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Californian wine struggling with supply
There is a “growing mismatch” between supply and demand that is badly hampering the Californian wine industry, new analysis has claimed.
The Napa Valley is suffering from increased grape prices brought on by land shortages (Photo: Wiki)
Bumper harvests and vineyard expansion across the state over the last three years has created a situation where those bulk producing areas that least require overstocked inventories are struggling to shift produce.
Similarly, because of changing consumer trends towards premium wines, the more esteemed regions that could do with more production aren’t expanding quick enough.
This worrying imbalance across the Californian wine industry will lead to an estimated 100,000 non-bearing acres of wine grapes coming into production over the next three years, as excess vineyards can’t be stripped back fast enough, despite producers’ best efforts.
However, in regions like Napa and Sonoma, political pressure against much-needed vineyard growth to keep up with rising demand is pushing up grape prices to worrying levels.
Entry-level excess
The findings were made in a Rabobank report on the state of the Californian industry, titled Too Much of a Good Thing.
It refers to figures from Allied Grape Growers (AGG) estimating that 20,000 acres of wine grapes have been removed from the more bulk-producing San Joaquin Valley since the 2014 harvest. “We expect the process of removals in that region to continue over the next three years,” the report says.
Citing a millennial shift to buying wine from premium, small-batch producers and a more competitive environment brought on by a strong dollar and new international trade agreements, there is an “excess grape supply capacity in some regions [such as the San Joaquin Valley] and continued tight supply in others”.
“The current context has created a challenging environment for many brand owners with brands in the lowest price segments, and also for growers in the San Joaquin Valley with uncontracted fruit.
“Brokers report extremely high levels of inventories available for sale, with very few interested buyers,” the report revealed.
Looking forward, the situation is expected to remain challenging. In addition to the 5.6 million cases of consumption already lost in the under-$10 category, Rabobank projects an additional decline in annual consumption of 3.9 million cases in this price segment by 2017.
High-end shortage
Conversely, the demand for wine from more high-end producers in regions where wines typically sell for $25 and over, demand is outstripping supply and driving up grape prices to unmanageable levels.
In the North County, home to the famous Napa and Sonoma Valley appellations, there is already a limited amount of suitable land remaining for new vineyards in the region. Getting governmental approval for new land is “becoming next to impossible”, according to the report, because of local concerns about traffic noise from winery visitors.
Pricing for Napa Valley Cabernet Sauvignon grapes rose over 30% from 2010 to 2014, Rabobank says, and land values continue to reach new highs, as recent vineyard deals are rumoured at up to $500,000 per acre. Similar trends are also being seen for land in prime Sonoma AVAs.