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Last Updated: Monday, 23 June, 2003, 05:23 GMT 06:23 UK
Sour grapes in the Golden State
Maggie Shiels
By Maggie Shiels
in San Francisco

California's wine industry is weathering the worst downturn in the industry's history after a string of bumper crops and a souring economy has led to plunging prices and financial problems for some vineyards.

vineyard
California's wine belt is feeling the pinch

The seeds of the oversupply were sown in the 1990s when demand skyrocketed and a booming economy prompted growers to plant more vines.

During the late 1990s, plantings soared by 45%.

But timing is everything in the wine business, and those grapes are now maturing in an altogether different economic climate.

The downturn has hit drinkers' wallets hard, and the Golden State's vineyards are swimming in excess wine.

A report by the California Agricultural Statistics Service shows that the 2002 harvest produced 3.79 million tons of grapes, 12.5% more than the year before.

Prices sank 17% to $462 a ton over the same period.

Family fortunes

At his Central Valley farm in Lodi, 120 miles east of San Francisco, Rodney Schatz and his family have been growing grapes for the last three generations.

The business is bigger and so the magnitude of a downturn is bigger
Bill Turrentine, wine broker
"This is probably the worst downturn I have seen in my lifetime, but that comes on the heels of ten to twelve years of prosperity, so it's only natural for it to cycle much harder," he said.

"It's been a nice long run uphill, so now it's going to be a run downhill," he said.

Rodney is luckier that most.

He hasn't had to do what some other growers have been forced to do - either let their grapes wither on the vine, or pull them out and invest in replanting crops like alfalfa and almonds, for which there is a ready market.

According to the California Grape Growers' Association, 70,000 acres of raisin, wine and table grapes have been ploughed under in the last year in the Central Valley, the Golden State's largest grape growing region.

While Rodney has avoided taking any drastic measures, he has adapted to harsh economic realities by grafting some of his land and replacing chardonnay grapes, where there is an oversupply, with petite syrah.

He is also working closely with the bank and, like everyone else, is feeling the pain.

"In '97, '98, '99 it was no problem to get eight, nine, a thousand, eleven hundred dollars a ton for just about anything or everything," he says.

"Now those prices are three fifty, four hundred, five hundred dollars. So less than half right now is the norm."

Boom and bust

About 90% of all grapes grown in the United States come from California, where winemaking is a $2.6bn industry.

Bill Turrentine of Turrentine Wines in San Anselmo, 20 miles north of San Francisco, is a broker who has been in the business for over 26 years.

As he consults his so-called "manic depressive wine business wheel of fortune", he says what's happening in the industry is purely cyclical.

But he admits the emergence of the "techno-rich" with a taste for an expensive tipple has added to the severity of the downturn in California .

"The business is bigger and so the magnitude of a downturn is bigger," he says.

The short cycle was just phenomenally good, partly because of the Silicon Valley tech boom and its side-product: lots of well-off people spending very high amounts on wine.

"When they went away, it made this downturn more difficult, perhaps."

Cheap and cheerful

One company celebrating the glut is Branco Wines of Ceres in California's Central Valley, with its Charles Shaw brand - nicknamed "two buck chuck" because it sells for $1.99.

wine buyer
Wine drinkers have become cost-conscious

Branco spokesman Harvey Poster told BBC News Online that the amount of Charles Shaw wine the company is selling is making the industry sit up and take notice.

"Analysts estimate (sales) at around five to six million cases in the past year, which would make it the fastest selling wine ever in America and I assume the world," he says.

Trader Joes, which sells "two buck chuck" exclusively through its 200-odd stores, would attest to that.

Their San Rafael Store in Marin County sells around a thousand bottles on a good day.

Manager James Gibbs says: "It's called the Charles Shaw phenomenon. It's a great bottle of wine with a fantastic price.

"We buy it by the pallet, we move into the store by the pallet, and they take it out by the case."

Two buck future?

Two Buck Chuck has become a legend in the wine industry, and its fans just love it.

Clutching two bottles of Merlot, Paula says: "Two Buck chuck is great value. It's equivalent to a ten dollar bottle of wine."

Jeanette Sears, a first time buyer, left the store with four cases. At around $28 with tax, she says it's too good a bargain to miss.

"I think it's exciting because we entertain a lot," she says. "It's the price of a bottle of water and I wouldn't have picked it up unless I had seen people make a big fuss about it."

Analysts predict another two years of pain for the industry but say that one way to keep afloat is to either improve the quality of the product, or wholeheartedly adopt the "two buck chuck" mentality by making the wine too cheap to ignore.


SEE ALSO:
Majestic toasts higher profits
16 Jun 03  |  Business
Wine giant 'squeezed out union'
17 Apr 03  |  Business
US pops cork on Hardy wine deal
20 Mar 03  |  Business
Australia's troubled vintage
10 Jan 03  |  Business


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