The major public policy issues relating to wine consumed in Ontario are whether the current Ontario ban on inter-provincial wine sales directly to the consumer should be lifted and should partial or full LCBO privatization be considered? Subsets of the second issue are whether the current LCBO constraints on grocery and convenience store pricing should be eliminated, and whether the LCBO’s “Social Responsibility” mandate should be moved to another government body.
Interprovincial Wine Sales
There was considerable hope that this would be automatically mandated for all provinces as a result of an April 2016 court case. The case had arisen because retiree Gerald Comeau decided to fight a $292 ticket he had received as a result of purchasing beer in Quebec and then bringing it into New Brunswick. Initially, a lower court threw out Comeau’s fine, citing Section 121 of the 1867 Constitution which states that articles grown or manufactured in one province must be “admitted free” into another.
However, needless to say, the New Brunswick government appealed the ruling as it would result in a severe dent to their revenues. As a result of the far-reaching implications of the decision relative to inter-provincial trade, the Supreme Court heard the case in December 2017 and reached their decision in April 2018. Unfortunately, for wine lovers, they voted to uphold the inter-provincial trade restrictions.
Until June 2019, inter-provincial shipment of alcohol directly to the consumer was forbidden under federal legislation but then the legislation was repealed. It was now possible for provinces to pass enabling legislation to permit this practice however most did not. In fact, Ontario amended its laws to prohibit the possession of wine that has been imported from other provinces unless the transaction was handled via the LCBO.
The result is that it is currently impossible for the Ontario wine consumer to support small local wineries in another province even though direct-to-consumer sales have become their lifeblood. Even if you can purchase wines from other provinces, the LCBO will charge you the same import duties as if the wine came from a foreign country.
In October 2024, Donald Trump was elected President of the USA for the 2nd time. Recently, he has threatened to put a 25% tariff on most Canadian products that are exported to the USA. As a result, there is renewed enthusiasm for the elimination of all barriers to inter provincial trade, and discussions are again underway to see what can be done. Economists have estimated that the negative effects of tariffs could almost be wiped out by an elimination of inter provincial barriers to trade. Will our provincial premiers rise to the challenge and take action for the good of the country or will they revert to their usual parochial parish pump politics? We should all encourage them to do the right thing.
LCBO Privatization
The LCBO was created in 1927 on the basis of three fundamental beliefs: first, that the best way to prevent social harm and health risks related to alcohol consumption was to make the purchasing of alcohol awkward or inconvenient; secondly, that adults can’t be trusted to make their own decisions around responsible alcohol consumption; and thirdly, that private sector retailers did not have the capacity to balance market competition and social responsibility.
Attitudes are very different today and it is safe to say that the LCBO would never have been created if current circumstances had applied back in 1927. Today, we expect the private sector to manage business enterprises for profit, and we expect the government to regulate their behaviour through the establishment of standards and the use of enforcement to ensure those standards are met. For example, the safety of food is of concern to all but we don’t have a government monopoly running grocery stores. In Ontario, we allow the private sector to manage cannabis stores and I think very few would argue that the roof has fallen in.
Accordingly, a number of comprehensive studies have been published over the years on what reforms if any should be made to the LCBO. It has been argued that the government could actually earn more money by privatizing the LCBO’s retail stores while keeping their wholesale business in place just as Alberta did in 1993/94.
Alberta’s privatization scheme was intended to create more selection, lower prices and convenience for the consumer, greater opportunities for small business, and help get government out of the business of being in business. There is no question that the consumer has benefited from increased product selection and greater convenience due to the large increase in the number of retail outlets. It is less clear whether prices are now lower.
Expansion of Retail Outlets
In October 2016, some supermarkets were allowed to sell wines. In September 2024, the numbers were considerably expanded and convenience stores were allowed for the first time to sell beer, cider, wine, and ready-to-drink beverages.
LCBO Pricing
Until 2022, Ontario was one of the very few jurisdictions in the world that did not have wholesale pricing for its licensed sellers of alcohol even though they were buying multiple cases at a time. Restaurants and bars were forced to pay the same prices as what you see on LCBO shelves. Given that they have to mark up that price to make any money, it made the task of making a profit and keeping their business going that more challenging.
Happily that changed January 1, 2022, largely as a result of the COVID-19 pandemic. The LCBO announced that applicable business would receive a 10% discount on the retail prices of beer, spirits, and wine.
Convenience stores are not required to sell products at the same prices as the LCBO. As of September 5, 2024, licensed retailers, including convenience stores, can set their own prices for alcohol. However, they must adhere to minimum retail pricing rules. For example, wine must be sold at a minimum price of $10.95.
Social Responsibility
Currently, the LCBO has a dual mandate. On the one hand, it is responsible for generating revenue for the benefit of the Ontario government. On the other hand, it has a social responsibility” mandate under which it uses a system of minimum selling prices to discourage excessive alcohol consumption. This has been criticized as being a legally sanctioned price fixing mechanism to guarantee profits and discourage price competition, thus protecting established major producers If this dual mandate isn’t a clear conflict of interest, I don’t know what is.
One bizarre by-product is that the LCBO is not interested in driving a tougher bargain with suppliers and demanding cheaper wholesale prices. This is a practice which a previous Auditor General found quite astonishing but it’s the sort of problem that can occur when the government has a presence in the business world at the same time that it is trying to regulate it. Another strange practice arising out of this conflicted mandate is that the LCBO sells less intoxicating beverages such as light wines and beer at reduced prices in order to influence consumption patterns as part of their social responsibility mandate.
Health Canada is responsible for regulating the manufacture, sale, labelling and promotion of tobacco products. So how about making the provincial Ministry of Health responsible for the LCBO’s social responsibility” mandate. That would eliminate the LCBO’s conflict of interest and enable it to operate more like a private sector organization in securing the best deals possible and thereby maximizing revenues for the government.
At the same time, it would be much easier to regulate the profit driven activities of the LCBO if the regulation were done by a separate body whose employees were dedicated full time to carrying out its social responsibility mission. After all, how many government agencies are allowed to regulate themselves? Not too many, I think. You wouldn’t entrust gun control advocacy to the National Rifle Association so it’s high time that the social responsibility mandate was shifted to an independent body.
Additional Information
See Wine Regulation for the wine regulatory framework in Ontario. It has profiles of the Alcohol and Gaming Commission of Ontario (AGCO), the Vintners Quality Alliance (VQA) Ontario, and the LCBO.