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Thursday, April 12, 2012

The California Grape Shortage

If you follow the wine grape business at all you'll remember the surplus and record crops of the last few years. Even if you don't pay attention to the business side you probably know there are a lot more good wines priced under $15 then there were before the recession.

Now we hear there's a shortage or grapes. What's that about? Somebody trying to control the market pricing? Nope. Wine grapes cycle through times of over- and under-planting. It's not centrally controlled, of course, so everyone seems to jump on the "let's plant" bandwagon at the same time. The first modern California planting boom was in the 1970s, then again in the early 1990s, and most recently in the early 2000s. With the recession fears and tight credit there hasn't been much planting recently.

Current projections are for the shortages to last until about 2020 as it takes that long to get financing, plant, grow, bottle, and get it to market. In the meantime supply-and-demand suggests the prices for grapes will rise.

For growers there are concerns (and local government backlash) with clear-cutting forested areas, hillside plantings, and water shortages that will all affect where they can plant. Currently there is a shortage of grape vines available for planting with the nurseries rushing to catch up. For the wineries many will be trying to lock in longer-term contracts with growers to guarantee their supply of grapes through the coming shortage. They will be paying more for these contracts now than they did three years ago.

What does this mean to the consumer?
 In the short-term it shouldn't mean anything so you probably don't need to go out tomorrow and buy four cases of that $8 red blend you like so much. Or even a case of your favorite $45 Pinot Noir. But it seems we'll see a trend of rising prices. I'd expect to see this in the cheaper wines first as there will probably be less coastal California premium wines available at low prices. Then it will hit the varieties currently hot in the market. Perhaps Grenache, Pinot Gris and maybe even Moscato may see the biggest percentage increases. Pinot Noir prices keep rising--even during the recession.

Wine consumption is growing worldwide with the U.S. leading the way. California wine exports are at record levels.

The first place wine industry folks see the change in the supply-and-demand cycle is with the bulk wine market. This is essentially excess juice that winds up in the less expensive wines you see on the store shelves. At the beginning of the recession there was lots of bulk wine available (this coincided with large crop sizes). The bulk wine market is drying up and prices are rising.

None of this means we'll run out of wine, but it does mean you'll be paying more for many of the wines you like to drink.  Okay, so maybe you should rush out tomorrow and stock up!