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October 2005, Volume 11, Number 4

Wine: California, Global

California is expecting a three million ton wine grape harvest from 475,000 bearing acres in 2005. There are 40,000 acres that will soon be producing grapes, bringing total acreage over 500,000 (wine grapes begin to produce in the third year after planting, and are at maturity after five or six years).

About 15 percent of the acreage is planted in Chardonnay and 10 percent in Cabernet Sauvignon, but 20 percent of the acreage is Thompson seedless, which in 2005 is more likely to be used for wine than for table grapes or raisins (some 90,000 acres of Thompson seedless were removed in the San Joaquin Valley between 1998 and 2004). California has about 85,000 acres of table grapes, and 200,000 acres of raisin grapes.

Vineyard land prices are rising again, in Napa from $50,000 an acre in 1997 to $150,000 an acre or more in 2005. Prices elsewhere in the state are stabilizing at much lower levels reflecting the value of land to produce wine grapes, for instance, about $15,000 an acre in the Lodi region.

Statewide, some 530,000 tons of Chardonnay were crushed in 2004, with growers receiving an average price of about $700 a ton, 360,000 tons of Cabernet were crushed, with growers receiving an average $1,000 a ton, 320,000 tons of Zinfandel were crushed at an average price of $500 a ton, and 290,000 tons of Merlot at an average price of $800 a ton.

The US is on track to have 5,000 wineries by the end of 2005, including at least one in each state. However, the 30 largest wineries account for 90 percent of US wine production. E&J Gallo Winery is the largest US winery, shipping 75 million cases in 2004; followed by Constellation Brands, 56 million cases; The Wine Group, 40 million cases; Bronco Wine Company, 20 million cases; and Beringer Blass Wine Estates, 12 million cases.

Some see the wine industry rapidly developing an industrial organization similar to beer, that is, a few large producers that sell a portfolio of products, with thousands of smaller producers filling market niches. Unlike beer, where the major market for small producers is local, many small wineries hope that consumers will visit them to taste their wines, and then begin to buy it via the internet, now that more states are allowing interstate wine shipments.

US consumers bought about 280 million cases of wine in 2004, including 64 percent produced in California, 10 percent produced in other states, and 26 percent imported. The two major US wine market developments of 2004 were the continued strength of so-called super value wines such as Bronco's Charles Shaw, which sells for $1.99 in California and $2.99 elsewhere, and the growth in US sales of Australian wines such as Yellow Tail.

The wine industry divides wine into four categories based on average retail prices. The retail revenues generated by California wines doubled between 1995 and 2004 to $7 billion, reflecting the growth in sales of wines priced above $7 a 750-ml bottle. In 2004, ultra-premium California wine costing more than $14 a bottle at retail generated $2.5 billion in sales; super-premium wines costing $7 to $14 a bottle generated $2 billion; popular premium or fighting varietals costing $3 to $7 a bottle generated $1.7 billion in sales; and extreme value and jug wines generated $900 million.

However, the volumes of wine sold were very different. There were about 19 million cases of ultra-premium California wine sold in 2004, 33 million cases of super-premium wines; 53 million cases of fighting varietals; and 56 million cases of extreme value and jug wines sold.

Wine has become the most popular drink in the US, according to a July 2005 Gallup poll of adult drinkers that found 39 percent said they drank wine most often when they drank alcohol. About 36 percent said they were most likely to drink beer and 21 percent said liquor. In 1992, these percentages were 27, 47, and 26. Adams Beverage Group reported that beer in 2004 accounted for 53 percent of spending on alcohol, followed by 32 percent for liquor and 15 percent for wine.

Benjamin Franklin wrote that "beer is living proof that God loves us and wants us to be happy," but the $75 billion a year US beer business is struggling. Anheuser-Busch has about 50 percent of the US market, and the industry's big three include London-based SABMiller and Montreal-based Molson Coors Brewing.

Italy remained the leading source of US imported wine in 2004, providing 48 million gallons; followed by Australia with 44 million gallons; France with 20 million gallons; Chile with 14 million gallons; and Spain with almost six million gallons.

Hang Time. Many wineries want growers to leave their grapes on the vine to increase sugar levels. The percentage of sugar in grapes is measured in Brix, and most grapes reach their maximum weight at 18 to 20 Brix. Fermentation turns 56 percent of the sugars in grapes into alcohol and carbon dioxide, so that 21 Brix grapes can make wine that is 12 percent alcohol if all of the grape sugars are converted, as in dry wines.

If growers leave grapes on the vine longer, their sugar level can rise to 26 or 28 Brix, making wine that has more alcohol-one study found that the average alcohol in wine rose from 12 to 14 percent between 2000 and 2005. However, each point increase in Brix reduces the weight of grapes by one to three percent, which is prompting complaints from growers, especially when they learn that many wineries "add water" during fermentation to avoid wines that have, for example,16 percent alcohol.

Global. The glut of wine has become so big that for the first time in history, France in 2005 distilled some of its higher-rated wines into fuel. In the past, France, Italy and Spain, the three countries that produce over half of the world's wine, have turned excess low-quality wine into vinegar and ethanol, but some 100 million liters of Appellation d'Origine Control‚e wine is being turned into crystal-clear ethanol to be added to gasoline. The French Control‚e system was developed in the 1930s to set standards for 467 appellations, regulating how the grapes are grown and the wine is made.

The EU is trying to prevent vineyard expansion and offers payments to growers to tear up vineyards, especially if their grapes are used to make low-quality wines known as plonk.

ChÆ’teau Margaux is one of the five first-growth wine-producing properties in Bordeaux (the others are Lafite-Rothschild, Mouton Rothschild, Latour and Haut-Brion). Margaux was bought by a self-made Greek immigrant in 1980, and his daughter got complete control in 1991. Margaux and other first-growths see themselves as producing luxury products whose prices rise with general wealth.

Global champagne sales were $4.5 billion in 2004, including 60 percent in France. According to a 1927 French law, only 84,000 acres are available to grow the grapes used to make champagne, which have a farm value of $2.50 to $3.70. Independent grape growers own 90 percent of the Champagne region's vineyards, and they are reluctant to expand acreage because expansion could reduce the value of their land. Louis Roederer, maker of Cristal with 500 acres of grapes in the champagne region, produces 60 percent of its grapes, the most of any French champagne maker; Roederer also makes sparkling wine from its Roederer Estate of California property.

South Africa is a major exporter of wine, and several exporters have pledged to improve conditions for the workers they hire. Some 300,000 workers are employed in the South African wine industry, including 40 percent who work seasonally.

Craig S. Smith, "A Wine of Character, but How Many Miles to a Gallon?" New York Times, October 6, 2005.