FEDERAL DRAWBACK

PROGRAM

San Joaquin Valley Winegrowers

Association

November 21, 2014

Shhhh!

• Corporate Welfare

• Trade Distorting Subsidy

Drawback Subsidy

It’s complicated

Drawback Subsidy

A drawback subsidy can only be claimed when an export is paired

with an import.

UC Davis AIC Report: 2011

• Key Conclusions

– Effect on grape prices: sometimes positive and negative

– Higher level of import and export activity

– Lack of data

• Not clear whether it helps or hurts grape growers

Drawback Program

• Subsidy Winners!

– US wineries who import and export

– Brokers and trading enterprises

– Chile, Australia, Argentina, et al

• Subsidy Losers!

– CA wineries only using CA fruit

– EEC wine producers

– Taxpayers, $75 million annually

California Winery

Wine Costs (100 liters)

• Source: 100% CA winegrapes

• Markets: 78% USA, 22% export

• Bulk wine $1.10 p/ liter

• $1.10 x 100 liters

• Cost of wine = $110

International Winery

Wine Costs (100 Liters)

• Source: 78% CA winegrapes, 22% imported wine

• Markets: 78% USA, 22% exported

• Bulk wine $1.10 p/ liter

• Drawback: 42.27¢ x 22 liters ($9.30)

• Cost of wine = ($110 - $9.30) $100.70

Taxpayer Subsidies Should Promote…

• Exports, but drawback…

– Imports and exports

• US winegrapes, but drawback…

– Flexible sourcing

• US wineries, but drawback…

– Overseas winery assets

• US value-add, but drawback…

– Favors bulk exports over case goods

Should Growers Support or Oppose Drawback?

No clear answer, but…

• CA wineries who only process and export CA fruit are penalized

• Promotes bottled exports, but not bottled imports

• Need more data

• Higher alcohol excise taxes will magnify program’s effects

JOHN AGUIRRE, PRESIDENT

CA Association of Winegrape Growers