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Napa vineyards feel the pinch

Ten Napa Valley wineries are facing the threat of closure due to falling sales and land prices, according to a new survey.

Foreclosures and property sales in the region have steadily climbed from zero in 2008 and are now at their highest level for years.

71% of producers questioned in the survey by Silicon Valley Bank said credit was harder to obtain, while a further 7% said their finances were “very weak” and even “on life support”.

Bill Stevens, manager of the bank’s wine division in St. Helena, California, said: “We have 250 vintner clients saying this downturn is the worst in 20 years.

“Anybody who was late to the party won’t have staying power.”

Winery and vineyard loan defaults rose fourfold to 18 during 2009, said MDA DataQuick.

Land values in Napa, although still the highest for US wine regions, have fallen 15% from a peak in 2007.

On average, an acre of vineyard planted with Cabernet Sauvignon and other red varieties costs $150,000 and an acre planted with white, such as Chardonnay, costs $115,000.

This declining trend has not been helped by the fall in demand for ‘Cult Cabernet’, which can sell for $750 or more per bottle.

The consumption of wine in the US actually rose by 1.9% last year, which is equal to 323 million cases. However, sales of wine priced over $15 fell 10% and any bottles over $30 fell by at least 15%.

Kendall-Jackson, based in Santa Rosa, has seen its “Franzia box”, a five-litre container that retails for $8, consistently outperform its higher-end $15 bottled wine.

Cheaper imports from Chile, Argentina and Australia, coupled with changing consumer trends away from super-premium wines are cutting winery margins, according to Stephen Rannekleiv, lead analyst at Rabobank Nederland NV, the Dutch bank responsible for financing agriculture businesses.

Rannekleiv said: “Consumers are looking at price point and saying that Napa is not the price they want to be buying at. Wine prices drive grape prices drive land prices."

In a report, Rabobank said: “Super-premium wineries are likely to bear the brunt of changing consumer habits, and lenders will pressure clients who can’t cover costs to “seek solutions before the loan goes into default.”

Bill Harlan, producer of Harlan Estate Proprietary Red, gave his forecast on the year ahead: “In the long run, those that don’t compromise the quality, manage their wines better and manage their land better will be fine.”

“We just need to make sure we get through the short run.”

Rupert Millar, 10.03.2010

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