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Monday, August 26, 2013, 6:30 am

Bruce Phillips: Napa Valley grape sourcing is a ‘significant concern’

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    Bruce PhillipsNAPA — Bruce Phillips is a grapegrower, two-decade veteran of food and consumer-products industries, and a leader in agriculture.

    He will be a panelist at the Business Journal‘s Impact Napa: Wine conference Thursday in Napa.

    Since 2003, Mr. Phillips has been managing partner of Phillips Family Farming, LLC, which grows grapes on 72-acre cabernet sauvignon-focused Vine Hill Ranch in the Mayacamas Mountains and in the southwest reach of the Oakville appellation. The company also produces the VHR wine label, released in 2011.

    For nearly a decade before that, he was director of information technology strategy for Constellation Brands. In the 1990s, he was director of expansion for natural juice company Odwalla. He has served on the boards of Napa Valley Grapegrowers and the California Association of Winegrape Growers.

    He spoke with the Business Journal about the tension between wine industry growth and the rural agriculture heritage of Napa Valley.

    What’s the wine business outlook?

    While there is a long history of winegrape growing at Vine Hill Ranch, extending over 150 years, the Phillips family began cultivating winegrapes in the Napa Valley in 1959. As a third-generation winegrape grower in the Napa Valley, my perspective of the outlook for the business in Napa County is extremely bright:

    • Demand for luxury Napa Valley wines of singular character and quality continues to strengthen.
    • The Napa Valley has never before produced so many wonderful-quality wines.
    • Napa Valley winegrape growers continue to reinvest in their vineyard plantings, replanting postphyloxera plantings — now 25 to 30 years old — when interest rates are historically low and access to credit is very favorable.

    What’s top of mind for Napa Valley wine businesses?

    Given the continued growth in demand for exceptional Napa Valley wines, and the limited amount of quality Napa Valley appellated winegrapes available, sourcing is a significant concern for Napa Valley wine business. 

    Assuming that the available acreage suitable for the production of Napa County premium winegrapes has been developed, the supply of Napa Valley appellated winegrapes has been largely defined. With the continued development of exceptional wines and the resultant growth of demand for Napa Valley wines, the price of quality Napa Valley winegrapes continues to escalate.

    This, in turn, has prompted vintners to dedicate significant resources to the acquisition of estate vineyards to shield themselves from heightening production and winegrape sourcing costs.

    Napa Valley cabernet sauvignon, in particular, has continued to escalate in the past decade. It’s really a supply-demand function. We have a defined amount of planted acreage in Napa County and varying levels of quality. Quality vineyard land in the county has been developed.

    One form of growth is by volume, which is constrained, and others is by appellation, and that gets better pricing and more recognition. The latter is the path forward for Napa Valley, and it gets to the integrity of Napa County wine. That is happening in Napa County with the talk about the Winery Definition Ordinance and the percent-content restrictions from the [Alcohol & Tobacco Tax & Trade Bureau]. These conversations have been going on in this valley for decades. It’s unique that Napa County is so focused on the quality and integrity of those wines and entering in new phase of that conversation. It’s all very healthy.

    I don’t think in my lifetime there has been so much capital and time being put forward in vineyards to bring out the character of these brands. The phylloxera event in the mid-1980s forced the replanting of two-thirds of the acreage in this valley. We’re 25 to 30 years from that point and seeing a lot of replanting.

    We have very low interest rates, and wineries are better-capitalized than before. When you look at the quality of these wines with replanting, it’s remarkable how far we’ve come with wine quality in the last 30 years and where we will go from here.

    There is risk you have as a winemaker that you can ride this rise in sales, and if you will not be diligent to invest in new vineyards, you will have supply that moves into decline. You need to invest in redevelopment or best practices in viticulture. We began a 20-year redevelopment cycle to keep all our winery partners sustained in their blends.

    Propagation of tasting and hospitality centers in urban centers is in total alignment with the Napa County General Plan, which preserves rural areas for production of winegrapes.

    There are a number of great potential winery sites in the valley. It is exciting in Napa Valley that there is capital being brought to bear for making artisanal, exemplary wines. Napa Valley was borne out of making masterful bends and focused on unique sites with special characteristics. That is the future of this valley. If we look at appellations around world, that is what is happening. That is what our family is doing in our small vineyard.

    Phillips Family Farming is largely shielded from these sourcing risks.  The annual production of the VHR Cabernet Sauvignon is extremely small, sourcing from approximately 10 percent of the planted acreage of Vine Hill Ranch, as our primary focus is on winegrape growing in support of our valued vintner partnerships, inclusive of VHR.

    How does one grow a brand amid a desire to limit expansion of vineyards and rural wine production and regulations dictating where “Napa Valley” or appellation grapes can be grown and wine made?

    Since late 1960s with the establishment of the nation’s first Agricultural Preserve, the citizens of Napa County and its wine industry have pursued a vision to produce exceptional wines from the Napa Valley’s unique agricultural resource with the objective of becoming a preeminent winegrape growing appellation.

    In pursuit of this vision over the course of the better part of the past 50 years, winegrape growers and vintners have invested in their vineyard lands and winemaking practices to produce wines of singular character and quality, expressive of the unique characteristics of the Napa Valley.

    Given that federal law requires that wines labeled “Napa Valley” contain a minimum of 75 percent Napa Valley appellated winegrapes, and that there is a limited amount of Napa Valley appellated vineyard available for sourcing, there is an inherent scarcity to Napa Valley appellated winegrapes and their resultant wines.

    That being said, the proposition of brand growth within the market for luxury Napa Valley wines — particularly cabernet sauvignon – remains focused wholly on wine quality, the expression and integration of differentiable characteristics of exceptional vineyard sites and sustainable farming practices employed to bring forward wines of remarkable character and quality.  This continues to be the primary motivation of winegrape growers and vintners across the Napa Valley, and can largely be credited with establishing the Napa Valley as a preeminent winegrape growing region in the United States.

    What are major trends in land-use planning in Napa County? How are they affecting the wine business?:

    In aggregate, since the inception of Napa County’s Agricultural Preserve in the late 1960’s, Napa County has not lost one acre of agricultural land to urban development. 

    The establishment and continued support of the Agricultural Preserve continues to provide vineyard owners with the necessary confidence to invest to the substantial level necessary to bring forward wines of exceptional quality.

    This security continues to be supported by a strong county General Plan, a Board of Supervisors that recognizes the foundational importance of agriculture to the sustainability of Napa County’s increasingly diverse economy and an industry that remains focused on the creation of exceptional wines that express the Napa Valley’s unique viticultural resource.

    The rise of tourism in Napa Valley accentuates how successful we’ve been in bringing notoriety to the region. All that drove attention and spurred a pretty robust tourist economy and support services that come with it.

    This conversation is not new. The county not taken any position except to offer forums for discussion. The county has not deviated from the General Plan. By design we’ve converted what was a traditional ag community to one that is more economically diverse. That conversation can become positional, but I’m confident we can navigtate that and make good decisions.

    What’s your vision for the future of the wine business in Napa County?

    The Napa Valley is recognized globally for the production of wines of the utmost character and quality, embracing sustainable viticultural, land-use and regulatory policies that ensure that the region is capable of producing exceptional wines expressive of the Napa Valley’s unique attributes.

    Anything else?

    The Napa Valley wine industry — winegrape growing and winemaking — and its affiliated industries — hospitality, tourism, etc. — continue to evolve and develop. As stewards of the longstanding vision to establish the Napa Valley as a preeminent winegrowing appellation, we must remain diligent and collaborative in order to ensure our long-term success within this increasingly diverse and interdependent economy.

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