California faces wine glut

Press, 1 October 1983, Page 12

California faces wine glut

Maurice Hunter’s

GRAPEVINE

Although over-production is bound to cause more than one or two headaches for New Zealand vintners this Eir, they should be glad t they are not in California.

Gilbert T. Sewall, writing in the American “Fortune” magazine, reports that from Mendocino to Bakersfield, the glowing expectations of a dozen years are evaporating, leaving a residue of gloom.

The figures are staggering, almost incomprehensible in New Zealand, but the pattern has a familiar ring. During the 1970 s farmers almost doubled the area in vines to a total of 857,000 hectares, not including ’900,000 hectares in Thompson’s seedless, which may be used for table grapes or for wine. The 1981 harvest resulted in stocks building up to a massive 3000 million litres; 1982 broke all records with an increase of 29 per cent and, barring unexpectedly harsh weather, a bountiful harvest is expected in 1983. (The Californian harvest takes place in October/ November). Storage tanks all over the country are brimming with unwanted wine and prices have plummeted. The industry giant, E. and J. Gallo, dropped the price offered for prime cabernet Sauvignon from SUSIOOO tonne to $650, and a Sonoma grower, expecting $7OO a tonne for his gewurztraminer, took $3OO instead, barely meeting .production costs. For the first time since the repeal of Prohibition, fruit remained on the vines to wither into raisins; an estimated 250,000 tonnes were simply not picked. To make room for the 1983 harvest, some surplus

new wine will be sold at cut rates to the brandy makers and some ageing inferior wine may end up at the alcohol distillery, the wine maker’s glue factory. Since many growers raised loans based on much higher crop value, the losses could force some undercapitalised farmers into sell-outs and mergers. Compounding the problems is the fact that the recession has repressed the growth of all alcoholic beverages, and the wine lakes in Europe have resulted in greatly increased exports to America, the market share of imported wines now reaching almost 25 per cent. In the apparent absence of any form of protection by the United States Government, increasingly drinkable wines are coming in from countries as diverse as Yugoslavia and Spain, Algeria and Argentina, but by far the greatest volume is being imported from Italy and France. France’s exports to the United States have risen from 30 million to 82 million litres between 1970 and 1982, and Italy’s from 17 million to 286 million litres over the same period. Some of the Italian wines, said to be able to satisfy even sophisticated drinkers, are being sold for SUS 3 per 1.5 litres while lesser, but

still drinkable, wines are priced at $7 per case wholesale, and sell for about $3.

Under present legislation this could not happen in New Zealand. The rate of tariff on wines from any source but Australia is such that, at an import price of $10.50 (SUS 7 per case of 9 litres, after the addition of duty, sales tax, freight and wholesale and retail margins, the wine would sell for about $7 per 750 ml bottle). The reaction by American producers has been to offer the biggest discounts in history ' and prices have dropped dramatically, particularly in the field of mass-produced carafe wines, down from SUSS.SO to $6 to less than $3. Information on the effect of all this on profits is difficult to obtain. Most Californian wineries are privately owned, or are such small parts of public corporations that their performance is not disclosed.

What evidence there is suggests a glum picture. National Distillers and Chemical Corporation, with sales of $180.6 million, showed a drop in winery profits of 50 per cent to $10.5 million,, a return of little over 5 per cent, hardly enough to pay the rent. The squeeze will be hardest on small wineries, which

have less room to cut prices. About 300 have been opened in California over the last 12 years, some by starry-eyed newcomers long on graceful living but short on managerial skills. One authority says that six dozen vineyards are trying to copy six successes and that the field is hopelessly overcrowded. And more of the wines than not are overpriced. Many $l2 price tags reflect inflated establishment costs and loan-service charges, not necessarily the ultimate in quality. As one Sacramento retailer says, “There is $5 in mortgage rates and interest in most of these bottles.”

The future, it seems, belongs to the low cost producers, of which E. and J. Gallo appears to be better placed than most. The comS’s sales of over a on cases a week, about 36 per cent of all wine produced in California, is four times better than its closest competitor. It maintains a 75-member technical staff which can develop and blend good consistent wines in million-litre lots, equivalent to the annual production of many wineries.

Gallo is big enough to manufacture its own bottles and caps, and maintain its own delivenr fleet, and its precision-drilled sales staff command the prime selling spots in most outlets. A subterranean ageing facility, completed in 1977, is the length of two football fields and contains 650 18,000-litre oak casks for ageing varietal wines, economies which allow the production of an excellent cabernet sauvignon, for instance, which sells for about $5 and compares in quality

with those of smaller vineyards at three times the price. Some readers may wonder what all this has to do with New Zealand. California is another country, 10,000 kilometres away. There is a message there, I believe, but it may already be too late for some.