Research Article t

Wine- production trends reflect evolving consumer demand over 30 years

by Richard James Volpe III, Richard Green, Dale Heien and Richard Howitt Jack Kelly Clark Kelly Jack The California industry has been in the midst of a prolonged boom for more than 30 years. In 1975, Califor- nia was home to approximately 330 ; by 2006 there were nearly 2,500. There has been a dramatic shift in demand toward higher priced and higher quality table , as reflected in the total revenues and crush shares of the state’s four major growing regions. We examine the major trends in the - grape industry over the last 30 years, specifically differences that are aris- ing between the coastal and inland growing regions and migration of the various wine-grape varieties grown Grape prices and total production continue to rise in California. Since 2000, an average of 175 new wineries have opened each year. Above, V. Sattui in the Napa Valley was throughout the state. established in 1885.

he California wine industry has been the state, nation and world. In this study (4) South Central Valley, which in- in the midst of a prolonged boom we quantify the major trends that have cludes much of the San Joaquin Valley forT more than 30 years, with production shaped the industry over 30 years. and extends to the southern terminus expanding as the state’s global reputa- The California Department of Food of the Central Valley in San Bernardino tion for producing high-quality wines and Agriculture (CDFA) divides the County. steadily increased. In 1975, California state into 17 wine-grape-growing dis- In order to keep our analysis empiri- was home to approximately 330 win- tricts, which are in turn aggregations of cally manageable, we limited the focus eries; by 2006 there were nearly 2,500 American Areas (AVAs) for to eight major wine-grape varieties. (Wine Institute 2007). This trend was California. (The boundaries of AVAs are These include , kick-started in large part by California’s determined by the federal Alcohol and , and surprise victory over France in the Paris Tobacco Tax and Trade Bureau.) For the as representative red ; and of 1976, an international purposes of our analysis, we aggregate , , French blind taste test immortalized in the the major growing districts — with the and as repre- movie Bottle Shock. There is no shortage exception of the Sierra foothills — into sentative white grapes. As of 2006, total of research on the trends and dynamics four growing regions (fig. 1). These are: production of these eight grapes was of the California wine industry, yet vir- (1) North Coast, home to California’s 2.2 million tons, or 71% of California’s tually none has been directed toward the world-famous Napa and Sonoma val- total wine-grape output. The average California wine-grape industry. leys and, accordingly, the state’s highest real price received per ton of crush for As of 2004, California accounted for priced wines. these varieties across the regions was 92% of U.S. wine-grape production and (2) Central Coast, which stretches $811. The comparable price received in nearly 90% of all domestic wine produc- from San Mateo County in the north 1976 was $642, but this 26% increase tion (Wine Institute 2007). Moreover, to Ventura County in the south and does not reflect a trend seen uniformly wine grapes accounted for nearly 10% of includes such up-and-coming AVAs as throughout the state. Over the 30 years, California’s total agricultural receipts in Paso Robles and the Santa Ynez Valley. prices received grew by an average of 2006, second only to fluid milk (CDFA (3) North Central Valley, which in- 46% in the North Coast region, while 2007). The California wine-grape indus- cludes the Sacramento and northern prices actually fell slightly throughout try is of great economic importance to San Joaquin valleys and the Lodi AVA. much of the rest of the state.

42 CALIFORNIA AGRICULTURE • VOLUME 64, NUMBER 1 Del Norte Siskiyou Modoc

Humboldt Trinity Shasta Lassen 2,500 S. Central Valley N. Central Valley Tehama 2,000 Plumas Central Coast North Coast Mendocino Butte Glenn Sierra 1,500 Nevada Colusa Yuba

Sutter Placer Lake 1,000 $ (millions) El Dorado Yolo Sonoma Napa Sacra– Alpine 500 mento Solano Amador Marin Calaveras San 0 Contra Joaquin Tuolumne 1976 1981 1986 1991 1996 2001 2006 Costa Mono San Francisco

Mateo San Alameda Stanislaus Mariposa Santa Clara Inyo Fig. 2. Total regional revenues, in 2006 dollars, Santa Cruz Merced Madera for four major grape-growing regions of California, 1976–2006. Source: CDFA Annual San Benito Crush Reports, 1976–2006. Fresno

Tulare Monterey Kings 100 Kern S. Central Valley San Luis Obispo San Bernardino N. Central Valley 75 Central Coast North Coast

Santa Barbara Los Angeles Ventura 50 S. Central Valley N. Central Valley Central Coast 25 Orange North Coast Riverside Share of grape crush (%)

Imperial 0 San Diego 1976 1981 1986 1991 1996 2001 2006

Fig. 3. Overall shares of output, as measured by tons of grape crush, for four growing regions Fig. 1. Major wine-grape growing regions of California. Source: CDFA Annual Crush and Acreage of California, 1976–2006. Source: CDFA Annual Reports, 2006. Crush Reports, 1976–2006.

Of particular interest in this study remains strong, however, for cheaper land regions produced nearly twice as are the changing production and price jug wines, which are typically sold in much total crush as the coastal regions, patterns across growing regions as well containers larger than bottles but sell yet were home to approximately one- as the changing roles played by various for the equivalent of $3 or less per bottle ninth as many brick-and-mortar winer- wine-grape varieties. The identities of throughout much of the United States ies (California WineOnline 2005). Napa each of the four growing regions con- and globally. Hence the wine-grape in- and Sonoma counties hosted 404 such tinue to take shape as do their particular dustry has become bisected. The coastal wineries in 2005, compared to only 42 roles within California’s wine economy, regions have become associated with in the entire north Central Valley. This while the production patterns and loca- high-quality wines, generally with lim- disparity highlights regional differ- tions of the various varieties reflect con- ited distribution and an emphasis on ences in varietal emphasis. stantly evolving consumer demand. wine tourism. The inland regions have Revenues and crush shares. The total become associated with lower quality revenues and crush shares of the four Lower coastal yield, higher prices wines, typically produced using grapes major growing regions also reflect this Domestically, there has been a dra- grown under long-term contracts and growing dichotomy in the California matic shift in demand over the past 30 sold in jugs or boxes at low prices with wine-grape industry (figs. 2 and 3). As years toward higher priced and higher large-scale distribution. The inland of 2006, the North Coast generated by quality table wines. Premium wines, regions are home to the majority of pro- far the most revenue of the four regions, those priced between $7 and $14 per duction by wine industry giants such as with $779 million in receipts, despite ac- bottle, have seen their national revenue Gallo, Sutter Home and Woodbridge by counting for only 19% of the state’s total share increase 14% since 1995, while Mondavi. output. The Central Coast region ranked ultra-premium wines, priced at over $14 “Brick-and-mortar” wineries are a distant second overall in revenues, per bottle, have increased their share open to the public for wine tasting and but grew the fewest grapes. Meanwhile, by 21% (Goodhue et al. 2008). Demand on-site purchases. As of 2005, the in- the vast southern portion of the Central

http://californiaagriculture.ucanr.org • January–March 2010 43 A (Red wine) 14 S. Central Valley N. Central Valley 1976 2006 Central Coast 12 12 North Coast 14 34 39 10 23

8 46 5 26 Zinfandel 6 Merlot Cabernet Sauvignon Pinot Noir 4

Avg. yield (tons per acre) Avg. B () 2 1976 2006

0 14 7 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 33 5 18

Fig. 4. Average yields for the wine-grape growing regions of California, 1976–2006. Source: CDFA Annual Crush and Acreage Reports, 1976–2006. 10

48 65 French Colombard Valley generated about one-third of the nearly 12 tons of grapes, compared to ap- Sauvignon Blanc North Coast revenues, despite account- Chardonnay proximately 11 tons in the north Central Chenin Blanc ing for 30% of the state’s total output. Valley region, 7 tons in the Central Coast In 1976 the picture was quite dif- and only 4 tons in the North Coast. This Fig. 5. Shares (%) of total (A) red and (B) white ferent, as the south Central Valley was disparity not only illustrates funda- wine-grape production in California, 1976 and 2006. Source: CDFA Annual Crush Reports, dominant in terms of both crush and mental production differences, but also 1976–2006. Figure 5A adds up to 99% due to revenues. The Central Coast had the helps to explain how the North Coast rounding error. lowest overall share of revenues by a produced 19% of California’s total grape wide margin, as its AVAs had yet to rise crush in 2006 on one-third of its total to prominence, and the region was re- grape-bearing acreage. During that time, average yields in the sponsible for less than 7% of statewide The magnitude of the yield dispar- north Central Valley region more than output. The north Central Valley is the ity between coastal and inland grow- doubled over 20 years, while those in only region that showed a significant ing regions varies widely among grape the Central Coast increased by 33%, and sustained rise in output share, varieties. For example, in 2006 the North the south Central Valley increased by which increased steadily from the mid- Coast produced an average of 3.75 tons 30% and the North Coast remained 1980s onward. This increase was driven of Chardonnay per acre, while the north statistically the same. by a rapid expansion in the production Central Valley produced 9.25 tons of Migration of wine-grape varieties of Merlot, Cabernet Sauvignon and Chardonnay per acre. In the case of Chardonnay. Merlot, however, the North Coast aver- Total bearing acreage for the eight Yields. Another key factor differ- age yield was 3.57 tons per acre in 2006 grape varieties that we studied grew entiating the four growing regions is compared to 6.80 tons per acre in the from just over 100,000 acres in 1976 to yield per acre (fig. 4). Low yields are north Central Valley. Just as the North 337,000 acres in 2006. Throughout this typically associated with higher qual- Coast is outdistancing the rest of the growth spurt, the allocation of these ity grapes and, by extension, higher state in terms of revenues, there appears varieties changed greatly. Their distri- quality wines. Lower yields imply to be a growing divergence between bution reflects the evolution of domestic that fewer grapes are being processed even the North Coast and Central Coast wine demand. from each acre, and that only grapes in terms of yields over the last 10 years. Merlot and Zinfandel. Overall, the meeting a certain quality threshold The north Central Valley managed aggregated picture for red grapes has re- are being used. Moreover, lower yields to increase its share of total wine-grape mained fairly constant (fig. 5A). Merlot’s frequently indicate that grape vines production not only by expanding total share increased from 5% to 26%, are grown spaced apart such that the acreage throughout the San Joaquin mostly by taking up the slack from grapes receive optimal amounts of wa- and Sacramento valleys, but also by relatively stagnant Zinfandel. Zinfandel ter and sunlight (Bettiga et al. 2003). significantly increasing yields, mainly grapes grow well in warmer climates Barring exceptional years over the by decreasing the average spacing and on closely spaced vines, making 30-year time span, the North Coast has among planted vines. Average yields them well suited for production in the had the lowest average yields, while the in the north Central Valley steadily inland areas (Bettiga et al. 2003). As a south Central Valley has had the high- increased from about 4 tons per acre result, production of Zinfandel grapes est. In 2005, the latest year not seriously in 1985 to 9 tons per acre in 2006, with has remained steady in the North Coast affected by droughts or frosts, the aver- occasional peaks and valleys result- and Central Coast regions for the last 30 age south Central Valley acre produced ing from weather conditions (fig. 4). years, while it expanded only in the in-

44 CALIFORNIA AGRICULTURE • VOLUME 64, NUMBER 1 The disparity in perceived quality and prices between inland duced to less than a quarter due to huge and coastal growing regions will continue to widen. production growth in the north Central Valley and, to a lesser extent, the south Central Valley. land areas. In parts of the north Central grew from 14% in 1976 to 65% in French Colombard and Chenin Blanc. Valley, particularly in the Lodi AVA, 2006. This reflects an increase in total The distribution of French Colombard growers are placing an emphasis on Chardonnay production from 7,300 tons and Chenin Blanc production, how- high-quality “old vine” that to over 530,000 tons in 30 years. Both ever, is increasingly concentrated in are processed into table wines. In other supply and demand factors account for the south Central Valley region. Both inland AVAs, the growth in Zinfandel the rapid and sustained expansion of the grapes are used primarily as blends production has been fueled by an in- Chardonnay crop, which occurred while in cheap jug wines, so grower returns crease in demand for white Zinfandel the overall share of white-grape produc- for these grapes have fallen sharply wine, which is typically sold as a low- tion in California fell from a peak of 73% relative to most other varieties in priced jug wine. The general pattern in 1987 to 42% in 2006. California. Today they are grown in of decreasing real prices for Zinfandel On the supply side, Chardonnay is trivial amounts in the coastal regions grapes over time suggests that the latter among the most versatile grapes grown and in modest amounts in the north trend is overpowering the former. in the New World. It can grow in a Central Valley, while the south Central Merlot, another red grape that wide range of soil and climatic condi- Valley accounts for 97% of total French thrives in warm climates, has seen tions, its vine spacing can be varied Colombard production and 76% of total significant growth in all four growing significantly, and it lends itself to both Chenin Blanc. regions, with the greatest expansion in hand and machine harvesting. On the Sauvignon Blanc. Sauvignon the north Central Valley. In 1976, the market side, consumer demand has Blanc, also known as Fume Blanc in north Central Valley accounted for only grown steadily for Chardonnay table California, has seen the least overall 16% of California’s total Merlot produc- wine, since it pairs well with food but migration of the eight grape varieties tion, but by 2006 the region’s share had can also be consumed on its own. At examined. It is a very adaptable grape grown to 40%. the same time, demand remains strong in that it can be grown vigorously Cabernet Sauvignon and Pinot Noir. for cheaper Chardonnay jug wines, and in a variety of soil types and in both Cabernet Sauvignon and Pinot Noir are Chardonnay grapes are commonly used warm and cool microclimates, but the grown almost exclusively to produce to make sparkling wines. vines must be spaced a minimum of high-quality and high-priced table Over time, Chardonnay production 6 feet apart. During the last 30 years, wines, and they are rarely blended. Both in California has become more evenly Sauvignon Blanc production has lagged grapes, but especially Pinot Noir, flour- distributed across the four major grow- in the Central Coast compared with the ish in the cooler coastal areas and di- ing regions. In 1976, more than half other three regions, because the Central minish in quality when grown in hotter, of California’s total Chardonnay pro- Coast has come to focus almost en- drier areas. Nevertheless, these grapes duction took place in the North Coast tirely on the production of Chardonnay are increasingly grown in the north region, but by 2006 that share was re- white grapes. In the North Coast, the Central Valley region as several AVAs such as Lodi and Clarksburg are work- ing to assert themselves as high-quality growing regions. The Pinot Noir grape was not grown in sufficient quantities to be measured by CDFA surveys of Clark Kelly Jack Photos: the north Central Valley in 1976, but by 2006, output was nearly 20,000 tons. (The Academy-Award winning 2004 movie Sideways appears to have given Pinot Noir sales a boost.) This is approximately one-third of the Pinot Noir production of the Napa and Sonoma valleys, where it now yields the highest average grower returns in California for wine grapes. Chardonnay. The white-wine-grape industry has been far more dynamic than the red-wine-grape industry (fig. 5B). Since the late 1980s, Chardonnay production has grown while the other three white varieties have fallen at vary- Over the past 30 years, the demand for, left, wine grapes has continually increased, but the ing rates. The total share of Chardonnay distribution of grape varieties grown has shifted dramatically. Right, acreage of Pinot Noir grape production among white grapes grapes was virtually nil in 1976; by 2006, about 20,000 tons were harvested.

http://californiaagriculture.ucanr.org • January–March 2010 45 In memory of Dale Heien Professor Dale Heien joined the UC Davis Department of Agricultural and Resource Economics in 1982 and retired in 2003. His research interests were primarily in the areas of demand systems, pricing and markets, and in recent years the supply and demand of wine grapes and wine. He was a deep thinker, and colleagues frequently sought his advice. He co-authored a seminal article with Murray Brown, “The S- Branch Utility Tree: A Generalization of the Linear Expenditure System,” in Econo- metrica in 1972, and published in journals that included Journal of the American Statistical Association, Review of Economics and Statistics, Journal of Business and Economic Statistics, and American Journal of Agricultural Economics. Heien was an avid Chicago Cubs fan and loved his family. He passed away on June 19, 2009.

Sauvignon Blanc grape is typically Coast prices and about four times the and Merlot remain concentrated on processed into a dry table-wine vari- average prices received inland. the coast. The long-term trends of in- etal, while inland it is blended to make While certain AVAs of the north creasing yields per acre in the inland sweeter jug wines or harvested late to Central Valley are establishing them- regions compared with stagnant or produce very sweet varietals. selves as producers of high-quality even decreasing yields per acre in the table wines such as Zinfandel and coastal regions suggest that this seg- Looking to the future Chardonnay, in aggregate the north mentation will continue unabated for a Statewide, grape prices and total Central Valley is not distinguishing long time to come. production appear poised to continue itself from the south Central Valley their ascent. On average, 175 new in terms of wine quality or price. wineries have opened in California In fact, average prices received for R.J. Volpe III is Ph.D. Candidate, R. Green is annually since 2000 (Wine Institute grapes in the north Central Valley Professor, D. Heien (deceased) was Professor 2007). The trend of decreasing prices in have fallen in real terms over the last Emeritus, and R. Howitt is Professor, Depart- regions such as the north Central Valley 30 years as production has boomed, ment of Agricultural and Resource Economics, is not indicative of decreasing demand and today average grape prices of UC Davis. This research was funded in part by a but rather of the constantly changing the north and south Central Valley grant from the California Department of Food distribution of the major grape variet- are approximately equal. The high- and Agriculture. ies. As long as Chardonnay retains its quality AVAs of the Central Coast popularity among consumers, it will region, such as Paso Robles and the likely represent an ever larger percent- Santa Ynez Valley, are growing in size References age of the state’s total white-wine-grape and prominence, but at present they Bettiga LJ, Golino DA, McGourty G, et al. 2003. production, while ballooning prices remain small relative to the Napa and Wine Grape Varieties in California. UC ANR Pub 3419. Oakland, CA. 188 p. for Pinot Noir grapes suggest that their Sonoma valleys to the north. production will expand significantly Over time the Central Coast region [CDFA] California Department of Food and Agri- culture. Various years. Final Grape Acreage Report, within the coastal regions. may approach the North Coast in 1976–2006. Sacramento, CA. http://www.nass. The hierarchy of the four major grow- terms of total production and grape usda.gov/Statistics_by_State/California/Publications/ ing regions in terms of perceived qual- prices, particularly because appel- Grape_Acreage/200804gabtb01.pdf. ity and prices received has remained lation expansion in the North Coast CDFA. Various years. Final Grape Crush Report, unchanged for 30 years, with the North is far more constrained than in the 1976–2006. Sacramento, CA. http://www.cdfa. ca.gov/statistics/files/CDFA_Sec7.pdf. Coast on top, followed by the Central Central Coast. However, the evolv- Coast, the north Central Valley and fi- ing distribution of California’s grape CDFA. 2007. Agricultural Statistical Review. National Agricultural Statistics Service. http://www.cdfa. nally, the south Central Valley. However, varieties, as well as trends in yields ca.gov/files/pdf/card/ResDir07_Overview.pdf. the prices received for wine grapes per acre, suggest that the disparity in California WineOnline. 2005. California Wine Data. in the North Coast region continue to perceived quality and prices between http://www.california-wineonline.com/california outpace those in the rest of the state. In inland and coastal growing regions _wine.htm. 1976, the average prices for grapes in the will continue to widen. The grapes Goodhue R, Green R, Martin P, Heien D. 2008. North Coast were 13% higher than those commonly used to produce cheap jug California wine industry evolving to compete in 21st of the Central Coast, 2.25 times higher wines, such as new-vine Zinfandel, century. Cal Ag 62(1):12–8. than the north Central Valley, and al- French Colombard and Chenin Blanc, Wine Institute. 2007. Industry Background & Statis- most three times higher than the south continue to concentrate in the AVAs of tics. http://www.wineinstitute.org/communications/ Central Valley. In 2006, North Coast the north Central Valley, while higher statistics/#econ_industry. prices were 72% higher than Central priced varieties such as Pinot Noir

46 CALIFORNIA AGRICULTURE • VOLUME 64, NUMBER 1