1. Allied Grape Growers, 2015. All rights reserved. Sonoma Grape Expo State of the Industry Jeff Bitter Allied Grape Growers November 13, 2015

2. Allied Grape Growers, 2015. All rights reserved. Three Part Presentation Part 1: A look at California Supply Part 1: A look at California Supply Acreage trends – production potential Acreage trends – production potential By variety/market segment By variety/market segment Part 2: Pros and cons in the business Part 2: Pros and cons in the business Part 3: What does all this mean for growers? Part 3: What does all this mean for growers? Managing market risk Managing market risk

3. Allied Grape Growers, 2015. All rights reserved. Part 1: A look at supply

4. Allied Grape Growers, 2015. All rights reserved. A look at supply

5. Allied Grape Growers, 2015. All rights reserved. Factors affecting crop size as compared to last year: Mother Nature – Shorter Crop Mother Nature – Shorter Crop Off 20-25% in the coast Off 20-25% in the coast Off less than 10% in the interior Off less than 10% in the interior New Plantings New Plantings Added 30-35K bearing acres from 2012 plantings (3 years non-bearing assumed) Added 30-35K bearing acres from 2012 plantings (3 years non-bearing assumed) Newer plantings producing more each year Newer plantings producing more each year Vineyards Removals (Predominantly Interior) Vineyards Removals (Predominantly Interior) Removed 25,000 winegrape acres in 2015 Removed 25,000 winegrape acres in 2015 A look at supply - Lots of moving parts

6. Allied Grape Growers, 2015. All rights reserved. Six-year average = 1,027,537 tons Numerous reports of crops being down 25% or more from 2014 If we were at least 10% off of normal, we might struggle to reach 900,000 tons from coastal districts in 2015, even with new acreage. A look at supply – coastal production

7. Allied Grape Growers, 2015. All rights reserved. * *2015 non-bearing acreage includes an assumption that approximately 20,000 acres were planted this year. A look at supply

8. Allied Grape Growers, 2015. All rights reserved. A look at supply

9. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business Essentially, the California Coast Range is the geographic line that represents the +/- $10/bottle pivot point in the market. <$10 >$10 = <$10 = $10-20 = >$20

10. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business

11. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Chardonnay

12. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Sauvignon Blanc

13. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Merlot

14. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Pinot Noir

15. Allied Grape Growers, 2015. All rights reserved. Supply Potential - Zinfandel

16. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Cab Sauv

17. Allied Grape Growers, 2015. All rights reserved. Supply Potential – Petite Sirah

18. Allied Grape Growers, 2015. All rights reserved. Part 2: Pros and cons In the business

19. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business The economy The economy Foreign competition Foreign competition Categorical competition Categorical competition Consumption trends Consumption trends

20. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business The Economy

21. Allied Grape Growers, 2015. All rights reserved. Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review 30.8 66.6 69.7 45.9 California Wine Shipment Volume Shown in millions of cases shipped, 1980-2014 Recession directly affects the wine business categorically.

22. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Foreign Competition

23. Allied Grape Growers, 2015. All rights reserved. +20% +30% +23% Pros and Cons in the Business Foreign Competition

24. Allied Grape Growers, 2015. All rights reserved. Can we call Washington and Oregon foreign? Pros and Cons in the Business Washington since 2005/2006: Washington since 2005/2006: Acreage up by 66% (now over 50,000) Acreage up by 66% (now over 50,000) Number of wineries up by 130% (about 850) Number of wineries up by 130% (about 850) Wine volume up by 85% Wine volume up by 85% Net economic impact up by 55% Net economic impact up by 55% Oregon since the recession: Oregon since the recession: Acreage up by 18% Acreage up by 18% Number of wineries up by 45% Number of wineries up by 45% Volume up by 39% Volume up by 39% Net economic impact up by 28% Net economic impact up by 28%

25. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the business Source: winefolly.com, 2014

26. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Categorical Competition

27. Allied Grape Growers, 2015. All rights reserved. What year did the interest in craft beer take off? - 2011 October 21, 2015 | Filed under By The Numbers | Posted by Lewis PerdueBy The NumbersLewis Perdue Source: Google. View the interactive chart at this link.at this link Pros and Cons in the Business Categorical Competition

28. Allied Grape Growers, 2015. All rights reserved. Beer Trends - CNBC.com and the Brewer’s Association "Over the last couple of years, the number of new brewery openings has been at near unprecedented levels," said Bart Watson, Ph.D., staff economist at Brewers Association, a craft beer industry group. "We're seeing breweries open at about a rate of 1.2 per day.“ - CNBC Craft breweries have a few things working in their favor, perhaps the most important of which is a customer base that's financially well off. Nielsen reports that 58.9 percent of craft beer drinkers have annual incomes of $75,000 or more. - CNBC According to the Brewer’s Association, craft beer has grown by 16% this year so far. Pros and Cons in the Business Categorical Competition

29. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption and Categorical Competition

30. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

31. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

32. Allied Grape Growers, 2015. All rights reserved. “Millennials generally drink more premium wine than the typical US wine consumer, but they are not yet the core consumers of ultra-premium wines. The sweet spot of millennial consumption appears to be the $10-25/bottle range.” - Stephen Rannekleiv - Rabobank Beverage Industry Analyst Pros and Cons in the Business Consumption Trends

33. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

34. Allied Grape Growers, 2015. All rights reserved. Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review 30.8 66.6 69.7 45.9 California Wine Shipment Volume Shown in millions of cases shipped, 1980-2014

35. Allied Grape Growers, 2015. All rights reserved. “Barring any major shocks to the economy, we project the demand for >$25/bottle wines to rise approximately 10% per year through 2017.” - Stephen Rannekleiv - Rabobank Beverage Industry Analyst Pros and Cons in the Business Consumption Trends

36. Allied Grape Growers, 2015. All rights reserved. Part 3: Understanding and managing risk in the market

37. Allied Grape Growers, 2015. All rights reserved. What creates market risk? OVERSUPPLY -Either from a supply/demand imbalance caused by a multi-year, longer term issue Or from a large crop or series of large crops (generally a shorter term issue) Understanding/Managing Risk

38. Allied Grape Growers, 2015. All rights reserved. Let’s not be afraid of our own shadow…. Understanding/Managing Risk

39. Allied Grape Growers, 2015. All rights reserved. Understanding/Managing Risk We experienced three huge coastal crops in a row Consider the timing of the recession “hangover” Bottom line: Coming into 2015, any excess in the market at the mid and upper ends was caused by short term production rather than long term trends.

40. Allied Grape Growers, 2015. All rights reserved. Supply Potential - All Wine

41. Allied Grape Growers, 2015. All rights reserved. Understanding/Managing Risk Diversify Your Grape Marketing by Being Different Different Varieties Planting contracts dictate, but consider your current mix If you do plant on speculation, change it up a bit Different Buyers Local, as well as out of area Small, as well as big (Seven largest wineries = 82% of the volume) Different Terms Stagger your contract end dates (or ask for evergreens) Different Form Make bulk wine with a portion of your crop Proves your quality Extends marketability by months, if not years Perishability becomes a “soft” concern Harvest on your schedule, not on someone else’s Exposes your product to buyers that don’t buy grapes Programs do exist with virtually no additional cost to growers

42. Allied Grape Growers, 2015. All rights reserved. Thank you Jeff Bitter Allied Grape Growers November 13, 2015