Posted on | June 11, 2012
Written by | BevNetwork
After a Decade of Cutting Acreage, California Growers Can’t Meet Wine Demand
Prices for grapes and bulk wine from California are surging this year as supplies are failing to keep pace with ever-expanding consumption. Mike Esterl explains why on The News Hub.
California’s wine industry is getting squeezed by a shortage of grapes.
For a decade, grape prices in the nation’s dominant wine-producing state were in decline, pressured by big vineyard expansions during the 1990s that flooded the market with product. Faced with price erosion, many farmers in recent years stopped planting new vines, and some even switched to nuts, vegetables and other fruit that fetched higher returns.
But Americans kept drinking more wine, and the tables are turning.
The cost of Cabernet red grapes has roughly doubled in the past year, and prices for other Golden State varieties, such as Chardonnay and Muscat, also are soaring. That is good news for some growers, but not for many others in the industry.
“We’re really right now at a point where over-supply in the U.S. is tipping,” said Rob Sands, chief executive of Constellation Brands Inc., a leading wine company whose labels include Robert Mondavi and Clos du Bois.
The amount of California bulk wine not yet contracted out to industry buyers is about a sixth of what it was five years ago, according to Turrentine Brokerage, a wine broker. And inventories on the spot market for grapes have fallen sharply as growers fail to meet rising demand.
Even prices for Merlot, which fell out of favor with consumers after the 2004 film “Sideways” poked fun at it, according to people in the industry, are climbing again. Pauli Ranch, a bulk wine grower with 1,500 acres of vineyards on the North Coast, says it has contracted out all of its Merlot until 2015, some of it to be blended with Cabernet.
Alternating cycles of domestic over-supply and under-supply often last a decade as growers react to rising or falling prices. Newly planted vines take three years or longer before producing grapes, making it impossible for the industry to pivot overnight. The vagaries of weather and shifting consumer tastes add to the guesswork.
“Right now, I don’t have enough grapes of any variety in any part of the state,” said Nat DiBuduo, president of Allied Grape Growers, representing 600 California growers who produce about 7% of the state’s grape crush. He estimated prices for multipurpose Thompson seedless grapes, used for raisins, brandy and wine, have roughly quadrupled from 2001 lows.
That means Americans could be drinking more imported wine in the coming years. California is responsible for 90% of domestic wine production but only represents 10% of global output. Wine imports have nearly doubled over the past decade and boast a 30% share of the U.S. market. Italy and Australia are the biggest suppliers of U.S. imports.
Wine volume sales in the U.S. have risen 18 straight years, including a 5.6% increase in California wines last year, according to the Wine Institute. California wine exports also grew 5.9% in 2011, according to the group.
But the government estimates California had just 543,000 wine-grape acres last year, down from 570,000 in 2001. Over the same period, the state’s almond acreage expanded to 835,000 from 605,000 as nut prices doubled.
California’s grape squeeze has been exacerbated by the recent recession, which caused the industry to hold off longer than usual on planting new vines. Several strong harvests, including one in 2009, further delayed plantings.
The tug-of-war for land is particularly fierce in the central San Joaquin Valley, a major wine-growing area in the interior of the state that extends roughly from Modesto southward to Bakersfield, or about 200 miles, and competes with more than 200 other crops. Fred Franzia, head of Bronco Wine Co., a leading bulk wine producer, said he has paid two to three times as much for land since 2009, driven in part by expanding fields of baby carrots.
“There’s a lot of pushing and shoving,” said Mr. Franzia, whose family-owned company is widely believed to be the country’s largest vineyard owner with about 45,000 acres.
Bronco produces the Charles Shaw label, which gained the moniker “Two Buck Chuck” after Trader Joe’s stores began retailing it for $1.99 in 2002. Bottles of the wine continue to be offered for $1.99 in California, though they are higher in other states. Mr. Franzia and Trader Joe’s declined to comment on future pricing.
Environmental rules also are tightening. Mr. Franzia says Bronco bought 3,500 acres of foothills near Sacramento for $15 million in 2008 but hasn’t been able to plant a vineyard because authorities are worried about its impact on salamanders. Wine makers say approvals to clear ground in the state’s coastal areas often take more than a year, amid concerns over erosion and the water supply.
Don Sebastiani & Sons, which doesn’t own vineyards but has a bottling facility in Napa, says most of its grapes could come from outside California by next year, up from less than 10%. The bulk wine buyer says Chilean grapes alone could make up half its mix in 2013 so it can keep the sticker price on its best-selling wines below $8.
“I feel much more comfortable keeping the price where it is and changing the appellation,” which tells the consumer where the grapes were grown, said Donny Sebastiani, CEO of the family-owned company, whose labels include Smoking Loon and Pepperwood Grove.
By MIKE ESTERL