Does a new law in France have the potential to disrupt the English wine trade? Jane Anson reports...
New rule opens possibility of more fine wine being stored in France
UK merchants question viability
Bordeaux merchants gear up to seize any opportunity
Wine warehouses tend to be housed in all manner of romantic, dusty and slightly spine-chilling places world over, from disused mines to old quarries to forgotten world war two bunkers.
Their caverned darkness forms a key element of the global fine wine world. When you buy en primeur wines from Bordeaux, Burgundy, the Rhône or elsewhere, you are paying your merchant an ‘in bond’ price so that if the wine moves into a bonded warehouse, you only pay the taxes and duties due at the moment you take physical receipt of your bottles.
You can guarantee pristine storage conditions and traceability, and if you also choose to sell on your cases in bond (okay, let’s move to IB), you avoid those payments entirely. The same case can change owners several times while never leaving the bonded warehouse (ideally with the owners taking a handsome profit at each handover).
‘France accounts for 80% of wine stored in bond but has not been able to profit from this.’
Bonded warehouses have built up a vast and lucrative business out of this system by charging for the storage of the wines – the exact global amount is difficult to know, but Octavian Vaults alone, the biggest bonded warehouse in the UK, counts 10,000 clients from 39 countries, and looks after close to £2 billion worth of bottles, charging somewhere between £16 and £18 per case.
Similar companies exist all over the UK, Switzerland and the US, with a recent mushrooming of facilities in Singapore, Hong Kong, Shanghai…
France has long been the source of most of these wines. Industry estimates say France accounts for conservatively 80% of the wines stored in bond globally.
But, France has not been able to profit from this particular sector that has grown up around them.
The new rules
Until, perhaps, now. You had to be a particularly attentive reader to spot the change at the start of the summer. Page 6,984 of the 26 July issue of the Journal Officiel government bulletin, a new law was confirmed that has taken nine years of lobbying to achieve, helped over the last three years by a professional Parisian lobbying group of the kind so rarely employed by the wine industry.
‘The flexibility that this new law brings means there is no longer a compelling reason to take [these wines] out of France.’ – Philippe Dumand
It promises to level the playing field between France and other wine trading countries when it comes to storing wine IB by relaxing the previously punitive tax laws. Effectively, companies had to know exactly where their wine was going before it went into the French warehouses, because there was no way that wine could be released back on to the local market once the key was turned.
‘Think about international hotel groups who buy the wine for their global needs,’ says Philippe Dumand, one of the key movers behind lobbying for the law change as president of Bordeaux’s only fully-independent bonded warehouse, Bordeaux City Bond (there are others, but they tend to be linked to individual merchant houses, producers or transporters).
‘Until now they have to take French wine out of France and store it in, say, London or Geneva to give them flexibility over where it would end up eventually – even if that meant bringing it right back to Monaco or Paris. It is the same deal for international airlines, or any other buyer that needs flexibility over where the stock ends up’.
‘The market for in bond storage almost exclusively concerns high end wines,’ says Dumand.
‘And these will continue to be sold largely internationally. But the flexibility that this new law brings means there is no longer a compelling reason to take them out of France and sacrifice the provenance benefit that will come from being truly ex-Bordeaux. It removes a constraint, and as we all know, businesses don’t like constraints’.
In theory, this amendment should make Bordeaux a viable centre for storing and re-selling wines as they age, something that is common practice in wine trading. And in a bonded warehouse where the wine gets delivered from nearby chateaux with perfect traceability and no carbon footprint.
Should we expect to see UK, Swiss and Hong Kong merchants losing customers to this?
Are they likely to set up partnerships with Bordeaux City Bond or others in France?
Are chateaux going to set up their own bonded facilities?
We can’t answer for sure. But, it’s certainly an interesting time for this to be happening, as Brexit threatens to add trade barriers – in other words constraints – for wine movement between the EU and the UK.
Anyone that thinks financial incentives don’t change the wine market has forgotten the impact of Hong Kong’s deregulation in 2008.
Stephen Browett at Farr Vintners isn’t convinced. ‘We sell wine all over the world but still sell more in the UK than we do for export. Customers can order and pay for their wines on line and have next day delivery which would of course not be possible if some of our stock was stored in Bordeaux and some in the UK.
‘Furthermore we would rate Octavian provenance above any warehouse in Bordeaux. So, this is not something that will make any difference to us as we will continue to ship all our stock from France to Octavian Vaults.’
Bordeaux merchants are ‘already reacting’
Perhaps so, but Bordeaux merchants are already reacting. The key négociants with their own bonded warehouses – Ballande et Meneret, Joanne, Duclot and others – have a meeting with Bordeaux City Bond next week to discuss how best to communicate the new advantages that have opened up, and will be holding quarterly updates to track exactly how many clients are being brought over to Bordeaux from London and other places. A lobbying campaign is underway.
James Swann of UK brokerage agent Brocour points out the long-term possibilities.
‘This certainly makes Bordeaux markedly more competitive… just as we in the UK may be about to leave the single market.
‘Being able to hold stocks in transit without having to pay taxes, one of the purposes of duty suspension, means Bordeaux can better build its stock pool, which is good for provenance and good for supply of these wines.’
Dumand is certain of its importance. ‘This is a victory for the entire French wine industry – not only the eight in-bond warehouses in Bordeaux, but everyone in the profession.’
A spokesperson for Octavian told Decanter.com, ‘We are unable to comment on this matter but are in contact with the [UK] Wine and Spirit Trade Association.’