SACRAMENTO, CA - Last Monday, the U.S. Supreme Court ended the legacy of Prohibition. Its ruling on direct shipment and Internet sales of wine will expand markets for small family wineries and give consumers more choice and lower prices.

'The ruling is a victory for consumers, as well as the great wineries of California,'' said California Attorney General Bill Lockyer. 'The laws struck down by the court were not adequately justified as needed to further any regulatory concerns. They were economic protectionism, pure and simple. The court rightly found such protectionism has no place in this country's free market-based system and violates constitutional safeguards for interstate commerce.''

New York and Michigan have allowed producers to ship directly to consumers but only within their respective state borders. Wineries from states such as California, the nation's largest producer by far, were prohibited from shipping their products to consumers in those states. Monday's 5-4 high court decision in _Granholm v. Heald_ ended that discrimination.

"States have a broad power to regulate liquor," wrote Justice Kennedy. "This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers."

The main argument against direct shipping of wine was that it promotes underage drinking, though one notes that indulgence by juveniles did not seem to be an issue with in-state sales in New York and Michigan. This ruling was about the kind of protectionism that pitted wineries and consumers against a cartel of state regulators and wholesalers.

The 21st Amendment, which ended Prohibition, established a three-tier system involving the producer, wholesaler, and retailer. Wines from outside New York and Michigan were subject to this system, which had problems beyond its constitutionality.

In recent years wholesalers have consolidated heavily, yet the number of winemakers has exploded to more than 3,500 and wine consumption has increased. Huge wholesalers, with their quasi-monopoly advantage, have been unable or unwilling to keep up with the many new wine labels.

There are more than 25,000 wine labels in the United States but only about 500 are available in the larger market. Many consumers remain unable to purchase new vintages or must pay higher prices due to the cut taken by the middleman.

A Federal Trade Commission study from July of 2003 noted that e-commerce for wine offers lower prices and more choices for consumers. State bans on direct shipping, the study found, prevent consumers from saving as much as 21 percent. The study also found no evidence that direct shipping of wine promotes underage drinking.

Currently there are 13 "reciprocity" states, including California, up from four a decade ago, which allow direct
shipping from states that accord the same privilege. A majority of states, 26, have adopted legislation creating some regulatory structure for direct shipment of wine to consumers. Monday's ruling is likely to expand that number.

The removal of trade barriers will translate to more open markets, more new wineries, lower prices, and expanded choice for consumers. One hopes it will also spur wider support in Sacramento for what state Attorney General Lockyer called our free-market based system. That system works best when regulators leave it alone.

K. Lloyd Billingsley is editorial director at the Pacific Research Institute. He can be reached via email at
klbillingsley@pacificresearch.org.