NORTH BAY -- Lenders to the North Bay wine industry are following demand for capital as it ripples outward from a record-breaking grape harvest in 2012, after a boost in cash flow allowed many vineyards to pay down working capital and other business debt.
[caption id="attachment_69075" align="alignright" width="384"] Bill Rodda, Charles Day, Adam Beak[/caption]
The impact of the North Bay harvest, which the 2012 California Grape Crush Report valued at $1.35 billion, could be several-fold for winery financials, spurring vineyard borrowing some barrel and tank expansion to accommodate an upsurge in volume, lenders said.
"The bottom line is -- there are more grapes in this county," said American AgCredit Vice President Bill Rodda, speaking of Sonoma County but noting a harvest volume up 45 percent in the North Coast. "The cost of fruit is going up. All things being equal, there will be an increase in demand for wine inventory loans."
As the recent harvest makes its way to bottles, wineries again face the question of whether they can accommodate slimmer margins or if distributors and consumers will accept higher prices, he said. While premium wines are more shielded from those fluctuations, wineries may be looking elsewhere for cheaper supply to create budget wines.
"Can they increase their bottle price? Some can, and some can't," Mr. Rodda said. "If you're a $9.99 chardonnay and you need to increase your price 50 cents, that's hard to do."
Consumer spending for bottled wine has continued to rise following the worst of the recession, though not fast enough to accommodate a jump in grape prices amid a shortage that developed over the past two years, said Charles Day, regional manager overseeing Rabobank's North Coast wine country agribusiness region. The price per ton of grapes on the North Coast in 2012 was $2,442, versus $2,235 in 2011, according to the crush report.
The condition continues to strain margins for wineries. As direct buyers are generally more willing to accept price increases, many regional wineries sought capital to expand tasting rooms and club programs in recent years, Mr. Day said.
As the economy continues to improve, retail customers, particularly for buyers of bottled wines over $20, might be more accepting of upticks in price as well, Mr. Day said. It could give wineries more leverage to raise prices and improve their margins in 2013.
"Demand is coming back," he said. "The fact that we've had a good harvest means that there is supply to meet that demand."
Despite the record crop, two years of modest harvests have meant that the regional industry still faces a shortfall in supply. Some wineries have sought a buffer against price fluctuations by purchasing vineyards, driving some capital demand in recent years, lenders said. Growers have also turned more toward vineyard development after a decade when the region saw little in the way of new planting, said Adam Beak, head of Bank of the West's Premium Wine Group in Napa.
"The supply side of the equation has been increasingly important in recent years," he said. "There are a lot of vineyards being planted, and a lot of capital demand to buy vines."
That development has been slowed, however, due to the availability of both land and root stock, Mr. Rodda said.