Demand rises to finance alternatives to water as drought persists

Agriculture lenders are contemplating the effect of California's recent dry spell on the North Bay wine industry, with both near and long-term implications under consideration for vineyards and other agricultural ventures in the region and beyond.

Those lenders cautioned that many factors have yet to play out during the current growing season, and noted that a longer term, multi-year drought in California has still managed to support back-to-back banner grape harvests in 2012 and 2013.

Yet the challenges of what is shaping up to be a drier 2014 are starting to emerge, reflected in a heightened demand to finance the purchase or lease of wind machines as an alternative to water-based frost management and the longer-term desire to finance infrastructure for water storage, those lenders said.

"There have been a lot of people looking to buy and lease wind machines, because they have no water for frost protection," said Terry Lindley, chief marketing officer of Santa Rosa-based American AgCredit. "They are not cheap."

Those drawing on sources like the Russian River for sprinkler-type frost protection, where a light coating of ice protects vines from a deeper freeze, could see their access limited during a drought. That possibility has prompted growers to pursue other avenues for protecting their vines in the winter, along with those relying on reservoirs that recharge through runoff from regular rainfall.

Growers can pay up to $30,000 to buy and $7,500 for a three-month lease of a wind machine, which helps circulate warmer air above a vineyard with the cooler air at ground level as an alternative to sprinklers, Mr. Lindley said. The machines are not suitable for all topographies, but offer the advantage of operating without the need for water.

He pointed to the recent demand as a barometer for drought concerns, and described how early budding can contribute to mounting costs in a warm, dry year.

"A weaker harvest is not just weaker due to yield, but requires more cost to produce," said Adam Beak, head of Bank of the West's premium wine group. "Ultimately, you have more expensive wines."

Yet those costs pale in comparison to the price of constructing a new reservoir, an extensive process of environmental review yet one that more growers are looking to explore as a hedge against drought, Mr. Lindley said.

"There are so many growers out there who rely on these reservoirs," he said, adding that large storage tanks are also in demand.

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