Grape Inflation

Grape Inflation

By: George Balling

You don’t have to look far to see the inflation that is running rampant through out economy.  It shows no signs of easing nor does the Federal Reserve show any signs of relenting in their battle against it.  We have written much over the last year of all the components that are causing inflation in the wine industry from the cost of glass bottles to fuel cost inflation that powers ships and trucks carrying the wine to our little shop here in North Idaho.

It is not until now though that we are seeing substantial and sustained price increases in the wine grapes themselves in certain areas of the wine grape growing areas around the globe.  Sure, grapes from the best regions like Napa, Burgundy in France, Tuscany and other notables kind of gradually go up and down with the size of the crop and the reputation of the vintage and status of the grower.  This is different though. 

We have heard several stories recently from friends in “the business” of some previously unheard-of goings on.  Great winemakers have for many years secured grapes from their most favored vineyard sources with long term contracts to ensure they get the grapes they want year after year, and also to set a standard for the condition of the grapes they need to produce their best bottles.  These contracts help protect the farmer too and secure the market for their crop every year.  Lately though we have heard that some fairly prominent vineyards are randomly pulling up rows of grape vines that were contracted to some fairly notable wineries, cancelling the contracts and selling the grapes at higher prices to someone else, once the rows start producing again.

Also driving some of the pricing trends have been the mergers and acquisitions activities in the wine world.  There have been several vineyards throughout Northern California that have sold at eye popping prices to some of the largest wine companies who very quickly moved to increase prices on their annual harvest.  Europe has similarly experienced this trend.

We had one winemaker lament to us recently that, “The wine business used to be fun, and now it is cutthroat and dog eat dog.  It’s not fun anymore.”  We know that gone is the day when the founders and the giants of the domestic wine industry did business simply with a handshake.  The grapes winemakers needed were available at fair prices and farmers were taken care of by the wineries that purchased from them year in and year out.  We remember a story from 20 years ago about a very prominent Russian River Valley winery that made some of the most sought-after Pinot Noir produced in the US, and sold for what at the time was a very big price, $20 million dollars.  The new owners quickly discovered there was not a single grape contract in place.  Even with this, the transaction worked out great and Williams and Selyem still produce some of the best Pinot Noir available anywhere.  As they say though about doing business that way, “that ship has sailed”.

So, the question now is where do we go from here?  We suspect that it spells some ongoing price increases for some of our favorite California wines.  We also would guess that this trend will make it increasingly difficult for smaller wineries that don’t own their own vineyards to access the grapes they have depended on for years.  This will leave only the richest and biggest wine companies with the ability to tap the best vineyards for their wine.

Closer to home in the Northwest we are seeing fewer price hikes from the cost of grapes.  There simply are more grapes harvested than are used in any given year.  This is and will continue to keep grape prices in check.  We are still seeing prices for Washington wines specifically increase at what we feel are an unsustainable pace.  The price hikes in Washington though are driven more from overbearing regulation and labor laws that are driving wineries’ costs up substantially.  Coupled with the aforementioned inflation in everything from glass bottles to transportation and this is creating somewhat of a glut of wine from Washington that is simply not saleable at the prices the wineries are asking.

We do know the wine industry is resilient and we hope that owners of the most prominent vineyards will recognize the importance of small independent wineries.  We also hope that for our winery friends in Washington that the state will ease some of the regulations that are driving prices higher.  Both of these things would be great news for wine consumers.