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To solve grape glut, California growers told to reduce 5 percent of vineyard acres
Wine Industry

To solve grape glut, California growers told to reduce 5 percent of vineyard acres

From the Napa Valley Wine Insider Digest: Feb. 7, 2020 series
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Autumn scenes in Napa Valley. Experts say California's grape growers must remove 30,000 acres of vineyards state-wide in order to correct an oversupply impacting the wine industry. 

SACRAMENTO — There are more than 590,000 acres of vineyards in California. Experts say more than 30,000 of them must be ripped out to balance an oversupplied market.

The market for California wine can comfortably support around 560,000 growing acres, or about 4 million tons of grapes, according to Allied Grape Growers President Jeff Bitter. Those excess 30,000 acres produce something like 200,000 tons of grapes, Bitter said Wednesday during a presentation at the Unified Wine and Grape Symposium in Sacramento.

That extra tonnage – coupled with an already saturated grape market and a dip in consumer demand – means the industry needs a recalibration, Bitter said. Without it, growers and vintners alike could see unsold product and declining market rates industry-wide.

The most effective way would be to curb oversupply: to have growers shorten their crop. He knows it’s an unpopular suggestion. Average producing acreage has exceeded the 560,000 threshold for some time now, but it’s crucial that it come back down, Bitter added.

“At times like this, people have to lose vines because it becomes an economic necessity,” he said in an interview. “My advice would be to remove them now – don’t go another year thinking someone else will do it, and you’ll be the last man standing.”

In Napa County, which has 46,000 acres of vineyards, growers have often been protected by the region’s ultra-premium reputation. The vineyards responsible for ultra-premium (bottles in the $30-&50 range) and luxury wines ($50-$100) are often under long-term contracts, and therefore “probably less susceptible to the vagaries of supply and demand” than more casually priced wine, Randy Snowden of Snowden Vineyards said in an interview Thursday.

“The fact that there’s a great deal of bulk wine on the market selling in lower priced bottles does have some impact,” Snowden added, referring to a significant dip in bulk wine prices caused by the oversupply. But Napa Valley wine is somewhat removed from that, he said. “(It’s not that) people aren’t going to be buying a $90 bottle of Cabernet because there’s so much wine on the market.”

Snowden Vineyards, located south of St. Helena, makes 2,500 cases from 23 growing acres, Snowden said, putting the winery on the smaller end of the production spectrum.

Larger growers, though, might find themselves more stung by oversupply, and could see the “softening” of the market as a chance to replant older vines, Trefethen Family Vineyards CEO Jon Ruel said in a November interview about the market.

“We’re constantly in a cycle of supply and demand, a cycle of vineyard development production and succession,” Ruel added. “It wouldn’t surprise me if some growers say – my young Cabernet vines are doing really well, and the spot market just got a little soft, so I’ll remove some of my older plantings.”

Advancing replanting schedules and removing vines sooner would serve as “a correction” on the supply side of the market, he said, noting that growers are “constantly replanting” at least a portion of their vineyards.

That constant annual replanting is called vineyard attrition, Bitter said in his presentation, noting the attrition rate alone would not be enough to correct the oversupply.

In keeping with attrition rates, California’s growers are expected to rip out 35,000 acres of vines in 2020, according to Bitter. To properly correct the oversupply, that number would need to rise to around 50,000. That’ll take effort from around the state.

“It’s not a regional thing for any group, or even any kind of varietal. It really is a statewide issue,” he said. “I heard from dozens of people during this harvest, including long-term members in this industry, that this was the worst they’d seen in reference to the market.”

He clicked through photographs showing vines removed with their grapes still attached, the crop unspoken for.

While the luxury wine category did see growth this year – the $100 and over category grew 15 percent in terms of volume shipped to consumers – that particular spike won’t necessarily be a reprieve for the market at large, Turrentine Brokerage President Steve Fredricks said in an interview.

“We saw the escalation of price over time, and we were seeing demand fall off,” Fredricks said, naming Napa Valley specifically. “It’s difficult to (grow). I think it defies the laws of economics to sell more at a higher price.”

He said distributors and retailers had played a part in the oversupply, too, coaxing partner wineries to produce at a level that ultimately wasn’t supported by the market. Wineries took that risk, according to economist and author Mike Veseth, assuming that the market would remain robust and swallow any true oversupply.

“It’s called a moral hazard – where you take a risk and believe that someone else will pay the costs,” he said. The market did “bail out” many producers, he said, but at some point it could no longer support the extra production.

Though Snowden said he has not heard talk of extensive replanting among Napa Valley growers, past replantings have been an opportunity to “jockey for varieties” that have a strong market, he said. The valley’s last replanting saw growers rip out lesser-known varietals, like Riesling, in favor of those more popularized.

It’s perhaps the industry’s own optimism that has left production beached at current levels, Bitter said. Growers often plant three or so years in advance, and simply did not forecast demand slowing as it has.

Bitter added in his presentation that present market conditions make this an especially timely moment for growers to thin their production. Declining demand and a sturdy number of vines expected to be ready for growing for future production mean that growers likely won’t miss the vines they remove this year, he said. Waiting instead for demand to catch up to elevated production levels would be an uncertain pursuit, he said.

“We’ve got to watch supply and demand, and we talked a lot about how to build consumers going forward, but that’s not going to happen overnight,” Bitter said. “We’ve got to remove vineyards. That’s the only way to quickly adjust our imbalance.”

You can reach Sarah Klearman at (707) 256-2213 or sklearman@napanews.com.

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Wine Industry Reporter

Wine industry reporter at the Napa Valley Register.

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