California's Wine Lake (December 3, 2002)
Excessive planting of vineyards in the mid- and late-1990s has borne
more fruit than California vintners bargained for. Riding on the crest
of a demand for wine, when the US economy was flourishing and dot-com
millionaires were spending megabucks to secure land in Napa Valley, entrepreneurial
growers went on a planting spree. Vineyard acreage in California exploded
in the 1990s, increasing by 40 per cent in half a decade.
With the downturn in the economy since 9/11, wineries are left with large
inventories of wine and wholesale prices are so low that some growers
cannot afford to harvest their crops. Grapes are being left to wither
on the vine. Two per cent of the total crop of 3.2 million tons are said
to be unpicked. Those who did harvest have to make room in their tanks
for the new wine which means the prices have to drop in order to
move last year's wine quickly.
Analysts are predicting that by this time next year we should see a significant
price reduction in California wines at the middle and lower level. Premium
and icon wines, because they are made in small volumes and have cult followings,
will maintain their market position.
We could see a real shakedown in the California wine industry as vineyard
owners who paid high prices for their land in the boom years can't meet
their financial commitments to the banks.
Growers in California's Central Valley, where most of the low-end wines
come from, are hardest hit. Some 30 to 50 per cent of Central Valley grapes
are sold on the juice-concentrate spot market rather than under contract
to wineries, and some growers have been forced to sell off at $65 a ton.
In the boom years they were getting $300 a ton. Even sought-after Napa
Valley Cabernet Sauvignon has seen a drop in price. Last year the spot
market was offering it at $3,700 a ton. This year it's selling as low
as $1,200 a ton.