Cost of Establishment and Production of Vinifera Grapes in the Finger Lakes Region of New York: 2004

White, Gerald B.

Cost of Establishment and Production of Vinifera Grapes in the Finger Lakes Region of New York: 2004

Abstract

In recent years there has been increased interest in the Finger Lakes, as well as in other parts of New York state, in planting Vitis vinifera grapes for premium wine production. Acreage of red varieties such as Pinot Noir, Cabernet Sauvignon, and Cabernet Franc all increased in the most recent orchard and vineyard survey compiled by the New York Agricultural Statistics Service. There has been an increase in consumer demand for quality wines (Interspecific French American hybrid and V. vinifera cultivars, or designated appellations). Wine consumption in the United States has increased during the last 10 years. In 2004, the increase was 5.2 per cent, driven by good news regarding the health benefits of moderate wine consumption. In addition, most Finger Lakes and Long Island wineries are reporting increased winery visitation by tourists as well as local area repeat purchasers. Some well-managed wineries in the Finger Lakes are reporting annual sales increases of ten per cent and higher, after sales had leveled off in 2003 due to the poor economy and changing consumer behavior in the aftermath of 9/11. In addition to the increase in tourism resulting from promotional efforts made by several local tourism organizations, New York is gaining stature as a producer of high quality wines that command premium prices. Growers who are considering planting additional V. vinifera vineyards need to carefully weigh the cost of planting and establishing a vineyard and the annual cost of production of a mature vineyard against the expected yields and prices to determine whether the investment of $13,000 per acre or more required to bring a V. vinifera vineyard into production will result in a profitable return on investment. Furthermore, the Finger Lakes experienced severe winter injury in January 2004 that reduced vinifera production to less than one-half ton per acre on a third to a half of the Finger Lakes acreage, and an estimated 300 acres of vinifera acreage will need to be replanted. This requires a reassessment of which varieties to plant on this acreage and which sites will support profitable vinifera production. This question is complicated by the long-run nature of the investment (payback periods are in excess of ten years and can be even much longer), as well as the risk from a worldwide over-supply of wine grapes from significant plantings of that has led to price cutting at the retail level. A huge crop of grapes across the European Union in 2004, as well as large crops in Australia in 2002 and 2004 has meant that there is no shortage of quality wines available. Imported wine outpaced consumption of domestic wine, despite a weak US dollar, climbing 11.3 per cent overall. Domestic wine consumption was up 3.4 per cent. More expensive wines were, however, making a comeback with US consumers in 2005 after meeting consumer resistance for a couple of years. Although the New York industry is somewhat insulated by the small scale of its market structure in the premium wine sector with most wineries selling over 50 per cent of their wine (volume) through direct sales, wineries cannot expect to be completely unaffected if global supply outstrips demand in the future. The acreage of V. vinifera varieties in the Finger Lakes is still quite limited. For example, the two most widely planted V. vinifera varieties, Chardonnay and Riesling, accounted for just 418 acres and 340 acres, respectively, in the most recent survey of acreage by New York Agricultural Statistics. Given the limited area planted, a small increase in planted acreage can have a large impact on supply when the new acreage begins bearing. Conversely, shortages of hybrid and vinifera tonnage in 2005 are equally disruptive to the industry. Wineries that have built up clientele over the 90’s are finding they do not have an adequate supply of wine to service the increased demand they had built up with investment in tasting rooms, promotion and building brand image. This investment is typically far greater than investment in vineyards. Lost sales resulting from an inadequate supply of grapes threatens to constrain the future growth of Finger Lakes wineries. The objective of this project was to determine the cost of producing V. vinifera grapes in the Finger Lakes region in a commercial sized operation. Estimates of the total investment in land, machinery, vineyard establishment and development costs, and annual operating costs were developed. These estimates may be used by growers and potential investors to compute and analyze the costs and profit potential for their own situations. The estimates are not necessarily representative of average costs for grape production in the Finger Lakes, but rather are typical costs for well-managed vineyards using recommended practices. The yield estimates used for estimation of typical returns assume better sites (well-drained, productive soils with appropriate slopes for air drainage). We also assumed that vineyard practices were used which would result in premium quality grapes. Practices such as leaf pulling and cluster thinning of certain varieties, limit yields and contribute to higher quality wine. Poorer sites and/or failure to follow optimal management practices can have a significant negative impact on the earnings estimates presented in this publication. Operations such as special tillage practices (hilling up and take away) once again had their value demonstrated with the winter injury that was widespread in 2004.

Description

E.B. 2005-06

Date Issued

2005-06

Types

report