A new report suggests demand for the state's wine is slowing, while scarce water resources and economic factors are affecting the sustainability of the industry.
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Wine grapes in a California vineyard
Credit: Getty Images

California winemaking is an American agricultural success story ever since shocking the world in Paris in 1976 to emerge as one of the world's great wine regions. But a lot can change over the course of a half-century: industries expand, habits shift, global temperatures rise. And though California wine may be as wonderful as ever, a new report suggests that it might be time for some of the state's vineyards to go.

In their annual State of the U.S. Wine Industry report for 2022, Silicon Valley Bank (SVB) makes a number of predictions for the future: One gaining attention is a belief that "more vineyards will need to be removed in California to reach sustainable farming levels in several regions."

According to the report, for several years, consumption of California wine has remained relatively flat while grape yields have dipped, with 2020 and 2021 ranking well below previous harvests. Yet despite this drop in supply, prices have remained steady.

"That says something about what wineries have in tank and what they need," Rob McMillan, EVP and founder of the Silicon Valley Bank Wine Division, who authored the report, writes. "The fact that there has been no price movement in grapes after two short crops can only mean that wineries think they have enough already and they see no need to buy more for now. The industry isn't predicting growth in consumption."

McMillan continues, "If the data leads you to conclude that there are too many acres planted, then sadly, you might be right. Jeff Bitter, president of Allied Grape Growers — and a person who understands vineyards and math — has been calling for acreage removals since 2020. The short crop combined with no price movement on supply probably does mean we still have too many gross acres planted, and in California, a normal yield of 4 million tons is not welcome. With current demand, we would be oversupplied again."

Admittedly, the SVB report offered dire oversupply predictions in 2020, similarly suggesting that growers should consider ripping out vines. Then the pandemic struck. "The supply situation changed almost overnight in March 2020, when the shelter-in-place orders from COVID began to take effect and panic buying set in," the 2022 report states. (Hopefully, another pandemic won't create a similar rebalancing in the future.)

Meanwhile, SVB points to another factor that could influence a shift towards fewer vineyard acres: a growing lack of water supplies. "With increasing climate impacts from drought, fire, low soil moisture and record low reservoir levels, there will be even more pressure for agriculture and residential users to share limited water," the report states.

Finally, though the pandemic has left many factors affecting the wine industry unpredictable, the report states that one trend is straightforward: The bulk of wine buyers are aging and younger drinkers aren't yet taking their place. Without any long-term growth in demand, a return to a pre-pandemic "normal" in grape production continues to seem unsustainable according to SVB.

And yet, if vineyard owners are looking for reasons not to tear out their vines, the report does include a few optimistic moments. "The oldest millennial turns 40 this year," McMillan opines. "The sheer number of consumers crossing that line means that our opportunity to get more consumers should be increasing, all else being equal."

Translation: People don't blame millennials for things as much as they used to, but if vineyards do start diminishing, you might see headlines pegging the decline of California wine on that old scapegoat.