A Longer-term Perspective on California Grape Prices
By Chris Bitter, Vintage Economics
By Chris Bitter, Vintage Economics
The average price paid for a ton of California wine grapes was up sharply in 2021 according to the recently released preliminary California Grape Crush Report, produced by the California Department of Food and Agriculture in cooperation with the USDA National Agricultural Statistics Service. This is certainly good news for growers, who face rising cost pressures.
However, it is important to resist the temptation to read too much into this result. Year-over-year comparisons can be distorted by fluctuations in the size of the harvest, anomalous events such as the North Coast fires in 2020, changes in the mix of grapes sold, and the like. Thus, it is crucial to situate these short-term movements within a longer-term context. This can afford a better sense for where the grape market stands as well as the direction it may be heading. I’ll summarize some of the key trends in grape prices over the past decade by region in this entry.
The figures in the charts below are based on the 2021 preliminary report and the final versions from prior years. They pertain to the “base” price paid to growers from Table 8.
Southern Interior (Districts 12, 13, 14)
The overall weighted average price for wine grapes grown in the Southern Interior region peaked in 2012 and there has been essentially no appreciation over the last decade. This means that prices have declined substantially in inflation-adjusted terms.
White varietals have performed a bit better than reds, and there has been modest appreciation in the northernmost district (14), though it accounts for a small fraction of total Southern Interior grape sales.
The lack of price growth is consistent with broader consumer demand trends. The Southern Interior is California’s low-cost provider: about 90% of its grapes are priced below $500 per ton and destined for deep value bottlings. Retail sales in this segment of the market have contracted over the last ten years.
Nonetheless, prices have rebounded smartly over the past two years. They are up 21% relative to 2019, the low point of the current cycle.
However, the increase has been driven primarily by a reduction in supply as opposed to strengthening consumer demand. Grape production in the Southern Interior has declined for four consecutive years, and the 2021 crush was 20% smaller in relation to the peak years in the mid-2010s, a reduction of 400,000 tons. Thus, the upward momentum in prices may prove difficult to maintain unless sales of domestic value-priced wines improve, or further acreage is removed.
Northern Interior (Districts 9, 11, 17)
The Northern Interior has fared somewhat better than the south. The overall weighted average price is up by 13% over the past ten years, though this still represents a modest decline in inflation-adjusted dollars.
Stronger appreciation in the Northern Interior is consistent with its higher position in the value chain. Approximately 90% of the region’s grapes traded for between $500 and $1,000 a ton in 2021, and consumer demand has held up a bit better at the upper end of the value segment of the market.
Price trends have followed a similar pattern to those in the Southern Interior, with a decline between 2012 and 2019 and a rebound over the past two years, though the decline was shallower and the subsequent rebound less forceful. Supply in the Northern Interior has been steadier and grape output exceeded the five-year average in 2021. White varietals have performed better than reds, and the overall weighted average price for white grapes now stands at an all-time high.
Given the Northern Interior’s position in the market, it may also prove difficult to push grape prices higher in real terms in the absence of a shift in consumer demand or restrictions to supply.
Central Coast (Districts 6, 7, 8)
Appreciation in Central Coast grape prices has been much stronger over the past decade. The overall weighted average price was 30% higher in 2021 than in 2011.
Nonetheless, growth has stalled over the past four years. Prices were up in 2021 relative to depressed 2020 levels but remain below the high-water mark set in 2019. The harvest was more generous in the Central Coast than in the North Coast in 2021 and surpassed the trailing five-year average.
Stronger long-term appreciation is in accord with the region's status as a provider of primarily premium quality fruit. Approximately 80% of its grapes sell for more than $1,000 a ton. Premium wine demand has remained resilient, though there has been some erosion in the popular premium segment in recent years, which coincides with the softening in Central Coast grape prices.
The overall figures mask a distinct divide between the region’s two primary districts. Prices in District 8 (San Luis Obispo, Santa Barbara, and Ventura counties) have risen at a much faster pace than those in District 7 (Monterey and San Benito), though District 8 hasn’t been immune to the recent softening. District 8 is positioned higher in the value chain – just over half of its grapes sell for more than $1,500 per ton – which compares to around 20% for District 7.
Red varietals have outperformed in both districts over the last ten years, though this dynamic has begun to shift. White varietal prices hit an all-time high in District 8 in 2021.
North Coast (Districts 1, 2, 3, 4, 5)
Grape prices in the North Coast region have appreciated at an even faster clip than those in the Central Coast. The overall weighted average is up by more than 50% over the past decade.
The outsize increase in North Coast grape prices is consistent with robust sales growth for premium and higher-tier wines. Almost 85% of North Coast grapes sell for more than $1,500 per ton – and nearly half are priced above $2,500.
Nonetheless, appreciation appears to be easing here, too, a sign that grape prices may have gotten ahead of finished wine prices. Prices were up sharply in 2021, but this was relative to deeply depressed levels in 2020 due to fire impacts. And they are still below the peak in 2019 despite two consecutive short harvests. The volume of grapes crushed in the North Coast over the past two years was 30% lower than the total recorded during the prior two years.
There are important nuances within the North Coast. Red varietals have appreciated at twice the rate of whites. And prices in District 4 (Napa County) have increased at a much faster pace than the overall average, while District 3 (Sonoma County) has lagged.
Napa’s outperformance isn’t a surprise given that nearly all its output is destined for super-premium and higher-priced bottlings, which continues to constitute the strongest segment of the wine market. Prices for both red and white varietals in Napa hit record heights in 2021.
Consumer demand will continue to drive grape prices
In sum, grape price dynamics have varied widely across California regions. The longer-term patterns are largely consistent with the evolution of consumer demand. And shifts in consumer demand (in terms of sales volume, price points, and varietal preferences) will drive grape price appreciation over the next decade as well, though supply-side trends, too, will play a role.
I’ll close by noting that weighted average prices for broad regions obscure important nuances in market trends across individual districts, varietals, and market segments (see my recent blog California Grape Prices: Weighted Averages Can Miss the Point). More refined metrics are needed to capture these subtleties.