Valley Growers Miffed at Weak Market

More vineyards likely to be pulled after prices plummet in southern Central Valley

by Andrew Adams
Growers in California Grape Pricing Districts 12, 13 and 14 (seen above, in purple) reported low prices in the spot market for wine grapes this fall.

Fresno, Calif.—Growers in the San Joaquin Valley saw grape prices and winery demand plummet this past harvest, with some growers receiving offers of as little as $200 per ton on the spot market.

The lackluster market for wine grapes is so concerning that Peterangelo Vallis, the executive director of the San Joaquin Valley Winegrowers Association, said he expects “some heavy pullouts” of vines as growers opt to plant more lucrative crops. “It could have long-term effects on the economic viability of grapes in our region,” Vallis said of the market.

What has the growers even more concerned is that they’ve heard little to nothing from wineries about why they had such little demand for valley grapes this harvest. Vallis said contracts could also be extended to cover the life of vineyards and should have provisions covering inflation. “It’s been an uneasy, rocky marriage. The two groups need each other but we haven’t had the right partnership, and that needs to change in a hurry,” he said.

The sprawling San Joaquin Valley is the southern half of California’s huge Central Valley. It encompasses California Grape Pricing Districts 12, 13 and 14, which accounted for more than 2 million tons of wine grapes in 2013—or about half the state’s total crop.

Other options more lucrative
Vallis farms and consults on couple hundred acres of vines and said if he hadn’t had his crop reduced by the drought, he’d have been stuck with fruit that nobody wanted or wouldn’t have fetched a worthwhile price.

With almonds, pistachios and walnuts doing well, Vallis said it’s becoming harder for growers to stick with wine grapes—especially as the nut industry continues to invest in marketing and research to support farmers. If a farmer has access to water, Vallis said it makes sense to think about pulling vines and planting something with more earning potential. “Some say it’s a bubble, but it’s defying all logic by bubbles,” he said of nuts.

The San Joaquin Valley Winegrowers will hold its annual meeting tonight and its grape and wine industry forum Friday. That forum includes the panel discussion “The 2014 Crush: What happened to the market?,” which will feature Jeff Bitter with the Allied Grape Growers, Greg MaGill with the Ciatti Co. and Matt Towers with O’Neill Vintners & Distillers.

Vallis said he’s eager to hear the discussion at Friday’s meeting, which expects to generate some good dialogue that’s a “little more uncensored” than the state of the industry forum at the upcoming Unified Wine & Grape Symposium in Sacramento, Calif. He said several of the state’s major wineries are sending executives, and he hopes he and other growers get some answers on what is affecting the market. “That’s the thing; we’re not getting a lot of feedback,” he said.

Steve Fredricks, president of Turrentine Brokerage, told Wines & Vines in early October that the reduced demand stemmed from the 2012 and 2013 record crops that filled winery tanks and changes in consumer preference for varietal wines rather than cheaper generic wines.

Vallis wasn’t sure whether that change in consumer tastes is what’s causing trouble for growers. He said American consumers are drinking more wine at higher price points, and that should increase the overall demand for all wines. “There’s something missing,” he said.

Have imports and strong supply crimped the market?
John Duarte, president of Duarte Vineyards, argued there is a weak market for grapes right now.

Since the United States was named the No. 1 market for wine, every other wine-producing nation has tried to get in on the action. Duarte added that California wineries are at full capacity after the large harvests of 2012 and 2013.

Duarte is participating in the panel discussion at the growers’ forum about “duty drawbacks,” which are being blamed for the diminished demand. The drawbacks are a tax tool designed to stimulate international trade by removing tariffs on imports and exports of similar goods. Put simply, the law allows a U.S. automaker to avoid paying taxes on parts imported from China if that manufacturer then exports assembled cars to Europe.

Starting in the early 2000s, U.S. wineries got permission to apply drawbacks on imported wines. This allowed them to avoid paying excise taxes if the imports were within 50% of the exported wine’s value and of the same color. Wine drawbacks were added to the U.S. Farm Bill in 2008, and that quickly helped drive up the level of bulk wine being imported to the U.S.

From 2003 through 2009-10, Duarte said drawbacks gave foreign wine an estimated advantage over U.S. growers of $180 per ton. “It really hurt California growers, especially those in the South Valley,” he said.

The issue came to the forefront in 2010, but by then it was too late, Duarte said. “The horse was out of the barn, through the pastures and into the woods,” he said. “The growers had been hurt, and the structural balance favored bulk imports.”

Since then, however, Duarte said the situation has come back around, and in 2013 drawbacks may have helped growers by incentivizing wineries to export more wine. “Growers have a hard time thinking they’ve been helped by anything right now,” he said.

Duarte also said growers would benefit from long-term contracts that cover the life of the vineyard and are structured to account for inflation. “It’s really important that growers not go off-contract while vineyards are still productive, because that’s where we see the pain,” he said.

(Editor's Note: This story was updated Nov. 21 to correct that Vallis does not lease property but farms and consults on acreage in the San Joaquin Valley.)

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