Grape Surpluses Could Be A Curse Or A Blessing For Industry

The sweet profits of the past few years in the wine industry could turn into a sour-tasting grape surplus in the next two seasons, according to industry observers.

The problem lies in huge new vineyard plantings that haven’t reached production yet - but will in the next couple of years.

Ground zero of the vineyard explosion is the San Joaquin Valley - and it has the premium wine grape regions of Napa, Sonoma and the Central Coast worried.

Industry representatives, largely from the California coastal areas, discussed the problem at the recent Wine Industry Financial Symposium in Napa.

The record 1997 harvest has ended the grape shortage of the past two years that pushed prices and profits skyward.

“We filled up literally every tank in the state,” said Joseph Ciatti, head of the largest bulk wine brokerage company in the United States. “It was an amazing crush; it was a zoo out there.”

Those tanks will remain full for the foreseeable future. Virtually all of the grape varietals will be in surplus by the year 2000, according to a survey by the University of California at Davis Graduate School of Management.

Robert Smiley, the school’s dean, noted that the situation is a classic business cycle response that plagues agriculture in particular: The good years in a cycle prompt people to invest in new production, which creates a surplus, deflating profits and prices until new demand is generated or surplus production is eliminated.

In the wine industry, the problem is huge. In the San Joaquin Valley, 31,567 acres of vineyards - 42 percent of the valley’s total - are new and not bearing yet.

In the Napa, Sonoma and Central Coast areas, 17.6 percent of the total 98,808 vineyard acres aren’t producing yet.

The industry can’t get together to plan production levels, Smiley said, without running into trouble with antitrust laws.

But he said growers should consider a contrarian strategy - doing the opposite of what everyone else is doing.

The problem goes beyond California, said Agustin Huneeus, president of Franciscan Estates Selections Ltd., which produces wines in California and Chile.

The world surplus of wine totals 6.5 million gallons, larger than the U.S. consumption, he said. Most of that surplus winds up being distilled into industrial alcohol by the European Common Market, he added.

Huneeus feels the California industry made a mistake in differentiating better wine by variety rather than appellation.

After teaching the public to look for cabernets, merlots and chardonnays, premium wineries in California found that Chile and Australia could produce those same varietals, as could the Central Valley.

The varietals themselves are threatening to become world commodities, he said.