DIGGING DEEPER An in-depth look at California winegrape supply: Adjusting for the future… Jeff Bitter January 30, 2019

Theming the Presentation: Stability (2018) vs. Adjustment (2019)

Noteworthy Don’t lose perspective… Overall, the wine industry is very stable. Inventory changes do manifest themselves in spot markets (grapes and wine). If you “reside” in these markets, you will feel these changes more than those who don’t.

DIGGING DEEPER Planting Trends/Future Supply 2019 Nursery Survey Segment/Region Review Things to Ponder & Noteworthy Points Jeff Bitter January 30, 2019

Macro Planting Trends Will we experience growth in acreage? DIGGING DEEPER

The Big Supply Question: Do we anticipate “too much” production in the immediate future?

(all things considered) The Good News

+½% 591,000 594,000

2019 Nursery Survey What did we learn? DIGGING DEEPER

22,000,000 Vines Sold in 2018 Largest since 2014

Huge preference toward reds: 31% white

How do they rank? 1 2 3 Cabernet Sauvignon: 17,000+ acres non-bearing First in vines sales 2016-2018 In 2018, 14% was non-bearing 2 Pinot Noir: 10,000+ acres non-bearing Second in vines sales 2016-2018 In 2018, 16% was non-bearing 3 Chardonnay: 10,000 acres non-bearing Third in vines sales 2016-2018 In 2018, 9% was non-bearing

Additional Points of Interest Nursery Survey Additional Points of Interest Vine sales were largely driven by wineries. (And most were coastal plantings) Sauvignon Blanc planting took off in 2018. (Double what was planted in 2016 & 2017) Central Valley planted less than 2,000 acres. (This is less than 1% of their bearing acres.) While Pinot Grigio plantings dropped way off, red blenders & Bourdeaux’s remained strong. Grapes for Rosé not necessarily on the radar.

Segment/Region Review Pinpointing growth DIGGING DEEPER

Central Valley

Central Valley

201,000 190,000 -6%

Northern Interior

Northern Interior

+2% 154,000 156,500

California Coastal

California Coastal

+6% 236,000 247,500

California Coastal

California Coastal

2/3 of this will be Chard, Cabernet and Pinot. +6% 236,000 247,500

Our Friends to the North Washington State State winegrape acreage compiled periodically Compiled most recently after 2016 crop 55,500 acres recorded (8% non-bearing) 60,000 acres commonly estimated 1/3 white varieties, 1/3 Cab Sauv and 1/3 other reds (mostly Merlot & Syrah) For relativity, Washington is equivalent to Sonoma County in winegrape acreage. Plans are being made to begin a Nursery survey for Washington in the future, since vines are almost exclusively propagated and distributed within the state.

Our Friends to the North Oregon State winegrape acreage compiled by University of Oregon Compiled most recently for the 2017 crop 34,000 acres recorded (8% non-bearing) Pinot Noir is almost 2/3 of the acreage For relativity, Oregon has more Pinot Noir acreage than Sonoma County and Santa Barbara County combined. Nurseries polled in California and Washington indicate at least another 700 acres of Pinot Noir were planted in Oregon in 2018.

Things to Ponder… Noteworthy Points DIGGING DEEPER

Not Necessarily: The Official Recommendation… It’s time to dig up Are you saying I shouldn’t plant grapes? Not Necessarily: The Official Recommendation… It’s time to dig up “non-performing” vineyards.

Hey! Stop picking on the Central Valley. This is not a Central Valley (or value segment) problem. This is a state issue: Virused Vines Aging Vineyards Dependence on Labor

What else can growers do? Consider documenting your sustainability: It starts in the vineyard!

Smoke Exposure An Industry Issue What to do?

Smoke Exposure An Industry Issue What to do? Industry messaging - Differentiate between smoke “exposure” and smoke “taint” Research, research, research Define and understand the presence of contributing compounds Amend/develop grape purchase agreements so there is language that includes resolution For growers, evaluate the practicality of federal crop insurance

Noteworthy The industry has more of a demand issue than a supply issue. If we had stayed on the same shipment trajectory that we’ve been on for the last two decades, we would be talking about an impending grape shortage.

Noteworthy The strategy for correctly addressing any inventory imbalance for the future is not necessarily to stop planting higher quality, sustainable vineyards. Instead, we should be fast-tracking the removal of “non-performing” vineyards, in all areas of the state.

Noteworthy Cabernet Sauvignon, Pinot Noir and Chardonnay are going to dominate the future of the California wine business. Could this be a consideration in planning your future in the business?

Noteworthy Don’t lose perspective… Overall, the wine industry is very stable. Inventory changes do manifest themselves in spot markets (grapes and wine). If you “reside” in these markets, you will feel these changes more than those who don’t.

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