Reality Opportunity Dies on the Vine

The wine industry exposes its extreme denial by labeling this year's harvest 'below normal.'
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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.

Lewis Perdue is editor and publisher of

Wine Investment News, and the author of The Wrath of Grapes: The Coming Wine Industry Shakeout and How to Take Advantage of It. While Perdue does not hold any positions in any securities mentioned in this column, he is the chief technology officer (on a consulting basis) to the e-tailer Wine Society of the World, which may, from time to time, discuss purchasing or other agreements with wine companies. He can be reached at

lperdue@ideaworx.com.