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Winegrape production in California is outpacing demand. With some 20,000 acres of new vineyards becoming productive, another 50,000 acres may need to be pulled to balance the market.

February 21, 2024 - By Caleb Hampton - California winegrape growers may be victims of their own success after harvesting a larger than average crop last fall during a cool growing season that has experts optimistic about the quality of the vintage.

According to the preliminary 2023 winegrape crush report released last week, the crop came in at nearly 3.7 million tons, up from 3.3 million tons in 2022. The crop drew praise from industry professionals while validating fears among growers about an oversupply of winegrapes.

“Despite the obstacles faced, farmers persevered in growing their winegrapes, navigating the complexities of harvesting fruit and delivering to wineries under trying circumstances,” Brian Clements, vice president of Turrentine Brokerage, said in a statement. Most varieties were “delivered at optimal levels of maturity and flavor,” he added.

U.S. wine sales dropped 9% in 2023, marking the third consecutive year of decline after more than a decade of flattening growth. Experts have attributed the trend to demographic shifts, inflation and lifestyle changes related to alcohol consumption.

Slow sales have left California wineries sitting on a large inventory of bulk wine and caused leaders in the sector to sound an alarm about excess vineyard acreage bearing fruit across the state.

“The reality is we’ve got declining demand. We had an average plus-size crop—the first one in four years—and unwanted production that’s out there in the ground,” Jeff Bitter, president of Allied Grape Growers, a grower-owned marketing group, said last month at the annual Unified Wine & Grape Symposium in Sacramento.

Wildfires and heat waves kept supply in check for a few years, but last year’s crop tipped the market further out of balance.

“The combination of higher-than-average yields per acre in 2023 and the increasing concern over slowing consumer sales have resulted in the California wine market moving into an excess market cycle,” Steve Fredricks, president of Turrentine Brokerage, said in a statement.

During the harvest season, weak consumer demand and the large bulk wine inventory made it hard for growers to sell their fruit on the spot market, causing some grapes to go unharvested.

“You can travel to pretty much any part of the state this year and see grapes left behind,” Bitter said.

Because of the unharvested grapes, the crush report, which measures only harvested grapes and is a key metric for the wine and grape sectors, “fails to capture the full story of the 2023 harvest,” Turrentine Brokerage said in a news release.

“The crop would have been considerably larger if not for soft demand and disease pressure that caused some acres to go unharvested,” the company added.

While long-term contracts with wineries provide some stability for growers, weak demand and excess inventory have numerous impacts.

“Growers are going to see increased pressure on price, increased quality standards. All the while, we’ve got to deal with decreased margins from the last few years,” Fredricks said at the symposium.

Bitter was blunt about the solution. “We cannot count on short crops to create market balance,” he told a room full of growers and other industry professionals. “We have to adjust our acreage down.”

With around 20,000 acres of new vineyards beginning to bear fruit in California this year, Bitter estimated 50,000 acres of old vines would need to be removed to balance supply and demand.

“I don’t think we’re going to hit what we need to hit” this year, he said, suggesting it could take about three years to pull out enough vines.

Each of California’s winegrape growing regions, including the Central Valley, Central Coast and Northern California interior, should aim to remove 15,000 acres of vineyards, Bitter said, with growers in the North Coast targeting 5,000 acres for removal. Varieties in oversupply include Central Valley zinfandel and merlot, Northern California merlot, cabernet sauvignon, chardonnay and sauvignon blanc, and Central Coast cabernet sauvignon and pinot noir.

Michael Naito, who grows grapes, almonds and pistachios in Fresno and Madera counties, removed 60 acres of zinfandel vines, about a sixth of his winegrape acreage, after harvest.

“There’s not very many things that look like they’re going to change things in the near term,” he said, referring to the sector’s market challenges. “There’s certain varieties where there’s just no demand.”

In some parts of the state, it is possible that acreage removed from winegrape production will not be farmed at all in the coming years.

Naito said market conditions would likely keep growers in the San Joaquin Valley from replanting winegrapes while water constraints could prevent them from using the acreage to plant tree crops such as almonds or pistachios.

Winegrape growers typically sign a contract with a winery before planting new vines. But with weak demand for winegrapes, “there’s little if any contracts for any varieties available,” Naito said, adding that right now, “once you remove the vineyard, there’s not very many crops that are that promising.”

The region’s depleted aquifers and farmers’ obligation to manage groundwater sustainably could prompt some to fallow their acreage in order to reallocate water supplies.

“There are some vineyards coming out, and that ground will probably be fallow for a long time because they’re taking the water they would have used for that particular parcel and maybe using it on some almonds or other crops they have,” Naito said. “The further south you go in the valley, that’s more likely a decision that’s being made.”

A 2023 study by the Public Policy Institute of California estimated that in a worst-case scenario, nearly 900,000 acres of farmland, or around one-fifth of all the irrigated lands in the San Joaquin Valley, could be fallowed by 2040 due to water cuts required by California’s Sustainable Groundwater Management Act, resulting in the loss of 50,000 jobs.

Naito said he plans to leave his 60 acres open for a year before planting corn or forage crops.

“It’s a sign of the market,” he said of the vineyard removals happening this winter. “There’s soft demand, and everyone is adjusting to that.”

(Caleb Hampton is an assistant editor of Ag Alert. He may be contacted at champton@cfbf.com.)

The California Farm Bureau works to protect family farms and ranches on behalf of nearly 26,000 members statewide and as part of a nationwide network of 5.3 million Farm Bureau members.
Reprinted with permission: California Farm Bureau Federation