Law of Two Thirds discussion

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JacobH
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1983 Covelos - Law of Two Thirds discussion

Post by JacobH » 09:48 Sat 06 Jun 2020

I presume they still had the strict rules on reserves in the 1980s so to produce a single Vintage Port would have been quite a substantial multi-year project?


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Will W.
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Re: 1983 Covelos

Post by Will W. » 13:52 Sat 06 Jun 2020

JacobH wrote:
09:48 Sat 06 Jun 2020
I presume they still had the strict rules on reserves in the 1980s so to produce a single Vintage Port would have been quite a substantial multi-year project?
A great question to which I do not have the answer. I did send an email to the producer about a week ago; should it respond, I shall put your query to it.

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Re: 1983 Covelos

Post by AHB » 20:38 Tue 09 Jun 2020

JacobH wrote:
09:48 Sat 06 Jun 2020
I presume they still had the strict rules on reserves in the 1980s so to produce a single Vintage Port would have been quite a substantial multi-year project?
I once asked this question of a producer, and was suprised to learn that the law of two-thirds only applies to tawny Port production. Vintage (and late bottled vintage) Ports are not subject to the law of two thirds. The obvious conclusion of this is that if you are a new Port producer and you need to raise some cash quickly — make and sell a Vintage Port.
Top Ports in 2019: Niepoort VV (1960s bottling) and Quinta do Noval Nacional 2017
Top Ports in 2020 (so far): Croft 1945 and Niepoort VV (1960s bottling)

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Re: 1983 Covelos

Post by JacobH » 21:01 Tue 09 Jun 2020

AHB wrote:
20:38 Tue 09 Jun 2020
I once asked this question of a producer, and was suprised to learn that the law of two-thirds only applies to tawny Port production. Vintage (and late bottled vintage) Ports are not subject to the law of two thirds. The obvious conclusion of this is that if you are a new Port producer and you need to raise some cash quickly — make and sell a Vintage Port.
That’s interesting. I’ve tried to have a look at the current rules but I am afraid they are far beyond my Portuguese, even with the help of Google Translate; although I can’t see any distinction by type, only age. This would suggest that you could sell a lot of vintage with a reserve of ruby, for example.
Decreto-Lei n.º 166/86 de 26 de Junho wrote: ARTIGO 21.º

A capacidade de vendas das entidades referidas no artigo anterior é calculada em função das existências registadas em seu nome no Instituto do Vinho do Porto em 31 de Dezembro do ano anterior e é fixada, para além do previsto no artigo 22.º, no quantitativo obtido pela adição dos quantitativos referidos nas alíneas seguintes:

a) Um terço dos vinhos de mais de um ano;
b) 30% dos vinhos adquiridos ou elaborados na última vindima, desde que estes se situem entre um mínimo de 75% e um máximo de 125% das vendas efectuadas no ano anterior a essa vindima;
c) 15% dos vinhos adquiridos ou elaborados na última vindima, no caso de ser ultrapassado o máximo de 125% referido na alínea anterior, na parte excedente a este limite;
d) A percentagem da fórmula A/B = 30/X' se os vinhos adquiridos ou elaborados na última vindima não atingirem 75% das vendas efectuadas no ano anterior, representando A os 75% que a firma deveria ter obtido, B a quantidade obtida e X a percentagem de capacidade que os vinhos obtidos atribuirão.

§ único. Por vinhos adquiridos ou elaborados entendem-se aqueles que satisfaçam os preceitos regulamentares estabelecidos pelo Instituto do Vinho do Porto, ouvido o conselho geral.

ARTIGO 22.º

Os comerciantes poderão também durante o ano adquirir capacidade de venda pela compra à produção, incluindo a Casa do Douro, de vinhos generosos, os quais atribuem, conforme a idade, a seguinte capacidade de venda:
Até 3 anos - 20%;
De mais de 3 e até 4 anos - 40%;
De mais de 4 e até 5 anos - 60%;
De mais de 5 e até 6 anos - 80%;
De mais de 6 anos - 100%.
§ 1.º Metade, pelo menos, da capacidade a adquirir nestes termos tem de ser obtida pela compra de vinhos que atribuam, no máximo, 40% de capacidade.
§ 2.º Só poderão beneficiar do disposto neste artigo os comerciantes e ou exportadores que em 31 de Dezembro do ano anterior tenham adquirido vinhos em qualidade não inferior a 75% das vendas efectuadas dois anos antes ou que atinjam esse mínimo pela compra de vinhos que dêem apenas 20% de capacidade.
§ 3.º O Instituto do Vinho do Porto pronunciar-se-á previamente sobre a qualidade e idade dos vinhos adquiridos aos produtores, verificando também se são limpos de prova e cheiro ou susceptíveis de assim se tomarem mediante tratamento conveniente.
§ 4.º Os vinhos em poder da lavoura ficarão em regime de contas correntes com a entidade competente, de acordo com a legislação em vigor, que as comunicará ao Instituto do Vinho do Porto para efeitos de fiscalização e confirmação de data, se a merecerem.
The date of these rules reminds me that 1986 was a time of considerable regulatory reform for Port. It was the year when they did away with the requirement to have a warehouse in VNdG and therefore opened up the market to independent quintas. I suppose another possibility is that the rules may not have been as strict in 1983.
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Re: 1983 Covelos

Post by Glenn E. » 00:14 Wed 10 Jun 2020

There's nothing in either of these Articles indicating that it only applies to Tawny Port. However, the first paragraph of Article 21 says that its capacity applies to the product referred to in the previous Article. So if Article 20 only applies to Tawny Port, then so does Article 21.

That said, this would be the first I've heard that the "rule of thirds" only applies to Tawny Port. My understanding has always been that it applies to all Port produced and sold by a producer.
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Re: 1983 Covelos

Post by JacobH » 08:10 Wed 10 Jun 2020

Article 20 just sets out the requirements for being a shipper. You need a warehouse in the Douro, be registered with the IVDP, respect the law of thirds and, unless you are only selling wine from your property, have stocks of 150,000 litres.
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Re: 1983 Covelos

Post by Glenn E. » 22:40 Wed 10 Jun 2020

JacobH wrote:
09:48 Sat 06 Jun 2020
I presume they still had the strict rules on reserves in the 1980s so to produce a single Vintage Port would have been quite a substantial multi-year project?
Isn't it already a multi-year endeavor because it takes 2 years (technically 18 months) to make a Vintage Port in the first place? So allowing for the law of thirds doesn't actually impact your timeline that much. The formulas in Articles 21 and 22 actually allow you to sell your first product as soon as it is ready, but you'll probably have to purchase some sales capacity using the formula in Article 22 if you want to sell all of it.

21.a. straight up allows you to sell 1/3 of the volume of your first harvest at the time you bottle it at 18 months.
21.b. does not apply because you have no prior sales.
21.c. then adds 15% of the volume of your second harvest to the amount of your first harvest that you're allowed to sell.
21.d. does not apply because you have no prior sales.

So that means you can sell roughly half of your first harvest at the earliest possible opportunity just by getting started, growing grapes, and making Port. If you want to sell all of it, you can use the formulas in Article 22 to purchase capacity/production which, due to the way the formulas work, will then set you up to sell your full yearly production from there on out. But it seems more likely to me that a new startup would simply sell ~50% of that first harvest, holding the rest back to sell later, and ramp up sales slowly. By your 3rd year of sales you're able to sell at full production.

This is assuming that the law of thirds does actually apply to all Port and not just to Tawny Port. Because if you think about it, it doesn't really need to apply to Tawny Port due to the amount of time required to make Tawny Port in the first place.
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Re: 1983 Covelos

Post by JacobH » 09:45 Thu 11 Jun 2020

Glenn E. wrote:
22:40 Wed 10 Jun 2020
Isn't it already a multi-year endeavor because it takes 2 years (technically 18 months) to make a Vintage Port in the first place? So allowing for the law of thirds doesn't actually impact your timeline that much. The formulas in Articles 21 and 22 actually allow you to sell your first product as soon as it is ready, but you'll probably have to purchase some sales capacity using the formula in Article 22 if you want to sell all of it.
[...]
This is assuming that the law of thirds does actually apply to all Port and not just to Tawny Port. Because if you think about it, it doesn't really need to apply to Tawny Port due to the amount of time required to make Tawny Port in the first place.
Yes: this is quite right. Before I looked at the regulations, I thought it was arranged by category so that, if you wanted to sell, say, 500 cases of VP, you needed to have a reserve of a further 100 cases of VP. But it looks like everything is covered which would include LBVs and tawnies which will mature for longer, as well as “standard” Ports like basic rubies and tawnies which will be higher volume but lower profit.

Assuming that most producers have a ratio of standard to premium Ports of about 3:1 (which, I think, is what the overall sales figures are) then the impact of holding off selling some basic ruby to put out a VP is going to be less.
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Re: 1983 Covelos

Post by Andy Velebil » 15:07 Thu 11 Jun 2020

Iirc, the law of a third only applies to what is actually in barrel. Regardless of type. Anything bottled but held back for later release does not count toward that.

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Re: 1983 Covelos

Post by Glenn E. » 22:30 Thu 11 Jun 2020

Andy Velebil wrote:
15:07 Thu 11 Jun 2020
Iirc, the law of a third only applies to what is actually in barrel. Regardless of type. Anything bottled but held back for later release does not count toward that.
It seems like that would cause problems with the formulas, because parts of those formulas are based on previous years' sales. Something that has been bottled for later release has not yet been sold, so would disappear from the equation that allows for sales and yet would count against the producer as sales when finally sold.

It's certainly possible, but it seems like it would be weird. And I don't see anything to that effect in Articles 21 and 22, though of course there are 20 preceding Articles that could make that clear.
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Re: Law of Two Thirds discussion

Post by AHB » 08:45 Tue 16 Jun 2020

What I was told is very similar to Andy's recollection, but could be a practical interpretation of the law of two thirds as seen from the view of a well established Port shipper, who has a mixed portfolio of tawny and ruby Ports.

However, they were very clear that the law of two-thirds only applies to their sales of tawny Port and not to sales of VP and LBV. This would make sense if you look at tawny Port and the fact you need to have a good stock to be able to make quality blends. I'm not confident that the rules published on the IVDP website (even the Portuguese version) are accurate. For example, wasn't the minimum level of stock required to register as a shipper recently reduced to ?100,00? litres?
Top Ports in 2019: Niepoort VV (1960s bottling) and Quinta do Noval Nacional 2017
Top Ports in 2020 (so far): Croft 1945 and Niepoort VV (1960s bottling)

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Re: Law of Two Thirds discussion

Post by JacobH » 14:17 Tue 16 Jun 2020

AHB wrote:
08:45 Tue 16 Jun 2020
I'm not confident that the rules published on the IVDP website (even the Portuguese version) are accurate. For example, wasn't the minimum level of stock required to register as a shipper recently reduced to ?100,00? litres?
I think the IVDP website has copies of the regulations as enacted. To work out what is currently in force you need to trace through them to work out what been repealed and / or amended. From what I can see, they do it in a similar way to how we do it in the UK: lots of piecemeal regulations (e.g. for paragraph “x” substitute “y”) with occasional tidying by repealing the whole lot and starting again. For example, all of the regulations which specify the different categories have been taken out of the Decreto-Lei n.º 166/86 de 26 de Junho and are now governed by (I think) the Regulamento n.º 242/2010, de 26 de fevereiro de 2010 which, in turn, has been amended a few times.

I presume if you are a Portuguese lawyer you probably have subscription to something that sorts all of this out but I can’t see one available online. In the UK this has only been freely available for the last decade or so and, even then, is a bit patchy once you stray into regulations like this.

(Incidentally, I am intrigued by the lack of what an English lawyer would call a “short title” in these regulations: in the UK each one would have a clause saying something like “These regulations may be cited as the ‘Port and Douro Wine Regulations 1986’” to avoid having to give their long formal titles.)
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Re: Law of Two Thirds discussion

Post by Glenn E. » 19:09 Tue 16 Jun 2020

JacobH wrote:
14:17 Tue 16 Jun 2020
I think the IVDP website has copies of the regulations as enacted. To work out what is currently in force you need to trace through them to work out what been repealed and / or amended.
Yes, this. The two articles that we've been looking at are as they were enacted in ... 1986, I think? They've probably both been amended, possibly multiple times, since then.

It does make it very difficult to understand the rules!

I've still never heard before this thread that the law of thirds only applies to Tawny Port. That wouldn't make it more difficult for new firms to enter the trade, and that was one purpose of the law (though possibly intentionally not made known to be a purpose).
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Re: Law of Two Thirds discussion

Post by Andy Velebil » 13:50 Tue 07 Jul 2020

I’ve just received this reply and learned something new.

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Re: Law of Two Thirds discussion

Post by JacobH » 11:55 Wed 08 Jul 2020

I wonder if the first reason given (i.e. to ensure proper aging) was the main motivation when it was enacted since, in those days, I don’t think the regulations were as strict on characterising Port by age before it was sold (especially since few shippers were producing the wine themselves and were shipping by pipe so the customer could also do some aging too). If most non-vintage port was sold as “Best Old Tawny №1” “Vintage Character №2” etc. who knows what was going into it? Making sure people had a decent stock in VndG would be an easier way of regulating its age.
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Re: Law of Two Thirds discussion

Post by Glenn E. » 17:04 Wed 08 Jul 2020

That answer is what I'd understood to be the case.

By the way, who or what is School of Port?
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Re: Law of Two Thirds discussion

Post by Andy Velebil » 19:54 Wed 08 Jul 2020

Glenn E. wrote:
17:04 Wed 08 Jul 2020
That answer is what I'd understood to be the case.

By the way, who or what is School of Port?
It is a Symington's instagram page. At the end of the week they ask for questions and they answer them during the week. Pretty cool.

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Re: Law of Two Thirds discussion

Post by Glenn E. » 04:25 Thu 09 Jul 2020

Andy Velebil wrote:
19:54 Wed 08 Jul 2020
Glenn E. wrote:
17:04 Wed 08 Jul 2020
That answer is what I'd understood to be the case.

By the way, who or what is School of Port?
It is a Symington's instagram page. At the end of the week they ask for questions and they answer them during the week. Pretty cool.
That's awesome! I might have to actually start using my Instgram account. :roll:
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Re: Law of Two Thirds discussion

Post by Axel P » 08:36 Thu 09 Jul 2020

AHB wrote:
08:45 Tue 16 Jun 2020
However, they were very clear that the law of two-thirds only applies to their sales of tawny Port and not to sales of VP and LBV. This would make sense if you look at tawny Port and the fact you need to have a good stock to be able to make quality blends. I'm not confident that the rules published on the IVDP website (even the Portuguese version) are accurate. For example, wasn't the minimum level of stock required to register as a shipper recently reduced to ?100,00? litres?
Just learned that this was recently reduced to 75.000 liters.
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Re: Law of Two Thirds discussion

Post by JacobH » 11:59 Thu 09 Jul 2020

Interesting. I wonder if it will be like the UK spirit market which really exploded once they removed the minimum production requirements.
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