California wineries face numerous challenges for the future. For now it's business as usual, explains Paul Franson

California wineries face numerous challenges for the future. For now it’s business as usual, explains Paul Franson

Urban development, energy and water shortages, environmentalists, neo-prohibitionists, distribution and retail consolidation, imports, competition, discriminatory laws, recession, even the strong dollar – these are all serious issues affecting California winery heads. And on top of all this there’s the potential devastation posed by Pierce’s disease, spread by the glassy-winged sharpshooter. With these problems, you’d think wine executives would be worried, but most are driving full speed ahead. They’re investing heavily in new vineyards and wineries, embarking on new marketing campaigns – and acquiring other wine companies at a breathtaking pace.

Walter Klentz, president of Beringer Blass says: ‘I don’t want to sound Pollyanna-ish, but I don’t think the industry has ever been in a better position.’

Killer disease

The scariest threat is Pierce’s disease. Long present in California vineyards, it has caused significant economic damage, especially in Napa County. This is caused by Xylella fastidiosa, a bacterium that clogs the pores in vine xylem, eventually choking off nutrients so the vine dies. There is no known practical cure, though it can be killed by antibiotics if they could be delivered to the vine – and if consumers and the government were willing to accept their use.Up to now, the disease has been spread by a small insect called the blue-winged sharpshooter, a weak flyer that typically only infects vines close to the river banks in which it lives. The newer glassy-winged sharpshooter (GWSS in wine talk), however, is much larger, more aggressive, and can fly long distances. Besides living in creekside plants like its blue-green cousin, it inhabits a large variety of plants including popular ornamentals and citrus trees. And, unlike the lesser bug, the GWSS can chew through tough mature grapevine trunks, not just the tender shoots that are pruned off each year.

The GWSS has been chewing its way north from southern California, where it has already devastated the once promising Temecula vineyards between San Diego and Los Angeles. Grape growers and other farmers are fighting desperately to stop the invasion and so far they’ve succeeded with extensive inspection as well as spraying, to kill bugs on plants headed for grapevine-growing regions.

Recognising the threat to an industry worth $33 billion (£23 billion) to California, local, state and federal governments plus wineries and growers have responded with extensive funds. The money is destined for research and prevention, including searching for natural predators of the sharpshooter in its native American southeast, but it could be years before a cure is found.The two likely cures are controversial. One is to genetically modify the vines to reject or kill the bacteria – likely to unleash strong opposition. Likewise, the other option of spraying pesticides to kill the bugs has aroused enormous concern from

vineyard neighbours as well as the many growers who are adopting sustainable farming with no use of such chemicals. So far, no glassy-winged sharpshooters have been located in California’s prime

appellations. Tom Selfridge, president of Chalone Wine Group says: ‘I believe we can keep it under control. Look at the Mediterranean fruit fly.’ It threatened California orchards but was controlled. Paul Dolan, president of Fetzer Vineyards, agrees: ‘I’m sure we’ll be able to beat it, but it will take a lot of time and resources.’Selfridge suspects the long-term solution might be genetic engineering but Dolan, the industry leader in natural farming of grapes, disagrees. ‘I’m hoping we don’t go down the path of genetic engineering.’

Pierce’s disease isn’t the only pestilence growers have to face. Young vine decline, black goo and eutypa are other concerns, and we shouldn’t forget that the replanting of vines to overcome the Phylloxera root louse is not yet complete. In many areas, including Monterey county, vines grow on their own roots, not grafted to resistant native vines, so are likely to succumb one day. But this replanting is primarily an economic issue. The solution is known, unlike Pierce’s disease.

Other CONCERNS

Compared with being wiped out by Pierce’s disease, nothing else seems as serious a concern to wineries and growers, but they do face many other issues. Urban encroachment into prime vineyard regions seems less of a problem than before, partly because rising prices have made growing grapes a competitive alternative to housing. Most California coastal areas where grape vines flourish have imposed strict limits on the conversion of agricultural and open land into housing. Napa was the leader, making much of the county off limits to housing and commercial development decades ago. ‘If it weren’t for the vineyards, Napa and Sonoma would be commuter

housing for San Francisco,’ says Selfridge.But now government agencies are trying to force rural areas like Napa county to build more housing outside existing urban areas for San Francisco Bay’s fast-growing regional population. Residents are aghast that state agencies are pressuring them to develop land they’ve worked so hard to save.

Neighbours, often new to an area and unfamiliar with farming, can create other serious issues for many grape growers. They oppose new vineyards and replanting as well as the use of farm chemicals, noise, dust, periodic traffic and other realities of agriculture. Residents who want to maintain things as they are have fought diligently against cutting back forests and developing hillsides, unfortunately often the best sites for growing premium grapes. New vineyards and giant mansions are still being built on Napa and Sonoma hills and mountains, but will probably soon be outlawed.

However, most growers today, including wineries that own an increasing percentage of the vineyards, have become enlightened in their growing practices. Beringer recently developed a 243-ha (hectare) vineyard in southern Sonoma County, creating corridors for wildlife to reach streams, building bridges over creeks rather than disruptive culverts, creating ‘islands’ of oak groves and planting around individual trees. It felled only three oaks in the process, all dead. This is in stark contrast to past practices where developers felled whole forests and completely re-contoured the land. Growers are finally explaining what they’re doing, and are working with environmental groups. The Napa Valley Vintners Association, for example, only recently initiated a program to talk to the local community about its members’ work. In the past, they assumed their neighbours realised they were good guys. ‘Some bad apples have spoiled it for us,’ notes Roger Trinchero, whose Trinchero Estates in St Helena is one of America’s largest wine companies, producing Sutter Home and other wines. ‘In fact, I don’t know of anyone in Napa Valley who isn’t farming sustainably [the industry buzzword for maximum sensitivity to the environment].’

Energy and water shortages

Of late, energy shortages have received tremendous attention in California. To some degree, that threat is economic, resulting in higher prices for gas, electricity and other energy sources, but there are some concerns that rolling blackouts could be devastating if they hit wineries at the wrong time in the middle of harvest. Grapes, like other fruit varieties, are very perishable. Once picked, they must be processed immediately. If electricity is interrupted during crushing or pressing, the fruit could spoil. Likewise, refrigeration is needed to control temperature during fermentation and, longer-term, during storage. Wineries could deal with an hour or so stoppage, but longer would be serious. ‘If power went off for a few hours during harvest, we could survive, but if it’s for a day, it might spoil the wine,’ says Selfridge. Fortunately, steps are being taken to generate more power and distribute it more efficiently in the long run. The same can’t be said for water. Most of California is a desert or semi-desert, and it has always faced shortages of water. For Central Valley farmers, who produce most of California’s grapes, this will be an increasing problem.

In coastal regions most farmers depend on wells and winter rains and the vines can live, if not very productively, with no added water. ‘Here the vines would live, but in our Washington vineyards the vines would die without water,’ says Selfridge. Modern drip-irrigation systems use less water even than housing, but it still could become an issue. ‘Shortage of water is a looming problem,’ says John De Luca, president of the Wine Institute, the California wine business’ lobbying arm. Though De Luca has been working overtime on energy issues, he warns: ‘The energy crisis is just a wake-up call about water, land and air. We need to get engaged now.’

Legal fights remain

Neo-prohibitionists who wanted to ban alcohol have realised that their goal was hopeless. Instead they have nibbled away with mandatory health warnings, lower drink-driving limits, and attempts to tie legal alcohol to tobacco and illegal drugs in various ‘anti’ programs. Studies reporting the health benefits of moderate drinking have dulled some of their warnings, but they’ve recently proposed more prominent health warnings, perhaps on the front of bottles. ‘It’s just a form of harassment,’ says Margaret Duckhorn of Duckhorn Winery.Buying wine from small wineries remains a problem for consumers and even restaurants in many states. Discriminatory state laws that prohibit direct shipping of wine to consumers are being whittled away through legislative action and judicial review. These onerous laws – some making shipping wine a felony as serious as violent crimes – were inspired by politically powerful wholesalers worried that the internet would bypass their businesses. Voters in most states recognise that these statutes clearly overstepped reason, and the burst in web wine companies has blunted the concern among wholesalers anyway.

Economic realities

The biggest issues ahead for wineries are the economic ones they share with other businesses: heightened competition, imports fuelled by the strong dollar, distribution and retailer consolidation, and economic downturn. The wine industry is rapidly evolving into two strong camps with a no-man’s-land in-between. Large wineries producing more than three million cases per year are getting stronger, often consolidating and increasing their resources and their marketing and distribution

muscle. And boutiques are flourishing.

On the other hand, wineries making between 100,000 and three million cases per year are being squeezed, generally unable to charge high prices yet equally unable to compete with the big producers for shelf space and consumer attention.To many California companies, the big worry is Australians. Already consolidated and efficiently run, the Aussies were forced to develop marketing and production expertise because of the country’s small population, so their share of imports in the US is increasing rapidly. Not surprisingly, most major US brands have signed joint ventures, or import wines from Down Under.Ironically, many Australian executives now direct California companies. Most notable is John Grant, the former Southcorp executive now president of the already aggressive Kendall-Jackson Winery. ‘Domestic sales are only growing at 2%, while imports are up 17%,’ he notes. But US companies are starting to respond. ‘There’s a big oversupply of good wines from Lodi (the cool part of California’s Central Valley that supplies coastal-type fruit at lower prices) and the big brands are starting to slug it out in the under $7 range,’ where the Australians, Chileans and other imports are strongest.

American exports, by contrast, have stagnated with the strong US dollar. ‘It’s taken the profits out of the export market,’ notes Roger Trinchero. Richard Sands, chairman of powerful Constellation, agrees, preferring to concentrate on the US and UK markets where it has a big presence. Not everyone fears the imports. Selfridge, an economist by training, believes the concern is overblown. ‘Floods of imports have

historically been cyclical and based on currency values.’ They rise and fall.Often less noted by wine executives – though possibly the biggest challenge facing California wineries – is how to create more customers. Only 10% of Americans drink 80% of the wine, and the industry needs to expand that base if it’s to grow. ‘We’ve made wine an elitist beverage,’ complains Klentz. Leading wine industry consultant Vic Motto agrees: ‘We have to build the market and make wine part of popular culture. That will take traditional consumer marketing like advertising, not just the relationship marketing wineries have favoured.’ He thinks it’s possible, all the same. ‘I do believe there’s the potential for Americans to drink

significantly more wine.’Grant warns that it won’t be easy to create new committed wine drinkers. ‘It’s a marathon, not a sprint.’ But he’s still optimistic. ‘I honestly believe the fundamentals of the market are very strong,’ he says. ‘The growth driver for the business – the maturing of the baby boomers – is in place and I see no change.’

Written by PAUL FRANSON