Could a new law in France disrupt the English wine trade? Jane Anson reports…
New rule opens up possibility of storing more fine wine in France
UK traders question project viability
Bordeaux traders ready to seize any opportunity
Wine warehouses tend to be found in all sorts of romantic, dusty, and slightly spooky places around the world, from abandoned mines to old quarries to forgotten bunkers from World War II.
The darkness that surrounds these caves is a staple of the world of fine wine. When you buy a finished wine from Bordeaux, Burgundy, the Rhône or elsewhere, you pay the merchant a “guaranteed” price so that if the wine moves to a protected warehouse, you only pay the taxes and duties due the moment you actually receive the bottles.
You can ensure excellent storage conditions and traceability of your goods, and if you also choose to sell your goods in bond (well, let's move on to international warehouses), you will avoid these payments altogether. The same goods can change owners several times without leaving international warehouses (and ideally with the owners making a significant profit on each delivery).
“France has 80% of the wine stored in bonds, but it has not been able to benefit from this.”
Bonded warehouses have built a huge and profitable business out of this system by charging fees for storing wine – it’s hard to know the exact global amount, but Octavian Vaults alone, the UK’s largest bonded warehouse, has 10,000 customers from 39 countries, looks after bottles worth around £2bn, and charges between £16 and £18 per case.
Similar companies exist across the UK, Switzerland and the US, with facilities rapidly expanding in Singapore, Hong Kong and Shanghai…
France has long been the source of most of these wines. Industry estimates suggest that France accounts for about 80% of the world's wines in bond.
But France was unable to benefit from this sector that grew up around it.
New rules
Until now, perhaps. You would have had to be a particularly attentive reader to notice the change at the beginning of the summer. On page 6984 of the July 26 issue of the government’s official bulletin, a new law was confirmed that took nine years of lobbying to achieve, aided for the past three years by a professional Parisian lobbying group of the kind rarely used by the wine industry.
“The flexibility provided by this new law means there is no longer a compelling reason to take (these wines) out of France.” – Philippe Dumand
This law promises to level the playing field between France and other wine-trading nations when it comes to storing wine in French warehouses by easing previous punitive tax laws. In fact, companies had to know exactly where their wine was going before it entered French warehouses, because there was no way to get the wine back on the domestic market with the turn of a key.
“Think of international hotel groups buying wine for their global needs,” says Philippe Dumand, a key driver behind the push to change the law as president of Bordeaux’s only fully independent bonded warehouse, Bordeaux Cité Bond (there are other bonded warehouses, but they tend to be tied to individual trading houses, producers or transporters).
“Until now, French winemakers have had to take their wine out of France and store it in London or Geneva, for example, so they can have flexibility about where it might end up – even if that means sending it back to Monaco or Paris. The same goes for international airlines, or any other buyer who needs flexibility about where their inventory might end up.”
“The bond storage market is almost exclusively focused on fine wine,” says Domand.
“These products will continue to be widely sold internationally. But the flexibility this new law provides means there is no longer a compelling reason to take them out of France and sacrifice the benefits of origin that would accrue from being truly Bordeaux. It removes a restriction, and as we all know, companies do not like restrictions.”
In theory, this modification should make Bordeaux a viable hub for storing and reselling wine as it ages, a common practice in the wine trade. In a licensed warehouse where wine is delivered from nearby châteaux with perfect traceability and no carbon footprint.
Key questions:
Should we expect to see traders in the UK, Switzerland and Hong Kong losing clients because of this?
Is it likely that they will partner with Bordeaux City Bond or others in France?
Will the palaces create their own facilities?
We can’t answer that question with certainty. But it’s certainly a good time for it to happen, as Brexit threatens to add trade barriers – or, in other words, restrictions – to the movement of wine between the EU and the UK.
Anyone who thinks financial incentives won't change the wine market has forgotten the impact of Hong Kong's deregulation in 2008.
But Stephen Broyt of Far Vintners is not convinced. “We sell wine all over the world but we sell more in the UK than we export. Customers can order and pay for wine online and get next day delivery, which of course wouldn’t be possible if some of our stock was stored in Bordeaux and some in the UK.
“Furthermore, we consider Octavian’s source to be superior to any warehouse in Bordeaux. So, this will not make any difference to us as we will continue to ship all our inventory from France to Octavian Vaults.”
Bordeaux traders 'already reacting'
Perhaps so, but Bordeaux traders are already responding. The major traders with their own bonded warehouses – Balanide, Mineret, Joan, Duclos and others – are meeting with the Bordeaux City Bond next week to discuss how best to communicate the new benefits, and will hold quarterly updates to track how many clients are being brought into Bordeaux from London and elsewhere. A lobbying campaign is underway.
James Swan of British brokerage Procore points to the long-term prospects.
“This certainly makes Bordeaux significantly more competitive… just as we in the UK may be about to leave the single market.
“Being able to store stocks during transit without having to pay taxes, which is one of the purposes of the customs duty suspension, means that Bordeaux can better build its stock pool, which is good for the exporter and good for the supply of these wines.”
“It’s a victory for the entire French wine industry – not just for the eight vineyards in Bordeaux, but for everyone involved in the business,” Domand stresses.
“We are unable to comment on this matter but are in contact with the (UK) Wine and Spirits Trade Association,” an Octavian spokesperson told Decanter.com.
