Growers Of Lower End California Winegrapes Face Challenge

(Source: Allied Grape Growers)

Source: Allied Grape Growers

After years of solid growth, the California winegrape industry has hit a bump in the road, though for many growers in the San Joaquin Valley, it feels more like a jarring pothole.

Jeff Bitter, vice president of operations for Allied Grape Growers, a grower-owned winegrape marketing association, delivered the sobering message to a standing-room-only audience at the Unified Wine & Grape Symposium’s signature “State of the Industry” session in late January.

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“A lot of acres are being pulled in the San Joaquin Valley,” said Bitter, who was pinch-hitting for Nat DiBuduo, Allied’s president, who has delivered the annual address for many years but was out with a bad back.

Just since harvest, 22,000 acres of grapes have been pulled from the San Joaquin Valley, 14,000 of that winegrapes. It’s not a replant situation either, as much of that acreage was being replanted with other crops, especially tree nuts such as almonds.

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“During the 2014 calendar year the amount of vineyard removals tripled over that recorded in each of the five previous years,” Bitter said. “It is likely removals will continue at the current pace through spring, and even into next year, as growers plan to plant alternative crops.”

Allied, which is owned by about 600 growers around the state, with most of them located in the San Joaquin Valley, just revised its 2014 California harvest estimate upward to 4 million tons. The reason for the revision was that while the inland areas were down, coastal areas came in with bigger yields than expected.

In total, the state has 562,000 bearing acres in 2015, plus an additional 90,000 nonbearing.

The vineyard removals are due to a number of factors, including pressure from imports and a shipment/supply imbalance partly due to large crops.

“What we really need to get the market back into balance is a short crop,” Bitter said.

Tale Of Two Markets
Growers in coastal regions who produce grapes for premium wines are doing just fine, however. It’s really become a story of two different markets, with the dividing line at about $10 a bottle.

The wines that cost under $10 a bottle, the so-called everyday wines, are really the backbone of the industry. They account for two-thirds of the wine produced in the state, and most of the grapes are grown in the San Joaquin Valley.

With so many players, it’s a highly competitive market, not only within the wine business, but among competing beverage industries, including premium beer from microbreweries and a category that’s really soaring, hard ciders.

The bottom end of this segment has been declining in volume for decades, Bitter said. It is generally characterized by higher volumes and lower margins, with limited differentiation between the players.

“The problem is you can’t make money at the low end, i.e. $3 a bottle, unless you get 20 tons an acre,” Bitter said. “A lot of perfectly good vineyards went unharvested; the market for lower end wines has stagnated, and we’ve even seen the trend on the coast.”

The High Life
The wines that sell for more than $10 a bottle, which account for one-third of the state’s wine business, have been doing much better. They’re becoming more in the mainstream tfor the U.S. wine consumer, and consumer confidence and value are keys to success.

These grapes are grown in the coastal regions, where the swings between summer daytime and nighttime temperatures are far more pronounced, generally producing more intense flavors. For wines that cost $10-$20 a bottle, the grapes sell for about $1,000-$2,000 per ton, with growers in very specific coastal areas such as Napa, Sonoma and Paso Robles generally getting more than $2,000 per ton for the so-called luxury wines of $20 or more.

“The opportunity for market growth is generally at the higher price points,” Bitter said, “where there is more differentiation of product.” ●

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