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California wine industry in grip of slump

California's wine industry is in the midst of the worst slump for 10 years and as many as 200 wineries may go out of business, experts say.

After a decade of massive growth, which saw California’s wineries increase by 50%, the industry is facing a threefold threat in the form of a downturn in the economy, overproduction of grapes and cheap imports.

A report by industry analysts AC Nielsen says holiday sales of California wines declined in nearly all categories for the first time since the 1991/2 recession. While grape prices are plummeting, the US market is full of cheaper wine from Australia, South Africa and South America.

Analysts say the increase in California wineries from 600 to 900 over the past decade is part of the problem. The market cannot sustain that level of production and smaller wineries are going under, or being snapped up by major producers who can afford to keep prices down.

As well as this, consumption patterns of baby boomers which grew wine sales by as much as 20% per year have levelled off, while the younger generation is not buying premium wines in the same quantities.

One broker told Associated Press he thought as many as 200 wineries could go bust or be bought up. Joe Ciatti, one of California’s largest bulk wine brokers said, ‘We are going to lose scores of wineries to bankruptcy.’

Another wholesaler, Fred Reno of the Henry Wine Group said, ‘The smaller wineries selling less than 20,000 cases a year don’t have the ability to cut prices and stay profitable.’

For the consumer there is good and bad news. Wine will be cheaper but the high-quality ‘hand-crafted’ wines for which California is famous will become more scarce as big companies dominate.

‘It’s the coming homogenisation of the wine imdustry,’ Kim Stare Wallace of Sonoma’s Dry Creek Vineyard said. ‘Small wineries will be grabbed by the big guys.’

Wineries are already cutting back. Since last summer, Robert Mondavi Winery has 640ha of prime vineyard land for sale. Andy Bledsoe, vice president of winegrowing, told decanter.com the winery had suffered from oversupply. He warned growers at the time, ‘If you call me to try to sell grapes, I’ll try to sell some of our surplus to you.’

Wine Institute of California spokeswoman Gladys Horiuchi said, ‘The wine industry goes through cycles. In the mid-1990s we didn’t have enough wine, and everyone planted. Now all those vineyards are coming into production just as there is a downturn in the economy. In five years time there will probably be a shortage again.’

Written by Adam Lechmere, and agencies6 January 2002

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