SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

LEGISLATIVE HEARING ON

H.R. 1063

TO AMEND THE WEBB-KENYON ACT

AND

H.R. 1534

THE "PRIVATE PROPERTY IMPLEMENTATION ACT OF 1997"



Thursday, September 25, 1997

Room 2237 Rayburn Building, 10:00 am



Testimony of Mr. Jerry Douglas

STATEMENT ON BEHALF OF AMERICAN VINTNERS ASSOCIATION IN SUPPORT OF THE MARKET ACCESS AMENDMENT TO H.R. 1063

SEPTEMBER 25, 1997

PRESENTED BY:

JEROME B. DOUGLAS

BILTMORE ESTATE WINE COMPANY

ONE NORTH PACK SQUARE

ASHEVILLE, NORTH CAROLINA 28801

704-255-1783

Good morning.

My name is Jerry Douglas and I am vice president of marketing for Biltmore Estate Wine Company in Asheville, North Carolina. I am here today on behalf of the American Vintners Association, the national trade association for American wineries, an organization representing over 500 wineries in 42 states. In this capacity, I am here to ask your support of a Market Access Amendment to H.R. 1063 which would require states using the Federal Courts for enforcement of Webb-Kenyon to establish reasonable access for wine shipments to consumers [Attached].

First, allow me to provide you with a profile of our membership. Most of our members' businesses are small family-owned farms, whose economic lifeblood is some combination of selling wine to tourists and limited off-site wine sales. Like most small businesses, we would like to be able to compete on a level playing field and we would like to be able to ship our wine to consumers who request it. But the wine industry is unique because we are required to ship our wine through wholesalers as part of an antiquated three-tiered distribution system (producers, wholesaler, and retailers) enacted by states just after Prohibition. This unusual power of state government over interstate commerce is a result of interpretations of the 21st Amendment that limit application of the Constitution's Commerce Clause.

Under this system, we must operate with limited and restrictive access to our customers and potential customers, denying in many cases, market access to those customers who wish to purchase our agricultural product. The middle tier of the system is comprised of a distributor network which has, through consolidation, reduced the number of distributors from over 500 in 1987 to around 300 today. The result is there are too few distributors representing thousands of wine brands from around the world and not enough retail shelf space for the approximately 7,000 to 10,000 labels of wine produced in the United States (let alone imports). This environment makes it economically non-viable for smaller wineries, in particular, to compete. Costs for pushing wine through the distribution channel become exorbitant, especially if you have a small production base.

Let me use Biltmore Estate as an example. The property receives over 800,000 visitors per year from all fifty states and several foreign countries. Most of those visitors have the opportunity to taste our wines in our restaurants, shops and winery. Most enjoy their wine-tasting experience and decide to purchase a bottle of our wine to take home. The problem arises when they wish to purchase additional Biltmore wine at home. Some 75 percent of our visitors live in the Southeast, where we market our wines through the established system with varying degrees of success in the Carolinas, Tennessee, Florida, Virginia and Georgia. But approximately 25 percent of our visitors hail from the remaining 44 states, spread across the country in such a way that makes our reaching them through the current distribution system untenable, unrealistic and unaffordable. Still, we know there is demand. Just in the past two weeks, we have received calls about our wines from previous visitors from Kansas, Illinois, Delaware, New Jersey, Kentucky, Ohio, Texas and Oregon. All of them wished to purchase our wines. We had to tell all of them that was not possible. Few could appreciate the reasons why it was illegal for us to ship them our wine.

It is outdated thinking to exclude the wine industry from being able to offer consumers the variety and convenient access to products they demand in every other purchasing realm. The modern consumer is used to ordering a wide varety of speciality products by mail or phone and is frustrated that they cannot do the same for wine. Wineries are capable of choosing and should be allowed to choose the best distribution methods in order to service their customers and to promote healthy growth in this industry. We would also expect to be part of addressing and finding solutions for the valid concerns created by changing the system.

In conclusion, there is a federal interest in accessibility to legal products to allow open commerce between the states. My example of Biltmore Estate could be re-told by any of the other 1,600 wineries that produce wines commercially in 47 states. The solution is twofold:

1) Small businesses require market access to consumers in other states. This access must permit freedom for reasonably unfettered trade between the states for competition to flourish. 2) The enforcement provision permitting the use of the Federal court system must be balanced by a freedom of commerce provision to allow fair market access.

The members of the American Vintners' Association believe that the proposed market access amendment would accomplish these goals. I would ask you to help our members in 44 states, by approving the access amendment to H.R. 1063.

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