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The Tax and Trade Bureau's AVA process is broken.

The U.S. Tax and Trade Bureau's process for approving new AVAs is broken and has been temporarily suspended. What are the business implications for wineries?

America (Country Appellation)

AVA CONSULTANTS: How will the AVA system be altered?

With the U.S. Government currently considering changes to how American Viticultural Areas are approved, some experts suggest eliminating the use of geographic brand names to avoid any further confusion.

by Alan Goldfarb
September 4, 2007

The story up to now: The Tax and Trade Bureau, the U.S. Treasury department in charge of approving new AVAs has suspended decisions on any new ones. Read The Big Freeze for background on how the suspension of AVAs came about.

The U.S. Treasury Department’s embargo on approving any future sub-regional American Viticultural Areas (AVA) has thrown a very real scare into the heart of the wine industry. The Tax and Trade Bureau (TTB), the agency that oversees the AVA system, says it wants to take a closer look at its own regulations, which were enacted almost 30 years ago.

In the last decade, the agency has approved sub-appellations at such an alarming rate that some believe it has rendered the system toothless. Worse, such regional approvals serve only to further confuse the consumer, partly because an increasing number have conflicted with existing brand names.

TTB finally took the drastic measure a few weeks ago, after four years of chatter about a group from Calistoga, who are seeking sub-appellation approval. The vitriol concerns two geographically named brands in Calistoga, which the Napa Valley group insists must change their brand names. Under current regulations, these brands – Calistoga Cellars and Calistoga Estate - would be eliminated by the sub-appellation approval.

TTB apparently had enough of the gaff, and under pressure, suddenly halted all petitions until it has the chance to take a hard look at what are the implications of their approval process.

There are concerns as it applies to domestic as well as to worldwide commerce and also pertaining to the viticultural significance of wine grape growing areas. There are serious implications for geographically named wineries and brands. Overriding it all is the very meaning and future of AVAs in this country.

What conclusions will TTB make after it opens yet-to-be-announced public hearings on the matter? Will there be drastic changes? Will the broken AVA system - which some say is being used merely as a marketing tool as opposed to the delineation of real climatic and soil distinctions – continue to exist as we know it?

To get a preview as to the nature of those hearings and to conjecture on what actions TTB will take, APPELLATION AMERICA sought out two experts who have intimate knowledge of the AVA system.

Sara Schorske and Alex Heckathorn
Sara Schorske and Alex Heckathorn have been winery compliance consultants for the last 24 years.
Sara Schorske and Alex Heckathorn have been winery compliance consultants for the last 24 years. Their Myrtle Point, Oregon Compliance Services of America (CSA) has written the petitions to establish the approved Sonoma Coast, Benmore Valley (Lake County, Ca.), San Francisco Bay, Wild Horse Valley (Napa), River Junction (San Joaquin County), Tracy Hills (San Joaquin County), Red Hills (Lake County), and Bennett Valley (Sonoma) areas. CSA has also amended Chalk Hill, Central Coast, and Alexander Valley AVA petitions.

Significantly too, CSA has been the compliance consultant since 1998 to Calistoga Cellars – one of the two geographic-branded names which have led TTB to freeze the AVA process. It is interesting to note that Heckathorn, an attorney who joined CSA in 1997 and Schorske, who began her career at Sonoma-Cutrer Vineyards, would not reveal precisely what it is they advised Calistoga Cellars to do on this issue. They nonetheless volunteered and were pressed by this reporter to disclose information that might have been discussed with their client.

Despite their affiliation with Calistoga Cellars, Schorske and Heckathorn, who have written dozens of articles on AVA compliance, are strong believers that geographically named brands should be eliminated; and that it will ultimately be beneficial to all parties that TTB temporarily discontinue sub-AVA approvals.

ALAN GOLDFARB (AG): What is really going on with TTB’s decision to freeze AVA approvals?

SARA SCHORSKE (SS): I’ve come 180 degrees on my opinion. When I first heard it, I was upset because I’m working on four applications, all of which are affected. I worried immediately (about whether) during the freeze period, TTB would change its regulations dramatically because my clients and I have invested a lot of time.

My second thought was: maybe they (pending sub-AVAs) should be allowed to be processed under the old standards and start fresh with a new crop later.

But since I’ve heard that TTB’s concerns include sub-appellations and geographical brand names, I now believe it’s a good idea to suspend approvals while it rethinks the system. The AVA process is valuable. It’s part of worldwide competition that places have value. Otherwise why would a consumer buy a California wine or an Oregon wine instead of a potentially less expensive Chilean wine unless they valued the sources of those grapes?

We’ve become increasingly aware the last 10 years (that) there were problems with this system. In fact, the first AVA petition I worked on in 1983, the first thing I
The Wine Institute worked in the ‘90s to grapple with this issue and they (members) couldn’t come to a consensus. ~ Sara Schorske
noticed was that I had to conform with existing appellation boundaries, whose rationale was rather vague. Since then, the difficulties have piled up. Geographical brand names are an issue. A newly established AVA can threaten an existing brand name. Alex and I have been writing articles warning the industry for 10 years about the danger in using geographical brand names, but people didn’t take our advice. The other part is that the system itself is inherently somewhat contradictory. Sometimes, the recognized name of an AVA doesn’t follow the same boundaries as the geographical evidence. Also, you’re supposed to show that your area is different than surrounding areas. But that has different meanings for different size areas. The Napa Valley, for instance, has so many climates, soil types, terrain, that how can you say it’s different from surrounding areas? But the level of distinction is very different when looking at a much smaller appellation, for example, Sonoma Mountain. That difference makes it hard for TTB to strictly apply the criteria.

AG: So has TTB been rubberstamping sub-AVAs?

SS: They don’t exactly rubberstamp. They ask questions and get strong evidence. … I sometimes wonder, “Why did they draw that line there?” (But) when I comment sometimes, it doesn’t change things.

It’s a complex issue to eliminate these problems that have been piling up. But a bigger view has to be taken. ... And you have to ask, what is the value of this to the world?

AG: What is the value of this issue to the world, and to the consumer?

ALEX HECKATHORN (AH): So that he or she still can use all the information on the label to make a choice of wine. … The consumer has to use these tools to decide. It’s got to be slightly more dependent on education than we’d like it to be because the inherent nature of our system makes it a little better than the French system. … So you may be able to find a more consistent product in your market.

SS: In an ideal world, the consumer should be able to make decisions on varietal, appellation, and brand without being confused about which is which. People who are concerned about geographical brand names worry that consumers will be confused and make wrong decisions.

AG: That’s why you want to see geographic names eliminated?

SS: Geographic indicators should be geographic and brands should be something else.

AG: Is it possible that TTB will dramatically change the regulations?

SS: It’s impossible to say. If they say they want to eliminate sub-appellations, that’s dramatic. When you think of the industry without sub-appellations, large companies can’t sell a large-production wine from a smaller appellation. They need to buy grapes from other appellations (to generate supply). A small winery on the other hand that lacks economies of scale, needs to charge more, so they need smaller appellations to distinguish their wines. But probably, TTB will have to back down on prohibiting sub-appellations. It’s actually unlivable.

AG: What will be the outcome then?

SS: I hope the outcome is: They say they want to make the appellation system more clear. But I think there should be some kind of speed bump put into the system, something that will make people think more about the big picture effect before they submit an application.

Another point: The Wine Institute worked in the ‘90s to grapple with this issue and they (members) couldn’t come to a consensus. … In our culture, self-interest is taken for granted. It’s not only a good thing to protect, people have every right. (But) if you step back and look at the world, there are some liabilities about self-interest in a bigger view of the world.

People have to be willing to compromise a little bit on self-interest and that is a good model for the entire world economically.

AG: Define “self-interest” in this case.

SS: Profit motive, the right to pursue security. Corporations basically amass wealth and increase profits. The whole issue is complicated … It’s very difficult to say to someone, stop doing it.
This may be a great opportunity for the wine industry to get the AVA system right and it might require it to compromise on its rigid pursuit of self-interest. ~ Sara Schorske
But only pursuing higher and higher profits and greater market and not considering the bigger picture, is taking a very narrow perspective.

AG: Now you’re talking about capitalism.

SS: Capitalism is a wonderful system (but) certain aspects of it are pursued without consideration of the bigger picture. Capitalism is not perfect, (especially) with people who run it who are not being sensitive to the wider implications of self-interest decisions.

AG: So, what does this have to do with the wine industry?

SS: This may be a great opportunity for the wine industry to get the AVA system right and it might require it to compromise on its rigid pursuit of self-interest.

We have a lot of AVA names that are threatened by brand names. Maybe a solution would be to introduce a period that a brand would be allowed to phase out its geographical name (i.e. five years). Now the laws don’t define that. Maybe at some point all geographical names would fade out.

AG: You’ve been working with Calistoga Cellars for nine years, and I know you’ve advised them on this issue. Would phasing out of its name be a solution for Calistoga Cellars?

AH: They’re

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Reader Feedback

Reader Comments... [7]

Rex Stults , Industry Relations Director
Napa Valley Vintners, Napa Valley, CA
Excellent story and quite interesting to read the perspectives of Ms. Schorske and Mr. Heckathorn. They have some good ideas related to geographic brand names, especially as to why "Calistoga District" is not a viable solution and creates more problems than it solves. The Napa Valley Vintners do not want Calistoga Cellars to go out of business or even necessarily change their brand name. Quite simply -- source 85% of their fruit from the historical and viticulturally significant Calistoga AVA (pending) and benefit from a strengthened "Calistoga" brand. The fruit is readily available. If that doesn't accommodate their business model, perhaps Calistoga Cellars could rekindle "Louer Family Vineyards" or something similar for their non-Calistoga wines. Right now it appears as if "Calistoga" is only good enough for their wine label, but not good enough to be in their wine bottle. It not only deceives the consumer, but it prevents legitimate vintners and growers in Calistoga from using the term honestly. Hopefully, if any changes are made by the TTB related to AVAs, the principles of Truth in Labeling will be upheld.

John Waters Jr. , class clown
wine drinkers anonymous, Calistoga, CA
Great article Alan! I appreciate your attention to this important issue. Well done.
~ John

Tom Hedges , Owner
Hedges Family Estate, Red Mountain AVA, WA
This was a great article, and helps focus people's attention on the differences between grape varieties, location and terroir, and brand names. Our winery applied for and received AVA status for the 4,000 acre Red Mountain AVA in 2001. As the former director of the Washington Wine Commission put it, Red Mountain is the only AVA (in Washington) "born from a wine style". And therein lies an important point. As the distinctiveness of Red Mountain grapes and resultant wines became more and more obvious, grape prices rose to around three times, currently, the surrounding Yakima and Columbia Valley prices for the same grapes. Differences in grape/wine style is what a smaller (sub) AVA is all about. I have to agree 100% with what Sara and Alex are saying about geographic names. They are very confusing! Think of Chateau Margaux or DRC (Domaine de la Romanee Conti) in France. There is a DRC from DRC, but also other wineries making DRC-Appellation wines. And how many times has someone mistaken "a Margaux" for Chateau Margaux? With giant AVAs like California and Columbia Valley, geographic brands aren't such a problem. It is doubtful Columbia Crest is confusing to many, and they do source all their grapes from the Columbia Valley. However, I do recall "The Monterey Vineyard" brand back in the mid-1990s using wine from southern France, which was very hard to detect for the average drinker making a cursory review of the label. Authenticity, distinction, and homogeneity should be the ingredients in all smaller AVAs. Education, resulting from that, should be the goal, not profit from a good marketing tool.

William Hatcher , Managing Director
A to Z Wineworks, Newberg, OR
I have long deplored that we are parsing Oregon sub-appellations down to everyone's backyard when a sizable part of the wine-drinking public probably doesn't even know that we make wine here. My chagrin was amply validated when the owner of one of the nation's largest wine retailers told me that his favorite Oregon Pinot Noir was Calera.

Michael Conway , Client Development
SilverTech, New Hampshire
A wine enthusiast's point of view may be helpful here. As a consumer and collector of wines in the $25-$75 price range, I have been told by friends and family that I spend an inordinate amount of time concerning myself with terroir, vintage and varietals. I.E.; That I'm a wine geek. That being said, my primary enticement whenever initially choosing a wine is the brand. AVA is important, but it falls further down on the list. Siduri/Novy is an example of a wine that I frequently purchase based solely on the brand’s reputation for quality. It matters not if the grapes were sourced in Santa Lucia Highlands, Willamette Valley or Sonoma Coast. I trust them and know that the best representation of the grape, winemaker’s skill, year and lastly place will be in the wine. This is not to say that I won’t take a chance on a wine because of place, but usually it is driven by the specific vineyard. Sara Lee's or To-Kalon for example. I have empathy for both sides of this argument. It is a difficult situation that I hope can be settled without litigation.

Tom Kruse
It has been my contention for a while that an awful lot of producers are not trying to produce the best expression of their terroir but a wine that is to be compared with a mythical ideal of what it supposed to taste like. Consumers for the most part do not discern between a Zinfandel, for example, from one growing region to another. Rather, this is what a Zinfandel is supposed to taste like -- one standard -- and this is like that or not like that. I don't know if we will ever get beyond it.

Robert Haas , Managing Partner
Tablas Creek Vineyard, Paso Robles, CA
I am writing the following letter to the TTB. People with similar opinions should do the same:

Mr. Frank Foote,
Director Regulations and Rulings Division
Alcohol and Tobacco Tax and Trade Bureau
1310 G Street, NW Room 200 East
Washington, D.C. 20220

Re: Rulemaking for American Viticultural Areas proposed changes

Dear Mr. Foote:

I am an owner and managing partner of Tablas Creek Vineyard, a 120 acre vineyard and winery in the Paso Robles AVA. I would like to comment on rulemaking protocols, current and future. Identifying wines by geographic area of origin has been a custom used by wine making societies since the dynasties of the pharos of Egypt, dating back at least to 2000 BC. It has continued through ancient Persian, Greek and Roman civilizations through medieval societies to modern times. All current wine producing countries continue to use geographic and historical criteria, mostly based on the French system of Appellation Controllée adopted in the 1930s.Geographic determination of origin is used worldwide in marketing wines. Origin is a vital piece of information on the label that helps the consumer to make a choice in his purchase. In order to compete in the global marketplace and to inform our domestic consumers, we need to maintain and improve our rules for American Viticultural Areas. Our current rules system leads to conflicts between geographic brand names and geographic appellations of origin. It seems clear to me that allowing a geographic brand name to take precedence over a geographic appellation of origin is contradictory to the objective of truthfully informing the consumer about a wine's origin. The opposite should be the rule. Otherwise the system is a farce and cheaters triumph. New brand names that include geographic names should either source their grapes from their place names or should be granted label approvals with the caution that they will be required to source their grapes from their name area. Brand names that already exist should be given a period of time, say five years, to either source their grapes from their brand name area or change their names. The practice of appellations nested within appellations is a helpful guide for the consumer and a necessity for smaller vineyards in marketing their wines. Larger wineries with need for broader sourcing can continue to use the large appellation. Careful evaluation should be given to the criteria submitted for these nested appellations to assure that they are relatively homogenous and that they vary climatically, geologically, and historically from their neighbors and from the larger appellation in which they are nested. The naming of smaller and more specific appellations within larger ones is used by most of the world's wine producing countries. It should not be a problem to employ the system in regard to American vineyards.

Respectfully submitted,
Robert Haas,
Managing partner, Tablas Creek Vineyard

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