Posted 20 April 2012 - 07:31 AM
Mine is but one perspective into the current state of the industry and everyone has an opinion, but please allow me to validate some of your comments and provide some additional perspective.
The wine grape industry is absolutely tied to a global market. A combined reduction in yielding vineyards, increased fuel costs, poor weather, Chilean earthquake, and unparalleled demand from the Asian market has created a perfect storm that is forcing the price of grapes up (or at least resulting in growers positioning themselves for a windfall). The markets that we serve, U.S. and Canadian wineries outside of California and many of you in the home winemaking community, ride the waves created by the big players in the wine industry.
I put out that notice because unlike some previous years, we feel that the concern over rising prices is substantiated and we are positioning ourselves to make buying decisions that are more conservatively based upon what consumers express a need or desire to buy. I'm sure the follow-up question to that statement is going to be "Well, how much do you think grapes will cost?" At this point, I'm not able to say for certain. What I am able to say is that we are leveraging our long term relationships to ensure that we have the product you are looking for and are able to offer it as fairly as we can offer it. We know many of our customers depend upon this product to run their businesses and we take our responsibility to support them very seriously.
I know I've said this before, but as a company, we represent to savy growers (those who are familiar with market ups and downs, broken contracts, etc.) a very consistent and reliable market. We also get behind our growers to give them the credit they are due for doing a good job. This market does not give growers high rates of return, but we do offer consistent rates of return for the grapes they provide us AND we provide them with market exposure. It is this understanding that differentiates ourselves from the individual buyers who seek to buy from the open market. I'm sure that many open market buyers could attest that, e.g. last year they did not get what they requested - either being shorted or not delivered at all.
Where does the market go? Does it just continue upward? I honestly don't think so. However the lining isn't all silver...
As little as two years ago, there was an abundance of high-end wine in the marketplace that was essentially being liquidated. In other words, wine existed at a price too high for consumers to be willing to purchase it. This is important to keep in mind. As the cost of grapes goes up across the board, the price for wine must rise (or wineries need to get "creative") and presumably it will once again hit that resistance, at least here in the US. The result to the commercial wine market in the US will likely be what we've seen in other countries where the best wines get exported and the lesser wines stay behind to satisfy a consumer base that will need to lower its expectations. That is why the lining isn't all silver. In Asia, there is a willingness to buy and growth is incredible. The asian market is pulling from all major wine producing areas, and even though the US isn't the top supplier to asia, there is still an impact.
So, here in the US, I do see a ceiling and of course as vineyards come online in response to wineries demanding more grapes, we will see some relief. I also expect that history will repeat itself and wineries will cut contracts at some point leaving grapes to once again rot on the vine. For the good grower, M&M Wine Grape Co. is a different kind of partner.
I think that overall, US domestic wineries, which are growing in number and represent a significant economic impact, are staring down the barrel of a real problem. That is, sharing the pie of available wine grape products with a global market that is well monetized and willing to pay a premium.