Capital floods into California wine making

Press, 10 October 1984, Page 30

Capital floods into California wine making

By

JOHN HUTCHISON,

in San Francisco

From JOHN HUTCHISON, in San Francisco Foreign investors are moving increasingly into the Californian wine industry at a time when many of the state’s winemakers and grape growers are losing money or barely staying afloat. Hundreds of millions of dollars have been invested by foreigners into California wineries and vineyards in this decade and there are ventures from abroad into parts of the United States where, until recently, winegrowing has been insignificant. Texas, Central Washington, and New Mexico are among the emerging wine areas.

The paradox in California exists in the face of a relatively flat market for wine in the United States over the last three years. Part of the cause of the foreign interest appears to lie in the ■ flight of wine investment capital from Europe, where new vineyard land is unavailable, wine consumption is slowing and political uncertainties make investors nervous.

Part of the reason is the investors’ long-range estimation that the potential market for wine in the U.S. is vast; per capita wine consumption (7.6 litres per year) is about one-tenth of that in France, Italy, Spain or Portugal. At least five large foreign

interests bought substantial wine properties ■in California in the early 19705, including Nestle’s of Switzerland, Moet-Hennessey of France, Four Seas of Thailand, and Suntory of Japan. Since then, West German, Belgian, Canadian, British, Spanish, and more French winemakers and liquor firms have entered, or have enlarged their holdings. More are expected. The total investment is thought to exceed SUSSOO million, in at least 34 wineries and one brandy distillery. The total wine output is estimated at between 15 and 20 per cent of California’s production, which peaked above 17 million hectolitres in 1982. The state has almost 600 wineries, ranging in capacity from a few thousand litres to the gigantic E. and J. Gallo company, owned outright by two California brothers and making and selling approximately one of every four bottles of wine consumed in the United States. One of the Gallo wineries

is said to be the world’s largest. It can make 130,000,000 U.S. gallons (almost a half million hectolitres) yearly. Foreign-owned wine operations in California also have a wide range of output. A joint venture between a prestigious Californian winemaker and Baron Philippe de Rothschild of Chateau Mouton fame produces a few thousand cases of very expensive wine in the Napa Valley annually. Seagram of Canada owns several wineries in California, producing 1.7 million hectolitres. One of the segments of the American wine market which has been growing rapidly while others stagnate is that for high quality sparkling wine, and MoetHennessey, Piper Heidsieck. Roederer and Mumm of France and Freixenet of Spain are either already producing “bubbly” or are developing vineyards and wineries for that trade.

Many Californian veterans marvel at what they see as eagerness and daring

on the part of the new-, comers. There is little overt sign of resistance to them. Many Californian wineries are hard-pressed to sell their wines profitably, and of the some 10,000 grape growers throughout the state, few are happy with the prices they are getting for the 1984 harvest, winding down earlier than usual because of a warmer than normal growing year. Boom and bust cycles have been familiar to the growers and winemakers for more than a century. The causes now are several, but the high value of the dollar against the currencies of Europe’s wine producing nations is the most troubling. Poor but adequate wine from Italy is being landed in the U.S. relatively cheaply and the Californians insist it is clearly subsidised.

Grape growers and winemakers have been frustrated in the past in their efforts to limit the flow of wine imports.