What is “American” Wine?

Truth in labeling is a valid request.

There is a bottle of wine on a California grocery shelf right now with the word American on the label. A consumer picks it up because that word means something to them, even more so for our 250th Anniversary: domestic farms, domestic jobs, a glass of something grown here. But what they don’t know is, federally, that bottle can be 25% foreign wine, shipped in bulk across an ocean, blended in, and sold under that same word. The label is doing exactly what it was designed to do.

Last month, California’s Assembly tried to fix this. Assembly Bill 1585 would have required that any wine sold or bottled in California under the “American” appellation be made from 100% American-grown grapes, closing the gap between what the word says and what the bottle contains. It passed the Assembly 67 to 0. Not a single no vote. Then it went to the Senate, where its first committee hearing was quietly canceled at the author’s own request as industry lobbying intensified. The bill is dead for this session. The bottle on the shelf is unchanged.

I wanted to take a look at why this happened, because the answer is not just about wine labels. It’s about a pattern that runs through the entire US beverage alcohol business, and once you see it, you cannot unsee it. You cannot talk about one element individually; you have to step back and put the pieces together to get the true story. That story is this: in our industry, the language of protecting the consumer and the small producer is most often deployed through the voice of the largest players to defend the very arrangements that entrench and protect them. And the tell, every single time, is a sleight of hand between number and size and unfortunately our legislators swallow this hook, line and sinker.

Here is how you bring it all together.

“Very Few Winemakers”

When AB 1585 reached the Senate, the bill’s main opponent was the California Wine Institute, the trade association that represents less than a thousand California wineries. Its Vice President of California State Relations, Tim Schmelzer, gave KQED the case against the bill. It is worth quoting in full, because it is a small masterpiece of misdirection:

“Very few winemakers actually make this so-called American wine appellation, but the idea of allowing for that flexibility is to allow those that do, to deal with the ups-and-downs of agriculture. And also to be able to make wine that customers demand.”

Read it again. There are three misdirects in two sentences.

The first one is very few winemakers. This is true, and it is the heart of the trick. By counting wineries, Schmelzer makes the practice sound marginal, a handful of operators. Why upend a federal standard for them? But the wine behind the American appellation isn’t estate wine, it’s bulk juice traded by the gallon, and the ‘very few’ who use the designation are volume bottlers, not boutiques. They are among the largest wine companies in the country. Few producers produce most of the wine. When you measure by volume instead of by winery count, the marginal practice becomes a dominant one, and the bill stops looking like a niche fix and starts looking like what it is: a constraint on the biggest players in the state.

The second move is the ups-and-downs of agriculture. This dresses the loophole in the work clothes of the struggling farmer, droughts, short harvests, and the natural variability of growing things as a farmer. It is a sympathetic image. It is also backwards, and the people who farm said so quite clearly. There is no shortage of American fruit right now. There is an excess. Growers are leaving grapes to rot on the vine. Craig Ledbetter, who farms near Lodi, told KQED his family has pulled out about a third of their vineyard acreage for lack of demand, and that he has clients who have torn out nearly all of theirs, leaving the ground fallow. The “ups-and-downs of agriculture” are not why these companies import bulk wine. They import it because it is a lot cheaper. As Natalie Collins of the California Association of Winegrape Growers put it, if a winery wants to put a varietal on its label, “there’s an easy fix”, source the grapes from California, where the fruit is sitting unsold.

The third move is wine that customers demand. This is the consumer-welfare stance, and it is the boldest of the three, because the entire bill exists to give consumers information they are currently denied. A shopper cannot demand transparency they do not know they lack. The “demand” being served here is the demand for cheap input costs, which belongs to the producer, not the customer.

None of this is unusual. It is par for the course. The California Wine Institute’s broader message on the bill was that “California wine is facing a demand crisis, not a labeling crisis”, a clean piece of redirection that treats two true things as if they cancel each other out. The demand crisis is real. I would agree, but the existence of a demand crisis is not an argument for keeping a misleading label. If anything, it is an argument for restoring trust in the one that consumers already reach for.

Follow the Refund

Here is the part of the story that the labeling debate mostly left out, and it is the part that explains everything else.

The federal government charges import duties on foreign wine. There is a program called duty drawback that was designed to refund those duties when a company exports a comparable product in return. The loophole is this: the exported product does not have to be related to the imported product. Bring in bulk wine from Australia, export something else entirely different, and you still recover 99% of the duties on the Australian wine. The two transactions just need to exist in the same company’s books. The largest wine companies are using a refund program, never designed for this purpose, to subsidize the cost of replacing domestic grapes with cheaper foreign ones.

If you run the numbers the way the growers at the Lodi Winegrape Commission have, Australian bulk wine, the most imported into the US, lands at around $2.65/gallon, and the duty drawback can return roughly $1.06 of that on every gallon, as a refund of 99% of the federal excise. On wine that already arrived cheaper than almost anything a California grower can profitably produce. The program does not merely permit importing foreign bulk wine over buying domestic grapes; it tilts the math toward doing it.

The volumes involved are massive. In the first half of 2025, bulk wine imports rose 17% to more than 25 million gallons, the equivalent of about 150,000 tons. Over five years, the equivalent of 1.7 million tons. The Lodi commission estimates that translates to over $28 billion in lost economic activity inside California.

Now connect the stories. The duty drawback loophole creates the financial incentive to bring in cheap foreign bulk wine. The 75 percent federal labeling rule lets that wine be blended into a product sold to Americans as “American.” AB 1585 tried to close the labeling deception here in California as a start, federal rules need fixing next. The same companies sit at both sides of the table, collecting the refund on the way in, wearing the patriotic label on the way out. As Lodi’s Stuart Spencer wrote “the loophole only benefits a handful of California’s largest wineries at the expense of thousands of growers and vintners.” To my earlier point, the positioning of a handful. The same handful that is “very few winemakers” when it is time to defend the labeling argument.

This is why the California growers fight matters. We have a system in which a federal subsidy quietly rewards the substitution of foreign product for domestic, and a federal label law quietly hides that substitution from the buyer, and a well-funded California trade association defends both in the name of the small farmer and the consumer, the two groups actually paying the price for it and the deception caused.

The Same Move, One Tier Over

The labeling argument is not isolated. The same structure, invoking the small producer and the consumer to defend an arrangement that benefits the largest players, runs straight through the distribution tier.

Consider the three-tier system itself. It was sold, and is still sold, as an anti-monopoly safeguard: an independent middle tier of distributors standing between producers and retailers so that no single entity could dominate the chain.

The reality is that the state mandate guaranteeing a middle tier exists has been captured by a small number of mega-distributors who now use it as a state mandated moat. Reyes Beverage Group, the largest beer distributor in the country, has assembled more than half of all beer sold in California by some estimates, through a series of acquisitions. Current laws require that beer passes through a wholesaler; Reyes has consolidated enough of that mandatory chokepoint that it now functions as a tollbooth no producer can get around. The mandate sold as protection against concentration now protects the most concentrated player in the tier.

The fiercest opposition to Reyes-style consolidation has not come from consumers, who are oblivious that any of this exists. It has come from the independent distributors themselves, the very small, family-owned wholesalers that three-tier was supposed to protect. In California they broke away from the established beer-distributor association to form their own group specifically to fight the biggest member of their own tier. When the intended beneficiaries of a protective system organize against it, the protection has plainly stopped flowing to them.

Or consider the price discrimination case the FTC brought against Southern Glazer’s, the country’s largest wine and spirits distributor. The Commission alleged that Southern Glazer’s gave large retail chains discounts and rebates it withheld from small independent retailers. So the supposed neutral middle tier was, in fact, tilting the field toward the biggest buyers. Southern Glazer’s defense is the consumer-welfare argument again, almost word for word: it called the Robinson-Patman Act a Depression-era law left unenforced for decades because, it argued, enforcement raises prices for consumers. The largest distributor in the country, invoking the shopper’s wallet to defend pricing that favors the largest retailers. The two parties reached a tentative settlement this June and the case is stayed into August; however it resolves, the framing is the point. Same move, one tier over.

What This Is Really About

Step back for a moment and connect all of these scenarios: a duty drawback loophole that pays the biggest wineries to import, a labeling rule that hides what they imported, a distribution mandate that shields the biggest wholesaler, and a pricing practice that favors the biggest retailer.

In every case the public justification by the associations and the benefiting parties reaches for the small producer or the consumer as the beneficiary, and in reality, in every case the actual beneficiary is the largest incumbents.

In every case the rhetorical comment is the same, swap between number and size, very few winemakers, a handful of companies, the independent middle tier, many small things invoked to camouflage a few enormous ones. They, themselves, are as deceptive as the labels they put on their products. They cannot allow for truth in labeling otherwise the rest of their structure falls apart.

What unites these arrangements at the mechanical level is even simpler. Every one of them depends on controlling what the consumer can see of the producer.

• The label controls what you know about where your wine was grown.

• The mandated wholesale tier controls what reaches the shelf and on what terms.

• The pricing structure controls which retailers can stock what.

Each is a layer of distance between the person who makes the thing and the person who buys it, and that distance is not an accident. It is their product.

I have always said and believe that distributors have a role to play. That said, direct sales should be an open alternative. DTC and self-distribution are the two sales channels that remove the problem the market is encumbered with today. They let a grower in Lodi or a small winery in Sonoma sell to a buyer in Ohio with nothing in between but a compliant, tax-paid, age-verified transaction. There is no bulk-wine blend to hide, no mandated intermediary to capture, no shelf to ration. The buyer knows exactly who grew the grapes and exactly what is in the bottle, because they bought it from the person who made it.

I have reiterated many times: I do not believe in regulation that exists only to protect one sales channel over another. AB 1585 was not even that ambitious. It asked only that a word on a label means what a reasonable person thinks it means. It passed the people’s house unanimously 67-0 and died without a recorded vote in the Senate, and the trade association of the companies that benefit from the ambiguity issued a statement calling it a chance to “refocus”. Refocus on what exactly?

The honest version of the American wine label is not complicated. It is the same standard California already applies to its own name, a wine that says “California” has been required, for decades, to be 100 percent California fruit, and that rule did not create chaos. It created one of the most trusted labels in the world. “American” could mean what it says, too. The only thing standing in the way is the very small number of very large companies for whom the ambiguity is worth defending, and the language they have learned to use to make that defense sound like it is about someone else.