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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.

 

 

 

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