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?
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
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
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.
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 considering many options. … Phase out is being discussed so as not to harm (the brand). They themselves are trying to figure that out. They are trying to feel through the issue. I saw Eola Hills Winery (Oregon) wrestle with this, too.
It’s not entirely the winery’s (Calistoga Cellars) decision (to drop the name) because there are other constituents, such as investors and its distribution network.
AG: What can you tell me about what you advised Calistoga Cellars?
AH: I’ve told them to be prepared that their brand name would become unusable by the adoption of the (Calistoga) AVA, and to be as reasonable as possible in the controversy; and to try and consider the broader impacts on the industry and on their area.
AG: What has been Calistoga Cellar’s reaction?
AH: They listened, they’re considering. They go through phases of denial, disbelief, shock and then they’re trying to figure out what to do. They’re feeling the pressure but at the same token, they recognize they have a responsibility to (others).
AG: Is there an end in sight for granting approval for this AVA?
SS: The way TTB has been juggling with conflicting brand names is untenable … (So) maybe we should name it “Calistoga District”. You’re playing semantics with people’s understanding all over the world. You’re telling them that Calistoga by itself, is not viticulturally distinctive.
AG: Some, especially those in Calistoga, think that using the word “district” diminishes them; and I know for a fact that your client, Calistoga Cellars, has proposed the addition of the word “district.” Does using “district” in Stags Leap, Spring Mountain et al, diminish those areas?
SS: Not necessarily. But in this case, it’s saying to the world (that) the word “Calistoga” is not associated with that town or region. If “Calistoga District” is approved by TTB, what does that say to Fred Franzia or somebody else? “Go ahead and pick out another brand name that has Calistoga in it … If Calistoga alone is not an approved AVA name, then you’re basically saying, “Go for it. Calistoga is up for grabs.”
AH: (As for diminishing Calistoga by adding the word “district”), the question is if you use “district” and add other Calistoga brand names, it (allows those brands) to make wine without using Calistoga grapes.
There’s a desire on TTB’s part that they be intellectually honest on this. This issue bothers them. TTB finally said: we’re up against this. They knew this day was coming for a long time. To freeze is a decision that didn’t come lightly or become an immediate reversal.
AG: Alex, you say that the TTB is “actually taking an intelligent and well-considered step” with its freeze “to solve the inherent conflicts in the AVA program.” Why?
AH: They’re looking at it as a more global
AG: Talk about the AVA system as it’s currently regulated, as merely being used as a marketing tool.
AH: It is a marketing tool. When you call the government in play to help you, that world gets a little messy. We do know there are very distinct types of growing regions. (But) do we need so many different sub-appellations? To designate that (terroir distinctions), would the “vineyard block” designation serve the same purpose?
A lot of the motivation for creating AVAs has been the marketing ability or the use of AVAs for marketing purposes. … Do I think that’s bad? Not entirely. The French system is certainly a marketing system. It’s supposed to ensure quality.
AG: But the American system does not ensure quality.
AH: No. I’ve only read about the great conflicts in France (regarding quality regulations). What’s been done in America in lieu of that is through trade organizations, (i.e.) the Washington State Wine Quality Assurance Program. They give you a good housekeeping seal of approval.
I know similar organizations are being considered in Colorado and Michigan because there are neophytes making wines in those regions. But those that are more serious want to upgrade quality.
AG: Don’t you think now that quality assurance should be part of the discussion?
AH: No. It’s been such a dismal failure in France, to even open that door would eliminate a chance of coming to a reasonable solution with regards to the geographic indications the current AVA system is designed to give us.
Quality is a huge issue in establishing an appellation’s reputation… Before their program was established, winemakers in Washington offered to help lesser-quality producers to increase quality. That was a good proactive system rather then simply being competitive. It’s hard to see that in California because it’s so competitive and people are so experienced that there’s little bad wine being made there.
AG: Does the consumer really care about an AVA system?
SS: When I help a group of growers or wineries establish a new AVA, I tell them it’s up to you to give value to your appellation. It’s worthless if the consumer doesn’t recognize it. To a certain degree, people establish their appellation to help them tell their story. (But) maybe appellations are not the magic bullet for marketing because you still have to tell your story, and educate the consumer.
When there are so many AVAs out there, does it diminish everybody’s ability to tell their story effectively? Maybe it does.
Rethinking the AVA system gives the industry a chance to consider these implications. Also, I think it may be irresponsible of the industry to keep creating
Maybe if a winery submits a totally new brand name, the TTB should send back a warning with the label approval, “Proceed at your own risk, because someday you might lose it.” … The industry should take this as a warning.
I see this as a microcosm of the world’s problems. To be able to solve the problems the world faces, we have to apply more human (qualities) without screwing somebody else and putting them out of business. There are human values involved and to have a healthy world, you have to have intellectual honesty.
We can actually be intellectually honest and open-hearted with each other and make our way in this world without taking advantage of loopholes or the possibility of misunderstanding.
To solve these problems, people may have to take the proverbial cut in pay. .. Someone has to make a compromise and someone will make a compromise in the end. Everyone is looking for a solution without any downsides at all. But when you have a system that has inherent contradictions, there may not be any solutions with no downsides. Then you have to accept some downsides to solve it. That’s the mature thing to do.
I don’t know if the wine industry can pull it off, but can the world pull it off? It’s a paradigm shift.
For more information on the AVA suspension
read Alan Goldfarb’s August 9, 2007 article: The Big Freeze
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 considering many options. … Phase out is being discussed so as not to harm (the brand). They themselves are trying to figure that out. They are trying to feel through the issue. I saw Eola Hills Winery (Oregon) wrestle with this, too.
It’s not entirely the winery’s (Calistoga Cellars) decision (to drop the name) because there are other constituents, such as investors and its distribution network.
AG: What can you tell me about what you advised Calistoga Cellars?
AH: I’ve told them to be prepared that their brand name would become unusable by the adoption of the (Calistoga) AVA, and to be as reasonable as possible in the controversy; and to try and consider the broader impacts on the industry and on their area.
AG: What has been Calistoga Cellar’s reaction?
AH: They listened, they’re considering. They go through phases of denial, disbelief, shock and then they’re trying to figure out what to do. They’re feeling the pressure but at the same token, they recognize they have a responsibility to (others).
AG: Is there an end in sight for granting approval for this AVA?
SS: The way TTB has been juggling with conflicting brand names is untenable … (So) maybe we should name it “Calistoga District”. You’re playing semantics with people’s understanding all over the world. You’re telling them that Calistoga by itself, is not viticulturally distinctive.
AG: Some, especially those in Calistoga, think that using the word “district” diminishes them; and I know for a fact that your client, Calistoga Cellars, has proposed the addition of the word “district.” Does using “district” in Stags Leap, Spring Mountain et al, diminish those areas?
SS: Not necessarily. But in this case, it’s saying to the world (that) the word “Calistoga” is not associated with that town or region. If “Calistoga District” is approved by TTB, what does that say to Fred Franzia or somebody else? “Go ahead and pick out another brand name that has Calistoga in it … If Calistoga alone is not an approved AVA name, then you’re basically saying, “Go for it. Calistoga is up for grabs.”
AH: (As for diminishing Calistoga by adding the word “district”), the question is if you use “district” and add other Calistoga brand names, it (allows those brands) to make wine without using Calistoga grapes.
There’s a desire on TTB’s part that they be intellectually honest on this. This issue bothers them. TTB finally said: we’re up against this. They knew this day was coming for a long time. To freeze is a decision that didn’t come lightly or become an immediate reversal.
AG: Alex, you say that the TTB is “actually taking an intelligent and well-considered step” with its freeze “to solve the inherent conflicts in the AVA program.” Why?
AH: They’re looking at it as a more global
AVA=It is a marketing tool. When you call the government in play to help you, that world gets a little messy. ~Alex Heckathorn
issue - trade, etc. - to join the world community with a good program rather than with a system that has been carved out of regulations riddled with contradictions.
AG: Talk about the AVA system as it’s currently regulated, as merely being used as a marketing tool.
AH: It is a marketing tool. When you call the government in play to help you, that world gets a little messy. We do know there are very distinct types of growing regions. (But) do we need so many different sub-appellations? To designate that (terroir distinctions), would the “vineyard block” designation serve the same purpose?
A lot of the motivation for creating AVAs has been the marketing ability or the use of AVAs for marketing purposes. … Do I think that’s bad? Not entirely. The French system is certainly a marketing system. It’s supposed to ensure quality.
AG: But the American system does not ensure quality.
AH: No. I’ve only read about the great conflicts in France (regarding quality regulations). What’s been done in America in lieu of that is through trade organizations, (i.e.) the Washington State Wine Quality Assurance Program. They give you a good housekeeping seal of approval.
I know similar organizations are being considered in Colorado and Michigan because there are neophytes making wines in those regions. But those that are more serious want to upgrade quality.
AG: Don’t you think now that quality assurance should be part of the discussion?
AH: No. It’s been such a dismal failure in France, to even open that door would eliminate a chance of coming to a reasonable solution with regards to the geographic indications the current AVA system is designed to give us.
Quality is a huge issue in establishing an appellation’s reputation… Before their program was established, winemakers in Washington offered to help lesser-quality producers to increase quality. That was a good proactive system rather then simply being competitive. It’s hard to see that in California because it’s so competitive and people are so experienced that there’s little bad wine being made there.
AG: Does the consumer really care about an AVA system?
SS: When I help a group of growers or wineries establish a new AVA, I tell them it’s up to you to give value to your appellation. It’s worthless if the consumer doesn’t recognize it. To a certain degree, people establish their appellation to help them tell their story. (But) maybe appellations are not the magic bullet for marketing because you still have to tell your story, and educate the consumer.
When there are so many AVAs out there, does it diminish everybody’s ability to tell their story effectively? Maybe it does.
Rethinking the AVA system gives the industry a chance to consider these implications. Also, I think it may be irresponsible of the industry to keep creating
I see this as a microcosm of the world’s problems. To be able to solve the problems the world faces, we have to apply more human (qualities) without screwing somebody else and putting them out of business.
~ Sara Schorske
geographical brand names. If you choose a geographic brand name now, then some time down the road you may be losing that name.
~ Sara Schorske
Maybe if a winery submits a totally new brand name, the TTB should send back a warning with the label approval, “Proceed at your own risk, because someday you might lose it.” … The industry should take this as a warning.
I see this as a microcosm of the world’s problems. To be able to solve the problems the world faces, we have to apply more human (qualities) without screwing somebody else and putting them out of business. There are human values involved and to have a healthy world, you have to have intellectual honesty.
We can actually be intellectually honest and open-hearted with each other and make our way in this world without taking advantage of loopholes or the possibility of misunderstanding.
To solve these problems, people may have to take the proverbial cut in pay. .. Someone has to make a compromise and someone will make a compromise in the end. Everyone is looking for a solution without any downsides at all. But when you have a system that has inherent contradictions, there may not be any solutions with no downsides. Then you have to accept some downsides to solve it. That’s the mature thing to do.
I don’t know if the wine industry can pull it off, but can the world pull it off? It’s a paradigm shift.
For more information on the AVA suspension
read Alan Goldfarb’s August 9, 2007 article: The Big Freeze


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