the BC government maintained an uncomfortable wait-and-see stance. On the one hand it risks reduced liquor tax revenue, and on the other, annoying a flagship industry for not supporting the growth of its sector, which supports employment and tourism. A clue to the BC government’s thinking was offered in its recently-released Agriculture Plan, which stated: “The Province will work with its counterparts across the country to open new domestic markets to BC wines.”  Not exactly a ringing endorsement for Bill C-311, but at least a positive signal.

To address the price question, it would be most sensible for the winery to charge the interprovincial customer the price offered at the wineshop or cellar door (the winery’s most profitable trade channel), thereby eliminating the varying LDB markup that would be charged for any other retail channel in BC.  Of greater interest to the receiving jurisdiction – in our fictitious case, the Manitoba Liquor Control Commission – will lose out on its share of provincial tax revenue.

Others have noted that this practice could have the effect of weakening provincial control over domestic wine pricing. However, it seems likely that the proportion, particularly initially, of a winery’s annual sales directed to out-of-province customers would have an inconsequential effect on the overall bottom line of the LDB.  A quick look at the BCLDB wine sales stats by value and volume, together with data released by Statistics Canada late last month for 2011 suggest two trends that should put the LDB at ease:  by volume, domestic BC wine sales first exceeded sales of import wines in 2010 and the trend continues, contrary to nationally, which shows import volumes are still rising faster than domestic. Second, BC consumers are shifting to wine: by both volume and value, sales are outpacing that for beer, and they are becoming less price-sensitive for both domestic and imported wines.

Wine fans who engage in inter-provincial purchases are likely to be a small segment of the overall wine-purchasing public.  This group is likely to a) have travelled to another province for wine tourism, or b) already know what they want to order, or c) belong to a wine club, whether operated by the winery or more generally.  They are likely to spend more per bottle, but in smaller overall quantities, particularly if the provincial liquor boards fill the deliberate opening in Bill C-311 making these shipments subject to provincial laws concerning quantity and other restrictions.  The more enlightened liquor boards who conduct their own risk analyses to determine which segment of their customers is likely to bolt for the inter-provincial door, may conclude that adopting more customer- and producer-friendly pricing and inventory policies that shore up the domestic market should more than offset the loss of sales to the visitor from elsewhere.

Last but not least: while the positive development for Bill C-311 is unquestionably good news for domestic BC producers, there are also implications for retailers who stock international wines.  A foundational principle in the trade agreements to which Canada is a signatory (North American Free Trade Agreement – NAFTA and the World Trade Organisation – WTO) is that discrimination favouring domestic products is prohibited.  In other words, the retailer who painstakingly sources and brings in interesting wines from around the world can also sell and direct ship that case of Barbera d’ Asti to the intrepid customer two provinces away who tracks down the retailer.

Is the likely passage of Bill C-311 going to shake the foundations of Canada’s tightly controlled provincial liquor monopolies? Unlikely, but it would push the door open a crack and allow some fresh air to circulate among Canada’s deprived wine fans.  Every little bit helps.