Left Hanging: Grape Growers Feel the Crush of the Economy

Vinted on August 18, 2009 binned in Uncategorized

At first glance, saying that grape growers – being one link the overall supply chain that provides wine to consumers – would feel the pressure of the economic downturn and its negative impact on wine sales would seem like a no-brainer.

“Well… duh!” you’re probably thinking, “If the economy sucks, and fewer people buy wine, wouldn’t suppliers naturally suffer in terms of selling less of their product to wineries?

Sounds reasonable, my astute friend.  You’re one of those people that paid attention in Economics class.  I can tell.

But apparently that view is missing some of the complexity of the situation, at least according to recent stories in two major wine publications.

In July, Wines & Vines featured a cover story called Growers’ Reality Check, which detailed the outcomes of a June Vineyard Economics Seminar held in Napa.  The picture was, in a word, glum.

Of the surveyed attendees, a meager 44% predicted an upswing in wine sales – down from 78% one year ago.

Last week, Wine Spectator’s Tim Fish (who has yet to publicly attack me so I’ll give him the benefit of the doubt!) reported on a glut in the wine grape-growing market in California.

The big swing was due, of course, to the economic downturn, which has seen consumers shift their wine buying patterns away form the $20 and up range and towards value wine brand territory.

Wait a minute,” you’re probably saying, “if consumers are still buying wine, doesn’t it mean that grape growers can still sell, maybe just at lower prices?”. 

Not quite, my economically-astute friend… not quite…

 

The trouble, in a word, is inventory.

Sellers and wineries have too much $20 and up wine on-hand, it seems.  So they are ordering less new fruit for new wines.  Uh-oh…

Of course, that all still makes sense in terms of economic theory.  What might not compute with you, star economics student, is that the growers didn’t seem to see this coming.

Were they just not paying attention?” you’re asking.  “Get your head outta yer grapes, for Pete’s sake!”

Not so fast… not so fast… 

Just consider for a moment the issues that growers themselves cite as their top concerns, according to Wine & Vines.   Among the top five:

Water (coming in at #1)

Increased Cost of Doing Business (at #2)

Getting paid (#4)

The credit crunch actually pulls in at the bottom of their list. 

Think about it – if you’re worried about something as fundamental as water, or as basic as getting paid for your crop, you’re focused on the now, not on tomorrow.  Remember Maslow’s Hierarchy of Needs?  Of course you do, you’re the star pupil, remember?  Anyway, this stuff is textbook Maslow, baby!

So maybe we should go easy on growers for the moment, and forgive them their lack of economic foresight, tell them to plant less in the short-term, and brace themselves for lower prices when things do pick up a bit.  And not to swallow too much of their own nails before the biting stops.

Cheers!

(images: 1WineDude)

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    Comments

  • Larry Truthan


    I read that in South America, I believe it is Chili, where the government limits local per capita alcoholic consumption, both by regulating the quality and volume of wines exported AND by subsidizing INDUSTRIAL ALCOHOL production – so "excess" wines don't get produced – and "dumped" into local markets.

    If it will ferment to 10-15% ALC, further distillation could produce FUEL. Bigger question in USA would be: Can ALC production sustain $600 per ton for "sugar" grapes?

    By the Way, I also read that sugar is at its highest price in 26 years! Fructose?

  • 1WineDude


    Hadn't thought of making fuel from excess grapes… that would kick ass!

  • @suburbanwino


    The U.S. (as of 2006) only holds a 3.6% market share of the wine export market (source: http://en.wikipedia.org/wiki/Wine). If California (Napa, perhaps) could create the same "brand" that Bordeaux, Burgundy, Champagne, or Barolo has, maybe some of the "high-end" glut could be shipped to all the new money markets in China, Russia, India, and Brazil.

    Just sayin', U.S. Let's work that trade-deficit!

    • 1WineDude


      Would they hold up…?

      • @suburbanwino


        Why can't there be the world's great wines to cellar for 50 years, and the world's great wines to cellar for 5 years/drink immediately? Not enough supply (or too much demand) of Harland, Screaming Eagle, etc., but Mondavi Reserve, Beringer Reserve, Opus, Dominus, Insignia…$100 "signature" cab could be an everyday drink for new Asian money. $20-$30 stuff? Well, not so much, but it theoretically could be positioned in the same way that the values of Spain are being positioned in the States…overdelivering on QPR and ready-to-drink.

        I think that's what you meant with, "would they hold up…?" If not, there's a tangent for you.

        • 1WineDude


          A good tangent there! You could be on to something, if those other markets aren't feeling the same pinch, that is.

    • Neil Monnens


      US should export more, but they would have to subsidize the price of their wine so the foreign consumer doesn't spend twice as much for their wine. Europe heavily subsidizes the wine the ship to the US (which creates the grey market in the US). Here in Spain, where I live, I have seen KJ's California brand and Mondavi Coastal for $30 (3x higher than the states). So can you imagine a Spaniard plunking down $30 for KJ, when they normally spend half that for a good bottle of wine, and comparing? US producers will have to sacrifice initial revenue to build their brand overseas.

  • @suburbanwino


    I guess I'd be curious to see where the "glut" really is…$20 wines? $50 wines? $100 wines or more?

  • FrankMc


    @suburbanwino, not sure that the Bordeaux example would be the correct one to follow. I believe there is something like 10,000 producers in Bordeaux and all but the top few are having a major problem selling their wine. …and have been since before the economic meltdown.

    • @suburbanwino


      No disagreement there. I guess I need to clarify: I didn't mean to say that France has no trouble moving wine (I believe they just changed the labeling laws to allow varietal in order to sell in western markets), but that Bordeaux/Burgundy/etc.- as "brands" themselves- are far more known and demanded internationally than, say, Napa Valley.

      • FrankMc


        Maybe that 200 year head start helped.

  • Morton Leslie


    In the luxury category, long term contracts influence grape prices and winery viability more than elsewhere. Imagine being in the predicament of having to honor a contract for $5000 a ton fruit, when you can't sell the '05 and '06 in the bottle, and you have way too much '07 and '08. With contracts you don't have the flexibility to buy less and you can't make a wine that can be sold in the lower categories that are moving because of the price. My guess there are a few wineries out their trying to renegotiate contracts down to more realistic prices and, unfortunately, I imagine few growers are listening. But if I were a grower to hell with water, I would be worried about getting paid for '09 and having a someone interested in 2010. I think I might listen and be as flexible as I could be.

    • 1WineDude


      I'm hoping we might get a grower or two to chime in here.

  • lodiwino


    I am a grower (albeit very small) we have a small winery in our area and have contemplated the bulk juice market for this crush – not out of a have to but more along the lines of possible revenue generator. The only reason we will get into the bulk market is that we have a niche product that should be able to move next year even in a flooded market. There will be a glut in the bulk market for 09 and anyone looking to augment their programs or produce a high quality 'two buck chuck' will be able to get some rock star quality at rock bottom prices for 09 juice. The bottom has fallen out of Napa valley – valley floor cab prices and most growers will go to the bulk market to offset their losses.

    • 1WineDude


      Thanks for chiming in!!!

  • Dylan


    I can completely support that statement about water as a priority. Last year everyone was experiencing the impact of the summer's drought, and, in fact, not a growing season goes by that we aren't a little wary of our water levels. Now these feelings are coming from a property with multiple natural springs–imagine the gravity of this situation for a vineyard without a natural water source available. You're right, Joe, many growers have their minds on different things.

    • 1WineDude


      Thanks!

      Well, I look at it this way – if I was worried about my own water and about getting paid, I damn sure wouldn't have much spare worrying time for other things!

  • chris jones


    My husband and I grow wine grapes in Santa Barbara County. We have seven acres of Sauvigon Blanc and Sangiovese grapes that we have under contract to several local wineries. Our biggest concern is that our wine growing practices retain the three overarching principles of sustainability as defined by the code of Sustainable Winegrowing. The project defines sustainable winegrowing as "practices that are sensitive to the environment (Environmentally Sound), responsible to the needs and interests of society-at-large (Socially Equitable), and are economically feasible to implement and maintain (Economically Feasible)." Every year we reassess if these three practices are in balance, if not we will pull the plug.

    • 1WineDude


      Wow – sounds like a tall order. How do you gauge against those criteria?

      • chris jones


        Yearly we self assess by using The Code of Sustainable Winegrowing Practices for the California Wine Community. We belong to the Central Coast Vineyard Team, attend workshops promoting sustainability, read magazines like Wines and Vines, treat our crew and neighbors as we would like to be treated …and last but not least, we look at our income statement at the end of the year and ask ourselves if it was worth all the work.

  • Winery Worker


    Interesting times… trying to figure out how this may play out, I was struck by the recent Stockholm School of Economics study that indicated that the consumers (wine drinkers) in blind tastings actually rated higher the $5 dollar wines over the $40 wines.

    This may imply that people, who drink wine regularily, may fairly quickly become comfortable with the lesser priced wines they may have initally started drinking due for economic reasons. Additionally company CEO's and CFO's are starting to question the need for those business lunches with the $200+ wine tab included.

    This is not a good news for the Napa, or other areas with high real estate and farming costs.

    • 1WineDude


      Yeah – there's an interesting relationship between the bottle price that can be fetched for wine from the fruit and the subsequent land and labor costs. The Wines & Vines article goes into that a bit – well worth a read.

  • Winery Worker


    I read over the Wines & Vines article more carefully.

    You are right, it's just full of interesting observations and advice, from people that are in good positions to know.

    Talking to my boss, who is both a grape grower, seller and a winery owner, about higher end grape prices, he pointed out that the inventory – 06,07,and 08 vintages of $20 and up wines- being held by the wineries ,was all paid for in full to the growers.

    Up to this point, at least from pricing standpoint, the growers have been spared the pain.

    So, if they don't have a long term contract, it's now their turn to be taken behind the wood shed.

    For the most part, there will be offers on the larger blocks of these unsold grapes, but only at prices where the grapes pencil out to be used to enhance the wine blends of the state's larger wineries.

    • 1WineDude


      That payment scenario explains a lot about why the economic squeeze is only now making its way to the growers side of things. Thanks for the insight!

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