Virginia vineyards struggle to meet growing demand 

Reaching unanimity on any subject today is rare. We live in a world of diversity, nay controversy. But there is one fact that’s undisputed in the Virginia wine industry: There are not enough Virginia wine grapes to meet the rising tide of the Old Dominion’s vinous success.

To be certain, it’s a good problem to have. But if not addressed, it could stymie the growth of the Nation’s fifth largest wine producing state. It may also create a dependence on out-of-state fruit.

In 1975, Farfelu Vinyards received the first winery license in the state. While it’s no longer in operation it started a floodtide of wineries. Today, 275 winery licensees dot the state’s landscape.

In the process of achieving such explosive growth, it catapulted the Commonwealth to the fifth largest wine producing state in the Nation.

Not bad for a state known more for battlefields than vineyards.

Let’s do the 2013 numbers:

Sold 6.25 million bottles of wine

Employed more than 4,700 people

Collected $1.8 million in wine litre taxes

Generated over 1.6 million tourist winery visits

Contributed almost $750 million to the Virginia economy

Harvested 6,862 tons of fruit from 3,088 acres of vineyards

By any measure, the industry is emblematic of the word success and demonstrates what science, talent, and passion can bring to bear on making quality wine.

Wine cognoscenti no less esteemed than Bartholomew Broadbent (listed as #48 in the 2013 Into Wine 100 Most Influential People in the U.S. Wine Industry) opined, “Virginia is capable of producing balanced, Old World-style wines—the types that made Napa what it was 25 years ago. Virginia’s reputation is ripening.”

It’s a commonly heard refrain from national and international wine critics and consumers alike. But as the industry is poised to rise to the next level, the engine driving its success could begin to stall.

Without an increase in Virginia grapes Virginia wine is threaten.

What is Virginia?
Federal and state law permits up to 25 percent of out-of state-fruit to be bottled and labeled Virginia wine. If the fruit comes from a specific Virginia American Vinicultural Area—such as Monticello—and is labeled as such, 85% of the fruit has to originate from that AVA. Virginia has seven designated AVAs.

In 2011, the state’s premier wine competition, the Virginia Governor’s Cup, revamped its rules requiring all entries be made from 100% Virginia fruit, further increasing the importance of the regional character of the competing wines.

Moreover, all entries require an affidavit with a certification of the 100% requirement, including the growers’ names, location, as well as information on alcohol, acidity and residual sugar.

The message was clear: Virginia wine counts.

Yet in 2013, grape production dropped 670 tons from 2012: 6,862 tons versus 7,532 tons, respectively. The loss was a combination of insufficient vineyard acreage growth and weather related pressures such as spring frosts, persistent rains and the ever present animal depredation.

Overall, 2013 was considered a fair vintage quality-wise, it was typical of the unplanned effects of Mother Nature combined with a paltry increase of only 114 new vineyard producing acres statewide.

“There is absolutely a grape shortage in Virginia. It’s moderately severe and likely to get more severe as time goes on if it’s not addressed,” said Tom Kelly. Kelly serves as President of the Virginia Vineyards Association and owns Kelly Vineyard Services, a consultant firm.

Kelly said farmers are planting more grapes but it takes time for those grapes to come into production. A new vineyard takes three to five years of growth before measurable fruit can be harvested.

Kelly goes on to explain that one reason for the supply shortage is that many wineries are coming on line and not planting vineyards at a rate that satisfies their share of wine production.

A winery producing 1,000 cases of wine a year but only growing enough fruit  to produce 100 cases will contract for the additional grapes elsewhere; either in-state or out-of-state. The small amount of acreage such a winery might plant is referred to as a “billboard vineyard”; the vines signal it’s a winery but the fruit contributes little to its wine production.

The supply problem is well-acknowledged in the industry. “We have determined we need to grow grape acreage by 200 acres a year for the next five years in order to meet projected growth,” said Kelly.

Why not more grapes?
With the industry having met with success over the last 40 years, why isn’t the grape supply keeping pace with demand? The simple answer is the amount of money and labor required to plant and nurture the vines.

One of the major reasons Virginia wine has attracted wide attention is that beginning in the early 1980s, the growing of Vitis vinifera grapes accelerated dramatically; the species produces 99 percent of all wine worldwide. Prior to then, mostly hybrids and native grapes dominated the paltry number of tasting rooms.

Attempting to sell wine labeled Niagara, Delaware, Catawba, Baco Noir or even Vidal Blanc and Seyval Blanc was a challenge. Most wine drinkers had simply never heard of wine with such strange sounding names.

Then science was brought to bear to grow wine in the state that the world loved: Chardonnay, Viognier, Cabernet Sauvignon, Cabernet Franc, Merlot and Petit Verdot to name a few. All of these Vitis vinifera grapes put the Commonwealth on the wine map. But there was a price to pay.

“A vineyard costs in the neighborhood of $20,000 an acre to install. And that does not include the land,” said Kelly. “And it does not end up in the black until about year seven.” Even then, profitability is low.

Simply put, the delicious Eurasian grapes are more at home in climes less brutal than Virginia’s. As a result, it takes an enormous amount of farming to successfully bring in each year’s harvest.

Many a Virginia winegrower struggles to produce clean fruit in a frost inclined, rainy, fungi-laced, cold winter and humid summer environment. One could not be blamed if they viewed their hard earned fruit as grapes of wrath.

“Many would say it’s cheaper to buy grapes as to try to grow grapes, said Tony Wolf. Wolf is director and professor of viniculture at Virginia Tech and has been instrumental in advancing the state’s grape culture.

Last year’s winter “caused a dip in production and it has intensified into a more systemic problem. The capacity of wineries is out stripping the capacity of Virginia grape growing acreage, said Wolf.

“It’s a big enough problem that has made getting more vineyards into the ground one of their number one priorities.”

He goes on to state, “There is a lot of land that can be planted. We launched an online vineyard evaluation tool about a year ago. It allows the user to go in and look at a parcel of land and produce a report that gives the land a grade for the suitability for grape growing.”

A shortage of available land is not necessarily the problem. “As I look around, I see a lot of forested land. It isn’t going to be cheap but there is some good land that could be planted,” said Wolf.

The cost and difficulty of farming the fruit has also led to a growing phenomenon called “custom crush”. The concept permits new wineries to contract with larger ones to secure grapes and make wine that in turn is sold through the new winery’s tasting room.

The problem is obvious. As such operations proliferate, the shortage of grapes is exacerbated. It’s a legal and above board operation that simply diverts fruit that was previously available on the open market.

Other unforeseen market actions can also accelerate supply and demand problems. John Delmare, owner of Rappahannock Cellars in Huntly, offers one explanation.

“The problem was masked because 300 acres of Kluge grapes in Charlottesville were being sold into the marketplace each year. Then Trump took over and they started keeping a large portion of their fruit. The industry went, ‘Oh my gosh, not enough fruit here! People began losing contracts.”

A similar situation happened with the former Sweely Estate Winery. Steve Case, of AOL fame, purchased Sweely in 2011 and re-opened it as Early Mountain Vineyards, “and all of a sudden it put long term contracts on a couple of vineyards. Overnight some wineries lost big contracts,” said Delmare.

It’s a multitude of reasons contributing to the problem and people are starting to plant as a result of the pressure, “But it’s too little too late. I’ve heard we are 300 to 500 acres short of grapes statewide. I would argue that over the next 10 years we need to plant 1,500 acres to meet demand,” said Delmare.

His assessment is on point. Planting more vines is the only long term way to solve the problem. In the short run, the solution points to going out-of-state to meet the shortfall.

In-state versus out
With supplies getting tighter each year, the cost of grapes has begun to rise. “In the last three years, grape prices on average have gone up a total of about 35 percent. We’ve finally crossed that magic point where somebody can actually plant grapes and make money at it,” said Delmare.

Thirteen years ago, Delmare was paying $1,300 to $1,500 a ton for Cabernet Franc. Today, quality red fruit can command $2,200 to $2,400 a ton. Rising prices will help spur future plantings.

In the interim, fruit from California, Oregon and especially Washington State are legally ending up in bottles of Virginia wine. It’s a simple matter of financial survival for many wineries. With typical investments of $2 to $5 million for a new winery, owners cannot let production fall short of capacity without jeopardizing their businesses.

Fruit is the engine that drives profitability and it makes little difference to the bottom line if its grapes are from Virginia or elsewhere. Owners are in broad agreement that ideally only Virginia fruit will be used to make their wine but necessity demands importing fruit from elsewhere. Much of that fruit is from Washington State.

Many wineries are loathe to admit they use grapes grown outside of the Old Dominion but it’s not an unheard of practice elsewhere. “In Maryland, there are more grapes grown out-of-state than in-state,” said Chris Pearmund, owner of Pearmund Cellars in Broad Run.

Last year, the Maryland Grape Growers Association reported only 40 percent of its grapes were used to produce the state’s wines; 60 percent of the remaining fruit came from across its borders.

“Seventy-five percent of foods in a grocery store won’t even tell you what country the food came from. Go to a restaurant and you would rarely know where that food came from either,” said Pearmund, explaining how many industries operate.

In Virginia, “We have taught the consumer to ask ‘Where do your grapes come from?’ Now we are getting bit by that.”

If one accepts that Virginia wine produces a particular style of wine that is directly attributed to grapes grown in Virginia, “and you cannot make that style of wine from grapes from other sources, it will affect the character and style. And yes, Virginia does have a distinctive terroir,” said Pearmund.

He goes on to say, “We’ve planted 38,000 grape vines on 28 acres this year at an out-of-pocket cost of well over a million dollars to purchase the land and plant the vines. Our needs are going to be met by planting this vineyard but it takes three to four years to get there.”

“The industry is a slow, slow turning boat. We need about 500 more acres to fulfill Virginia’s needs, said Pearmund. In the interim, an increasing number of wineries are seeking fruit elsewhere.

Westward Ho
Lisa Kendall’s business, Kendall Farms, is a success story by any measure. Her father was a grape grower in Washington State and she took over his operation a decade ago. In 2005, she sold the vineyards and focused solely on selling grapes and juice. Today, Kendall has 30 Washington State growers selling her fruit.

“Virginia was my first customer. I thought, ‘Washington ships all kinds of produce why can’t we ship grapes?’ I connected with a winery in Virginia and shipped them fresh grapes,” said Kendall.

It was a nascent business that blossomed like a spring vineyard. “Virginia is one of our biggest customers today. We’ve had a huge increase in business from there since 2006. I worked hard to build awareness that Washington State fruit was for sale,” said Kendall.

Demand for her fruit from across the US today is dramatic. West Coast fruit is grown in what is often described as a Mediterranean climate. Conversely, Virginia and many other states host a Continental climate. The net effect is that grape growing on the West Coast is easier that on the East Coast.

Evidence of this is reflected in the numbers. California produces over 90 percent of American wine consumed in the states. Last year, the Golden State shipped 215 million cases of wine for distribution within the Unites States and 258 million cases for both domestic and international distribution.

By comparison, Virginia bottled 521,000 cases, almost all of which was consumed within its borders; a mere drop in the Nation’s wine bottle.

These figures, coupled with a growing demand for Virginia wine, set the stage for importing out-of-state fruit. “We serve 40 states and have 350 customers. Virginia is one of our biggest customers. I have a lot of connections in Virginia. We ship them red grapes and white juice.

“I have 27 customers in Virginia and sold them 500 tons of fruit and bulk wine this year. I believe Virginia will be dependent on out-of-state wine for the foreseeable future. Due to weather conditions it’s just not in the cards; the rain, the hurricanes, et cetera. We don’t have that in Washington. We are known for our consistency of weather here,” Kendall underscores.

She goes on to state that Virginia “will become more dependent on out-of-state fruit because there are wineries going in all the time. Things are looking great here. Hopefully, we meet the need that Virginia has. We’re glad we can help.”

Further south in California, a similar story is heard from Mike Colavita, owner of F. Colavita and Sons, another grape supplier. While smaller than Kendall’s business, he too sees “an increase in fruit headed towards Virginia.”

In 2014, he shipped 35 tons of fruit to six Virginia wineries, doubling sales within the last few years. He goes on to explain that the growth is driven to some degree because of “Mother Nature. Like last winter when a lot of vines got hurt. I was a supplement.”

He reinforces that wineries across the U.S. want to use their own state’s fruit. “But when their crops fail I can keep them in business, explains Colavita.

Most of his fruit comes from the Del Ray and Lodi areas. “I think a combination of western grapes and eastern grapes makes an excellent wine. Your lower sugar and higher acid wines and our higher sugar and lower acid ones makes a really balanced wine with good flavor,” said Colavita.

There is no definitive way to know how much fruit from outside Virginia is finding its way into the state’s wine cellars but it’s likely less than a 1,000 tons, but growing. By comparison, there was a total of 6,862 tons of fruit produced within state in 2013.

Honesty
With an apparent increasing dependency on fruit from elsewhere, the question arises as to how the phenomenon is marketed to the consumer. Since legally up to 25 percent of out-of-state wine can reside in a bottle of wine labeled and sold as Virginia, is there any need to enlighten the public of the blend?

“If we muddy the waters about the source of our fruit, we go right back to where we were seven, eight, nine years ago when critics said ‘this is mighty good wine but is it Virginia?’, said Brian Roeder, owner of Barrel Oak Winery in Delaplane.

Roeder is a straight-spoken winery owner who takes the subject head on.

“Everything we’ve done, especially the rules around the Governor’s Cup, has been designed to put that question to rest. I believe it’s going to damage, potentially, some or even a significant amount of the success we’ve had.

“At Barrel Oak we disclose the source of our fruit and customers don’t care because it’s about the experience at the winery. For wineries trying to position themselves for national and international distribution this could be a problem.

“We’ve never had to go out-of-state until this year. We’ll call our wine American or simply won’t say Virginia if the fruit is from elsewhere. Those are the two options. We will change our labels with wines made from out-of-state fruit,” emphasizes Roeder.

He goes on to say that a system should be developed that creates a marketplace for available Virginia grapes. “The process is still being done haphazardly, where somebody knows somebody who knows somebody, and through that network they try to find fruit.

“It’s been proposed, but not put in place, that an online marketplace be established where every farmer can post what they have available and that a winery owner can go and find and purchase it. That tool alone would probably provide at least one, two or three hundred additional tons into the marketplace,” said Roeder.

But he states it would still not be adequate to fulfill the industry’s needs. “The opportunity to expand is going to have to be tied to out-of-state fruit for quite sometime. Ultimately, it isn’t important to most consumers. But the issue of honesty is going to be very important to our reputation and to the critics who write about Virginia wine,” said Roeder.

Government support

Echoing the mantra heard around the state, Annette Boyd, director, Virginia Wine Board Marketing office, said, “Yes, there is a grape shortage. I think it’s predominately because we are selling everything we make. We need a couple of really nice years, nice harvests under our belt to see production to pop.”

No one would challenge that wish but Virginia is Virginia. “We are hopeful production numbers will increase this year. Everybody is really excited about the harvest,” said Boyd.

Indeed, word from around the state is that the quantity and quality of the 2014 harvest is very good. But what can be done at the state level to further assist the industry?

“Both the Virginia Wine Board and the Virginia Vineyards Association are evaluating what they can do to stimulate an interest in people growing grapes. But we can’t grow grapes directly. It’s a big investment and you need farmers who understand the risk and are willing to make the investment,” said Boyd.

The Board is funded through the General Assembly from excise taxes the wine industry pays to the state. One hundred percent of the tax revenues—$1.8 million—comes back to the Virginia Wine Board. One third of those funds go to research and two-thirds to support marketing efforts.

“I hear rumors of an increasing amount of out-of-state fruit all the time. The wineries that are choosing to bring in fruit are open about it. For everyone that chooses that path I know of five who say ‘I’m not. I want to use my estate fruit and I’m not choosing to do that even if that means capping production.’”

“Conversations are happening about incentivizing farmers. It’s something they want to do,” said Boyd.

“We are a product of our own success. We are in this predicament because sales are out pacing production. We are looking forward to getting more people interested in growing grapes. It’s happening. It takes time,” said Boyd. 

The Future
No less a luminary than Winston Churchill once said, “Success is not final, failure is not fatal: it is the courage to continue that counts”. Clearly, the determination of Virginia winery owners, winegrowers, and winemakers to further grow the industry will dictate how the current grape supply issue is resolved.

But with 40 years of continual advancement, it’s a safe bet that Virginia wine will continue to see its industry prosper. For it’s often through adversity that success is achieved.

 

Published in the Winter 2015 edition of The Business Journal.