Roy Piper wrote: ↑
September 24th, 2020, 7:41 pm
Fascinating responses and a lot to cover...
We've had fires for 4 straight years now and I don't think we are done with fires in 2020. Typically, October is fire season, not September.
We had the stunning fires from 2017 in Napa and Santa Rosa that messed up a lot of grapes still on the vine, although more than 1/2 were in the tank when it began, so most wineries could handle it. In 2018 we had the Paradise Fire, which was a good distance away but did cause some taint in parts of the northern-Napa mountains (remember that smoke rises.) 2019 was the huge Kincaid Fire in Alexander Valley, which probably caused havoc there. But that smoke blew away from Napa and was only in Napa for two days, so no big deal for us. We got lucky. And then a million acres burned in NorCal over the last month due to a few hours of freak lightning. Which moving forward might not be so... "freak."
This is quickly becoming the new normal and I think to not accept that paradigm is to make a potentially fatal business blunder. All wineries and growers now need to include fire risk in their business plans.
With a lot of wine bulked out in 2017 and probably a whole lot more this year, wine country as we know it is not sustainable if this continues. If Napa loses 1.5 out of every 4 vintages moving forward for another 4-8 years, I predict 1/2 of all wineries go under/change hands and at least that many growers, too. Not to mention wineries that need restaurant sales, which are down 50-100% right now due to Covid, saw lower demand before these fires even began. So I think a lot of wineries are barely hanging-on and these new economic realities will cascade down to growers when wineries lower their production in coming years.
Someone I know who has been in the valley for decades told me the other day "This will be your generation's phylloxera crisis." I think that is accurate. Napa and Sonoma will not just "get over" this year and get back on the horse next year. I've heard one massive publicly-traded winery conglomerate is walking away from almost every grower this year. I've not heard of them picking even one grower-vineyard in 2020 because of taint results from their own lab... although magically they are picking their own fruit!
With most good vineyards costing $15,000-20,000 per acre to manage in Napa, the prospect of getting $0 for a vintage, even for just one year, is not good news for them. Vineyard owners are often "asset rich but cash poor." A typical family grower with 10 acres growing 35 tons of Cab selling at $7500 per ton would typically spend $175,000 to get revenues of $262,000. Now they will spend $175,000 to get $0. I don't think all of them can survive even one-year of that dynamic, much less 1.5 out of every 4. Something has got to give. Some growers have "crop insurance" but I predict that goes away next year or the premiums become so high that no one can afford them.
2017 was an odd year as no one knew what the heck was going on. Almost everyone got paid, or looked at the vintage as a one-time blip. This time it is different. And I think every grower contract will be getting significant re-writes over the holidays. I've already heard whispers of some clauses that might get inserted. In 2017 the wineries mostly took the taint-risk and losses. This year, its the growers. I see battle lines drawn over this issue moving forward. Many relationships are about to get "strained."
It is not a coincidence that some bigger wineries that have already proclaimed they will not make a 2020, are suddenly getting a great chance to reduce costs in a recession by dropping growers. And also an additional year to sell wine from older years sitting at the warehouse. I notice some of these wineries also let go of tasting room staff due to Covid, which makes me wonder who will be doing all that selling? On the other hand, if the vintage turns out strongly tainted, then it would be ruinous for wineries to pay for fruit that qualifies as "damaged" in any normal contract. Wineries should only be assuming risk after the grapes are delivered, not before. That may be about to change.
All of this, in the end, means nothing to the consumers, who will probably respond by buying more 2018 and 2019 (another stellar vintage) and then doing what many here are saying they might do, when the 2020 comes out. And smaller wineries will struggle to make it through such revenue volatility if they are in a precarious economic place, already. In the end, many consumers and winery owners forget that wine is just sexy farming. It's been a stunning run for wine country since the late 1980s but I believe we are in for a few years of very difficult times that might change the landscape of wine country economically, as the fires change it, physically. As Warren Buffett once said "It's not til the tide goes out that you see who has been swimming naked." Although I am afraid this is going to hurt not just those who were careless but some of those who worked hard and played by the rules, as well.