Grape harvest and supply: What will they mean for demand?

Newly picked Napa Valley cabernet sauvignon grapes wait their turn at the crush pad at the Tuscan-style Castello di Amorosa winery near Calistoga on Oct. 2, 2017. (INSTAGRAM / CASTELLO DI AMOROSA)


As California’s 2017 grape harvest begins to come into focus, it appears that the numbers around the state could very likely be down below what we’d expect from a “normal” crop. This makes sense at the end of a growing season that was anything but normal.

Harvest tonnage numbers are mostly anecdotal at this point, with clients providing some actual tonnage figures and extrapolating for regional estimates. After a satisfying wet winter and early heat, estimates looked promising early in the season. The early start and strong bunch counts had growers optimistic about a good-sized harvest.

However, as harvest got underway we started hearing about disappointing results at the weigh-scales, belying the apparent volume.

Then came record-setting temperatures on the North Coast over Labor Day that not only exceeded 110 degrees in some growing areas but also persisted for days, causing a mad scramble to pick what was ready and water what was not. The heat-related dehydration did not help the already lightweight clusters.

Lastly, the wildfires began with a portion of the latest ripening varietals still hanging in the vineyards.

Above all else, the wildfires were a human tragedy with many lives lost, thousands of homes destroyed and a massive disruption for thousands of families now faced with a daunting rebuilding process. Though several wineries were burned and some vineyards directly affected, the human toll of the destruction vastly overshadows any loss to grapes and property.

The fact that the direct damage to vineyards and winery infrastructure was limited is something we can appreciate. With about 90 percent of the North Coast harvest in tanks and barrels by early October, according to the North Bay Business Journal, the impact to the industry could have been far worse.

As bad as things generally looked and felt at the end of the harvest, North Coast 2017 volume seems to have fared well, with some bright spots (like pinot noir) offsetting reported declines (like North Coast chardonnay). This appears in contrast to the Central Valley, which obviously drives the total California harvest number, given the volume. The small California harvest will not help the overall global supply, which is increasingly tight.

In the October 2017 Wine Quarterly from RaboResearch, our analysts point out that 2017’s global production fell markedly. Wine regions in Europe were hit with a major frost in spring, followed by a severe heatwave and drought in summer, which reduced yields. Some parts of Bordeaux saw a 50 percent decline in volume. Overall, the harvest in France likely fell 10 to 20 percent, while the combined total for the world’s three largest producing countries (Spain, Italy and France) is likely to decline 15 percent overall.

Our Wine Quarterly also examines the impact of tighter supply and higher bulk prices, and what that might do to demand. It concludes that global wine consumption will likely fall. While this is an important development in the global context, much of the impact will likely be seen in the extreme value end European consumption and exports, which has little impact on the U.S. market.

Some price increases could eventually be seen in wines from the more premium regions of Europe (like Bordeaux and Rioja), which would be more relevant to the U.S. market. But the degree to which this will happen — and its impact on consumption — is still unclear.

The more pressing issue for North Coast winery consumption will be the impact on direct-to-consumer (DtC) sales because of the recent wildfires. Local tourism declined significantly for weeks due to restricted access and because of the perceived devastation around the region.

Critical for wineries on the North Coast, DtC sales in October and November alone are typically 30 percent of wineries’ total annual DtC revenue. The impact could be felt for the rest of the year, since tasting-room visits are key to enabling wineries to grow their wine club memberships, which generate year-round sales.

Authorities are actively taking measures to try to attract tourists back to the region. Efforts like Visit California’s $2 million advertising campaign designed to help restore positive images of Wine Country will be crucial, as will outreach efforts by local industry groups. We believe local tourism will recover, and that the industry will grow again, thanks to the appeal and strength of the North Coast brand.

However, in a market that has been defined by tight supply leading to higher prices, a new set of demand drivers may change the old math.