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Uncertainty reigns as wine business looks toward 2021

Issue Date: February 3, 2021
By Kevin Hecteman
Analysts who track wine-business trends say the market in 2021 may depend in large part on whether COVID-19 vaccine availability allows more people to visit restaurants and tasting rooms.
Photo/Ching Lee

Thanks to a short crop and a punishing wildfire season, California's winegrape glut seems to have been alleviated—for now.

"The short 2020 crush corrected our oversupply—there's no doubt," said Jeff Bitter, president of Allied Grape Growers. "But in reality, if we don't experience wine shipment growth coming out of this pandemic and/or we don't reduce our bearing acreage base further beyond this year, it's not a matter of if we become oversupplied again—it's just a matter of when."

Bitter's projection was among those delivered during a "State of the Industry" session at the 2021 Unified Wine and Grape Symposium, organized by the California Association of Winegrape Growers and the American Society for Enology and Viticulture. The symposium, normally held in Sacramento, moved online because of the COVID-19 pandemic.

Glenn Proctor of Ciatti Co. in Sonoma County said preliminary numbers estimate the 2020 grape crush at 3.35 million tons, which would be the lowest since 2011. The original estimate was 4.2 million tons, he added.

"We think 500 to 700,000 tons (of the decrease) was because of the lighter crop, and somewhere between 165,000 to 325,000 was because of smoke concerns," Proctor said.

One result, he noted, is dramatically increased activity in the bulk-wine market since August, as buyers react to a perceived supply shortage.

"Without this change in terms of expected tons, I don't think we would have seen the activity we're seeing in the market today," Proctor said. "It's as busy as it's ever been. What we're seeing is big brands, especially those that benefited from some of the effects of off-premise growth early on, have been controlling a lot of the buying activity."

"Off-premise" describes wine sales at retail, such as grocery stores, as opposed to on-premise sales in restaurants and bars or in a winery's tasting room.

Bitter said the 2021 theme for grape growers will be uncertainty, after farmers entered 2020 confronting a need to reduce supply.

"We got what we were looking for in an immediate decrease in supply, but it wasn't via the avenue that we were advocating as an industry," Bitter said.

On top of that, he added, came shifting consumer patterns as the COVID-19 pandemic shuttered restaurants and tasting rooms and led to more wine for home consumption.

"What is going to happen with that shifting?" Bitter said. "Do they shift right back to where they were? Do they go somewhere in between, or do they stay where they are? All of these dynamics in the marketplace are causing a lot of uncertainty."

What's more certain is a return to an oversupply situation, he said, noting that California wineries crushed an average of 4 million tons of grapes annually from 2012 to 2019.

"We came into 2020 long on supply—so long that we had left grapes on the vine in 2019," Bitter said. "That tells me very clearly we cannot sustain 4 million-ton crushes, on average, over a period of time without going long. Based on the acres we have in the ground today, and our forecast for yields in the future, we will be back up above 4 million tons on average on an ongoing basis in the future."

Nearly 15,000 acres of new vines were planted in 2020, he said, citing nursery surveys.

"This is a very manageable amount of new acres," Bitter said, "given what we feel the attrition rate should be."

Coastal plantings are slowing, he added, while interior plantings are picking up. An estimated 56,000 acres of vines planted from 2018 to 2020 will come into production during the next three years, Bitter said.

On the flip side, 35,000 acres of vines were pulled up in 2020, and "most of that was driven by the Central Coast," he said, noting that an additional 22,000 acres are forecast to come out in 2021.

For 2021, though, farmers should be able to sell everything they grow—unless another damaging wildfire season gets in the way. Smoke clauses are making their way into growing contracts, Bitter said.

"As a grower, speaking to the grower community, be aware that when the contract is presented to you, it's going to be presented from the buyer, and unless you help them craft that paragraph or that clause, you want to be fully aware of what it says and understand what the implications are," he said.

Some buyers, Bitter noted, have rejected grapes with any detection of smoke compounds, no matter how minute.

"We just don't think that's reasonable," he said. "This needs to be addressed by our industry, and it needs to be addressed in short order," adding that this should happen "in a way that is fair and equitable for growers and buyers."

Proctor agreed.

"Nobody got out of 2020 without being bruised, and some pretty badly," he said.

Though he said he doesn't have the answer, Proctor added, "I just think we can't afford to repeat what we all went through in 2020 in terms of how we dealt with the smoke as industry. We need baseline numbers, industry standards and measurements, access to data. Hopefully, we can do this with growers and wineries and others working together hand in hand, and try to understand a way we can all benefit."

Danny Brager of Brager Beverage Alcohol Consulting said the future depends on two V's—the virus and the vaccine. He forecast 2021 growth rates as uneven, with off-premise being the biggest opportunity for at least the first half of the year.

"If anything, 2020 has taught us that we need to continue to be flexible and nimble for the twists and turns ahead," Brager said, "but above all, be ready to act when the market signals."

(Kevin Hecteman is an assistant editor of Ag Alert. He may be contacted at khecteman@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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