Markets look promising for wine and grape sector

Issue Date: February 20, 2008

By Kate Campbell
Assistant Editor

Wine sales continue to grow at a strong pace and are gaining increased traction among American adult consumers--especially young adults in their 20s.

The economic outlook for California's winegrape growers is more upbeat than it has been in years. Experts say the supply imbalance that left some fruit unharvested and grower prices painfully low for many varietals has smoothed out. Some even suggest the balance could dip into a grape shortage.

The good news for those who grow grapes, as well those who sell wine, is that last year overall U.S. wine consumption was up 4 percent. Of the 314 million cases of wine sold in the United States, about 192 million of those cases contained wine from California.

Wine market analyst Jon Fredrikson told a packed audience at the Wine and Grape Symposium in Sacramento that the "wine industry continues to explode" and that it is gaining increased traction among American adult consumers--especially young adults in their 20s--and it's likely that U.S. wine consumption will continue to expand during the next decade.

But, he said this growth in consumption has a downside. Market growth makes the United States an attractive target for other wine-producing countries.

Research compiled by Gomberg, Fredrikson & Associates and presented at the symposium in late January shows wine imports last year were up 10 percent, with imports from Argentina jumping 75 percent. New Zealand showed a gain in U.S. sales of 41 percent, while South Africa had a 20-percent increase.

Looking at the global wine supply in general terms, Glenn Proctor of Ciatti Co. said, "Things are better for California wine producers, although some challenges remain.

"Imports aren't going away soon," he said. "Remember that 48 percent of world wine production comes from France, Italy and Spain. And there are some other things to watch for."

A big crop in 2008 could create problems for California growers, he told those attending the symposium. "Don't get complacent--focus on competing in a global market."

Right now about 10 percent of world wine production comes from the United States, most of it from California, but China is interesting, Proctor said.

"It accounts for about 4 percent of world production, but there are more than 1 million acres of grapes and every report we get says it's growing rapidly," Proctor said. "Today China is a buyer of bulk wine, but tomorrow we may look at China and see a maker of bulk wine."

While supplies are coming into balance with demand and global wine sales are expanding, experts say it's still a mixed situation for winegrape growers.

The just-released 2007 California Winegrape Crush Report issued by the U.S. Department of Agriculture shows a slight increase in crushed grapes to about 3.23 million tons, up 5 percent from the 2006 harvest. Overall winegrape prices fell from an average of $583 in 2006 to $563 in 2007, a decrease of 3 percent.

"The 2007 preliminary crush report held no real surprises for us," said California Association of Winegrape Growers Chairman John Crossland of Templeton. "It did confirm a disappointing average price of $563 per ton for winegrape growers who continue to see prices that are not keeping up with the increased cost of production."

Crossland said the report doesn't show that while the average price for winegrapes between 2000 and 2007 stayed almost flat, production costs increased 20 to 25 percent.

"This year's predicted average crop, coupled with the steady increase in wine sales and depletion of bulk wine inventories is leading to a more active grape market," Crossland said. "It appears that the industry is moving toward balance in supply and demand, but caution is still needed prior to planting speculatively."

The report showed the 2007 crush total for all grapes (wine, table and raisin) was 3.66 million tons, up from 3.49 million tons in 2006. Winegrapes accounted for 3.24 million tons, up from 3.14 million tons in 2006.

Red wine varieties accounted for the largest share of all grapes crushed at 1.868 million tons, down from 1.874 million tons from 2006. The 2007 white wine variety crush totaled 1.37 million tons, up from 1.26 million tons in 2006.

Grapes crushed for grape concentrate in 2007 totaled 465,368 tons, about 13 percent of the 2007 grape crush total, about the same as in 2006.

"Prices are moving up at the base on all varieties and we are seeing good movement in the state's mainline varieties of chardonnay and cabernet," said San Rafael wine and grape broker Joseph Ciatti.

The trend is shifting and 2008 will be a pivotal year for the grape market, said Nat DiBuduo, president of Allied Grape Growers. "The trendline for shipments is moving upward at a time when we project total bearing acreage will remain flat."

He said a crush of 3.38 million tons to 3.47 million tons of grapes crushed for wine will be needed to keep pace with projected shipments during the next few years.

"With vineyard removals, the limited amount of new acres coming into production and an apparent slowdown in new plantings due to increasing costs, as well as a lack of confidence in California's water supply, we're projecting a slight decrease in bearing acreage in the next two years," DiBuduo said.

"I've always encouraged growers not to plant, up until this year," DiBuduo said. "This is the first time in seven years that I've encouraged planting, because indications are that if we don't do some planting in the immediate future, we'll have a winegrape shortage down the road.

"We're going to need a big crop just to catch up, if we don't do something," he said. "But I'm saying let's do it smart and not overplant like in the 1980s and '90s. We need to plant the right varieties in the right regions and we need to do it with a contract.

"All planting, like drinking, should be done in moderation," DiBuduo advised.

He said California's share of U.S. wine sales is declining, "but the pendulum is swinging and I think wineries will want our grapes. And, growers are entitled to a good return on their investment, just as wineries are.

"I think there'll be some money on the table for growers."

(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