Wineries Grow in Slow Economy

The original vineyards at Working Horse are more than 30 years old and include
rare heritage varietals. Farming practices incorporate organic, Biodynamic and
sustainable principles with heritage farming that uses draft horses, working
here with Tilman Hainle.
 
Peachland, B.C. --  Pacific Northwest wineries continue to plan new projects,
but a tight economy means there's a lot more caution in the air as 2009 begins.

"Our outlook is different now than it would have been in August or September of
last year," said Tilman Hainle, principal of Working Horse Winery in Peachland,
British Columbia, which is planning a 22-acre, LEED-certified winery development
overlooking Okanagan Lake. "We certainly did a reassessment toward the end of
the year as to how all of this is going to affect us."

The straitened credit environment that took hold following the bankruptcy of
Lehman Bros., and the restructuring of other major financial players in
mid-September 2008 has made companies in numerous economic sectors think twice
about their plans. Wineries are no different.

Hainle and partner Sara Norman face a different environment than when Working
Horse announced (see Wines & Vines article) its development plans just last May.
While interest in financing the project remains, the downturn in real
estate--and particularly the market for second homes--led Hainle to defer
proceeding with the development's residential component.

Economic difficulties have stalled more than $500-million (Canadian) worth of
major construction projects across the Okanagan. This slowdown, consequently,
helped reduce demand for materials, moderating construction cost increases and
freeing up workers. This reduced upward pressure on wages, creating a better
environment for developers.

"We're breathing a lot easier. We don't have to worry about a shortage of trades
or elevated construction costs," Hainle told Wines & Vines.

A focus on sustainable practices also helps, too. Hainle is milling wood
harvested by horse-logging activities on the Working Horse property to produce
posts and beams for project buildings. "It all feeds into a certain degree of
self-sufficiency and sustainability that we want to have," Hainle said. He hopes
to start construction on a 10,000-square-foot winery building as well as four
guest units for Working Horse later this year.

Projects elsewhere in the Pacific Northwest have been delayed, however. Del
Bonds at Mountain States Construction Co. in Sunnyside, Wash., said projects all
over are in a holding pattern. He expects the volume of winery construction the
company handles this year will be about half what it's been in recent years,
dropping from four to five projects to just two or three. And even those are not
yet confirmed.

"Usually by this time (of the year) we're in the permitting process or we've
broken ground on a winery," Bonds said. "On a few of those jobs (where) we're
supposed to be doing that, we're in a holding pattern, basically."

The latest stats from the U.S. Department of Commerce indicate that U.S.
construction activity dropped 3.3% in November 2008 compared with November 2007.
While non-residential construction increased 9.2% over the same period,
commercial construction dropped 12.9%. (Non-residential construction includes
everything other than residential: strip malls, office towers, bridges,
highways, dams, mines, etc. Commercial construction is limited to "buildings and
structures used by the retail, wholesale and selected service industries" as
well as farm buildings.)

While the wine industry as a whole seems to be holding its own, Bonds said
construction is generally taking a hit unless it is absolutely required, and
that's as true for wineries as for any other business.

"New entrants, the people that are just starting to get into it, there's
probably going to be fewer of those people," he said. "People that have been
around, they might be doing some remodels or expansions. But even those, I
think, are kind of waiting to see how the economy shakes out."

Wineries that need to grow are pursuing construction plans, however.

Demand for Poplar Grove's wines in Naramata, B.C., is driving plans for a new,
35,000-square-foot winery that will accommodate production of 30,000 cases per
year. Construction should start later this year, with completion set for 2011.

"We don't see any reason at this stage to curtail or not to continue our
expansion," said director Murray Syrnyk, who said the winery is currently
firming up financing for the CA$10-million (US$7.96 million) project.

While lower construction costs are a benefit, Syrnyk said the current economic
circumstances weren't a major factor in Poplar Grove's decision to move ahead
with construction. Rather, it needed larger facilities if it wanted to keep pace
with the market. "Our decision is just based on the fact of the increased
production capacity that we required," he said. "The existing facilities just
can't deal with it."