Wednesday, June 6, 2012

Are California grapegrowers getting too cocky?

Last week, a California winemaker told me that he's having a hard time dealing with grapegrowers he's known for years.

The reason is that after two years of weather-related small crops, there's finally an end to the surplus of wine that has driven economic conditions in the California wine industry since the record-setting huge crop of 2005. Wine grapes are in short supply, so growers can finally make demands, especially if they're not under contract, but according to this winemaker, even if they are.

I asked for details and he didn't want to give them because he was terrified of being identified. If grapes are hard to buy now, how much harder would it be for somebody who complains about arrogant growers?

To be fair, grape growers always do most of the work in making fine wine, bear most of the risk, and get little of the credit. There has long been tension between what winemakers and growers want: crop size, harvest date, ripeness, etc. For the past few years, winemakers have held the cards, and growers -- being farmers -- generally didn't complain about them. So please don't see this post as some sort of anti-grower screed: it's not.

I just want to know what it's like out there. Winemakers: are growers getting too cocky this year? Growers: Are winemakers the overly demanding ones? Both sides: Is this year very different from the last seven?

I have turned anonymous comments back on to try to get a feel for the situation. Feel free to use anonymity. Please identify what your role in the industry is, but if you don't give a name, nobody can trace it back to you, and I give you my word as a journalist that I'm not going to try. No insults, please: Just tell us what the grower-winemaker climate is like now. Thanks.

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Anonymous said...

Times have definitely changed and for those who have been in the business for a few years we know it will circle back the other way.
During this time the wineries have the opportunity to raise prices because their competitors will all raise their prices as well. This time doesn't come very often!!
In the short term, year to 2, the wineries will suffer tighter margins because it takes a while for price increase to be accepted. Growers have the opportunity to put some longer term contracts in place and usually keep their expectations for higher prices modest. There are always some who take advantage of the situation as well.
This is generally a good time for the market in general because it moves the overall pricing up in order to catch up with inflation.

Anonymous said...

Prices have certainly spiked, and growers are trying to hang more fruit. One of our anderson Valley growers raised his price by 50% AND he's hanging more fruit than ever. I see my friends signing 3yr evergreens at high prices. If things turn around, they are going to be REALLY mad at thier grower partners.

The real questions are:
1. Has consumption increased (particularly in the premium sectoar which is less effected by central valley replants)enough to justify this.
2. Will higher grape prices force higher wine prices.
3. will the consumer follow the brand or the price?

W. Blake Gray said...

50% higher prices WITH higher yield? Wow.

That does raise the question of how important brand names of vineyards will be when prices increase. They matter a lot in Burgundy; I guess we'll see how much they matter here.

Anonymous said...

The last few vintages have been very difficult for growers, with low yields often making farming, at best, a break-even proposition. And that doesn't include things like property taxes, etc.

Of course, it hasn't been an easy time for wineries either, with margins being cut there as well.

Now, we are seeing some of our growers raising prices, but generally our growers are being very fair about any increases they are taking. We will have to raise some of our prices as well...but will try to do so very cautiously, as it seems the fair way to do things for all concerned.

Adam Lee
Siduri Wines

SUAMW said...

It's been coming for a few years, but we'll see more fruit from lesser AVAs and from the central valley fruit being blended in and possibly other wines' labeling being changed from smaller to larger AVAs. Ex: wines previously labeled "Central Coast" will be changed to "California"

W. Blake Gray said...

Here's one from Corewine on Twitter:

"you can use my name. Too many growers are charging too much for marginal fruit. = over priced wines and not sustainable"

SUAMW said...

Not sure how much vintners can increase prices.
I don't think the time of tight margins is over.
May jobs numbers generally disappointed and the home mortgage loan modification program has been extended for another year.
Those are not markers of an improving economy.

Ed Masciana said...

They all have short memories and it will come back to bite them, as it always does. We've never had 3 short crops in a row, so chances are, 2012 will be huge. If not, there may be something to a possible eutypa issue.

Anonymous said...

The usual feast-famine eager grower scenario is getting way ahead of the actual consumers out there. We had a nice first quarter and then things slowed down a lot. Stock Market a wet blanket? If so, it will probably only drift down for the Summer and early Fall dragging the consumer confidence with it.
This is not the time to get crazy and scream "It's 2007 again! Party! Party!"
Sustainable has to be the watchword for some years to come. That means the business plan as well as the vineyard stuff....

Chris Donatiello said...

Ed, I don't see an unusually large vintage in much of Sonoma. Things seem average to a little above. I do hear the words of Rob McMillan from SVB in his web address "there are kicker canes all throughout the central valley and everyone is trying to get more fruit this year."

Thomson Vineyards said...

A rundown of the current Carneros Wine Grape Grower/Winery Climate:
-Legendary Napa Cab Houses need a white among their portfolio of big reds
-Most who are buying those big reds are "Traditional" consumers
-"Traditional" consumers want Carneros Chardonnay
-Why is it the most prestigious? Because it's a recognized “Traditional” AVA among “Traditional” consumers. It also holds acidity better than any other AVA for the oak "Traditional" winemakers are spiking it with
-Chardonnay, and all white varietals for that matter, is one of the more difficult/costly varieties to farm
-The average prices paid to Carneros Chard growers by wineries for the past 5 years is between $500/T - $2,100/T
-District 4 Average according to Table 8 Grape Crush Report 2011 $2,252/T
- Most Chardonnay vineyards in Carneros are 15 yrs+ old
- $2,252/T is simply not enough to cover annual farming costs AND replant open acreage/replant block by block old vineyards
-I have openly communicated these points to existing and current clients, attempting to open a conversation and meet in the middle. When I offer a price, I expect a counter. If you can’t pay my price, counter with exceptional terms.
-2 out of every 3 clients (current or prospective) have either simply not responded or flat out said "That's too rich for my blood"
-Meanwhile two very important game changers are occurring in the market: 1) Most prospective clients are sourcing fruit from independent growers this year because in the past 5 years of "hard times" they were sourcing from other wineries. They put all their eggs in one basket and now have been left holding the basket - WITH NOTHING IN IT. There is one winery in particular in the Carneros region who was supplying quite a bit of Chardonnay to these other wineries and is now using all of that fruit in their own program and 2) I know the price of Beckstoffer, Hyde, Hudson, Robledo and Ceja's fruit in Carneros. Most figures first hand from either owners or clients. Thomson Vineyards prices are right in the middle of the ultra premium and the value producers.
- I have received 3 phone calls in the past 2 weeks sourcing 100T lots of Carneros Chardonnay. Utilizing common place negotiation strategy I say, "My range is $3k/T - $4k/T, dependent on terms, block and bottle price" And THEN I offer or explain to them I have 35 acres of prime Carneros land to plant. I am fully funded to do it on my own, but I'd like a winery to sign an agreement that 4 to 5 years from now, they'll take that fruit at X price. I am not even asking for a planting contract, I'm asking for a relationship 4 years from now.
-One Chardonnay producer I really like working with and who contacted me about sourcing fruit was also doing a deal with one other Ultra Premium Grower at a higher price than my fruit. I came in $250/T under that price reasoning with myself that the Thomson Vineyard name perhaps was not as recognized at the other Growers. The winery asked the other grower for a discount on the large lot of 100T+. The Grower Growers won't discount, why should I? The fruit was not going into a single vineyard bottling. So I didn't budge, but I certainly was open to a conversation or a counter offer. I’m still waiting and don’t expect one.
-On the flipside. A previous client called in March to source fruit. I told him, "Sure! But prices have gone up." He asked how much and I said "Well, I was thinking $3k/T" His response, "I think your fruit it worth more than that." So we ended at $3,250/T.
-If I had to settle on an average climate I would summarize that there are wineries out there who are being reasonable and there are a number out there who are not. Those who are not seem to be unwilling to even have a conversation.
-Anyone who posts to this forum as anonymous is only contributing the ongoing issues between wineries and growers. Be a man. Sign your name.

Jennifer R Thomson
4th Generation
Thomson Vineyards
Los Carneros AVA

Anonymous said...

Generally speaking, you will find that the wineries that are complaining the most about grower's price increases are the ones that have built or increased labels substantially in the last several years through the bloated bulk wine market. They weren't too worried about grower's comlaints during those years about unsustainable grape prices. And they failed to lock up future supply at the time. Now they have tough choices to make. Such is the life of the Supply and Demand Cycle.

Unknown said...

A lot of growers have taken a bath in the past couple of years with the low yields and poor crops. Add this to the massive amount of bulk wine that was on the market keeping prices down there is definitely some room for grape prices to move up. But not 50%

Anonymous said...

On the issue of substandard fruit the last two years.

I run a winery that produces 99% of the grapes we need for our wines, and thus cannot complain about quality, without pointing the finger at myself.

But, there are quite a few wineries in my area that have been complaining about bad quality the last two years. The thing is, they still bought the grapes. Why would the grower spray more, or pull leaves, etc..., if you are still going to buy?

Anonymous said...

I'm an almost winemaker who gets lots of help from a long list of people, to include the grapegrowers. Really, and not to be mean Mr. Gray, this is a tempest in a teapot. The grapegrowers work hard and they, just like wineries and winemakers, have had a tough time over the past several years (along with the rest of the country). So, while my grapes were slightly more (not that much, maybe 5%), my prices will stay the same and I'm still happy with my grapegrowers. Of course, I am a tiny producer, so 5% is not a lot for me - I realize it can be a huge margin for someone who is a large producer... So, like politics in the country today where nobody gets along or agrees, lets try to not make that the case in Wine Country! This is not a big deal... Having said that, are there growers out there gouging the wineries and winemakers, yes - but they are the same ones who have been gouging for years - they have a product in demand because of the name and can charge as much as they like if they can sell it - so, perhaps not so much gouging as capitalism!

W. Blake Gray said...

Are you calling my blog a teapot? I think there's a British insult in there somewhere ...

Anonymous said...

Teapots, tempests - it's positively Shakespearean... So, perhaps I was comparing your wine writing prose to the Bard... yeah! that's it! At least I didn't say Tea Party... not that I'm implying anything...

Anonymous said...

Thank you for saying this:

grape growers always do most of the work in making fine wine, bear most of the risk, and get little of the credit. There has long been tension between what winemakers and growers want: crop size, harvest date, ripeness, etc. For the past few years, winemakers have held the cards, and growers -- being farmers -- generally didn't complain about them

One can never say it enough as it so true

Anonymous said...

I had signed agreements last year that the grower came back later asking for more money because "their buddy / neighbor" was getting offered more. This happened multiple times in multiple appelations (Paso, Lodi, Cal). Just this year I had a signed agreement for some Napa Valley Chardonnay. I've known this grower for over 25 years. We raised the price from last year and had an agreement that if we liked the quality we would sign a muli-year deal. 2 weeks later i get a call and the grower tells me that someone has come offering more money so we need to re-rwite the agreement. We had increased the price 5% from 2011 and the result was an additional 10% on top of that. I'm just asking that when we shake hands and sign, can that be the final deal? Please? Creates trust issues.

Jim Caudill said...

Cycles aren't new, and anyone who's been around a while knows you need each other over the long haul. We've had growers who have basically said "you stuck with us during the hard times, now we'll stick with you as the worm turns". Relationships matter, and some of the best exist between grower partners and wineries, and I've seen it at every stop along the way in my career.

Anonymous said...

If american growers would ever consider doing per acre contracts it would go a ong way to satisfying both sides. I'm tired of hearing "I've been growing grape here since....". I walked away from 2 vineyards in the last two years because of that.Just because I don't have our silly accent, doesn't mean I don't know what I'm doing.

Thomson Vineyards said...

I'll give any winemaker who wants one a per acre contract. I'd respond directly to you, but you chose "Anonymous" as an identity.

Gray I didn't follow your recent blogs related to the option to post/not post anonymously but you want to know why some Growers wont stand behind handshake deals? Because we never know who we are dealing with. Your head winemaker? Your hired consultant viticulturist? Your GM? So easy for wineries to change/forget/adjust the deal when no one single individual is responsible.

Anonymous said...

Here is the situation--yes, As a grower we could raise prices and be difficult. We can treat this business and the relationships in it as a commodity. BUT we do NOT.

Most growers I know operate on the principal--that this is a partnership. As do most winemakers And that there needs to be flexibility. Meaning--even with a contract--there is always an ongoing dialogue between grower and the winemaker/owner. The issues are not always price--it is as you say on yield and other farming practices. And yes there are disagreements and yes, there are price adjustments based on costs and inflation. Or in the case in 2009, 2010, taking less money for the fruit.

As a partnership--each party has good years and bad years. Remember, 2009 was only a few years ago....and many wineries faced a severe economic hardship and everyone--winemakers and growers had to make adjustments. Many wineries if they had chosen could of taken more advantage of the growers. Which is why now, most growers do not take advantage of the wineries. Why---because as I said above, this is a partnership. and both parties are dependent on their on reputation and integrity. It means more than a contract.

This article was short on info...and is kind of he said/she said. So would like to know from the growers perspective if the winemaker is treating him like a true partner. maybe that is the issue? Yes, I know the winemaker is not talking...

Bottom-line: Most growers and winemakers--in my case Sonoma County--treat each other as partners. We have enough problems externally with taxes, water, regulations, pests, etc. We do not need any "internal" problems.

Glenn Proctor said...

There is no doubt the market has changed dramatically over the past year. And with dynamic change buyers and sellers need to be able to adapt to the new conditions. I think it is very difficult to take shots at growers and wineries at this time. It has been a difficult 8-10 years for many players in the business. For many years we have seen growers and for that matter wineries barely making a profit. The reason there are not new vineyards coming on line is that until recently it did not make sense to plant grapes. I think we all need to be cautious and not point fingers. Our industry needs to work together. Hopefully we can see stability where growers and wineries can both be profitable and consumers enjoy and purchase the product we provide.

W. Blake Gray said...

By the way, a couple of comments here have been trapped in the "spam comments" filter for reasons I can't explain; it's a Google thing. So if your comment doesn't appear immediately (Thomson Vineyards, yours was one), that's probably it. I'm watching these comments today and, assuming your comment is not actually spam, I'll free it when I get the chance.

Accented anonymous vintner: Well there's your per-acre offer! It does pain me to think a state made up of immigrants would look down on someone for an accent. But we're all anonymous here, if it happens, it happens.

Per-acre contracts seem the most sensible to both sides to me; I wasn't aware they were so rare.

John M. Kelly said...

"...growers...have basically said 'you stuck with us during the hard times, now we'll stick with you as the worm turns.' Relationships matter, and some of the best exist between grower partners and wineries..." Truest thing said here yet.

In the years I have been doing this I have encountered hard ass growers looking to hang as much fruit as they can, do as little work as possible, charge "as much as the market will bear," and still turn on the overheads the night before harvest ("oops! must've been an accident!") - and still act like they are doing you a favor.

I have come across hard ass buyers who treat growers with contempt, are doing everything they can to drive the price down - including the just-before-harvest "well, our program goals have changed so we don't need your fruit after all... unless you drop the price by X, they we might be able to squeeze it in - and up to refusing loads at the scale or hopper because "we're full."

Truth told I haven't personally come across that sort of behavior by growers or buyers in the last 15 years. When I was buying fruit, the growers I worked with were deservedly proud of their vineyards, and of their reputations. Now that I sell some of the fruit I grow, I aspire to provide value for $ at a fair price, and to work with people who see the relationship as a partnership.

Ian said...

The reason why you don't see many per-acre contracts is because wineries don't like to take on the ag and yield risk. Fixed per-ton prices hedge a winery's cost of goods. Growers are better able to take on this risk because they control the vineyard.. Now, whether they are fairly compensated for that risk is another matter.. I'd argue they haven't over the last few years up until now.

Also, the yield and price expectations between grower and winery often don't align, which makes it hard to have a per-acre contract. A grower who wants $4,000/ton might say "how about an acreage contract for $16,000" with the assumption of 4 tons/acre. The winery will say, "hmm, was thinking more like $12,000" because they're thinking of 3 T/A... So they just settle on $4,000/ton (this is a bit oversimplified obvs..)

martysfo said...

This is a very interesting discussion. I just work in the sales and marketing end of the business, but this is facinating. Most end consumers are not aware of the work that growers and winemakers do to make sure that their end product is superior.

Anonymous said...

just a random somm, but...

a particularly friendly winemaker gave me the vip tour (when i was even more of a nobody) and concluded with this gem:

"look, the thing is... hm. well, you see that fence? the guy on the other side of it, with only a few minor differences, makes the same wine as i do. this is a business about relationships. i want you to think about me later. and, then... son, i'd like you to go meet my neighbor, and decide who you'd rather do business with."

he had another awesome story: a grower had significantly altered their handshake deal. he waited until the farmer went to town, and harvested the block in the middle of the night. when the wine was finished, he offered the grower a taste, confessed his crime, and their relationship was never stronger.

Anonymous said...

Jam a stick in a hornets nest and no one is happy and all loose. Manage it carefully and few get stung.

Jeff Bitter said...

Growers are no more cocky today than buyers have been for ten years. But to call it cockiness is probably a bit strong, regardless of which side you are talking about. A common misconception out there is that growers, alone, are creating this market. Why is the grower being blamed? Buyers OR Sellers alone don't create a market......Buyers AND Sellers together create a market. It's called supply and demand and the idea that the two constantly work toward equilibrium. To blame only one side of the fence is an admittance of having never taken Econ 1. Market dynamics will always favor one side or the other. In the theory of economics, a market is never truly in balance....there is always push or pull. It just so happens that today it favors sellers. But I would argue for the last ten years it has favored buyers. My assumption is that any buyer or person that calls growers cocky is just not accustom to this environment. Growers have had to plow through a tough, oversupplied market for years. Let them enjoy a year or two without criticism. Afterall "the market" is giving it to them.....they are not creating it on their own. Every buyer has the right to say, "The price is too high."

W. Blake Gray said...

Jeff: You're not speaking to a sympathetic ear when complaining about the use of "cocky" as a pejorative: