ELGIN – Amid a volatile U.S. tariff war, the Arizona wine and spirits industry is weighing how the ever-changing landscape could affect local businesses and consumers.
In March, President Donald Trump threatened to impose a 200% tariff on European Union wine and spirits after the EU threatened a 50% tariff on American whiskey.
The trade war shifted dramatically this week. On Wednesday, the EU approved retaliatory tariffs on U.S. goods ranging from 10% to 25%, which it paused a day later after Trump announced a 90-day pause on most of the tariffs he’d announced last week.
Such tariffs could have implications for Arizona’s wine industry, specifically its supplies and distributors.
Kent Callaghan is the owner and winemaker of Callaghan Vineyards in Elgin. He said his company uses barrels and corks from Europe. While he could switch to an American supplier, this isn’t an option he wants to pursue.
“I used to use only American (oak), but it’s definitely a flavor issue, it’s a style issue and it’s warranted,” Callaghan said. “I much prefer using European oak, French in particular.”
Callaghan said his business only sells wine across Arizona, with about 85% of its their gross revenue stemming directly from consumers at the winery. Local businesses such as his won’t feel the impact of potential retaliatory tariffs as directly since they don’t export internationally.
Mark Beres, president, CEO and co-founder of Flying Leap Vineyards & Distillery in Elgin, had the same sentiment.
“Most of our production goes to people in Arizona,” Beres said. “Because we’re not exporting any of our wine, if there are retaliatory tariffs on American goods going across the border, they’re not going to impact us.”
Beres also said his vineyard may feel the impact of tariffs through their supplies but expects the impact to be minimal. He said his company has already switched to American sources for many of their supplies, including oak for their barrels.
He said there are larger factors currently at play within the wine market that will have a more serious impact on the industry.
One of the key issues is inflation – consumers will only pay so much for a bottle of wine. Another is oversupply amid a decrease in demand. The third is a generational shift. Beres said there’s a natural trajectory that occurs where adults will gravitate toward wine and cocktails in their middle-age years.
“You can almost set a generational clock to it,” Beres said. “Those people that do like to enjoy alcohol will follow a trajectory through their life; right now, that trajectory funnels down into a multi-$100-billion-dollar business of alcohol production sales.”
This trajectory – and the sales – are now being disrupted by emerging drinking patterns of younger generations. Beres said younger people are more often abstaining from alcohol or switching to other vices, such as marijuana, which is now recreationally legal in Arizona and many other states.
“There is a cultural shift happening that’s impacting the wine business,” Beres said.
Ken Phox is the president of Tequila Corrido, an Arizona-based brand with a warehouse in Arizona and another in Mexico. He noted the generational shift in drinking culture with spirits as well, and said his company is in a “waiting pattern” until the tariffs actually go into effect.
Phox said his tequila brand is sold in 11 states across the country, all with different distributors. Potential tariffs could impact the behavior and buying patterns of those distributors.
“We haven’t even gotten hit with tariffs, but we’ve had distributors in Texas actually increase their orders from us,” Phox said. “I think a month ago, they said, ‘Hey, with the uncertainty, let’s just double our order,’ and so that actually then affected our planning. … If you guys are stockpiling, potentially other states are going to stockpile as well.”
It remains unclear how potential tariffs will impact prices for consumers.
Callaghan said depending on how long the trade war plays out, supply and production costs may have to be passed on to the consumer. However, with local wineries, these costs could be minimal.
“We’re able to absorb costs more easily because of the structure of our business, which includes, effectively, no middle men at all,” Callaghan said. “Folks that are newer to the industry, that have just started out, that’s going to be, I think, a pretty serious concern for them.”
Beres said he doesn’t think the tariffs will help or hurt his business. He said the real question is rather how this will affect demand for wine.
“If demand goes up for American wines, or for local wines in particular, then we would see some bump in there,” Beres said. “If it goes down, we might feel a bit of that, too.”
“The turbulent sea that wineries are in right now predates the election and tariffs. … These issues are far more prescient for wineries right now.”
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