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January 2003, Volume 9, Number 1

California: FVH Commodities, Water

There are too many grapes, and especially too many raisins and wine grapes. Total grape production was estimated to be 6.7 million tons in 2002, including 3.2 million tons of wine grapes, 2.7 million tons of green grapes for raisins, and 770,000 tons of table grapes.

About four pounds of green grapes dry into a pound of raisins. Some 400,000 tons of raisins were harvested in 2002, as many vines had 80 or 70 bunches rather than the more usual 30 bunches. Packers rejected the price proposed by the Raisin Bargaining Association--$760 a ton, but ten of the 12 packers later agreed to $745 a ton for the 2002 crop, and $810 a ton for the 2003 crop. About half of the raisin crop is normally held in reserve, so growers receive half of the negotiated price; the other half is normally sold at very low prices. Growers say the cost of producing and harvesting raisins is about $500 a ton; they normally deliver their crop to packers, where the raisins are stored until a price is set.

Raisin prices peaked at $1,425 in 1999, before falling to $878 in 2000. There are several plans under consideration for reducing raisin grape production by 25,000 to 50,000 tons (yields average 2.5 tons an acre).

California wine grape acreage expanded from 311,000 acres in 1996 to 570,000 acres in 2001; imports were 17 percent of US sales in 1996, and 22 percent in 2001. Up to 50,000 acres of wine grapes were not harvested in 2002, and prices fell sharply for growers who did not have contracts with wineries. For example, prices paid to San Joaquin Valley growers for Chardonnay grapes fell from $190 to $300 a ton in 2001 to between $65 and $125 a ton in 2002; for cabernet sauvignon from $125-$330 to $65-$75; and for Merlot from $300-$400 to $65-$175.

Wine grape prices are expected to remain low because of non-bearing vines that will soon produce grapes, such as the 18,000 acres of non-bearing cabernet sauvignon, the 10,000 acres of non-bearing Chardonnay, and the 6,000 acres of non-bearing Merlot. However, Premier Pacific Vineyards proposed a 5,000-acre vineyard for the Sonoma-Mendocino area.

Prices for wine grapes in Napa and Sonoma counties were much higher. In these areas, many field workers are employed for 10 months a year, from January to October, as workers touch each vine at least seven times a year. The mix of year-round and seasonal workers has changed, from 40 percent year-round to 80 percent year-round. Wages for field workers in Sonoma county were reported to be $8.50 to $10 an hour in Fall 2002, or $16,100 to $18,900 a year for almost 2,000 hours a year.

The most labor-intensive aspect of wine-grape growing is often pruning, which costs $110 an acre if done by hand in the Lodi area, and $35 an acre if done mechanically. Australia has pioneered mechanical pruning, which tends to result in smaller berries that have more intense flavors because more sunlight reaches the berries. There are two major approaches- the minimal pruned, cordon trained system of Australia, which results in a V-configuration that leaves the top of the vine uncut, and the hedge or box design, more popular in Europe. Hand workers must normally follow the machines.

Bronco Wine Company, which owns 20,000 acres of Central Valley grapes and has a bottling facility in Napa, has been able to sell varietal wines for $2 a bottle. Fred Franzia, CEO of Bronco, owns many labels, including Charles Shaw, Forest Glen, Rutherford Vintners, Hacienda, Cedar Brook, Forestville, Estrella, Grand Cru, Montpellier, Silver Ridge, Laurier, Bear's Lair, Douglas Hill, Fox Hollow, Salmon Creek, Domaine Napa, Napa Creek, Napa Ridge, Gibson Winery, Antares Cellar, Albertoni Vineyards, JJJ, CC Vineyard, the California Winery, J.W. Morris, and Black Mountain. Charles Shaw, sold for $19 a case to Trader Joe's, costs about $7 a case for bottles and corks, which means that the grapes and crushing had to cost less than $1 a bottle.

Beringer Blass Wine Estate plans a 1.4 million-square-feet, 36-million gallon a year winery in southern Napa county- the complex would cover the equivalent of 26 football fields.

Constellation (formerly Canandaigua) Brands Inc, based in Fairport, New York, plans to acquire top Australian wine producer BRL Hardy Ltd, which would make it the world's largest wine seller, with annual sales of $1.7 billion, compared to $1.4 billion for Gallo. Constellation is the world's No. 2 wine producer, with about 45 million cases sold in 2001; it produces beer and distilled spirits, as well as wine, and in the past largely offered lower-priced wines.

Australia exports much of its wines, which can be produced far cheaper than wines in the U.S. and Europe because of lower-cost land. Australian global wine exports in 2002 were A$2 billion, 25 percent to the U.S., but Australia is beginning to experience wine surpluses at home and increasing competition overseas from other "new world" winemakers, including South Africa, Chile, New Zealand and the U.S.

California produced a record 60 million 25-pound cartons of peaches, plums and nectarines in 2002.

Vegetables. Pre-packaged salads were a $1.8 billion retail business in 2001, with Dole Packaged Foods and Fresh Express each accounting for $675 million or 38 percent. The core is removed from heads of lettuce in the fields, and then washed in chlorinated water before being packaged and sealed; packaged salads turn what was a commodity product into a product with more stable margins.

Broccoli, from the Italian word brocco, meaning arm branch, is a cousin to cabbage, cauliflower and Brussels sprouts. It was first grown in California in 1923 by D'Arrigo Brothers in 1923, and today California produces 90 percent of US broccoli in fields that usually have about 30,000 plants an acre.

California produced 128 million pounds of mushrooms worth $161 million on 19 farms in 2001-15 percent of US mushrooms. Pennsylvania produces half of US mushrooms. Mushrooms are grown from microscopic spores, not seeds, and take about four months until harvest.

Dairy. California has 2,200 dairies and 1.6 million cows, for an average herd size of about 725 cows. Milk is the most valuable commodity, worth $3.7 billion in 2001, or an eighth of California's $28 billion in farm sales. As farmers try to build more large dairies, they are being challenged by environmental groups, such as the San Francisco-based Center on Race, Poverty and the Environment, which charge that agriculture accounts for more than 25 percent of the pollution in the San Joaquin Valley- the San Joaquin Valley had 101 bad air days in 2001, compared to 100 in Los Angeles.

Proposals for dairies with 5,000 and more cows are facing challenges from legal residents, who say they are more like factories than farms, and should be regulated like factories for environmental protection reasons. George Borba is building two 14,000 cow dairies in Kern county.

There are about 250 dairies in the Chino area east of Los Angeles, and they faced increased environmental regulation.

California's Department of Pesticide Regulation reported that 131 million pounds of chemicals were applied in California agriculture in 2001, down from 165 million pounds in 2000.

Water. California is taking too much water from the Colorado river, an extra 800,000 acre feet a year. The federal government required California to reduce its take from the Colorado river, the source of the Imperial Valley's water, by December 31, 2002, or lose its "surplus" Colorado river water.

The Imperial Irrigation District on a 3-2 vote in December 2002 rejected a 75-year agreement with San Diego, the Metropolitan Water District of Southern California and the Coachella Valley Water District that would have idled farm land and transferred the 200,000 acre feet of water saved to San Diego for payments of $258 to $400 an acre. The 400 Imperial farmers receiving the Colorado river water were divided on the proposed water sale.

Under the deal, Imperial Valley would have fallowed up to 30,000 of its 450,000 farm acres during the first 15 years of the agreement to prevent the Salton Sea from becoming more saline, and San Diego would have made an upfront payment of $10 million to mitigate the socioeconomic impacts of the transfer. The Imperial Irrigation District, which provides water to 140,000 people and 500,000 acres of farmland, receives more than 3.1 million acre-feet of the 4.4 million acre-feet of water a year that California draws from the Colorado.

In January 2003, with no agreement in sight, the federal government threatened to reduce water supplies by declaring that farming in the Imperial Valley is not a "reasonable and beneficial use" of water. Imperial gets 75 percent of the 4.4 million acre feet a year of Colorado river water allocated to California, and grows water-hungry crops such as alfalfa.

The river, whose headwaters are in the Rocky Mountain National Park, supplies water to seven fast-growing states as it winds 1,500 miles from the western side of the continental divide to the Gulf of California in northern Mexico. Much of the western United States -- from the 100th meridian, just west of Wichita, Kansas, to California -- is considered desert, with 20 inches of rain or less per year. A network of dams and diversion canals, with gauges hooked up to wireless transmitters measuring inflows and outflows, controls the use of the river's water.

During the 1920s, the Colorado River Compact divided the river's water between eight states after a 1922 US Supreme Court decision upheld "first in time, first in right" access to western water. In these states, 80 percent of the water goes to agriculture and ranching.

The Westlands Water District plans to retire up to 200,000 acres of farm land on the west side of the San Joaquin Valley, which will reduce jobs in small cities such as Mendota. Under the land-retirement proposal, the federal government would buy the 200,000 acres, and it would be used as a wildlife refuge or leased for dryland farming of crops such as wheat.

In December 2002, the US Bureau of Reclamation agreed to begin the land retirement process and pay $107 million in damages to 19 farm families, and the Westlands Water District would pay $33 million to buy the 34,000 acres and keep the land out of production. Farmers had convinced the courts that the Bureau of Reclamation was responsible for failing to provide drainage, and asked for $400 million. The Westlands district is the largest in the US, covering 600,000 acres, and has a contract with the federal government to receive 1.1 million acre-feet of water a year, but has generally only received 70 percent of that amount.

Santa Monica-based Cadiz, a leader in water storage and marketing, is losing money, even though its Sun World subsidiary had revenues of $64 million in the third quarter of 2002 from farming, packing and licensing produce.

Farms have been exempted from air quality laws, but the U.S. Environmental Protection Agency announced that it intended to begin to regulate large farms that emit large quantities of pollutants in May 2003. The California Farm Bureau Federation sued the EPA to block the enforcement of laws that would require, for instance, dairies with 4,000 cows or more to obtain federal air permits, since they emit more than 25 tons of smog-making gases annually. There are 127 dairies in operation or planned with 4,000 cows or more in California.

California farmers and ranchers have been exempt from strict state guidelines regulating runoff of pollutants and waterways, and environmental groups have sued the state Water Resources Control Board to develop a system requiring standards and permits for discharging water containing pesticides. The state rejected the suit, and is pushing farmers to develop voluntary guidelines.

Dean E. Murphy, "$100 Million Deal Proposed for Central Valley Farmers," New York Times, December 12, 2002.

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