More California wineries find buyers far from home

Issue Date: June 4, 2008

By Kate Campbell
Assistant Editor

Linden farmer Dave Pechan loads 560 cases of premium wine into a truck carrying an ocean-going container bound for China. His family's operation, Miramont Estate Vineyards, is one of many small family farms that are shipping California agricultural products throughout the world.

Miramont Estate Vineyards, a small winery and vineyard owned by the Pechan family in Linden, recently cleared a hurdle that older, more established operations might envy. On a quiet Friday morning, a truck carrying an ocean-going container pulled into the little winery's driveway and Dave Pechan personally loaded 560 cases of premium cabernet sauvignon and secured the cargo doors.

Shipment destination? Guangdong Province, People's Republic of China. Pechan said he hopes this international shipment will be the first of many new markets for his wines.

"We're working on some other deals in China, too," Pechan said. "We get an international inquiry about once a week, but this is the first lead that's turned into a real deal."

While the boutique winery receives inquiries from all over the world through the Internet and word of mouth, Pechan said most inquiries come from China, but many potential buyers are seeking unrealistic pricing.

"We're working on a strategy for increasing our export activities," said Pechan, whose family founded Miramont Estate Vineyards in 1997 and produced its first vintage in 2001. "We're getting some help from the U.S. Department of Commerce and I just attended an exporting seminar at the University of the Pacific (UOP).

"One of the things we learned at the UOP seminar is that only 8 percent of the world's population is in the United States. So, 92 percent of your potential customers are outside of this country. Considering our location on the Pacific Rim and combined with the fact that it's difficult to trade across state lines in the United States, it just makes sense to trade internationally."

U.S. wine exports--95 percent of them from California--reached a record-high $951 million in 2007, an 8.6 percent jump from the previous year. Volume shipments last year increased 12 percent to 453 million liters, compared to 2006.

"What we're seeing is that our small family farms are increasingly able to make deals and ship California agricultural products throughout the world," said cattle rancher Kenny Watkins, who is Pechan's neighbor. "Size doesn't matter as much as market knowledge, building solid relationships and developing technical knowledge."

Watkins said export has always been an important aspect of the state's agricultural production, but new technology like the Internet has made it possible for more players to participate in global markets.

"That being said, there are still a lot of hurdles for small agricultural exporters," said Watkins, California Farm Bureau Federation second vice president. "It's all about getting your foot in the door and developing relationships. That's what Dave is doing and it looks like a good start."

Although the United States, with wine sales totaling more than $30 billion a year, is the world's largest retail wine market, competitive barriers and domestic regulatory hurdles are causing an increasing number of California wine producers to look for off-shore sales.

"Long-term international sales trends continue to be positive," said Joseph Rollo, director of the Wine Institute's International Department. "Over the last decade, U.S. and California wine exports increased 77 percent in value and were shipped to 125 countries."

About half of U.S. wine exports are shipped to the European Union, accounting for $474 million in sales, followed by Canada at $234 million. Japan accounts for about $63 million and Switzerland imports $26 million worth of U.S. wine, while Mexico buys another $24 million in U.S. wine.

But, it's the emerging Asian markets that are really taking off. Consider that wine sales to South Korea are up 60 percent to $18 million. China sales jumped 74 percent to $16 million and Singapore is up 50 percent to $9 million.

"It's very encouraging to see China setting a solid, consistent growth pattern year after year," said Eric Pope, regional director for Wine Institute's Emerging Markets.

"Despite the known challenges of the Chinese market, the ongoing opportunity this market represents now must not be overlooked," Pope said. "Indeed, the strong growth of the emerging and newly developed markets throughout greater Asia makes this one of the most attractive regional wine markets worldwide."

Trade analysts say bulk wine sales to Europe have grown faster than bottled sales, due to the growing trend of producers shipping bulk wine abroad for bottling. This trend allows brand owners to efficiently make price points in a very competitive wine market.

Total bulk table-wine exports jumped 22 percent by volume to 169 million liters and grew 25 percent in value to $151 million. Total branded, bottled table-wine exports rose 9.5 percent to 207 million liters and were up 3 percent in value to $635 million.

Volume shipments to the European Union grew a healthy 7 percent in 2007 compared to 2006, Pope said, but sales by value for these same shipments were slightly lower because of the growing shift to lower cost bulk-wine shipments to these markets.

Exports have rebounded by 23 percent in Canada to $234 million and Canada Trade Director Rick Slomka said more favorable exchange rates, new products and higher marketing expenditures have produced sales growth in Canada.

And, while Pechan is enjoying his first international marketing success, he's not forgetting how important the domestic market is for wine sales.

"We need a free trade zone here in the United States for the wine industry because the barriers are horrendous," he said, referring to the maze of rules for direct shipping into various states.

"In reality, I think it's easier to trade internationally," he said. "The state-by-state regulations, left over from Prohibition, make it really difficult. And the lack of distribution companies in the United States also makes things hard."

Fueled by strong gains in premium California wine volume, California wines sales to the United States continued to increase in 2007 to a record-high 457 million gallons (192.1 million nine-liter cases), up 2 percent compared to the previous year. The retail value of these shipments increased 6 percent to $18.9 billion, according to the year-end summary in the Gomberg-Fredrikson Report.

Total California winery shipments to all markets in the United States and abroad increased 3 percent to 554 million gallons (233.2 million nine-liter cases) last year.

"Strong consumer interest, along with growing retailer and restaurant support and more direct-to-consumer sales, is resulting in wider distribution and selection of California wines," said Bobby Koch, president and CEO of Wine Institute. "The new California tourism TV advertising campaign is also raising consumer awareness of the state's diverse wine regions, its talented families and its outstanding wine and food offerings."

Wine industry consultant Jon Fredrikson said the long-term trend for California wine is favorable with the U.S. wine market growing for 14 consecutive years, increasing 66 percent by volume from 1993 to 2007.

"Wine continues to enjoy a positive standing with the press, government and consumers, and many positive news reports on moderate wine consumption and health have also contributed to its positive image," Fredrikson said.

Though the economy is slowing, experts say wine is gaining market traction among American adult consumers, and it's likely wine consumption will continue to expand during the next decade.

While more than 95 percent of wine is delivered through the three-tier producer-wholesaler-retailer system, many wineries have focused more on direct-to-consumer sales since the favorable 2005 U.S. Supreme Court decision. The court's ruling helped open nine states to this trade channel, expanding direct consumer access from 50 percent to 80 percent of the U.S. population.

(Kate Campbell is a reporter for Ag Alert. She may be contacted at kcampbell@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item. Top