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20 Wines&Vines January 2015 wine industry news F resno, Calif.—The weak wine grape mar- ket that has growers in the San Joaquin Valley concerned was the result of mul- tiple factors that converged this vintage. The San Joaquin Valley is the southern half of California's huge Central Valley and ac- counts for nearly half of the state's total wine grape production. At a forum hosted by the San Joaquin Valley Winegrowers Association on Nov. 21, growers heard from several ex- perts about the market forces affecting de- mand for grapes from the Central Valley, which produces nearly half of California's wine grapes. The group's executive director, Peter Vallis, told Wines & Vines for a Nov. 20 report that growers in the southern part of the valley were very interested to hear why prices were low this year, especially for grapes on the spot market. Better returns on nuts and the appar- ent reduced demand for wine grapes prompted Vallis to assert the "economic viability" of wine grapes could be in doubt. The large harvests of 2012 and 2013 have swung the industry back toward an oversup- ply position, and while bulk wine and grape imports this year are not expected to be as plentiful as in previous years, they continue to provide a low-cost alter- native to grapes from Cali- f o r n i a ' s C e n t r a l Va l l e y. Growers have always been at t h e w h i m o f c o n s u m e r trends, which change more quickly than vineyards can be brought into production, and Vallis said more could be done to align with trends in the marketplace. "We just need to make sure we're planting things that have de- mand from the consumer," he said. According to information presented by Ben Slaughter of appraisal firm Correia- Xavier, it may not make sense to keep a vineyard if the net return of 1 acre of vines pro- ducing 15 tons at $350 is $2,550, and the return on an acre of almonds producing 2 , 5 0 0 p o u n d s a t $ 3 p e r pound is $4,500. During the 2014 harvest, some growers forced on the spot market saw prices drop to $200 per ton, while almond growers enjoyed prices per pound approach- ing $4.50. Tree nuts could be a lucrative alternative if Central Valley growers can't find a long- term contract for wine grapes—a situation that's good for them but could be problematic for the supply of domestic wine grapes. Ac- cording to the U.S. Department of Agricul- ture, California's bearing acreage of almond orchards rose from 550,000 in 2002 to more than 850,000 in 2012, and almond produc- tion has doubled to 2 million pounds in that same period as well. Rather than ripping out entire vineyards to make way for nuts, maintaining some grapevines could help growers stay diversified in case almonds and other nuts experience a dramatic price drop or supply outpaces de- mand. Domestic wine consumption remains strong and is growing, but growers can't hang onto a vineyard that's showing declining yields or quality. Jeff Bitter with Allied Grape Growers re- ported the group estimates 15,000 to 25,000 acres of wine grape vineyards will get pulled this winter. In 2012 and 2013, Allied estimates that growers in the San Joaquin Valley planted 35,000 acres of vineyards for wines priced less than $7 per bottle. Those vineyards will start producing in 2015 and 2016. In 2014, growers planted less than 5,000 acres of new vineyards for low-priced wine. Joining Bitter on the panel discussion was Matt Towers of O'Neill Vintners and Distillers, who said based on shipments of California wine during the past five years, the state is in a "structurally long" position of 25.6 million cases (or about 356,000 tons). Towers esti- mated that imports for 2014 would reach nearly 32 million cases, or slightly less than 460,00 tons. This imported wine is typically used for bottles that sell for less than $7, and at that price the consumer doesn't care where the grapes are grown, he said. The flood of cheap imported wine, both bottled and bulk, does not appear to be slow- ing. "The big thing is, and the challenge for the California industry, is imports keep grow- ing, and they're growing at all price points," Vallis said. He added that California mustn't cede the lowest tier of the market to imports because that loss of market share would trig- ger repercussions throughout the industry. "If we give up the lower end of the product to imported wine, that's going to have a direct effect on the rest of the industry throughout the state," he said. "We need to do a good job of shoring up and buying American wine." He said it wasn't that long ago that U.S. consumers typically started drinking cheap California wine, then graduated to buying higher priced wines from Europe—that is until Napa and Sonoma win- eries started delivering wines of comparable quality. Vallis said it's now conceivable that a young consumer could start appreciating low-cost Argentinean or Spanish wine, and instead of moving up the retail shelf to buy a wine from Napa Valley, they purchase a $60 to $70 Malbec or Rioja. "That's something that's not out of the realm of possibility, and that scares me," he said. —Andrew Adams tOP stORY Tough Market for San Joaquin Grapes; Almonds an Attractive Option Growers in the San Joaquin Valley of Central California reported low prices for non-contract grapes during harvest 2014. " If we give up the lower end of the product to imported wine, that's going to have a direct effect on the rest of the industry throughout the state." —Peter Vallis, San Joaquin Valley Winegrowers