California wine grower report alleges 2020 ‘predatory conduct’ in smoke rejections. Winery attorneys say there’s more to the story
A new legal analysis commissioned by two prominent California wine grape grower trade groups pulled back the veil on the chaotic 2020 harvest, including vintners’ rejecting delivery of fruit, asserting that some of those refusals were based on thin or suspect reasoning, and suggesting growers push to have more specific contract language to avoid having their grapes being turned away.
The collision of massive California wildfires before and during harvest last year brought to the forefront a smoke damage problem that has been smoldering for the wine business on the West Coast with greater intensity in the past six years.
In 2020 alone, between 165,000 to 325,000 tons of wine grapes in California were not harvested because of concerns about smoke. Crop insurance claims, covering a portion of contract value for the fruit, totaled $187.9 million, according to industry data cited in a report by Sacramento-based law firm Downey Brand for Allied Grape Growers and California Association of Winegrape Growers.
The 13-page report points to “numerous contracts” the law firm reviewed as well as completing interviews with “several growers.” Downey Brand represents grape farmers, wineries, grape and wine brokers, winery-owned storage cooperatives, and several winery and grower regional trade associations. For the report, the firm spoke with 60–80 growers and reviewed over 30 grape purchase contracts and corresponded with several wineries, according to Dale Stern, partner and co-chair of the its Food and Ag Group.
“It appears to us that the scenarios described in the report were more widespread in 2020 than in any previous vintage,” Stern told the Business Journal in an email.
The firm in the report wrote that it found some winery rejections of grapes were based on inconsistent standards and testing methods, “predatory conduct” in these rejections and refusals to accept deliveries of fruit that was later offered to be purchased or was sold to other buyers that didn’t not significant smoke-related problems.
The tone of the report surprised some attorneys who work on North Coast grape purchase contracts, representing vintners as well as growers.
Carol Kingery Ritter, managing partner of Dickenson Peatman & Fogarty, has spoken about the legal problems highlighted in the report during presentations before local winery and grower trade groups.
“(The report) attempted to paint wineries with a single brush of bad faith,” Ritter said, specifically pointing to the “predatory conduct” report header.
A key point in that section of the report was that the rejections noted came just before harvest, leaving growers little time to find alternative buyers. The rejection is a condition to a crop insurance claim, as the insured must mitigate the loss, if given the opportunity, Ritter noted. On top of this last-minute rejection timing was a long backlog in testing at commercial labs along the West Coast, at the high point of the fires stretching well past harvest, a problem noted in the report.
While the analysis is needed to move the industry toward addressing the problems, Ritter is concerned that the report’s presentation of the problem may hamper efforts for both producers and farmers to address the “spectrum of risk.”
“In the contract, it acknowledges that there is fruit risk the grower is taking on, but that is a little narrow,” Ritter said. “Risk doesn’t end in the vineyard. It goes to the winery too.”
That winery risk is based on having a product to sell, she said. Without salable wine, vintners don’t have a business and collateral to support lines of credit needed to buy the following year’s fruit and barrels as well as support production and marketing costs.
Downey Brand’s grape contract legal analysis does call for the wine industry to collectively balance grower and winery interests to ensure each other’s survival long term. It advocates for “fair and transparent” contracts.
“Risk transfer comes with a cost,” the report said. “For wineries that insist on very high standards for the absence of smoke impact, the cost to obtain grapes should be relatively higher. For wineries that exhibit various tolerances to impacts from smoke exposure, the cost to obtain grapes should be relatively lower. Price and terms discovery during contract negotiations should include considerations regarding smoke exposure risk.”
While treatment methods for wine with unwanted smoke characteristics can be treated to remove much of them, a number of the methods can strip some of the key qualities of high-end wine: color, flavor and mouth feel.