THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary - Public Date: 7/26/2013 GAIN Report Number: CA13042 Canada Post: Ottawa Overview of the Wine and Spirits Sector in Canada Report Categories: Beverages Wine Approved By: Robin Gray Prepared By: Brent Evans Report Highlights: In recent years, U.S. wine exports to Canada showed explosive growth. Growth is expected to continue; however, serious market impediments remain and are outline in this report. Canada's wine sales are growing at a rate triple that of average global growth and Canada is expected to be the 5th fastest growing wine market worldwide. Beer is still the beverage of choice in Canada while spirits have also been putting in a strong showing. Wine and Spirits July 2013 All uses of the term “alcohol” in this report refer to alcohol for beverage use. I. Wine Market Overview A. Canadian Imports In recent years, Canadian imports of wine from the United States have experienced explosive growth in terms of value, as the United States became Canada’s third largest supplier of wine. While the import market share in terms of volume from the United States increased only slightly over the last 5 years, the share in terms of value showed immense growth. On a value basis, from 2008 to 2012, the wine imports from the United States increased from $219 million, a 14 percent share, to $375 million, a 19 percent share, while the share from many other countries, such as France and Australia, fell significantly (see Table 1, below). This dramatic increase in export value can be attributed to the fact that import value per liter of wine from the United States increased drastically. Based on data from the Global Trade Atlas, the value per liter grew from 4.3 $/L in 2008 to 6.7 $/L in 2012 — a near 56 percent increase in 5 years (see Table 2, below). In value terms, over the past few years, Canada has been the United States’ biggest market by far at 30 percent of exports. California remains the most popular American origin for Canadian imports of wine, accounting for over 95% of American exports to Canada in 2012. Washington, Oregon, and New York follow in second, third, and fourth respectively. With the exception of Oregon, each of these states showed significant growth in exports to Canada from 2011 to 2012, including a growth of 142 percent in New York exports. Table 1 Canadian Import Market Share of Wine (Volume Basis) 2008 2009 2010 2011 2012 Italy 17.2% 18.1% 18.3% 19.2% 19.1% France 18.2% 17.4% 16.7% 16.6% 16.3% United 15.9% 13.6% 14.2% 14.8% 14.8% States In liters 50,739,625 44,393,346 49,828,185 53,340,439 56,079,214 Australia 14.1% 14.2% 15.7% 14.1% 13.1% Spain 5.0% 5.7% 6.9% 10.6% 10.2% Argentina 7.8% 9.1% 7.7% 6.7% 7.3% Chile 10.0% 11.1% 9.0% 7.3% 6.4% Total, in 319,858,333 328,215,397 350,060,178 358,395,119 376,801,271 Liters 2 | P a g e Wine and Spirits July 2013 Canadian Import Market Share of Wine (Value Basis) 2008 2009 2010 2011 2012 France 26.0% 24.1% 22.0% 22.9% 22.2% Italy 19.0% 19.6% 20.0% 20.0% 22.2% United 14.0% 14.0% 15.8% 17.2% 19.0% States In USD 218,731,253 206,567,489 269,047,506 328,569,611 374,920,824 Australia 17.2% 15.1% 14.7% 13.2% 12.0% Argentina 3.7% 5.8% 5.9% 5.2% 5.4% Spain 4.2% 4.5% 4.6% 5.2% 5.2% Chile 5.3% 5.7% 5.7% 5.3% 5.0% Total, in 1,561,859,941 1,476,088,393 1,701,036,498 1,910,922,741 1,975,700,062 USD Source: Global Trade Atlas, HS 2204 Table 2 Canadian Import Value/Liter from the United States (U.S. Dollar/Liter) 2008 2009 2010 2011 2012 Average Value 4.311 4.653 5.340 6.160 6.686 Source: Global Trade Atlas, HS 2204. Calculation - annual import values divided by annual import quantities (see Table 1, above) In Canada, the authority to import and distribute alcohol rests with the provincial governments. Four provinces — Quebec, Ontario, Alberta, and British Columbia — make up 94 percent of the wine market. Though its wine imports decreased from 2011 to 2012, Quebec remains the largest importer of wine, at approximately 37 percent of Canada’s overall wine imports. However, in terms of imports from the United States, Ontario is the largest market, at approximately 37 percent of Canadian wine imports from the United States. See Table 3, below, for more detailed information. 3 | P a g e Wine and Spirits July 2013 Table 3 Canadian Imports of Wine — Provincial Breakdown Value in U.S. Dollars 2010 2011 2012 % Growth 2011/2012 Quebec 642,081,110 756,671,223 732,924,983 -3.1% From U.S. 72,349,357 85,678,621 75,573,664 -11.8% Ontario 549,538,436 591,835,463 631,512,054 6.7% From U.S. 88,597,899 109,613,905 138,825,622 26.7% Alberta 235,809,198 268,687,865 293,225,278 9.1% From U.S. 54,651,167 73,497,259 91,611,236 24.7% British Columbia 173,466,367 181,388,198 197,874,781 9.1% From U.S. 35,885,920 38,417,752 43,199,834 12.5% Nova Scotia 29,139,359 33,741,686 32,890,916 -2.5% From U.S. 5,186,042 5,974,413 5,497,982 -8.0% Manitoba 25,720,942 30,683,174 32,017,415 4.4% From U.S. 3,992,537 5,478,50 7,587,144 38.5% Newfoundland and 14,757,249 16,407,452 19,374,174 18.1% Labrador From U.S. 2,233,857 2,883,072 3,417,239 18.5% New Brunswick 15,188,417 14,378,348 17,221,507 19.8% From U.S. 2,252,966 2,392,161 3,264,015 36.5% Saskatchewan 12,461,565 13,489,590 15,283,707 13.3% From U.S. 3,278,621 3,879,033 5,144,745 32.6% 4 | P a g e Wine and Spirits July 2013 Prince Edward Island 2,873,857 3,639,741 3,375,246 -7.3% From U.S. 619,137 754,891 799,343 5.9% Total 1,701,036,498 1,910,922,741 1,975,700,062 3.4% From U.S. 269,047,506 328,569,611 374,920,824 14.1% Source: Global Trade Atlas, HS 2204 B. Canadian Exports Limited production and high levels of Canadian demand suggest that Canada will not soon become a major wine exporter, as Canada exported a mere 45 million U.S. dollars and 27 million liters of wine, compared to its imports of nearly 2 billion dollars of wine, in 2012. However, the recent growth shows an increase in exports, with export quantities increasing by 51 percent from 2010 to 2011 and 17 percent from 2011 to 2012. Table 4 Canadian Wine Exports (in U.S. dollars) 2010 2011 2012 Volume (Liters) 15,138,875 22,908,889 26,790,780 Value (U.S. Dollars) 28,320,736 44,346,506 44,965,197 Source: Global Trade Atlas, HS 2204 C. Canadian Production While no data is readily available regarding Canadian wine production, calculations were made based on other data from Statistics Canada. Post estimated that Canada produced $2 billion worth of wine in 2012 up from $1.7 billion in 2008. This indicates growth is occurring at a steady rate as annual production growth averaged 4.6 percent over the past 5 years (see Table 5, below). According to the Wine, Beer, and Spirits Practice at the Canadian Department of Foreign Affairs and Trade Development (DFATD), Canadian annual domestic production averages around 130 million liters, of which 30 million liters is 100 percent Canadian content. The largest areas of production are Ontario and British Columbia, with increasing production in Quebec and Nova Scotia, and Ontario exports the majority of wine at approximately 52 percent of Canadian exports in 2011. Table 5 Domestic Wine Production (finished wine only) 5 | P a g e Wine and Spirits July 2013 2008 2009 2010 2011 2012 Value 1,666,313,776 1,800,040,845 1,846,545,143 1,917,236,334 1,995,066,292 (Canadian dollars) Calculations were made based on data from Statistics Canada CANSIM Tables 183-0006 and 304-0014. Based on discussion with the Bank of Montreal, annual production was calculated as winery inventory change plus sales. II. Alcohol Consumption Beer and liquor stores and agencies sold $20.9 billion worth of alcohol beverages during 2012, up 3 percent from 2011 and up 11 percent from 2008. Beer remained the alcohol drink of choice for Canadians, but preferences are steadily changing. While sales growth has existed in all three market segments, the growth of wine sales, in terms of value, has outpaced the growth in both beer and spirits. The annual value of wine sales has increased by 20 percent in the past 5 years, while beer and spirits sales only increased by 6 percent and 11 percent, respectively (see Table 6, below).