The document discusses the federal drawback program, which allows wineries to receive subsidies when pairing exports with imports. It provides an overview of the program and different perspectives on its impacts. Key conclusions from a UC Davis study found the program sometimes has positive and negative effects on grape prices and increases import/export activity, though more data is needed. The subsidy benefits wineries that import and export, brokers, and certain exporting countries, while potentially hurting California wineries only using California grapes and taxpayers. There is no clear answer on whether growers should support or oppose the program.

1. FEDERAL DRAWBACK
PROGRAM
San Joaquin Valley Winegrowers
Association
November 21, 2014

2. Shhhh!
• Corporate Welfare
• Trade Distorting Subsidy

3. Drawback Subsidy
It’s complicated

4. Drawback Subsidy
A drawback subsidy can only be
claimed when an export is paired
with an import.

5. 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

6. 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

7. 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

8. 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

9. 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

10. JOHN AGUIRRE, PRESIDENT
CA Association of Winegrape Growers