Salisbury Vineyards

AVILA VALLEY GRAPEVINE – MARCH 2008

“Plant, Plant, Plant” was the refrain by the industry speakers at the California Association of Winegrape Growers annual Symposium in Sacramento in January. The growers responded with “Can’t, Can’t, Can’t”. As discussed in a past Grapevine, we are entering into a high demand – low supply scenario because wine sales have been increasing at a steady rate of 4.5% per year but new plantings have stagnated.

The United States of America is now the second largest wine consuming nation in the world beating out Italy this year we are also estimated to pass France, for the top honor, in 2 to 3 years. We only have a 2 1/2 gallon per capita annual wine consumption rate which is only one-third that of France and Italy. Compare that with our unbelievable 60 gallon per person consumption each year of soda pop in this country, and you can see there is definitely room for growth in the wine industry. The driving force behind the increase is the Millennial Generation which has made wine their adult beverage of choice. This group is equal in size to Generation X and Baby Boomers put together and many are not even 21 yet!

Now back to the grower’s reluctance to plant. It all boils down to expense, alternate crops, and water. When we developed and sold off several vineyards totaling 250 acres in Paso Robles starting in 1996 and planted the Avila Vineyard in 2000, the cost was around $25,000 to establish one acre. Now China and India are buying up iron for their own use. This has resulted in doubling the cost of steel, raising the price on many of the steel items needed to establish a vineyard. For example, we have 6 miles of wire per acre in the Avila vineyards alone. This is as much wire as one stretched from the Schoolhouse Tasting Room to well past the other side of the Golden Gate Bridge! Add to that the thousands of stakes, end posts, and clips and the hardware cost alone has now become prohibitive

Petroleum has tripled since the turn of the century and that has greatly increased the cost of our PVC irrigation pipe, drip tubing, emitters, tie downs, tires, and fuel which are all derived from oil products. The top vineyard labor costs in 2000 were $9/hour for managers and $6.50/hour for day laborers. Our top three managers, who have been with us for 13 years, now get $15/hour with 45 hours per week guaranteed year around - rain or shine, a gas card, two weeks paid vacation, family leave, a 401k program, and we are looking for a viable health plan. The minimum wage is $9.50/hour for part time help.

Land isn’t getting any cheaper and guaranteed water is tougher to find particularly locally in the Paso Robles area. You can only stick so many straws in a glass until you run out of room, or in this case water. The best estimate floated at the conference was that it now costs closer to $40,000 to $45,000/acre to establish an average vineyard which pushes out the breakeven point several more years than the previous 5 to 6 year estimate. Pomegranates, pistachios, and almonds are the latest hot money makers. They can be planted and grown for considerably less, return on investment is shorter, and they are competing for ground with winegrape growers because they can be grown on the same type of soil.

Most of the few new grape plantings are being done by the large consolidated wine companies and real estate (REIT) investors (pension funds, etc.) because they can handle the length of the return on investment. Only 2% of the State’s acreage is non-bearing (1 to 3 years of age), which is about the amount that is taken out of the ground annually due to old age and disease. If large-scale plantings were put in now, they wouldn’t be in full production for 5 years. Those who have established vineyards are in a really good position to benefit from this supply/demand tilt for the next several years.

In order to not get bogged down with huge mortgage payments, because establishing and maintaining a vineyard is daunting enough, most of our vineyards are on long-term renewable ground leases (minimum 10-30 years).

By doing our own farming on the 40 acres in Avila Valley, 50 acres in Paso Robles, and a new planting of 20 acres on the home ranch in the Sacramento Delta, we can control our quality, spread out our growing risks in three distinctly different viticultural areas.

We also have enough excess grapes to sell to other wineries for cash flow at harvest, and putting ourselves in a comfortable supply position for our own wines. The key in agri-business is to always position your operation in a secure sustainable state, at the least cost, to be able to take on the inevitable “boom or bust” cycles of agriculture. “A meal without wine is like a day without sunshine” (Anonymous)