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September 30, 2024 - By Caleb Hampton - Steve Perrin and his family have grown winegrapes on the land around their Lodi farmhouse for four generations. Behind the house stand a towering oak, a workshop and 150 acres of grapevines, mostly zinfandel, some planted half a century ago.
For weeks, grape clusters have hung plump on the vines as the farmer’s machine harvesters gathered dust in his yard. For the first time, his entire crop may rot in the vineyard.
“I’m ready to pick,” Perrin said, “if there was someone who wanted it.”
Perrin isn’t alone in struggling to sell his crop. A downturn in wine sales worldwide has shaken California’s winegrape sector. After years of growth, U.S. sales have declined for three straight years, with experts forecasting the downward trend to continue.
There are plenty of culprits: a shift in messaging from health experts about how safe it is to consume low levels of alcohol; the industry’s failure to win over younger demographics; market share lost to seltzers and ready-to-drink cocktails; and home inventory left over from pandemic-time “pantry loading.”
The shrinking market has left wineries oversupplied and California’s vineyard acreage out of step with demand.
“It’s not going to be a favorable year for winegrape growers, particularly those who didn’t have contracts going into harvest,” said Jeff Bitter, president of Allied Grape Growers, a grower-owned marketing group that sells winegrapes for 400 growers across California.
Growers typically sign contracts with wineries before planting a vineyard. The contracts provide reliable sales and pricing for their grapes. When they expire, often after five or 10 years, growers negotiate new contracts or sell uncommitted grapes on the spot market.
But this year, with wineries needing to shed inventory, few are buying uncontracted grapes.
“They’re either not buying,” Bitter said, “or they’re setting a very low price and saying, ‘Take it or leave it.’”
A light crop this year “has spurred some buying,” he said, but at prices that barely cover the cost to farmers of harvesting and hauling the grapes and that fall well short of overall production costs.
“It’s not a profitable scenario for winegrape growers on the spot market,” said Bitter, who grows winegrapes in Madera County.
For decades, Perrin sold his grapes to Bronco Wine Company through long-term contracts. Then, for the past several years, he signed an “evergreen” contract with Sutter Home Winery that was renewed yearly—until, as with many contracts this year, it wasn’t.
“There’s a lot of acreage around here with no home,” Perrin said.
Out-of-contract grapes may account for more than a third of the state’s crop, Bitter estimated. This year, most of those grapes—especially red varieties grown in the Central Valley—could end up on the ground.
“It’s leaving some guys in some very precarious positions,” Bitter said.
Perrin has filed a crop insurance claim for heat damage. If approved, it could soften the blow. But losses caused by market challenges are not covered by insurance.
“It’s a lot of stress,” he said.
Each year, the San Joaquin County farmer takes out a $300,000 line of credit to pay for water, fertilizer, labor and other farming costs. Then he pays it off when he sells his grapes.
But in recent years, short crops and rising input costs left Perrin with debts, and without a contract this year to prove he could pay back a new loan, his application was denied. “It’s the first time I’ve had this problem,” he said.
Other growers saw their financing cut off, too. Stephen Kritscher, an independent loan broker who consults for agricultural lenders and borrowers, said lenders were wary this year of writing loans for winegrape growers.
“If you don’t have a contract, I wouldn’t expect to be getting an operating credit line,” Kritscher said.
To cover his costs, Perrin took on side jobs and sold off equipment. “I’ve stretched the dollar about as far as the dollar can stretch,” he said. “The expenses have gone up, and the income has flat-lined or gone down. It’s not sustainable.”
Meanwhile, as the business prospects of vineyards fade, growers such as Perrin who own the land they farm have seen dramatic declines in its value.
Between the end of 2023 and the halfway point of this year, Lodi vineyards lost roughly a third of their value, according to data presented last month by the American Society of Farm Managers and Rural Appraisers to the California Department of Food and Agriculture.
“It’s been pretty brutal,” said Janie Gatzman, owner of Gatzman Appraisal and president of the California chapter of ASFMRA.
In most of the Central Valley, winegrape vineyards “have lost almost all contributory value over other land,” Gatzman said, meaning the vines themselves, which cost tens of thousands of dollars an acre to plant, are worthless.
Growers have made efforts to rebalance supply with demand. This year, they ripped out 30,000 to 40,000 acres of vineyards, Bitter estimated, about 5% to 7% of the state’s bearing acreage.
Even so, until wineries start writing contracts again, growers could face challenges as more contracts expire and more grapes enter the spot market.
“It makes it difficult to get sustainable pricing when you have more and more supply on the market for purchase every year,” Bitter said.
The short-term outlook is bleak. Wineries that grow some of their own grapes have been selling off large vineyard parcels this year, said Gatzman, who monitors agricultural real estate.
“They are actually trying to shed the acreage themselves,” she said, an indication the wineries “are not going to be picking up new contracts in the next year.”
She said it’s a matter of time before the overwhelming financial pressures on growers lead to bankruptcies and foreclosures. “I would expect to see some by the end of the year,” Gatzman said.
Perrin isn’t contemplating bankruptcy. But he does face difficult decisions.
Last week, the leaves in his vineyard had begun to turn yellow and brown, a sign the harvest season was nearing its end. If no one buys the crop, he said, he may have to sell land to pay off his debts. He has already listed 80 acres for sale. It’s more than half the family’s historic vineyard.
“There’s no easy answer,” Perrin said.
(Caleb Hampton is an assistant editor of Ag Alert. He may be contacted at champton@cfbf.com.)
The California Farm Bureau Federation works to protect family farms and ranches on behalf of nearly 32,000 members statewide and as part of a nationwide network of more than 5.5 million Farm Bureau members.
Source: Reprinted with permission CFBF
