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AN ECONOMIC EVALUATION OF PREMIUM VINEYARDS AND WINERIES IN ARIZONA (VITICULTURE, ENOLOGY) Item Type text; Thesis-Reproduction (electronic) Authors Brady, Thomas Anthony, 1950- Publisher The University of Arizona. Rights Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. Download date 04/10/2021 06:19:29 Link to Item http://hdl.handle.net/10150/276390 INFORMATION TO USERS This reproduction was made from a copy of a document sent to us for microfilming. While the most advanced technology has been used to photograph and reproduce this document, the quality of the reproduction is heavily dependent upon the quality of the material submitted. 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THE UNIVERSITY OF ARIZONA, 1987 UMI 300 N. ZeebRd. Ann Arbor, MI 48106 PLEASE NOTE: In all cases this material has been filmed in the best possible way from the available copy. Problems encountered with this document have been identified here with a check mark V . 1. Glossy photographs or pages 2. Colored illustrations, paper or print 3. Photographs with dark background 4. Illustrations are poor copy 5. Pages with black marks, not original copy 6. Print shows through as there is text on both sides of page 7. Indistinct, broken or small print on several pages 8. Print exceeds margin requirements 9. Tightly bound copy with print lost in spine 10. Computer printout pages with indistinct print 11. Page(s) lacking when material received, and not available from school or author. 12. Page(s) seem to be missing in numbering only as text follows. 13. Two pages numbered . Text follows. 14. Curling and wrinkled pages 15. Dissertation contains pages with print at a slant, filmed as received 16. Other University Microfilms International AN ECONOMIC EVALUATION OF PREMIUM VINEYARDS AND WINERIES IN ARIZONA by Thomas Anthony Brady Jr. A Thesis Submitted to the Faculty of the DEPARTMENT OF AGRICULTURAL ECONOMICS In Partial Fulfillment of the Requirements For the Degree of MASTER OF SCIENCE In the Graduate College THE UNIVERSITY OF ARIZONA 1987 STATEMENT BY AUTHOR This thesis has been submitted in partial fulfillment of requirements for an advanced degree at the University of Arizona and is deposited in the University Library to be made available to borrowers under rules of the library. Brief quotations from this thesis are allowable without special permission, provided that accurate acknowledgement of source is made. Requests for permission for extended quotation from or reproduction of this manuscript in whole or in part may be granted by the head of the major department or Dean of the Graduate College when in his or her judgement the proposed use of the material is in the interests of scholarship. In all other instances, however, permission must be obtained from the author. Signed: APPROVAL BY THESIS DIRECTOR This thesis has been approved on the date shown below: Dr.Paul Wilson Professor of Agricultural Economics ACKNOWLEDGEMENTS Robert de Treville Lawrence and the Vinifera Wine Growers Association provided the initial impetus for my interest in vineyard and winery economics. I'm grateful to Dr. Jimmye Hillman, Dr. Roger Fox, and Dr. Robert Firch for their efforts in securing a position for me as a research- assistant in the Agricultural Economics Department . The insights and enthusiasm that Dr. Wilson contributed to this study were of the highest order and indispensable. Dr. Merle Faminow, and Dr. James Wade collaborated on the research ana are also thanked. Special acknowledgement goes to Dr. Gordon Dutt, the harbinger of the the Arizona wine industry. Computer assistance provided by Mrs Annie Hudecek permeates this entire manuscript. Thank You. Direct or indirect contributions were made by Dr. Eugene Mielke, Dr. Mike Kilby, Dr. Robert Angus, Adrian Bosman, Robert Webb, Roger Coupal, Teddy Goldammer, Burton Kaufer, and Walter Slipp. My wife Susan introduced me to winegrowing, and she earns the bulk of the accolades for her support and encouragement. Thank you Tommy and Katie Brady and Mr. and Mrs John Reichhardt and Mr. and Mrs Thomas Brady. iii TABLE OF CONTENTS LIST OF ILLUSTRATIONS vi LIST OF TABLES vii ABSTRACT ix 1. INTRODUCTION 1 Arizona Winegrowing 2 Sonoita 5 Risks 9 The Market 13 Objectives . 17 2. LITERATURE REVIEW 19 Vineyard Site Selection . 19 Equipment 22 Establishment and Maintenance 24 Winery Studies 31 Market Studies 37 3. ANALYTICAL MODELS AND REPRESENTATIVE BUDGETS 42 Net Present Value 43 Internal Rate of Return 45 Enterprise Budgets 47 Vineyard Budgets 48 Receipts 48 Operating Costs 55 Ownership Costs 58 Returns Above Costs Shown 61 Winery Budgets 61 Receipts 61 Operating Costs 68 Ownership Costs 70 Returns Above Costs Shown 74 4. The Market 75 Arizona Consumption 84 Future Wine Consumption 94 Projected Vineyard and Winery Demand 97 Marketing 100 Arizona 106 iv TABLE OF CONTENTS—CONTINUED 5. ADJUSTED INCOMES AND FINANCIAL ANALYSIS 109 Vineyard Analysis 114 Winery Analysis 117 Vineyard and Winery Analysis 120 6. SUMMARY AND CONCLUSIONS 126 APPENDIX A 133 APPENDIX B 135 APPENDIX C 142 APPENDIX D 1A 3 APPENDIX E 146 APPENDIX F 148 APPENDIX G 150 APPENDIX H 152 APPENDIX I 154 APPENDIX J 156 APPENDIX K 158 APPENDIX L 160 APPENDIX M 162 APPENDIX N 164 APPENDIX 0 166 APPENDIX P .168 APPENDIX Q 170 APPENDIX R 172 SELECTED BIBLIOGRAPHY 174 v LIST OF ILLUSTRATIONS 1. Locations of Arizona's Four Bonded Wineries 6 2. The Sonoita Viticultural Area 10 3. Active Management Areas and Irrigation Non-Expansion Areas in Arizona ....23 4. Forecasted Growth of the U.S. Wine Market 1980 to 1990 79 5. Share and Percentage of the U.S. Wine Market 1970 to 1985 1970 ....85 1975 86 1980 87 1985 88 6. Marketing Matrix 102 7. Internal Rate of Return for Vineyards 129 8. Internal Rate of Return for Wineries ....130 9. Internal Rate of R<" turn for Combined Vineyards/Wineries 131 vi LIST OF TABLES 1. Bonded Winery Premises, States 3 2. The Five Grape Growing Regions by Climate 20 3. Summary of the Realized Rate of Return for Eight Wine Grape Varieties at Various Equity Positions, and Before-Tax Discount Rates 29 4. Suggested Aging Cycles for premium wine varieties ...30 5. Summary of Winery Construction Costs and Costs Per Gallon 3A 6. Consumption Trends by Beverage 1979-1983 (millions of gallons) 39 7. Enterprise Budget for Twenty Acre Vineyard 49 8. Enterprise Budget for Fifty Acre Vineyard 51 9. Enterprise Budget for One Hundred Acre Vineyard 53 10. Grapes Harvested in Tons 55 11. Vineyard Maintenance Expenses, Mature Vineyard 57 12. Machinery and Equipment for Vineyard Establishment and Maintenance 59 13. Per Acre Irrigation and Trellis Materials for Vineyards 60 14. Enterprise Budget for a Twelve Thousand Gallon Winery .....62 15. Enterprise Budget for a Thirty Thousand Gallon Winery .....64 16. Enterprise Budget for a Sixty Thousand Gallon Winery ..66 17. Cases Available for Sale on Yearly Basis 69 18. Winery Work Schedule 71 19. Winery Equipment Costs 72 20. Capital Improvements for Winery Budgets 73 21. Long-Term Trends in U.S. Wine Consumption and Expenditures, 1984 to 1951 76 22. Wine Production in the Six Largest Wine Producing Nations in Thousands of Gallons 78 23. Estimated Per Capita Consumption of Wine, by Countries ,.81 24. Consumption of Wine by Type, (thousands of cases) ...82 25. Per Capita Consumption Trends by Beverages, 1968-1984 (gallons) 83 26. Per Capita Wine Consumption in the U.S. by States ...90 vi i LIST OF TABLES —CONTINUED 27. Regression Analysis for Wine Consumption and Income 93 28. Forecasted Arizona Wine Consumption 96 29. Derived Vineyard and Winery Demand 99 30. Vineyard Depreciation Schedules, Modified Accelerated Cost Recovery System Ill 31. Winery Depreciation Schedules, Modified Accelerated Cost Recovery System 112 32. Financial Analysis for Vineyards 115 33.

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