September 2008 - Posts
The European Union (EU) requested World Trade Organization (WTO) consultations with India on its domestic tax regime for spirits and wines, on September 22, 2008. This is to seek clarifications from India on the way tax legislation and other measures on market access for wine and spirits are applied in states such as Goa, Maharashtra and Tamil Nadu.
The custom tariff for imported bottled wines and spirits at the Indian border is already 150 per cent. Discriminatory internal taxation in some Indian states adds further to this burden for importers. For example, Maharashtra imposes a special fee on imported wines and exempts locally-produced wines and spirits from excise duty. Goa adds an import and 'label-recording' fee to the cost of imported wines and spirits. In both cases, internal taxes are applied only to imported wines and spirits, or at a much higher rate for imports than domestic goods. This is a breach of the WTO's national treatment principle, which requires that WTO members treat imports and domestic goods the same.
The request for consultations formally initiates a dispute under the WTO dispute settlement understanding. Bilateral consultations give the WTO members, in this case the EU and India, the opportunity to discuss the matter and find a satisfactory solution without resorting to litigation. If these consultations fail to reach a satisfactory solution within 60 days after the receipt of the request for consultations, the complaining party, may request the establishment of a panel.
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Protection for the domestic wine labels gets even better with the recent announcement of the new taxation policy by the government of Maharashtra. Meanwhile, importers can take the equally tough choice of bowing down to market meters or find newer markets in other states.
As far as newer markets are concerned, the middle class is steadily on the rise in India, and there are cities other than Mumbai and Pune ready to pick up the wine culture, what with wine clubs and tasting events giving people a taste of wine. But as a matter of fact, building a new market takes time and effort. While Mumbai (read Maharashtra), the otherwise number one consumer of wine in India has lesser competition from foreign brands due the 4x taxation.
Neethu Sheth of The Wine Rack, importing wines from South Africa comes to grips with the new taxation, and gets on with restructuring pricing. That is just the thing to do, considering that trade was suspended for over three months. 'Together with an earlier suspension of three months,' points out Hans Raj Ahuja, 'this makes it almost six months of no trade in imported wines and other spirits.' Ahuja, is heading Echidna Wines, importing wine from Australia for the Indian market.
He takes an objective view of the situation: 'Though the policy brings common taxation on wines, it clearly ignores the fact that wines produced and sold in Maharashtra pay no excise duty. Further, the spirits enjoy a multiple of six as per the formula while wines has to bear with a multiple of four making it more biased towards imported wines while allowing good margins for spirits. The policy is a clear political statement towards local grape growers and wineries.'
Another factor to be noted is that most of the small wineries are more or less 'contract wineries', selling their produce to domestic market leaders . Purchasing bulk wine from small wineries, who can ill-afford budgeting for marketing and distribution activities, further assists the domestic market leaders keep their position. The smaller wineries working on lesser margins sell in bulk to market leaders, securing the financial health of their unit.
The big wineries that do buy bulk wines make the most of their marketing efforts and distribution network, staying on top; adding to their capacity without any capital investment. Meanwhile, wine-importers meet sundry other costs including warehousing, label registration, etc.
'With so much tariff protection, Indian wines have no reason to improve their quality and compete with world wines on quality and prices,' notes Ahuja. Well, and does that explain the negligible impact of Indian wines on the international scene? But if the domestic market is so good for the domestic wine big wigs, would they care so much for an international impact?
'Despite zero tax, no winery has reduced its rates thus taking the consumer for a ride' notes Ahuja, adding, 'may be it is the beginning of the end for imported wines in Maharashtra and consumers in Maharashtra will be destined to buy inferior quality wines at exorbitant rates.'
Agreed that other than taxes, the local wine industry has its share of obstacles to contend with, which includes sourcing good quality grapes to begin with, finding the right distributor, creating the right marketing strategy, introducing wine to an otherwise spirit-loving Indian people, and most of all maintain the quality of their wines.
Thank you, government of Maharashtra, but now can we move to the international arena please...
Let us face it, how does the government of Maharashtra propose to take the Indian wine market to greater heights? The Wine Park and facilities for farmers and wineries have been helpful, and wineries at the top continue to sustain even the smallest denominator in the industry, thanks to contract farming and contract wineries.
But to take Indian Wines to the world, one does need to allow world wines a place in India, minus the step-treatment of 4x taxes, which incidentally other spirits are better off with at 6x.
Sample Cost Calculator for Maharashtra (by Ahuja)
European wine growers are taking the Indian market very seriously and organising a series of tasting and training sessions presenting different styles of champagne, from the various houses of Champagne, each bearing the signature of the distinctive wine makers to woo the Indian market and the young aspirational urban consumer.
Daniel Lorson, Director of the CIVIC (The Comité Interprofessionel du Vin de Champagne) was in Bangalore recently disseminating the finer points of Champagne appreciation at the Champagne week seminar.
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In India, the cost of opening and setting up a wine distillery is cheaper - Rs.10-15 million for a plant with a capacity of 100,000 litres.
No wonder many Indian and foreign companies are jumping on to the Indian wine bandwagon, says Sajjan Jindal, president of Associated Chambers of Commerce and Industry of India (Assocham).
The Indian wine industry is on a high, literally. The domestic wine
market, currently growing at 20 percent, will grow at 25 percent by 2010, he adds. By 2010, domestic wine consumption will reach around 9 million litres, an Assocham study said.
The conducive conditions thus formed for winemakers have already drawn the likes of top drinks maker Diageo, Pernod Ricard, LVMH’s Moet Hennessey and SABMiller to India, which was once described as having only small and mid-sized players.
Other companies like Anheuser-Busch Co. Inc. and Danish brewer Carlsberg are also on their way.
The soaring popularity of imported brands, which sell at much higher prices than domestic varieties, offers international companies great opportunities for strong value growth, Jindal said.
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With per head consumption of just half a teaspoon of wine as against 20
litres per head in Britain, the world's second most-populous country is
a promising wine market.
While local players are including affordable imported wines in their
portfolios to hook new consumers, foreign firms are trying hard to
expand in the market.
United Breweries, the most recent entrant in the imported wine segment,
is selling wines sourced from South African vineyards under the Bohemia
Wine brand. Aiming to tap the price-conscious home-consumption market,
it has priced its wines at Rs 500 and beyond.
“There will be enough supplies of reputed imported wines costing
between Rs 550 and Rs 700 which may eat into the sales of Indian wines.”
Indian producers are expected to either fight back by offering
higher discounts or push their own portfolios of imported wines in an
effort to lock in the customers. Just as Sula has done with the French
Pierre Maison, and Vinner Wines with Italian Opera, United Breweries is
importing wine and packaging it under its own label. It currently
imports wine from Cape Floral Kingdom, South Africa, and the brand is
not ruling out the possibility of adding more wines from New Zealand,
Australia and even Chile.
More: Business Standard
Bangalore is the third largest market for wine in India after Mumbai and Delhi. And to make the most of it, Bangalore's neighbourhood is soon to have two wine parks, says Minister for Horticulture, Umesh Katti. The wine parks are to be established at Chickaballapur and Bijapur with the aim of increasing the area under grape cultivation and producing good wine.
Addressing the media in Bangalore, Mr. Katti said the parks would be established on public-private partnership. Seven licenses would be issued to set up wineries at the wine park in Bijapur. The grape-growing districts of Bangalore Rural and Bangalore Urban and Kolar have been named “Nandi Valley,” while Bijapur, Bagalkot and Belgaum districts have been named “Krishna Valley.”
More of the good news is that the Karnataka Government has liberalised the licensing system to attract investors to the wine parks, particularly from Maharashtra. The licence fee has been fixed at Rs. 1,000. Those who want to set up wineries can obtain a licence by applying to the Deputy Commissioner’s office. Licences will be issued within 30 days of submission of the application, he said.
India's first Indian winemaker and head of UB Wines, Abhay Kewadkar shares with IndianWine.com an overview of the Indian Wine industry - coming harvest, taxes, sales...
Grape Harvest 2009
The 2009 harvest in India, which will stretch from January-March in Maharashtra and March-April in Karnataka, is said to be the best ever. The production is expected to be 1.80 to 2.00 million cases, 30% to 40% higher than previous year.
New Wineries in the offing
Apart from UB Group entering the market, this year every big player in the market is said to increase the production. At least five new wineries of medium size, are likely to come up in Maharashtra and Karnataka.
The Indian Wine industry training for Quality...
This year is also expected to be very special in the sense that wineries are said to modernize and upgrade their plant and equipment, which will ensure better and consistent quality.
More farmers and acreage to join the Indian Wine industry's fortunes, plus a big welcome to new entrant - Andhra Pradesh!
On the vineyards front, 2000 acres are expected to be added, mainly in Maharashtra and Karnataka. Some plantations are about to come up for the first time in the state of Andhra Pradesh. This could be a real boost to the wine industry in general.
Taxes are a concern: Karnataka, Maharashtra ( and Goa?)
On the taxes and duties front, the picture is quite disappointing. Karnataka is to levy additional taxes on the wines coming from across states and countries to the extent that MRP will go up by Rs.300/- per bottle. This is in retaliation to the existing policy in Maharashtra, worse still with Goa threatening to follow the same policy.
Looking upto Maharashtra
One can only hope that Maharashtra leads the way in removing such discriminatory laws, which will pave the way for others to follow. This is absolutely essential in order to have uniform taxes and labeling laws across the country.
Wine versus Spirits: The gap in sales is huge but things will improve :-)
The wine sales are hardly 1% of spirits sales. There is the potential for the wine industry to grow ten times over the next 10 years.
~ Abhay Kewadkar
Wine-and-cheese dos in Hyderabad don’t occur once in a bluemoon as they used to a few years ago. Credit that mainly to well travelled Hyderabadis wanting a sip of fine wine and wine being pitched as a health drink.
Dr. M. Rajiv puts things in perspective:
Red wines average 14 per cent alcohol, and 120 ml make for one drink. The safe limit for alcohol is two drinks per day for men, but is just one drink for women because they have lower levels of alcohol dehydrogenase, the enzyme that processes alcohol.
Newer “lite” wines with eight per cent alcohol target women, theoretically allowing them to drink more wine safely. Like filter cigarettes and “light” cigarettes marketed for women, this approach is counterproductive. People simply have more to compensate for the diluteness.
More: The Hindu