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California's drought could raise foreign wine imports to the US and bulk wine prices

Published:  05 February, 2014

With California in the midst of one the most severe droughts in its history, the shortfall in domestic wine supply in the US could see a rise in bulk wine prices and an increase in foregin wine imports. 

With California in the midst of one the most severe droughts in its history, the shortfall in domestic wine supply in the US could see rise in bulk wine prices and an increase in foreign wine imports.  

California is undergoing the worst drought in the state's history since rainfall records first started being kept in 1849. The California governor, Jerry Brown, declared a state of emergency on January 17, 2014. On January 31, California's main water delivery system the State Water Project, announced it will not dispense water to the 25 million people and 1 million hectares of farmland that it normally supplies. The is the first time in the project's 54-year history it will halt water distribution with a zero-allocation policy that goes into effect this spring.

Oregon and Washington are also experiencing drought conditions.

California, where drought conditions are most acute, is by far the largest wine-producing state in the US, accounting for 88% of the total US wine production in 2012. As consumption is growing rapidly in the US and supassed France in the 2011 to become the largest wine consuming country in the world, it is likely that any domestic shortages will mean increased imports to fill the supply gap and put pressure on bulk wine prices. 

Glenn Proctor, partner in the Ciatti Company, said bulk prices were likely to rise following two strong harvests in California. He said: "Bulk wine will be more valuable than it is today because it's a really good supply."

The reduction in crop size in the near future is due to producers conserving water and planning not to grow as large a crop, but also with the warmer weather, the threat of bud break happening earlier the risk for frost damage increases. Several producers in California rely on sprinklers as a form of frost protection and without access to adequate water resources such protection may not be available, further reducing the size of the California crop. As a strategy for frost protection, water is sprayed on to vine shoots and when it freezes it releases a little heat, ensuring that the temperature of the shoot will never fall below 0ºC, even when the air temperature is as low as -9ºC. However this means that sprinkling must be continuous throughout a frost, starting as temperatures reach 1ºC and continuing until the risk of frost has gone, which uses a considerable amount of water; around 30,000 litres per hectare per hour will be used.

Long term impacts could be felt as well, beyond just the coming harvest.  Without access to water, plantings can also be expected to drop, which has future ramifications for the industry. A grower won't invest money in new plantings it cannot water.

Rob McMillan, founder of Silicon Valley Bank's wine division at Silicon Valley Bank, in an online report, said: "(Drought) appears to be a significant problem that will play into next year's harvest. Do we have control for frost and heat spikes? Can we even water our plants?"

Mario Zepponi, principal at Zepponi & Company, is concerned about future harvest and said: "Can we do new plantings? That becomes an issue for us."

If the US finds itself unable to meet the domestic demand for wine, foreign imports may have an opportunity to increase market share, which is positive news for foreign wine producers. What's more, according to the predictions for 2014 in Silicon Valley Bank's annual State of the Wine Industry report, "the Millennial generation is consuming more foreign wine than other cohorts today."

Click here to see the entire report and watch the video of the State of the Wine Industry 2014.