Small Wineries
Distribution System

VFBF Policy

We support all provisions of the Virginia Farm Winery Act and support retaining all specified privileges with the Act.

Background

Statistics relating to the wine industry in Virginia are impressive and establish it as a vibrant agricultural business segment of the state’s economy. In national ranking, Virginia is the fifth largest U.S. state for growing wine grapes native to Europe. The state counts close to 85 wineries and approximately 262 vineyards which produced 3,700 tons of wine grapes yielding 231,000 cases of wine in 2004. Retail sales amounted to $45 million in 2004. The industry continues to grow—both in numbers and in reputation. Today, commercial vineyards and wine production are among the most rapidly growing segments of Virginia agriculture.

While this industry is growing and flourishing, a major threat looms for Virginia’s small wineries. Looking towards the future in 2003, the General Assembly enacted legislation which allowed direct shipment of wine to consumers by both in-state and out-of-state wineries on a limited and restricted basis. This was believed to fairly allow Virginia wineries the ability to ship their product directly to consumers which was inhibiting these wineries growth and expansion.

In 1933, Virginia, along with most other states, established a system of alcohol control based on a “three tier system” under which producers could sell only to wholesalers, who could sell only to retailers, who could sell only to consumers. Until the passage of the Virginia Farm Winery Act in 1975, no person who participated in one tier of the system was allowed to participate in either of the others. Under the Act, qualified farm wineries could participate as producers, wholesalers, and retailers. They can sell their wine to people who visit their wineries, to stores, and to restaurants. But they couldn’t ship directly to consumers in other states which prohibited such shipment. Nor could wineries in other states send their wine to Virginia consumers until the 2003 General Assembly addressed the issue allowing such transactions on a limited basis. Until a recent court case, Virginia wineries could sell wine directly to consumers in the 13 states that have “reciprocity” agreements with Virginia.

However, at the same time Virginia was protecting its wineries by allowing limited direct shipment, a case was making its way through the federal court system. In April 2005, the United States District Court ruled in Brooks vs. Danielson that Virginia has given preferential treatment to Virginia wineries over similar out-of-state wineries in a number of areas. One is regarding the issue of “self-distribution” or wineries serving as their own distributor by personally delivering wine to local shops, restaurants, and other retail license holders. Another is the sale of only Virginia wine in ABC stores. The impact of this decision has broad ramifications for Virginia’s small wineries as it is estimated that the average farm winery sells and self-distributes 40 percent of its product. Thus, a solution is needed which will correct the constitutional problem and yet still allow Virginia’s small farm wineries to flourish.

Legislation will be coming before the 2006 General Assembly to level the playing field between in-state verses out-of-state wineries. Out-of-state wineries would be given certain rights by creating an “Out-of-State Small Wine Producers Distribution License.” This would grant small out-of-state wineries some of the rights contained in Virginia’s Farm Winery law, without requiring in-state wineries to change. This new proposed license will allow out-of-state producers who currently qualify for the Federal Small Producers Credit (production less than 250,000 gallons) to self distribute their wine to Virginia licensed retailers including Virginia ABC stores. Therefore, Virginia small wineries would be allowed to continue with the same right verses being put out of business.

Another bill to level the playing field will be proposed to open Virginia ABC store sales to out of state wines. This will save at least a portion of this 20,000 case market for Virginia wineries. If the ABC stores are closed to wine sales altogether, the market will be lost.

Reasons for Position

Commercial vineyards and wine production are among the most rapidly growing segments of Virginia agriculture.

Recent court decisions finding existing state laws to be unconstitutional are threatening the survival of small wineries in Virginia.

The proposed legislation is a good solution to help Virginia’s small wineries without having to add more regulations on top of their existing licensing and reporting requirements.