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After nearly 10 years of oversupply and low prices, California winegrapes and bulk wines are suddenly in a position of scarcity. Wineries are scurrying to find grapes and secure vineyard assets, while negociant wineries see their wine sources dwindling. How did we come to be in this situation, and what lies ahead for growers, wineries and consumers?
At times we forget that the wine business is fundamentally driven by agriculture. The amount of wine for sale at any given time is determined by how many grape vines are planted and fully productive, and by the relative success of each harvest. Meanwhile, on the demand side, another set of variables is at play: How is the economy doing, what varietals are in fashion and how much does it cost to produce a case of wine?
[caption id="attachment_52350" align="alignright" width="259" caption="Joe Ciatti, Cody Jennings"][/caption]
Historically, supply and demand for winegrapes have seldom been in sync. Since the early 1970s, there have been winegrape shortage cycles generally lasting between six to 10 years. In the 1970s, California saw large varietal grape plantings for the first time in Sonoma, the Central Coast, Monterey, Lodi, and the Central Valley. These plantings were driven in part by tax incentives and a growing interest in wine on the part of baby boomers.
The trend continued through the 1980s with significant plantings of French colombard, Chardonnay and (white) zinfandel in the Central Valley, as well as more moderate quantities throughout the North Coast. At the same time, many growers were tackling the phylloxera plague by replanting older vineyards to resistant rootstock. The result was a decade of vigorous planting which culminated with the harvests of 1989 through 1991 bringing an excess of grapes to the market. The ensuing glut came at a time when many wineries were facing bankruptcy and foreclosure due to an economic recession.
Fortuitously, a rebounding economy and an unexpected report by CBS’s “60 Minutes” on the “French Paradox” sent demand soaring once again. The wine industry swung rapidly back to a supply shortage, which in turn led to large vine plantings from 1992 to 1999 -- the largest plantings of varietal grapes in the history of California.[poll id="8"]
The turn of the century saw the state’s first three million ton winegrape harvest as a flurry of the prior decade’s vineyards came online, and once again the market struggled with an excess of grapes and bulk wine. One year later the industry took another blow as the events of Sept. 11, 2001, caused a steep drop in demand for case goods in the retail market. Over the next decade the industry adapted to a position of sustained excess, and the quantity of bearing vineyard acres remained relatively flat. As a consequence, grape prices were depressed and bulk wine inventory climbed to record highs. Perhaps the most telling barometer of the 2000s grape and bulk wine markets was manifested in the rise of numerous negociant-style wineries, which thrived on plentiful wine stocks and low cost wine supply.
In January 2010, even after large crushes in 2009 and 2010, there were indications that things had started to stabilize, and by the 2011 crush, it became apparent that we had used up the supply of grape and bulk wines in the state. California is now moving from a period of oversupply back to scarcity -- and again, it may be several years before growers can catch up.
The winegrape market has not kept pace with increasing wine consumption in recent years. Since 2001, new vines have been planted at a rate of about 4 percent annually, which is hardly enough to cover the replanting required each year to replace aged vine stock, much less satisfy current growth in consumption. California wines rang up strong sales in 2011 -- nearly 6 percent higher than the year before - and are expected to continue growing at a fast clip. With global consumption expected to rise from 2.5 gallons per capita to an estimated 3.8 gallons in 2025, California will need more grapes and more wine.