Reality Opportunity Dies on the Vine

Wine industry spin doctoring hit a new low on July 12 when the California Association of Winegrape Growers issued a news release calling this year's estimated record harvest, "below normal." This creates a false impression that there will be an inadequate supply of wine.

This latest example of the wine industry's inability to cope with reality came just hours after the California Agricultural Statistics Service released the official estimate of the 1999 harvest: 2.9 million tons.

Only someone in extreme denial can call this harvest "below average." Consider that the largest harvest ever seen in California -- in 1997 -- came in at 2.89 million tons. California produces more than 91% of all wine made in the U.S. -- as goes the harvest here, so go wine prices and winery margins everywhere.

To create this verbal sleight of hand, CAWG's news release plays with coy, misleading semantics quoting individual growers who bellyached that their yields would be down anywhere from 10% to 25% due to a cooler spring. Nowhere in the release does CAWG let the public know what Drinks and Diversions has been saying for months: While individual growers may find decreased yields, the growth in total acreage planted has the state rapidly heading for another overall record harvest.

That growth is so significant that Barry Bedwell, a CAWG board member and president of Allied Grapegrowers, California's largest grower's cooperative, says, "Because of all the new acreage coming online, average has moved up to something in the 2.9 to 3 million tons range." Bedwell said the definition of "average" will continue to move higher as the new vines enter their first year of production. Some vineyard experts even go so far as to say that a 3.4 million-ton harvest could swamp the market as early as the year 2000.

And even if consumption manages to creep up, imports look to benefit most. The latest InfoScan numbers from Information Resources (IRIC) show that for the 52-week period ending June 20, wine consumption decreased 0.2% over 1998. But while domestic wine declined 1.5%, imports actually increased 10.3%. This pattern continues a trend reported by Drinks & Diversions over the past six months.

Contrary to all the fuzzy brokerage analyst assertions that a glut doesn't lower retail prices, stores are filling with excellent quality wines in the $6 to $7 range. Even Meridian -- Beringer Wine Estates' (BERW) poster child for higher price points -- is now selling for $9.99 at California Albertson's supermarkets compared with $11 and $12 just a few months ago.

Can you say glut? Sure you can, but the wine establishment and the brokerage analysts just can't swallow the g-word, no matter how close it gets. American growers and investors, unfortunately, are not as well served by their industry and trade press as those in Australia, where the May issue of the Australian GrapeGrowers Magazine has predicted a 35% to 42% decline in grape prices by 2003-2004 due to -- you guessed it -- a global glut.

The sad thing is, all the data is publicly available, ready for anyone with an unbiased eye. But whenever the industry and the analysts who follow it have been confronted with the facts, they respond with irresponsible assurances that fears of a glut are unfounded. Because of this, the thousands of grape growers and hundreds of wineries that rely on their industry's "experts" in order to make good decisions, may face a bitter harvest indeed.

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