1. Unified Wine & Grape Symposium State of the Industry
Feverishly Finding Figures Flailing in Fungibility
Nat DiBuduo
Allied Grape Growers
January 25, 2017

2. Fungibility
“Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution. That is, it is the property of essences or goods which are capable of being substituted in place of one another.”
-Source: Wikipedia-

3. Sections Production & Planting Trends 2017 Nursery Survey Review
Industry Segments & Varietal Supply Trends
Macro Supply Trends Going Forward
Thoughts & Summary

4. Production & Planting
Trends

5. Production Trends

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

7. 2017
Nursery Survey Review

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

9. 44% Red
56% White

10. 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%

11. Industry Segments & Varietal Supply Trends

12. Tying Regions to Categories
<$7/Bottle
Interior - south of Lodi
$7-10/Bottle
Interior – Lodi/Delta and north
$10-20/Bottle
Coastal (standard)
>$20/Bottle
Coastal Premium (primarily Napa & Sonoma)

13. Tying Regions to Categories

14. <$7/Bottle

15. Talking Points <$7/Bottle
<$7/bottle represents over half of all California wine shipments, by volume.
There are billions of dollars invested in millions of gallons of cooperage in the Central SJV to produce “California” wine.
There are thousands of growers that are heavily invested in, and committed to growing, SJV winegrapes.
The problem is economic sustainability: Proper Quality at Acceptable & Obtainable Production Levels - “PQAOPL”.
Vineyard removal and lack of new development will continue as the norm unless and until wine shipments <$7/bottle stabilize OR until production of SJV winegrapes regularly makes it way into >$7/bottle wines.

16. <$7/Bottle Vineyard Removal
+/-34,000 grape acres removed between the 2015 and 2016 harvests (estimate 13,000 winegrape)
+/-15,000 grape acres removed since 2016 harvest, with about 1/3 being winegrapes
Estimate up to 10,000 winegrape acres will be removed by the 2017 harvest.

17. Note:
Change stated cumulatively
Annual attrition rates estimated

18. $7-10/Bottle

19. Talking Points $7-10/Bottle
This is a mostly stable retail price range, but on a very strong base (i.e. lots of volume in this tight price range).
The quality in this price range has been well established and strengthening for both grapes & wine.
There is currently interest from wineries to contract grapes and discuss possible planting contracts.
The attributes of fungibility really surface here as wineries look first to the northern interior when considering alternatives to coastal supply.
A great place to be in the future, as the demand for high quality wine expands and processors look for ways to control costs.

20. Note:
Change stated cumulatively
Annual attrition rates estimated

21. $10-20/Bottle

22. Talking Points $10-20/Bottle
This is the hottest, sizeable price segment presented today.
Quality within this price segment is known & established for both grapes & wine.
Winery interest is strong for grapes to satisfy consumer demand. Growers have been responding by planting more.
There is some serious fungibility occurring to maximize profit opportunity (AVA % vs. California AVA).
Fungibility on the upside creates opportunity, but a threat that exists comes from fungibility on the lower end of the price range, as processors look to average down cost.

23. Note:
Change stated cumulatively
Annual attrition rates estimated

24. Note:
Change stated cumulatively
Annual attrition rates estimated

25. >$20/Bottle

26. Talking Points >$20/Bottle
Market behavior that drives industry pricing up starts here – at the top.
Price elasticity - How high is too high on pricing? Is there a bubble? Did I really say that?
Are some AVA’s in jeopardy of becoming mono-varietal?
Many vines are being planted in AVA’s contributing to this price category, but a high percentage are replants.
Does fungibility degrade the overall quality of an AVA?

27. Answering the unasked question…..

28. Exactly where are these new vines being planted on the coast?

29. Central Coast or North Coast?
Popular Coastal Planting Regions
San Luis Obispo County
(Paso Robles)
Santa Barbara
County
Sonoma County
Napa County
Sonoma County
Sonoma County

30. Macro Supply Trends Going Forward

31. Evolving California Acreage Base
Growing
Stable
Declining

32. Our Production Potential
+15K
+10K
+10K
+13K
+11K

33. Keeping California’s Wine Industry Great
Quality is a prerequisite of fungibility. Without it, you are stuck in a rut!
Labor and water issues are critical going forward and play a direct role in the success of the wine industry.
Sustainability and related certifications are a must-do as we continue to differentiate California wine in the market.
The collaboration of growers & wineries through regional and statewide organizations provides synergies for advancement and opportunity.
Research, Research, Research

34. Summary & Highlights
Fungibility will play an ever-increasing role in the California wine industry, offering profit opportunity for both growers and processors.
There is no shortage of winegrape acreage in California, although specific regions may experience tighter supply. 4M-ton harvests are standard now.
Cab Sauv, Pinot Noir, Pinot Grigio and Chardonnay will continue to dominate California varietal offerings, but the future of product development may move more toward blends utilizing regionally appropriate varieties.
The stability of current market trends (since 2012) has produced a situation where supply is increasing in proportion to current increases in demand, by region and by variety.

35. Our information
is your information
Come see us at booth 725
alliedgrapegrowers.org