Recent Trends in the California Wine Grape Industry

Recent Trends in the California Wine Grape Industry

Richard Volpe, Richard Green, Dale Heien, and Richard Howitt

This article takes an in-depth look Wine grapes were respon- varieties and growing regions over the
at the changes in the California sible for 8.7 percent of the last 30 years. Special emphasis is paid
wine grape industry over the last 30 state’s total agricultural to the changing face of grower returns.
years. In response to rising consumer receipts in 2004, ranking third among
demand for California wines, the agricultural products behind dairy and California’s Growing Regions
wine grape industry has expanded greenhouse products. Furthermore,
rapidly in acreage and production. California accounts for 92 percent The California Department of Food
The growth, as we show, has not been of the wine grape production in the and Agriculture divides the state into
uniform across grape varieties or the entire United States. The wine grape 17 pricing districts for the purposes of
state’s major growing regions. industry is therefore of great signifi- data collection and presentation. We
cance to both the state and the nation. organized the most significant pricing
The article by Goodhue et al. in this districts into four major growing
issue details several of the changes regions: 1) The North Coast, which
being observed within the California extends northeasterly from the San
wine industry. These are mirrored, by Francisco Bay Area and includes the
and large, by trends within the wine Napa and Sonoma Valleys, 2) The
grape industry. This article tracks the Central Coast, which extends from
growth and changes of the California San Mateo County in the north to
wine grape industry across the major Santa Barbara in the south, 3) The
Central Valley, which includes the
Figure 1. The Major Wine Grape Growing Regions of California Sacramento and San Joaquin Valleys,
and 4) The Southern Valley, the most
North Coast vast of the four regions including
Central Coast Kern and San Bernardino Counties
Central Valley and all points south. Figure 1 shows
Southern Valley the locations of the four major grape
growing regions in California.

Figure 2 reports the total grape crush
in tons for the four growing regions
over the last 30 years. All four regions
experienced sharp drops in total grape
production in 2006 due to droughts and
below-average temperatures through-
out late 2005 and early 2006. The most
severe impact was felt in the Central
Valley, where the drought resulted
in strict water cuts for grape growers
and, thus, reduced irrigation. Overall,
we see that production has increased
steadily in the four growing regions.
Total production in the Southern Val-
ley has been relatively steady since the
early 1980s, and in 2002 the Central
Valley became the region producing
the most grape crush in California.

Giannini Foundation of Agricultural Economics • University of California 7

Figure 2. Wine Grape Production in California’s Growing Regions, 1976–2006 The total production in the high-
quality coastal regions has grown rela-
1,200 North Coast tive to that in the inland areas. In 1976
1,000 Central Coast the North Coast and Central Coast
Central Valley combined for 22 percent of Califor-
800 Southern Valley nia’s total grape crush. In 2006 their
share was 36 percent. This growth is
Thousands of Tons 600 attributed mainly to the expansion of
the Santa Barbara and San Luis Obispo
400 American Viticultural Areas (AVAs).
The U.S. Department of the Treasury
200 divides the U.S. wine grape industry
into AVAs according to distinctive
0 climate, soil, and elevation condi-
tions. The Paso Robles AVA, in San
1976 Luis Obispo County, alone grew from
1978 fewer than 20 wineries in 1990 to more
1980 than 170 at the turn of the century.
1982
1984 Figure 3 reports the average prices
1986 received in the four growing regions.
1988 The prices are weighted by the crush
1990 counts of the major varieties. There
1992 has nearly always been a significant
1994 difference between the prices received
1996 in the coastal regions and those of
1998 the inland regions. Starting in the late
2000 1980s, this gap began to grow wider
2002 to reflect the increasing preference
2004 among American consumers for high-
2006 quality table wine. In the late 1990s, a
significant margin developed between
Figure 3. Average Prices Received by Growing Region, 1976–2006 the North Coast and Central Coast
prices. The average prices received for
2,500 grape crush in the North Coast, which
is home to the most famous AVAs in
2,000 North Coast the United States, are now significantly
Central Coast higher than those received anywhere
Central Valley else in the state. Average North Coast
Southern Valley prices, driven in part by the surging
prices of Pinot Noir grapes, are flirt-
1,500 ing with the $2,000/ton benchmark
while even those of the Central Coast
$ per Ton 1,000 remain closer to $1,000 per ton.

500 For several years the grapes of the
Central Valley yielded higher returns
0 than those of the Southern Valley.
Average prices received in the Cen-
1976 tral Valley have fallen in recent years,
1978 however, as much of the production
1980 boom in that region has been associ-
1982 ated with low-priced Chardonnay
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006

Figure 4. California Red Wine Grape Acreage, 1976–2006

80,000 Cabernet Sauvignon
70,000 Merlot
60,000 Zinfandel
Pinot Noir

50,000

Acres 40,000

30,000

20,000

10,000

0
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006

8 Giannini Foundation of Agricultural Economics • University of California

grapes. As of 2006, Chardonnay grapes Figure 5. California White Wine Grape Acreage, 1976–2006
accounted for 75 percent of the total
white grape production in the Central 100,000 Chardonnay
Valley, which are in turn crushed and 90,000 Sauvignon Blanc
processed into cheap wines with wide- 80,000 French Colombard
scale distribution. Among the growing 70000 Chenin Blanc
regions, average prices for Chardon- 60,000
nay grapes are the lowest in the Cen- Acres 50,000
tral Valley by a significant margin. 40,000
30,000
Major Wine Grape Varieties 20,000
10,000
The analysis covers eight of the 0
largest wine grape crops in California 1976
as of 2006. These include four 1978
reds—Cabernet Sauvignon, Merlot, 1980
Zinfandel, and Pinot Noir, and four 1982
whites—Chardonnay, Sauvignon Blanc, 1984
French Colombard, and Chenin Blanc. 1986
The total crush for these eight varieties 1988
statewide grew from 422,000 tons 1990
in 1976 to 2.2 million tons in 2006. 1992
Over the same time span, the average 1994
prices per ton received by growers 1996
grew from a statewide average of $235 1998
to $916 in nominal dollars. Both of 2000
these trends reflect a major expansion, 2002
both domestic and international, 2004
in demand for California wines. 2006
However, the growth in production
and revenues has not been uniform Figure 6. California Red Wine Grape Prices Received, 1976–2006
across growing regions or varieties.
2,500
Figures 4 and 5 show how the
acreage for the eight major Califor- 2,000 Cabernet Sauvignon
nia winegrapes has changed over the Merlot
years. Acreage tells a clearer story than Zinfandel
does crush, as acreage is less affected Pinot Noir
by weather shocks such as droughts
or the ebbs and flows of the interna- 1,500
tional wine market. Acreage for the
four major red varieties was very stable $ per Ton 1,000
until the mid-1990s, at which point
acreage began to expand rapidly for 500
both Cabernet Sauvignon and Merlot.
Cabernet acreage has experienced the 0 1976
most growth of all of California’s major 1978
winegrapes in the last 15 years. The 1980
crop reached 75,000 acres and 430,000 1982
tons crushed in 2006, making it easily 1984
the largest red grape crop in the state. 1986
1988
Among white grapes, the acreage 1990
and production of Chenin Blanc and 1992
1994
1996
1998
2000
2002
2004
2006

French Colombard have fallen steadily the century. At 91,000 acres and over
since the mid-1980s. Both of these a half-million tons of crush in 2006, it
varieties were once grown extensively remains the largest grape crop in the
throughout the state but, over time, state. The overarching trend of increas-
production has fallen dramatically in ing red grape production and decreas-
the North Coast and Central Coast. The ing white grape production is due in
production of these two grapes, among part to the breadth of studies that have
the more easily grown in California, is demonstrated the health benefits of
now concentrated in the inland regions. moderate red wine consumption.
With the exception of Colombard
grapes grown in the San Joaquin Valley, Figures 6 and 7 report the prices
these grapes are typically not used in received for the eight major wine variet-
blends and today they are used primar- ies. The returns are statewide averages,
ily to produce low-priced jug wines. weighted by growing regions. Since
the mid-1990s, Pinot Noir prices have
The versatile Chardonnay grape has pulled significantly ahead of those of
continued to expand over the years, the other major red varieties, corre-
only beginning to plateau at the turn of sponding with the growing reputation

Giannini Foundation of Agricultural Economics • University of California 9

Figure 7. California White Wine Grape Prices Received, 1976–2006 with the coastal regions. The produc-
tion of Colombard and Chenin Blanc
1,400 Chardonnay continues to shift away from this region
1,200 Sauvignon Blanc and into the Southern Valley so, over
1,000 French Colombard time, we may see the average prices
Chenin Blanc received for Central Valley winegrapes
increase relative to all other regions of
800 the state. The Central Valley will likely
continue to increase its production of
$ per Ton 600 red grapes, with the exception of Pinot
Noir which requires a cooler climate
400 to flourish. The increase in production
of Cabernet, Merlot, and Zinfandel in
200 the Central Valley, while dwarfed by
the expansion of Chardonnay, has still
01976 been substantial and indicative of the
1978 direction in which the region is headed.
1980
1982 The North Coast, and in particular
1984 the Napa and Sonoma Valleys, shows
1986 no sign of relinquishing its status as
1988 the premier grape-growing region in
1990 California and, in fact, all of the United
1992 States. As tourism in the area contin-
1994 ues to boom and Americans increas-
1996 ingly demand super-premium wines,
1998 the prices growers receive for grapes
2000 in the region will likely continue to
2002 distance themselves from those seen
2004 anywhere else in California. The pro-
2006 duction of Cabernet Sauvignon, driven
by increasing demands for the wine
of the wine varietal as a high-quality $1,500/ton in 2006, but in the Central varietal at high prices, is poised to
table wine. In the North Coast, Pinot Valley where the grapes are destined fully overtake that of Chardonnay in
Noir grapes now earn over $2,200 per for use in low-priced, high-distribution this region. Chenin Blanc and French
ton on average. Certain AVAs in Napa wines, prices average one-third of that. Colombard, alternatively, are nearing
and Sonoma Counties receive much the point at which they are grown in
more than that. It is worth noting, The returns for the Chenin Blanc coastal regions in trivial amounts.
however, that Pinot Noir production and Colombard grapes have remained
is concentrated in the coastal regions, fairly consistent over the years, hov- Richard Volpe is a Ph.D. candidate, Richard
where returns are significantly higher ering today at $300 and $200 per Green is a professor, Dale Heien is an emeritus
than in inland areas. Outside of the ton, respectively. The production of professor, and Richard Howitt is a professor
North Coast, Cabernet Sauvignon these grapes shifted away from the and department chair, all in the Department
grapes yield the highest average returns coastal regions before the coastal of Agricultural and Resource Economics at UC
throughout the state by a significant grape returns began to rapidly out- Davis. The authors can be contacted by e-mail
margin. Zinfandel grapes have con- pace those of the inland growing at [email protected], green@primal.
sistently earned the lowest average regions, in the mid-to-late 1990s. ucdavis.edu, [email protected], and howitt
returns of the major red grapes. @primal.ucdavis.edu, respectively.
Looking Toward the Future
Throughout most of the last 30
years, Chardonnay grapes yielded The major trends in the production of
the highest average prices among the grapes have been driven by changes in
major white varieties by a wide margin. consumer demand for wine. As demand
In the last five years the gap has nar- continues to grow for premium and
rowed between Chardonnay prices super-premium wines, grape growers
and those of Sauvignon Blanc. This is will continue to see an overall increase
due primarily to the aforementioned in the prices they receive. Statewide
explosion of Chardonnay production production of winegrapes typically
in the inland growing regions where used for high-priced table wines will
prices are lower. In 1976 the Central increase, and thus we can expect
Valley and Southern Valley combined the growth in Pinot Noir, Cabernet,
for a total share of 12 percent of total and Merlot production to continue.
California Chardonnay production,
whereas in 2006, their share was 52 Certain AVAs of the Central Valley,
percent. Chardonnay grape prices in the particularly in the San Joaquin and
North Coast remain high, surpassing Sierra foothills regions, are making
concerted efforts to produce wines of
sufficiently high quality to compete

10 Giannini Foundation of Agricultural Economics • University of California