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Wine industry on a rollercoaster ride

Amid post-pandemic recovery, drought will be a ‘focal point of discussion,’ SVB expert said.

Lee Allen, Contributing Writer

March 10, 2022

3 Min Read
2021 showed a 21% growth rate in premium wine sales, the most since 2007, but overall consumption is still trending downward.Tim Hearden

“2020 was the most difficult year since prohibition for premium wine sales, while 2021 showed a 21% growth rate, the most since 2007 — but still trending down.”

All just part of the rollercoaster ride that sector of the beverage industry has been undergoing according to Rob McMillan, founder of the premium wine division of Silicon Valley Bank.

In his 21st State of the Wine Industry Report for 2022, he indicated that younger, more-health-conscious imbibers continue to be a challenge to the industry as those consumers frequently chose other beverages over wine.

Particularly troubling to growers who form the California wine grape industry, was this report highlight: “In the West, the impact of drought will likely become a focal point of discussions and planning.  With increasing climate impacts, compounded by fire, low soil moisture, and record low reservoir levels, there will be even more pressure to manage this increasingly scarce liquid resource.”

So, producers, already feeling a myriad of pressures, will now have an additional load piled on with America’s wine industry experiencing a decline in sales volume.

Although the California Farm Bureau has issued a preliminary 2021 crush statewide of 3.86 million tons, McMillan reported: “When 2021 final totals are calculated, we forecast California will have crushed 3.6 million tons, a second small harvest in a row with Washington and Oregon also reporting smaller-yielding vintages.  One saving grace, harvest quality was reported excellent.

“The current year got underway with supply in the West generally balanced, but low demand levels suggest that vineyard acreage needs to be reduced in California and Washington in order to sustain that balance, particularly if the volume sold continues to dip.”

Depending on the amount of rain and snow that falls in Winter 2021/Spring 2022, “Water could become the most important topic of discussion as only 2 percent of our respondents said they were confident they had abundant water sources.”

A need to compensate

Speaking with Western Farm Press Grape Line, McMillan elaborated his concerns. “It’s one thing in an industry to have a drop in revenue,” he said. “It’s another thing to have a drop in volume if you’re a grower because growers don’t sell revenue, they sell volume in the form of tonnage.  What we have right now is a need to pull out a certain amount of acres to compensate for that decline in volume.”

Lauding both rain and snowfall recorded earlier this winter as “a bit of a reprieve,” he added, “We’re not out of the woods and the general thinking is that drought is something we’ll be dealing with for a while.  That has already caused some vineyard removals and a crop shift to almonds or pistachios.

“In the Central Valley, the Lodi area, they don’t have to stick with grapes, but can change to alternate crops while the North Coast product has been seeing positive growth, so I don’t see any of the smaller growers pulling up stakes at this point.”

McMillian says his message to growers is to, “Start by doing what’s right for your long-term operation.  Are there alternate crops rather than grapes?  Obviously, nobody wants to rip out anything because of the cost and the time to plant and grow new crops, but that’s where we are in some cases when you’re dealing with grapes at the lower price end.

“Each grower knows their specific operation and has to determine the right course of action, moving forward.”

His 66-page report concludes that, “While the wine industry overcame numerous hurdles to achieve a hard-earned solid year of sales in 2022, ongoing climate issues and declining consumer demand may impact business conditions in the years to come.

“Climate issues ranging from a lack of water to wildfires will have a trickle-down effect across the industry and the negative consequences are increasingly evident.”

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