Short 2011 crop brings relief to growers, but not much
That sigh of relief you hear issuing out of California is from grapegrowers, who are happy that 2011 looks like it’s going to be a short crop.
By all accounts, shatter and frosts last Spring and wet weather this Fall that will cause cutters and sorters to throw away rotted grapes and bunches, will keep yields well below those of 2010, which was a big harvest, the third largest of the previous ten years. The growers are relieved, because a low crop means tighter grape and bulk wine supplies, which will help firm up the price of finished wine, already under severe pressure because of the recession.
Another reason for the short crop is because California growers understandably have been reluctant to plant new vineyards over the last several years. A comparison of acreage for the leading varieties from 2008 to 2010 confirms this. Cabernet Sauvignon was up by only 1.4%, Chardonnay by a measly 1.3%. Pinot Noir soared 10%, but that’s misleading, as there wasn’t much to begin with, so the double-digit increase came on top of a much smaller base. All the other major varieties grew by less than 2%, except for Zinfandel, which actually decreased by a percentage point.
You can appreciate this slowdown of plantings since the recession began by looking at Chardonnay over time. It increased by at least 1,000 acres a year every year in California since 2002. But if you go back to 1994, the increase was at least 2,000 acres each year, and in some years–1997 through 2000–as much as 9,000 acres of Chardonnay came online annually. Compare that to a mere increase of 272 acres of Chardonnay in 2010, and you can see dramatically how much growers are loathe to invest in the heavy cost of developing new vineyards.
So the growers are relieved, but that doesn’t mean they don’t remain under heavy pressure to keep prices down. The American consumer is showing no inclination to pay more for a bottle of wine in 2012 than she did in 2009 or 2010 or 2011. We all know anecdotally that the majors–the Gallos, Constellations, Broncos, Wine Groups, etc.–are engaged in a constant battle to keep their market share, which would be impossible if they allowed prices to go up by even a fraction. Once again, the objective numbers testify to this fact. The average price per ton of crushed wine (red and white) in California typically rose in a steady climb from 1988 (when it was $297) to 2009 (when it was $612). Last year, it fell to $574, a 6.6% drop, the biggest since 2001, another recession year and one that was battered by the events of Sept. 11. Given the economic realities out there, I don’t think anyone doubts that the average crush price in 2011 (which we won’t know until Spring, 2012) will again be down, perhaps by double digits.
Of course, predicting market conditions always is risky. This article from last week’s San Francisco Chronicle reports on a Rabobank analysis suggesting that the low 2010 crop “should allow growers to improve profitability.” However, it hedged its bets by adding a qualifier: the twin effects of the recession and increased competition mean wineries “are unable to pass rising input costs on to consumers, which results in margin pressure.” It’s a classic market dilemma, in which supply and demand are in exquisite tension, and each winery will have to come up with its own strategy to tilt the balance toward profitability. And as we all know, your stategy is only as good as your strategists. These perilous times are testing the mettle of every marketing and sales manager out there, from the littlest family wineries to the biggest wine companies in America.