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Feature Article
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
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 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.
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 have been winery compliance consultants for the last 24 years.
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
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
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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