Summertime view of a vineyard at Annefield.
A recent news item had us thinking about an important issue facing the Virginia wine industry — an apparent shortage of quality wine grapes. The most recent was an observation relayed this month from Claude Thibaut on the release of the Thibaut-Janisson Xtra Brut, as quoted by Dave McIntryre in his blog, Dave McIntyre’s WineLine (we’ve always enjoyed Dave’s wine column in The Washington Post. As an observer of the local wine scene, Dave is without peer.) He wrote:
Claude told me he will be able to release about 200 cases next year, but he has a dilemma — the same one faced by many Virginia winemakers. There simply aren’t enough grapes. “There are too many wineries and not enough vineyards,” he said.
In November 2013, a report released by Morgan Stanley reported that international wine consumption was rising and wine production falling, creating a global wine shortage. A journalist writing an article in The Washington Post (Gaitlin Gibson, “Virginia winemakers question ‘global wine shortage’ but acknowledge challenges,” 13 November 2013) interviewed a handful of winemakers in Loudoun County who put a local spin on the issue:
“We are already known in Virginia for wines that are a little bit higher in price,” he said [Doug Fabbioli, owner of Fabbioli Cellars]. “We’re craftsmen, and we have smaller operations, and we have brand-new infrastructure that we’re still trying to pay down. We don’t want prices to go higher than they already are.”
Still, he said, “my prices aren’t going to go down, I guarantee that.”
Mackey [Steve Mackey, president of the Loudoun Wineries Association and owner of Notaviva Vineyards] said winemakers will simply have to adapt — and plant more vines.
“Wineries are growing faster than vineyards are being planted, and that can’t continue,” he said.
IN 2012, another article, this time appearing in Leesburg Today Online (“Expanding Wineries Fuel Rural Economy, Grape Shortage,” 16 August 2012):
“We need another thousand or 2,000 acres of vineyards,” Jim Corcoran, proprietor of Corcoran Vineyards and chairman of the Virginia Wine Council. “It’s a big concern. If we just look at the growth of the wineries themselves, it’s been tremendous. We haven’t seen that same growth in the planting of vineyards.”
The March 2014 issue of Virginia Farm Bureau News featured this cover story: “Wine industry creating opportunity for new vineyards.” This story didn’t get into any specifics — just that the farmer could grow grapes just about anywhere, but said nothing about the specialized equipment, the shortage of skilled labor or the costs of production.
You get the point. Time and again, we read and hear the refrain: “There is a shortage of good quality grapes!” If there is such a need, why aren’t more farmers taking wineries up on this “opportunity”? The answer is pretty simple, and can be summarized in three little words: “It isn’t cheap.” Let’s look at the numbers, which we have handy from just planting a new three-acre vineyard so we can increase our own production.
Preparing the land — lime, fertilizer and other soil amendments most likely will need to be added. Then depending on what was done with the land before, the soil will need to be tilled. In the case of our farm, the land was cultivated in tobacco since the 1770s, then dairy cattle after the second World War, and most recently beef cattle.
For simplicity’s sake, figures are rounded. And the cost of land is not considered.
Vines: The vines for this three-acre parcel were ordered last year from a nursery in California at a cost of $8,650. We have reservations about the current vogue in high density planting; we allow the vines to express themselves with six foot spacing in ten foot rows, which results in 726 vines per acre. High density planting would call for 1,600 vines per acre, which would have cost about $18,000.
Preparing the field: Plowing and disking the field: $1,800; lime and fertilizer: $950; surveyor to lay out the vineyard: $1,500. Trellising (posts and high-tensile wire): $9,200. Deer Fencing is a necessary evil, if you want to keep what you plant (this can be deferred one year; the vines will be protected by their grow tubes). Our first three-acre vineyard cost $25,000 to fence. We’ll assume the same cost for the new vineyard, though it is likely going to be higher.
Still unknown: the cost of labor for installing the posts and wire, which will take about three days — a minor expense, in the scheme of things.
The total for three acres: $50,100, or $16,700 per acre. So that additional 1,000 to 2,000 acres of vineyards the industry needs could cost $16.7 million to $33.4 million.
These costs will be capitalized and depreciated over time. Apart from these capital costs, let’s consider cash flow from operations. Out of pocket expenses include labor, fungicides, herbicides, bird netting, consultant fees, vineyard maintenance, fuel and supplies. This came to $38,622 in 2013 for 5.5 acres, or $7,022 per acre.
What Price Could We Have Realized for Our Crop?
We don’t sell our grapes, so for pricing we will look to industry publications. Each year the Virginia Wine Board Marketing Office publishes the results of an industry survey that lists Virginia Commercial Grape Production, Acreage, and Average Price by Variety. They report a range (Low and High), but for our purposes we will use the weighted average price in 2013, as follows:
Weighted Average Price x Our Yield = Estimated Gross Income
- Cabernet Franc $1,845 x 4.859 tons = $8,965
- Cabernet Sauvignon $1,959 x 1.5335 tons = $3,004
- Pinot Gris: $1,777 [Note: we did not have a crop in 2013] = 0
- Vermentino (“Other White Vinifera”): $1,756 x .6335 tons = $1,112
- Vidal Blanc: $1,278 x 1.27 tons = $1,623
- Viognier $2,174 x 2.448 tons = $5,322
Total Gross Income: $20,026
If we were selling our fruit at this hypothetical weighted average price, we would have suffered a loss of $18,596.
In 2013 the Pinot Gris, Vermentino and Vidal Blanc were not mature; this was the first crop for each (none for the Pinot Gris). What if by some miracle we were able to produce an optimal four tons per acre for each variety? If we include the nonexistent Pinot Gris in that calculation, we are looking at an estimated gross income of $40,600, which produces a very modest profit of $1,978.
Now suppose we had, say, 100 acres of Viognier, harvested 4 tons per acre = $869,000. Assuming production costs are constant at $7,022 per acre x 100 acres = $702,200, resulting in a gross profit of $166,800. In a perfect world on that scale, we see a reasonable return. Of course planting that 100 acres is going to cost you about $1.7 million.
But the truth of the matter is the world is not perfect — Viognier has a tendency towards a condition called primary bud necrosis (also known as bud abortion), so reaching that ideal crop load is a pipe dream. Other issues come into play, such as animal depredation, hail, or any other calamity that farmers face during the growing season.
How do these prices compare to other regions? Napa County grape prices are easily found (“Value of 2013 grape harvest comes close to record,” by L. Pierce Carson, Napa Valley Register, 10 February 2014), so let’s look at those. In 2013, the average price per ton for several of the same varieties were:
- Cabernet Franc $5,281 per ton
- Cabernet Sauvignon $5,499 per ton
- Pinot Gris $1,686 per ton
- Viognier $2,873 per ton
Interestingly, the average price of Cabernet Sauvignon in Sonoma County was $2,501 per ton. Statewide, the average price paid for California wine grapes was down 4 percent from 2012.
Why Is Virginia Wine So Expensive?
Competitive pricing means being compared in the marketplace with wine from other regions. We often hear “Virginia wine is too expensive,” when it should be looked at another way: why is wine from some other regions so cheap?
The answer comes from basic economics, and just like fine wine, starts in the vineyard. In some places, land is much more expensive, but some regions benefit from the volume they produce and can afford to mechanize some steps, like hedging and picking, whereas other regions (like Virginia) the same work is accomplished by hand. Small plots combined with low yields means higher expense. And our humid climate requires the use of very expensive fungicides, whereas a desert climate like California doesn’t need them nearly as much, if at all.
One way to reduce costs is to mechanize, but it makes sense only if the terrain is right and the vineyard is large enough to justify the expense, when one machine (and its operator) can take the place of several workers. An article in Vineyard & Winery Management Magazine “Mechanized Canopy Management,”by Ted Rieger (Mar-Apr 2011, pp. 38-43) made the case, and the the savings are compelling. This article reported that for the $56,000 purchase price of a Korvan 1210 tool carrier, a sprawl pruner and a cordon brush, a 240-acre vineyard would save $102,000/year in labor costs, a cost savings of 42 percent over hand labor. Our hilly terrain might be an impediment to effectively using this equipment in many sites in Virginia, however.
In the winery, if the winemaker chooses to use new French oak barrels, you are looking at an investment of about $1,000/barrel, and these are replaced frequently; compare that to a winery that ferments in stainless steel tanks, which of course last a very long time. Other factors are the cost of packaging (bottles, corks, capsules) that affect the wine’s perception in the marketplace, which in turn affects marketability. Super-premium “prestige” brands (like Château d’Yquem, Krug, Dom Pérignon and Pétrus) have a worldwide marketing machine to feed. Closer to home there’s staffing, overhead, utilities, marketing, insurance, and all the other expenses that go into running a business.
Our take-away? The reason farmers are not planting vineyards to take advantage of the “opportunity” to sell to wineries is a losing proposition. High up-front costs are a terrible disincentive, and the business imperative of the wineries to offer their product at a competitive price forces them to demand prices for fruit that are lower than the cost of production. It just doesn’t make sense to grow grapes at a loss, but wineries are able to do it because that cost is off-set by the value added to the product by making wine.
Sadly, the price of Virginia wine may always be higher than many regions because it simply is more expensive to grow and make wine in Virginia. From a marketing perspective, that means positioning the wine as a premium product, and most wineries do take that approach (“we’re a small, family owned business … we do everything by hand,” etc., etc.). Those who attempt to compete on price, at this point in time in the development of the Virginia wine industry, may be making a mistake. If the industry wants more vineyards, we need to pay growers more — it’s as simple as that.