How fires, pandemic, regulations are impacting California, Oregon wine grape farming

Raised on a Central Valley walnut orchard, Atlas Vineyard Management co-founder and CEO Barry Bellli earned undergraduate and graduate business administration degrees while racking up accolades as a football placekicker.

After graduation from Fresno State University, he worked in operations and financial analysis for the Taco Bell and Frito-Lay brands under PepsiCo. Then he entered the wine business with financial planning, analysis and oversight roles at Domaine Chandon, Newton Winery and Moet Wine Estates. While at major wine grape grower Premier Pacific Vineyards, he was director of financial operations, and he met Atlas co-founder Mike Cybulski.

They started Atlas in 2012 then three years later launched Atlas Wine Co., producing their own brands.

Today, Atlas manages over 3,900 vineyard acres in California and Oregon, 400 of which are in development. Two-thirds of those vineyard acres are in Sonoma County, and the rest are split between Napa County, Central Coast and Oregon’s Willamette Valley. The company employs about 215 full-time workers with benefits, and crews swell to 600 workers in the months leading up to harvest.

In the following interview, Belli talks with the Business Journal about the pressures of finding enough workers, managing escalating labor costs and navigating the rapidly changing grape markets upended by the pandemic and West Coast wildfires.

What is a key challenge for Atlas right now?

Labor is super tight out there for everybody. And the whole economy is wondering where they're getting labor from right now. A lot of people are still staying at home and working off the COVID relief packages.

And we feel that effect in the vineyard too. Generally, we don't use a lot of farm contract labor. And this year, we're still not (using much) either, but we're using more than we have in the past.

We thought we had a bead on it last year. We balanced it — in the last two years and this year also — with H-2A (temporary agricultural worker visas) and with mechanization. This year, it seems like it's come back hard post-COVID. It feels like it's affecting all the industries. Everybody's got a help-wanted sign in the window.

You’ve mentioned relying more on farm labor contractors, H-2A visa holders, more mechanized work. Are there any other incentives you’re offering to recruit the workers themselves?

We used to have one (hourly pay) rate for the North Coast. And just this year, we've switched that to a Napa rate and a Sonoma rate. Our Napa rate is about $2 (an hour) higher than Sonoma, because it was much more difficult to retain the Napa crews’ rates. We were a little on the high side of Sonoma and the low side of Napa, and now we're kind of on the high side of both of them. So it's just it's basic, basic rates.

And when you when you think about what the government in California has done over the last couple of years, taking the 60-hour workweek for the ag (worker) and cut it down to 40 hours next year. Anything above that is overtime. We've been working down that stair step (phase-in of fewer hours) over the last four years or so.

This year, we're trying to keep everybody from working overtime, but this time of year it's impossible to have no overtime. The vineyard guys, they want the 60 hours. They're not agreeing with what the government says.

They want the hours. Basically, we're taking money away from them as we cut their hours. I think a lot of guys are going, “Hey, this doesn’t make sense. I’m working 45 hours a week, and I’m making a lot less than I made last year and the year before, and I’m going to search around and try to increase my wages somewhere to offset that.”

Wages are going up. At some point, you’re going to have to face the market. There's not a whole lot of room to move on the vineyard management margins, so the bottle price is going to have to change. The winery margins are gonna have to change.

I remember when we first started in 2012 we were paying $10 an hour, and now we’re up to $19.50 in Napa. That pace is not sustainable. We’re talking about inflation in all the things happening in the economy. We’re feeling that; it’s real.

What other benefits are you offering to recruit workers? How are these impacted by new labor laws such as extended family leave and COVID-19 regulations?

Every year, we reevaluate our benefits, and we say, “How do we stay somewhat relatively flat in our costs on a per-employee basis?” We try to cover the employee at 100%, but we've had to adjust our plans, but we give them options, so an employee can buy up.

Benefits for employees costs $6,500-$7,000 a person a year. That can ramp up pretty quick when you get up to 200-plus employees.

We've looked at the number of holidays we have and comparing that other companies. We've come back in line with some of the other increased costs. You still get, I think, nine holidays, which is still probably three or so better than most (firms).

One holiday day costs our bottom line roughly $45,000. It's real money.

When you think about the margins and the costs going up, the winemakers are going to have to come to the realization that machine leafing is OK. And mechanization under the vine row for suckering and all these different new types of machines that are coming out right now — even harvesting. The high-end winemakers, they're resistant to a lot of those things, which we totally understand. But at some point, the farming costs, with the labor going up, something's gonna have to be adjusted. I think we're really close to that point right now.

People in Oregon are totally (into) machine harvest, machine leaves (removal). And Oregon hasn't been affected as much as California.

What has marked the difference between the California and Oregon?

The 2018 and 2019 bulk (wine) market was huge down here. And then came the fires and COVID, then (vintners) were getting out of their fruit contracts at the last minute last year. It was a tough market for grape pricing.

Oregon had fires, but the grape pricing wasn't affected as much (as in California). It's been much easier to sell fruit up there than down here.

But we do feel everything snapping back fairly quickly. The prices on (cabernet sauvignon) in Napa have come back fairly quickly. Sonoma chardonnay is hot also. Sonoma cab, people are interested in that.

The one that's probably still hurt the most is the Sonoma pinot (noir). Prices for high-end pinot were $6,500-$7,000 a ton; we're seeing those probably around $4,500-$5,500 right now a ton.

You're seeing a transition a little bit with the pinot market. You had the “Kosta Browne effect.” (Sebastopol-based Kosta Browne sold to Duckhorn Wine Co. in 2018 after significant stakes were purchased twice before by private-equity firms, one time at a rumored price of $40 million.) Then you had a lot of people jumping in and doing these small high-end brands, and all that stuff hit (the market) in the last three years. There's a lot of these small guys who aren't able to withstand some of this (transition), so they're falling out. You're seeing the number of (producers) shrink, but I think the volume is gonna still be there. There's gonna be other guys picking it up.

We do a lot of pinot work in Sonoma County, so we feel that a lot in selling fruit for our clients.

How has “smoke taint” affected your organization? And what are you doing about it operationally?

In Oregon, the air quality up there was super bad, but a lot of larger guys came in and swooped up the fruit at lower prices. It's actually made this year easier to sell the fruit.

But it was a more of a mixed bag down here, where you had a lot of the growers trying to do the math on the crop insurance, to see what that (payment) would look like versus if I sell it at this price. Where am I best economically?

Some harvested. As a service company, where we get paid to harvest, that affects our bottom line when they don't harvest, so it's to our benefit to try to find them the best price on the fruit to make sure we get to harvest it to get to the finish line.

So a lot of crop insurance, a lot of last-minute fruit selling deals. We ended up selling most of the fruit that we had. I would say maybe 400-500 acres we did not harvest at all, out of the total 3,400 harvestable acres, and the rest in development.

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Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.