Tuesday, July 5, 2011

The New York Times attacks Mike Thompson

To understand the New York Times story on Congressman Mike Thompson (D-St. Helena) that ran Monday, you don't need to look further than the first quote.
“Clearly, he has a personal interest in what he is advocating for,” said Craig Wolf, president of the Wine and Spirits Wholesalers of America, which has been in a dispute with wine producers over the past year. “And the ethics rules in Congress say you are not supposed to do these kinds of things.” 
The story is a classic political piece in which one side of a dispute uses a gullible newspaper to weaken the other side.

The article does expose one thing Thompson shouldn't be doing, and I'll get to that. The writer ignores an obvious area for investigation -- a real smoking gun -- and I'll get to that too.

What the article misses is perspective on Thompson's role in advocating for wine producers in Congress. He's not doing it because he owns a vineyard; he's doing it because it's his job, and he would be voted out of office if he didn't.

Moreover, the reason we as a society don't like government officials investing in the industries they govern is because we fear they will promote their own interests at the expense of the public.

But unlike with other industries, by helping wine producers, Thompson helps consumers.

There are some American industries where producers and consumers are adversaries: the auto industry, for example. Adversarial consumer relationships are common in the service industry: banks, insurance, and cable TV are areas where customers need protection from rapacious businesses.

Wine is SO different. Wine producers and consumers are nearly always allies, united by the simple cause of allowing me, a consumer, to purchase their products. No other industry has to deal with the same thicket of regulations separating us.

There are a few areas where wine producers' and consumers' interests differ: labeling laws, for example. But in most cases, as a consumer I want what the wineries want; you can't say that about car companies. I want wineries to be able to sell me their product directly. I want their federal compliance paperwork burden lightened so new, small wineries have lower barriers to entry. I want them to be able to pour samples of their product for me at festivals without being arrested.

In the same cases, the WSWA is almost always on the anti-consumer side, and is willing to marshal any argument to protect its profits. This is why we hear so much from them about the dangers of teenage drinking; it's an emotional wedge issue the WSWA uses to advance its own agenda.

The WSWA has great influence in Congress, thanks to more than $11.5 million in political contributions since 2005. The WSWA's member distributors make their money through legally mandated systems in which they get 1/3 of the cost of every bottle of wine you buy. They don't want you to be able to buy wine directly from the producer because they don't get a cut. The only way this skimming continues is with the continued support of government representatives who care more about campaign funds than they do about consumers.

That's why the WSWA is pushing a bill that would give states more power to control alcohol laws. Flush with cash from its 1/3 share of every bottle you buy, the WSWA has even more influence in state legislatures than with the feds. Every state in which the WSWA can restrict direct shipping is a victory for them; they don't need to win all 50.

Mike Thompson
Mike Thompson is one of the leaders of the opposition to the WSWA's power grab. Successfully placing this story in the New York Times is part of the WSWA's strategy. I guarantee you there will be high-fiving this morning in the offices of people who make their living preventing you from easily buying the wines you want.

Thompson represents Napa Valley, Mendocino County and parts of Sonoma County, as well as the coast all the way up to Oregon. The big employer is wine; when the wine industry hurts, the district's  economy suffers. Of course Thompson represents wine producers' interests in Congress; he wouldn't be re-elected if he didn't. In one sense this is no different from a Texas congressman (or vice president) representing oil interests or a Detroit congressman representing the car industry.

But it IS different because of the link between wine producers and consumers. For years, Michigan Congressional representatives have pushed bills that were good for the car industry and bad for the American public. That's simply not the case with wine.

I am not aware of a single pro-consumer bill the WSWA has supported in the last decade. If someone has an example, please let me know.

Now, let's address Thompson's ethical missteps: the one the Times flagged, and a potential one it didn't look into.

First, the big miss. Thompson owns a vineyard; the whole article is based on the premise that his actions in Congress might benefit him as a vineyard owner. It's not a very big or lucrative vineyard, which I'll get to.

But its assessed value has increased from $228,000 to $775,000 since he bought it in 2002. I read that in the story, and it instantly raised questions the writer didn't answer. Did he ask them? 1) Who did Thompson, who was already in office, buy this vineyard from? 2) Did he get a sweetheart deal? 3) How did this vineyard increase in value so much? The answers might be innocent: maybe it was unplanted before he bought it. But it's the biggest ethical question in the story.

Here's the second: According to the article, Thompson called the Treasury Department to try to get quick action on an application to designate Big Valley as an American Viticultural Area (AVA). Thompson owns a vineyard in the region.

Using his position to pressure the TTB when he stands to profit is a misuse of his power. I hope Thompson will 1) back off, and 2) make a public statement saying he's backing off.

That said, let's put this in perspective. It's not like the Bush Administration's Halliburton ties, with millions of dollars at stake. Getting Big Valley approved as an AVA might make Thompson's Sauvignon Blanc grapes worth a few dollars more per ton several years from now. But I would bet it won't make a difference for the rest of Thompson's life.

Why? First, it's Sauvignon Blanc. There's an upper limit to how much consumers will pay for that varietal.

Second, having an AVA declared won't have any impact unless somebody spends years and thousands of dollars spreading the word about the region's quality -- assuming such quality exists. Most likely Big Valley will just become one of dozens of other AVAs that even wine-savvy American consumers don't know exist (Would you pay more for a Happy Valley Cabernet? How about a Ribbon Ridge Pinot Gris?)

Third, Thompson doesn't have enough grapes to realize much of a profit even in an ideal scenario where consumers decide Big Valley Sauvignon Blanc is worth as much as, say Napa Valley Sauvignon Blanc. He averages 100 tons a year. California Sauvignon Blanc sold for an average of $709 per ton in 2010, according to the USDA's Grape Crush Report. Thompson is already getting a premium, averaging $978 a ton by selling them to Bonterra. It's possible that Bonterra is overpaying him by $100 a ton compared to other Lake County growers in order to have a direct line to Congress. So that's 100 times 100 -- wow, Thompson's getting $10,000 a year extra!

Because he only harvests 100 tons, it's a simple calculation: Every extra $100 per ton he makes is $10,000 additional profit. It's not nothing, but it's not as much as Thompson could get (albeit in political contributions, not profits) by simply supporting the bills pushed by the WSWA.

Would a Big Valley AVA make Thompson's grapes worth $200 a ton more? Or even $100 a ton more? I would bet against it. Lodi -- like Lake County, a wine region that everyone drinks from but few pay respect to -- split into seven sub-regions a few years ago, and none of those seems to have developed a consumer premium.

The Times laid another charge on Thompson that sounds more disturbing, if you know nothing about wine.

At the request of Bonterra -- the company that buys his grapes -- Thompson asked the chief of the State Water Resources Board to reconsider a proposal that would prevent wineries from using river water for protecting vines from frost. Some blame the practice for fish kills.

I'm not going to take a stand on the issue; I haven't investigated it enough. But I will point out that the obvious wine industry position is to allow the river water use. Thompson, who has well water and thus doesn't use river water himself, is representing the industry position. I don't see this as Bonterra getting him to do what it wants; it's more a case of Bonterra getting his attention on an issue where his position is pre-ordained.

Bonterra, incidentally, isn't exactly an evil corporation. Now owned by Chile's Concha y Toro, it's the largest winery in the U.S. to buy only organically grown grapes.

Trying to roast Thompson a little more, the Times piece says, "Bonterra has joined with the lawmaker to oppose proposed increases in federal excise taxes on wine and liquor, which were considered during the health care debate."

Hurray for Mike (and Bonterra). That's why Wine Country elected him: to fight anti-consumer sin taxes like that, especially since wine in moderation is good for your health.

Full disclosure: I know Mike, not very well, but I have lunched at group tables with him several times because we both are connected in different ways to the Vintners Hall of Fame. I don't have any insight into his personal life or business. But I can tell you that every time I have ever asked him about his position on any political issue -- I'm a nudge, I do that all the time -- he represents the wine industry first, and then the Democratic Party. And he's smart and funny and he actually answers my questions, which is really unusual. If he were my Congressman, since I'm a very pro-wine Democrat, I would be completely satisfied with his performance. 

I'm glad the Times pointed out that Thompson overstepped his bounds in contacting the TTB about Big Valley. But I suggest that in the future, when the WSWA calls, the Times should consider the source. Like with Ahmed Chalabi.

And Mike, if you're reading this (we know you are), how 'bout letting all of us know how your vineyard investment increased in value so rapidly? Are you just that smart?


John M. Kelly said...

Overstepped his bounds? No, I don't think so. Every congressperson in history, from every party, has contacted some element of the Federal bureaucracy on behalf of their constituents' interests. Shall we look into how many politicians from New York have contacted the SEC on behalf of Wall Street interests?

RE: the value of Thompson's vineyard - you need to do a little research before you get all question-y. One: if the yield averages 100 tons a year, he has something like 20-30 acres. It strikes me that paying $100k per acre for Lake County property is hardly a "sweetheart" price, unless there were structures on the property. Two: the only way for the assessed value to increase above the 2%/year allowed by Prop 13 is for the property to have been improved. Improvements include planting vineyard, drilling a well, bringing in power, adding on to structures, etc. The County tax assessor uses formulas for these things, rather than the actual dollars spent on the improvements; for example the assessed value on new vineyard is calculated based on County average yields and average price per ton for the varieties planted. The assessed value does not represent what the property might sell for on the open market.

You have nailed it when you state "...there will be high-fiving this morning in the offices of [the WSWA]." But then you play into their agenda when you parrot the idea that anything the Congressman has done is unethical.

Barbara Insel said...

Blake, Good piece, Just would add that unless Mike's grapes go into a "Big valley" SB, and (as you said), that appellation becomes worth something, the AVA will have no value to him. Now Bonterra and Honig blend them into wines from other appellations, or CA appellation wines, so in fact the AVA will likely be economically irrelevant for him.

Also, would not be surprised if market price for Lake County land was $11,000 per acre 20 years ago. And most of it was unplanted. Nor surprised that a well managed vineyard in Lake County is now $45,000 an acre. Nothing strange there.

And the writer suggests that Mike is getting a better than market price on his grapes from Bonterra by comparing Mike's price to the average price for Lake County grapes. If the writer had properly checked the crush report he would have discovered that SB grapes from Lake County sold for as much as $1600/ton and one was $2600 per ton. And in fact 20% sold above Mike's price, from multiple sources.

I am just disappointed in the The Times for letting itself so obviously be manipulated. But that probably naive.

John M. Kelly said...

Damn! Slipped a decimal place... my bad. Thanks for being gentle, Barbara.

Phil Burton said...

Of course Mike represents his constituents- otherwise he wouldn't be doing his job. I only wish we had more of these honest and upfront representatives in congress; he's a shining example of who our representives should be. And let's not forget his incredible staff who take a remarkably personal interest in helping and responding to constituents questions and problems.

Steve Devoto said...

Mike bought bare land that previously was planted to pears. It is adjacent to Adobe Creek which has a habit of flooding this parcel every so often. He put the vineyard in and probably with a pre-plant contract which was common at the time he planted. I know this since I put in a 62-acre vineyard with a pre-plant contract from Mondavi. I do not think the Big Valley appellation will encourage anyone to buy his or anyone else's grapes. The valley contains many very different soils, from black adobe to clay loam to rocky and gravely soil where the many (former) streams have wandered. I grow some very nice cabernet sauvignon and merlot on some of the latter. "Lake County" is much more of a cachet for quality sauvignon blanc than Big Valley will be for many years to come.
Steve Devoto

jo6pac said...

Good story and much ado about nothing. I wish he was in my part of the central valley.

Creatures said...

Chuck Grassley, Rep, IA, owns a farm and received subsidies from the Feds. No one has every done an article like this on him and he advocates for family farms all the time and proposes bills.

Joel Goldberg said...

Part of the everyday responsibility of public officeholders -- from City Council to a state legislature to the US Congress -- is to intercede with administrative regulators on their constituents' behalf. To do so isn't overstepping any bounds; it's an important part of the job, called "constituent service".

Do you think for one minute that our local Michigan Congressman (John Dingell) hesitates to phone the EPA when Ford doesn't like some new regulation?

Overall, a spot-on piece.

Anonymous said...

Do you think Texas politicians don't have connections to the oil & gas industry???? Mike Thompson is an excellent congressman and should be aplauded not criticized.

Anonymous said...

A clarification on wholesale economics: a bottle of wine that retails for $10 usually costs the wholesaler $5 and is sold to the retailer for $6.66, for a profit far less than the 1/3 of the cost that you state.