The Grape Crush Report
The Washington Grape Crush Report, released by the Washington State Wine Commission last month, indicates that the 2017 crush was down by 43,000 tons, a 16% decline from the record 2016 harvest. Nevertheless, the 227,000 tons crushed places it in a tie with 2014 for the second largest crush ever.
The report also finds that the weighted average price per ton grew by a solid 3.5% in 2017 to $1,198. The gain was driven by a 7.7% surge in the average price for red varietals to a record high of $1,420, while the average price for whites fell by 1% to $874 per ton.
The primary objective of this piece is to take a deeper dive into Washington grape price trends as well as to situate them within a broader market context.
As I always emphasize, it is important to understand the reliability and relevance of any data source before drawing conclusions based on it. The Washington Grape Report provides a useful snapshot of the grape market but does have several important limitations that should be mentioned before proceeding to the analysis.
First off, the price information is based on a voluntary survey. This means the figures are estimates and subject to error. Although the report doesn’t provide any details on methodology, based on a discussion with the Wine Commission I believe the average price figures for the primary varietals to be reasonably reliable but I’m more skeptical regarding the figures pertaining to varietals that are produced in limited quantities.
A second, and equally important, limitation relates to the fact that the report only offers state-wide weighted averages. This severely reduces its relevance for market analysis purposes. Given the sheer size of Washington - the Columbia Valley AVA alone encompasses 11 million acres - and diversity of growing conditions, agricultural practices, and scale of operations within the state, grape quality varies widely. Thus, the averages will obscure important nuances that exist across AVAs and quality tiers.
Despite these limitations, it is still possible to draw some general insights relating to Washington grape prices and the evolution of the grape market.
Pricing Highlights and Trends
The weighted average price of a ton of Washington Grapes was $1,198 in 2017. At $1,420 and $874 per ton respectively, red varietals commanded more than a 60% premium over whites on average. Reported prices vary widely across varietals within both the red and white categories. I won’t attempt to repeat all the information given in the report, but I’ll provide a few highlights:
- Prices for red varietals ranged from a low of $985 per ton for Pinot Noir to a high of $1,700 for Petit Verdot, although the margins of error in both estimates are likely to be high.
- With an average price of $1,536 per ton, Cabernet Sauvignon grapes commanded a substantial premium over both Syrah and Merlot.
- Cabernet Franc, Grenache, Malbec and Mourvedre also exceeded $1,500 per ton.
- At $1,072 per ton, Semillon acheived the highest price among white varietals, but only 675 tons were crushed. Viognier was second at $984, although it’s price has fluctuated widely from year-to-year, while Gewurztraminer placed last with an average price of $736 per ton.
- Comparing Washington’s four highest production white varietals, Chardonnay and Sauvignon Blanc sold for substantially higher prices than Riesling and Pinot Gris.
Before moving on, it is important to reiterate that the figures cited above are averages. Hence, they will not accurately reflect pricing differentials within all AVAs or quality tiers.
Identifying differences in pricing is important, but it is also imperative to understand how prices are evolving over time. The chart below demonstrates that Washington grape prices have been on a slow, but steady, upward trajectory over the last fifteen years. The annual fluctuations in average prices can stem in part from temporary market factors or sampling variability. Viewing price changes over longer periods helps to alleviate this noise and produces a truer signal of structural trends in pricing. The analysis that follows focuses on ten-year price trends using comparisons between prices reported in the 2007 and 2017 crush reports.
Over the last ten years, the weighted average price per ton for Washington grapes grew by $244, an increase of just over 25%. This represents a compound annual growth rate of 2.3% per year, which exceeded the 1.7% rate of inflation over the same period.
The average price per ton for red varietals grew by 2.1% per year, but with an increase of just 1.1%, the average price received for white varietals fell in real terms. Both figures are lower than the 2.3% overall growth rate, which indicates that a good portion of the increase in the overall average price per ton was due to a shift in output from less expensive varietals like Riesling to more expensive grapes such as Cabernet.
As the chart below illustrates, appreciation varied widely across the state’s most planted varietals. Only two, Cabernet Franc and Cabernet Sauvignon, saw rates of growth exceeding 2.0% per year. The average price for Riesling grew by less than 1% per year while Pinot Gris fell by more than 1%. Sauvignon Blanc, Merlot, Syrah and Chardonnay prices grew at modest rates of between 1.5% and 1.8%.
The California Premium
To situate the Washington grape price figures within a broader context, I produced comparisons to California based on corresponding information from the California Grape Crush Reports. Its annual crush averaged four million tons over the last six years and represents the vast majority of U.S. grape production.
It’s also important to note that the California information is far superior to that found in the Washington report. Grape price reporting is mandatory, so the data is more reliable. The data is also much more comprehensive and fine grained as it contains contract level detail broken down into 17 distinct reporting districts. This renders the California grape market much more transparent than Washington’s.
Based on the 2017 figures, the average price paid for a ton of Washington grapes was nearly 50% higher than that for California: $1,198 per ton versus $800. However, this isn’t a very fair comparison because a much larger share of the California crop is mass produced in sub-standard terroirs for plonk and value-priced bottlings.
Stripping out the six high-yield Central Valley districts (labelled CA ex CV in the charts below), which account for nearly three-quarters of California’s total production, the average price for California grapes was $2,240 per ton, nearly double that received by Washington growers.
As the chart below demonstrates, the California price premium varies by varietal. Among Washington’s top five varietals, the differentials are greatest for Cabernet and Chardonnay in percentage terms, but much smaller for Syrah, Merlot, and Riesling. Most notably, California Cabernet commands a $1,600 premium relative to Washington.
Moreover, the data indicate that Washington grape prices are just a fraction of those in California’s super-premium districts of Napa and Sonoma, although this isn’t necessarily a fair comparison either, as there is little, if any, commodity grape production in these regions. Nonetheless, the pricing gaps are enormous. With an average of $5,225 per ton, Napa grapes are more than four times as expensive as Washington’s and its Cabernet grapes fetch nearly five times the price.
The somewhat less esteemed Central Coast region (spanning from Monterrey County in the north to Ventura in the south) is more comparable to Washington in terms of its size and diversity. Prices for Washington’s leading red varietals are roughly on par with the Central Coast, but Central Coast Chardonnay sells for nearly 50% more.
The data also reveal that California grape prices have appreciated at a faster rate. Excluding the Central Valley, the weighted average price per ton for California grapes grew at an annual rate of 3.2% between 2007 and 2017, nearly a full percentage point higher than the 2.3% rate of appreciation in Washington. This caused the California premium to swell from $684 per ton in 2007 to $1,042 per ton in 2017. Price growth was stronger in all three of California’s leading coastal wine-growing regions and Napa’s average price grew at more than twice the rate of Washington’s.
As illustrated in the chart below, the appreciation differential was greatest for Cabernet. The average price of California Cabernet grapes has grown by nearly $1,100 per ton since 2007, while Washington Cab prices increased by just $300. Napa and Central Coast Cabernet appreciated at more than 2.5 times the rate. Strikingly, Washington Cabernet grapes sold for a premium of more than $300 relative to the Central Coast in 2007 - but now sell for $50 less per ton.
Rates of appreciation for Washington Syrah, Merlot, and Chardonnay also trailed, but by smaller margins. Riesling is the only major varietal to experience stronger price growth in Washington over the last ten years, as California Riesling prices declined by $80 per ton.
Conclusions and Implications
Despite the limitations mentioned previously, it is possible to draw several general conclusions that are reasonably well supported by the data, although they surely obscure important nuances in grape market dynamics across Washington AVAs and grape-quality tiers.
The main findings of the analysis are as follows:
- There are wide differences in pricing across varietals in Washington State and there have been substantial differences in rates of appreciation over the last ten years.
- Washington grapes command significantly lower prices than California grapes - excluding the Central Valley - and are just a fraction of those in Napa and Sonoma.
- Washington grape prices have grown at a modest pace over the past ten years, but California grapes appreciated at a faster rate, causing the price differential to grow.
- Cabernet prices have appreciated at a faster clip than Washington’s other major varietals but sell for the largest and fastest growing discount relative to California.
The explanation for these results is largely rooted in market forces. On the demand side, California has a stronger reputation and its wines generally command higher bottle prices at similar quality levels. Higher bottle prices mean higher grape prices. On the supply side, Washington has abundant land available for vineyard development in quality terroirs while California has growing constraints to new plantings in its desirable coastal regions. Grape supply in Washington has had no trouble keeping pace with demand, putting a lid on price increases.
In addition to market forces, the structure of the Washington wine industry may also play a role as the state’s grape market is dominated to an enormous extent by a single company. Economic theory suggests that this produces pricing power, which may translate to lower average grape prices in Washington State.
Low and slowly growing grape prices are a double-edged sword for the Washington wine industry. They are certainly desirable and a source of competitive advantage from the perspective of wine producers as low grape prices enable them to produce wines with a favorable quality/price ratio.
On the other hand, growers would obviously love to see higher grape prices as this would enhance their returns as well as land values. But low prices aren’t necessarily problematic to the extent that price growth meets or exceeds increases in production costs, a proposition that may be tested given escalating labor costs.
In the end, the high prices being paid for grapes in California’s premium coastal regions demonstrate the great potential for growth in prices and land values within Washington. However, there are few reasons to expect the supply side of the calculation to change dramatically in the foreseeable future. Thus, realizing this potential will fall heavily on the demand side – and will depend on the state’s ability to continue to increase its stature in the eyes of consumers as well as their willingness to pay higher prices for Washington wine.
Finally, while growers have little control over broader market conditions, the variation in prices and rates of appreciation across varietals provides an opportunity for savvy growers to improve their returns through strategic planting and replanting decisions. Given the lack of sufficiently detailed and reliable data on the Washington grape market, rigorous and forward-looking market analysis will be essential to insure these decisions produce the desired outcome.
Chris Bitter
Vintage Economics
bitter@VinEconomics.com
206-981-6885