A 70 percent reduction in bulk wine inventories in just two years has taken the California wine industry from drowning in a sea of surplus wine to almost swimming in the sunshine of a new, prosperous era once again.
"Almost" because there remains excessive inventories in coastal bulk wines; unrelenting competition primarily from New World imports and contentious new issues between wine grape growers and wineries that makes today’s bottom lines seem a little less secure than you would expect with such a dramatic reduction in supplies.
Although experts at the Unified Wine and Grape Symposium in Sacramento, Calif., recently said the state’s wine industry is definitely on the rebound, that fact was not lost in the reality that it has come on the backs of growers who pushed out 100,000 acres of vineyards in California’s Central Valley over the past four years. A considerable part of that acreage was replaced with crops more economically attractive and less risky than grapes.
California and U.S. wine sales have increased over the past two years, but they have not increased enough for sales to drive down the California bulk wine inventory from 27.5 million gallons in January 2003 to 8.5 million gallons at the time of this year’s Unified symposium in mid January.
The glut has disappeared because there are fewer grapes on the market and fewer grape growers.
It has been such a draconian turnaround that at least one expert, Glenn Proctor of wine broker Joseph Ciatti and Co., said 100,000 acres was too much of a loss. Not all those pushed and burned vineyards were poor producing, undesirable varieties. Proctor and Nat DiBuduo, president Allied Grape Growers, said some of those vines are being replaced by new, more productive vineyards, but a lot of those acres have gone to almonds and pistachios in the central San Joaquin Valley. The nut crops offer considerably more long-term financial stability because of rapidly growing, promotion driven markets. And tree nut producers do not have to contend with wineries who continually toss curves at growers.
Increased hang-time demands by wineries under the pretense of improving quality and a move to reduce the percentage of vintage dated wine in bottles are the two latest issues straining relations between growers and vintners. Many growers believe those moves are attempts to reduce the wineries’ cost of grapes.
Although the wine industry turnaround has been dramatic and welcome, no one is predicting the boom days of the late 1990s are back. More pointedly, noted wine market analyst Jon Fredrikson does not expect to see those times ever again. There is too much global competition today for the late 90s era to repeat itself.
DiBuduo predicted that when the 2004 crush is tallied, it will total 3.5 million tons, slightly less than 2003. However, it will be enough less to make it the smallest crush in five years. Of that, the president of the largest grape grower marketing cooperative in California said 2.7 million tons were wine grapes.
The loss of 100,000 acres in the interior valley is reflected in the fact that now only 53 percent of the total grape acreage is in the state’s interior valleys. The rest is in coastal areas. Valley acreage was 10 percent more than that in 2000.
Unfortunately for coastal wine grape growers, they do not have alternative crops to replace wine grapes, and the only way they can recover economically is with increased wine sales.
Interior areas have bottomed out from the deepest economic trough the industry has seen and are recovering. Even shortages of some varieties are attracting new contracts and new acreages. However, coastal areas are still feeling the effects of overplanting. DiBuduo said coastal areas should recover soon.
That gulf between the coast and interior areas is reflected in the bulk wine supplies. DiBuduo called it the "grape divide." Proctor said two-thirds of the bulk wine on the market today is coastal wine while one-third is valley bulk. It was just the opposite two years ago.
"What that means is that coastal bulk wine is selling at valley prices," said Proctor.
Proctor said non-bearing vineyard acreage is "no longer an issue" because planting has stopped. He said there will be no significant new wine grape supplies for the next three years. "Supplies will be tight," he predicted.
"Supply is no longer a dirty word. Wine grape buyers have become buyers again," he explained.
"There is a great interest in purchasing grapes again," added DiBuduo.
However, DiBuduo was quick to warn that speculative planting of grapes without contract will eventually lead to another glut era.
The added hang-time issue and changing vintage dating from 95 to 85 percent are attempts, according to the wineries, to improve quality.
"I am not here to tell wineries how to make wine. However, I know how to grow quality grape during the season, but compensate me for efforts and reduced weight," DiBuduo said.
Vintage dating has been opposed by California Association of Winegrape Growers. CAWG contends this will lower the quality of California wine and could cost growers millions in deferred purchases/payments for grapes and the costs of producing bulk wine.
California wineries want to change the percentage to match the rest of the world. They contend it will allow them to blend more wine to improve quality and release wines earlier.
Growers suspect wineries will use the vintage dating change to buy more grapes when they are cheap and store that wine to reduce the amount of grapes they would be forced to buy when prices are higher.
"I am not sure the consumer knows the difference between 85 and 95 percent vintage dating," said DiBuduo, who supports efforts to make better wines and release some wines earlier. "But, don’t do it on my back using reduced vintage dating percentages as inventory and market control."