NAPA — North Coast wineries and growers remain optimistic following a second consecutive year of record-setting harvests and strong consumer demand for grape varietals that thrive in the region, particularly pinot noir.
"You have to be really screwed up to be a grower in Napa or Sonoma and not be making money," Joe Ciatti, a mergers and acquisitions consultant with Zepponi & Company of Santa Rosa, said Wednesday at the annual Vineyard Economics Seminar.
Wineries continue to plant new vineyards and sign long-term contracts with growers to ensure access to grapes. Crop yield is increasing statewide, despite no significant increase in acreage along California's coast. If anything, wineries are facing the unintended problem of having too many grapes coming in and not enough capacity to contain them all.
Mark Couchman, CEO of Silverado Investment Management Company, said there's not a single winery or custom-crush facility along the Central Coast and North Coast that's not adding production capacity.
Growers increasingly are concerned, however, about the impact of California's drought.
Water diversions along the Russian River Valley watershed above the city of Healdsburg could be cut off next month, said Paula Whealen, principal of Wagner and Bonsignore. She said such curtailments would prevent even those who've held water rights for decades from diverting any water for use on vineyards, without risking fines of up to $1,000 a day, plus additional penalties.
The good news, at least in Napa and Sonoma counties, is that some municipalities are providing higher amounts of recycled water for agricultural use, said Scott Greenwood-Meinert, an attorney with Dickenson, Peatman & Fogarty in Napa.
For example, he noted the city of Healdsburg last week approved use of reclaimed water from its sewer treatment plant to irrigate vineyards in a wide swath beyond the city. The program, intended to offset the use of potable water during the drought, will allow for the irrigation of up to 25,000 acres in the Alexander, Dry Creek and upper Russian River valleys.
Karen Ross, California's Food and Agriculture secretary, touted conservation, groundwater management and increasing above-ground storage capacity as ways to help mitigate the drought's impacts.
"Groundwater management needs to be done on a local and regional scale because we have too many variables out there for a one-size-fits-all," Ross said.
She said putting a "meter on every vineyard" doesn't make sense and is not something she supports. But she said technology exists to monitor and measure groundwater depletion.
Growers and winery executives nevertheless remain relatively bullish on the industry's future, with about 59 percent of respondents to an economics survey presented Wednesday predicting they will be more profitable this year than in 2013. Clear majorities also predicted increases in the price of cabernet sauvignon and pinot noir grapes.
However, nearly half of the survey group predicted overall grape prices to be lower this year, perhaps as a result of the drought or capacity issues.
Sales of wine in the United States were up 3 percent in volume and 5 percent in value in 2013 versus the previous year. Sales were down 1 percent for wines retailing for less than $6 per bottle, but up 12.6 percent for those $10 to $14.99, said Steve Fredricks, president of Turrentine Brokerage.
Pinot noir continued its strong run on the North Coast, commanding up to $4,000 per ton in the Russian River Valley. The region, according to Couchman, increasingly is thought of in the same way as the Burgundy region in France is for its famed red wines.
Competition from imports and increasing consumer demand for craft beers and ciders are encroaching on the wine industry's bottom line. But the expansion of stores such as Trader Joe's should help drive up wine sales, Fredricks said.
He said Trader Joe's has spotted "an opportunity to sell more wine and they're going to need more wine to fill the shelves at those stores."
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