The mantras to succeed, excel, and prosper continue to spark the $3 billion California wine industry as a world leader in production and sales, amid the challenges of potentially more frequent and severe drought patterns, plus increasing foreign and domestic product competition.
A stabilizing factor for the California industry is that baseline wine grape production appears cemented in the four-million-ton-plus range moving forward, barring a major weather malady, with visions of a 4.5 million ton crop on the horizon.
“Based on current acreage projections, I think California wine grape production could, should, and will be a 4-million-ton market in normal years,” says Nat DiBuduo, president and chief executive officer of Allied Grape Growers (AGG) in Fresno, Calif.
AGG is a 50-plus-year-old California wine grape grower marketing cooperative which represents nearly 600 members.
“With Mother Nature and vineyards responding appropriately, we should hit 4 million tons production statewide from this point forward,” DiBuduo said during the State of the Industry session during the 2016 Unified Wine & Grape Symposium at Sacramento, Calif.
Looking at 2016 production, AGG predicts wine grape tonnage at 4.14 million based on 565,000 acres with an average yield of 7.33 tons per acre, barring a weather setback.
Looking to next year, DiBuduo believes 2017 tonnage could hit the 4.20 million mark on 571,000 bearing acres with average yields at 7.36 tons per acre. He pegs 2018 wine grape production at about 4.25 million tons statewide on 575,000 acres at 7.40 tons per acre
These figures are based on 1 percent coastal and 6 percent interior attrition rates.
And the Grapevine Survey says...
AGG’s predictions are based on findings from its annual Grapevine Nursery Survey on wine grape vine sales, along with data from the State of California and other information.
Speaking to the standing-room-only Unified crowd, DiBuduo pegged the 2015 California wine grape crop at 3.7 million tons, slightly lower than the National Agricultural Statistics Service’s 3.8 million on crop. These figures are smaller than the 2013 crop of 4.25 million tons and 2012’s 4.02 million ton crop.
He says the smaller 2015 crop should help bring supply and demand into balance.
“Hopefully this year’s smaller crop will allow wineries to use the large crops of recent years so we don’t have too much wine in the tanks,” he said. “We need some balance going forward for the growers and the wineries.”
2010 California wine grape acreage
DiBuduo discussed California wine grape acreage over the last five years. From 2010-2015, bearing acreage grew 11 percent to 555,000 acres while grape yields increased an average 5 percent. He credited the yield increase to closer plantings, new rootstocks and clones, and drip irrigation.
Looking at foreign wine competition, DiBuduo said U.S. wine imports increased 15 percent on average over the last five years, with a rolling acreage of 114 million cases of bulk and imported bottled wine. Not helping the situation is the 25 percent increase in the value of the U.S. dollar over the same time frame. In response, consumers worldwide have shifted to lower priced wine from other countries.
Varietals - What’s hot, what’s not?
Results from AGG’s 2015 nursery survey suggest that California growers purchased about 19 million wine grape vines in 2015 - 65 percent red-type varietals and 35 percent white varietals.
In the red category, the top vine sold was Cabernet Sauvingon at 30 percent, followed by Pinot Noir at 15 percent, and Petit Syrah at 6 percent.
In the white category, the top-planted vine was Pinot Grigio at 17 percent, followed by Chardonnay at 13 percent which previously held the top spot.
DiBuduo noted, “Chardonnay has dropped from the No. 1 preferred white grape to Pinot Grigio.”
Combined, the top 2015 planted vine varieties were: Cabernet Sauvignon – 31 percent; Pinot Grigio – 17 percent; Pinot Noir – 15 percent; and Chardonnay at 13 percent. Cabernet has held the top vine slot in California for the last three years.
Price point trends
DiBuduo delved into a categorical review of the different California wine price points and their emerging trends, issues, threats, and opportunities. Wines typically fall into three categories - value, high, and luxury price points, yet DiBuduo added a new ‘mid’ category between the value and high price points to recognize improved grapes and wines from the Lodi-Delta areas.
This categorical addition drew loud applause from Lodi-Delta folks in the crowd.
Here’s DiBuduo’s price point breakdown and his comments on each.
Value category – under $7 per bottle
Interior counties (San Joaquin Valley). Since the 2015 harvest, about 20,000 acres of vineyards have been removed; half of those wine grapes. Pulled vines were mostly Chenin Blanc, Carignane, French Colombard, Ruby Cabernet, plus handpicked Muscat of Alexander grapes, including those vines on 12-foot spacing and under flood irrigation.
DiBuduo said, “If you talk to the bulldozing folks they are booked. You can’t even get your name on the waiting list for vineyard removal.”
He believes vineyard removals in the value category will continue through this spring, based on current shipments and the reduced interest from wineries. DiBuduo noted that many of these vineyards are older and once pulled will be planted to other crops.
“Additional vineyards will be removed until we see a change in the demographics and demand for some value-priced wines,” DiBuduo said.
The grape leader says threats to the value wines include imports and California water policy. He noted, “We passed a water bill in the State of California and we still don’t have water. We have a water policy that’s challenged.”
Opportunities in the value category include DiBuduo’s term “premiumization” where growers and wineries produce higher quality grapes and wine which can fetch $5-$7 per bottle instead of $3 per bottle.
Mid category ($7-$10/bottle)
Lodi and Delta regions. DiBuduo doled out accolades to Lodi region growers, wineries, and the Lodi Winegrape Commission for improvements in grape and wine quality, plus overall industry visibility and recognition.
A key issue for the mid category is the availability and increasing cost of labor.
“I am constantly hearing growers say their production costs compared to the price received for grapes are out of balance.”
Another concern for the region includes a surplus of inexpensive SJV grapes. Opportunities include continued value-priced grapes in the higher price category.
“You are doing a good job - don’t slip - and I congratulate you,” DiBuduo said.
Regional varietal trends include a predicted 15 percent increase in Cabernet production from 2015-2018, plus a 39 percent increase in contracts on Pinot Noir and Pinot Grigio grapes. DiBuduo expects Merlot acreage to continue to decline.
High category ($10-$20 per bottle)
Coastal (standard). DiBuduo says a key issue in the high category is pricing pressure given the shortage of good quality grapes. He believes the top threat to this market is competing beverages and producers, domestic and abroad, vying for the same consumer.
High category market competition includes wines from Washington and Oregon. DiBuduo said Washington wine grape growers have increased acreage by 66 percent since 2005/2006. Winery numbers over the same period jumped 130 percent while wine volume grew 85 percent. The net economic impact escalated 55 percent.
In Oregon, acreage has jumped 19 percent since the recession with a 45 percent increase in winery numbers. Wine volume is up 39 percent. Oregon’s net wine economic impact has grown 28 percent.
DiBuduo said, “I believe Washington and Oregon are healthy competition for California. Let it be known in California that there is good competition out there in the marketplace.”
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The AGG leader expressed concern that some coastal grapes are still handpicked, adding, “The latest mechanization can be a viable alternative.”
On the variety front, AGG predicts a 32 percent increase in coastal Cabernet Sauvignon vine plantings from 2015-2018 with the largest plantings expected this year. The second largest increase should be Chardonnay.
“Pinot Noir (coastal) plantings are up 23 percent and based on recent conversations there is good demand to meet all of the Pinot Noir coming into production,” DiBuduo said.
Luxury category ($20 plus per bottle)
– Napa and Sonoma counties, plus certain areas in Santa Barbara County. The grape leader says differentiation is a continued must in the luxury market from neighboring luxury wines. An important issue is the limited opportunity for growth due to competition and scarce natural resources.
“Branding is a great opportunity by continuing to use the AVA and brand names,” DiBuduo said.
AGG’s luxury varietal trends from 2015-2018 could include an 8 percent acreage growth in luxury Cabernet and Pinot Noir. DiBuduo says acreage devoted to Zinfandel, Sauvignon Blanc, and Chardonnay is expected to remain near current levels.