American Vineyard Magazine’s Sonoma Grape Expo State of the North Coast Grape Industry Jeff Bitter Allied Grape Growers November 10, 2017

How is the coast positioned from the supply side and what are the implications for the future? First: Look at the coast’s position in wine market Next: Coastal varietals history & supply outlook Next: Challenges in relation to “neighboring” California wine regions Last: Factors driving success for the North Coast and issues that are threats.

Allocations – Grapes & Wine

The market for “coastal” wines (i.e. the market above $10/bottle) is really the only segment of the wine business that has shown sustained growth since 2011.

Coastal Wine Shipment Trends About 8.5% annual growth in recent years

…..If wine sales above $10/bottle have been that strong, why was it not until this year that we really experienced a decent jump in prices and demand?

Production Breakdown

....so what are the grape supply projections for coastal areas in the future?….

Note: Change stated cumulatively Annual attrition rates estimated

Coastal regions don’t function in a supply bubble. Other areas of the state do have influence on coastal markets. Note: Change stated cumulatively Annual attrition rates estimated

....so if grape supply from other areas of the state can impact coastal grape markets, what’s the supply situation in those areas?

Planting Trends

....considering planting trends in the interior, look what was happening to wine sales below $7/bottle and from $7-10/bottle….

$7-10/Bottle <$7/Bottle

....the combination of increased interior production and flat or slipping shipments below $10/bottle has caused a fairly major acreage correction….

Interior Vineyard Removals

this is what the California winegrape acreage base transforms to…. .....so as the world turns, this is what the California winegrape acreage base transforms to….

Evolving California Acreage Base Compare these net gains/losses in acreage to wine shipment growth rates by category

Behavior Catalyst ...so what is driving the wine business today? Premiumization empowered by the economy Behavior Catalyst

Economic Performance Key Measures GDP – Gross Domestic Product Inflation Unemployment rate Other Important Indicators Stock market indexes (S&P, Dow Jones, etc.) Rate of national debt reduction Labor productivity Housing affordability Surveys Consumer Confidence/Consumer Sentiment

Gross Domestic Product, 2015-2017 Chart source: https://tradingeconomics.com

Inflation & Unemployment U.S. Inflation Rate, Previous Year Chart source: tradingeconomics.com U.S. Unemployment Rate, 2015-2017 Graph source: Bureau of Labor Statistics

Major U.S. Market Indexes: 2015-2017 Chart Source: http://money.cnn.com 11/08/2017

Consumer/Economic Confidence http://news.gallup.com 11/08/2017

Consumer/Economic Confidence

California Winegrape Market Points Although there is no shortage of total winegrape acreage in California, coastal regions or more likely to experience tight supply, particularly on certain varieties and/or in specific regions. The supply pressure created by excess interior grapes/wine over the last few years is now mostly diminished with increased vineyard removals. “Reliable” and “stable” market trends since 2012 have allowed us to plan on increasing supply in proportion to projected increases in demand, by region and by variety. Remember…..it’s the economy, economy, economy.

So, what about the fires?

The “Real” Impact of the North Coast Fires Specific AGG Stats -As of October 8th (The day the fires broke out) 78% of our total North Coast grapes were already harvested 100% of our WHITE North Coast winegrapes were harvested 100% of our PINOT NOIR was harvested 55% of our RED North Coast winegrapes were harvested

Thank you AGG Staff, 2017