Whiskey and Wine

Protected Industries For Sure

President Trump on Truth Social this morning:

The European Union, one of the most hostile and abusive taxing and tariffing authorities in the World, which was formed for the sole purpose of taking advantage of the United States, has just put a nasty 50% Tariff on Whisky. If this Tariff is not removed immediately, the U.S. will shortly place a 200% Tariff on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS COMING OUT OF FRANCE AND OTHER E.U. REPRESENTED COUNTRIES. This will be great for the Wine and Champagne businesses in the U.S.

No one is reporting this, but the EU struck first. They put more tariffs on US whisky. Trump predictably responded with the above.

As a wine collector and consumer, I am hoping this one doesn’t come to fruition. If it does, American wine companies will raise their prices. Around 50% of the world’s population consumes no alcohol, so none of this affects them.

I think having some perspective helps rather than just react. Hopefully what you are learning as this trade war plays out is that Trump is correct in one thing. Other countries tariff the heck out of the US. They subsidize local industries heavily and erect all kinds of artificial barriers to competition.

Free traders would say, if the other country wants to subsidize their industry and we can purchase the good at lower than what the normal market price would be, it’s a win for American consumers. It also makes American producers who want to compete more innovative and efficient.

I think the wine industry is a great example of that. The American wine industry is extremely innovative and has come a long way in the last 40 years. Screaming Eagle doesn’t taste like Petrus, but that doesn’t mean it is not extremely high quality. At the bottom end, US grocery store wines rival low-end European wines in quality. I am referring to $10-$15 per bottle wines you see on the shelf and not jug wines or the box wines.

The US heavily subsidizes food production. We protect it too. But, so far, the US win industry hasn’t been a big part of that and we are better for it.

The US wine industry has generally escaped tariffs from other countries. The US wine industry doesn’t have the thicket of government protectionist policies other major wine growing countries have. There are some subsidies for specialty crop grants. There are restrictions on foreign investment, but the US wine industry is not propped up by a central government like the foreign wine industry is.

A search on Grok returned how the French protect their country’s wine industry from competition.

France has a long history of implementing protectionist policies to safeguard its wine industry, which is not only an economic powerhouse but also a cornerstone of French cultural identity. These policies aim to preserve the quality, reputation, and market dominance of French wine, particularly in the face of global competition and changing consumer trends. Below is an overview of France’s key protectionist measures related to its wine industry as of March 13, 2025.

Appellation d’Origine Contrôlée (AOC) and Geographical Indications (GIs)

One of France’s most significant protectionist tools is the Appellation d’Origine Contrôlée (AOC) system, established in 1935 and later integrated into the EU’s Protected Designation of Origin (PDO) framework. This system strictly regulates wine production by:

• Defining specific geographical regions where certain wines can be produced (e.g., Bordeaux, Champagne).

• Mandating approved grape varieties, yields, and winemaking practices for each appellation.

• Ensuring that only wines meeting these criteria can bear the appellation name.

For example, only sparkling wine from the Champagne region can be labeled "Champagne," a rule fiercely defended by France both domestically and internationally. This not only protects French producers from imitation but also maintains premium pricing by linking wine to its terroir—a concept emphasizing the unique environmental factors of a region. The EU’s adoption of this model (via PDOs and Protected Geographical Indications, or PGIs) extends France’s influence, with nearly half of the GIs listed in the EU’s E-Bacchus database originating from EU countries, led by France.

Resistance to Global Blends and Innovation

French regulations prohibit blending EU and non-EU grapes, reflecting a protectionist stance rooted in preserving terroir purity. This was highlighted in early 2025 when French winemaker Maxime Chapoutier faced scrutiny for producing wines combining French and Australian grapes—a practice illegal under EU law. Such blends are seen as a threat to the traditional French wine identity, and the industry’s resistance underscores a broader reluctance to adapt to globalized consumer preferences, even as some argue it could make French wine more accessible.

Subsidies and Market Intervention

France, supported by EU agricultural policies, provides substantial financial backing to its wine sector. The Common Agricultural Policy (CAP), in place since 1962, has historically included:

• Subsidies: Annual payments to stabilize prices, with France receiving €280.5 million yearly until 2017 (adjusted in subsequent budgets).

• Vineyard Restructuring: The European Commission has spent €675 million to modernize vineyards while controlling supply.

• Excess Wine Destruction: In 2023, France allocated €200 million (augmenting an EU fund of €160 million) to distill surplus wine into industrial alcohol, addressing overproduction amid declining domestic demand. This move, repeated from a 2020 post-COVID intervention, props up prices for struggling producers, particularly in regions like Bordeaux.

These interventions shield French winemakers from market forces, prioritizing domestic stability over free competition. In 2025, with red wine consumption at historic lows and exports challenged by tariffs (e.g., potential US threats under Trump’s second term), such measures remain critical.

Trade Barriers and Export Support

While France advocates for open markets to export its wine—evident in trade agreements like the EU-South Korea deal, which boosted French wine exports by 30.9%—it maintains protective tariffs on imports. The EU’s common external tariff on wine ranges from €0.13 to €0.32 per liter, a modest but symbolic barrier to foreign wines entering the French market. Additionally, export subsidies and marketing investments (€522 million annually) bolster French wine’s global competitiveness, offsetting losses from closed markets like Russia (post-Ukraine war) or high-tariff regions like China (35% on European brandies).

Cultural and Political Reinforcement

Protectionism extends beyond economics into politics and culture. French leaders, including President Macron, have resisted initiatives like Dry January that could further erode wine consumption, framing them as threats to a “way of life.” Agriculture Minister Marc Fesneau echoed this in 2024, arguing against external dictates on French drinking habits. This rhetoric aligns with policies that prioritize traditional winemaking over diversification, such as alcohol-free wine, which, despite growing in 2025, faces skepticism from traditionalists.

After just being in France and visiting the Champagne, Burgundy, and Bordeaux regions, I can tell you when you walk into a wine shop there are no foreign brands on the shelves. Only French.

The inventory might reflect a preference by French people for French wine. But it is clear there is a protectionist bent to French policy.

Italy isn’t any different than France. Again, a search from Grok returns this:

Italy, like France, employs a range of protectionist policies to safeguard its wine industry, which is a vital economic and cultural asset. As the world’s largest wine producer by volume—accounting for roughly 50 million hectoliters annually—and a leader in exports, Italy uses a mix of regulatory frameworks, subsidies, and trade strategies to protect its vintners. These measures are deeply tied to Italy’s regional identities and its position within the European Union’s agricultural framework. Below is an overview of Italy’s protectionist policies for its wine industry as of March 13, 2025.

Denominazione di Origine Controllata (DOC) and EU Geographical Indications

Italy’s cornerstone protectionist mechanism is the Denominazione di Origine Controllata (DOC) system, established in 1963 and later expanded with Denominazione di Origine Controllata e Garantita (DOCG) in 1980. These designations, integrated into the EU’s Protected Designation of Origin (PDO) and Protected Geographical Indication (PGI) frameworks, regulate:

• Geographical Boundaries: Wines like Chianti, Barolo, and Prosecco must come from specific regions (e.g., Tuscany, Piedmont, Veneto).

• Production Standards: Rules dictate grape varieties, yields (e.g., 8 tons per hectare for Brunello di Montalcino), aging periods, and winemaking techniques.

• Labeling: Only wines meeting these criteria can use the DOC/DOCG name, ensuring authenticity and quality.

As of 2025, Italy boasts 333 DOCs and 77 DOCGs, the most of any EU country, protecting iconic wines like Amarone and Montepulciano d’Abruzzo. The EU enforces these GIs internationally, as seen in legal battles over “Prosek” (Croatia) versus “Prosecco” (Italy), with Italy securing a 2023 victory to block the former. This system not only preserves market exclusivity but also commands premium pricing—Prosecco exports alone hit €2 billion in 2024.

Subsidies and Supply Management

Italy leverages EU Common Agricultural Policy (CAP) funds and national resources to bolster its wine sector:

• Vineyard Support: Between 2000 and 2017, Italy received €1.6 billion for vineyard restructuring and conversion, modernizing production while capping expansion to control supply. In 2025, this continues with €300 million annually from the EU’s National Support Program.

• Crisis Distillation: Facing overproduction—exacerbated by a 2024 bumper harvest and declining domestic demand—Italy allocated €100 million in 2025 (supplementing EU funds) to distill excess wine into industrial alcohol. This mirrors France’s approach, stabilizing prices for regions like Tuscany and Sicily.

• Promotional Funding: Italy invests €100 million yearly in export promotion, targeting markets like the US and Asia, where its wine exports grew 5% in 2024 despite global trade tensions.

These subsidies shield producers from market volatility, though critics argue they distort competition and burden taxpayers.

Planting Rights and Production Limits

Since 2016, the EU’s vineyard planting authorization system—supported by Italy—restricts new vineyard growth to 1% of existing acreage annually (around 7,000 hectares in Italy). This replaced the old planting rights regime, aiming to prevent oversupply while allowing controlled expansion. Italy enforces strict quotas within DOC/DOCG areas, such as Prosecco’s 18,000-hectare cap in Veneto, ensuring supply aligns with demand and protects established producers from new entrants.

Trade Protections and Export Focus

While Italy pushes its wines globally—exports reached €8 billion in 2024—it benefits from the EU’s common external tariff on non-EU wine imports (€0.13-€0.32 per liter), a modest barrier to competitors like the US or Australia. Unlike France, Italy has faced fewer direct trade retaliations, though Trump’s 2025 tariff threats (e.g., 200% on EU wines) loom large. Italy’s trade strategy emphasizes bilateral deals—e.g., the EU-Japan Economic Partnership Agreement (2019), which cut Japanese tariffs on Italian wine from 15% to zero, boosting exports by 20% since.

Cultural and Political Reinforcement

Italy’s protectionism is as much cultural as economic. Regional governments, like Veneto’s, fiercely defend local wines—e.g., Prosecco’s GI status—while national leaders frame wine as a heritage asset. In 2025, amid declining domestic consumption (down 23% over a decade), Agriculture Minister Francesco Lollobrigida rejected initiatives like alcohol-free wine as “un-Italian,” echoing France’s cultural stance. This resistance to innovation prioritizes tradition over adapting to new markets.

Impacts and Challenges

Italy’s policies have cemented its dominance—overtaking France in volume and leading PDO wine production (45% of its output is DOC/DOCG). However:

• Overproduction: A 2024 harvest of 50.1 million hectoliters left a 3-million-hectoliter surplus, straining storage and prices despite distillation efforts.

• Trade Risks: US tariffs could hit exports (the US took €1.5 billion of Italian wine in 2024), especially if EU-US tensions escalate over unrelated goods like whiskey or steel.

• Innovation Lag: Strict rules stifle experimentation (e.g., blending with non-EU grapes), potentially ceding ground to New World producers appealing to younger drinkers.

In 2025, Italy’s protectionism remains a double-edged sword: it preserves a €15 billion industry employing 1.3 million people, yet its rigidity may hinder resilience against global shifts, from climate change to trade wars

Spain is the third largest producer of wine. They protect their wine industry too! Again, a search on Grok returns this:

Spain, the world’s third-largest wine producer and a major exporter, employs a variety of protectionist policies to support its wine industry, which is deeply rooted in its economy and cultural heritage. With over 2.9 million acres of vineyards—the largest vineyard area globally—and an annual production of around 40-45 million hectoliters, Spain uses regulatory frameworks, subsidies, and trade strategies to protect its vintners, particularly in regions like Rioja, Catalonia, and Castilla-La Mancha. These policies align with the European Union’s agricultural framework while reflecting Spain’s unique priorities. Below is an overview of Spain’s protectionist policies for its wine industry as of March 13, 2025.

Denominación de Origen (DO) and EU Geographical Indications

Spain’s primary protectionist tool is the Denominación de Origen (DO) system, established in 1932 and later enhanced with Denominación de Origen Calificada (DOCa) for elite regions like Rioja and Priorat. Integrated into the EU’s Protected Designation of Origin (PDO) and Protected Geographical Indication (PGI) frameworks, these designations:

• Regulate Production: Specify grape varieties (e.g., Tempranillo in Rioja), yields (e.g., 6,500 kg/ha for Rioja reds), and aging requirements (e.g., Reserva must age at least three years, including one in oak).

• Protect Regional Identity: Only wines from designated areas can use names like Rioja, Ribera del Duero, or Cava, safeguarding their reputation and market value.

• Enforce Quality: DOCa status, unique to Rioja and Priorat, imposes stricter controls, such as vineyard inspections and bottle-by-bottle traceability.

Spain has 96 DOs and 2 DOCas, plus 42 PGIs (e.g., Vino de la Tierra de Castilla), covering over 70% of its wine production. The EU defends these GIs globally—e.g., Spain successfully blocked non-Cava sparkling wines from using similar branding in trade disputes—ensuring premium pricing and export competitiveness.

Subsidies and Market Stabilization

Spain leverages EU Common Agricultural Policy (CAP) funds and national resources to shield its wine sector:

• Vineyard Restructuring: From 2000-2017, Spain received €1.1 billion for vineyard modernization, reducing acreage by 10% to curb overproduction while boosting quality. In 2025, €250 million from the EU’s National Support Program continues this effort.

• Crisis Distillation: Facing surpluses—e.g., a 2024 harvest of 43 million hectoliters amid flat demand—Spain allocated €80 million in 2025 (augmenting EU funds) to distill excess wine into ethanol, stabilizing prices, especially for bulk producers in La Mancha.

• Export Promotion: Spain invests €50 million annually in marketing campaigns, targeting key markets like the US (€600 million in 2024 exports) and China, where demand for Rioja and Cava is growing.

These measures protect an industry worth €4 billion annually, though they disproportionately benefit large cooperatives over small artisanal producers.

Planting Restrictions and Supply Control

Under the EU’s vineyard planting authorization system (since 2016), Spain limits new plantings to 0.5% of existing acreage annually—around 4,800 hectares—lower than the EU’s 1% cap. This reflects Spain’s focus on managing its vast vineyard area, already prone to oversupply. DO regions impose additional quotas; for instance, Rioja caps yields to maintain quality, a response to past overproduction crises in the 1990s that flooded markets with cheap wine.

Trade Protections and Export Strategy

Spain benefits from the EU’s common external tariff on non-EU wine imports (€0.13-€0.32 per liter), a modest barrier to competitors like Argentina or Chile. While Spain exports €2.8 billion in wine yearly—third behind Italy and France—it faced US tariffs in 2019 (25% on wines under 14% ABV) due to the Airbus-Boeing dispute, though these were suspended in 2021. Trump’s 2025 tariff threats (e.g., 200% on EU wines) loom as a risk, especially since Spain’s US exports grew 8% in 2024. Spain counters this with trade deals—e.g., the EU-Mercosur agreement (pending ratification in 2025), which could open South American markets tariff-free.

Cultural and Political Support

Wine is a cultural pillar in Spain, and political will reinforces protectionism. Regional governments, like La Rioja’s, fund DO councils (e.g., Consejo Regulador de Rioja) to enforce standards and promote brands. In 2025, Agriculture Minister Luis Planas rejected EU pressure to liberalize planting rules, arguing it would “undermine centuries of tradition.” Spain also resists trends like low-alcohol wine, with producers like Campo Viejo prioritizing traditional styles over innovation, despite a 15% drop in domestic consumption since 2010.

Impacts and Challenges

Spain’s policies have mixed outcomes:

• Successes: Rioja and Cava maintain global prestige, with exports up 5% in 2024. Bulk wine (60% of production) keeps Spain competitive in price-driven markets like Germany.

• Overproduction: A structural surplus—e.g., 10 million hectoliters unsold in 2024—forces reliance on distillation and low-margin bulk sales (as low as €0.30/liter).

• Trade Vulnerability: Potential US tariffs could hit €600 million in exports, while Brexit’s lingering effects (UK tariffs on Spanish wine rose 10% post-2021) strain a key market.

• Innovation Gap: Strict DO rules limit experimentation, ceding ground to New World producers adapting to younger, eco-conscious consumers.

In 2025, Spain’s protectionism sustains an industry employing 400,000 people, but its reliance on subsidies and bulk exports—rather than value-added innovation—leaves it exposed. With climate change shrinking yields (down 10% in drought-hit 2023) and trade tensions rising, Spain’s rigid framework may need rethinking to balance tradition with resilience.

If you do a Grok search, you will find all EU countries protect their wine industry. Argentina used to protect its wine industry vigorously, until Mileil was elected. There are still subsidies, but export tariffs are 0% and Mileil is embracing a market-based approach. There are import tariffs to protect Argentinian winemakers from foreign competition.

Overall, people are consuming less alcohol these days, not more. The wine industry benefitted from the baby boom generation coming of age and discovering wine. For three decades, wine consumption always went up. That allowed for more vineyards to be planted worldwide.

Now in every wine region, vineyards are being ripped up. Wineries are going out of business or they are selling to consolidators.

Here is global wine consumption over the past several years (from Grok):

Global Wine Demand and Consumption: Key Metrics

1. Total Volume (Million Hectoliters, mhl)

• 2019: 240 mhl (OIV)

• 2020: 234 mhl (COVID impact, -3% decline)

• 2021: 236 mhl (+0.9% recovery)

• 2022: 232 mhl (-1.7%, economic pressures)

• 2023: 221 mhl (-2.6%, per OIV provisional; lowest since 1996 due to climate and demand shifts)

• 2024: 225 mhl (estimated +1.8%, partial rebound from better harvests)

• 2025: 227-230 mhl (projected +1-2%, based on IWSR’s +0.5% CAGR for wine to 2028)

In a freely competitive market with no trade barriers, no subsidies, and no duties/tariffs, what would happen?

I opine that the price of wine would go down to draw in more demand. Currently, it seems like wine prices only go in one direction, up. It’s easier to lower your price and cut your margin than it is to exit the business and figure out what would be a more productive use of the land you grow grapes on.

The protectionist policies of virtually every wine producing government make their own wine industry less competitive. Bad wineries or underperforming wineries are able to stay in business when sheltered from competition. That means we get the opportunity to pay more for shitty wine.

Protectionism also allows the top producers to have pricing power.

One of the most interesting things I found out when I spoke to my friends who produce wine and spirits in France is the difficulty with even purchasing more land to expand their operations. Because of the stringent restrictions, it is very hard to grow your business. There is a stasis. The first growths will always be the first growths. Hennessy, Courvoisier, Rémy Martin, and Martell will always be the biggest cognac brands. Three of them were founded in the 1700s which shows you the permanence of protectionism.

Smaller producers are practically forced to sell their production to the big guys because they need the cash flow to stay in business. In America, grape growers often make a choice. They can be “farmers” and just grow grapes and sell. Or, they can try and custom crush and make boutique wine and sell. They can also go all-in and build out production/aging facilities and vertically integrate.

I think I could make a similar blog post about whisky. Of course US grain crops are heavily subsidized, where grapes aren’t. Ireland, Scotland and everyone else does what it can to protect whisky producers. In the US, there are standards since there was so much counterfeiting. There is the rule that only whisky produced in Kentucky can be called bourbon, and there are restrictions on how it can be blended and produced. But, there isn’t a lot of protectionism around import/export.

It’s probably too idealistic to hope the EU countries would take down all their protectionist policies.

The end result will be prices will rise for shitty wine and the prices for the good stuff will go up even higher at the margin.

Sad.