The Canadian Wine Industry

The Canadian wine-making industry, North American Industrial Classification System (NAICS) 31213, comprises establishments that are primarily engaged in manufacturing wine or brandy from grapes or other fruit.
Establishments primarily engaged in growing grapes and manufacturing wine, manufacturing wine from purchased grapes and other fruit, blending wines, or distilling brandy and cider are included.

1. Introduction

Over the past quarter-century, Canadian vintners have increased their production of high-quality wines. Canada's early European settlers attempted to grow a number of European grape varieties of the Vitis vinifera (V. vinifera) species but failed due to hot, humid summers combined with frigid winter temperatures. Instead, the wine industry turned to hardier native grape varieties such as Vitis labrusca, Vitis riparia and other hybrids, focussing primarily on producing fortified wines.

Although Canada is not a major wine producer by global standards, the industry has evolved into a niche maker of internationally-respected Icewines and Late Harvest wines due to cool-climate influences. Cool climate viticulture areas in the northwestern US, New Zealand and Germany as well as Canada are suitable for growing V. vinifera varieties such as Riesling, Chardonnay and Pinot Noir grapes. While Canada's wine-making regions are not homogeneous, Merlot, Cabernet Sauvignon and Cabernet Franc are also popular V. vinifera varieties. Vidal is a French hybrid grape widely used to make Icewine primarily in Ontario.

Wine accounted for about 1% share of the Canadian beverage market (Figure 1) in 2007. This volume is similar to distilled spirits but far below beer consumption, according to Statistics Canada.

Figure 1: Share of Canadian Beverage Market by Volume, 2007

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Description - Figure 1

Figure 1 is a pie chart showing the share of the Canadian beverage market by volume held by the leading beverage categories in 2007 according to the Beverage Marking Corporation. The breakdown is: Carbonated soft drinks - 14%, coffee - 14%, milk - 11%, tea - 10%, beer - 9%, fruit beverages - 10%, bottled water - 10%, wine - 1%, distilled spirits - 1%, other beverages - 20%.

2. Industry Structure

The latest Statistics Canada data reports that companies produced manufacturing shipments worth $784.5 million (primarily wine from grapes, hereafter referred to as wine, and also, cider, hard lemonade, wines made from other fruits and other similar products) and directly employed 2,766 people in 2006. See the statistical page at the back of this industry profile for further details.

In the alcohol beverage sector, wine ranks second in terms of economic value of production; after brewery products, table wines constitute the largest segment of the market, by a slight margin over distilled spirits.

According to Statistics Canada, production of vinifera grapes for processing, of which nearly all would be used in wineries, was 61 thousand metric tonnes in 2007. The supply of Canadian-produced V. vinifera grapes has grown steadily over the past decade. Wines produced from imported V. vinifera grapes are concentrated primarily in Ontario and BC.

Wineries also use hybrid grape varieties such as Vidal, adding another 17 thousand metric tonnes to the 2007 production level.

With a national grape crush of 78 thousand metric tonnes, the capacity to make wine exclusively from Canadian grapes is estimated to be around 54.6 million litres annually. Footnote 1

Canadian-made wines can be divided into two categories. The first and largest category are the low-to-medium-priced table wines which are frequently blended wines from both Canadian and imported sources. These blended and bottled wines are often referred to as 'Cellared in Canada' wines. The second category can be described as the mid-to-premium-priced branded wines made from 100% Canadian grapes, where product descriptors, appellations (or geographical indications) and vintage information are important. These products are mostly, but not exclusively, Vintners Quality Alliance (VQA) designated wines, including Icewine.

Imported wines coming into Canada in bulk, principally for blending and bottling, amounted to approximately 77 million litres in 2007. The amount of Canadian content in blended wines varies widely and there are circumstances where there may be little Canadian content. In addition, there were over 200 million litres of bottled wines which were imported in 2007 for direct sale to consumers through retail and food service channels.

Figure 2: Share of Shipments, Own Manufacturing, 2006

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Description - Figure 2

Figure 2 is a pie chart showing the share of shipments, own manufacturing in 2006 of the three main alcohol beverage sectors. Breweries represented 73.8%, distilleries 12.8%, and wineries 13.5% of the alcohol beverage market. The source is Statistics Canada.

France, Australia, Italy, Chile and the United States (US) are all major suppliers of imports. Imports totalled over $1.5 billion in 2006, capturing more than 67% of the domestic market (Figure 3). Figure 3 understates the real share that imported wines have in the Canadian market because blended wines are considered by Statistics Canada to be domestically-made products. Figure 4 illustrates the comparison between exports and imports of wine for the period 1997 to 2007.

There are over 350 winery production units when estate and farm-gate operations are taken into account. Organizations where wine-making is part of a larger farming operation are referred to as farm-gate wineries by Statistics Canada. These establishments are not accounted for in the formal wine industry data released by Statistics Canada (NAICS 31213).

Unlike farm-gate establishments, estate wineries focus solely on wine production, making wine from the grapes cultivated in their own vineyards. Estate wineries frequently produce what are regarded as Canada's top-quality wines, usually from V. vinifera grapes. They normally consist of operations employing between 20 and 100 people, but additional labour is required at grape harvest time.


Figure 3. Wineries Imports, Exports and Domestic Market Shipments, 2006

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Description - Figure 3

Figure 3 is a bar chart displaying imports, domestic shipments, and exports by value, of wine in 2006. Imports totalled $1,526 million, domestic shipments were $749.5 million, and exports were $35 million. Above the bars showing imports and domestic shipments is a caption showing the total value of the Canadian market (i.e., imports plus domestic shipments) in 2006 at $2,275.5 million. Above the bars showing domestic shipments and exports is a caption showing the value of shipments, own manufacturing (i.e., domestic shipments plus exports) in 2006 at $784.5 million. The source is statistics Canada.

In 2006, one of Canada's largest wine companies was purchased by a US-based international, but continues to operate as a Canadian subsidiary. For the most part, the industry is owned and managed by Canadians. The larger firms have wine production interests in two or more provinces, including investments in a number of estate wineries and wine-blending establishments that produce and bottle blended wines from imported and Canadian content.

The Canadian wine sector is largely located in Ontario, British Columbia (BC), and to a much lesser extent, in Quebec and the Maritimes (primarily Nova Scotia). The majority of Canadian production takes place in the Niagara region of Ontario.

Since the wine industry in Ontario and BC is closely linked to the grape-growing sector, it is directly affected by provincial agricultural policies. In Ontario, the vintners, represented by their marketing board, negotiate prices with the grape growers on an annual basis. In BC, the grape market is not regulated; therefore growers and wineries contract with each other privately.

In Quebec, the wine sector is based primarily on value-added activities such as bottling and blending of imported bulk wines. A number of grower/estate wineries are concentrated in the south-western part of the province. These small wineries usually have no more than 10 hectares planted to grapes.

In the Maritimes, Nova Scotia is by far the region's major wine producer (although production is still relatively very small) and new operations are being added, but there are also a few small craft wineries in New Brunswick and Prince Edward Island.

Fruit wines and ciders are manufactured throughout the country, usually in areas where the weather is milder. Fruit wines are made from a variety of sources including strawberries, raspberries, peaches, pears, apples, and rhubarb. Most fruit wineries are small family businesses that source their produce locally.

The apple cider business is an evolving and growing industry in Canada. Production is concentrated in apple-growing regions of BC, Quebec, Nova Scotia and Prince Edward County in Ontario. Newly-developed ice cider, made from frozen apples in a process similar to Icewine, has resulted in a premium product for the apple cider industry.

3. Performance

Domestic Market

The domestic market is the most important market for Canadian wines. Annual per capita consumption increased between 2000 and 2007, growing from 11.3 to 14.6 litres, implying total domestic market consumption of approximately 470 million litres in 2007. According to Statistics Canada, growth in domestic wine consumption in recent years has out-performed that of beer and spirits. But consumption is still low compared to other major wine-producing countries such as France or Italy, where per capita consumption is more than four times that of Canada.

In terms of market share, imports increased from 60.8% of the domestic market in 1996 to approximately 67.1% by 2006. For the period between 1997 and 2007, Statistics Canada reports that volume sales of imported wine increased by an average annual growth rate of 5.4%, compared to only 4.2% for domestic wines.

Sales of imported wine rose from a value of $630 million in 1997 to $1.7 billion in 2007. (See Figure 4 which also includes imports and exports of other products such as cider, fruit wines and wine coolers). In 2007, France accounted for 26.2% of these imports, followed by Italy (18.8%), Australia (18.4%), and the US (13.6%).

The quality of Canadian wines has greatly improved over the years and Canadian wines are winning awards in internationally-acclaimed competitions. This quality improvement has been supported by plantings of new high-quality V. vinifera grapes such as Chardonnay, Riesling, Merlot, and Pinot Noir. Improving consumer awareness and appreciation of these quality developments may help the industry to regain a share of the domestic market in the face of growing international competition.

The large-scale movement to grow V. vinifera grapes marked the beginning of a new competitive era with the implementation of the Canada-US Free Trade Agreement (FTA) in 1989. The FTA provided the momentum for growers to remove less desirable vines such as V. labrusca and French Hybrids that had previously been the basis of industry production. These varieties were not suitable for producing the higher-quality wines that Canadian consumers and other major global wine markets were demanding.

The wine industry responded to the challenges of trade liberalization by focussing on premium wines and introducing new products such as Icewine, for which Canada is recognized as a world leader. At the same time, wineries introduced new high-quality grapes and products that reflect changing consumer taste profiles.

A key feature in re-positioning Canadian wines to domestic consumers has been the development of the VQA. The VQA is a premium wine standard launched in Ontario in 1988 and in BC in 1990 as an 'Appellation of Origin' system by which consumers could identify high-quality wines based on the origin of the grapes. VQA certification has become an important marketing tool, providing both domestic and foreign consumers with an assurance of regulated production practices, quality and labelling integrity.

Over the past 10 years, VQA wine sales in Ontario more than tripled, growing from 2.5 million litres in the 1996-97 fiscal year to 9.9 million litres, or almost $2 billion in retail sales in the 2006-07 fiscal year. Footnote 2

Ontario currently has four regional appellations and ten sub-appellations within the Niagara escarpment and Niagara-on-the-Lake, which are protected as geographical indications. In September 2008, Prince Edward County, a region of Ontario experiencing rapid growth in wine production, became the latest regional appellation in the province. BC has five regional appellations and it has recently developed sub-appellations. This identification of more precise geographic descriptors reflects the developing sophistication of the wine industry in Canada and is consistent with the concept of European terroir.

Canada is recognized as a world-leader in the production of Icewine. While other countries such as Austria and Germany also produce this premium product, Canada is able to produce it at a high quality with the greatest consistency. Icewine, which is made from grapes frozen on the vine, has earned the highest awards at the world's most prestigious wine fairs, including Vinexpo and VinItaly.

Canadian production of Icewine is estimated at 340,000 litres annually. The amount may vary from year to year depending on weather conditions and grape harvests. Canadian exports of Icewine reached $11.6 million in 2007 (176,000 litres), sold primarily to Southeast Asia and the US.

Canada's two major grape-growing regions, the Niagara peninsula region of Ontario and the Okanagan Valley of BC, have been very successful in linking wine-making to tourism. This has resulted in economic benefits for these regions. Wine tours have also helped the public become more appreciative of the growing sophistication of Canadian wineries and their improving wine quality. Industry expects wine and culinary tourism to grow by 50% in Ontario and BC between 2005 and 2015. Quebec and Nova Scotia have also been successful with grape and wine festivals, and in developing wine tourism routes.

Export Market

The small area under vine in Canada limits export production capability compared to the world's largest wine producers, but exports are still important to Canadian wine producers. The US and Asia are the major export markets.

Exports of wine, cider and related products have fluctuated heavily over the past decade as a percentage of domestic production, accounting for about 3.1% of domestic production in 1997, peaking at 14.8% in 2002, then falling to 4.5% in 2006. Actual wine exports were less than 2.5% of production in 2006. In dollar terms, exports also grew significantly over the past decade before dropping off in 2003.

In 2007, exports of grape and fruit wines, blended wines, brandy, and cider accounted for $25.1 million, with the US being the industry's most important market. (See Figures 4 and 5).

Figure 4: Exports and Imports of Wine, 1997 - 2007

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Description - Figure 4

Figure 4 is a line chart depicting the value of exports and imports of wine between 1997 and 2007. Import growth was nearly linear from 1997 to 2007, rising from $630.3 million to $1,669 million in that time period. In 1997 exports were $12.7 million, peaking at $103 million in 2002. Thereafter, exports declined each year, falling to $25 million in 2007. The source is Statistics Canada.

In 1997, exports totalled just under $13 million; by 2002 this figure grew to $103 million, falling sharply thereafter to $25.1 million in 2007. The increase in 2002 was thought to be due to a short-term spike in exports of hard lemonade products to the US, and the subsequent decline was caused by bad weather (especially in Ontario) in 2003 and 2005, which seriously reduced the supply of wine grapes. While the hardier V. labrusca varieties were able to endure the adverse weather, the V. vinifera varieties were damaged heavily with some wine growers losing their crop.

Figure 5: Exports of Grape Wine, and Other Related Products to the US, 1997-2007

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Description - Figure 5

Figure 5 is a line chart comparing the value of exports for grape wine and other related products (i.e., cider, fruit wine, perry, mead, hard lemonade, and similar products) to the United States from 1997 to 2007. Exports of grape wine to the U.S. in 1997 were $1 million and have grown steadily each year, reaching $10.8 million in 2005. Exports declined in 2007 when they were valued at $7.9 million. Exports of other related products (such as cider, fruit wine, perry, mead, and hard lemonade) to the U.S. were valued at $2.5 million in 1997, growing rapidly to peak in 2002 at a value of $100.4 million. In the subsequent two years, exports of these products diminished greatly to $26.4 million in 2004. In 2005, exports recovered slightly rising to $31.4 million, before falling to $4.3 million in 2007. The source is Statistics Canada.

Exports have also decreased, particularly in offshore markets, due to rising global competition, lack of Canadian supply, and the fluctuating value of the Canadian dollar. Exports to the US accounted for 48.2% of total wine exports in 2007 and were valued at $12.1 million that year (Figure 5).

Although there had been an increasing trend in grape-wine exports, this growth collapsed in 2003 and has only modestly recovered. An excellent growing season in 2006 and 2007 should bring some recovery to exports as new vintage products enter the market.

Southeast Asia is showing excellent potential for Icewine exports, but the small size of Canadian production limits industry ability to take full advantage of the market potential. As well, Canadian sales have been negatively affected by the proliferation of fraudulent and falsely-labelled icewines sold in Asia at much lower prices; these wines are sold next to genuine, higher-priced Canadian Icewine.

Despite its recognition and popularity in European wine competitions, Canada's Icewine was previously barred from the European Union (EU) because it fell outside their parameters for residual sugar content. In 2001, Canadian Icewine was granted an exemption from the EU's sugar content rule, giving Canadian Icewine access to that market. In addition, the EU is open to all Canadian wines that meet the same wine-making standards as EU wines. Ontario and BC are mandated to certify both table wine and Icewine for EU access. However, exports to the EU have remained minimal due to limited supply and continued low visibility of Canadian wines.

Profitability

Profit information for this sector is not available. However, gross profits in the beverage sector overall are thought to be fairly good, particularly in areas where branded strength and reputation are readily apparent to consumers.

Production costs are still an important consideration to the wine industry given that the price of grapes and rising land prices in leading wine-producing areas continually drive up costs.

Productivity, measured as 'value-added per worker', increased from $290,000 in 1996 to $390,000 in 2006, an improvement of 34.5%. Increases in production of higher-valued VQA wines combined with improved technology in the wineries since 1996, were likely key factors for improving productivity.

Employment

The industry is experiencing expansion in response to improved domestic market growth. Direct employment has grown steadily from 1,249 employees in 1996 to 2,766 employees in 2006 (Figure 6). There is also a seasonal element to employment in this sector with additional staff hired during the autumn grape harvests, as well as the mid-winter Icewine harvest.

Figure 6: Shipments, Own Manufacturing and Employment, 1996-2006

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Description - Figure 6

Figure 6 is a line chart showing the number of employees and the value of shipments, own manufacturing between 1996 and 2006. In 1996 shipments were valued at $373.5 million. This figure grew steadily until 2004 reaching a value of $807.8 million but declined slightly in 2006 when it was valued at $784.5 million. In 1996 employment was 1,249 people. The period between 2000 and 2003 showed rapid growth, with employment rising to 3,075 people. Between 2004 and 2006 employment declined from 2,828 to 2,766 people respectively. The source is Statistics Canada.

Investment

Statistics Canada investment data show that, on average, capital expenditures for the industry have increased about 12.4% annually. Expansion, facility improvements and sector investment in new vineyards is evident in many areas such as Ontario's Prince Edward County.

Some large international alcohol beverage companies have made acquisitions in other products, such as wines, fruit wines, ciders and hard lemonade, which are rising in importance in the lower-priced segment of the domestic market. In addition, in recent years, there have been incremental investments in wineries and in new vineyards in most wine-producing provinces.

4. Strengths and Weaknesses

Structural Factors

Canada produces a small volume of wine by world standards with about 8,102 hectares of vineyards in 2007, compared to the EU which has 3.5 million hectares, of which France alone has 2.5 million hectares.

Climatic conditions in Canada are not conducive to large-scale wine production because grape-growing is confined to a few small geographic regions where the growing season is long enough for grapes to reach maturity. Such climatic influences place limitations on the scale of operations and the competitiveness of wine production. Canadian weather poses risks which can lead to fluctuations in year-to-year grape production, making it difficult to consistently serve markets. To combat severe weather conditions, some Ontario wineries have invested in windmills to prevent cold air from settling over their fields. There has been significant investment in R&D and cool climate research at the Cool Climate Oenology and Viticulture Institute (CCOVI) at Brock University in St. Catharines, Ontario, which has provided support to the Ontario industry.

Climate limits the wine industry's ability to increase supply for domestic and export markets, although there is still capacity for import replacement; Canadian wine accounts for a mere 33% of the domestic market. By comparison, other countries, such as the US, France, Australia and Italy, each supply over 85% of their home markets with domestically-produced products.

There are only a few wineries with 200 or more employees, which would position them as medium-to-large organizations by international standards. There were a considerable number of consolidations, mergers and acquisitions during the 1990s, which led to the evolution of Canada's two major wineries at the time, with operations in five provinces. (As a result of the US takeover in 2006, there is now one major Canadian winery).

The larger firms have a mix of bottling and blending operations as well as estate wine businesses spread across the country. In some cases, these wineries also have diversified holdings in products such as wine coolers and ciders.

Economies of scale are critical in the production of low-priced wines but are less important in the production of premium-priced products. Canadian operations have a lower productivity level than some of their much larger Californian or Australian counterparts, although packaging and labour costs are thought to be roughly similar. The craft or small estate wineries, producing small volumes of top-quality premium wines in Canada and the US, are more likely to be comparable in costs.

In terms of raw materials and climate, alcohol-based ciders produced from apples have strong potential. However this sector is small and cider-making firms lack capital and market promotion funds to make inroads into other alcohol- based beverages. Nonetheless, this sector is becoming more sophisticated in its product mix, its approach to packaging and in overall product image.

Trade-Related Factors

With an already large trade imbalance, the Canadian wine industry now faces more competition from imports than at any other time in its history. There have not been import tariffs on US wine imports for several years as a result of the implementation of the Canada-US FTA.

During the mid-2000s and especially during 2007, the value of the US dollar fell sharply compared to other world currencies, including the Canadian dollar. This decline makes all Canadian products, including wine, more expensive to American consumers. Cross-border wine tourism also fell sharply in 2007 for a number of reasons, although the number of domestic tourists continues to grow.

EU production and consumption of wine has declined since the mid-1990s, but global wine markets are becoming highly competitive as 'New World' producers such as Chile, Argentina, South Africa and Australia are increasing areas under vine. The quality of their products is also receiving increasing recognition internationally. In addition, they have developed aggressive marketing policies and are promoting products at highly competitive prices.

With the exception of the US, Canadian shipments to 'New World' wine-producing countries have been extremely limited as many of these countries have competitive advantages in terms of climate, scale of production, and lower-valued currencies.

The EU has traditionally been a difficult market to enter because it requires that imported wines meet the same production methods as their local wines. Also, imports must comply with restrictive labelling rules in order to gain entry (see 'Export Market' section above). However, the Canada-EU Agreement on Trade in Wines and Spirit Drinks signed in 2003 has enhanced wine trade opportunities for both Canada and the EU.

In the past, provincial liquor board listings, distribution and pricing practices have been irritants for countries shipping to Canada. In the mid-1980s, the EU launched a formal complaint regarding provincial liquor board practices. A 1987 General Agreement on Tariffs and Trade Panel upheld this complaint and found the practices to be inconsistent with Canada's international trade obligations.

A bilateral agreement on access was subsequently reached with the EU and has since been extended to other countries. This agreement provided for immediate national treatment of listings and distribution, providing access for imported products under the same terms as those provided for in intra-provincial trade (trade within a province).

The Agreement also phased out the difference in price mark-ups for Canadian and foreign wines. However, it continued to restrict the sale of wine in Quebec depanneurs and grocery stores to those wines bottled or produced in Quebec. In Ontario, off-site wine stores (operated by a few vintners) are only permitted to sell wines produced in the province.

In summary, as a result of EU intervention, imported products must not be placed at a marketing disadvantage over local or domestic products in the Canadian market. The EU continues to monitor provincial liquor board retailing practices.

Similarly, under the Canada-US FTA, national treatment was granted to US wines for listings and distribution. This allowed US wines to be treated the same as Canadian wines. Differences in price mark-ups between domestic and US wines were virtually eliminated by 1995.

The Federal-Provincial Agreement on Internal Trade (AIT), which came into effect in 1996, provides for improved distribution of alcoholic beverages inter-provincially. Under the AIT, each province must provide national treatment for all products imported from other provinces (with some exceptions). For example, as of December 31, 1999, Ontario began providing full access to products from other provinces.

Technology-Related Factors

Wine-making may be thought of as a traditional or mature technology. Although the basic process of fermentation remains, new technology in terms of both equipment and processes is continually being adopted.

Many Canadian vintners have been trained in the leading wine-making education centres in Europe and California. Canadian innovations in yeast development have translated into a competitive edge for local vintners.

Traditionally, wine is packaged in a bottle and sealed with cork. This convention has been challenged with some wineries adopting artificial tubular stoppers and others using screw-caps, even for premium wines. As with some distilled spirits, some wines are being bottled in polyethylene terephthalate (PET), a soft inert plastic bottle. Others are being packaged in Tetra Pak cartons. These packaging formats have a number of advantages over glass bottles. Plastic bottles and Tetra Pak cartons are lighter, easier to transport, less vulnerable to breakage, and easily recyclable. These latter packaging formats are restricted to lower-priced wines thus far. With time, consumers are beginning to adjust to these new formats.

In December 1996, Brock University in southern Ontario launched CCOVI in partnership with local industry, federal and provincial governments, and with education institutions in the region. The objective was to use CCOVI to establish the university as one of the few centres in North America to grant degree status to graduates that specialize in grape and wine studies. As well, the Institute is internationally-recognized for its cool-climate viticultural research.

Recently, the Vineland Research and Innovation Centre was formed to integrate the wine research efforts of the Department of Agriculture and Agri-Food Canada, the Ontario Ministry of Agriculture, Food and Rural Affairs, the University of Guelph, Brock University, Niagara College, McMaster University, and industry organizations.

The University of BC formed the BC Wine Research Centre in partnership with the Pacific Agri-Food Research Centre and the BC Wine Institute (BCWI) in 1999. The Centre supports wineries and grape growers by undertaking specialized scientific research projects that are of interest to the industry.

Partnerships are occurring in industry as well, including international alliances. Canada has been attracting winemakers from around the world for a number of years, bringing in new skills and techniques to the benefit of the industry. World-class winemakers are attracted to Canada for distinctive grapes and the ability to make unique, world-class wines.

As environmental concerns over climate change and water availability gain prominence, the Canadian wine industry is looking closely at "sustainability" factors to ensure that its products are produced in a fashion that minimizes environmental impacts. This will be a growing area for R&D, technology and collaboration.

The Canadian Vintners Association is developing a Hazard Analysis Critical Control Points (HACCP) food safety program for the Canadian wine sector. HACCP is recognized as a worldwide standard for food safety and is acknowledged by regulatory bodies, trade organizations and retail groups.

The development of a wine industry-specific HACCP plan will enhance Canada's reputation as a producer of safe, high-quality wine and it can address any concerns that might compromise safety, quality integrity and production efficiency. Other countries where HACCP programs have been developed for the wine industry include Australia and New Zealand, and a number of wineries in the US that are HACCP-certified. In addition, a number of large retailers in the UK require wine to be HACCP-certified if it is to be sold in their stores.

Choosing to implement a HACCP food safety program is completely voluntary on the part of wineries (as is the case for many types of food and beverage manufacturing and on-farm production). Wine manufacturers are not federally inspected for food safety; however, by assisting industry in the development of a voluntary HACCP approach, government can help industry adopt best practices to reduce wine manufacturer risk and help to ensure the continued safe production of these products.

Regulatory Factors

The industry is closely regulated. Wines, like other alcoholic beverages, must be distributed and sold through liquor control board outlets in all provinces except Alberta (which has a privatized system). The provinces of Ontario and BC permit wineries to sell their own wines in a limited number of establishments which they operate. In Quebec, wine sold in grocery stores must be bottled in the province.

The AIT (under Chapter 10 - Alcoholic Beverages) lays out a framework for non-discriminatory treatment of alcoholic beverages, which has resulted in a number of barriers being eliminated and efforts initiated to avoid the creation of new ones. While provinces have had to eliminate most preferences they traditionally provided to locally-produced wines, over those from other provinces or imports, in order to comply with trade agreements, they still have considerable regulatory influence.

This provincial authority stems from a federal statute, the Importation of Intoxicating Liquors Act of 1929. This federal legislation requires that all liquor imported into Canada be brought in through a provincial liquor board located within each province and territory in Canada (Appendix A). The provincial and territorial governments are also responsible for regulating and controlling the sale of liquor within their respective jurisdictions.

These provincial boards collect federal and provincial duties and taxes on alcohol products, and add their own mark-ups prior to selling the product.

The Canadian Food Inspection Agency and the provincial liquor boards work together to ensure that alcoholic beverages, including wines, conform to Canadian standards (for alcohol content, toxins, etc.) under the Food and Drugs Act before being approved for sale. In addition, both domestic and imported alcoholic beverages must comply with compositional labelling, net quantity and standardized container size requirements under both the Food and Drugs Act and Consumer Packaging and Labelling Act.

Canada's federal excise tax system for alcoholic beverages imposes taxes on wines produced domestically at the point of shipment to provincial liquor board warehouses or industry-owned stores. The excise tax on imported wines is calculated from the point where wine is imported and received into liquor board 'bonded' warehouses, but does not become due until the wine is shipped to the point of retail sale.

The former Canada Customs and Revenue Agency (now the Canada Revenue Agency), in conjunction with the Department of Finance, completed a review of the Excise Act, with the objective of safeguarding the tax revenue generated by alcohol and to provide a fair and modern tax structure. The new Excise Act 2001 came into force on July 1, 2003.

The leading vintners in Ontario and BC are increasingly getting behind the VQA quality programs by which consumers can identify high-quality wines based on the origin of the grapes from which they are produced. VQA wines, made exclusively from Canadian grapes, must be produced according to well-defined standards and approved by a taste panel to determine if they qualify to carry the VQA logo. Provincial VQA standards in Ontario and BC delimit the geographic areas where the grapes can be grown and how the wine must be made. They also stipulate which varieties can be used for products that bear this certification mark. The VQA system is comparable to European wine appellation systems such as the Appellation d'origine controlée (AOC) in France.

VQA Ontario is designated as that province's regulatory wine authority and has put in place an appellation control system for quality wine which establishes, defines and sets quality standards that must be met for a wine to carry the VQA medallion. The standards define rules of origin, manufacture, bottling and labelling for wines made from 100% provincially-grown grapes.

Through the Ontario Wine Content and Labelling Act (which replaced the former Ontario Wine Content Act), minimum content and labelling standards are set out for the manufacture of wine in Ontario. The objective of this legislation, which came into force on January 1, 2001, was to increase the domestic content in Ontario wines and to provide greater clarity in labelling for consumers.

BC recently created new provincial wine standards and established the BC Wine Authority (BCWA) under the province's Agri-Food Choice and Quality Act. Responsibility for wine standards, including the enforcement of VQA requirements, has been delegated by the province to the BCWA. Implementation of the standards occurred in 2008. As a result, the BCWI is now responsible solely for the industry's marketing efforts.

The Nova Scotia Wine Standards (NSWS) were adopted by the Winery Association of Nova Scotia in the summer of 2005. The new standards established content restrictions and labelling standards for wines produced in that province. The NSWS allows a wine to use the provincial designation "Nova Scotia" as a geographical indication, provided it meets all NSWS and contains no less than 85% of the wine's content from grapes grown within the province; the remaining 15% must be grown in Canada.

5. Future Challenges and Opportunities

The Canadian wine industry is emerging as an internationally-recognized cool-climate wine producer, garnering an impressive list of awards and praise from many of the world's most influential wine critics. The challenge now is to build on the international commendations the industry has received to increase its domestic market share relative to imports. The extensive re-plantings of new V. vinifera varieties and the development of the provincial VQA standards provide an opportunity to regain domestic market share and build exports.

Ontario, which currently accounts for 80% of wine production, developed a strategic 20-year plan in the early 2000s to ensure future industry success. The elements of this plan include a review of land use planning (particularly in the Niagara region), quality improvements such as VQA growth, and wine tourism.

As the wine industry adjusts to market factors beyond its control, such as lifestyle and demographic changes, it is challenged to address a wide range of issues that contribute to its overall state of competitiveness. These include, for example, the utilization of new technologies and innovations, image-enhancement promotion in domestic and international markets, research on new cool-climate grape varieties, adoption of sustainable practices, improvements in production efficiency, and educating the domestic food industry and retail consumers about the merits of fine Canadian wines.

White wine accounts for just over half of all domestic wine consumed in Canada. In contrast, two-thirds of imported wine is red. This pattern suggests there is a strong demand for red wines of which domestic producers could take advantage. However, soil and climate restrictions prevent Canada from producing large volumes of certain high quality red varietals, such as Shiraz.

Wine consumption in Canada is growing at a faster rate than that for beer and spirits. Canadian wine production is increasing as a result of new investment and new grape plantings. Additional vinifera acreage will allow the industry to increase the volume of high-quality wines. However, it is important to note that imports are growing quickly as well.

Competition in the global wine industry is fierce. The world continues to plant grape vines at a record-breaking pace. An emphasis on higher quality, massive plantings has occurred over the past several years, primarily in "New World" wine regions. In the late 1990s, the major "New World" exporting countries of Australia, Chile and the US increased their total international export sales significantly, including to Canada.

Extensive new plantings of classic varietals make the mid- and long-term international markets look very favourable for these three countries, and competition from these, as well as from other "New World" wine producers such as South Africa and Argentina, is expected to increase in the Canadian marketplace. These plantings have created global over-supply, particularly in Western Europe, which has lost market share to "New World" wines.

Another challenge in the domestic market is competition from U-vint operations which are retail outlets that provide ingredients, equipment and support for customers to make wine for their own personal consumption. U-vint operations have an added advantage in that they are not subject to excise tax.

Various studies have been undertaken around the world to determine if there are health benefits from the moderate consumption of wine. Some of these studies have reported very positive results. Most notable is the "French Paradox", which cites the lower rate of heart disease in France, despite risk factors similar to those in the US. It is believed that these health benefits exist as a result of the French drinking more red wine. The "French Paradox" garnered worldwide press in the early 1990s and subsequently led to a significant increase in red wine consumption. If such claims continue to gain mainstream acceptance, they could lead to further increases in wine consumption among the general population over time.


Associations

Canadian Vintners Association
Suite 200, 440 Laurier Avenue West
Ottawa, Ontario K1R 7X6
Tel.: 613-782-2283
Fax: 613-782-2239
E-mail: info@canadianvintners.com

British Columbia Wine Institute (BCWI)
1737 Pandosy Street
Kelowna, British Columbia V1Y 1R2
Tel.: 250-762-9744
Fax: 250-762-9788
1-800-661-2294
E-mail: info@winebc.bc.ca

British Columbia Wine Authority (BCWA)
Suite 130, 10691 Shellbridge Way
Richmond, British Columbia V6X 2W8
Tel.: 604-248-0379
Fax: 604-270-3644

Wine Council of Ontario & Vintners Quality Alliance of Canada
Suite B205, 110 Hannover Drive
St Catharines, Ontario L2W 1A4
Tel.: 905-684-8070 ext. 221
Fax: 905-684-2993
E-mail: info@winesofontario.ca

Vintners Quality Alliance Ontario
Suite 1601, I Yonge Street
Toronto, Ontario M5E 1E5
Tel.: 416-367-2002
Fax: 416-367-4044
E-mail: info@vqaontario.ca

Association des vignerons du Québec (in French only)
Suite 605,
10100 Avenue du Bois-de-Boulogne,
Montreal (Québec) H4N 1K7
E-mail: info@vignerons-du-quebec.com

Winery Association of Nova Scotia
Suite 14, 36 Brookshire Court,
Bedford, Nova Scotia B4A 4E9
Tel.: 902-492-9291 Ext. 111
Fax: 902-492-9291
E-mail: marketing@winesofnovascotia.ca

Federal Government Departmental Contact

Agriculture and Agri-Food Canada

Carmen Porter
Sector Development and Analysis Directorate
Agriculture and Agri-Food Canada
1341 Baseline Road, Tower 5
Ottawa, Ontario K1A 0C5
Tel.: 613-773-2596
Fax: 613-773-0200
E-mail: carmen.porter@agr.gc.ca

Department of Foreign Affairs and International Trade

Janet Dorozynski
Trade Commissioner, Canadian Wine, Spirits and Beer
Global Business Opportunities Bureau
Foreign Affairs and International Trade Canada
Tel.: 613-944-0181
Fax: 613-943-8820
E-mail: janet.dorozynski@international.gc.ca

Provincial Liquor Boards

Yukon Liquor Corporation
9031 Quartz Road
Whitehorse, Yukon Y1A 4P9
Tel.: 867-667-5245
Fax: 867-393-6306
E-mail: yukon.liquor@gov.yk.ca

Northwest Territories Liquor Commission
Suite 201, 31 Capital Drive
Hay River, NWT X0E 1G2
Tel.: 867-874-2100

Nunavut Liquor Licensing Board
Box 1000, Stn. 350
Iqaluit, Nunavut X0A 0H0
Tel.: 867-979-5918
Fax: 867-979-5836

British Columbia Liquor Distribution Branch
Ministry of Small Business, Tourism and Culture
2625 Rupert Street
Vancouver, British Columbia V5M 3T5
Tel.: 604-252-3000
Fax: 604-252-3044
E-mail: communications@bcliquorstores.com

Alberta Gaming and Liquor Commission
50 Corriveau Avenue
St. Albert, Alberta T8N 3T5
Tel.: 780-447-8600
Fax: 780-447-8914

Saskatchewan Liquor and Gaming Authority
2500 Victoria Avenue
P.O. Box 5054
Regina, Saskatchewan S4P 3M3
Tel.: 306-787-1737

Manitoba Liquor Control Commission
1555 Buffalo Place
Winnipeg, Manitoba R3C 2X1
Tel.: 204-474-5514
E-mail: info@mlcc.mb.ca

Liquor Control Board of Ontario (LCBO)
General Inquiries
55 Lake Shore Boulevard East
Toronto, Ontario M5E 1A4
Tel.: 416-365-5900
E-mail: infoline@lcbo.com

Société des alcools du Québec (SAQ)
905, avenue De Lorimier
Montréal, Québec H2K 3V9
Tel.: 514-873-6065
E-mail: info@saq.com

New Brunswick Liquor Corporation (NBLC)
170 Wilsey Road, P.O. Box 20787
Fredericton, New Brunswick E3B 5B8
Tel.: 506-452-6510
Fax: 506-462-2024

Nova Scotia Liquor Corporation (NSLC)
93 Chain Lake Drive
Halifax, Nova Scotia B35 1A3
Tel.: 902-450-5802

PEI Liquor Control Commission
3 Garfield Street
P.O. Box 967
Charlottetown, PEI C1A 7M4
Tel.: 902-368-5710

Newfoundland Liquor Corporation
P.O. Box 8750, Station A
90 Kenmount Road
St. John's, Newfoundland A1B 3R1
Tel.: 709-724-1100
E-mail: infor@nlliquor.com

Footnotes

Footnote 1

Assuming a yield of 700 litres of wine per metric tonne of grapes, maximum production of wine possible made from 100% Canadian grapes would be 54.6 million litres. The Ontario industry uses a yield of 700 litres per tonne. However, some portion of this would go into blended wines which makes it difficult on a national basis to be certain how much of this wine is produced and sold as 100% Canadian origin.

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Footnote 2

VQA Ontario.

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