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Demand turnaround on radar for Central Coast wine grape growers

Demand turnaround on radar for Central Coast wine grape growers

The last decade has been a daunting challenge for wine grape growers on the Central Coast.  Growers have struggled not only to get decent prices for their grapes, but often simply to find a home. Wineries began shopping for 2011 grapes last November at the same time some Central Coast growers watched unharvested or unsold grapes raisin on the vine. Go figure. “I know people who need grapes; they just do not know how badly they need them.”

Dana Merrill of Templeton, Calif., and Richard Smith of Soledad, Calif., have almost seven decades of combined experience growing wine grapes on California’s Central Coast.

That more than qualifies them to be the stars of a 'Wine Grape Grower Survivor.'

“I am not sure how I made it this far,” laughs Merrill, who grew up farming many crops on the Central Coast. He produced his first grape crop 30 years ago.

Smith and his family’s companies, Valley Farm Management and Paraiso Vineyards and Winery, have logged 39 years of wine grape growing there.

Together, Smith and Merrill manage and farm almost 10 percent of the 91,000 acres of wine grapes now in the ground in Monterey, San Luis and Santa Barbara counties.

They have survived more ups and downs than a Tommy “Yo-Yo Man” Smothers yo-yo. That’s why those attending the recent VINE Symposium in Paso Robles, Calif., had more than a passing interest in what they had to say.

The last decade overall has been the most challenging for wine grape growers on the Central Coast, particularly the last few years when growers have struggled not only to get decent prices for their grapes, but often simply to find a home.

The sad irony of the situation was evident when Smith told symposium attendees that wineries began shopping for 2011 grapes last November at the same time some Central Coast growers watched unharvested or unsold grapes raisin on the vine. Go figure.

Fortunately, both Smith and Merrill said demand for Central Coast grapes should be stronger this season. If there are weather or production problems this year that reduce the crop, the turnaround could come quickly, added Smith.

“I know people who need grapes; they just do not know how badly they need them,” said Smith, who said he sold grapes the week he spoke; one variety for price and the other for a price to be determined from one of his long-time buyers.

Merrill’s Mesa Vineyard Management Company is involved in all aspects of wine grape growing from developing vineyards to selling wine within its 6,000-acre portfolio.

Grape sales No. 1 priority

He says grape sales — not production practices — should be the No. 1 priority of a Central Coast wine grape grower. Smith echoed that with:

“If you bring your crop to the roadside and expect someone to give you a price like traditional agricultural (commodity) marketing, you are in trouble” in the wine grape business, said Smith, who farms about 3,000 acres.

Both said selling grapes is about giving wineries what they want. However, growers should receive a fair return for that. They have not been in recent years, according to Merrill.

He said prices must improve to sustain grape growers. “You cannot grow grapes here for $500 per ton. It is not sustainable.” He does not expect prices to rebound this season to Chardonnay’s $1,500 per ton levels of the late 1990s. Prices have been languishing between $600 and $1,000 since then. However, there is a shot at $1,000 per ton this year for one of the most widely planted varietals on the coast because demand is seeking supplies.

However, “The good old days are gone,” he lamented.

Without further improvement in prices, acreage will decline. Merrill points out that most of the coastal varietal vineyards are 12 to 15 years old and near replacement age. However, new vineyards are not being planted and older vineyards are not being rehabbed at current wine grape prices. And the longer wineries wait to contract for grapes, the more expensive it will become to develop new vineyards, he added. Merrill echoed a widespread viewpoint that overall California vineyards are not being developed fast enough to meet future wine sales growth projections with more grapes.

There are almost 100,000 acres of vines in Monterey, San Luis Obispo and Santa Barbara counties, more vineyards than are in Washington state.

Wine grape buyers are fewer than the past, about a third as many as were in business two decades ago. Sixty percent of the coastal grapes are purchased by wineries outside the coast. Many are used as varietal blenders, making coastal growers very dependent on the large, statewide branded wineries.

Merrill works with many people who are new to the industry. He tells them the first thing they need to determine is how to get out of the business, during good or bad times.

“You need to think about exit strategy when you get started. A lot of people do not know how to get out of the business, and it has not been easy to get out since the 1990s,” he said.

Merrill, like so many others, says don’t plant without a term winery contract. The spot market is “brutal” and is only for those who have “tremendous amounts of gold stored away.” Besides, lenders, he added, are not loaning money now to plant vineyards on speculation, even with growing demand for wine grapes.

Wine grape quality is often an issue in the grower/winery relationship and that has soured some growers on the business. It becomes less of a dispute when supplies are short like they are now, Merrill noted.

“We were told six or seven years ago grape quality was an issue and were told to reduce our crop by 20 percent to improve quality,” said Smith, who now contends it was a supply problem, not a quality issue behind the crop reduction demands.

“What wineries should have said it that we need to reduce supply. That is much more acceptable to growers than to turn an economic issue into an inappropriate viticultural issue,” Smith said.

Survival and reducing costs

Merrill said growers are surviving by reducing costs, especially labor, by expanding mechanical pruning. “We are trying to squeeze labor out of the cost equation, even though we have a supply of labor available.” It’s all about producing for less cost.

Growers and wineries are often at odds on price and wine quality. Nevertheless, Merrill warned growers, “Hold up your end of bargains; do not burn bridges. This is still a very small industry. It takes five minutes for everyone to know about something you did wrong. Be the kind of business partner you want your partners to be,” he added.

To prevent misunderstandings, Merrill suggests winery/grower agreements be put into writing to get “details straight.” Also, growers should do their homework on wineries that buy their grapes.

Publicly held wineries offer “special challenges,” he warned.

“Companies like Coca-Cola have discovered that selling Coke is a lot better than getting into the wine business,” he noted.

Vertical integration can help weather the economic cycles. Never run out of working capital.

“It is a great business, but not without it challenges. “Street smarts” go a long way in the business, he added.

Merrill and Smith noted that compared to Napa and the more well-known North Coast wine growing areas, the Central Coast is still in its wine reputation infancy. It needs widely recognized “artisan brands” to put it on the wine map.

“The Central Coast has a tremendous advantage over the North Coast because it is more economical for us to produce quality wine grapes. Then why are we struggling?” Smith questions.

“We need to encourage artisan brands … not the 100,000, 500,000 or 1 million case brands. Develop personalities. We have had good success for 30 years, yet we are still an infant in the business. We need bragging rights.”

Wine broker Matt Turrentine said the just-in-time inventory management practices used during recent wine surplus years are going away as bulk wine supplies decline. Just-in-time wine marketing may result in no wine these days.

“Grape prices are firming up; inching up,” he said noting that world bulk supplies are considerably shorter than they were a year ago. This translates into better local grape prices because wineries cannot go offshore to buy cheap bulk wine for bottling here in California.

The dollar exchange rate is also making foreign wine more expensive to bring into the U.S. than it was a few years ago.

Overall, declining domestic and world wine supplies are firming prices. Although the recession is technically over, value wine brand sales continue to be strong. Profitably marketing premium wine grapes continues to be a challenge.

“Last year’s California crop was the second biggest crop in history, but we will need more wine and wine grapes this year,” he said.

TAGS: Outlook
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