California North Coast wine grape growers should recognize shift in winery demand, broker says

While the storm clouds of recession may be looming two to three years out for the overall U.S. economy, the wine business in the North Coast and elsewhere in California should be taking action now as consumer sales slow and the supply of grapes and wine in tanks increases, according to experts at an industry conference in Santa Rosa on Thursday.

Sonoma State University economist Robert Eyler told an audience of nearly 100 at the eighth annual WINExpo conference and trade show that a consensus view is that the threat of recession for the U.S. economy seems to be pushed out to 2022, but he sees the fade into such negative growth starting in 2021.

As to the prospects for the wine industry, he pointed to figures for wine consumption through the past six U.S. recessions, and each showed a slump beforehand.

He wondered whether a sign of volatility in recent months in equity markets will impact wine sales. A question broiling in economics for more than a decade has been whether hits to equity portfolios of high-net-worth households truly hits consumption of luxury goods such as fine wine produced in the North Coast, Eyler said.

And he connected that to recent research by fellow SSU academic Damien Wilson that the wine business has a big conversion problem of millennials and future generations to wine drinkers, something that a prerecession “fade” of primary fine-wine buyers - baby boomers - could also hit the wine business.

“So if your wine clubs are full of people between the ages of 55 and 75, and you're just trying to grind those guys to death in the last few years, be thinking about that transition,” Eyler said.

On the supply side, the 2019 wine grape harvest is estimated to be 520,000 tons in four counties of the North Coast and 4.1 million to 4.15 million statewide, according to Glenn Proctor, partner of bulk-wine and grape brokerage Ciatti Co. Official figures for the 2019 wine grape harvest won't be released for two more months.

For Wine Country, that would be down from the record crush of over 588,000 tons in 2018, with tonnage up by about one-third from 2017 in Napa and Sonoma counties. That created a startling situation where there were few buyers looking for excess fruit during the fall harvest.

“I'm surprised at how fast we hit the wall,” Proctor said. “Some were saying they didn't care what the price was, they weren't buying. I thought some would come in to take advantage of the situation.”

This has led to some growers in California pulling out wine grape vines to convert the land to other crops or letting the land lie fallow. For example, he had some growers in the Lodi region pull out vines to plant almonds.

But in the North Coast, vineyards have been the biggest value crop, so he's suspecting that local growers will look at underperforming vines or varieties and decide to remove vines, then go through the process of filing required erosion-control plans to provide time to gauge the direction of demand for more grapes.

The wine business should be preparing for the what happens long term after any coming economic downturn, Eyler said.

“Will we see some of those questions answered in terms of baby boomers' continuing to consume wine at relatively high price points?” he asked. “Millennials, who are bombarded with now the spirits revolution, the beer revolution, red wine and white wine also bombarding them, where are they going to pick in that mix? And how does student lending, job growth, wanting to buy a home all interfere with relative luxury consumption?”

Another hot topic of the conference was how to deal with “smoke taint” in wine. The problem came to the forefront with massive North Coast wildfires in the past three years. UC Davis wine researcher Anita Oberholster said that science on detecting, predicting the impact and treating affected wine is still evolving,

Australian wine researchers have been exploring smoke taint for over 15 years, and research Down Under and on the West Coast of the U.S. has been focusing on developing baseline data on what level of seven chemical compounds commonly associated with such taint.

“Volatile phenols are natural compounds; they're present in grapes in any case, both bound and free,” Oberholster said. “It's only during smoke taint you can get excessive amounts of them.”

And one active focus of field work is in finding out whether there actually will be taint during a fire.

“Not all smoke is equal,” Oberholster said. “Just because you see smoke doesn't mean you will have impact.”

That's because smoke carries a mixture of carbon and volatile phenols, which can be “free” or “bound” to sugars in the grapes. Some studies have indicated that the amount of those troublesome compounds can dwindle the longer they are in the air.

Researchers and practitioners are finding some success in using multiple treatment methods.

Sometimes, those methods have to be employed repeatedly during fermentation and aging and before bottling, because the chemical compounds associated with the smell and flavor of smoke can reemerge as the wines mature, she said.

“For low-impact wines, you can probably use one treatment,” Oberholster said. “With high-impact wines, you have to try several. We saw vast improvement on wines that did undergo treatment.”

WINExpo organizers said about 3,000 attended the event this year.


This story has been updated with more information from the presentations and a clarification of Anita Oberholster's comment about natural phenols in wine grapes.

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