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Are Grape Prices Rising Unsustainably?

I've been hearing a lot of talk about grape prices rising too fast and squeezing wineries' margins too much. I decided to investigate whether or not this is true. The claim, it turns out, does not line up 100% with the salient facts, which follow and are derived from Wine Institute, Bureau of Labor Statistics and USDA-NASS data. The data are all summarized in a jpeg at the end of this article. It's in .jpg format to make it easy to copy and send around.

Since 1999, California retail wine value has increased by 4.53% annually, while liquid volume has increased by 1.93% annually. We can interpolate from this an average of 2.6% growth in bottle prices over that period. Grape prices increased by 2.11% annually over that same period. Naughty, naughty wineries (or probably distributors), are pocketing more than their fair share of the windfall of increasing wine sales, instead of sharing it with hard-working farmers.

OK, but wait, what about more recently? Going back to 1999 allows more recent trends to get lost in the data. Since 2010, the beginning of both the decade and the industry's recovery, dollar retail sales value has increased by 6.60%, while liquid volume sales have increased by 2.28%, indicating bottle price growth of 4.39%. Alright, so grape prices have been outpacing wine prices more recently. But isn't this just making up for 15 years of lost ground?

Yes, it is. Though grape prices have risen by 29% since 2010, while retail prices have gone up only 16%, the numbers since 1999 look a lot different. Over those 15 years, bottles sales have grown by 45% vs. grapes' 37%. Furthermore, grapes make up only part of the cost of wine. Inflation has almost certainly been higher for growers, who are constantly faced with mounting regulations and shrinking labor and water supplies. In the meantime, distributors and producers have been able to rationalize costs through consolidation. Inflation over the longer period totaled 44%, but only 8% over the shorter period.

Finally, let's look at the future. According to data presented at the Wine Industry Symposium Group at Central Coast Insights, 50% of producers surveyed plan to raise prices next year. The same survey found that less than 20% of producers expect to see profits drop, while 55% expect to see profits rise. Some 20% expect to see profits rise over 10%.

So, what's the verdict? It looks like we're reaching a point of balance between producers and growers, but, at least at this point, I do not think there is reason to say that grapes are overpriced compared to bottle prices and profits. I think we'll continue to here this from producers and their banks, but I wouldn't be surprised if growers continue to succeed in pushing prices up some more.

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