An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers

by Mechel S. Paggi Fumiko Yamazaki

Prepared for the California Association of Winegrape.Growers

CAB C E H T i « F O ■ AsKicuiiut*! Business

California Amicvuwai ,4iV—: 'J Tschholooy Imstiiuie

Center for Agricultural Business California State University, Fresno An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers

by

Mechel S. Paggi Fumiko Yamazaki

Center for Agricultural Business California Agricultural Technology Institute California State University, Fresno

r C= T

CALIFORNIA AGRICULTURAL TECHHOI.0QY INCTITUTC

Published by the California Agricultural Technology Institute August 2007 CATI Pub.#070802 5?^ Table of Contents r*-

Acknowledgments v About the Authors v About CAB V Introduction 1 California Grape Juice Concentrate Supply Factors 2 U.S. Juice Concentrate Supply 5 Product Substitutes 5 Foreign Grape Juice Concentrate Supply 7 Argentina's Grape Juice Concentrate Production 8 Argentina's Grape Juice Concentrate industry Structure and Pricing 9 U.S.Grape Juice Concentrate Demand 11 California Grape Juice Concentrate Industry 13 Market Structure 13 California Grape Juice Concentrate Pricing 15 Pricing Grape for Concentrates 18 Implications for Central Valley Growers 20

List of Tables Table 1: California Grape Concentrate (tons) 2000-2005 2 Table 2: Grapes Crushed by California Processors by Pricing District 4 Table 3: U.S. Concord Juice Grape Production 4 Table 4: Grape Juice Concentrate Supply and Use 4 Tables: Apple Juice Concentrate Supply and Use 6 Table 6: Pear Juice Concentrate Supply and Use 6 Table?: Argentine Grape Juice Crush 9 Table 8: Argentina Average Delivered Cost,2006 11 Table 9: 2005 Thompson Seedless Bases Price to Growers 15 Table 10: U.S.Grape Juice Concentrate Cost of Production,2006 16 Table 11: Net Returns with Alternative Prices and Yields for Thompson Seedless Varieties Grown for Concentrate 21 Table 12: Weighted Average Thompson Seedless Prices District 13 21

Figures Figure 1: Estimated Breakdown of Grapes Used for Concentrate (2000-2005) 3 Figure 2: U.S. Juice Concentrate Supply 7 Figure 3: U.S.Grape Juice Concentrate imports 2005 8 Figure 4: Argentine Grape Juice Concentrate Exports 2005 10 Figure 5: Non-citrus Juice Consumption 13 Figure 6: Grape Juice Concentrate Price CY 1999-2005 and Estimated Cost of Production 17 Figure 7: Red Grape Juice Concentrate Prices CY 1999-2005 and Estimated Cost of Production 17 Figure 8: Comparison of Return for Raisins vs. Crush 19 Acknowledgments

This study was part of an initiative by the Central California Winegrowers with funding made available by the California Department of Food and Agriculture's"Buy California Initiative" and the U.S. Department of Agriculture, through the California State University Agricultural Research Initiative (ARI) Program.The ARI is administered by the California Agricultural Technology Institute (CATI), based at California State University, Fresno.

About the Authors

Mechel S. Paggi is the director of the Center for Agricultural Business, California State University, Fresno. Fumiko Yamazaki is senior research economist,the Center for Agricultural Business, California State University, Fresno.

About CAB

The Center for Agricultural Business (CAB) is one of four research units comprising the California Agricultural Technology Institute, located at California State University, Fresno. For more information on programs and research,contact us at the following address:

Center for Agricultural Business California State University, Fresno 2910 E. Barstow Ave., M/S OF 115 Fresno,CA 93740-8009 Phone:559-278-4405 Fax:559-278-6032 Web:cati.csufresno.edu/cab An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 1

An Economic analysis of the Market for Grape Juice Concentrate: Implications for Central California Grape Growers^

Introduction

Grapes purchased for crush represent an important market alternative for many California growers, particularly in the state's Central Valley. In 2005, more than 2.2 million tons of grapes grown in the Central California region, from Stanislaus County to Kern County, were crushed for wine and concen trate, around 51 percent of the statewide total. Of that total approximately 26 percent were raisin and table grape varieties. Many, If not most, were destined for the production of grape juice concentrate. According to the California Department of Agriculture annual crush report, an average of about 16 percent of the total state grape crush has annually gone to pro duction of concentrate over the past six years. Growers whose raisin and table type grapes were purchased for crush experienced substantial varia tion In their product value over the same period. Between 1999 and 2002 the weighted average price for raisin and table type grapes for crush declined from $200 and $187 per ton to $76 and $80 per ton, respectively. Although prices rebounded somewhat in 2003 and reached the $200 per ton level In 2004, prices declined once again In 2005.^ The Instability In crush prices for grapes traditionally used In concentrate production, combined with other factors such as increasing input costs, creates uncertainty regarding long-term sustalnabllity for Central Valley grape growers dependent on this segment of the market. More stable prices at higher levels would help to Induce the investments necessary to lower production costs and/or increase yields, making growing grapes to use in concentrate production a more viable business enterprise. However the future prosperity of the California concentrate industry requires main taining a competitive price position relative to other domestic and interna tional suppliers limiting the prices processors can pay for grapes In this market. Increased Information regarding the various factors contributing to the current market environment will facilitate better strategic business planning for producers.

The research for this report was supported in part by California Department of Food and Agriculture Specialty Crop Grant funds,provided to the Central California WInegrape Growers. Smaller tonnages of white and red wine varietals are also purchased for concentrate production. Prices for these grapes also experienced similar price instability over the same period. For example, the average price for French Colombard grapes fell from $192 per ton in 1999 to $107 per ton in 2002. Page 2 An Analysis of the Grape Juice Concentrate industry: implications for Central California Grape Producers

The specific objectives of this research project were twofold.The first was to provide a detailed industry profile of the California grapes for concentrate industry, including the dynamics of the domestic market, international competition from imported grape juice concentrate and domestic and international alternative fruit juice concentrates.The second was to provide a detailed economic budget analysis of grape for concentrate production systems and use that information in an analysis of the economic sustainability of grapes for concentrate enterprises. In each case the analysis was conducted to provide Central California grape growers with the infor mation necessary to evaluate the long-term sustainability of their current and/or proposed operations. Because of the importance of raisin type grapes to the concentrate industry in terms of number of growers and amount of grapes going to crush, this report has a particular focus on the Thompson Seedless variety used to produce white grape juice concentrate. The report begins by discussing the supply factors, demand factors, and the grape Juice concentrate market structure. Following these sections is information on the pricing structure for grape juice concentrate and grapes used in concentrate produaion,and the implications for producer returns based on costs developed in the enterprise budgets developed for this study follows.The report concludes with a summary of the implications for California producers and suggestions for additional research activities.

California Grape Juice Concentrate Supply Factors

The grape juice concentrate industry continues to be an important part of the market for grape producers of California, especially in the San Joaquin Valley, which is part of the larger Centeral Valley. The 2005 California Depart ment of Food and Agriculture (CDFA) Crush Report indicates an estimated 550,300 tons of California grapes were crushed for grape juice concentrate; this is around 13 percent of the total state-wide crush of 4,330,064 tons and about a 16 percent decline from 2004 for concentrate crush (Table 1).

Table 1. California Grape Crush for Concentrate (tons) 2000 - 2005 % Concentrate In Total % Total % Year Concentrate Crush Change Crush Change 2000 744828 18.85% 3951185 2001 536614 15.93% -27.95% 3368265 -14.75% 2002 752295 19.86% 40.19% 3787139 12.44% 2003 506877 15.04% -32.62% 3370121 -11.01% 2004 658048 18.20% 29.82% 3615231 7.27% 2005 550300 12.71% -16.37% 4330064 19.77% Source: CASS Final Grape Crush Reports An Analysis of the Grape Juice Concentrate industry: impiications for Central Cailfornia Grape Producers Page 3

Grape juice concentrates are mainly sold as food ingredients.The majority of white grape concentrate is used as an extender for juice products and as a natural sweetener. Red grape juice concentrate is primarily used as a food coloring agent.^ White juice concentrate is preferred for its neutral flavor and red for its ability to hold color when blended with other juices. Red concentrate is also being used to produce high intensity red colorant that enhances the color and body of wines. The grape juice concentrate market is linked directly to the overall market Us for grapes in California. Many table grapes, wine grapes, and raisin grapes find their way into concentrate production in a given year.Typically the proportion of grapes going to concentrate is In large part a function of the prices for alternative uses. While some grapes are contracted direaly for concentrate production, as prices for alternative uses increase, less product is diverted to concentrate use. I, While exact numbers are not available, industry estimates indicate that raisin ft- varieties comprise the majority of grapes used for concentrate in any given year (Fig. 1). The primary processing facilities for California's grape juice concentrate Industry are In the Central Valley, and the central San Joaquin Valley is the growing region of the majority of grapes crushed for concen trate, specifically in grape pricing districts 12,13 and 14.Total 2005 raisin- type grapes for concentrate use amounted to approximately 25 percent of the total crush for all varieties in these three pricing districts; that is down from 31 percent in 2004 (Table 2, Page 4). Accordingly,the concentrate fl industry is a significant year-to-year market alternative for producers in the San Joaquin Valley region, particularly for producers of raisin type grapes.

Figure 1. Estimated Breakdown of Grapes Used for Conentrate 2000-2005

800,000 y 744,828 753.300 6S8.000 700,000

&50.300 600,000 S36.610 506.900 500,000

400,000

300,000

200,000

100,000

0^ 2000 2001 2002 1 2003 2004 1 2005 □Wine^spes 165,000 126,500 105,000 67,000 18,000 ' 50,000 ■ Dark Reds (Rubired, etc.) 115,000 115,000 ! 160,000 120,000 105,000 1 125,000 0^ □ Table Varieties 85,000 80,000 1 55,000 60,000 90,000 1 80,000 !■ Raisin Varieties 380,000 215,000 432,300 260,000 445,000 ! 295,000

Source: Allied Grape Growers, 2006

Industry sources report that overSO percent ofthewhitegrapejuice concentrate produced in the Central Valley is used in the production ofjuice drinks. Page 4 An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers

Table 2. Grapes Crushed by California Processors by Pricing District 1^ District District District District District District District District District VARIETY 1 2 3 4 5 6 7 8 9

RAISIN GRAPES: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TABLE GRAPES: 0.0 0.0 0.0 0.8 0.0 0.0 0.4 0.0 0.0 WINE GRAPES(WHITE): 28,068.3 11,881.8 90,945.7 49,566.0 10,480.9 9,377.5 174,118.3 106,446.9 29,550.0 WINE GRAPES(RED): 33,894.0 19,824.5 139,912.4 131,249.3 8,381.2 19,891.4 142,468.1 172,436.3 42,923.4

Total All Varieties 61,962.3 31,706.3 230,858.1 180,816.1 18,862.1 29,268.9 316,586.8 278,883.2 72,473.4

District District District District District District District District State 10 11 12 13 14 15 16 17 2005

RAISIN GRAPES: 0.0 0.0 978.5 325,372.1 140,089.2 1,043.6 0.0 0.0 467,483.4 TABLE GRAPES: 0.0 1,373.4 237.5 21,945.3 80,534.8 2,097.6 0.0 0.0 106,189.8 WINE GRAPES(WHITE): 1,623.1 228,312.3 130,802.5 421,341.8 143,337.8 196.3 1,507.0 83,665.0 1,521,221.2 WINE GRAPES(RED): 15,056.1 527,802.3 182,513.1 606,179.1 161,575.2 1,587.8 3,095.1 26,380.5 2,235,169.8

Total All Varieties 16.679.2 757,488.0 314,531.6 1,374,838.3 525,537.0 4,925.3 4,602.1 110,045.5 4,330,064.2 Source: Rnal Grape Crush Report, 2005, California Department of Food and Agriculture, March 2006.

The U.S. grape concentrate Industry also Includes product made from Concord grapes that account for much of the grape production In the states of Washington, Pennsylvania, Michigan, New York and Ohio (Table 3). California white grape juice concentrate Is used as a blending agent In Concord grape products.The level of U.S. Concord production In any given year can affect the demand side for California concentrates (Table 4). However,the unique qualities of Concord,such as Its deep purple color and flavor, limit Its direct competition.

Table 3. U.S. Concord Juice Grape Production (tons) 1998 1999 2000 2001 2002 2003 2004 2005 Michigan 67,500 71,500 83,000 26,000 29,200 51,000 34,900 65,900 New York 87,000 152,000 111,000 107,000 104,000 104,000 99,200 137,000 Ohio 5,000 7,500 6,400 4,700 4,500 6,100 3,000 6,800 Pennsylvania 41,500 74,000 46,000 48,500 45,900 55,800 78,000 78,000 Washington 152,000 195,000 175,000 183,000 217,000 212,000 140,000 275,000 Others 250 2,050 2,250 650 2,200 900 920 460 US Total 353,250 502,050 424,250 369,850 417,800 428,800 356,120 563,160

Source: USDA. ERS. Fruit andJree Nut Outlook. Sept. 2005. amount may siiqhtiv overstate amount used In concentrate production.

Table 4. Grape Juice Concentrate Supply and Use.

1999 2000 2001 2002 2003 2004 "20051 762,171 744,828 536,610 752,300 506,900 658,048 550,300 CA Grape Crush for Concentrate (tons) 30,486,840 29,793,120 21,464,400 30,092,000 20,276,000 26,321,920 22,012,000 CA GJC Production (x40 gal per ton) 8,400,000 7,500,000 7,400,000 9,917,224 7,551,743 9,520,568 9,514,618 US GJC Imports(68 Brix) 2,240,698 2,103,860 1,718,099 1,938,287 1,975,703 2,041,523 2,000,000 p US GJC Exports(68 Brix)* 6,159,302 5,396,140 5,681,901 7,978,937 5,576,040 7,479,045 11,000,000 US Net Trade in GJC(68 Brix) 17,260,479 14,585,715 12,715,443 14,363,964 14,742,144 12,243,406 19,361,441 Concord GJC Production (x 34.38 gal per ton) 53,906,621 49,774,975 39,861,744 52,434,901 40,594,184 46,044,371 52,373,441 Apparent US Consumption and Carryover of GJC 16% 15% 19% 19% 19% 21% 18% Imports as Percentage of US Comestic Consumption p Preliminary Estimates from USDA. FAS, 2005. An Analysis of the Grape Juice Concentrate Industry: implications for Central California Grape Producers Page 5

The primary market for California grape juice concentrate is for use as a blending agent in 100 percent juice or juice cocktail drink formulations. As such, California grape juice concentrate is a commodity that must compete not only with imported grape juice concentrate but also with domestic and imported fruit juice concentrate substitutes. Apple and pear juice concen trate are the major substitutes because of their neutral taste In blending, availability of supply and competitive prices. These juice concentrates compete directly with California produa in the lucrative 100 percent juice drink market. Juice drinks and juice cocktails may contain alternative Ingredi ents and thus provide an additional competitive dimension to the market. Therefore it is important to have an understanding of all components of the juice concentrate commodity market and their linkages to the competitive position of California grape juice concentrate.

U.S.Juice Concentrate Supply

In recent years much attention has been paid to the perceived consumer preference for healthier and more nutritious products. For some commodi ties such as 100 percent juice drinks, label requirements dictate that only juice concentrate may be used as an additive or sweetener. A growing market for products that utilize juice concentrate as juice extenders and sweeteners would presumably bolster the demand for grapes used in concentrate production and be a positive factor in the long-run sustain- ability of the industry in the Central Valley, particularly for raisin type grapes. While the decision to utilize fruit juice concentrate Is dictated by labeling requirements and product integrity, the choice of which juice concentrate to use is thought to primarily depend on relative prices. Other attributes that contribute to the choice of juice and supplier include flavor, reliability of suppliers,food safety, and quality concerns. However,due to the competi tive nature of the marketplace, the price of inputs on the bottom line for the manufacturer - other things equal - likely dictates the choice of prod uct. As foreign suppliers improve their logistical capabilities and better manage their supply chains, quality control and safety,the benefits Califor nia producers may gain by providing other desirable attributes will likely diminish. If California grape juice concentrate production is to continue as a sustainable part of the grape industry complex, processors must remain price competitive with other juice concentrates from domestic and interna tional suppliers.

Product Substitutes According to industry sources, apple juice concentrate accounts for about 72 percent of U.S fruit concentrate consumption.Therefore, the supply and use of apple juice concentrate is of particular importance In understanding the market for white grape concentrate. Similar to grape juice concentrate, Page 6 An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers

domestic production of apple juice concentrate has declined in recent years, while imports, primarily from China, have increased substantially (Table 5). Because apple Juice concentrate is a direct substitute for white grape juice concentrate,the supply of apple juice concentrate and its related prices help to set a boundary for determining expectations for white grape juice concentrate prices. In the same way that prices of im ported grape juice concentrate from Argentina affect the market price for grape juice concentrate, prices for imports of apple juice concentrate from China affect the market price of apple juice concentrate.

Table 5. Apple Juice Concentrate Supply and Use (gallons)

1999 2000 2001 2002 2003 2004 2005 27,569,450 27,431,890 25,889,900 21,571,220 16,410,540 15,913,560 20,811,320 U.S. Apple Juice Concentrate Production (70/71 Brix)* 39,912,260 40,380,710 42,349,100 47,079,420 53,240,270 59,839,070 62.598,290 U.S. AJGImports (7/71 0 Brix) 1,208,878 1,221,825 931,179 929,240 744,743 764,954 773,636 U.S. AJC Exports (70/71 Brix) 66,272,832 66,590,775 67,307,821 67,721,400 68,906,067 74,987,676 82,635,974 U.S. Apple Juice Concentrate Domestic Use (71/70 Brix

Source: USDA. ERS: U.S. Apple Association Coverted from SSE @ 1.047/7.865

Other juice concentrates play a lesser role in the overall juice sweetener market. Most important among these is pear juice concentrate, which is increasingly being utilized as a substitute for grape or apple juice concen trate. Data for U.S. pear juice concentrate production is not readily available but is estimated by converting the reported figures for pears utilized for juice into concentrate equivalents (Table 6). Imports of pear juice concen trate, as reported by the USDA's Foreign Agricultural Service, provide the bulk of the product in the U.S. market,accounting for around 80 percent of the available supply.

Table 6. Pear Juice Concentrate Supply and Use (gallons)

1999 2000 2001 2002 2003 2004 2005 1,035,463 1,080,978 1,092,356 1,069,599 1,219,798 1,024,084 1,297,173 U.S. Pear Juice Concentrate Production (70/71 Brix)* 3,272,661 3,870,528 4,396,321 4,162,746 4,508,925 3,721,789 5,277,191 U.S. AJC Imports (7/71 0 Brix)

Source: USDA, NASS; * US PJC production estimated from for Juice Utilization Convertions from SSE for apples Imports based on USDA, FAS. Aug 6,2006, no export quantity reported.

By combining the information available for grape, apple and pear juice concentrate, a pirture of the juice concentrate sweetener market may be developed. The information in Figure 2 is an approximation,given a lack of exact data on specific use, and may overstate sweetener use as some concentrate from grape varieties other than dark reds are used of other purposes. Over the period 1999 to 2005,the total juice sweetener market as described here has remained relatively stable with some growth in recent years,averaging about 104 million gallons.Over the same period the mix of juice sweeteners has changed somewhat.Grape juice concentrate - domestic and imported - declined from approximately 33 million gallons to around 28 million gallons. Over that period the net trade in grape juice concentrate (imports less exports) has nearly doubled.Several fartors that An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 7

Figure 2. U.S. Juice Concentrate Supply

140,000,000

120,000,000

100,000,000

80,000,000 Gallons

60,000,000

40,000,000

20,000,000

1 1999 2000 2001 2002 2003 2004 2005 ■ USGispo Juico Coocenlrale Net Trade 6,199,302 1 5,396,140 5,681,901 7,978,937 5,576,040 7,479,045 11,000,000 ■ US GJC Production EX Dark Red 26,866,840 i 25200,000 16,860,000 23,692,000 15,480,000 22,120,000 17,000,000 □ PJC Impoile 3,272,661 3,870,528 4,396,321 : 4,162,746 4,508,925 3,721,789 5,277,191 □ U.S. Pear Juice Corrcenlrate Production 1.039,463 1,080,978 1,092,356 1 1,069,599 1219,798 1,024,084 1,297,173 ■ Apple Juico Concentrate Net Trade 38,703,382 39,153,885 41,417,921 46,150,180 52,495,527 59,074,116 61,824,654 BUSAJC Produdion 27,569,450 27,431,890 25.886,900 21,571,220 16,410,540 15,913,560 20,811,320

Note: Estimated supply forjuice concentrates excluding dailc reds, lemon and pineapple, Numbers include year-to-year carryover

will be examined in greater detail have contributed to this decline in do mestic production share: changes in industry structure, relative prices of imports, and relative price of substitute juice concentrates.

A similar trend may be observed In the supply of apple juice concentrate as domestic production declined from about 28 million gailons to an average of 18 million for the past three years. Over that same period net trade In apple juice concentrate increased around 39 million gallons to almost 62 million gallons. Pear juice concentrate follows about the same pattern, although domestic production has increased slightly, with imports growing from around 3.3 million gallons in 1999 to an average of around 4.5 million gallons over the past three years.

Foreign Grape Juice Concentrate Supply

The availability of competitively priced alternatives of essentially equivalent quality acts as a constraint on the amount of, and the price at which, domes tic suppliers are able to sell and hence the price they are able to pay for grapes. To better understand the current and future effects of foreign supplies requires an understanding of grape concentrate supplies from exporters to the U.S. market. In 2005 the United States imported grape juice concentrate from several countries; however, about 86 percent originates Page 8 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers

from Argentina, up from 72 percent in 1999 (Fig. 3).Therefore we concen trate our analysis on the Argentine market that is expected to continue as the dominate source of imported grape juice concentrate.

Figure 3. U.S. Grape Juice Concentrate Imports 2005 By Volume, Total 9.5 million Gallons 68 Degree Brix

TALY MEXCO

BRAZIL Others

CHILE 5%

ARGENTINA 86%

U.S. Imports of Grape Juice Concentrate Gallons 1999 2000 2001 2002 2003 2004 2005 Total 8356045 7521087 7429180 4672006 5195286 7346160 9514613 Argentina 6030887 5476584 5628994 3644697 4016547 6176898 8210707 72% 73% 76% 78% 77% 84% 88%

Argentina's Grape Juice Concentrate Production Argentina produces grapes throughout the country, but 94 percent of the production takes place in two provinces: Mendoza (67%) and San Juan (27%). Domestic use of wine has declined from 42 (11 gallons) liters per capita in 1990 to a current estimate of 22 (5.8 gallons) liters per capita. Much of this decline has been attributed to increasing domestic prices for wine while income growth remains relatively stagnant. Despite the decline in domestic consumption, Argentine wine production continues to increase. Total grape crush has increased from 2.1 million metric tons in 2002 to an estimated 2.9 million metric tons in 2006 (Table 7).

The area planted for wine grapes accounts for about 94 percent of the total planted area of 215,000 hectares - up from 208,000 hectares in 2002. An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers Page 9

Table 7. Argentine Grape Crush (MT)

Kind/Year 2002 2003 2004 2005 2006* Red 666,217 683,500 860,000 930,000 1,000,000 White 627,214 600,000 643,000 700,000 820,000 Rose 814,401 910,000 999,000 1,000,000 1,000,000 Others** 49,670 28,269 55,460 70,000 80,000 Total 2,157,502 2,221,769 2,557,460 2,700,000 2,900,000 Planted Area (Hectares) 208,000 211,000 213,000 214,000 215,000 Grape Juice Concentrate(MT) 110,000 110,000 117,000 155,000 180,000 Source: The National Wine Institute (INV -www.inv.gov.ar)adiusted bv 1 Buenos Aires

Production of grape juice concentrate in Argentina is effectiveiy deter mined by the government of Argentina through the authority of the Argentine National Wine Institute (INV),an autonomous government agency headquartered in Mendoza province.The INV is under the authority of the Secretariat of Agriculture of Argentina.The primary focus of Argen tine grape production is for wine. In an attempt to manage the supplies of wine produced in any given year and avoid the build up of wine stocks,the INV establishes the percentage of total grape produrtion that is dedicated to the production of sulfated grape must(SGM) in any given year. SGM is then used in the produaion of grape juice concentrate. Reports for 2006 indicate that the INV will call for 30 to 32 percent of grape production to be directed to SGM production. If this occurs it is expected that Argentina will produce 180,000 metric tones of grape juice concentrate, up 16 percent from 2005 and around 64 percent greater than the 110,000 metric tones produced in 2002. Argentina produces predominately white juice concen trate, accounting for a reported 95 percent of domestic must production in 2006.

The majority of Argentine grape juice concentrate production is exported - around 88 percent. Currently over 50 percent is exported to the United States,followed by Japan,Canada, the Russian Federation, Chile and South Africa (Fig.4, Page 10). If the trend in Argentina's grape juice concentrate produaion continues,there is every reason to suspea that it will remain the world's major supplier.

Argentina's Grape Juice Concentrate industry Structure and Pricing According to reports from the USDA/FAS,there are 20 companies that process SGM into grape juice concentrate.The SGM is taken to the proces sors for transformation to grape juice concentrate (CGM).The number of concentrate exporters is estimated at 36, with a reported 19 firms contraa- ing for grape juice concentrate production. Page 10 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers

Figure 4. Argentine Grape Juice Concentrate Exports 2005

Others 11%

Chi! 5%

Russi

United States 58% Canad

South Afri 8%

Source: Argentina, INV, 2006

With the INV determining the amount of grapes that will be destined to CGM in any given year,the marketing process is predetermined on the supply side. On the demand side the concentration plants offer a price to producers for SGM to be further processed into CGM.The producers, on the other hand, have an offer price that reflects their desired level of compensation,a level higher than the concentrate offer price. The two sides reach an agreement and the process proceeds. For the CY 2006,the price offered by CGM producers Is reported to be U.S. $0.11 per liter, with growers requesting a minimum price of U.S. $0.15 per liter of SMG.The Government of Argentina (GOA) also provides some buffer in price deter minations by offering a minimum grape price on a limited amount of production for 180 days in order to provide interim financing for small and medium size farmers until sales are negotiated, in January 2006,the GOA intervention price was U.S. $110 per metric ton,for 180 days at 6.9 percent interest. Using a conversion rate of approximately 170 gallons of must per ton of grapes,the relative prices translate into a U.S. $71 per short ton processor offer, U.S. $96 per short ton grower request,and U.S. $100 per short ton GOA intervention price. Exporters of Argentine grape juice concentrate are reportedly charged U.S. $150 to produce one metric ton of CGM from SGM delivered for process ing. Using industry estimates for transport and handling charges of U.S. $1.50 per gallon,the cost of Argentine grape juice concentrate is calculated to be around U.S. $4.80 per gallon f.o.b. New York (Table 8). Combining the An Analysis of the Grape Juice Concentrate Industry: implications for Central California Grape Producers Page 11

f.o.b. estimate with the current per gallon duty on grape juice concentrate of U.S. $0.67 provides a cost estimate of U.S. $5.47 for white grape juice concentrate from Argentina,ex dock duty paid, New York.The exact price for grape juice from Argentina will be subject to change depending on the actual cost related to any particular exporter.

Table 8. Arqentina Averaae Delivered Cost. 2006

Processing @ $150 per metric ton $2.80 per gallon Grape Input Avg. Price $0.50 per gallon Sub Total $3.30 per gallon Freight and Handling $1.50 per gallon

F.O.B. New York. NY $4.80 oeraallon

A Source: USDA/FAS, Gain Reort, AR6004, 1/24/2006; Industy Somcres. Average Grape input price of grower request and concentrate price offer. See Appendix for detail cost breakdown.

California grape juice concentrate may command a price premium related to many attributes: quality, ability to provide timely delivery,food safety, and traceability concerns and marketing relationships, but ultimately price competition remains the foundation of a sustainable industry.The Argen tine grape juice concentrate price provides a benchmark for California grape juice concentrate producers in determining where their own pricing points may be, and what they may be able to pay Central Valley grape growers for their product.

U.S Grape Juice Concentrate Demand^

According to industry sources,the primary demand for California grape juice concentrate comes from manufacturers of fruit juices and juice drink blends - in particular, makers of beverages that require only grape juice to qualify as 100-percent grape juice. Juice cocktails and juice drinks that utilize fruit juice concentrates along with other non-fruit juice ingredients represent another market segment.^ In addition, grape juice concentrate is used as an ingredient in selected food products. The overall market for juices in the United States has increased. Public data on the consumption of non-citrus juices available from the USDA indicates an increase in overall consumption, growing from around 1.7 gallons per

U.S.grape juice concentrate demand also includes demand generated in the export market. However.exports have been a consistently stable proportion of total use,and data aggregation prevents a detailed understanding of the market structure and specifics. A general discussion is provided in Appendix 1. Current FDA labeling rules are contained in Title 21,SeclOl.30,included in Appendix 3. Page 12 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers

capita in 1980 to three gallons in 2004, or about three percent per year (Fig. 5). Over the same period apple juice consumption has Increased annually on average of about four percent per capita, while grape juice consumption increased a little over two percent. In 2004 apple juice ac counted for around 70 percent of the total non-citrus juice consumption, followed by grape (13 percent), pineapple (nine percent), cranberry (seven percent) and prune juice (one percent). Over the past five years grape juice consumption appears to have reached a plateau of around .31 gallons per capita per year.

In recent years the consumption of fruit drinks and fruit cocktails has also Increased. Unfortunately, publicly available data is limited, and the latest USDA information reports per capita consumption at 7.7 gallons in 1999, up from a reported 5.4 gallons in 1987.The increase in consumption of around three percent per year is similar to that for overall non-citrus juice consumption. It is beyond the scope of this study to provide a detailed analysis of the future demand for non-citrus juice and related juice drinks. However, given the publicly available information,a gross approximation of the size of the domestic market for grape juice concentrate can be derived. Current FDA regulations require a minimum Brix level for 100 percent grape juice of 16" brix. If a gallon of 68" brix grape juice concentrate yields 5.4 gallons of reconstituted juice, an annual domestic grape juice consumption of 115 million gallons could be produced from around 21.3 million gallons of concentrate.® This would be the amount of concentrate needed to produce the single strength equivalent of the currently reported domestic grape juice consumption.This amount is far below the current estimate for U.S. grape juice concentrate consumption, including imports, of about 52 million gallons.

This low level of domestic utilization in excess of domestic grape juice consumption draws attention to the importance of concentrate as an ingredient commodity. Grape juice concentrate use In the production of other juices,juice drinks, cocktails, and as an ingredient in selected food products is extremely important to the industry. Understanding the com petitive position of grape juice concentrate relative to competitive substi tutes in this ingredient market is crucial to addressing questions regarding concentrate market linkages to the market for grapes in the Central San Joaquin Valley.

U.S. population estimate of294 miliion multiplied by.39 gallons per capita grape juice consumption. An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers Page 13

Figure 5. Non-Citrus Juice Consumption

3.50 •Prune □ Pineapple 3.00 □ Cranberry ■Apple 2.50 IGrape

Q. 2.00 n O

a> Q. 1.50 in c o = 1.00 10 O

0.50

0.00 • 199 200 19B 198 198 198 196 198 198 198 198 198 199 199 199 199 199 199 199 199 199 200 200 200 200 9/20 4/05 0/81 1/82 2/83 3/84 4/85 5/86 6/87 7/88 8/89 9/90 0/91 1/92 2/93 3/94 4/95 5/96 6/97 7/98 8/99 0/01 1/02 2/03 3/04 00 2/

■ Pnjne 0.09 0.10 0.08 0.06 0.07 0.07 0.07 0.06 0.07 0.04 0.04 0.33 0.04 0.O4 0.04 0.03 0.03 0.03 0.03 0.02 0.O2 0.03 0.03 0.03 0.03 QPinaapple 0.31 0.28 0.29 0.28 0.27 0.3410.39 0.43 0.43 0.44 0.50 0.50 0.47 0.41 0.35 0.38 0.38 0.34 0.29 0.32 0.30 0.31 0.32 0.34 0.26 □ Cranbenv 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.15 0.14 0.17 0.16 0.15 0.19 0.16 0.17 0.20 0.21 0.23 0.20 0.17 0.21 0.21 0.21 ■Apple 1.08 0.96 1.21 1.32 1.53 1.53 1-52 1-62 1.60h.45 1.72 1.51 1.56 1.78 1.77 1.57 1.69 1.54 1.79 1.78 1.78 1.77 1.79 1.93 2.12 ■ Grape 0.25 0.24 0.24 0.33 0.29 0.23 0.22 0.30 0.27 i0.31 0.28 0.36 0.38 0.35 0.29 0.45 0.38 0.41 0.27 0.44 0.34 0.33 0.37 0.41 0.39

Source: USDA, Economic Research Service, October, 2005

California Grape Juice Concentrate Industry

Market Structure Unlike Argentina, the California grape juice concentrate industry is charac terized by many input suppliers, concentration in the processing sector, and many buyers on the product demand side/ On the one hand there are grape growers throughout California, primarily in the central San Joaquin Valley, who look to the concentrate industry for a home for some If not all of their product. In the middle are the processors whose numbers have dwindled in the past few years.Those California processors face a market with many highly price conscious domestic participants, along with export opportunities. In each stage of the supply chain participants face a difficult set of marketing challenges to remain economically viable.

As recently as 2003 the California grape juice concentrate industry was comprised of six major producers (Grape Co, Canadalgua, Gulmarra, San Joaquin Valley Concentrate (SJVC), Delano Growers, and Vie-Del Co.), with a combined production capacity of 25 to 32 million gallons.® Today only three

' The concord grape juice industry is considered to be a separate business model for purposes of this report and represents one of the many customers for product produced in California. ® industry capacity estimates based on assessments provided by commodity brokers. Page 14 An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers

commercial producers remain - Vie Del,SJVC and Delano Growers - with an estimated capacity in excess of 26 million gallons based on 2004 production levels.^ Industry downsizing has also taken place on the grower side, as producers have removed or abandoned vineyards on an estimated 100,000 or more acres in the Central Valley. Reports indicate that acreage continues to be removed from grape production and either transformed into other crops or shifted to alternate uses such as residential development.With the decline in domestic industry capacity and reduced supplies it is expected that the amount of grapes utilized in the production of grape juice concen trate will likely remain at or below the levels of the past two seasons, given normal weather. Largely due to confidentiality concerns among the small number of firms producing the vast majority of grape juice concentrate in the Central Valley, individual firm operational charaaeristics and marketing strategies are not readily available. In the case of Delano Growers,a cooperative,the operation primarily processes the product of its members that is not marketed as table grapes and produces white grape juice concentrate.The observed behavior of the other two major industry participants in the procurement of grapes for production of grape juice concentrate suggests the economic model of an ologopsony with a price leader.^" In the Central Valley grape juice concentrate industry the dominant market participant provides price leadership in its contracting aaivities and annual announced price for grapes.The other major participant appears to procure the supply required for its operation at or near the market leader's price. What is not known with certainty is the number of sellers and/or volume of grapes that actually move through this spot market versus the volume of grapes that is acquired by the companies under some form of contractual arrangement. If a majority of the grapes are marketed through the spot market,the possibility exists for predatory pricing by the limited number of buyers since growers have few choices of where to market their grapes that are not destined for other uses. However,if the buyers have a need for a relatively fixed amount of grapes for annual produrtion targets, contracting with growers for a portion of that fixed amount may be a viable procure ment strategy.The current market procurement strategy appears to be a mix of both. One way to estimate the volume of grapes acquired through the spot market is to observe the amount of grapes reported to be marketed at a given price level. For example, in 2005 the spot market price of Thompson

'Information supplied by Delano Growers indicates an annual capacity of 140,000 tons. A1991 article In Wines & Vines places VIe-Del Company capacity at around 150,000 tons. A combined capacity of around 11.6 million gallons ofgrapejuice concentrate at 40 gallons per ton of grapes processed. No estimate ofSJVC capacity is currently available. '0 An ologopsony is characterized by few buyers and many sellers. An Analysis of the Grape Juice Concentrate industry: Implications for Centrai California Grape Producers Page 15

Seedless grapes,the predominant variety used in white grape juice con centrate production, was reported to be $100 per ton. According to the information available in the 2005 Grape Crush Report, about 24 percent of the grapes in pricing district 13 and about 15 percent of the Thompsons In district 14 were sold at the spot market price (Table 9). Although this is clearly less than an exact estimate, it does suggest that the bulk of the grapes are marketed in a fashion that returned greater than the an nounced spot market price. In addition, if the information related to Thompson seedless marketing is indicative of how the industry functions, then any analysis of the sustalnability of the production of grapes for concentrate in the Central Valley must be made based on a range of possible prices, including those that exceed the observed spot market prices of recent years.

Table 9. 2005 Thompson Seedless Base Price to Growers District District $ per ton 13 14 100 24.20% 15.01% 115-165 14.70% 39.41% 175-190 35.50% 7.66% 200 23.60% 37.92% >200 2.00% 0.00% 100.00% 100.00% Percent of Total 86.86% 13.14% Source: California Grape Crush Report, March 2006

California Grape Juice Concentrate Pricing To assess the near and longer-term sustalnability of the market for grapes used in concentrate, producers need a clear understanding of the market fundamentals that influence prices. Among the factors that must be consid ered in such an analysis are the expected long-run domestic supply of grapes available for concentrate production, expectations regarding the price of alternative market uses (for the purposes of this study, raisins), and the supply and expected price of substitute commodities. For Thompson Seedless and other raisin varieties,the primary direct foreign competition of white grape Juice concentrate is from Argentina. Accordingly, it Is important to have a comparative set of variables in order to assess the competitive position of the California industry relative to this major competitor. Given what is believed to be a highly price-competitive market environment,the primary measure of interest is the relative cost of production of California grape juice concentrate. Information regarding production costs for grape juice concentrate is important in helping to form expeaations about California for concentrate grape prices. For the domestic industry to be Page 16 An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers

sustainable,a sufficient volume of grapes must be available - as an input to the process - at a cost that allows California grape juice concentrate pro ducers to compete and the growers to profit. Absent detailed information on operational costs provided by concentrate producers,estimates of costs and prices provided by industry analysts are used to estimate a range of break-even costs for producing grape Juice concentrate in the Central Valley. In 2006 the major producer of grape juice concentrate announced an offer to purchase grapes at $125 per ton for Thompson Seedless and $200 per ton for Ruby Reds. Combining these announced prices and a range of cost estimates for producing grape juice concentrate yields a breakeven price of between U.S. $5.24 -5.87 per gallon for white and U.S. $7.12 - 7.75 per gallon for red (Table 10).

Table 10. U.S. Grape Juice Concentrate Cost of Production, 2006

Thompson Seedless Rubv Reds

$125 per ton for Grapes $200 per ton for Grapes

$3.12 per gallon $5.00 per gallon

$2.12 to $2.75 per gallon Processing Cost* $2.12 - $2.75 per gallon

$5.24 to $5.87 $7.12-$7.75 FOB SJV Plants White GJC FOB SJV Plants Red GJC

Proudction cost based on estimate of $85 to $110 per ton processing cost basis @ 40 gallons of concentrate production per ton of grapes processed.

The estimates provided in Table 10 may be compared to the historic prices reported for California grape juice concentrate. Combining the estimated production cost with the average price per calendar year suggests that California white grape juice concentrate prices have hovered at or near the low range production cost estimate (Fig. 6). The market for red grape juice concentrate displays a similar pattern; however, prices for red concentrate are generally higher, with larger apparent margin in some years (Fig. 7). In the absence of detailed operational costs from industry producers, it would appear that the estimates of production costs for California grape juice concentrate are within a reasonable range based on observed prices. An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 17

Figure 6. Grape Juice Concentrate Price CY1999 -2005 And Estimated Cost of Production *

c o To •White OA O "White hp b e •ARGFOeNV 0. E •COPCal JS o a

1999 2000 2001 2002 2003 2004 2005

^^WhleCA 6,7 5.81 4.60 4.94 4.87 7.20 6.90

■ While hp 6.24 5.68 4.58 4.71 4.76 6-75 6.52

ARC FOB NY 4.8 4.8 4.8 4.8 4.8 4.8 4.8

-*-COPCal 7.12 5.245 427 3.995 4.52 7.12 6.195

Source: Avg. of Food Institute Monthly Concentrate F^ce Series Reported High/Low Range. OA COP based on CASS grape crush weighted avg. price For Thompson Seedless and $85/ton concentrate processing cost.

Rgure 7. Red Grape Juice Concentrate Prices*, CY 1999 • 2005 And Estim ated Cost of Production

14

12

-CA Red Rice 0 'hp Red Rice

1 6 COPcal i2 ^ A o a

1999 2000 2001 2002 2003 2004 2005

•CARedfflce 10.5 9.975 8.5 8.06 7.25 7.5

hp Red Rice 9.5 9.5 8.75 7.4 7.5 8.5 8.6

COPcal 12.195 6.42 6.67 6.37 6.045 7.345 7.645 Page 18 An Analysis of the Grape Juice Concentrate Industry: implications for Central California Grape Producers

Pricing Grapes for Concentrate U.S. and Argentine grape juice concentrate prices both have an effect on what processors may offer growers for their grapes.To remain economically viable, California processors must provide a price attractive enough to acquire the grapes from growers, but not so high as to prevent them from being price competitive with foreign suppliers and/or alternative ingredient prices. On one side of the equation,Thompson Seedless grape processors must be able to compete with the price of grapes bound for other market ing alternatives, mostly raisins, either In the spot market or in the form of contracts for dedicated production. On the other hand,the price of Argen tine grape juice concentrate (ex dock duty paid) acts as a boundary on the price U.S. processors can charge for their product.The price processors expect to receive feeds back into what they pay for their inputs - grapes crushed for concentrate. Based on this relationship, ranges can be developed for what San Joaquin Valley growers might be offered by concentrate producers. In recent years California processors have faced increasing competition from Imported concentrate and industry utilization of alternative products like Y3 apple juice concentrate. In this increasingly competitive environment, California processors have received an average of $5.86 per gallon for white grape juice concentrate over the past seven years. If production costs for California processors are in the range we have stipulated - $2.12 to $2.75 - the implied price for grapes would appear to be around $150 to $124 per ton based on the seven-year average price. An additional complication facing white grape concentrate producers in California is the competition they face from alternative marketing opportu nities available to raisin type growers. Most raisin growers not under con tract for concentrate have the alternative to market their grapes for crush or for raisins. In the decision of what to offer growers for their grapes, concen trate producers must consider what it will take to entice growers away from

:'•>.- the raisin market. Determining the appropriate price requires an under standing of the historical relationship between grapes sold for crush and the green raisin grape price equivalent. In addition, it is necessary to understand how this relationship relates to the crop size and to have some estimate of the potential crop size for any given harvest season. Raisin grapes are marketed under a federal marketing order that pays growers a price negotiated under a bargaining agreement.The initial price Is based on a percentage of the agreed price determined by the "free ton nage" percentage applied to the crop.The return to growers for the remain der of their grapes is based on a return to sales of the "reserve tonnage" that is sold In the export market or other markets at a reduced price. Returns to the reserve tonnage sales historically range from $0 to $100 per ton. For example, in 2003,the free tonnage was set at 70 percent with a field price of An Analysis of the Orape Juice Concentrate Industry: Implications for Central California Grape Producers Page 19

$810 per ton.The effective price to the grower, net of a reserve payment, was $567. If the cost of harvesting grapes for raisins adds an additional $50 per ton to the grower,the net price for green grapes before harvest would have been around $76 per ton, based on 4.5 tons of green grapes per ton of raisins. In 2003 the weighted average return to Thompson Seedless growers for grapes delivered for crush was $96 per ton,just under the raisin free tonnage price with an estimated reserve payment of $100 per ton, or $98 per ton. As indicated in Figure 8,this relationship will vary from year to year; however, it does provide a glimpse of the close ties between the two mar kets and the complex nature of pricing decisions facing grape juice concen trate producers in their attempt to acquire grapes for production.

Fig. 8. Comparison of Return for Raisins(@100% Green) vs. Crush 1995-2001 with estimates for 2002-2005

S300.00

S250.00 s $89\ / $93 \ e2 $43 \ s $200.00 u fi O ■ $150.00 / / V Om Numbers between two lines arc the differences In green price L. $100.00 N_ J44 Pm based on USDA established dry-down.

$50.00 Estimates for 2002 & 2003 include assun^itions regarding reserve pool payments 2005 estimate provides no value for reserve pool $0.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Est E^st Est Est

• Raisin price -(Equivalent green) Average crush price

Source: Allied Grape Growers,2006

The range of expected prices for raisin grapes going to crush for concen trate is also affected by the larger juice sweeteners market.This market includes other fruit juice concentrates, in particular apple juice concentrate, which is a ready substitute for many end users. Industry sources suggest that grape juice concentrate remains a preferred ingredient due to its unique qualities as a blending agent. As a result it seems reasonable that, everything else being equal,Thompson Seedless grapes for concentrate in the Central Valley will likely continue to be traded within a range estab lished by the dominant competing use - raisins - at the grape price equiva lent of the product of the major competitor - Argentina. Year-to-year varia tion within that range will be due to the size of the U.S. crop. Inventory management by the processors, overall market conditions in other produc ing countries,and the domestic and foreign supply of close substitutes. Page 20 An Analysis of the Grape Juice Concentrate Industry: Implications for Centrai Caiifornia Grape Producers

Implications for Central Valley Growers

The implications of this analysis for Central Valley growers of grapes that may be used to produce concentrate will depend on the economics of the individual enterprise.To allow for a preliminary assessment,the DC Coopera tive Extension service was contracted to develop budgets that examine costs and returns for production of grapes for concentrate in the Central Valley (Appendix D.The budget information allows growers to examine the cost and return parameters relative to their own operations and to deter mine bottom-line outcomes under alternative scenarios regarding crop prices and yields. Combining this with information on prior pricing behavior, operators can have a reasonable idea of profitability under various scenarios. The information provided in the DC Cost and Returns study contains a series of tables for comparing returns under alternate yield and price combina tions. The tables allow producers to determine expected returns based on / Mi- three cost measures: 1) net returns per acre above operating cost, 2) net if" returns per acre above cash costs, and 3) net returns per acre above total costs (Table 11). Based on the cost estimates provided and the prices offered for Thompson Seedless grapes over the study period,the key to profitability for Central Valley producers is yield. Other things being equal, yields of nine tons per acre or greater provide for positive returns above operating costs at prices of $140 per ton or greater. Based on the weighted average price reported for Thompson Seedless grapes in Price District 13, on average growers with yields of nine tons or greater would have had a positive return above operating costs in only three of the last seven years (Table 12). As we consider the inclusion of other costs in the analysis, greater yields are required to obtain a positive return over a wider range of prices. Thompson Seedless growers in Pricing District 13 would have to have had yields at or above 15 tons per acre to obtain a positive return in two of the past seven years, given the reported weighted average price received. Not all Thompson Seedless vineyards in the Central Valley are managed in accordance with the cultural practices included in the DC Cost and Returns Enterprise Budgets developed for this study. For example, more mature vineyards may not be suitable for mechanical harvesting, and some opera tors may choose to use a more limited set of cultural practices in an attempt to minimize production costs. Accordingly, individual operators need to , compare their own set of cultural practices to those outlined In the DC Cost and Returns enterprise budgets to determine potential profitability. It is believed, however,that the UC Cost and Returns Enterprise Budgets provide r a reasonable measure of the costs associated with sustainable vineyard practices for a commercial Thompson Seedless production unit.'^

"A panel of industry representatives confirmed that the UC budget costs were reasonable estimates by comparison tothe individual cost itemsfrom their own operating budgets. An Analysis of the Grape Juice Concentrate industry: implications for Central California Grape Producers Page 21

Table 11. Net Returns with Alternative Prices and Yields For Thompson Seedless Varieties Grown for Concentrate*

NET RETURNS PER ACRE ABOVE OPERATING COSTS

PRICE YIELD (ton/acre) $/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 27 157 287 417 547 676 806 160.00 207 357 507 657 807 956 1,106 180.00 387 557 727 897 1,067 1,236 1,406 200.00 567 757 947 1,137 1,327 1,516 1,706 220.00 747 957 1,167 1,377 1,587 1,796 2,006 240.00 927 1,157 1,387 1,617 1,847 2,076 2,306 260.00 1,107 1,357 1,607 1,857 2,107 2,356 2,606

NET RETURNS PER ACRE ABOVE CASH COST

PRICE YIELD (ton/acre) S/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -381 -251 -121 9 139 268 398 160.00 -201 -51 99 249 399 548 698 180.00 -21 149 319 489 659 828 998 200.00 159 349 539 729 919 1,108 1,298 220.00 339 549 759 969 1,179 1,388 1,598 240.00 519 749 979 1,209 1,439 1,668 1,898 260.00 699 949 1,199 1,449 1,699 1,948 2,198

NET RETURNS PER ACRE ABOVE TOTAL COST

PRICE YIELD (ton/acre) $/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -1,541 -1,411 -1,281 -1,151 -1,021 -892 -762 160.00 -1,361 -1,211 -1,061 -911 -761 -612 -462 180.00 -1,181 -1,011 -841 -671 -501 -332 -162 200.00 -1,001 -811 -621 -431 -241 -52 138 220.00 -821 -611 -401 -191 19 228 438 240.00 -641 -411 -181 49 279 508 738 260.00 -461 -211 39 289 539 788 1,038

* For detailed breakdown of cultural practices and related costs see Appendix 1

Table 12. Weighted Average Thompson Seedless Prices District 13 1999 2000 2001 2002 2003 2004 2005

200.28 125.5 85.74 77.72 96.1 199.94 163.27

Source: California Agricultural Statistical Services. Annual Grape Crush Report Page 22 An Analysis ofthe Grape Juice Concentrate industry: implications for Central California Grape Producers

Individual operations may also vary based on how they market their grapes. Thompson Seedless producers may be engaged in mixed enterprise opera tions that provide for some raisin production and some production for crush. In these cases the ability to offset price variations across crops may enhance profitability. Additionally, marketing arrangements and contracting may offer the opportunity for some growers to lock in an average price over a number of years that provides for a positive return in years where spot market prices are depressed.^^

Technical Conversion Note:

♦ Grape Juice Concentrate 68° Brix conversion from 16° Brix single strength equivalent gallons (SSE x 1.410)" 7.57. Alternatively SSE = 5.4(GJC)

♦ Pear Juice Concentrate 71° Brix conversion from 11.2° Brix single strength equivalent gallons (SSE x 1.002)" 8.014. ♦ Apple Juice Concentrate 70/71° Brix conversion from single strength equivalent gallons (SSE x 1.047)" 7.865.

"New varieties of raisin type grapes with higher yields,such as Selma Pete and Fiesta,provide alternatives for those producers willing to replace existing or establish new production enterprises. For concentrate production of raisin type grapes that utilize mechanical pruning and harvesting to lower costs also offer advantages over traditional cane pruned Thompson Seedless operations. Evaluation ofcost and returns to establish new enterprises are provided in Appendix ii. Budget B. Appendix Hi provides overview ofsimulated results for alternative marketing scenarios. Appendix I

Grape Juice Concentrate Trade Profile Global Trade Update

Grape Juice and Concentrate

Imports

In 2005, the United States imported over $99 million worth of grape juice and concentrate, an increase of over 43 percent from the previous year of S69 million as both prices and quantities increased. Argentina is the major exporter of grape juice to the U.S. with a market share of over 80 percent, with sales of almost $80 million, followed by Chile and Mexico with a market share of around 5 percent with sales of around $5 million (Figure 1). Exports of grape juice from Argentina have inereased by 50 pereent from the previous year value of over $52 million (Figure 2). Four countries; Argentina, Chile, Brazil and Mexico accounted for around 94 percent of the U.S. imports of grape juice in 2005.

Figure 1. L'.S. Total Grape Juice Imports from Major Countries: 2005 Total Value: $99 Million

Canada

□ Brazil □ Chile 4%

Mexico 5%

Argentina 80% Figure 2. Values of U.S. Imports of Total Grape Juice: 2002 - 2005

100-1 0^ 90- 0^

80- 0^

0^ 70-

0^ 12 60-

■© a 50- B z S s 40-

30- 0^ 20- 0K

0^ 10-

0K 0-

I ROW 4184573 1325848 42798 1690430

Italy 232 98 1077524 97 406 1063757

Canada 3023359 3001155 4043355 3377466

□ Brazil 2977488 1999023 2824579 3763333

□ Chile 6968379 4677289 5469822 4881958

Mexico 1865960 1536607 1858572

Argentina 25563416 52749097 79243273

Exports

The United States exported almost $58 million worth of grape juice to the world market in 2005. This is around a 7 percent increase from the previous year of around $54 million. Over 56 percent of the U.S. grape juice exported was absorbed by Canada, at $33 million, followed by Japan of almost $12 million - around 21 percent (Figure 3). Overall increases in U.S. grape juice exports are linked to increased imports by several countries, including South Korea (Figure 4). However, South Korea has reduced grape juice imports from the United States by around 28 percent, from over $9 million in 2003 to around $6.7 million in 2005. Figure 3. U.S. Total Grape Juice Exports to Major Countries: 2005 Total Value: S58 Million

United Kingdom 1% Thailand □ ROW 1% 5%

China □ Taiwan

□ Korea South 12%

Japan Canada 21%

Fruits Juices

Exports

The value of total fruit juice exports from the United States was around $773 million in 2005, an increase of more than 10 percent from the 2004 level of $698 million (Table 1). Orange juice holds the largest market share at 43 percent, followed by single fruit and vegetable juices (20%), fruit and vegetable mixes (19%), grape juice (7%) and grapefruit juice (6%) (Figure 5). The value of U.S. exports of all juices increased from 2004 levels, with the exception of grapefruit juice and tomato juice. Increasing per unit prices of grapefruit juice exports resulting from weather related crop shortfalls failed to make up for the decline in volume of shipments. Figure 4. Values of U.S. Export of Total Grape Juice : 2002 - 2005

-

. iv ; '■ '3"' 1

0- 2002 2003 2004 2005

□ ROW 3887705 3958077 3520469 2851617

■ Thailand 639886 644320 705226 628017 m, ■ United Kingdom 693325 900845 757024 677141

■ China 133375 2570 946839 920745

□ Taiwan 1312005 795016 1010446 929095

□ Korea South 9753796 9371515 5854174 6698884 1 Japan 13801964 12692180 12486524 11961976

0^ ■ Canada 27998627 28615666 29221663 33060833

Imports

Total fruit juice imports declined slightly in 2004 to around $830 million, down 1.13% from the 2003 level of $839 million, but they increased significantly in 2005 to more than $986 million (Table 2). Apple juice commands the largest market share of value among U.S. imports, reaching nearly $311 million (31%) in 2005, followed by orange juice with a value of around $232 million (24%) (Figure 6). Imports of orange juice inereased significantly, up 50 percent, from 2004. Imports of grapefruit juice continued at high levels due to decreased supplies resulting from hurricane related crop damage - remaining at around 1 percent of total juiee imports at $11 million. Imports of grape juice continued to increase, reaching $99 million, up almost 43.8 percent from 2004. Table 1. Values of U.S« Fruit Juice Exports: 2003 - 2005 United States Export Statistics To World

Commodity; 2009, Frait Juices Nt Fortified W Vit Or Minis (Incl Grape Must)& Vegetable Juices, Unfermentd & Nt Containg Add Spirit, Whet Or Nt Containg Added Sweeteng

Calendar Year: 2003 - 2005 United States Dollars % Share % Change Commodity Description 2003 2004 2005 2003 2004 2005 2005/2004 Fruit Juice Nt Frtfd W Vit/Mnl Veg Juice No 2009 Spirit 732,368,040 698,587,350 772,675,088 100 100 100 10.61

200911 Orange Juice, Frozen, Sweetened Or Not 151,801,933 136,599,521 138,439,199 20.73 19.55 17.92 1.35 Orange Juice, Not Frozen,Of A Brix Value 200912 Not Ov 20 77,947,697 152,530,708 171,267,570 10.64 21.83 22.17 12.28 Orange Juice, Other Than Frozen, Sweetened 200919 Or Not 90,002,838 9.962,003 14,124,159 12.29 1.43 1.83 41.78

20091 Orange Juice 319,752,468 299,092,232 323,830,928 43.66% 42.81% 41.91% 8.27% Juice Of Any Single Fruit/Vegtble 200980 Unfermentd Nesoi 128,171,986 123,476,230 156,273,567 17.5 17.68 20.23 26.56 Mixtures Of Fruit And/Or Vegetable 200990 Juices 118398,563 124,076,891 146,763,026 16.17 17.76 18.99 18.28 Grape Juice Of A Brix Value <= 20, Nt Fort 200961 W/Vitam 11,893,228 15,289,797 15,788,323 1.62 2.19 2.04 3.26 Grape Juice, Nesoi,Nt Fortified With 200969 Vitamins/Min 45,086,961 39,212,568 41,939,985 6.16 5.61 5.43 6.96

20096 Grape Juice 56.980,189 54,502365 57,728308 7.78% 7.80% 7.47% 5.92% Grapefhiit Juice,Brix Value <=20,Nt Fort W 200921 Vitamin 22,442,088 23,585,260 17,549,997 3.06 3.38 2.27 -25.59 Grapefhiit Juice,Nesoi,Nt Fortorified W 200929 Vitamins 51,891,443 41,512,935 31,160,696 7.09 5.94 4.03 -24.94

20092 Grapefruit Juice 74333,531 65,098,195 48,710,693 10.15% 932% 630% -25.17% Apple Juice Of A Birx Value <=20,Nt Fort 200971 W Vitamin 7,417,104 4,983,441 7,673,585 1.01 0.71 0.99 53.98 Apple Juice, Nesoi,Nt Fortified W Vitamins, 200979 Unferm 10,740.253 13,813,102 14,065,635 1.47 1.98 1.82 1.83

20097 Apple Juice 18,157357 18,796,543 21,739,220 2.48% 2.69% 2.81% 15.66% Juice Of 1 Citrus Fmit, Brix Value <=20,Nt 200931 Foitf 5,880,106 4,953,608 7,941,702 0.8 0.71 1.03 60.32 Juice Of Other Single Cirtus Fruit,Nt 200939 Frot,Nesoi 5,363,581 4,527,400 5,341,600 0.73 0.65 0.69 17.98

20093 Cirtus Juice 11,243,687 9,481,008 13,283302 1.54% 1.36% 1.72% 40.10%

200941 Pineapple Juice Of Brix Value 1,694,763 1,255,616 1,427,136 0.23 0.18 0.18 13.66

200949 Pineapple Juice, Nt Fort., Unfermnt, Nesoi 2,913,351 1,769,185 2,115,523 0.4 0.25 0.27 19.58

20094 Pineapple Juice 4,608,114 3,024,801 3,542,659 0.63% 0.43% 0.46% 17.12% Tomato Juice (Dry Weight Content Less 200950 Than 7%) 722,145 1,039,085 803385 0.1 0.15 0.1 -22.68 Figure 5. Values of U.S. Export of Fruit Juices: 2005 Total Value: $773 Million

□ Pineapple Juice 0%

ICinusJuicc 2%

ITomato Juice ■ Grapefruit Juice lApple Juice 0% 3% □ Grape Juice 7% I Orange Juice 43%

□ Mixtures Fruit/Vegclable 19%

I Single FruitA'egtble 20% Table 2, Values of U.S. Fruit Juice Import: 2003 - 2005 United States Import Statistics From World Commodity: 2009, Fruit Juices Nt Fortified W Vit Or Minis (Incl Grape Must)& Vegetable Juices, Unfermentd & Nt Containg Add Spirit, Whet Or Nt Containg Added Sweeteng

Calendar Year: 2003 - 2005 United States Dollars % Share % Change Commodity Description 2003 2004 2005 2003 2004 2005 2005/2004 Fruit Juice Nt Frtfd W Vit/Mnl Veg Juice No 2009 Spirit 839,534,998 830,060,682 986,432,398 100 100 100 18.84 Apple Juice Of A Birx Value <=20,Nt Fort 200971 W Vitamin 29,276,287 27,124,027 23,105,713 3.49 3.27 2.34 -14.81 Apple Juice, Nesoi,Nt Fortified W Vitamins, 200979 Unferm 241,729,626 287,415,141 287,588,873 28.79 34.63 29.15 0.06

20097 Apple Juice 271,005,913 314,539,168 310,694,586 32.28% 37.89% 31.50% -1.22%

200911 Orange Juice, Frozen, Sweetened Or Not 239,028,340 133,639,056 215,800,225 28.47 16.1 21.88 61.48 Orange Juice, Not Frozen,Of A Brix Value 200912 Not Ov 20 25,483,916 19,441,823 14,711,013 3.04 2.34 1.49 -24.33 Orange Juice, Other Than Frozen, Sweetened 200919 Or Not 1,821,272 1,567,071 1,791,116 0.22 0.19 0.18 14.3

20091 Orange Juice 266,333,528 154,647,950 232302354 31.72% 18.63% 23.55% 50.21% Juice Of Any Single FruitA^egtble 200980 Unfermentd Nesoi 115,341,606 149,098,872 198,680,133 13.74 17.96 20.14 33.25 Grape Juice Of A Brix Value <= 20, Nt Fort 200961 W/Vitam 14,903,865 19,921,606 24,945,698 1.78 2.4 2.53 25.22 Grape Juice, Nesoi,Nt Fortified With 200969 Vitamins/Min 24,276,997 49,138,023 74,359,748 2.89 5.92 7.54 51.33

20096 Grape Juice 39,180,862 69,059,629 99305,446 4.67% 832% 10.07% 43.80%

200941 Pineapple Juice Of Brix Value 16,052,561 11,491,442 16,383,247 1.91 1.38 1.66 42.57

200949 Pineapple Juice, Nt Fort., Unfermnt, Nesoi 77,331,315 69,370,415 69,379,757 9.21 8.36 7.03 0.01

20094 Pineapple Juice 93383,876 80,861,857 85,763,004 11.12% 9.74% 8.69% 6.06% Juice Of I Citrus Fruit, Brix Value <=20, Nt 200931 Fortf 17,481,655 17,832,092 20,550,714 2.08 2.15 2.08 15.25 Juice Of Other Single Cirtus Fruit,Nt 200939 Frot,Nesoi 10,292,499 9,734,148 9,339399 1.23 1.17 0.95 -4.06

20093 Cirtus Juice 27,774,154 27,566,240 29,890,013 3.31% 3.32% 3.03% 8.43% Mixtures Of Fruit And/Or Vegetable 200990 Juices 24,632,952 22,101,770 18,117,328 2.93 2.66 1.84 -18.03 Grapefiiiit Juice,Brix Value <=20,Nt Fort W 200921 Vitamin 547,080 9,521,144 9,725,289 0.07 1.15 0.99 2.14 Grapefiuit Juice,Nesoi,Nt Fortorified W 200929 Vitamins 332,030 2,040306 1,355,179 0.04 0.25 0.14 -33.58

20092 Grapefruit Juice 879,110 1136U50 11,080,468 0.10% 139% 1.12% -4.16% Tomato Juice(Dry Weight Content Less 2009S0 Than 7%) 1,002,997 623,846 599,066 0.12 0.08 0.06 -3.97 Figure 6. Values of U.S. Import of Fruit Juices: 2005 Total Value: $986 Million

□ Grapefruit Juice 1%

I Mixtures FniitAVeg Tomalu Juice 2% Pineapple Juice Cirtus Juicc I Apple Juice 31%

□ Grape Juice

□ Single Fniit/Veg 20% I Orange Juice 24% Appendix II Budget A

ESTIMATED COSTS TO PRODUCE GRAPES FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY THOMPSON SEEDLESS VARIETY

Prepared by

Karen L. Klonsky UCCE Extension Specialist, Department of Agricultural and Resource Economics, UC Davis

Richard L. De Moura Research Associate, Department of Agricultural and Resource Economics, UC Davis

This study was conducted as part of a study of the U.S. grape juice concentrate industry initiated by the Central California Winegrowers. Funding for the project has been made available by the California Department of Food and Agriculture's Buy California Initiative and the U.S. Department of Agriculture. ESTIMATED COSTS TO PRODUCE GRAPES FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY Thompson Seedless Variety

CONTENTS

INTRODUCTION 2 ASSUMPTIONS 3 Production Operating Costs 3 Cash Overhead Costs 5 Non-cash Overhead Costs 6 REFERENCES 8 Table 1. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE 9 Table 2. COSTS AND RETURNS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE 10 Table 3. MONTHLY CASH COSTS - GRAPES FOR CONCENTRATE 11 Table 4. RANGING ANALYSIS 12 Table 5. WHOLE FARM EQUIPMENT,INVESTMENT, AND BUSINESS OVERHEAD COSTS 13 Table 6. HOURLY EQUIPMENT COSTS 14

INTRODUCTION

Estimated costs to produce Thompson Seedless grapes for concentrate are presented in this study. The information in the report is derived from interviews with growers who produce grapes mainly for wine and raisins with concentrate as an option. Wine production that goes to concentrate is often decided by the winery, whereas raisin growers often have until some time around the end of June to make the decision to convert from raisins to concentrate. At that point, the growers will modify the remaining cultural practices such as irrigation, pest and disease control, and harvest. Practices described are compiled from grower interviews based on what- if scenarios for concentrate production. California does not have varieties available for planting that are bred specifically for concentrate production, but uses white and red varieties grown for wine and raisin production. For concentrate production, growers should consider the varieties that are adaptable to mechanical pruning and mechanical harvest to reduce labor costs. Cane pruned varieties such as Thompson Seedless appear to not be readily adaptable to mechanical pruning, but is the variety grown in the San Joaquin Valley for either table grapes, raisin, and/or wine. Cultural practices, especially in canopy management vary by the type of production.

The Univcnity of Califoniia does not discriminate in any ofits policies, procedures or practices. The university is an aflinnativc action/equal opportunity employer. ASSUMPTIONS

The assumptions refer to Tables 1 to 6 and pertain to sample costs to produce Thompson Seedless grapes for concentrate in the San Joaquin Valley. The cultural practices described are based on grower interviews, and represent suggested production operations and materials to be considered when producing grapes for concentrate. Timing of and types of cultural practices will vary among growers within the region and from season to season due to variables such as weather, soil, and insect and disease pressure. The use of trade names and cultural practices in this report does not constitute an endorsement or recommendation by the University of California nor is any criticism implied by omission of other similar products or cultural practices.

Land. The hypothetical vineyard, owned and operated by the grower, is located on previously farmed land in the San Joaquin Valley. The farm is comprised of 120 acres, 40 acres of concentrate grapes being established and 75 acres of raisin grapes. Roads, irrigation systems, and farmstead occupy the remaining five acres.

PRODUCTION YEARS OPERATING COSTS

Trellis System. No specific trellis system is used in this study. Common trellis systems are variations of the vertical two wire design with and without cross braces. Trellis repairs are done annually and the cost is not taken from any specific data. For various reasons such as trellis type, age, and mechanical damage, the repair costs will vary from year to year. Repair labor hours arc estimated and are not a representative sample of grower costs. The repair materials are assumed to be included in Investment Repairs under Cash Overhead Costs.

Vines. The Thompson Seedless vines are planted on a 7-ft. x 12-ft (vine x row) spacing at 519 vines per acre. The life of the vineyard at planting is expected to be 25 years. In January/February of each year, sick vines are replaced by layering.

Pruning. Pruning is done during the winter months - December and/or January. The vines are cane pruned and the prunings are placed in the row middles and shredded during the first mowing, then incorporated into the soil with the April discing. Suckers are removed from the vine trunks in April.

Fertilization. Forty pounds per acre of nitrogen (N) as UN-32 is divided and applied in equal amounts in May and June. Neutral zinc at five pounds of material per acre is applied in May with the disease and insect application.

Irrigation. Water costs plus labor, which includes checking the drip lines, constitute the irrigation cost. Irrigation labor also includes servicing the clock and filters, set-up and injection of chemicals, checking, replacing, and repairing drip lines and laterals. In this study, water is calculated to cost $5.67 per acre-inch or $68.00 per acre-foot. Water costs vary considerably among districts and the water cost in this report represents a cost within that range. Thirty acre-inches are applied during the growing season from April through late September. No assumption is made about effective rainfall and runoff.

Pest Management. The pesticides and rates mentioned in this cost study are listed in UC Integrated Pest Management Guidelines, Grapes. For information on other pesticides available, pest identification, monitoring, and management visit the UC IPM website at www.ipm.ucdavis.edu. Information and pesticide use permits are available through the local county agricultural commissioner's office. Pesticides mentioned in this study are used to calculate rates and costs. Although growers commonly use the pesticides mentioned, many other pesticides are available. Adjuvants are recommended for use with many pesticides for effective control, but the adjuvants and their costs are not included in this study. Pesticide costs may vary by location, brand, and grower volume. Pesticide costs in this study are taken from a single dealer and shown as full retail.

Pest Control Advisor (PCA). Written recommendations are required for many pesticides and are made by licensed pest control advisors. In addition the PCA will monitor the field for agronomic problems including pests and nutrition. Growers may hire private PCA's or receive the service as part of a service agreement with an agricultural chemical and fertilizer company. No costs for a PCA are included in this report.

Weeds. The row middles are mowed four times - March for frost control and to shred prunings. May, June, and August prior to harvest. The row middles are disced in April for weed control and to incorporate the vine prunings. Vine row weeds are controlled with three Roundup spot sprays - April, June, July.

Insects. Kryocide insecticide for worm control (grape leaffolder, omnivorous leafi-oller, western grapeleaf skeletonizer) is applied in early May at bloom with the powdery mildew and foliar fertilizer spray. Provado insecticide is applied in July to control leafhoppers.

Diseases. The major diseases considered in this report are powdery mildew, and Phomopsis cane and leaf spot. Wettable sulfur is applied soon after budbreak in late March or early April. A second application is made in April. Dusting sulfur is applied once in April, in May, and in June. A sterol inhibitor, Rubigan, is applied in May at early bloom (with the worm and zinc spray) and a strobilurin fungicide, Flint, in June, two weeks after bloom.

Harvest. A custom operator mechanically harvests the crop. Harvest costs in this report are $225 per acre, which is a mid-range of costs provided by the growers. A commercial trucking hauls the grapes to the processor for $10 per ton. Hauling costs will vary depending upon the hauling distance.

Yields. An average yield of 12-tons per acre is assumed over the 25-year life of the vineyard, beginning in the fourth year.

Returns. The market price in this report, based on grower inputs for 2004, is $200 per acre for both white and red grape varieties. A range of returns over various yields are shown in Table 4.

Pickup/ATV. It is assumed that the grower uses the pickup for business and personal use. Estimated business mileage for the ranch is 3,300 miles. The all terrain vehicle (ATY) is used for spot spraying weeds and is included in that cost. It is assumed that the ATY will be used another two-hours per acre for checking the vineyards including the irrigation system.

Labor. Labor rates of $12.73 per hour for machine operators and $11.05 for general labor includes payroll overhead of 34%. The basic hourly wages are $9.50 for machine operators and $8.25 for general labor. The overhead includes the employers' share of federal and California state payroll taxes, workers' compensation insurance for vineyards (code 0040), and a percentage for other possible benefits. Workers' compensation insurance costs will vary among growers, but for this study the cost is based upon the average industry final rate as of January 1, 2004 (California Department of Insurance). Labor for operations involving machinery are 20% higher than the operation time given in Table 1 to account for the extra labor involved in equipment set up, moving, maintenance, work breaks, and field repair. Equipment Operating Costs. Repair costs are based on purchase price, annual hours of use, total hours of life, and repair coefficients formulated by the American Society of Agriculture Engineers (ASAE). Fuel and lubrication costs are also determined by ASAE equations based on maximum PTO horsepower, and fuel type. Prices for on-farm delivery of diesel and gasoline are $1.45 and $1.88 per gallon, respectively. The fuel prices are averaged based on four California delivery locations plus $0.24 per gallon, which is one-half the difference between the high and low price for regular gasoline in 2003 from the California State Automobile Association Monthly Survey. The cost includes a 2.25% sales tax (effective September 2001) on diesel fuel and 7.25% sales tax on gasoline. Gasoline also includes federal and state excise tax, which can be refunded for on- farm use when filing your income tax. The fuel, lube, and repair cost per acre for each operation in Table 1 is determined by multiplying the total hourly operating cost in Table 6 for each piece of equipment used for the selected operation by the hours per acre. Tractor time is 10% higher than implement time for a given operation to accoimt for setup, travel and down time.

Interest On Operating Capital. Interest on operating capital is based on cash operating costs and is calculated monthly until harvest at a nominal rate of 6.89% per year. A nominal interest rate is the typical market cost of borrowed funds. The interest cost of post harvest operations is discounted back to the last harvest month using a negative interest charge.

Risk. The risks associated with crop production should not be minimized. While this study makes every effort to model a production system based on typical, real world practices, it cannot fully represent financial, agronomic and market risks, which affect profitability and economic viability. Growers may purchase Federal crop insurance to reduce the production risk associated with specific natural hazards. Insurance policies vary and range from a basic catastrophic loss policy to one that insures losses for up to 75% of a crop. Crop insurance is not included in this report, but insurance costs will depend on the type and level of coverage.

Cash Overhead Costs

Cash overhead consists of various cash expenses paid out during the year that are assigned to the whole farm and not to a particular operation. These costs include property taxes, interest on operating capital, office expense, liability and property insurance, sanitation services, equipment repairs, and management.

Property Taxes. Counties charge a base property tax rate of 1% on the assessed value of the property. In some counties special assessment districts exist and charge additional taxes on property including equipment, buildings, and improvements. For this study, county taxes are calculated as 1% of the average value of the property. Average value equals new cost plus salvage value divided by 2 on a per acre basis.

Insurance. Insurance for farm investments varies depending on the assets included and the amount of coverage. Property insurance provides coverage for property loss and is charged at 0.676% of the average value of the assets over their useful life. Liability insurance covers accidents on the farm and costs $645 for the entire farm.

Office Expense. Office and business expenses for 120 acres are estimated at $75 per producing acre or $8,625 annually for the ranch. These expenses include office supplies, telephones, bookkeeping, accounting, legal fees, road maintenance, etc. The cost is assumed and not taken from any specific data.

Management/Supervisor Wages. Salary is not included. Returns above costs are considered a return to management.

Investment Repairs. Annual maintenance on investments (Non-Cash Overhead) are calculated as 2% of the purchase price for the irrigation system, building, tools, fiiel tanks and establishment costs.

Non-Cash Overhead Costs

Non-cash overhead is calculated as the annual capital recovery cost for ownership of equipment and other farm investments.

Capital Recovery Costs. Capital recovery cost is the annual depreciation and interest costs for a capital investment. It is the amount of money required each year to recover the difference between the purchase price and salvage value (unrecovered capital). It is equivalent to the annual payment on a loan for the investment with the down payment equal to the discounted salvage value. This is a more complex method of calculating ownership costs than straight-line depreciation and opportunity costs, but more accurately represents the annual costs of ownership because it takes the time value of money into account (Boehlje and Eidman). The formula for the calculation of the annual capital recovery costs is ((Purchase Price - Salvage Value) x Capital Recovery Factor)+ (Salvage Value x Interest Rate).

Salvage Value. Salvage value is an estimate of the remaining value of an investment at the end of its useful life. For farm machinery (tractors and implements) the remaining value is a percentage of the new cost of the investment (Boehlje and Eidman). The percent remaining value is calculated from equations developed by the American Society of Agricultural Engineers(AS AE) based on equipment type and years of life. The life in years is estimated by dividing the wear out life, as given by ASAE by the annual hours of use in this operation. For other investments including irrigation systems, buildings, and miscellaneous equipment, the value at the end of its useful life is zero. The salvage value for land is the purchase price because land does not depreciate. The purchase price and salvage value for equipment and investments are shown in Table 5.

Capital Recovery Factor. Capital recovery factor is the amortization factor or annual payment whose present value at compound interest is 1. The amortization factor is a table value that corresponds to the interest rate used and the life of the machine.

Interest Rate. The interest rate of 6.25% used to calculate capital recovery cost is the USDA-ERS's ten- year average of California's agricultural sector long-run rate of return to production assets from current income. It is used to reflect the long-term realized rate of return to these specialized resources that can only be used effectively in the agricultural sector. In other words, the next best alternative use for these resources is in another agricultural enterprise.

Establishment Cost. Costs to establish the vineyard are used to determine capital recovery expenses on investment for the production years. Establishment cost is the sum of the costs for land preparation, trellis system, planting, vines, cash overhead and production expenses for growing the vines through the first year that grapes are harvested minus any returns from production. The vineyard is expected to produce in the third year, therefore the Total Accumulated Net Cash Cost in the third year represents the establishment cost. For this study the estimated cost is $6,956 per acre or $278,240 for the 40-acre vineyard. The establishment cost is spread over the remaining 22 years of the 25 years the vineyard is in production.

Irrigation System. The previous vineyard is assumed to have an irrigation system that has been refiirbished. The drip line is laid on the ground prior to planting. After the trellis system is installed, the drip line is clipped to the bottom trellis wire. The system includes the installation labor, filters, fertilizer injector, time clock, and valves. Although the materials will have a useful life equivalent to the vineyard, the irrigation system can be included in the vineyard establishment costs or as in this case an improvement to the property with a 25-year life.

Land. The land was formerly a vineyard, but has been out of production for two years. The open land was planted to grain crops. Land in the San Joaquin Valley for grape production ranges from $4,500 to $6,500 per acre (CA Association of Farm Manager and Real Estate Appraisers). For this report, a land value was of $5,800 per acre or $6,052 per producing acre is used (five of the 120 acres are not planted). It is assumed the grower originally purchased the land with an established vineyard. The annual cost of land is interest only since land does not depreciate.

Building. The metal buildings are on a cement slab and comprise 2,400 square feet.

Tools. This includes shop tools, hand tools, and miscellaneous field tools such as pruning tools.

Fuel Tanks. Two 250-gallon fuel tanks using gravity feed are on metal stands. The tanks are setup in a cement containment pad that meets federal, state, and county regulations.

Equipment. Farm equipment is purchased new or used, but the study shows the current purchase price for new equipment. The new purchase price is adjusted to 60% to indicate a mix of new and used equipment. Annual ownership costs for equipment and other investments are shown in Table 5. Equipment costs are composed of three parts: non-cash overhead, cash overhead, and operating costs. Both of the overhead factors has been discussed in a previous section. The operating costs consist of repairs, fuel, and lubrication and are discussed imder operating costs.

Table Values. Due to rounding, the totals may be slightly different from the sum of the components.

Acknowledgment. Appreciation is expressed to those growers and other cooperators who provided support for this report. REFERENCES

American Society of Farm Managers and Rural Appraisers. 2004. 2004 Trends in Agricultural Land and Lease Values. California Chapter of the American Society of Farm Managers and Rural Appraisers, Woodbridge, CA.

American Society of Agricultural Engineers. (ASAE). 1994. American Society of Agricultural Engineers Standards Yearbook. St. Joseph, Missouri.

Barker, Doug. April 22, 2003. California Workers' Compensation Rating Data for Selected Agricultural Classifications as ofJanuary 1, 2004 (Updated). California Department of Insurance, Rate Regulation Branch.

Boehlje, Michael D., and Vemon R. Eidman. 1984. Farm Management. John Wiley and Sons. New York, New York

Califomia State Automobile Association. 2004. Gas Price Survey 2003. AAA Public Affairs, San Francisco, CA.

Central Califomia Winegrowers (October, 2004). Interviews with association members.

Christensen, Pete. Training Table Grape Vineyards. 1998. University of Califomia Cooperative Extension, Tularc, CA. Pub. #TB 11-98.

Clarke, Dan. 2000. Concentrate 101. Wine Business Online. Available http://winebusiness.ocm/html/Monthlv Article.cfm?

Doanes. 1984. Facts and Figuresfor Farmers. 1984. Doane Publishing, St. Louis, MO.

Farm Advisors. (September, October 2004). Interviews with Steve Vasqucz, Fresno County Farm Advisor and Bill Peacock, Tulare County Farm Advisor.

Jensen, Frederick L., William L. Peacock. Thompson Seedless. 1998. University of Califomia Cooperative Extension, Tularc, CA. Pub # TB7-97.

University of Califomia Statewide 1PM Project. 2003. UC Pest Management Guidelines, Grapes. University of Califomia, Davis CA. http://www.ipm.ucdavis.edu

USDA-ERS. 2004. Farm Sector: Farm Financial Ratios. Agriculture and Rural Economics Division, ERS. USDA. Washington, DC http://www.ers.usda.gov/data/farmbalanceshcct/fl3sdmu.htm: Internet; accessed January 5, 2004.

Vasqucz, Stephen J., George M. Leavitt, William L. Peacock, L. Peter Christensen, Stephen R. Sutter, Kurt J. Hcmbree, Karen L. Klonsky, Donald G. Katayama, and Richard L. De Moura. 2003. Sample Costs to Establish a Vineyard and Produce Dried-on-Vine Raisins, San Joaquin Valley. University of Califomia Cooperative Extension and the Department of Agricultural and Resource Economics. Davis, CA. Table 1, COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE - Thompson Seedless SAN JOAQUIN VALLEY - 2004

Operation Cash and Labor Cost per acre Time Labor Fuel, Lube Material Custom/ Total Operation (Hrs/A) Cost & Repairs Cost Rent Cost Cultural: Prune:(hand) 11.00 122 0 0 0 122 Prune: Tie Vines 5.00 55 0 11 0 67 Vines: Layer to replace missing vines 1.00 11 0 0 0 11 Trellis: Repair (labor only, see text) 2.00 22 0 0 0 22 Weed: Winter Strip Spray(Roundup, Goal, Surflan) 0.54 8 4 67 0 79 Irrigate:(water & labor) 3.05 34 0 170 0 204 Weed: Mow 4X (includes shred prunings) 0.96 15 10 0 0 25 Prune: Sucker Trunks 1.25 14 0 0 0 14 Weed: Spot Spray 20% acres 3X (Roundup) 1.59 24 2 13 0 39 Weed: Disc 0.29 4 2 0 0 7 Disease: Mildew (Wettable Sulfur) 1.53 23 15 1 0 40 Disease: Mildew (Dusting Sulfur) 0.92 14 7 5 0 26 Fertilize: through drip (UN32) 0.10 1 0 16 0 17 Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer:(Zn) 0.76 12 8 33 0 52 Disease: Mildew (Flint) 0.76 12 8 25 0 44 Insect: Leaf Hopper(Provado) 0.76 12 8 33 0 52 Pickup: Business use for vineyard 1.50 23 18 0 0 41 ATV 4WD: Miscellaneous vineyard use 2.00 31 2 0 0 33 TOTAL CULTURAL COSTS 35.01 436 83 374 0 893 Harvest: Harvest: Machine Harvest & Haul 0.00 0 0 0 345 345 TOTAL HARVEST COSTS 0.00 0 0 0 345 345 Interest on operating capital ^6.89% 25 TOTAL OPERATING COSTS/ACRE 436 83 374 345 1,264 Cash Overhead:

Office Expense 75 Liability Insurance 6 Sanitation 19 Property Taxes 106 Property Insurance 31 Investment Repairs 171 TOTAL CASH OVERHEAD COSTS 408 TOTAL CASH COSTS/ACRE 1,671 Non-Cash Overhead: Per producing Annual Cost Acre Capital Recovery Land 6,052 377 377 Drip Irrigation System 950 76 76 Buildings 522 46 46 Tools-Shop/Field 104 10 10 Fuel Tanks 30 2 2 Vineyard Establishment 6,956 589 589 Equipment 437 59 59 TOTAL NON-CASH OVERHEAD COSTS 15,052 1,160 1,160 TOTAL COSTS/ACRE 2,832 Table 2. COSTS AND RETURNS to PRODUCE GRAPES FOR CONCENTRATE -Thompson Seedless SAN JOAQUIN VALLEY - 2004

Quantity/ Price or Value or Your Acre Unit Cost/Unit Cost/Acre Cost GROSS RETURNS

Grapes for Concentrate 12.00 ton 200.00 2,400 OPERATING COSTS Vine Aids: r' Tying Materials 1.00 acre 11.50 11 Custom:

Machine Harvest 1.00 acre 225.00 225

Haul to Crusher 12.00 ton 10.00 120 Herbicide: Roundup Ultra Max 2.16 pint 8.56 18 Goal 2XL 1.00 pint 16.21 16 Surflan 4 AS 2.64 pint 16.96 45 Irrigation: 1-^ Water 30.00 acin 5.67 170 Fungicide: Wettable Sulfur 6.00 lb 0.21 1 Dusting Sulfur 30.00 lb 0.18 5 Rubigan EC 4.00 floz 2.50 10

Flint 1.50 oz 16.49 25 Fertilizer:

UN 32 40.00 IbN 0.41 16 1^ Neutral Zinc 50% 5.00 lb 0.92 5 Insecticide:

Kryocide 6.00 lb 3.00 18

Provado 1.6 Solupak 0.75 oz 43.96 33 Labor (machine) 13.93 hrs 12.73 177 Labor (non-machine) 23.40 hrs 11.05 259 Fuel - Gas 8.08 gal 1.88 15 Fuel - Diesel 21.12 gal 1.45 31 Lube 7 Machinery repair 30 Interest on operating capital @6.89% 25 TOTAL OPERATING COSTS/ACRE 1,264 NET RETURNS ABOVE OPERATING COSTS 1,136 Cash Overhead: Office Expense 75 Liability Insurance 6 Sanitation 19 Property Taxes 106 Property Insurance 31 Investment Repairs 171 TOTAL NON-CASH OVERHEAD COSTS 408 TOTAL COSTS/ACRE 1,671 Non-Cash Overhead: Land 377 Drip Irrigation System 76 Buildings 46 Tools-Shop/Field 10 Fuel Tanks 2 Vineyard Establishment 589 Equipment 59 TOTAL NON-CASH OVERHEAD COSTS 1,160 TOTAL COSTS/ACRE 2,832 r ■ NET RETURNS ABOVE TOTAL COSTS -432

10 Table 3. MONTHLY CASH to PRODUCE GRAPES FOR CONCENTRATE - Thompson Seedless SAN JOAQUIN VALLEY - 2004

Beginning JAN 04 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL Ending DEC 04 04 04 04 04 04 04 04 04 04 04 04 04 Cultural: Prune:(hand) 122 122 Prune: Tie 67 67 Vines:(Layer canes to replace missing vines) II 11 Trellis: Repair 22 22 Weed: Winter Strip Spray(Roundup, Goal, Surflan) 79 79 Irrigate:(water & labor) 11 15 22 46 52 32 26 204 Weed: Mow 4X (includes shred prunings) 6 6 6 6 25 Pmne: Sucker Trunks 14 14 Weed: Spot Spray 20% acres(Roundup) 13 13 13 39 Weed: Disc 7 7 Disease: Mildew (Wettable Sulfur) 40 40 Disease: Mildew (Dusting Sulfur) 9 9 9 26 Fertilize: through drip (UN32) 9 9 17 Insect: Skeletonizer (Kiyocide). Disease: Mildew (Rubigan). Fertilizer:(Zn) 52 52 Disease: Mildew (Flint) 44 44 Insect: Leaf Hopper(Provado) 52 52 Pickup: Business use for vineyard 3 3 3 3 3 3 3 3 3 3 3 3 41 ATV 4WD: Miscellaneous vineyard use 3 3 3 3 3 3 3 3 3 3 3 3 33 TOTAL CULTURAL COSTS 228 85 24 103 104 133 123 44 32 6 6 6 893 Harvest: Harvest: Machine Harvest & Haul 345 345 TOTAL HARVEST COSTS 345 345 Interest on operating capital 1 2 2 3 3 4 5 7 0 0 0 0 25 TOTAL OPERATING COSTS/ACRE 229 86 25 105 107 137 128 396 32 6 6 6 1,264 Cash Overhead: Office Expense 6 6 6 6 6 6 6 6 6 6 6 6 75 Liability Insurance 6 6 Sanitation 2 2 2 2 2 2 2 2 2 19 Property Taxes 53 53 106 Property Insurance 15 15 31 Investment Repairs 14 14 14 14 14 14 14 14 14 14 14 14 171 TOTAL CASH OVERHEAD COSTS/ACRE 97 23 23 23 23 23 91 23 23 21 21 21 408 TOTAL CASH COSTS/ACRE 326 109 48 128 129 160 219 418 55 27 27 27 1,671 Table 4. RANGING ANALYSIS SAN JOAQUIN VALLEY - 2004

COSTS PER ACRE AT VARYING YIELD TO PRODUCE GRAPES FOR CONCENTRATE - Thompson Seedless

YIELD (ton/acre) 9.00 10.00 11.00 12.00 13.00 14.00 15.00 OPERATING COSTS; Cultural Cost 893 893 893 893 893 893 893 Harvest Cost 315 325 335 345 355 365 375 Interest on operating capital 25 25 25 25 25 26 26 TOTAL OPERATING COSTS/ACRE 1,233 1,243 1,253 1,263 1,273 1,284 1,294 Total Operating Costs/ton 137 124 114 105 98 92 86 CASH OVERHEAD COSTS/ACRE 408 408 408 408 408 408 408 TOTAL CASH COSTS/ACRE 1,641 1,651 1,661 1,671 1,681 1,692 1,702 Total Cash Costs/ton 182 165 151 139 129 121 113 NON-CASH OVERHEAD COSTS/ACRE 1,160 1,160 1,160 1,160 1,160 1,160 1,160 TOTAL COSTS/ACRE 2,801 2,811 2,821 2,831 2,841 2,852 2,862 Total Costs/ton 311 281 256 236 219 204 191

NET RETURNS PER ACRE ABOVE OPERATING COSTS

PRICE YIELD (ton/acre) S/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 27 157 287 417 547 676 806 160.00 207 357 507 657 807 956 1,106 180.00 387 557 727 897 1,067 1,236 1,406 200.00 567 757 947 1,137 1,327 1,516 1,706 220.00 747 957 1,167 1,377 1,587 1,796 2,006 240.00 927 1,157 1,387 1,617 1,847 2,076 2,306 260.00 1,107 1,357 1,607 1,857 2,107 2,356 2,606

NET RETURNS PER ACRE ABOVE CASH COST

PRICE YIELD (ton/acre) S/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -381 -251 -121 9 139 268 398 160.00 -201 -51 99 249 399 548 698 180.00 -21 149 319 489 659 828 998 200.00 159 349 539 729 919 1,108 1,298 220.00 339 549 759 969 1,179 1,388 1,598 240.00 519 749 979 1,209 1,439 1,668 1,898 260.00 699 949 1,199 1,449 1,699 1,948 2,198

NET RETURNS PER ACRE ABOVE TOTAL COST

PRICE YIELD (ton/acre) S/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -1,541 -1,411 -1,281 -1,151 -1,021 -892 -762 160.00 -1,361 -1,211 -1,061 -911 -761 -612 -462 180.00 -1,181 -1,011 -841 -671 -501 -332 -162 200.00 -1,001 -811 -621 -431 -241 -52 138 220.00 -821 -611 -401 -191 19 228 438 240.00 -641 -411 -181 49 279 508 738 260.00 -461 -211 39 289 539 788 1,038

12 Table 5. WHOLE FARM ANNUAL EQUIPMENT,INVESTMENT, SAN JOAQUIN VALLEY - 2004

ANNUAL EQUIPMENT COSTS

Cash Overhead Yrs Salvage Capital Insur

Yr Description Price Life Value Recovery ance Taxes Total 04 60HP 4WD NarrowTractor 36,000 15 7,009 3,467 145 215 3,827 04 ATV 4WD 6,700 5 3,003 1,070 33 49 1,152 04 Disc - Tandem 8' 6,800 10 1,203 844 27 40 911 04 Duster - 3 Pt 5,000 5 1,629 907 22 33 962 04 Mower-Flail 8' 9,600 15 922 964 36 53 1,053 04 OrchA^ine Sprayer 500 gal 20,378 5 6,638 3,696 91 135 3,922 04 Pickup Truck 1/2 Ton 26,000 7 9,863 3,529 121 179 3,829 04 Sprayer ATV 20 gal 350 10 62 43 1 2 47 04 Weed Spray 3PT 100 gal 3,500 10 619 434 14 21 469 TOTAL 114,328 30,948 14,954 490 727 16,172 60% of New Cost * 68,597 18,569 8,972 295 436 9,703 * Used to reflect a mix of new and used equipment.

ANNUAL INVESTMENT COSTS

Cash Overhead Yrs Salvage Capital Insur

Description Price Life Value Recovery ance Taxes Repairs Total Building 2,400 sqft 60,000 20 5,329 203 300 1,200 7,032 Drip Irrigation System 38,000 25 3,038 128 190 760 4,116 Vineyard Establishment 278,240 22 23,571 940 1,391 5,564 31,466 Fuel Tanks 2-300 gal 3,500 30 350 256 13 19 70 359 Land 696,000 25 696,000 43,361 0 6,960 0 50,321 Tools: Shop/Field 12,000 15 1,133 1,206 44 66 240 1,556 TOTAL INVESTMENT 1,087,740 697,483 76,761 1,328 8,926 7,834 94,850

ANNUAL BUSINESS OVERHEAD COSTS

Units/ Price/ Total Description Farm Unit Unit Cost

Liability Insurance 115 acre 5.60 644

Office Expense 115 acre 75.00 8,625

Sanitation Fee 115 acre 18.96 2,180

13 Table 6. HOURLY EQUIPMENT COSTS SAN JOAQUm VALLEY - 2004

COSTS PER HOUR Actual Cash Overhead Operating Hours Capital Insur Fuel& Total Total

Yr Description Used Recovery ance Taxes Repairs Lube Oper. Costs/Hr. 04 60HP 4WD NarrowTractor 1,066.10 1.95 0.08 0.12 0.88 4.91 5.79 7.95 04 ATV4WD 400.20 1.60 0.05 0.07 0.50 0.72 1.22 2.94 04 Disc - Tandem 8' 199.50 2.54 0.08 0.12 1.10 0.00 1.10 3.84 04 Duster - 3 Pt 239.70 2.27 0.06 0.08 0.73 0.00 0.73 3.13 04 Mower-Flail 8' 133.40 4.34 0.16 0.24 4.31 0.00 4.31 9.04 04 OrclWine Sprayer 500 gal 400.60 5.54 0.14 0.20 3.58 0.00 3.58 9.46 04 Pickup Truck 1/2 Ton 285.00 7.43 0.26 0.38 1.91 9.91 11.82 19.88 04 Sprayer ATV 20 gal 150.20 0.17 0.01 0.01 0.10 0.00 0.10 0.28 04 Weed Spray 3PT 100 gal 200.40 1.30 0.04 0.06 0.61 0.00 0.61 2.01

14 Appendix 11 Budget B

ESTIMATED COSTS TO ESTABLISH AND PRODUCE GRAPES FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY

Prepared by

Karen L. Klonsky UCCE Extension Specialist, Department of Agricultural and Resource Economics, UC Davis

Richard L. De Moura Research Associate, Department of Agricultural and Resource Economics, UC Davis

This study was conducted as part of a study of the U.S. grape juice concentrate industry initiated by the Central California Winegrowers. Funding for the project has been made available by the California Department of Food and Agriculture's Buy California Initiative and the U.S. Department of Agriculture. ESTIMATED COSTS TO ESTABLISH AND PRODUCE GRAPES FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY

CONTENTS

INTRODUCTION 2 ASSUMPTIONS 3 Establishment Operating Costs 3 Produetion Operating Costs 5 Cash Overhead Costs 7 Non-cash Overhead Costs 7 REFERENCES 10 Table 1. SAMPLE COSTS PER ACRE TO ESTABLISH A VINEYARD 11 Table 2. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE 13 Table 3. COSTS AND RETURNS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE 14 Table 4. MONTHLY CASH COSTS - GRAPES FOR CONCENTRATE 15 Tables. RANGING ANALYSIS 16 Table 6. WHOLE FARM EQUIPMENT,INVESTMENT, AND BUSINESS OVERHEAD COSTS 17 Table 7. HOURLY EQUIPMENT COSTS 18

INTRODUCTION

Estimated costs to establish a vineyard and produce grapes for concentrate are presented in this study. The information in the report is derived from interviews with growers who produce grapes mainly for wine and raisins with concentrate as an option. Wine production that goes to concentrate is often decided by the winery, whereas raisin growers often have until some time around the end of June to make the decision to convert from raisins to concentrate. At that point, the growers will modify the remaining cultural practices such as irrigation, pest and disease control, and harvest. Practices described are compiled from grower interviews based on what- if scenarios for concentrate production. Califomia does not have varieties available for planting that are bred specifically for concentrate production, but uses white and red varieties grown for wine and raisin production. For concentrate production, growers should consider the varieties that are adaptable to mechanical pruning and mechanical harvest to reduce labor costs. Cane pruned varieties such as Thompson Seedless appear to not be readily adaptable to mechanical pruning and therefore are not considered in this report.

The University of Califomia does not discriminate in any ofits policies, procedures or practices. The tmiversity is an affirmative action/equal opportunity employer. ASSUMPTIONS

The assumptions refer to Tables 1 to 7 and pertain to sample costs to establish the vineyard and produce grapes for concentrate in the San Joaquin Valley. The cultural practices described are based on grower interviews, and represent suggested production operations and materials to be considered when establishing a vineyard and producing grapes specifically for concentrate. Timing of and types of establishment and cultural practices will vary among growers within the region and from season to season due to variables such as weather, soil, and insect and disease pressure. The use of trade names and cultural practices in this report does not constitute an endorsement or recommendation by the University of California nor is any criticism implied by omission of other similar products or cultural practices.

Land. The hypothetical vineyard, owned and operated by the grower, is located on previously farmed land in the San Joaquin Valley. The farm is comprised of 120 acres, 40 acres of concentrate grapes being established and 75 acres of raisin grapes. Roads, irrigation systems, and farmstead occupy the remaining five acres.

Establishment Operating Costs(Table 1)

Establishment Notes. Vineyard establishment costs and operations do not significantly differ from those vineyards established for wine, raisin, or table grapes. The typical variations are in variety, canopy management (pruning and training), plant spacing, and the trellis system. Although some growers are harvesting in the second year, in this report, it is assumed a more typical harvest is in the third year.

Site Preparation. This vineyard is established on ground previously planted to vineyards or orchards. Land coming from vines or trees should be fallowed for two years except for a possible grain crop. The land is assumed to be fairly level. A custom operator chisels the ground (subsoils) twice to a depth of 4-5 feet. The grower floats the land to smooth and level the surface. Afterwards the ground is disced twice to apply and incorporate preplant herbicide. Nematode samples should be taken from land formerly in vines or trees and fumigated if necessary. Most operations that prepare the vineyard for planting are done in the year prior to planting, but costs are shown in the first year.

Trellis System. A commercial company installs the trellis system in December of the first year or January of the second year (January in this report). The trellis system is a vertical two-wire design. Trellis materials include 1.25 lb x 7-fl T-posts,4 lb x 9.5-ft rail end posts, 1/4 x 40-inch rod, 12.5 gauge fhiit and catch wires. Also a 14-guage wire is strung at 24-inches to hold the drip tubing.

Planting. Planting starts by laying out and marking vine sites in late winter. In the spring, holes are dug and the vines are planted and protected with an open carton placed over the vine. The vines are planted on a 7-ft. X 11-ft (vine x row) spacing at 565 vines per acre. In the second year 2% or 11 vines per acre are replanted for those lost in the first year.

Vines. No specific variety is planted in this study, but the data refers to spur pruned varieties, such as white varieties - French Colombard, Chenin Blanc - and the red varieties - Rubired, Royalty, Salvador. The vines in this report are purchased as dormant vines that have been bench grafted or field budded onto nematode/phylloxera resistant rootstock. The life of the vineyard at planting is expected to be 25 years and the grapevines are expected to begin yielding fmit in three years. Training/Pruning. Training and pruning to establish the vine framework will vary with variety and trellis system. Training to establish the vine framework includes tying, shoot thinning, shoot positioning and pruning. Bilateral cordon training and spur pruning is the selection of the main shoot and its upper laterals or branches that form the trunk and cordon. They are tied to the stake and cordon wire while unwanted shoots are removed, including any suckers arising from the rootstock. Quadrilateral cordon training requires the addition of crossarms. Dormant pruning begins in January of the second year. The young vines are pruned back to a 2- bud spur. Shoot thinning is done twice a month in April and May, shoot thinning and cordon training twice a month in June and July. In the third year, shoot thinning is done in April and shoot positioning in May.

Irrigation. In this study, the water is assumed to cost $5.67 per acre-inch or Table A. Applied $68.00 per acre-foot. Water costs plus labor constitute the irrigation cost. Water costs vary considerably among districts and the water cost in this report represents a Year Acln/Year cost within that range. Irrigations occur during the growing season from March 1 8 through September. No assumption is made about effective rainfall or runoff. The 2 18 3+ 30 amount of water applied to the vines during the establishment years is shown in Table A. The drip irrigation system is described under Non-Cash Overhead.

Pest Management. The pesticides and rates mentioned in this cost study as well as other materials available are listed in UC Integrated Pest Management Guidelines, Grapes. Pesticides mentioned in the study are commonly used, but are not recommendations.

Insects. Beginning in the third year, Kryocide insecticide is applied in early May at bloom (combined with Rubigan and zinc) to control worms (grape leaffolder, omnivorous leafroller, western grapeleaf skeletonizer). Provado insecticide is applied in July to control leafhoppers.

Diseases. The major diseases treated in this study are powdery mildew, and phomopsis cane and leaf spot. A dusting and spraying program for these diseases begins the third year with a wettable sulfur application soon after budbreak in late March or early April. Dusting sulfur is applied twice in April and once in June. A sterol inhibitor (SI) - Rubigan in this study - is applied in May during early bloom (combined with worm and zinc spray) and once in Jime, two weeks after bloom.

Weeds. Treflan herbicide is applied and incorporated during land preparation in the fall of the first year prior to planting. Vineyard floor management begins in late winter, February of the second year, with a strip spray in the vine row with Roundup, Surflan, and Goal. In the first year, the middles are mowed twice and disced twice. In the second and subsequent years, the row middles are disced in April and mowed in March, May, June, and August. The vine rows are spot treated with Roundup in late April and early August.

Fertilization. Liquid nitrogen fertilizer - UN32 - is applied in equal amounts through the drip system in May and June. Five pounds of N is applied in the first year, 10 in the second year, and 20 in the third year. Zinc as neutral zinc is applied with the bloom spray (Kryocide and Rubigan).

Harvest. Harvest begins the third year. The crop is mechanically harvested by a custom harvest operator and hauled to the processor by a custom hauler.

Yields. The vineyard yields approximately six-tons of fresh grapes per acre.

Returns. In this study, the fresh fhiit is sold to a concentrate processor for which the grower receives $200 per ton, the current estimated market price. Production Years Operating Costs

Pruning. Pruning is done during the winter months - December and/or January. The vines are mechanically hedged or box pruned, followed with hand pruning to touch-up and clean the vines. The prunings are mechanically raked from the vine row, then shredded during the first mowing and incorporated into the soil with the April discing. Canopy skirting (mechanical) is done with the grower's equipment in June and in July.

Cane Pruned Varieties. Thompson Seedless, one of the top varieties used for concentrate, and Fiesta, a new variety are both cane pruned and not taken into account in this report.

Fertilization. Forty pounds per acre of nitrogen (N) as UN-32 is divided and applied in equal amounts in May and June. Neutral zinc at five pounds of material per acre is applied in May with the disease and insect application.

Irrigation. Water costs plus labor, which includes checking the drip lines, constitute the irrigation cost. Irrigation labor also includes servicing the clock and filters, set-up and injection of chemicals, checking, replacing, and repairing drip lines and laterals. In this study, water is calculated to cost $5.67 per acre-inch or $68.00 per acre-foot. Water costs vary considerably among districts and the water cost in this report represents a cost within that range. Thirty acre-inches are applied during the growing season from April through late September. No assumption is made about effective rainfall and runoff.

Pest Management. The pesticides and rates mentioned in this cost study are listed in UC Integrated Pest Management Guidelines, Grapes. For information on other pesticides available, pest identification, monitoring, and management visit the UC IPM website at www.ipm.ucdavis.edu. Information and pesticide use permits are available through the local county agricultural commissioner's office. Pesticides mentioned in this study are used to calculate rates and costs. Although growers commonly use the pesticides mentioned, many other pesticides are available. Adjuvants are recommended for use with many pesticides for effective control, but the adjuvants and their costs are not included in this study. Pesticide costs may vary by location, brand, and grower volume. Pesticide costs in this study are taken from a single dealer and shown as full retail.

Pest Control Advisor (PCA). Written recommendations are required for many pesticides and are made by licensed pest control advisors. In addition the PCA will monitor the field for agronomic problems including pests and nutrition. Growers may hire private PCA's or receive the service as part of a service agreement with an agricultural chemical and fertilizer company. No costs for a PCA are included in this report.

Weeds. The row middles are mowed four times - March for frost control and to shred prunings, May, June, and August prior to harvest. The row middles are also disced in April to incorporate the vine prunings. Vine row weeds are controlled with three Roundup spot sprays - April, June, July.

Insects. Kryocide insecticide for worm control (grape leaffolder, omnivorous leafroller, western grapeleaf skeletonizer) is applied in early May at bloom with the powdery mildew and foliar fertilizer spray. Provado insecticide is applied in July to control leafhoppers.

Diseases. The major diseases considered in this report are powdery mildew, and Phomopsis cane and leaf spot. Wettable sulfur is applied soon after budbreak in late March or early April. A second application is made in April. Dusting sulfur is applied once in April, in May, and in June. A sterol inhibitor, Rubigan, is applied in May at early bloom (with the worm and zinc spray) and a strobilurin fungicide, Flint, in June, two weeks after bloom.

Harvest. A custom operator mechanically harvests the crop. Harvest costs in this report are $225 per acre, which is a mid-range of costs provided by the growers. A commercial trucking hauls the grapes to the processor for $10 per ton. Hauling costs will vary depending upon the hauling distance.

Yields. An average yield of 12-tons per acre is assumed over the 25-year life of the vineyard, beginning in the fourth year.

Returns. The market price in this report, based on grower inputs for 2004, is $200 per acre for both white and red varieties. A range of returns over various yields are shown in Table 5.

Pickup/ATV. It is assumed that the grower uses the pickup for business and personal use. Estimated business mileage for the ranch is 3,300 miles. The all terrain vehicle (ATV) is used for spot spraying weeds and is included in that cost. It is assumed that the ATV will be used another two-hours per acre for checking the vineyards including the irrigation system.

Labor. Labor rates of $12.73 per hour for machine operators and $11.05 for general labor includes payroll overhead of 34%. The basic hourly wages are $9.50 for machine operators and $8.25 for general labor. The overhead includes the employers' share of federal and California state payroll taxes, workers' compensation insurance for vineyards (code 0040), and a percentage for other possible benefits. Workers' compensation insurance costs will vary among growers, but for this study the cost is based upon the average industry final rate as of January 1, 2004 (California Department of Insurance). Labor for operations involving machinery are 20% higher than the operation time given in Table 2 to account for the extra labor involved in equipment set up, moving, maintenance, work breaks, and field repair.

Equipment Operating Costs. Repair costs are based on purchase price, annual hours of use, total hours of life, and repair coefficients formulated by the American Society of Agriculture Engineers (ASAE). Fuel and lubrication costs are also determined by ASAE equations based on maximum PTO horsepower, and fuel type. Prices for on-farm delivery of diesel and gasoline are $1.45 and $1.88 per gallon, respectively. The fuel prices are averaged based on four California delivery locations plus $0.24 per gallon, which is one-half the difference between the high and low price for regular gasoline in 2003 from the California State Automobile Association Monthly Survey. The cost includes a 2.25% sales tax (effective September 2001) on diesel fuel and 7.25% sales tax on gasoline. Gasoline also includes federal and state excise tax, which can be refunded for on- farm use when filing your income tax. The fuel, lube, and repair cost per acre for each operation in Table 2 is determined by multiplying the total hourly operating cost in Table 7 for each piece of equipment used for the selected operation by the hours per acre. Tractor time is 10% higher than implement time for a given operation to account for setup, travel and down time.

Interest On Operating Capital. Interest on operating capital is based on cash operating costs and is calculated monthly until harvest at a nominal rate of 6.89% per year. A nominal interest rate is the typical market cost of borrowed funds. The interest cost of post harvest operations is discounted back to the last harvest month using a negative interest charge.

Risk. The risks associated with crop production should not be minimized. While this study makes every effort to model a production system based on typical, real world practices, it cannot fully represent financial, agronomic and market risks, which affect profitability and economic viability. Growers may purchase Federal crop insurance to reduce the production risk associated with specific natural hazards. Insurance policies vary and range from a basic catastrophic loss policy to one that insures losses for up to 75% of a crop. Crop insurance is not included in this report, but insurance costs will depend on the type and level of coverage.

Cash Overhead Costs

Cash overhead consists of various cash expenses paid out during the year that are assigned to the whole farm and not to a particular operation. These costs include property taxes, interest on operating capital, office expense, liability and property insurance, sanitation services, equipment repairs, and management.

Property Taxes. Counties charge a base property tax rate of 1% on the assessed value of the property. In some counties special assessment districts exist and charge additional taxes on property including equipment, buildings, and improvements. For this study, county taxes are calculated as 1% of the average value of the property. Average value equals new cost plus salvage value divided by 2 on a per acre basis.

Insurance. Insurance for farm investments varies depending on the assets included and the amount of coverage. Property insurance provides coverage for property loss and is charged at 0.676% of the average value of the assets over their useful life. Liability insurance covers accidents on the farm and costs $645 for the entire farm.

Office Expense. Office and business expenses for 120 acres are estimated at $75 per producing acre or $8,625 annually for the ranch. These expenses include office supplies, telephones, bookkeeping, accounting, legal fees, road maintenance, etc. The cost is assumed and not taken from any specific data.

Management/Supervisor Wages. Salary is not included. Returns above costs are considered a return to management.

Investment Repairs. Annual maintenance is calculated as 2 percent of the purchase price.

Non-Cash Overhead Costs

Non-cash overhead is calculated as the annual capital recovery cost for ownership of equipment and other farm investments.

Capital Recovery Costs. Capital recovery cost is the annual depreciation and interest costs for a capital investment. It is the amount of money required each year to recover the difference between the purchase price and salvage value (unrecovered capital). It is equivalent to the annual payment on a loan for the investment with the down payment equal to the discounted salvage value. This is a more complex method of calculating ownership costs than straight-line depreciation and opportunity costs, but more accurately represents the annual costs of ownership because it takes the time value of money into account (Boehlje and Eidman). The formula for the calculation of the annual capital recovery costs is ((Purchase Price - Salvage Value) x Capital Recovery Factor)+ (Salvage Value x Interest Rate).

Salvage Value. Salvage value is an estimate of the remaining value of an investment at the end of its useful life. For farm machinery (tractors and implements) the remaining value is a percentage of the new cost of the investment (Boehlje and Eidman). The percent remaining value is calculated from equations developed by the American Society of Agricultural Engineers(ASAE) based on equipment type and years of life. The life in years is estimated by dividing the wear out life, as given by ASAE by the annual hours of use in this operation. For other investments including irrigation systems, buildings, and miscellaneous equipment, the value at the end of its useful life is zero. The salvage value for land is the purchase price because land does not depreciate. The purchase price and salvage value for equipment and investments are shown in Table 5.

Capital Recovery Factor. Capital recovery factor is the amortization factor or annual payment whose present value at compound interest is 1. The amortization factor is a table value that corresponds to the interest rate used and the life of the machine.

Interest Rate. The interest rate of 6.25% used to calculate capital recovery cost is the USDA-ERS's ten- year average of California's agricultural sector long-run rate of return to production assets from current income. It is used to reflect the long-term realized rate of return to these specialized resources that can only be used effectively in the agricultural sector. In other words, the next best alternative use for these resources is in another agricultural enterprise.

Establishment Cost. Costs to establish the vineyard are used to determine capital recovery expenses on investment for the production years. Establishment cost is the sum of the costs for land preparation, trellis system, planting, vines, cash overhead and production expenses for growing the vines through the first year that grapes are harvested minus any returns from production. The Total Accumulated Net Cash Cost on Table 1, in the third year represents the establishment cost. For this study the cost is $7,096 per acre or $283,840 for the 40-acre vineyard. The establishment cost is spread over the remaining 22 years of the 25 years the vineyard is in production.

Irrigation System. The previous vineyard is assumed to have an irrigation system that has been refurbished. The drip line is laid on the ground prior to planting. After the trellis system is installed, the drip line is clipped to the bottom trellis wire. The system includes the installation labor, filters, fertilizer injector, time clock, and valves. Although the materials will have a useful life equivalent to the vineyard, the irrigation system can be included in the vineyard establishment costs or as in this case an improvement to the property with a 25-year life.

Land. The land was formerly a vineyard, but has been out of production for two years. The open land was planted to grain crops. Land in the San Joaquin Valley for grape production ranges from $4,500 to $6,500 per acre (CA Association of Farm Manager and Real Estate Appraisers). For this report, a land value was of $5,800 per acre or $6,052 per producing acre is used (five of the 120 acres are not planted). It is assumed the grower originally purchased the land with an established vineyard. The annual cost of land is interest only since land does not depreciate.

Building. The metal buildings are on a cement slab and comprise 2,400 square feet.

Tools. This includes shop tools, hand tools, and miscellaneous field tools such as pruning tools.

Fuel Tanks. Two 250-gallon fiiel tanks using gravity feed are on metal stands. The tanks are setup in a cement containment pad that meets federal, state, and county regulations.

Equipment. Farm equipment is purchased new or used, but the study shows the current purchase price for new equipment. The new purchase price is adjusted to 60% to indicate a mix of new and used equipment. Annual ownership costs for equipment and other investments are shown in Tables 3 and 8. Equipment costs are composed of three parts: non-cash overhead, cash overhead, and operating costs. Both of the overhead factors has been discussed in a previous section. The operating costs consist of repairs, fuel, and lubrication and are discussed under operating costs.

Table Values. Due to rounding, the totals may be slightly different from the sum of the components.

Acknowledgment. Appreciation is expressed to those growers and other cooperators who provided ^ support for this report. REFERENCES

American Society of Farm Managers and Rural Appraisers. 2004. 2004 Trends in Agricultural Land and Lease Values. California Chapter of the American Society of Farm Managers and Rural Appraisers, Woodbridge, CA.

American Society of Agricultural Engineers. (ASAE). 1994. American Society of Agricultural Engineers Standards Yearbook. St. Joseph, Missouri.

Barker, Doug. April 22, 2003. California Workers' Compensation Rating Data for Selected Agricultural Classifications as of January 1, 2004 (Updated). California Department of Insurance, Rate Regulation Branch.

Bochlje, Michael D., and Vemon R. Eidman. 1984. Farm Management. John Wiley and Sons. New York, New York

California State Automobile Association. 2004. Gas Price Survey 2003. AAA Public Affairs, San Francisco, CA.

Central California Winegrowers (October, 2004). Interviews with association members.

Christensen, Pete. Training Table Grape Vineyards. 1998. University of California Cooperative Extension, Tulare, CA. Pub. #TB 11-98.

Clarke, Dan. 2000. Concentrate 101. Wine Business Online. Available http://winebusiness.ocm/html/Monthlv Article.cfm?

Doanes. \9%A. Facts and Figuresfor Farmers. 1984. Doane Publishing, St. Louis, MO.

Farm Advisors. (September, October 2004). Interviews with Steve Vasquez, Fresno County Farm Advisor and Bill Peacock, Tulare County Farm Advisor.

Jensen, Frederick L., William L. Peacock. Thompson Seedless. 1998. University of California Cooperative Extension, Tulare, CA. Pub # TB7-97.

University of California Statewide IPM Project. 2003. UC Pest Management Guidelines, Grapes. University of California, Davis CA. http://www.ipm.ucdavis.edu

USDA-ERS. 2004. Farm Sector: Farm Financial Ratios. Agriculture and Rural Economics Division, ERS. USDA. Washington, DC http://www.crs.usda.gov/data/farmbalanccsheet/fbsdmu.htm: Internet; accessed January 5, 2004.

Vasquez, Stephen J., George M. Leavitt, William L. Peacock, L. Peter Christensen, Stephen R. Sutter, Kurt J. Hcmbree, Karen L. Klonsky, Donald G. Katayama, and Richard L. De Moura. 2003. Sample Costs to Establish a Vineyard and Produce Dried-on-Vine Raisins, San Joaquin Valley. University of California Cooperative Extension and the Department of Agricultural and Resource Economics. Davis, CA.

10 Table 1. SAMPLE COSTS PER ACRE TO ESTABLISH A VINEYARD SAN JOAQUIN VALLEY - 2004

Cost Per Acre Year: 1st 2nd 3rd Tons Per Acre: 0.0 0.0 6.0 Planting Costs; Land Prep: Chisel 2X (Custom) 300 Land Prep: Level (Float) 7 Land Prep: Disc/Apply Herbicide (Treflan) 1st pass 12 Land Prep: Disc (Incorporate Herbicide) 2nd pass 7 Plant: Survey & Layout Vineyard 76 Plant: Dig, Plant, Wrap Vines 170 2 Vines: 565 Per Acre(2% Replant In 2nd Year) 1,497 29 Install Drip System (See Drip System in Non-Cash Overhead) Install Trellis System 3,000 TOTAL PLANTING COSTS 2,069 3,031 0 Cultural Costs: Prune: Dormant 55 133 Prune/Training: (Sucker, Tie & Train) 442 110 Fertilize: applied through drip line(UN32) 3 5 9 Irrigate:(water & labor) 79 132 204 Weed: Winter Strip-vine row- Spray (Goal, Surflan) 79 79 Weed: Disc Middles Yr 1,2X. Yr 2+, IX. 14 7 7 Weed: Spot Spray(Roundup) 3X. 42 42 Weed: Mow Middles Yr 1 2X. Yr 2+ 4X. 16 25 25 Weed: Hand Hoe 33 Insect: Leafhoppers(Provado) 54 Disease: Mildew (Wettable Sulfur)2X 44 Disease: Mildew (Dusting Sulfur) 3X 26 Disease: Mildew (Flint) 46 Insect: Worms(Kryocide). Disease: Mildew (Rubigan). Fertilize:(Zn) 54 Pickup: Business Use 41 41 41 ATV: General Use 33 33 33 TOTAL CULTURAL COSTS 219 861 907 Harvest Costs: Harvest:(Machine) & Haul 285 TOTAL HARVEST COSTS 0 0 285 Interest On Operating Capital 6.89 92 182 23 TOTAL OPERATING COSTS/ACRE 2,380 4,074 1,215 Cash Overhead Costs: Office Expense 75 75 75 Liability Insurance 6 6 6 Sanitation Services 19 19 19 Property Taxes 70 70 72 Property Insurance 6 6 7 Investment Repairs 32 32 32 TOTAL CASH OVERHEAD COSTS 208 208 211 TOTAL CASH COSTS/ACRE 2,588 4,282 1,426 INCOME/ACRE FROM PRODUCTION 0 0 1,200 NET CASH COSTS/ACRE FOR THE YEAR 2,588 4,282 226 PROFIT/ACRE ABOVE CASH COSTS 0 0 0 ACCUMULATED NET CASH COSTS/ACRE 2,588 6,870 7,096

11 Table 1. continued

Cost Per Acre Year: 1st 2nd 3rd Tons Per Acre: 0 0 6.0 Capital Recovery Cost; Land 377 377 377 Drip Irrigation System 76 76 76 Shop Building 46 46 46 Shop Tools 10 10 10 Fuel Tank & Pump 2 2 2 Equipment 25 28 62 TOTAL CAPITAL RECOVERY COST 536 539 573 TOTAL COST/ACRE FOR THE YEAR 3,124 4,821 1,999 INCOME/ACRE FROM PRODUCTION 0 0 1,200 TOTAL NET COST/ACRE FOR THE YEAR 3,124 4,821 799 NET PROFIT/ACRE ABOVE TOTAL COST 0 0 0 TOTAL ACCUMULATED NET COST/ACRE 3,124 7,945 8,744

12 Table 2. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE SAN JOAQUIN VALLEY - 2004

Cash and Labor Cost per acre r—> Time Labor Fuel, Lube Material Custom/ Total Operation (Hrs/A) Cost & Repairs Cost Rent Cost Cultural; Prune (mechanical) 0.00 0 0 0 85 85 Hand Prune/Clean Up Vines 4.00 44 0 0 0 44 Prune: Rake Prunings(mechanical) 0.23 4 2 0 0 5 Weed: Winter Strip Spray(Roundup, Goal, Surflan) 0.54 8 4 67 0 79 Irrigate:(water & labor) 3.05 34 0 170 0 204 Weed: Mow 4X 0.96 15 10 0 0 25 Weed: Spot Spray 20% acres 3X (Roundup) 1.73 26 2 13 0 42 Weed: Disc 0.31 5 2 0 0 7 Disease: Mildew (Wettable Sulfur) 1.67 25 17 1 0 43 Disease: Mildew (Dusting Sulfur) 0.92 14 7 5 0 26 Fertilize: through drip (UN32) 0.10 1 0 16 0 17 Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer:(Zn) 0.83 13 8 33 0 54 Prune: Skirt Vines/Rake Prunings (mechanical) 0.63 120 5 0 0 125 Disease: Mildew (Flint) 0.83 13 8 25 0 46 Insect: Leaf Hopper(Provado) 0.83 13 8 33 0 54 Pickup: Business use for vineyard 1.50 23 18 0 0 41 ATV 4WD: Miscellaneous vineyard use 2.00 31 2 0 0 33 TOTAL CULTURAL COSTS 20.13 388 94 363 85 929 Harvest: Harvest: Machine Harvest & Haul 0.00 0 0 0 345 345 TOTAL HARVEST COSTS 0.00 0 0 0 345 345 Interest on operating capital ^6.89% 23 TOTAL OPERATING COSTS/ACRE 388 94 363 430 1,297 Cash Overhead: Office Expense 75 Liability Insurance 6 Sanitation 19 Property Taxes 107 Property Insurance 32 Investment Repairs 174 TOTAL CASH OVERHEAD COSTS 412 TOTAL CASH COSTS/ACRE 1,710 Non-Cash Overhead: Per producing Annual Cost Acre Capital Recovery Land 6,052 377 377 Drip Irrigation System 950 76 76 Buildings 522 46 46 Tools-Shop/Field 104 10 10 Fuel Tanks 30 2 2 Vineyard Establishment 7,096 601 601 Equipment 499 66 66 TOTAL NON-CASH OVERHEAD COSTS 15,253 1,179 1,179 TOTAL COSTS/ACRE 2,889

13 Table 3. COSTS AND RETURNS to PRODUCE GRAPES FOR CONCENTRATE SAN JOAQUIN VALLEY - 2004

Quantity/ Price or Value or Your Acre Unit Cost/Unit Cost/Acre Cost GROSS RETURNS

Grapes for Concentrate 12.00 ton 200.00 2,400 OPERATING COSTS Custom: r ^ Prane Mechanical 1.00 acre 85.00 85

Machine Harvest 1.00 acre 225.00 225

Haul to Crusher 12.00 ton 10.00 120 Herbicide: Roundup Ultra Max 2.16 pint 8.56 18 Goal 2XL 1.00 pint 16.21 16 Surflan 4 AS 2.64 pint 16.96 45 Irrigation: Water 30.00 acin 5.67 170 Fungicide: Wettable Sulfur 6.00 lb 0.21 1 Dusting Sulfur 30.00 lb 0.18 5 Rubigan EC 4.00 floz 2.50 10

Flint 1.50 oz 16.49 25 Fertilizer:

UN 32 40.00 IbN 0.41 16 Neutral Zinc 50% 5.00 lb 0.92 5 Insecticide: Kryocide 6.00 lb 3.00 18

Provado 1.6 Solupak 0.75 oz 43.96 33 Labor(machine) 15.58 hrs 12.73 198 rv Labor(non-machine) 17.15 hrs 11.05 190 1 * Fuel - Gas 8.13 gal 1.88 15 Fuel• Diesel 25.11 gal 1.45 36 Lube 8 Machinery repair 34 Interest on operating capital(% 6.89% 23 TOTAL OPERATING COSTS/ACRE 1,297 NET RETURNS ABOVE OPERATING COSTS 1,103 Cash Overhead:

Office Expense 75 Liability Insurance 6 Sanitation 19 Property Taxes 107 Property Insurance 32 Investment Repairs 174 TOTAL NON-CASH OVERHEAD COSTS 412 TOTAL COSTS/ACRE 1,710 Non-Cash Overhead:

Land 377 Drip Irrigation System 76 Buildings 46 Tools-Shop/Field 10 Fuel Tanks 2 Vineyard Establishment 601 Equipment 66 TOTAL NON-CASH OVERHEAD COSTS 1,179 TOTAL COSTS/ACRE 2,889 NET RETURNS ABOVE TOTAL COSTS -489

14 Table 4. MONTHLY CASH to PRODUCE GRAPES FOR CONCENTRATE SAN JOAQUIN VALLEY - 2004

Beginning JAN 04 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL Ending DEC 04 04 04 04 04 04 04 04 04 04 04 04 04 Cultural; Prune (mechanical) 85 85 Hand Prune/Clean Up Vines 44 44 Prune: Rake Prunings(mechanical) 5 5 Weed: Winter Strip Spray(Roundup, Goal, Surflan) 79 79 Irrigate:(water & labor) 11 15 22 46 52 32 26 204 Weed: Mow 4X 6 6 6 6 25 Weed: Spot Spray 20% acres(Roundup) 14 14 14 42 Weed: Disc 7 7 Disease: Mildew (Wettable Sulfur) 43 43 Disease: Mildew (Dusting Sulfur) 9 9 9 26 Fertilize: through drip (UN32) 9 9 17 Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer:(Zn) 54 54 Prune: Cut Canes/Rake Prunings(mechanical) 63 63 125 Disease: Mildew (Flint) 46 46 Insect: Leaf Hopper(Provado) 54 54 Pickup: Business use for vineyard 3 3 3 3 3 3 3 3 3 3 3 3 41 ATV 4WD: Miscellaneous vineyard use 3 3 3 3 3 3 3 3 3 3 3 3 33 TOTAL CULTURAL COSTS 141 85 24 94 105 198 189 44 32 6 6 6 929 Harvest: Harvest: Machine Harvest & Haul 345 345 TOTAL HARVEST COSTS 345 345 Interest on operating capital 1 1 1 2 3 4 5 7 0 0 0 0 23 TOTAL OPERATING COSTS/ACRE 141 86 25 96 108 202 193 396 32 6 6 6 1,297 Cash Overhead: Office Expense 6 6 6 6 6 6 6 6 6 6 6 6 75 Liability Insurance 6 6 Sanitation 2 2 2 2 2 2 2 2 2 19 Property Taxes 54 54 107 Property Insurance 16 16 32 Investment Repairs 15 15 15 15 15 15 15 15 15 15 15 15 174 TOTAL CASH OVERHEAD COSTS/ACRE 98 23 23 23 23 23 92 23 23 21 21 21 412 TOTAL CASH COSTS/ACRE 239 109 48 119 131 225 286 419 55 27 27 27 1,710 Tables. RANGING ANALYSIS SAN JOAQUIN VALLEY ■ 2004

COSTS PER ACRE AT VARYING YIELD TO PRODUCE GRAPES FOR CONCENTRATE

YIELD (ton/acre) 9.00 10.00 11.00 12.00 13.00 14.00 15.00 OPERATING COSTS: Cultural Cost 929 929 929 929 929 929 929 Harvest Cost 315 325 335 345 355 365 375 23 23 23 23 23 23 23 TOTAL OPERATING COSTS/ACRE 1,267 1,277 1,287 1,297 1,307 1,317 1,327 Total Operating Costs/ton 141 128 117 108 101 94 88 CASH OVERHEAD COSTS/ACRE 412 412 412 412 412 412 412 TOTAL CASH COSTS/ACRE 1,679 1,689 1,699 1,709 1,719 1,729 1,739 Total Cash Costs/ton 187 169 154 142 132 124 116 NON-CASH OVERHEAD COSTS/ACRE 1,179 1,179 1,179 1,179 1,179 1,179 1,179 TOTAL COSTS/ACRE 2,858 2,868 2,878 2,888 2,898 2,908 2,918 Total Costs/ton 318 287 262 241 223 208 195

NET RETURNS PER ACRE ABOVE OPERATING COSTS

PRICE YIELD (ton/acre) $A)ox 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -7 123 253 383 513 643 773 160.00 173 323 473 623 773 923 1,073 180.00 353 523 693 863 1,033 1,203 1,373 200.00 533 723 913 1,103 1,293 1,483 1,673 220.00 713 923 1,133 1,343 1,553 1,763 1,973 240.00 893 1,123 1,353 1,583 1,813 2,043 2,273 260.00 1,073 1,323 1,573 1,823 2,073 2,323 2,573

NET RETURN PER ACRE ABOVE CASH COST

PRICE YIELD (ton/acre) S/box 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -419 -289 -159 -29 101 231 361 160.00 -239 -89 61 211 361 511 661 180.00 -59 111 281 451 621 791 961 200.00 121 311 501 691 881 1,071 1,261 220.00 301 511 721 931 1,141 1,351 1,561 240.00 481 711 941 1,171 1,401 1,631 1,861 260.00 661 911 1,161 1,411 1,661 1,911 2,161

NET RETURNS PER ACRE ABOVE TOTAL COST

PRICE YIELD (ton/acre) S/box 9.00 10.00 11.00 12.00 13.00 14.00 15.00 140.00 -1,598 -1,468 -1,338 -1,208 -1,078 -948 -818 160.00 -1,418 -1,268 -1,118 -968 -818 -668 -518 180.00 -1,238 -1,068 -898 -728 -558 -388 -218 200.00 -1,058 -868 -678 -488 -298 -108 82 220.00 -878 -668 -458 -248 -38 172 382 240.00 -698 -468 -238 -8 222 452 682 260.00 -518 -268 -18 232 482 732 982

16 Table 6. WHOLE FARM ANNUAL EQUIPMENT,INVESTMENT, SAN JOAQUIN VALLEY - 2004

ANNUAL EQUIPMENT COSTS

Cash Overhead Yrs Salvage Capital Insur

Yr Description Price Life Value Recovery ance Taxes Total 04 60HP 4WD NarrowTractor 36,000 15 7,009 3,467 145 215 3,827 04 ATV 4WD 6,700 5 3,003 1,070 33 49 1,152 04 Brush Rake 11' 6,500 10 1,149 807 26 38 871 04 Cane Cutter 11' 2,500 20 130 219 9 13 241 04 Disc - Tandem 8' 6,800 10 1,203 844 27 40 911 04 Duster-3 Pt 11' 5,000 5 1,629 907 22 33 962 04 Mower-Flail 8' 9,600 15 922 964 36 53 1,053 04 OrchA^ine Sprayer 500 gal 20,378 5 6,638 3,696 91 135 3,922 04 Pickup Truck 1/2 Ton 26,000 7 9,863 3,529 121 179 3,829 04 Sprayer ATV 20 gal 350 10 62 43 1 2 47 04 Weed Spray 3PT 100 gal 3,500 10 619 434 14 21 469 TOTAL 123328 32,227 15,979 526 778 17,283 60% of New Cost * 73,997 19,336 9,588 315 467 10,370 * Used to reflect a mix of new and used equipment.

ANNUAL INVESTMENT COSTS

Cash Overhead Yrs Salvage Capital Insur

Description Price Life Value Recovery ance Taxes Repairs Total Building 2,400 sqft 60,000 20 5,329 203 300 1,200 7,032 Drip Irrigation System 38,000 25 3,038 128 190 760 4,116 Vineyard Establishment 283,840 22 24,045 959 1,419 5,677 32,101 Fuel Tanks 2-300 gal 3,500 30 350 256 13 19 70 359 Land 696,000 25 696,000 43,361 0 6,960 0 50,321 Tools: Shop/Field 12,000 15 1,133 1,206 44 66 240 1,556 TOTAL INVESTMENT 1,093,340 697,483 77,236 1,348 8,954 7,947 95,485

ANNUAL BUSINESS OVERHEAD COSTS

Units/ Price/ Total Description Farm Unit Unit Cost

Liability Insurance 115 acre 5.60 644

Office Expense 115 acre 75.00 8,625

Sanitation Fee 115 acre 18.96 2,180

17 Table 7. HOURLY EQUIPMENT COSTS SAN JOAQUIN VALLEY - 2004

COSTS PER HOUR Actual Cash Overhead Operating Hows Capital Insur Fuel & Total Total

Yr Description Used Recovery ance Taxes Repairs Lube Open Costs/Hr. 04 60HP 4WD NarrowTractor 1,066.10 1.95 0.08 0.12 0.88 4.91 5.79 7.95 04 ATV4WD 400.20 1.60 0.05 0.07 0.50 0.72 1.22 2.94 04 Brush Rake 11' 250.40 1.93 0.06 0.09 0.91 0.00 0.91 2.99 04 Cane Cutter 11' 100.00 1.31 0.05 0.08 0.95 0.00 0.95 2.39 04 Disc - Tandem 8' 199.50 2.54 0.08 0.12 1.10 0.00 1.10 3.84 04 Duster - 3 Pt 11' 239.70 2.27 0.06 0.08 0.73 0.00 0.73 3.13 04 Mower-Flail 8' 133.40 4.34 0.16 0.24 4.31 0.00 4.31 9.04 04 OrclWine Sprayer 500 gal 400.60 5.54 0.14 0.20 3.58 0.00 3.58 9.46 04 Pickup Truck 1/2 Ton 285.00 7.43 0.26 0.38 1.91 9.91 11.82 19.88 04 Sprayer ATV 20 gal 150.20 0.17 0.01 0.01 0.10 0.00 0.10 0.28 04 Weed Spray 3PT 100 gal 200.40 1.30 0.04 0.06 0.61 0.00 0.61 2.01

18