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French Winemakers React To The Increase On Wine Tariffs In The USA

18/10/2019

"Tariffs will put European wine sectors in direct competition with each other", French winemaker says.

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There’s a trade war brewing between Europe and the USA with the infamous US decision to impose an extra 25% tariffs on major European wines, cheese, and scotch exporters except for Italian ones. What’s more, these are the busiest months of the year with all the holidays coming up.

“It’s kind of scary in the sense that we’re getting to the holiday season,” says Joseph Kakos, owner of Kakos Fine Wine & Spirits in Birmingham, Michigan. “October, November and December are the time when you really make your money for the year.”

Well, no one really expects consumers to totally abandon premium French wine or cheese, however, the wine industry in France is still expecting to suffer in net sales for this year, and, are hoping that this doesn’t affect their long-term market share in the US.

Coming back to home country, French winemakers are deeply troubled by the domino effect that these tariffs could have for their wines in the US, which is the top export market for French wines (Net wine export from France to the US was over ‎€1.7 BN in 2018)

French wine could be hit with 25% tariffs from us market, but they’re not the only ones. Most major US wine export players in Europe are on the list, with the exemption of Italy.

Owner of Chateau Lastours, Louis Faramond, in an interview with CNBC is concerned about the ripple effect that this trade war will have on the EU members. Louis feels that “Italian wine is already very well represented in the US market, and they would get an extra opportunity in the us market due to the bargain effect, and will put us into direct competition.

CNBC's Charlotte Reed reports from Gaillac, France, where winemakers are concerned about the implications of U.S. President Donald Trump's threatened tariffs.

Now the question stands, if the tariff is imposed today, will the Bordeaux and Bourgognes become much more expensive in the US? Unfortunately, the answer is yes.

In Mr. Faramond’s words, “There are 2 possible outcomes with this tax hype, if it is put into place, first of all, our wines will become more expensive, so if the US consumers want french wine, our wine from gaillac could become more competitive, because it is cheaper than other wines, but still high quality – making it good value, which will attract consumers, however, it would create distortion on the European side of the market, where you have French , Spanish and English wines on the tariffs, but not the Italian wines.

"Chateau Lastour en Gaillac export almost 10-15% of their annual wine production to the US" – Louis de Faramond.

There is increasing concern over the global impact of such a trade war and the wine industry’s economy. Since Italian wines now have a major competitive advantage in the US market (because of tariff exemption), apart from them already being the top exporter of wine to the US, the industry feels that they should prepare themselves for the long-term outcome which doesn’t look very good.

This decision to increase the tariffs has come at a very wrong time, just when most of the northern hemisphere finished with their harvest season, and all the picking up of grapes, the mixing, and the crushing processes.

But that’s not the end of it, especially for the French. France’s second biggest export market, the UK has been brandishing their Brexit sword, which has been looming over the French wine economy like an ominous shadow.

What happens next? Only time will tell, but the French have been known for their resilience, and they will come out on top again, especially since France has been a synonym for wine since forever.

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