Issues, Trends and Careers In the Wine Industry Jeff Bitter Allied Grape Growers Jeff Oliver Oliver Search Consulting February 28, 2017

Sections What is Allied Grape Growers, and what purpose do we serve in the industry? A review of industry macro-trends What does AGG look for in employees?

What is Allied Grape Growers? California Winegrape Marketing Association Represent our winegrape grower-members, negotiating on their behalf to sell their winegrapes to various buyers statewide Provide grapes & field services to buyers Grower-owned Formed as a cooperative Represent +/-600 California growers Governed by an elected board of directors

What is a cooperative? An autonomous association of persons who voluntarily cooperate for their mutual and economic benefit. It can include a farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits.

Agricultural Cooperatives Agricultural cooperatives are organized to help farmers gain market power by joining together to market their crops and increase their bargaining power by achieving economies of scale, processing their commodity to add value, and/or to purchase supplies and services.

Ag Cooperatives - Examples Sun-Maid (Raisins) Blue Diamond (Almonds) Land O’Lakes (Dairy) Welch’s (Grape Juice) Ocean Spray (Fruit Juice – Cranberry)

At AGG our primary purpose is to: Match winegrape growers with buyers & negotiate Grape Purchase Agreements on our growers’ behalf A secondary purpose AGG has is to: Analyze market data and trends and communicate that, as appropriate, to the industry and our stakeholders.

Negotiating Grape Purchase Agreements The “Parts” of a Grape Purchase Agreement Grape “Parts” Law “Parts” Risk of Loss Entry onto Seller’s Property Encumbrances Force Majeure Provisions Entire Agreement, Waivers, Notices & Modifications Representations & Covenants Disputes & Waiver of Jury Trial (Attorney’s Fees) Specific Performance & Liquidated Damages Indemnification (Damage to Equipment, etc.) Compliance With the Law; Warranties Severability Assignment; Successors Recordation Governing Law &Uniform Commercial Code Grapes & Specifications Term of Agreement Price Determination Payment Terms Quality Standards Inspection & Adjustments Viticulture Practices (Farming Plan) Harvest & Delivery

How to find available grapes…. Grape Sourcing How to find available grapes…. The “Middleman” Marketing company (i.e. Allied Grape Growers) Grower’s representative with title to the grapes Grape dealer (i.e. Agajanian Vineyards) Buyer/reseller for profit Grape broker (i.e. Ciatti Company) Deal-maker earning a commission - no signatory authority On-line or print exchanges Regional grower associations Use leads to growers (like fellow winemakers)

Grape Pricing – the first of many hurdles Grape Sourcing Grape Pricing – the first of many hurdles Grape Pricing General Rule: 100 X’s the retail bottle price i.e. $10 bottle of wine X’s 100 = $1,000 per ton for the grapes

Building The Supply Foundation Light crop in a much stronger market Record state crops & huge coastal crops Three short crop sets stage for balance Strengthening economy, but relatively weak dollar Recession Strengthening Dollar, Economic Optimism

Wine Shipments U.S. Wine Market Volume Graph Source: The Gomberg Fredrikson Report - 2015 Annual Wine Industry Review

California Wine Shipment Volume Premiumization Graph Source: The Gomberg Fredrikson Report - 2015 Annual Wine Industry Review

Our forecast for 2017 is +/-15,000 new acres. Planting Trends Our forecast for 2017 is +/-15,000 new acres.

What’s Hot, What’s Not…. 71% Red 29% White

Planting Trends, 2014-2016 2016 – 15 million vines Cabernet Sauvignon - 35% Chardonnay – 16% Pinot Noir – 16% Pinot Grigio – 7% 2015 – 19 million vines Cabernet Sauvignon - 31% Pinot Grigio – 17% Pinot Noir – 15% Chardonnay – 13% 2014 – 27 million vines Cabernet Sauvignon - 29% Chardonnay – 17% Pinot Noir – 12% Pinot Grigio – 12%

Evolving California Acreage Base Growing Stable Declining

What do we look for in employees?