Unpacking the cost of growing grapes w/ Natalie Collins, CAWG

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Today we're going to be discussing the cost of California grape growing versus other regions. And our guest is Natalie Collins, who's the president of the California Association of Wine Grape Growers. Natalie, welcome to the show. - Thank you guys so much for having me. - Can you please give us a brief overview of your background? - Of course. So today I serve as the president of the California Association of Wine Grape Growers. This will be my 10th year with the association. And I've been the president for the past two and a half years. I grew up in a wine region in the Central Valley of California and studied agricultural business and communications in college. After graduating, I had worked for the Farm Bureau Association before finding my way back in DeWine. And it truly is such a rewarding experience to work for California Wine Grape Growers today. - And so for our listeners who may not be aware or maybe they're an indifferent region, what is the California Association of Wine Grape Growers? And what is its mission? Who does it represent? - Yeah, we are the statewide association for wine grape growers themselves. So all of our work is really focused on state, federal and regulatory work. We are located in Sacramento, California. We have in staff, our on staff, a state government affairs director, as well as state lobbyists and then a federal affairs lobbyist back in Washington, DC. So really we are focused on advocacy, on policy work, anything to help out the California wine grape grower. Our association just celebrated its 50th year, last year in 2024. And today we are governed by a board of directors of 27 wine grape growers from throughout the state. - And so structurally is it a non-profit or NGO or lobbying group? Like how would you define it in terms of classification of what type of organization it is? - It is a non-profit trade association. So all dues from growers are voluntary. So in the association, we obviously represent wine grape growers that has a dues structure based on vineyard acreage. But we also have a lot of associate members and those are the industry support members, be it fertilizer companies, gas companies, insurance providers, legal support, whatever it would be. So a very large organization that's kind of all encompassing of the California wine industry. - And just one other clarified question. Is are there other similar groups at the regional level in addition to the state level? So in terms of individual Sonoma branches of it are they related or are they separate organizations? - Yeah, in California, we are the statewide association. You'll find regional associations in various regions throughout California, be it Sonoma, Napa, Lodi, Paso, Temecula, Lake Mendocino. Essentially every single wine grape region has their own association. We all work very closely together but we are not connected through any formal structure. - And you guys are specifically wine grape growers but that's more the vineyard site and not the winery side, is that correct? - That is correct, yes. So we really are focused on issues happening within the vineyard. We do have a lot of growers who also own wineries but the majority of our membership is actually those independent grape growers who do not own a winery, they sell their fruit to a winery. - If I were to grow grapes and sell them for food, I wouldn't be a part of your association either, right? - You wouldn't, so that would be the Table Grape Commission. There is also a raisin commission. So wine grapes are their own special kind of grape. We all obviously get clumped in the overall grape category but all different, no wine grapes go into the fresh food market. - So the main thing we wanna cover today is the cost of growing grapes for wine, wine grape growing in the US, in particular in California. What are the key cost drivers for wine grape growing in California today? - Yeah, today the highest cost on every wine grape growers budget is labor and funnily enough, we are not even a incredibly labor intensive crop if you look at other California commodities like fresh produce. We don't rank on the labor intensive side of it but if you look at a California grape growers budget today and all of these numbers and as we talk today, everything is a little bit different by region and just how the pricing structure of grapes work in California. But in the interior of California, you could see labor represent about 30 to 45% of their budget cost. On the central coast, it could be 45 up to 65 to 70% of their budget cost is strictly labor. And this is for a few reasons. In California, we do have one of the higher minimum wages. Today minimum wage is 16, 50 an hour but most wine grape growers are paying between 18 and $30 an hour for labor. So a lot of money going into labor in everyone's budget. We also in California in 2016, there was a law passed to amend the agricultural overtime laws. So before this law was passed, the anything over 10 hours a day or 60 hours a week constituted overtime pay. Today it is anything over eight hours a day and 40 hours a week. So that law did a few things. It won, it actually decreased farm worker take home pay because many growers today are not able to provide those overtime hours that they once did. And it means that many farm workers are now working multiple jobs just to get the same take home pay that they did prior. So again, labor is by far the number one cost associated with wine grape growing today. And I know we'll talk a little bit throughout this webinar about mechanization and ways that growers can improve this and their vineyards. And so you had a range for labor is on average, it sounded like the average might be around 50% ish because I think you went from like 35 to 60 or something. Yeah, really depends on obviously the programs that grape growers are growing for. So what kind of end product their grapes are going into? And it to depends if a vineyard was set up with mechanization in mind. Any older vineyard that you have is going to have a lot more hand labor intensive work. And the same goes for maybe those more premium grapes that go for a higher price, they are mainly hand labor intensive. So it can really vary based on the tonnage per acre. I think a good probably middle ground would be about 45 to 50%. And so if labor is number one at 45, 50, that's still half the cost is the rest. What makes up the rest? Yeah, the rest really is just operating in California and regulatory and compliance costs. Recently, Cal Poly San Luis Obispo conducted a study for lettuce growers in the kind of Monterey Salinas Valley area. And they found that the cost they kind of measured the cost of complying with different regulations here in California. So whether it's water quality, labor wages, air quality, worker health and safety. And they've done this study three separate times. So they really had good benchmarking data to go off of. And in lettuce, they said that regulatory costs were around $1,600 per acre, which was actually a 63.7% increase from a 2017 benchmark and a 1,366% increase since 2006. So just the cost of compliance here in California is also a large part of any Wanger group growers budget. Wow. And so you haven't even talked about materials like chemicals or sprays or whatnot and tractors and equipment and land or any piecing land and all that. Yeah. I mean, land, obviously in California, we have some of the highest land prices, I think throughout the United States. So that certainly is high up there. If there is a grower that is newer to farming and doesn't have generational land that may be paid off already, the cost of land is certainly in that top tier, as well as those input costs when you're looking at different crop protection or fertility tools, especially. And when we look at, I know we'll talk a little bit more about tariffs and the role those can play on some of these input costs. And so you mentioned the grape of the lettuce and the rising compliance. How big is compliance for California and wine grapes? Is that in that 20% to 40% range? Or how big is that cost? Yeah. We'll be a little bit more than this lettuce survey. A lot of some of their costs really go to more of those fresh produce. What they need to comply with to get produce to market to make sure that they're meeting all of the health safety standards. So a little bit less than that, maybe another 10% of the budget goes to regulatory and compliance costs. OK. And so which of those elements have changed the most in the last decade or so? Labor, again, has been the biggest one when we look at our kind of scale. scale of minimum wage and the kind of step up that it has taken. When we saw these minimum wage increases go into place, I think what sometimes is not calculated is that if you had somebody at the time already making more than minimum wage, you want them to step up with the minimum wage increases as well. So in some years, you could see labor increase just from minimum wage and raises over 8%. So I'd say labor again is still number one. In the past 10 years, many of our growers say that cumulatively, their farming costs have doubled. So doubled in 10 years and on the other side of it, we really haven't seen great pricing. Keep track with the increases in input cost. There are many regions, especially in the Central Valley, who are getting paid the same price for wine grapes today as they were 15, 20 years ago. And that model is simply unsustainable here. I guess that begs the question. I know it's hard. Maybe there's a different average for more commercial grapes versus high end grapes. But what's sort of the cost to grow a wine grape in California? I think probably on a dollar per ton basis is the way most of us would talk about it versus as you just mentioned, the price they can get for it. Yeah. So in kind of differing obviously by region, we have tons per acre. It's kind of how we look at things. In the kind of pass aerobles, central coast area, you could be your farming cost could be around six to 8,000 an acre. Napa, you could be anywhere from 10 to 17,000 an acre, Sonoma, 8 to 10, and then maybe in the valley around the $4,000 mark per acre. So all of it really is dependent on what your tonage is per acre. But in the kind of Central Valley area, you're seeing prices at five to $600 a ton right now. And you can kind of, I mean, in the Central Coast, you'll see prices upwards of a thousand, two thousand a ton. We actually have in California a report that is paid through grower assessments. And it's called the California Wine Grape Crush report. And in this report, it's produced every single year. You can actually go and look at all pricing by variety, by district. We utilize a system called Crush Districts here in California. I mean, it really outlines what is being paid by by variety, by region. And it's really where we are able to see the average price of wine grapes over a 20, 40 year span. I've used that report many times to do. No system. It even shows every single transaction pretty much. It does. Yeah, it's a good report to have, especially for planning, understanding what varietals are moving, what's not, what is seeing an increase based on supply and demand. So it's certainly a well utilized tool within our industry. And in terms of the cost to grow, and you mentioned how California has a lot of these compliance things, which, you know, my cost, what do we say, 10 or 15% of the cost of growing, how does that differ from the rest of the US or other places in the world? I would say in California, we certainly have some of the highest regulatory cost as well as maybe some of the higher minimum wage. Again, here in California, most of our wine growers are paying far above minimum wage. I think if you look at in the US, if you look at other grape growing states, maybe it's Oregon, Washington, New York, Idaho, I would say we have higher regulatory cost here as well as higher land values. Labor, I would say, is pretty similar. We see places like Oregon who has a similar ag overtime rule that we do have here in California. However, the Oregon legislature has helped growers by actually giving a overtime tax credit. So they are helping growers in paying that overtime. We as the California Association of Wenger Growers actually proposed a very similar law here in California this year, and it died in its first committee. So there is not a lot of, I would say, help here by the California state government to aid wine group growers. And we also don't receive the amount of federal support that countries like the European Union provide to their nations. When you look at Europe's farming costs, I think there could be a lot of similarities as far as wages and hourly rates. They also have pretty strict regulatory and compliance. The only thing that's different is they have incredible government support over there and are essentially subsidized at every level from growing to marketing to production. You name it. Incredible EU support for their regions and their wine industry. And what does that look like in the EU? Is that a direct subsidy to grape growers or how does that actually play out? Yeah, it almost feels like any way you can think of that you could help a grape grower or a winery as kind of the approach that the EU has taken. They spend over two billion euros annually in direct and local government subsidies to support wine production. And this happens through a couple different forms. They've done crisis distillation programs where their government will actually buy up surplus wine that'll be converted into alcohol. So this really, and this could be hand sanitizer, you name it. But the government is actively buying up any surplus wine and paying the winery for that product. What this does is it really prevents a supply and demand from balancing naturally. And in my opinion, it encourages overproduction because these growers or wineries know they can be bailed out if they have too much excess wine. They also partake in a lot of vineyard removal programs or what could be called grubbing up schemes where they will pay growers to remove vineyards. This could just be temporary short term. But again, this does not really help with the overproduction issue because another thing that they'll do is they'll also help with vineyard planting subsidies. And we all know that when a new vineyard goes in after a old one is removed, that new vineyard will be producing higher yields. So it really does not help the supply and demand or yet the supply, I guess, in the EU when they are planting more productive vineyards that only then puts their tonnage at a higher level. So I mean, again, at every level, they kind of help their industry and they also do aggressive marketing support. We just saw recently with a lot of the tariff discussion that France is allocating 5 billion just to export to the US. So put a plan together to ensure that French wine continues to come into the United States. Did you say billion with a B or a million with an M? Yes, I certainly said billion with a B. If you were to estimate the percentage, is there a way to understand like ballpark, the competitive landscape, like how much subsidies are going to the average European cost per ton or per acre, that the understand like how unfair is that playing field between California and other regions? Obviously, EU seems like has the most subsidy. So do you have an estimate of what that looks like? No, it is something that we are doing a little bit more market research on to just understand exactly as you said. What is the kind of subsidy per acre per ton or what is it? But two billion dollars annually, I can tell you, is far more than the US government spends or California on promoting anything domestic. But what all of this kind of EU subsidies do is it kind of creates an imbalance in the entire global market. And it allows the EU to produce insanely cheap wine because it is so subsidized. So what we see here today in the US is that some of our larger wineries import massive amounts of bulk wine. And what bulk wine is is simply it's just finished wine. So they are importing it in large flexi tanks or bladders. They are landing it here and then they're doing one of two things. They are either just simply bottling it here and labeling it as the country of where it came from. Or we have a nice loophole in our federal TTV standards that allows up to 25% of foreign wine to be blended in with the wine that we call America. So if you go to the grocery store and you pick up a bottle and it has the word American or United States on it, there is a high likelihood that up to 25% of the fruit in that bottle is actually from a foreign source. And from your position as a wine grape growers, would you want some of those similar subsidies like in Europe? Because I mean, I think we left you know three, four hundred thousand tons of grapes on the vine last year and the year before, is that you know, if someone bought it like the government would that and that would presumably help the grape growers in the short term at least. Is that something you as the grape growers association wants or do not want? I mean, today we are truly in a dire situation here in California and I think even across the US as it comes to wine producing. Today we would welcome any assistance that we could get simply to make it to the next year for our growers. Today in California, it's estimated that about 50% of our vineyards, 50% of our production vineyards do not have a contract for this year's harvest, which will start in the August time frame. So we are, I mean, truly in a dire situation and while we could certainly use the support this year, I think what we've seen in the EU with the amount of subsidies that they've given and is it's really distorted the global market. So I think there certainly needs to be a balance. I mean, I'd love to give you one example actually because I know we talked about the vine grubbing. schemes that are happening in the EU about where the EU government will pay growers to remove their vines. Here in California, in our central valley, there were new air quality board restrictions that were passed that if a grower would like to remove a vineyard. In the past, it was kind of a method of pull it out, push it over, and then you would open air burn. But now that is no longer allowed. So before it would be about $500 an acre to open air burn to remove those vineyards and burn them up. Today, we have to look at alternate routes, which one could be a burn box and it's a contained burn. So you're literally piling your vineyards up, loading them into a little box and burning them. I mean, that is about two and a half times the cost of the old method. And if we look at chipping or mulching those vineyards, it could be between three and four times the cost of the initial method. So not only are not getting support to pull vineyards period, we do now not have any support for those increased in costs that it takes to pull out vineyards in the central valley, which is really where the majority of our tonnages is in that interior of the state. We have continued to advocate for at least funding to help remove these grapes so that the grower is not taking on that additional expense. A big fear of ours that we've seen come to light is that grower simply cannot afford to remove the vineyards with their new alternatives, so they are just abandoning them. And when we have abandoned vineyards, we have a lot of pest and disease pressure that is only going to continue to spread to their neighbors. Now, I should have asked this earlier, could you give a little bit of context on the number of California wine grape growers in the association and the average size? Because I think a lot of times people hear subsidies that they have these big, like agricultural concomorants, and I just wanted to give it some comparison to understand what are the size of these growers? Yeah, I think we don't have really an estimate on the size of a wine grape grower. Our association represents everything from a half an acre up to 20,000, 30,000 acres. So it really is a good mix, but the majority of California wine grape growers are independent growers, meaning that they are not, it's not a large winery that owns those vineyards. In California, there are around 5,900 wine grape growers, and today we're producing about 500 and 50,000 acres. Got it. Okay. And so obviously tariffs are all the rage in our government at the moment, and so we're sitting in May 2025. So what impact would they have on wine grape growing if it was increased tariffs from on Europe and other places? Yeah, the tariff discussion is one that has taken up far too much of my brain space, and I think far too much of the media space in the first half of this year. And with tariff, it's really not a one size fits all approach. Obviously with input costs, and if you're looking at the crop protection and fertility tools, many of those we get from foreign sources. Yes, of course, if there is a tariff slapped onto those, those will go up if a grower is looking at putting in a new vineyard, which is certainly not happening right now. But if they were the cost of the steel to produce those vineyards wire, et cetera, you're going to see an increase on those supplies too. When you look on the winery side, tariffs would likely cause an increase in glass for bottling, corks, labels, boxes, you name it. So certainly an increase because we do import many of the products that we use in Wengerick growing and in the wine making side of it. But I think what is missed on tariff sometimes is that on the wine bottle side, tariff could offer a win for California Wengerick growers. We have, I feel, a very challenging time for California wine to compete here in our own domestic market. And if you look at any media headlines, you'll see that it's a lot of importers and distributors who are American companies who are fighting very hard to protect foreign imports, especially those from the EU. Their arguments will be things like wine isn't fungible, meaning that, you can't replace a wine. Wine is unique to where it has grown, the soil, the climate, et cetera. And I agree with that. I think it's what makes wine so special. But I think what's missing from this entire conversation is at what price point is why not fungible. And if a wine that a consumer is used to buying, maybe they're used to buying something in their grocery store from Italy, and it's not available now, it doesn't mean that they're not willing to change their selection. And I think we actually saw this in 2019, the last time that tariffs were in place on some EU wines. And at the grocery level, we actually saw that domestic wines increased their share by 10% and imports decreased by 10%. So it is really unfortunate that some of the loudest voices who claim to be speaking on behalf of the American wine industry are not really doing what's best for the American grower and winery. I think in that time though, there was tariffs on French wine, but not Italian wine. And so French went down and Italian went up as well. So how the tariffs even play out across the world could make a big difference. Because I think one of the proposed tariffs initially was like 90% on South Africa. Correct. That literally hurts South African wine versus, you know, if Europe was only 10% or something like that. Yeah. And I think with tariffs, obviously the biggest thing with tariffs in the wine industry is the retaliatory tariffs. We always seem to be used as collateral damage in trade discussions. We see in Canada that Canada has very actively been removing all American wines from their shelves. In the US, we only export 10% total of our production. However, 10% are sorry, however, 40% of that 10% went to Canada. So with Canada, removing American wines from their shelves has greatly hurt the American or California wine industry. But on some basis, the tariffs with EU specifically seem to be a good counterweight to the sub-suge subsidies that are being applied in theory. Right. Like that's the logic behind the tariff in this case. That's actually not a bad one if you're trying to make it a level playing field globally even. You know, there's it's very unbalanced at the moment. Yeah. And that's funny. That is exactly the words that we use is level the playing field. We, you know, just simply want to be able to compete. And really on pricing is the one thing we cannot compete on. We can compete on sustainability, on quality, on the work that we are putting in. But when you produce a luxury product like wine, price really matters in most of these segments. When I lived abroad, I almost never drink American wine because it was so expensive, even more than comparable European wines because of all the costs that come from the product itself. But I am curious. So that's sort of tariff. The other hot topic is the US immigration policy. And I'm curious on, you know, there's a bunch of deporting of illegal immigrants or not as well-documented immigrants. How is that this kind of like crisis that's going on right now? How is that impacting the great growers in California? The wine group grows in California. Yeah. I think today you just honestly feel a lot of fear in California amongst our agricultural workforce and many of the communities in which they live in work. And I think that is the biggest thing is its fear when any kind of raid or kind of deportation sting happens. You see these communities kind of contract. And many people are afraid to leave their homes, whether it's someone that is unauthorized, that is actually working in a vineyard or if they have a family member that they live with who is here unauthorized. I think it's just a fear and not wanting families to get separated. So it continues to be a big concern of ours and much of what we do at our association is ensuring that our grape growers and their workforces know their rights. I mean that they do feel more secure coming to work every day. I know that the in agriculture is like the biggest use of, you know, undocumented workers or temporary documented workers in the US. How do you have an idea of how big of an impact that is for wine grape growing versus general agriculture is there any specific numbers there? I don't have a direct number for wine grape growing. What we see a lot in California because as we talked about earlier, kind of the regulatory cost, compliance cost of having an employee can be so high. We see that many farm workers work for a farm labor contractor, meaning that they could work in various crops throughout the year. You know, when it's pruning or harvest, they might be in wine grapes. Right now, blueberry harvest is taking place in the central coast, are in the central valley as well as cherry. So they could kind of move around based on what commodity has need for labor at that time. And building on that, the notion or at least the, I don't know if it's the artist, not the artistic, but the story like what we hear in the stories and books and movies and whatnot of harvest labor is that they may come especially in California, America, from Mexico. They come up and do a harvest and then they go back home and things like that. Is that still what happens today or has things changed with regulation and immigration and everything? Yeah, I would say for wine grapes, especially because today over 90% of our vineyards are mechanically harvested. So we don't have as much of a need in the harvest time for that big spike in labor. We do see through programs like the H2A program that bring workers in, obviously through a legal channel to work. They stay for about 10 months out of the year, in most cases, through H2A work. And is the H2A still primarily Mexico, or is it broadened for US labor? I would say it's still primarily Mexico, and then even when you look at our entire work force, I think we have over the last study I read, and that UC Davis put out, it was about 850,000 hired workers, and most of those did come from Mexico, or were Mexican born. And just for clarity, for all this, when you have an issue, you're a documented worker, right, not an undocumented worker. So they're legally here to work and should theoretically be safe, but maybe don't feel safe right now. It's correct, yes, they are legally here, there is a contract, there are many terms of that contract to have them here working. When our wine grape growers utilize H2A guest workers, it is a lot to bring up H2A workers. The grower needs to provide that H2A employee housing and transportation to and from work every single day. And they also are, I think, an all-in-cost on H2A workers are around $30 an hour in the US. I mean, that's kind of, again, all-in with housing and transportation, but there are the goal requirements on the wages that you must pay to, and it really is, it's the highest of either the minimum hourly wage in any state or federal. There's an adverse effect wage rate, so they are getting paid the highest of whatever kind of rate is in place at that time. In terms of labor, assuming there's different skill sets in terms of different skill levels for the labor, so for the temporary workers who just come in in a short period of time to do harvesting versus the permanent staff that are there on a regular basis year-to-year, what is the difference in skill set as well as in compensation for those two groups versus the temporary imported labor versus domestically? Yeah, I was actually just reading a study the other day by UC Davis that was saying that the H2A labor that comes in from Mexico was actually much more productive than our domestic workforce. Anytime that we bring in H2A labor, we have to pay any domestic labor, the same price, or the same hourly wage. So if somebody in Sonoma brought in H2A workers, but they also have a domestic workforce, the H2A workers cannot get paid more than the domestic workers. So there's kind of that that bounces things out. And then I would say on any given operation, you obviously have your skilled labor working in the vineyards and then it could be a step up if you are a tractor driver or you're operating any kind of equipment, and if you are a supervisor for a given crew, so there's certainly some variation between, probably, you know, between $1 to $5 an hour wage change. So even if the skill sets are higher or more efficient, we're not allowed to pay by merit, we have to pay just based on where they're citizens of. Instead of as well as common barb, we're protecting the domestic labor. That is correct. Even though it's less efficient. Yes, you could obviously if you had a full domestic workforce, and you had more productive people than others, you could obviously pay based on that, but when it comes to H2A versus domestic, no, you cannot pay more for H2A, even though they're more efficient. Got it. And so in terms of automation or new technology that's coming out to reduce the farming costs related with wine grapes, how much can this really make a dent in terms of these labor costs? Yeah, I feel the last five years. So we host, every January, a unified whining grape symposium that is the largest industry trade show here in North America. It brings in over 10,000 individuals over three days, and this entire thing is focused on education, updates, socializing. And at this conference, we do the educational content here at the California Wine Group Growers. For the past five years, there's been a session on the grape growing, and the first year it started with doing more with less. For the second year, it was doing more with even less. The third year, it was doing more with almost nothing. I mean, it's just kind of, we continue to try to cut costs at the grower level, obviously through mechanization wherever we can. Again, 90% over 90% is mechanically harvested. We're seeing, again, any new veneer that's developed is set up to do mechanical leafing, mechanical shoot-fitting, you name it. So pruning, we're moving more to that sphere. And obviously the more that we can mechanize, the less labor we will require. Many of these, even when we mechanize, they still do require labor. So we have a way to go with, there's still opportunity, I guess, as my comment, on mechanizing more, but also understanding that the cost of equipment is also a big investment. I think a harvester here in California can run you over $350,000 for one harvester. So it's really looking at the cost and what your return on investment is on a lot of this equipment as well. And so how does the US in terms of automation and mechanization compare to other countries? Are we, whether it's Australia or Europe, like are we leading the way or are we behind? How do we compare? Yeah, I'd say we're somewhere in the middle. Australia has done a great job at mechanizing. They have a lot of large scale big operations, which really allows the more volume on mechanization. So what certainly say we're somewhere in the middle on mechanization, what's interesting on the automation side is today, California is the only place in the entire world that cannot operate equipment autonomously in an agricultural setting. So today it is illegal to operate an autonomous tractor in a California veneered. This is something that our association has been fighting for the past five years. The standards that are in place are based on like 1980s technology. I mean, really should be updated, but here in California, we get a lot of opposition from labor unions who want to ensure that labor stays in place on veneers. So a lot of these things, I mean, if we even look at not being able to use autonomous equipment is another thing that puts us at a competitive disadvantage when we try to compete globally. That is funny because we see, I know you guys are in San Francisco, we see driverless cars that are okay to operate on a street, but we cannot operate an autonomous equipment out in the middle of nowhere. It really makes no sense. We just got to put some roads in those in between those vibes. Yeah, I think, yeah, I'm always looking for a loophole, you know, as we most will. Exactly. If you may need to start developing some veneered equipment. And I'm curious, are your growers mentioning it as they look at automation and mechanization, are they seeing any impact equality when they go down those routes or resistance from those growers to further those initiatives due to quality concerns? I would say no, not really. I mean, we've seen with how much is mechanized now on the harvest side that it hasn't really resulted in any less quality here. I think today we are producing incredible lines, mechanized or not. We do see in many areas though, maybe Napa, more premium areas that still do hand harvest, maybe many of the cultural tasks are still by hand, could be based on just their brand and how it's built or their clientele and what they're interested in. So certainly different for every brand and different regions, but I would say overall that no more mechanization does not result in any lesser of quality. And so we mentioned that there's a big oversupply of wind grapes in California in particular, but globally. And so many people are calling for the prices of grapes to fall and continue to fall given the rising cost to produce and that dynamic how much can wind grape prices actually fall? Yeah, we are at a breaking point at this point. It's really not about cutting in the vineyards anymore. We talked earlier about many regions have not seen increases and their grape prices for 20 years. I mean that I think and we talk about growing grapes has doubled over the last 10 years. So I don't personally think it's about cutting in the vineyard if we want to keep our growers sustainable, meaning we want them to continue farming next year. There's kind of a neat rule of thumb math equation on how we look at grape pricing and what it converts to in a bottle. So if you have your pens and papers out and what we kind of say is that for what every $100 per ton that a winery purchases from a grower so $100 it translates to roughly 12 cents of grapes in that bottle. So a typical 750 milliliter bottle if the winery paid $100 per ton it's about 12 cents in the bottle. So if we scale up and do the math on $100 or $1000 a ton it's about $1.20 in the bottle that is actually grapes. So when we look at price cutting I don't think that is the solution. And wineries are also hurting so if wineries can't increase their prices to offset increases to pay the growers. I mean what's the what's the solution to the supply demand issue for the grape growers is it merely removal of grape as you said to keep the growers sustainable maybe we they're sure. shouldn't be so many growers, right? - I mean, that's certainly part of it, but if we look at trying to compete globally, the prices continue to be pressed down here because we can't compete. I mean, we're fighting with bulk wine from Chile is something that is imported here in the US quite frequently by large wineries. The price that they're able to grow out there, we couldn't do on our best day, cutting every single cost that we can. So this notion of trying to compete globally just continues to suppress our prices here. And I feel that we need to look at that side and really look at the market side and figure out a solve problems there rather than always pushing it down to the grower, saying it's on the grower to get paid less or to cut their cost. - You mentioned, I think that we have, is it 550,000 acres of grapes growing today? What do you think we need today and maybe in the next few years? - Yeah, industry is calling for another removal of 50,000 acres. If you look at 2022, at that time, we had 615,000 bearing acres. So we've removed 60,000 plus acres in the last two years alone. That is a lot of vineyard acres. So industry is calling to get the total acreage down to 500,000. But again, we talked earlier, if you look today, if you drive around any given region, there are vineyards being pulled out. There are vineyards that are unpruned, meaning that they're likely planning to not harvest this year. There's a term, and I'm gonna call it a new term, it's called mothballing or minimal farming, which means that they are putting the lowest amount of input costs into that vineyard that they can because right now they do not have a contract to sell this year. So some have decided one just to keep the vineyard viable and hopefully next year they'll get a contract, or they're putting minimal cost and to see if they can get a contract this year. All of these things act like band-aids. And my real fear is that we are going to over-correct by wineries not being willing to commit to contracts and fruit this year. I feel in a couple years we could find ourselves in trouble that we do not have enough grape growing, or grape supply here to meet demand. But the demand may be global. As you mentioned, we can't compete with what Chile can do on a cost basis. Should we not be competing? And maybe just the cheaper wines come from Chile, and we produce more high-quality, more expensive wines that we can sell for a profit for the grape grower and the winery. - I think that's certainly a way to look at it, but even in those segments, we're not gonna be able to compete either. I think it would go across all regions when you look at the economic impact of California wine, not only on California, but on the United States. The wine industry is a huge economic driver. We did an economic study with the wine institute back in 2022. That showed in California alone, the industry employs over 422,000 Californians. And across the US, it was over 1.1 million. Same with economic activity here in California. The industry generates around 73 billion in annual economic activity and over 170.5 billion annually. So I think we need to look at it in a bigger picture of if we're willing to lose our wine industry, all of the things that we're losing with it. - I'm curious to like looking at like Oregon, which has a higher average price point per bottle. Are they more insulated based on Peter was saying? Are they more insulated from some of these cost pressures? Obviously, they have different, some different compliance issues as well. But does the higher price point actually solve or make the problem less bad? - Not really. I think they might have higher price points in certain areas in Washington and Oregon. They also have less buyers. So right now they're actually hurting equally as bad when they had an opportunity to sell to one of, a handful of buyers who isn't buying. So I don't think they're in any better position even getting paid a little bit more. - You mentioned that maybe we'll over-correct by pulling out fines. Are we on do think for our track based on your membership of pulling out 50,000 acres? Or are we even doing more than that? - It's hard to tell. I mean, most of how we see this is by driving around and just seeing what's out there. I live in low-die, so I drive off. It's called Turner Road to get to I-5 and on my drive just about a four mile drive, you'll see pulled out vineyards that are stacked up unpruned vineyards, vineyards that are removed last year. If you drive through Napa Valley, you'll see the same thing. Vineyards that are removed and stacked up. So I don't know where we're at today, but our association in partnership with many of the regional groups have actually we're gonna launch a vineyard mapping program this year so that we can have a better estimate on removed vineyards year over year and really be able to track it by region to know that, hey, in Napa last year, this many acres were removed in low-die this many. So I think in doing this mapping project, we will have a much better grasp on what the statewide acreage is by region. - Is there any subsidy for growing vineyards at all in California or nationally? - We currently have nothing, yeah, and it hasn't been anything that has never been a priority in the past. That would take a lot of advocacy power to get and as I mentioned earlier, I feel that we almost have the opposite is now in the central valley, we actually have an increase in cost to remove those vineyards with the new air quality standards. So it actually feels like it's gone the opposite way. - You mentioned the minimal farming, how much of a percent of the cost to grow, does that actually save versus taking it out completely? - Yeah, I don't have that number. It really is something that is much newer. We haven't had to operate like this in the past, talking to many people that have been in the industry for a long time and every agricultural commodity or else why it kind of goes through these cycles of highs and lows, but everyone has said this feels much different and that this is much different. So we haven't had to, I feel like really experience the minimal farming or mothballing in the past. So I don't have those numbers available. And as all these acres get ripped out, are they being replaced with something or are there more lucrative crops that are being put in? - Yeah, that's some of the problem in California today is it's not just the wine industry that's struggling. It is all of agriculture. I think when you look at agriculture, we all have to remember that growers are price takers, not price setters, usually pricing is based on the market, which means that we don't have an opportunity to set our price and say, hey, here's what our input cost our here's our margins. And today we are, I mean, the entire agricultural industry is really faced with a host of challenges. So when vineyard are being removed throughout the state, depending on the region, you might see trees being put in, all meant pastachios, some regions, maybe some cherries, avocados and others, but in general, there is not one commodity that is kind of the go-to commodity to put in right now because everybody is struggling. - And is that partly due to California's laws and compliance and cost of labor in general, cost and availability of labor? Or just, so are we competing with other parts of the US inefficiently? Or is it a, because cherries and whatnot are so much cheaper to come from Jaleigh and other places? - Yes, if you look at the amount of fresh produce that we now import that used to be grown here in California, we used to be the number one asparagus producing state. Now I think there is one asparagus farmer total in the state of California, simply because Mexico is able to produce asparagus much cheaper. And a lot of that is with labor and regulatory cost. And I think the same is true across many industries. You'll see companies, maybe it is a strawberry company that typically operated solely in California, they now have a plant in Mexico simply to offset the cost of what it is to grow here in California. So I think a whole host of factors. And when we look at the amount of wine grape acreage being removed, and I made the comment of, I feel like we could be going too far, it's important to remember that when these wine grape acres get removed, it is highly unlikely that they're going to go back into wine grapes, even if it's in a couple of years, if things rebound to establish a vineyard today, a permanent crop, something with trellising, you're looking at 30 to $70,000 an acre to put a wine grape vineyard in. So a incredibly high startup cost to replace a vineyard. And I really fear that many growers are not going to want to make that investment in the future, kind of seeing how things are right now. - Recently we learned about a tax pool called Duty Drawback that we learned about, and that it greatly impacts the cost of wines. Can you explain to our listeners what it is and what kind of impacted his head on grape growers? - Of course. So Duty Drawback is a federal tax refund program. And in theory, it's meant to encourage exports. So what this looks like in wine is that a large winery might import 100,000 gallons of foreign bulk cabernet into wine. to the US. So let's just say it's from Chile. When it gets here into the US, they'll go ahead and bottle, put that bulk wine into bottles and put it into the domestic marketplace. So you'll see it on grocery store shelves, restaurants, and elsewhere. Now, if that same winery within a five year period, go ahead and they export an equivalent amount of bulk wine. So 100,000 gallons does not have to be the same wine that was imported. I mean, it can even be in bottles. If they export a similar amount of wine, they will get 99% of all of the fees that they paid on import, including the federal excise tax of $1.7 per gallon. They'll get 99% of that refunded. So what it really looks like is that winery that imported that bulk wine will enter the domestic market paying 1% in taxes while a winery that imported zero wine who supports local who is a little loyal to buying local supporting domestic growers, they're gonna enter a market paying 100% of the cost of excise tax. It is something that is incentivizing large wineries to import wine. I mean, it's giving them a huge cost advantage over those who do not partake in international trade. And when we look at bulk wine, I mean, this could be something coming in at $3.00, a gallon. So when you're getting a third of that refunded through an excise tax refund, that is significant money. And I think the worst part about duty drawback is it really is only five or so companies that are taking advantage of this, which really distorts the market and it allows those five companies to continue to get larger. And we've seen in this industry the amount of consolidation that has happened in the last 10 years, but isn't what is best for the American wine industry. And actually today, if everyone's following federally, many of the different house committees are marking up their reconciliation bills. And in the House Ways and Means Committee, there is language included to repeal this duty drawback for tobacco. So it is the same exact thing that happens in tobacco, beer, spirits, wine, and even petroleum. And in there is language to repeal it for tobacco, but it does not have language included for wine. And the arguments that they're using for tobacco is that they're bringing in cheap foreign tobacco that is undercutting domestic producers and those producers who are supporting local are getting left behind. So it is the same exact argument for wine. However, we are currently not included in that package. So we said there's only five companies using epidemics within the very large companies. And so it's not specifically for wine. It's a general importation, federal, you know, excise tax that is being refunded. Correct. And really the issue here is the excise tax. I think if you look at the duty drawback program in general, it was created so that someone could bring in, you know, tires for a car when most of the car was manufactured here, add the tires to the car and export it and get some kind of help there, bringing something in, adding value and exporting. But in this case, it's really more of a substitution drawback where you're bringing something in, exporting a different product and getting the refund. So they operate a little bit differently and US customs and treasury actually tried to close this loophole in the past. They have called it a loophole. They had said it is a mistake essentially in tax code, but they were sued by interests who wanted to keep this loophole in place and it did not hold up in court. So at that time, it did expand to the spirits, the beer, tobacco, petroleum. So certainly something that has been identified as a loophole and now it would take an act of Congress to get this changed. And is it only wineries or would like importers have this or other companies? I believe there's a structure for importers as well, but I am not as familiar. I'm really focused on the harm done to group growers and that happens with the bulk wine imports. And so what is the impact for, again, you said five companies, but I'm assuming the five largest wine companies in the industry. Domestically, so what is that? How have you, what is the evidence or what is the impact you've seen for your group growers? I mean, I get it on theory. It's not, it seems like it's just taking away business that they would have to go to the local growers, but what is the actual tangible impact to the growers that you've seen? Yeah, a lot of it is a direct substitution for buying local. So you're going to import that bulk wine at cheaper than we can grow it here. So that means that that winery no longer needs to buy locally. Last year, there was over 38 million gallons of bulk wine that flooded into the US. And the majority, if not all of that, is directly coming to California. Just two years ago, it was over 60 million, almost 70 million gallons coming in. In that year, I think it was 2022, when just about 70 million gallons came in. In that next harvest, we left the equivalent of 70 million gallons on the vine, meaning that local growers had no home for their fruit, all while this bulk wine just sat, came in and was sitting in tanks ready to go. That was from a foreign source. So really it is directly replacing supply here in California. It's also interesting because a lot of the foreign sources are on the southern hemisphere, and they're at a different timescale from their growing cycle as well. They're prematurely purchasing this stuff in advance and then leaving the growers to hold the grapes on their vines. Yes, and if you look at a lot of market data, you'll see that once the price here domestically for grapes starts to creep up a little bit, a flood of bulk wine will come and suppress our prices. So it's certainly a market tactic, who it has had, I mean, a detrimental impact to our industry, and I often wonder if we did not partake in this, are this foreign importing of bulk wine, where our industry could be today. So what are the two or three most important trends you're watching right now that impact wine grape growing? I think if you asked me the same question five years ago, I would have rattled off true issues in the vineyard, like water availability as we're prone to drought, maybe different things related to climate change, whether pest and disease, we've been severely impacted by wildfire smoke with wine grapes, but really today, it feels that those issues in the vineyard kind of have taken a backseat because everything really is concentrated around the market and simply being able to be able to sell your grapes and stay in the market. So really today, the number one item is demand for California-grown wine. California-grown grapes. I would say that is number one, trying to figure out what new consumers are into, maybe ones that are just starting out drinking wine for the first time. So that's number one. The second is looking at policy and looking at the costs associated with operating in California. How can we make our growers and our wineries more competitive just on a cost landscape? And third, really looking at, I think, those things about making things that we can control to make our vineyards more efficient and more cost-effective. And those are things like looking at mechanization or different tools that just make us more effective in the vineyard. So as we wrap up this episode, we'd like to end on a more personal note, Natalie. And we are curious, what is the most cherished wine in your personal cellar and when do you plan on drinking it? Well, it might surprise you, but I am not a wine collector. I am just simply a wine enjoyer. My husband, Kyle and I rotate kind of our wine memberships each year, focusing on different California regions and really trying to discover new wines, new varietals and support local growers. I don't hang on to bottles for long. I feel that in our household, we try to celebrate even the smallest victories, like making it through a long week at work. That deserves a good bottle of wine. Or maybe we survived another, our daughter's three-year-old soccer game. There's another excuse to get that good bottle of wine out. So I feel that wine is meant to be enjoyed. And not saved. That's kind of my philosophy on it. I love bringing out any special bottle of wine if we have friends over or going out to a dinner. Right now, some of our wine clubs, where wine club members at Shannon and Santa Barbara area, they produce incredible wines, where with morts and wines at a fieldsburg, and then with pressly vineyards out of Lodai. So we're true California equal opportunist. And there's really so much great wine to try in California that I encourage people to get out to different regions and try something new, whether it's a new variety at all, a new AVA. You name it. There's really something to enjoy for everybody. Well, Natalie, we want to thank you for sharing so much information about the California Association of Wine Great Growers. And the problems that they're doing with as this economic climate is quite uncertain on many facets in this country, but specifically in agriculture and wind industry. So thank you so much. We appreciate it. Yeah, I want to thank you guys for having me on. And maybe I'll add a final note or a pitch that I think everybody, all consumers, are part of the wine industry. And then we obviously encourage we could really use some help right now. So if you're a wine drinker, the next time you go out, whether it's a restaurant, grocery store, I encourage you to look at the label and know what supporting California means. 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