Rant o' the day
- Thread starter Oswaldo Costa
- Start date
Oswaldo Costa
Oswaldo Costa
That's what makes it so insidious! Nobody seems to care, not even in Wine Disorder! The end is near!
Jeff Grossman
Jeff Grossman
Claude Kolm
Claude Kolm
You missed my point. In the richer sections of Burgundy, the economic pressures you claim would not exist or (in the extreme case) would be so greatly reduced as not to make the situation comparable.
Additionally, the Hautes Côtes is a marginal area, especially for Pinot Noir -- only in the warmest of vintages can one hope to obtain sufficient ripeness; that's no longer the case in the Côte de Nuits and Côte de Beaune. In fact, producers I know there who in the past have advocated chaptalization in every vintage to extend fermentation, not to increase alcohol, have dispensed with chaptalization entirely in some vintages for fear of getting alcohol that is too high. Others will do only 0.1-0.2º whereas in the past they might have done 0.5-1.0º.
This gentleman makes a untrue statement, that most of the FNSEA boys (the local farmer douchebags) are using :
It is not the whole new stocks that are considered as an income but the stocks variation...
So if the stocks value increases from one year to an other, then the grower will indeed pay taxes on the increase though the wine is not sold.
I thought that must be the case; the gentleman clearly does not understand accounts. Stock variations valued at cost in the P&L account is ultra-classic accounting. 99.9% of businesses worldwide are taxed on the basis of profits being sales for the year minus costs for the year plus/minus the stock variation at cost. If the stocks increase there is a net credit meaning that additional tax is payable but if stocks reduce there is a net charge leading to tax relief.
Ian Fitzsimmons
Ian Fitzsimmons
Well, the word's half French. Not to detract from Eric's command of English idiom.
We've been drinking a simple Texier Cote du Rhone (09), and I'm in fresh awe. Really.
Oswaldo Costa
Oswaldo Costa
But his whole point is exactly that, as you say, "If the stocks increase there is a net credit meaning that additional tax is payable". In effect, there is an economic disincentive to hold back (like, say, Lopez de Heredia) and sell when the wine is fully ready. If producers have to pay tax upfront on inventory increases, even at cost, there is pressure to sell sooner, so wine reaches the market sooner, and may end up getting drunk too early. They guy is complaining that, by including stock variation, he has to pay income tax without having generated income. And that seems to not happen under the forfait system, used for smaller producers, where there is a two year grace period.
That would depend on the debt structure. In a debt free situation, I suppose this is true.
That is true for any producer starting out on a Lopez de Heredia path but, once the inventory is built up, there will be ebbs and flows of stock variation and hence plus or minus tax. It's my guess that for all the other reasons given there are very few producers going along the route of voluntarily building up inventories nowadays.
An exception is Ch“teau Latour (and possible imitators) which has just announced pulling out of the primeur system and the holding back of its 2012 until beginning to be drinkable in about 2018. However it is likely that a business of the size and sophistication of Latour is already taxed on a real accounts basis and the working capital and tax effect will have been taken into account in reaching the decision.
Latour will still take a cashflow hit, of course, but this was not a sudden decision and so they've been preparing.
This is partly (but not all) speculation: Latour has been holding back more stock since 2005 (i.e. including the 2003 vintage), and with its new policy, it is ready to release some of that stock onto the market for the fall/winter season. These will be smaller quantities to see what the market will bear.
I am curious to see how this affects the current negoce system as I have a vested interest in being able to work directly with the estates.
This is partly (but not all) speculation: Latour has been holding back more stock since 2005 (i.e. including the 2003 vintage), and with its new policy, it is ready to release some of that stock onto the market for the fall/winter season. These will be smaller quantities to see what the market will bear.
I am curious to see how this affects the current negoce system as I have a vested interest in being able to work directly with the estates.
I also want to add that starting a new estate on the Lopez de Heredia model takes a combination of deep pockets and commercial bravery/idiocy (same coin, different sides), and you will have bigger and more immediate problems (e.g. cashflow) to worry about than being taxed on accumulating inventory.
Common guys!!!
For an estate starting from nothing, the value of the increasing stocks (especialy if valued at real cost of production!...) is balanced by the expenses made for building these stocks.
The accounting balance is then at best 0. Therefore the profit should be at best 0, and the resulting tax 0 too.
Again Mr Bernard Hudelot, known for being on the Sarko-Le Pen side of the political picture, is complaining for the tough life rich people are having in France because of the marxist culture of french administration.
Feelings not supported by facts.
This has nothing to do with the fact that wines are released young.
Now the bankers? These motherfuckers are responsible for 90% of the problem on the growers side!
Even though there is no profit and therefore no taxes to pay when building stocks valued at production cost, the need in cash is huge!!!
And, unless one is already a millionaire, where to find this cash except in banks?
And even after being in this business for 15 years and without loosing money for the past 6-7 years, there NO french bank that agrees to finance my stocks only with the guaranty of their value...
This is all about politics. ALready wealthy growers will see all their problems coming from the government. Struggling newcomers without capital like me will always blame the financial system.
For an estate starting from nothing, the value of the increasing stocks (especialy if valued at real cost of production!...) is balanced by the expenses made for building these stocks.
The accounting balance is then at best 0. Therefore the profit should be at best 0, and the resulting tax 0 too.
Again Mr Bernard Hudelot, known for being on the Sarko-Le Pen side of the political picture, is complaining for the tough life rich people are having in France because of the marxist culture of french administration.
Feelings not supported by facts.
This has nothing to do with the fact that wines are released young.
Now the bankers? These motherfuckers are responsible for 90% of the problem on the growers side!
Even though there is no profit and therefore no taxes to pay when building stocks valued at production cost, the need in cash is huge!!!
And, unless one is already a millionaire, where to find this cash except in banks?
And even after being in this business for 15 years and without loosing money for the past 6-7 years, there NO french bank that agrees to finance my stocks only with the guaranty of their value...
This is all about politics. ALready wealthy growers will see all their problems coming from the government. Struggling newcomers without capital like me will always blame the financial system.
Oswaldo Costa
Oswaldo Costa
Yes, the bankers, it is THEY who are ultimately responsible for chaptalization!
Had no idea where he was coming from politically, thanks for the insight.
I thought you and Tim agreed that tax is paid when inventories go up. If producers hold back and their inventories rise, they have to pay tax now, even though there is no profit until the bottles are sold years later. This is where the bankers would have to come in, to finance the taxes, besides everything else.
Come to think of it, part of the original motivation to sell futures, for those who are able to do it, may have been this upfront taxation burden. Latour must have calculated, among other things, that their stocks are sufficiently high, as Yixin points out, so they won't be paying too much future taxes on accumulating inventory.
Had no idea where he was coming from politically, thanks for the insight.
I thought you and Tim agreed that tax is paid when inventories go up. If producers hold back and their inventories rise, they have to pay tax now, even though there is no profit until the bottles are sold years later. This is where the bankers would have to come in, to finance the taxes, besides everything else.
Come to think of it, part of the original motivation to sell futures, for those who are able to do it, may have been this upfront taxation burden. Latour must have calculated, among other things, that their stocks are sufficiently high, as Yixin points out, so they won't be paying too much future taxes on accumulating inventory.
We agree.
But again this is only on the stock variation, and if the value of this variation is greater than the cost of its production. Otherwise, if the increase of value (positive) is equal or smaller than the expenses due to this increase (negative), in the income statement the profit will be equal to 0 or negative.
Oswaldo Costa
Oswaldo Costa
Isn't the value of the variation always equal to the cost of production? I understood from Tim above that inventories are always valued at cost. If you were to value them at anything more than cost, e.g., current list price, the tax would be disastrously greater, no?
No, Oswaldo, inventories are valued at the UNIT cost of production, crudely total costs for the year divided by total quantity of production. The variation is the aggregate of the unit values of the quantities in stock at year end minus the similar aggregate value at the end of the previous year.
It is unsound accounting to value at higher than cost because it takes credit for unrealised profits. On the other hand, if market price is below cost, it is prudent accounting to reduce the unit value of the product concerned to market. There are refinements such as "First in First out" v. "Last in First out" with which I won't bore you. In a business with many products and grades of product, some may be valued at cost and others at market where that is lower than cost. It is conceivable that some wineries and négociants could be in that position.
Valuing financial products and derivatives in a balance sheet is a far more complicated and controversial matter and many, using hindsight, allocate a lot of responsibility for the 2008 financial crisis to inappropriate accounting.
The following question and answer (from California, I think) say a lot.
"How do you make a small fortune in wine?"
Answer -
"You start with a large one."
Working capital finance is a problem for most businesses in Europe nowadays as banks retrench following years of bad loans and bad investments like sub-primes. However, Brézème's problem seems to pre-date the crisis. Banks in most countries understand, or think they understand, industry, banking, insurance and real estate better than they do agriculture but I would have hoped that France would be an exception with large banks like Crédit Agricole. Personally I would much rather lend on the basis of Eric's stocks of wine than on real estate at the top of an as yet unpricked French bubble.
However, I don't know what the solution is other than restoring banks' balance sheets to health, a long process, and educating them better about who is worthy of credit in the wine business. IMHO, there's little that politics can do which will not make the situation worse. The French election campaign is good entertainment, particularly M.Mélenchon, but demonizing Finance is not going make it easier for the French state and businesses to borrow and, as for the "solutions" of the extreme nationalist right, e.g. getting the Bank of France to lend to the state at zero interest.........