North Coast growers, vintners look at strategies to combat shortage

NAPA -- Wine industry economics in California have changed dramatically in the last year -- even since the beginning of this year -- as more wine producers realize the marketplace for grapes and wine in bulk won't be large enough to keep pace with sales of finished wine. And the outlook for adding significant supply of major varietals in the state, particularly in the North Coast, will be challenging for the foreseeable future, according to experts at a major industry seminar last week in Napa.

Glenn Proctor of winegrape and wine brokerage Ciatti Co. and Rick Aldine of grape merchant and negociant Agajanian Vineyards told the audience of about 220 at the 17th annual Vineyard Economics Seminar on May 15 that two historically large winegrape crops constrained in size because of bad weather have sent the prices for red varieties cabernet sauvignon, pinot noir, zinfandel and even merlot, plus wine varieties chardonnay and sauvignon blanc, soaring in the past two years.

"It seems like someone turned the light on in January," said seminar founder David Freed of Silverado WineGrower and Silverado Premium Properties, which own more than 12,000 acres of California coastal vineyards.

Forty-five percent of the 84 respondents to the seminar's annual survey of vintners, growers and professionals in industry finance said they want to plant winegrapes this year, including 100 more acres in Mendocino County, 400 in Napa County, 570 in Sonoma County, 312 somewhere in the North Coast and 10,000 more acres statewide.

The premium wine boom of nearly two decades ago sent grape prices soaring as growers and wineries planted thousands of acres of vines. But today,  planting more vines encounters serious challenges, mainly from a current lack of vine materials at nurseries, followed by the cost of materials then the time and cost of environmental regulation, according to survey respondents.

Regulation is the biggest single impediment to putting grapes in the ground, particularly in the California coastal regions, Mr. Freed said.

In 2009 and 2010, buyers of grapes and wine were selling excesses as they trimmed inventories, but in recent months the market as become the tightest its been in a decade, according to Mr. Proctor. Large-volume buyers are out looking for grape contracts and offering multiyear terms, and brand-builder vintners are becoming grape buyers because of limited bulk wine for sale.

"If demand continues to grow, we don't have the supply to back it up," Mr. Proctor said. The cost escalation is giving California competition from imported finished and bulk wine.

Summarizing Silicon Valley Bank's annual premium wine industry forecast, released last month, report author Rob McMillan told the seminar audience that a number of economic indicators point toward an improving economy and greater consumer spending, particularly on luxury goods.

Mr. McMillan disputed claims that the wine industry faces an immediate shortage of grapes and wine.

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