But as Crazy as a Barrel of Monkeys

In 2005 the California State Legislature passed SB118, a state law that prohibits
out-of-state retailers from shipping wine into California. Proponents of the bill told
legislators that there would be retaliatory legislation aimed at California as a result
of passing the law. And such is the case as Illinois has passed legislation that took
effect on June 1 that locks out hundreds of California wine merchants from selling to
retailers in Illinois.

The loss of market access results from many California winemakers not technically
being licensed as “wine producers,” but rather as retailers and distributors. The Illinois
law only allows those licensed as “wine producers” to ship wine to Illinois residents.
“We are talking about hundreds of California’s finest and most celebrated winemakers
being shut out of Illinois and prohibited from filling orders by their long time customers,”
said Tom Wark, executive director of Specialty Wine Retailers Association, an organization
that opposed the Illinois law. “The Illinois law was poorly thought out and even more poorly
written, as is typical of protectionist legislation.”

Many California winemakers do not obtain the “02” wine producer licenses from the California
Alcohol Beverage Commission since they are making their wine in someone else’s facility.
Instead, they obtain a combination “17 and 20” license which officially makes them retailers
and distributors. Retailers and distributors are prohibited from shipping to Illinois under the new
law taking effect June 1.

However even with the competitive barriers and domestic regulatory hurdles all is not lost, for the
opportunity to sell wine specifically internationally is as crazy as a ‘barrel full of monkeys’.

In an article by Kate Campbell, assistant editor of the Ag Alert from the California Farm Bureau,
“about half of U.S. wine exports are shipped to the European Union, accounting for $474 million
in sales, followed by Canada at $234 million. Japan accounts for about $63 million and Switzerland
imports $26 million worth of U.S. wine, while Mexico buys another $24 million in U.S. wine”.

But, it's the emerging Asian markets that are really taking off. Consider that wine sales to South Korea
are up 60 percent to $18 million. China sales jumped 74 percent to $16 million and Singapore is up 50
percent to $9 million.

In addition to the Pacific Rim countries, European trade is robust as well. Trade analysts say bulk
wine sales to Europe have grown faster than bottled sales, due to the growing trend of producers
shipping bulk wine abroad for bottling. This trend allows brand owners to efficiently make price points
in a very competitive wine market.

Total bulk table-wine exports jumped 22 percent by volume to 169 million liters and grew 25 percent
in value to $151 million. Total branded, bottled table-wine exports rose 9.5 percent to 207 million liters
and were up 3 percent in value to $635 million. Volume shipments to the European Union grew a healthy
7 percent in 2007 compared to 2006, but sales by value for these same shipments were slightly lower
because of the growing shift to lower cost bulk-wine shipments to these markets.

Fueled by strong gains in premium California wine volume, California wines sales to the rest of the
United States continued to increase in 2007 to a record-high 457 million gallons (192.1 million nine-
liter cases), up 2 percent compared to 2006. The retail value of these shipments increased 6 percent
to $18.9 billion, according to the year-end summary in the Gomberg-Fredrikson Report.

Total California winery shipments to all markets in the United States and abroad increased 3 percent
to 554 million gallons (233.2 million nine-liter cases) last year.

Wine industry consultant Jon Fredrikson says the long-term trend for California wine is favorable with
the U.S. wine market growing for 14 consecutive years, increasing 66 percent by volume from 1993 to
2007.

Though the economy is slowing, experts say wine is gaining market traction among American adult
consumers, and its likely wine consumption will continue to expand during the next decade.

While more than 95 percent of wine is delivered through the three-tier producer-wholesaler-retailer system,
many wineries have focused more on direct-to-consumer sales.

No monkeying around, cheers!