What Regulation Would You Change?

I’d like to thank those in the Port trade who were willing to respond to this month’s question.  Some in the trade were not comfortable responding, as several mentioned this topic was too “controversial” and/or “political” and did not want to publicly display their own opinions on this topic. It was not my intent to make this a political hot potato, as I sent this to over a half dozen US-based Port importers too, in hopes they’d be able to share some of their challenges of importing Port into the USA.  Anyway, I truly appreciate those who did participate this month.

Q:  If you could add or modify any single “regulation” for the betterment of your company’s Port wine, or more charitably, to help the entire industry – what would it be – and please explain how it would improve things?
From Oscar Quevedo, Director of Sales & Marketing, Porto Quevedo:

The overall performance of the Port Wine industry is honestly very good. Very few businesses in the world can be as proud of the achievements that Port Wine has had. But, as there are no perfect systems, the following suggestions could help to improve the industry:

1. More money should be invested in marketing and promotion by the IVDP. For this, it won't be necessary to increase taxes or fees over the bottles. The idea is that the IVDP instead of transferring an annual net profit to the National Government would target zero net profit, increasing the marketing budget and releasing several hundred thousand Euros extra for marketing activities.

2. If there is technology available I would like to see a deeper control of the accurate age of all Port wine bottled, so that the consumer would know exactly how old the Port was at the time of bottling. But again, subject to the technology available.

3. Legislation currently forbids irrigation across the Douro valley. However, there are zones across the Douro valley, most of all, if not all, in the Douro Superior, where in certain years and for certain varietals, the overall quality of the grapes would increase if irrigation was allowed. I guess sooner or later legislation will adjust to a drier and hotter Douro Superior.

From Bartholomew Broadbent, CEO, Broadbent Selections Inc.:

I believe that there are three laws which, though well intentioned, amount to protectionism. There is very little opportunity for entrepreneurialism in the Port industry because of these prohibitive rules:

1.  The fact that you need three times more inventory of Port than what you sell makes it cost prohibitive to start a new Port company. The capital requirement is too great.

2.  The fact that, to plant new vines, you’d have to pull up old vines, prevents people from starting new vineyards and allows the owners of current vineyards to artificially inflate the cost of their land. This again prevents development by industrious individuals.

3.  The fact that only so much Port can be produced each year, this means that any new producer would have to persuade an existing producer to give up some of their production so that the new producer has permission to make any volumes.

Again, all these laws may be designed to protect the quality and integrity of the wine but it also prevents development of the industry.

From Jorge Serodio Borges, Co-owner and winemaker, Wine & Soul (Pintas) and winemaker at Quinta do Passadouro:

Concerning this particular question, I would undoubtedly like to talk about the law regarding the minimum stock of 150,000 liters that is required of a producer in order to be able to start buying grapes for port or port in bulk.  Small producers like us, do not have that kind of money to buy this quantity of wine.  This exclusionary policy prevents many new and small producers from entering the market.  Are the big port houses afraid of the competition from new people or small producers, or new ideas from taking hold?  Why does this gate persist to be there?

The revolution of the Douro wines was only made possible because there is an open market and I agree that the port business should be more conservative, but cannot be in a *redoma for ever!

*Roy’s note: I asked my friend Mario Ferreira for an idea what was meant by “redoma” here and he wrote:  “Redoma is like a kind of cover or in the context of the sentence above, could also mean "shield" that protects something inside from anything coming from the outside.  In the Portuguese dictionary, it says that redoma is something in glass, like a sleeve, that protects something very delicate inside.”

There are three ways to sell port:
* As a producer - (only allowed to produce port from your owned vineyards)
* As a negociant - (allowed to buy grapes and port in bulk)
* Or as negociant/producer - (can do both but only allowed to sell with the designation “Quinta“ the wines produced from that specific property)

All have a single rule in common: Lei do Terço or “the rule of one third“ which means, you are only able to sell one third of your production.  This rule is for everyone and will obligate the producers to age some wine (it’s a law that should continue!).  The minimum stock of 150,000 liters is a rule to be a negociant.

It means that if you want to start the business with this statute you have to buy this quantity all in one shot; and depending on the quality and age of the wines you buy, that determines whether you have to spend more or less money to make that purchase.  So with that rule, the business is protected from small producers and others who do not want to start a big operation.

From João Nicolau de Almeida: Managing Director and Oenologist for Ramos-Pinto:

To produce Port Wine, a minimum stock of 150.000L is required. To reach this quantity a producer needs either to have beneficial vines or to buy wines or grapes.

This condition prevents young oenologists to enter the world of the Port Wine as it is difficult to obtain such a capital of investment.  So, I would suggest an exception to be made for the young oenologists who wish to make Port. They could be authorized to buy small and limited quantities of Port Wine.

The Port sector needs to have more young and dynamic oenologists as is happening with the Douro Wines.

From Miguel Côrte-Real, Commercial & Viticultural Director of Cockburn’s (BeamGlobal):  

I’m afraid that my suggestion would have to face some difficult legal issues and it would be against all of the Free Market Ideals, but, if this was legally possible, I’d like to see the creation of a special Tax to be applied to the BOB (Buyers’ Own Brand). The monies raised by this special BOB tax would then be used during the following year, exclusively on advertising and publicity for the promotion of Port to attract new and younger consumers or, alternatively, to develop a single new market.

As you know BOB is very much “dominated” by the big European supermarket chains; it represents at least one third of all the Port sales, is continually pushing down the Port prices and, consequently, its image.

From Pedro Poças Pintão, Sales and Marketing Director, PoçasJunior Vinhos S.A.  

I believe that the rule of the third is worth reconsidering.  Very briefly; it limits the sales volume of a producer to one third of its stock in the previous year, imposing an enormous burden on the producers. The rollback would have to be carefully planned though.

From Ligia Marques, Sandeman Brand Ambassador for USA Market, Sogrape Vinhos:

The regulation I would like to see changed is the one that allows fortified wines produced outside the Douro region – thus also outside the rules of the appellation and without the certification of the DO «Vinho do Porto, Porto» – in Portugal to be named «Port». While within the European Union this situation no longer happens and the word «port» is fully protected, the same does not happen in several parts of the world, the USA included.

When asked about it, most people agree that a combination of factors defines and shapes the wine inside a bottle – the type of climate, the soil characteristics, the grapes identity, as well as its winemaking and wine ageing. In accordance, there is a good reason why regions matter and why the wines born in a given area, sourced from grapes that found their ideal affinity there and adapted to it, produced and aged following certain methods fine-tuned over decades (even centuries!), bear the name of that region. Most American wine drinkers will also agree this is true to wines known as «Bordeaux», «Burgundy», «Rioja», «Tuscan»... as well as «Napa», «Sonoma», «Oregon», «Washington», etc.

So why should it be any different when it comes to «Port» and «Madeira» from Portugal, «Sherry» from Spain or even «Champagne» from France?

You visit often at least the two Portuguese regions of Porto and Madeira and I’m sure you can confirm to your readers nothing in the world compares to them. It is impossible to duplicate the conditions that exist in each and how the pieces of their puzzle come together in a unique way to give rise to extraordinary wines.

And because these wines are extraordinary, different and unique, they are tempting. That I can understand.

And then a classic quote is often mentioned: «Imitation is the sincerest form of flattery». That I cannot understand.

On the latter, I would like to leave one open question to your readers – How would you feel if/when someone, somewhere in the world, produces for instance a «Napa» or a «Napa cooking» wine? Do you believe those wines will be truthful or flattering to the unique wines born in the Napa region of California?

As you know, I travel and work a lot in the USA and, while I have to say it is quite rewarding to witness the global wine knowledge expand and more people appreciating wine altogether, too often I hear wine-interested consumers saying to me «I don’t like port». Most of the times, they have never tasted a real Port wine… yet they know they don’t like it. Most of the times, as they are introduced to it and taste a genuine Port wine they love it!  The entire category is burdened with an image, often poor, that does not depict the reality. The natural conclusion is that rather than helping or flattering us, these wines are harming everyone – regardless of their level of quality, they are misleading to consumers and ultimately the false image created, can prevent more people from enjoying a great wine experience.

I’m not speaking of the small group of oenophiles or educated wine lovers that exist in most countries in the world, USA included, that know the genuine wines come from Portugal. I’m speaking of everyone who enjoys a glass of wine and drinks wine as part of their normal diet, at a wine bar, with a meal out or at home, and could expand into the world of Port … only if they did not think that is a wine you use for cooking and not dare to drink!

By the way, that adds to the non-flattering imitation, as many chefs (and individuals) use so called «cooking ports» rather than using the same quality selection they follow when sourcing the rest of the ingredients – the freshest and most genuine fish, meat, vegetables, fruit…

The discussion is not a recent one and I do hope that I will see the day the rules change.  Protecting the word «port» and reserving it to only the genuine Porto wine produced and certified in accordance with its DO in Portugal, is a matter of being truthful and honest to consumers.  Ending the existing ambiguity will help create a more informed and discerned consumer and that can only help everyone. There included all the quality fortified wines that today bear «port» on their label and should find their own original and novel voice. Dare to be an original!

From Robert Bower, Category Manager for Kobrand Corporation: I would say that a regulation that would help the consumer would be to ensure that any ‘organic’ Portos being produced should have the wine and the spirit certified as organic or made from organic grapes.

From Mark Macedonio, CEO, M Imports LLC

The Port wines and Douro wines of Portugal are fine examples of quality and taste.  Steeped in a great history, these wines act as ambassadors for Portugal the world over.  The quality and value of Portuguese Douro wines and Ports have improved dramatically since the 1756 Demarcated Region was established by the Marques de Pombal.  Several major iterations of regulations which protect the demarcated region, and its specialized products have served both producers and consumers well over the last three centuries. While these regulations might appear strict and stuffy taken at face value, they have changed with the times with the most recent adaptations in the last decade.

The regulations upheld by the Douro and Port Wine Institute provide discipline and control over origin, authenticity, production, quality, classification, labeling, naming, vineyard registration, volume and producer representation.  These regulations ensure that Douro wines and ports are always viewed and accepted as amongst the most elegant wines in the world.

However, just like Apple must continuously reinvent their products (Mac, iPod, iTouch, iPhone and iPad) in order to be a leader in their industry, so must other great manufacturers (in this case producers) and their brands.  In the U.S., Douro wines and Ports have demonstrated great resilience in the face of steep competition from California, Argentina, New Zealand and other winemaking regions.  Yet, these wines have their difficulties establishing a mainstream consumer on a national basis versus wines from other regions.

Therefore, with respect to current regulations on Naming and Labeling of Douro wines and Ports, I offer the following suggestions to make them more relevant and widely available to the mainstream U.S. consumer:

Douro Wines: 

  • Introduce brand names that American consumers can pronounce and recall when desiring to repurchase (example: Adriano by Ramos Pinto or Mural by Quinta do Portal)
  • Create labels with Iconic artwork to ensure quick identification at the shelf by consumers (example: Yellowtail)
  • Position the brands as fun and exciting with a bit of mystique (example: Ménage a Trois)
  • Position the brands and their usage to fit certain dayparts, occasions or lifestyles
  • Target new wine demographics toward Gen X and Millennial users
  • Leverage the rise in Douro wine popularity to drive Port wine trial & awareness by Gen X and Millennial users

Port Wines: 

  • Make Port names more fun and experiential!  (example: Quinta do Noval Black, Portal +)
  • Modernize design of traditional labels to be more fun, appealing and compelling
  • Make the Declaration of a Vintage akin to the annual introduction of Beaujolais Nouveau (filled with anticipation and events celebrating their arrival in the US)
  • Fight “imposter” fortified wines selling as “ports” from California, Australia and South Africa
  • Consider lower alcohol content on some Port and Moscatel products to penetrate U.S. retail chains hampered by state restrictions on Alcohol by Volume levels over 17%

Lastly, if you are a Douro wine and Port wine lover like myself … Preach the Gospel of their quality, taste and romance at every given opportunity.  You will find that it brings you nothing but beautiful memories, lasting friendships and great satisfaction.

From Todd Cromwell, Co-owner of Wineworth Importers and Distributors:

Neither of us can come up with any particular "regulation" issue that would have national or international significance. Other than you get into the state-by-state arena where there are numerous issues from taxation to licensing, i.e. the huge increase in Port Wine taxation for distributors in Chicago, to the retail/restaurant licensing in some states that sets the maximum alcohol level for beer & wine licensing at 18% or lower, rather than 20%. It would be very helpful to all Port Wine sellers, if there was more national uniformity; meaning that the individual states would view Port Wine as a separate entity from Liqueurs, including Ports in a common 20% maximum set for beer and wine licenses for grape-based production.

From João Roseira, Co-owner/Winemaker, Quinta do Infantado

For Quinta do Infantado, this FTLOP question is easy to answer: Lower alcohol Porto. And, in my honest opinion, this is “to help the entire industry”.  It is easy for us, simply, because we have been thinking about it for a long time.

Of course, lowering the alcohol of Porto is not the only regulation we would like to have changed.  For instance, the fact that mentioning just one or two grapes is forbidden in a Porto label, (yes, three is the minimum!) comes quickly to mind, but it is, probably, the most important single one.

While other companies and growers are experimenting with “special wine brandies”, at Quinta do Infantado we are trying simply to use the least possible amount of it.  Red Porto must be, by law, between 19 and 22% alcohol by volume.  It doesn’t matter how you look at it, that is a lot of alcohol, I dare say, too much!   And, to make it worse, with a lot of alcohol comes a huge amount of sugar that is needed to help balance Porto.

Now, if you forget about Porto for a while and think about this issue in theory, abstractly:  Given the choice, which wine would you pick, (at a similar quality and price level) a high alcoholic and super sweet wine, (with 120+ grams/liter, of residual sugar) or a lighter (both alcohol & sugar) one?

At the end of 2010, New York Times’ wine critic, Eric Asimov, wrote a piece on Porto. Eric confessed that he almost doesn’t drink Porto anymore, although he still enjoys it. Why?  “You may not taste the 20 percent alcohol in a well-balanced version, but it can quickly catch up with you” and “I wish Porto weren’t consigned to the end of the meal. Other fortified wines are more versatile. Even the sweetest Madeira, with its jolt of acidity, seems much less sweet than port, and therefore more flexible with savory foods,” he wrote.  And he has a point, obviously.

I believe one can say that everybody in the Douro Valley and Vila Nova de Gaia would be happy to see Porto sales increase, new consumers enjoying Porto and new opportunities to drink it.  A lighter style of Porto, more gastronomic, easier to pair with food, more happy mornings (as opposed to tired and not so all-smiles), can certainly help.

Does a simple (but honest, decent and interesting) entry level Ruby really need to be 20% alcohol by volume?  How about a 20 year old Tawny, which is bottled ready to drink and should be elegant, smooth, that could be 17% alcohol and still complex with a lingering, enormous finish?

As for the more serious rubies, Vintage Porto, if there are so many examples of wine that aged beautifully in bottle for decades at a mere 12%, why is there a need for VP at 21% alcohol?  Of course this should not be done overnight and it must respect Porto history, but research on this is urgent.

I would think that implementing a lower alcohol for the entry level Portos could be rather quick. For all other Portos research should be conducted by the IVDP with industry support and it needs to start immediately.

Never forget that Port, at its origin, was a dry wine.  During Baron Joseph Forrester’s days, himself an advocate of the dry style, red Porto came in two flavors: dry (less alcoholic) and sweet.

From Dirk Niepoort, Proprietor/winemaker, Niepoort Vinhos S.A.:

That is a hell of an easy question to ask, but not that easy to answer.

I must confess that I don t really see any point that would make the industry better, so I will answer in a more philosophical way: I think that we should (we the Port producers) stop a moment and THINK.

We should understand that PORT is one of the best wines in the world and is SPECIAL. If we would assume that PORT is SPECIAL, we should handle it accordingly. What I mean is that we should eliminate most of the cheap Ports, reduce the quantity of Port available and reduce the size of most houses. Make Port a RARE -- special wine.

On the other hand the Port producers should take DOURO WINE more seriously and use it more and more as a channel to grow the companies (and compensate for the reduction of Port). Also with the Douro wines, it would be important to stabilize the prices of the grapes and not sell Douro wines too cheap.  I believe a lot in the synergies of PORT & DOURO WINES.

The biggest problems are not the IVDP, but companies that only think in terms of profits and growth. Almost nobody is caring about PORT and explaining to younger generations the magic of it.

There is great potential for DOURO WINES; the best vineyards for Port are not the best for table wines.  We know where the best vineyards are for PORT, yet we still have to find out about all the great nuances that make it perfect for DOURO WINES.  BUT THE POTENTIAL IS THERE.  Let’s make better and better Ports and also make better and better and more Douro wines and it might become the perfect place to be.

Separately, at this moment it looks to me that it is the houses who should THINK about what THEY are doing.  The IVDP can be complicated and bureaucratic but for the moment seem to be doing their job.

The beneficio is a strange system that is partly illegal but still makes sense. I’m afraid that if the beneficio would disappear it would immediately become a big disaster, (due to the companies and pressure of worldwide big buyers and not due to the IVDP).

From Paul Symington, Joint Managing Director, Symington Family Estates:

I would reform the Beneficio system (the method by which vineyards are rated by quality and the subsequent licenses issued every year to make Port).

The current Beneficio system dates back well over half a century and is past its reform date. I am not a revolutionary with regard to the Beneficio and am certainly not a supporter of the ‘nuclear option’, which suggests the total abolition of the Beneficio. Any person with the minimum of knowledge of the Douro and its history and its people would know that the outright abolition of the Beneficio would be socially catastrophic for many tens of thousands of people, in fact for over 100,000 people if families and dependents are included.  Certainly a few prestigious estates and brands would survive such a move, but the image and value of Port would be severely damaged and the Douro and its social fabric would be destroyed. This is an irresponsible suggestion and one that is made by people who do not understand the Douro very well.

But I am a strong supporter of a fundamental reform of the Beneficio system and my family made detailed proposals for reforming the system in 2009. Our proposals were based on the clear evidence that many of the smaller farmers (with under 1 hectare of vineyard) are finding it increasingly difficult to maintain their vineyards and would welcome an honorable and financially interesting way of giving up their vineyards. This desire could be matched with the interest of larger farmers to consolidate the financial viability of their vineyards.

An additional factor that needs to be taken into account is the clear distortion that exists whereby the Beneficio system results in Port subsidizing Douro DOC production to a very great extent. This is not sustainable or correct and must be amended in the future. There are several DOC producers that support their Douro DOC sales by using their Port licenses to increase their cash flow, but who in reality have a limited interest in Port.

Another factor is the Moreira de Fonseca system of grading vineyards, on which the Beneficio system is based. This again dates back over half a century and while it was brilliantly conceived at the time, the world has moved on. Factors such as varietal planting simply did not exist when this grading method was being conceived and introduced. Global warming has added the altitude issue to the agenda, so again a points system that penalizes higher lying vineyards begins rapidly to make no sense.

I and my family own and manage over 940 hectares (2,300 acres) of vineyard in the Douro, this is significantly more than any other producer. Within this total I personally farm my own 17 ha (42 acre) vineyard in the Pinhão valley. My three cousins and my brother, all of whom work with me, all own their own vineyards, as does my father and my retired uncles.  We know better than most, the reality of farming in the Douro and have shown more commitment to the region than any other for many, many decades; it is for this reason that we are strong supporters of a fundamental reform of the Beneficio system.

But such a reform needs courage and vision on behalf of the authorities. Sadly such courage and vision is not always compatible with politics and there is too much of the latter involved in Port and the Douro and in the officials who rule over us. In the end it is the farmer and Port in general that ends up paying the price

From Adrian Bridge, CEO, The Fladgate Partnership

The Beneficio system is the biggest single block to the development of the Douro valley.  It distorts the economic model of the valley, remunerates farmers for volume and not quality, depresses the prices of top grapes, it has failed to stabilise the market and is the sole source of the problems of the Casa do Douro that over shadows the Port industry.

On paper the Beneficio is a good system for the Port shippers and growers  as it limits the quantity of Port that is produced each year which is supposed to mean that prices to retailers remain high to the benefit of all players involved in the industry (except, perhaps the consumer).  In reality, it is a system that has been shown to only work in a market when Port is growing – the volume declines of the last decade in the commodity markets have exposed the negative spiral effect of declining prices and farmers incomes.

The reason it distorts the industry is clear.  Farmers plant vines to produce grapes.  This is an economic decision and is based on what they expect to sell the grapes for in the future.  The average economic life of a vine is 35 years yet the amount of Port that can be made is set annually.  If grapes sold for the same price to Port producers or table wine producers then this would not matter.  The problem is that a bunch of grapes with a licence to make Port (Beneficio) is worth about four to five times the value of the same bunch without the licence.  Farmers are remunerated more by a piece of paper than by growing grapes.  Poor economics.

The reason it leads to bad business models is that the Port industry is subsidizing the table wine industry.  Many of the new table wine projects are based on receiving money for selling their licence to make Port whilst focusing on making table wine.  This is damaging for both Port producers and table wine producers.  Take my company, we have extensive vineyards, many of which are world class, yet we can only make half of the grapes into Port.  We annually buy unwanted grapes just to get licence – a transfer of over Euro 1 million a year to subsidize table wine.  This money would be better spent supporting our Port brands, expanding our sales and the Port market.   For the table wine producer (who will defend this subsidy as it covers most of the fixed costs of running a vineyard) they are supporting their business model on a subsidy that has been shown to decline annually for the last decade and is likely to decline further.  Worse still, the Beneficio has encouraged additional planting (to get the subsidy) leading to an increase of 25% of vineyard in the Douro in the last decade when Port volume has declined by 10%.  The maths are simple, less volume spread over a bigger area means double declines – the farmers income per hectare in 2010 was half what  they got in 2002.

It limits prices because the most important factor is the licence – so Grade A grapes are worth broadly the same regardless of how well they are grown.  Without the Beneficio system we would have a free market that cleared based on quality – farmers with the best grapes will get paid more, just as a Port producer with a quality Port will achieve a higher retail sales price.  The Beneficio system means more shippers worry about the volume of their sales than the profit that they make from them.

Why the Casa do Douro?  Well, the old function of the Casa do Douro was as a clearing market of last resort.  The authorities dictated how much Port to make each year and if the shippers did not buy the volume then the Casa do Douro picked up what was left on the market to sell later.  The problem is that they made little effort to sell as they observed that prices of made Port were rising – firstly in the inflation years of the 70s and 80s and in the growth years of the 90s.  This idea that the stock always became more valuable the older it was, created a mindset that led to the disastrous speculation of the 1999 and 2000 when the Casa do Douro borrowed massive amounts of money to try to corner the market.  Prices did move up about 15% but this has just led the Casa do Douro to have warehouses full of expensive Ports that have no market until it is re-valued to today’s clearing price.

There are few examples in the world where distorting free market economics ends up with better economic models.  The problem is that markets that are ‘fixed’ by quotas (and here one must think of the very successful OPEC cartel) invariably reach for the rule book when the systems begin to unravel.  New rules heap on old and more investors are drawn into business decisions that they would not make in a free market.  Soon half the energy is spent in trying to sustain the broken system whilst the other half in finding ways round the regulations.  In the Douro it makes no sense that Port and table wine co-exist, and compete as business models, without the same regulations for each.  If the Beneficio system is removed, farmers and shippers will decide what business they are in and I hope that they remember that it is making great, original wines (fortified or still) for consumers.

From Francisco “Vito” Olazabal, Proprietor, Quinta do Vale do Meão:

I think that the basic regulatory structure of Port should be maintained, although some technical details of little interest to your readers should be changed.

But one urgent measure is to put an end to the taxes that all producers are obliged to pay to the Casa do Douro, and to deprive this nowadays totally useless organization of the exclusive representation of the production side of the business.

The only relevant activity of the CD in the last decade was a struggle to avoid an inevitable bankruptcy.  This has been possible only because the main creditor is the Caixa Geral dos Depósitos, the only State owned bank.

This situation prevents the producers to form their own voluntary associations, and thus to make their voice heard by the authorities.

A Question for the Port Trade appears in every other FTLOP newsletter, sharing this space with Port Personalities: In Focus.

By | 2016-11-18T10:24:05+00:00 February 19th, 2011|Categories: Port, Questions for the Trade|0 Comments

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