NAPA - The wine grape market has shifted so quickly and dramatically that wine industry veterans are calling it a game change.
A looming grape shortage and growing demand for California wines have driven grape prices higher, with some grape prices doubling in the span of a year. And wineries that were hit hard by the recession are exploring alternative ways to maintain lower prices for consumers, even while their production costs are rising.
These changing dynamics were recurring themes at the 2012 Vineyard Economics Seminar in Napa on Tuesday, which drew hundreds of winery executives, brokers, grape growers and bankers.
Tensions are growing between grape growers, who are demanding high prices for their crop, and wineries, which are hesitant to impose sticker shock on consumers who are still holding on to their dollars.
"The market's been changing so quickly, to say we know what's going on would be an untruth," said Glenn Proctor, partner at Ciatti Co., a San Rafael grape brokerage. "Right when you think you know what's going on, it changes."
Contracts are shifting to long-term agreements with higher prices, pleasing growers. Growers and wineries are trying to replant vineyards but dealing with limited nursery supplies, pleasing neither. And wineries are looking to less expensive regions to buy their grapes.
"I am a woman standing before you who is cabernet sauvignon-hungry," said Lise Asimont, director of grower relations at Francis Ford Coppola Winery.
Currently, the Geyserville winery is not buying grapes from Napa County, she said. Sonoma County prices also are high, and the asking price for Sonoma County cabernet sauvignon has increased 50 percent in the past year, Asimont said.
"We change appellations when there is profound change in the market," Asimont said. "We found ourselves needing to go into other appellations, these areas that were previously undervalued regions."
Cabernet sauvignon is the hottest red varietal, and there's demand for the grape from all regions of the state, Proctor said. Chardonnay, sauvignon blanc, zinfandel, pinot noir and blenders also are in short supply.
"There's a little bit of poaching going on," Proctor said.
As grape supplies dwindled and wineries scrambled to satisfy their needs, wineries began asking growers for long-term contracts, Proctor said.
"The wineries that have their supply in order are the ones that are going to succeed in this difficult market," said Doug Wilson, vice president of winery relations for Silverado Premium Properties.
The price pressures and high levels of demand are helping grape growers in such regions as Lake County, where the price of sauvignon blanc doubled in a year, said Rick Aldine, a grape merchant and bulk wine negociant for Agajanian Vineyards, a Napa wine company.
"This market that we're in right now has done a very radical flip-flop," Aldine said. "In 2010, you couldn't give Lake County sauvignon blanc away. Last year, especially with the crop shatter that we saw in June and the anticipation of a lower and lighter, risky harvest, we saw that price jump to from $750 to $900 a ton."
Sonoma County chardonnay prices also rose from $1,200 to $1,400 a ton in 2010 to $1,500 to $1,850 a ton in 2012.
Wineries also are looking overseas for less expensive bulk and bottled wines, importing from parts of the world where production is cheaper and exchange rates are favorable, said David Freed, chairman of the Silverado Group, which grows grapes on more than 2,000 acres in California. The value of the Euro has fallen compared to the dollar, making it cheaper to import European wines.
"How do we compete in that global marketplace?" Freed asked. "The only thing we have that we can hang our hat on is the uniqueness of our wines, our geography ... The only distinguishing feature is what we're delivering in that bottle."
California wineries and grape growers alike are continuing to plant vineyards or replant older ones whose vines are less productive. In Freed's survey, 45 percent of respondents said they were planning to plant grapes this year. But there's only so much land and rootstock to go around.
"Everyone's looking for grapevines and planting materials," Freed said. "Well, they're just not there."
In Sonoma County, replanting a vineyard costs $25,000 to $30,000 an acre, said Joe Ciatti, principal with Zepponi & Co.
"If you can take these vineyards that are low-producing today, you can increase those yields by 40 to 100 percent," Ciatti said.
Even so, he cautioned that the industry could over-plant too many new vineyards, as it has done in previous cycles.
The higher prices wineries are paying might not immediately trickle down to the consumer, experts said. In an industry survey, 87 percent of grape growers said they would raise their prices in 2012, but only 50 percent of wineries said they would do so, Freed said.
That may change as the economy recovers. The domestic economy is gradually improving, as layoffs decrease and job openings increase, said Rob McMillan, executive vice president and founder of the wine division at Silicon Valley Bank.
"While grape prices are increasing, if you go into Safeway, or wherever you go ... bottle prices are not increasing," Freed said. "And I think that's part of the consumer's search for value."
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