Wine in bulk or wine in a bottle? Various policy issues for consideration

Demands placed on producers and exporters of South African wines to export their produce in bulk raises several policy considerations. We will touch on some of these.

Environmental considerations

The purported aim of these demands is to reduce the carbon impact of wine imported to address climate change. Wine imported in bulk is then supposed to be bottled in the country of import.

The American Association of Wine Economists in 2007 used a formula to calculate the emissions factors for cargo in terms of grams of CO2e per ton of cargo per km transported. Applying this to wine exports the study has shown that the glass to wine ratio plays an important role in determining the carbon impact of transporting wine. It concludes that the bigger the bottle (i.e. a Magnum 1,5l as opposed to 375ml) the smaller the carbon intensity. Taking it a step further to illustrate the advantage of bulk transport, the study uses the example of a producer of wine in Mendoza, Argentina, who ships his wine in 23,500 – liter stainless steel tanks to California where it is then bottled. The study found that the transportation emissions are reduced between a third and a half, depending on the bottle weight used in the comparison.

The study also highlighted that in addition to the packaging used, the mode of transport as well as the distance that the wine is transported are key to understanding the carbon footprint of the wine being imported. To illustrate the point the study calculated that wine exported as air cargo could have an emission factor of over 11 times that of wine transported using container shipping.

However, environmental concerns, important as they are, are only one of the considerations that must be balanced against other policy considerations, such as those mentioned below.

Industrial policy considerations

Wines of South Africa (WOSA) in a press statement issued during 2010 indicated that for every 10 million litres wine leaving South Africa’s shores in bulk, 107 direct jobs are at stake. With a multiplier factor that could potentially be as high as 22 (according to a recent Unilever study referred to by WOSA in the said statement) the welfare impact on the South African economy and more particularly that of the Western Cape can be staggering. According to WOSA a total of 150,5 million litres of wine were shipped in bulk during 2009. This is just below 50% of all wine exported during that year. If we make the sums, this equates to the equivalent of approximately1610 direct jobs either being lost or job opportunities forfeited.

Moreover, manufacturers of glass containers in South Africa find their market being severely eroded in favour of their counterparts in the export markets, where the bottling of South African wine now needs to take place. This contributes to the deindustrialization of the South African packaging industry.

Intellectual Property Considerations

For the owner/producer of the wine exported in bulk there may be certain intellectual property issues to consider. The unique features of a wine bottle itself can have the distinguishing function of a trademark and can be registered as such. Depending on the specific arrangement with the bottling plant in the importing market, this opportunity to further brand his/her wine may be lost, even if the producer bottles the wine in the import market under his/her own brand in the form of a word mark or a device mark.

Product quality control considerations

Closely related to the previous consideration is the issue of product quality control.

In the Rioja Case before the European Court of Justice (2000), the Court ruled that wine produced in the La Rioja region of Spain under the protection of a designation of origin and exported in bulk to Belgium could not be bottled in Belgium and sold under that designation. Although there are specific circumstances in this case that brought the Court to its ruling, it did make several statements of particular relevance to the topic of bottled v. bulk wine under a protected designation of origin. Due to its relevance we quote it at length:

“61. In the present case, it is undisputed that the bottling of wine is an important operation which, if not carried out in accordance with strict requirements, may seriously impair the quality of the product. Bottling does not involve merely filling empty containers but normally entails, before filling, a series of complex oenological operations (filtering, clarifying, cooling, and so on) which, if not carried out in accordance with the prescribed rules of the trade, may adversely affect the quality and alter the characteristics of the wine.

62. Nor is it contested that bulk transport of wine may seriously impair its quality if not undertaken under optimum conditions. If the conditions of transport are not perfect, the wine will be exposed to oxidation reduction, which will increase with distance and may impair the quality of the product. It will also be subject to the risk of variations in temperature.”

For the wine to be labeled under the Rioja controlled designation of origin, the Court agreed to the condition in the rules for the designation that the wine had to be bottled where it was produced i.e. in La Rioja region in Spain.

Applying the Court’s legal reasoning to exports of South African wine in bulk has potential implications for quality control, but more importantly also for future South African wine GIs to be registered in the EU. The question then is, should such South African wine be allowed to be sold in the EU under a protected GI, even though it was imported in bulk and bottled outside the area of its production? Will the level of protection the EU affords its own beneficiaries of protected designations of origin apply to South African wine GIs registered, subject to specific rules for compliance, in the EU?

Trade law considerations

It is issues such as these that raise questions regarding the lawfulness of measures aimed at addressing environmental concerns. It will be important to determine whether a requirement placed on South African wine to be exported in bulk to the EU constitutes a government measure or merely a measure imposed by wine retailers abroad. This may well influence the response to the question whether such measure is subject to the legal rules of the World Trade Organization (WTO). Should it be a government measure, that measure must comply with the basic trade law principle of non-discrimination, embodied in the legal tenet of national treatment. This principle dictates that an importing WTO Member may not accord less favorable treatment to wine imported under a protected GI as opposed to the treatment it accords to wine of domestic origin labeled under a protected GI. The scope of this rule also includes regulations related to the transportation of products.

The demands placed on South African producers and exporters of wine to ship their produce in bulk is an example where different policy considerations could come into play, either in harmony or in conflict with each other. Measures imposed by foreign governments impacting on the conditions for market access of South African products, including wine, should be scrutinised for their compliance with the rules of the WTO.

For more information on these considerations please contact Lambert Botha