Knowing that California’s growers are facing tough decisions on whether to plant wine grapes or to take part in a nut-growing swarm that’s sweeping the state, a titan in the wine industry brought some bullish reassurance to a Fresno meeting of San Joaquin Valley wine growers.
“This year we have already signed 10,000 acres of long term contracts for grapes,” said Joseph Gallo, president and CEO of the E&J Gallo Winery, the world’s largest family owned winery.
Gallo said he expects continued growth in the wine business. E&J Gallo Winery is expanding capacity to handle grapes and Gallo’s message was aimed at “reducing growers’ uncertainties.”
Gallo added that his company, which has imported wines from abroad, has “a plan to avoid importing bulk wine from foreign suppliers,” pointing to what he said was “an astounding number” — the equivalent of 300,000 tons of grapes imported as bulk wine in 2010.
“Those tons should be grown in California,” he said.
A Gallo plant in Livingston will crush 460,000 tons of grapes this year, Gallo said, and a Fresno plant will crush 535,000 tons.
Gallo was the keynote speaker at a wine and grape industry forum presented by the San Joaquin Valley Winegrowers Association.
It was a rare public appearance for 70-year-old Gallo, a son of Ernest Gallo and a nephew of Julio Gallo.
He talked of his early experiences growing up among the vines in Modesto, then turned to the subject of how his family grew their business by concentrating on making “good tasting” wine that would appeal to consumers, while shunning efforts to promote sales with polished television advertisement.
“The idea was to make a product the consumer wanted to drink,” he said.
While emphasizing that “no one can predict the future,” Gallo said the market for U.S. wine could double in the next decade. Among his reasons: More people have grown up in households where wine is served on other than “special occasions”; there’s been a growth in “lifestyle media” that trumpets wine use, including cooking shows, magazines and blogs; wine is served in more sit-down restaurants and is even being tested at outlets that include Sonic and Starbucks; and “we’re growing better grapes and making better wine.”
Gallo cited a growth in U.S. wine sales of 6 percent, pointed to growing numbers of people coming of age daily and talked of the prospect of growing the per capita consumption of wine by those in the United States. It’s now low by comparison with others, registering 9 liters in the U.S., 20 in the United Kingdom, 23 in Australia, 24 in Germany, 42 in Italy and 45 in France.
Citing the rising domestic demand, he pointed out that 84 percent of U.S. wine is sold domestically, compared to 16 percent that is exported.
That’s in sharp contrast to some of the crops vying for farmland in California, notably nut crops. Gallo rattled off some statistics on those: California almonds have grown to a 1.5 billion pound crop today, and 70 percent of the crop is exported; walnuts have grown from 350 million pounds, and 70 percent of that crop is also exported; and pistachios are above 300 million pounds, with 63 percent of production going abroad.
While Gallo talked of the promise of a burgeoning middle class in developing countries and the prospect of added exports, he cautioned that the global picture could change if unrest and instability enters the picture.
He questioned whether such turmoil could imperil what he called “a tree crop bubble,” again emphasizing an inability to predict the future. He had previously referred to other “bubbles” that included challenging economic times: “the Roaring 20s that lasted seven years; the high tech bubble, 10 years; and the housing bubble, 8 years.”
At the conclusion of Gallo’s talk, Nat DiBuduo, president and CEO of Allied Grape Growers, a marketing association representing about 600 members throughout California, brought a chuckle from audience as he said, “We’re looking forward to the expansion and looking forward to more planting contracts and good prices.”
Earlier, DiBuduo had shown his own bullishness on wine grapes, particularly in the Valley where “we’re selling into price points the consumer wants. But we have to maintain quality, we can’t get greedy.”
DiBuduo said inventories for grapes are short, especially for lower priced wines, and “there weren’t enough grapes planted since 2005 to satisfy current demand.” His presentation was posted at www.alliedgrapegrowers.org.
It shows significantly higher prices paid for many varieties of grapes grown in 2011, compared to 2002, and prices higher as well when 2011 is compared to 2010. That held true in District 13 (Fresno/Madera) and District 12 (Manteca/Modesto).
DiBuduo showed a film that was made a few years ago that showed vines being bulldozed out and burned while a singer sang, “You better kiss me cause you’re gonna miss me when I’m gone.”
“We’re not recommending any more pullouts,” DiBuduo said.
This year’s wine grape crush is estimated at 3.25 million tons.
DiBuduo pointed to regions where production was reduced significantly by inclement weather. Rains cut production more than 15 percent on the North Coast and rains and frost dropped production more than 34 percent on the Central Coast.
He said California shipments were still up by 8 percent for 2011, but imports remained high: “4.4 percent on a big number.” He pointed to a chart that showed that the number of “core” wine drinkers doubled in the U.S between 2000 and 2010.
DiBuduo and others at the forum talked of the challenge of reaching millennials, those born between 1980 and 1995. He said they have “no allegiance to domestic versus foreign” wines, and they are “economically challenged.”
Rob McMillan, founder of Silicon Valley Bank’s Wine Division, said millennials have seen a significant decline in their net worth and the nation is seeing “the largest gap ever between young and old” in net worth.
McMillan stressed the importance of social media in reaching younger would-be customers. “You need to dabble in social media,” he said.
Tony Correia, a leading authority on the valuation of vineyards and wineries, talked of “a fragile global market,” given “meltdowns in Greece, Italy and now Spain.”
He said the “cheap is chic” approach to wine-buying lingers, and “there is a tremendous amount of discounting of wines, sales of a $20 bottle of wine that used to be $30.”
While it remains costly to develop vineyards, he said, there continues to be a market for “good dirt with good water.”
“Trophy” vineyards continue to demand high prices, he said.
John Aguirre, president of the California Association of Winegrape Growers, said deficits at the state and federal level “threaten to devour the wealth of future generations.”
He talked of labor legislation that includes Senate Bill 126 that he believes will make it easier for the Agricultural Labor Relations Board to conclude unfair labor practices took place.
“My concern is that people can allege ticky-tacky violations of the process,” Aguirre said.
He also said there are concerns about some efforts under a “reasonable and beneficial use doctrine” to look at encouraging less water intensive crops.
He anticipates some tough going as a 2012 farm bill evolves and cost-cutters in Washington wrestle with what will go to farmers and what will go to the elderly and social services.
The winegrowers association presented lifetime awards to Luther Khachigian of Visalia for his work with nurseries and development of rootstocks and grape varieties and to Paul L. Dismukes, a 63-year veteran of the wine grape industry from Escalon who was a buyer and grower relations manager for Paul Masson Vineyards.