Wine trade takes long view of economy

With the rapid and profound downturn in the economy, consumers are tightening their belts and looking for ways to trim their budgets.

 The natural assumption would be that a luxury item such as wine would among the first items to go. Could the current financial meltdown harm the Monterey County economy, which has more than 40,000 acres planted with wine grapes?

In actuality, the economics of the Monterey County wine industry is as complex as a cabernet. Fluctuations in the wine trade's viability work on multi-year rather than single-year trends.

This is because winegrapes are usually sold by growers to vintners on contracts that span from three to 10 years, meaning that grapes harvested in 2008 could have been sold to a winery a year or two ago when the economy was stronger.

"The volatility in the wine business is substantially moderated because it is a long-term business between long-term partners," said Richard Smith, owner of Paraiso Vineyards and Valley Farm Management. "We plant based on today's demand, but don't produce for another five years."

Wineries are on contract to buy a certain tonnage from their vineyard sources with a price point determined by the average cost of grapes from previous years.

These price points and sales are often moderated by brokerage companies, such as Turrentine Brokerage, to guarantee successful transactions between vineyard and winery.

These procedures insulate winegrape growers from taking huge hits in fruit sales when there is a downturn.

But what about their counterparts, the winemakers? If the winemaker is obligated to a certain volume of grapes, he has also invested in a certain volume of wine. Will he be able to sell the same number of cases as was forecast by consumer demand in a more affluent year?

Counter-intuitively, wine consumption is up.

"Wine consumption has steadily increased 2 to 3 percent a year since 1991," Smith said. The rough year on Wall Street has not disrupted that trend. This year some wineries report sales increases of up to 25 percent.

Consumers are purchasing less wine in restaurants and more wine at retail stores.

Because it is expensive to eat out, people can create a special occasion, without draining their savings, by adding a bottle of wine to a home-cooked meal.

"What Monterey County offers in a crashing economy is a high-quality bottle of wine at a reasonable price point. It is an affordable luxury," said Phil Franscioni of Arroyo Seco Vineyards.