© Joshi Advocates
| The devil’s in the detail.
As both climatic and pandemic conditions continue to change, securing solid contracts is golden.
Contractual relationships between friends and partners can feel … icky. The mere notion of, say, a wedding prenup is often painted as a grotesquery, like planning on the inevitable ugly split before you even say “I Do.” (But you know what’s even uglier? Unnecessary legal bills + heartbreak).
Increasingly, it is becoming clear that the terms of many wine deals, like some gilded romantic partnerships, need to be spelled out. For decades, handshakes and verbal agreements buoyed blockbuster agreements between vintners and growers up and down the West Coast. But then came the fires, and then a pandemic. Wine value sales overall last year are forecast as essentially flat, with premium sales down by as much as ten percent, according to the annual State of the Wine Industry report by Silicon Valley Bank. When revenue is down, costs are cut, and grapes – for a variety of reasons this year – were the first thing on the chopping block.
“This year was one of the most challenging ever,” says Tyler Rodrigue, a third-generation grower and president of Noble Vineyard Management, who grows grapes across 1500 acres in Lake, Sonoma and Mendocino County, in addition to managing vineyards and doing custom harvesting for large wineries. “At the beginning of the year, we had an oversupply of grapes, then we had a lockdown which hurt smaller brands more than larger wines, who had a presence in grocery stores and large retail chains. Then there was a terrible fire season, and until recently, an uncertain deal between Gallo and Constellation. With all of these factors, there wasn’t much in the way of grapes being purchased.”
While a contract – with its innumerable clauses, fine print and loopholes – may initially seem to favor the buyer, the reality of growing wine and doing business in 2021 makes spelling out the terms of business important for everyone. We spoke with growers and winemakers to find out what their contracts looked like last year, how their business weathered the storms of 2020 and how they plan to change the way they do business moving forward.
As Rodrigue alluded to, the dearth of grape purchases was a blow to growers, large and small.
“We’ve done our best to help our growers because they’ve helped us,” says Greg Graziano, owner of Graziano Wines, whose family has grown grapes for 100 years in Mendocino. “We grow grapes in three vineyards, manage other vineyards, make wine for ourselves and sell wine to others. That diversity has allowed us to survive the fires in 2008, then 17, 18, 19, 20. But this year especially, I’ve seen the really big wineries just screwing over smaller grape growers.”
He, like Rodrigue, blamed oversupply at the beginning of the year, and the soft market as the real reason winemakers rejected grapes.
“Bottom line, a lot of these wineries were sitting on a lot of wine from previous vintages that didn’t sell, so they used smoke taint as an excuse to get out of buying the grapes.”
But as contracts are built-up and clarified, some worry that they are being written in such a way that will bankrupt smaller players.
Force Majeure, the clause in contracts that commonly states that buyer and seller will be relieved if events beyond their control, like weather, causes damage to the grapes.
“Many have turned to mandating that growers must purchase crop insurance before the buyer will sign a contract,” says Andy Lytle, both buyer and seller of grapes, at Carlton, Oregon‘s Lytle-Barnett and Wind Fall Vineyards. “This is happening so the buyer doesn’t concern itself with a legal battle when abandoning a contract. My issue with this is that there are many large growers that could purchase insurance, but small family operations don’t have to financial capacity.”
Graziano lost about 75 percent of his contracts with wineries, but saw borderline evidence of smoke taint in many reds, and opted to make the wines in some cases himself. “There are ways to ameliorate risk of issues down the line, by treating the grapes differently during production, reducing skin time, sometimes just making rosés if it’s really questionable.”
That “what if” factor in smoke taint haunts contractual agreements.
“We need, as an industry, to arrive at solid definitions of smoke taint, because they don’t exist,” he says. “That vagueness creates an opportunity for buyers to cancel, and it is stressing the limits of relationship across wine country. It’s also frustrating that different labs are producing different results for the same batch of grapes and fermented juice. There’s such a small window to pick.”
A number of initiatives – including in-depth research and analysis at UC Davis and the US Department of Agriculture’s Risk Management Agency – are underway to do just that. Knowledge, as Sir Francis Bacon says, is power – for everyone.
Graziano, meanwhile, is still working from many verbal contracts, though after his experience this year, he’s planning on working with more written agreements.
| A glut of grapes has seen buyers slow to purchase.
Brett Vankoski, vice president and wine director for the Boston-based Latitude Beverage Company, a global negociant that produces and imports about 500,000 cases of wine a year, predicts an explosion of contractual agreements, even for micro growers and producers.
“We didn’t have contracts either when we began 11 years ago,” he says. “But at this point, I wouldn’t do business without them. Sometimes, even with solid agreements, the conversations can be painful, but when it’s spelled out, at least it’s clear. We have been working with our producers on getting analysis for possible smoke taint, and so far, it looks good.”
About 40 percent of Latitude’s volume comes from wineries across California, and he says that he has seen incredible flexibility and creativity among the producers they work with.
“There are ways to minimize smoke, and it’s really a curious world of chemistry out there that we’re just beginning to understand,” he says. “The same chemicals that can taint certain varieties with smoke are naturally present in Syrah, and celebrated. Big California Cabernets, it has been found, can also hide smoke, especially if producers don’t age them in New Oak or use less toast on the barrels.”
Some producers, like Napa‘s Sans Wine Company, have swooped in and bought up several abandoned grower contracts.
“Most old vine Carignan growers in Napa had their contracts abandoned due to smoke taint issues,” says Jake Stover, Sans’ co-founder. “But we looked at the numbers, and were convinced that the taint wasn’t serious. Plus, we produce them in the carbonic fashion which means less time on the skin, and much fewer potential smoke taint issues.”
Their role playing knight to growers in distress was inspired by one of their clients, Whole Foods. “They liked our canned wine, but really wanted a bottled old vine Carignan that was organic, vegan, and sulfite-free because they weren’t selling anything like that. So they asked us if we could do the same thing we were doing in cans, in bottles.”
The previously canned-only brand rolled bottles out nationwide in Whole Foods; the order essentially doubled their production overnight, and paid the bills for six growers. (They also got their post-production smoke analysis back mid-January, with the ETS reporting 1.4 micrograms of guaiacol per liter, well below the 6 microgram threshold).
Moving past one of the worst years on record for wine country is no easy task. Money helps.
Craig Becker, co-founder and GM of Somerston Estates, with 244 acres under vine on a 1682-acre ranch in St Helena, saw 1400 acres burn in the Hennessey Fire in August. They typically sell about 30 percent of their fruit to other winemakers, but they lost this entire vintage to smoke taint. Still, Somerston will survive.
The winery and its backers have poured in $1.25 million so far first paying for private firefighters, then restoring the property and vineyard infrastructure (the vast majority of the vineyards were spared by the fire), chopping down trees and hydroseeding. But he knows he’s in the minority.
“Not everyone has the resources or commitment to recreate the kind of ecosystem necessary to recover after a fire like this,” Becker acknowledges. “We have federal crop insurance that will bring us 85 percent of our historic price for Cabernet Sauvignon and up to 75 percent for other varieties, but that is just for crops. Damages like loss of business and infrastructure aren’t covered by that, and our insurance, which is already extremely expensive, went up to eight times its premium in 2017 after the fires.”
He doesn’t know what will happen this year, and he has seen several wineries opt out of insurance completely, because “paying $750,000 on a premium with a deductible so high it’s not worth it is simply not feasible.”
In the absence of backers, growers and vintners across the board caution that perspective flexibility and planning are the next best thing.
Debra Mathy, proprietor at Dutcher Crossing Winery in Geyersville, CA, with 76 acres under vine, and 15 growers they contract with, says that working closely with “growing partners and reevaluating what our best varietals will be,” has become an essential part of their partnership. “We have learned over the last few years that it isn’t about one vintage, it’s about long-term relationships.”
Steve Warner, president of Washington State Wine Commission, says he has seen more growers move to formal contracts as the region grew from having a handful of vineyards and wineries in the 1970s, to more than a 1000 wineries and 400 growers now, though hard data is impossible to come by as contracts are by definition private agreements.
“The relationship between grower and winemaker is vital to the quality of the wine, and longevity of the business,” Warner says. “2020 was tough, but it’s clear we need to work together for our industry to continue to grow and thrive.”
How to do that, of course, has been evolving in the face of climate change and COVID. Rachel Rose, winemaker at Salem, Oregon’s Bryn Mawr Vineyards, with 30 estate acres under vine and two growers under contract, sees the “changing environmental threats” as an opportunity to equitably adjust “the power between growers and buyers. Given the extremely low yields in 2020, we took a huge hit on our acreage contracts. 2020 was an extreme year in all respects, and many growers were left out to dry with fruit rejections due to smoke concerns. I suspect growers will be rethinking their terms and holding buyers accountable for more of the inlaid farming costs no matter what the season brings this year.”
Without an evolution of understanding and a give and take on both sides, some warn that wine country may just become pot country.
“I saw growers getting next to nothing as they were desperate to recoup something from their harvests this year,” says Graziano. “It’s unsustainable. In recent years, several have sold their vineyards because they couldn’t make it work. They sold them to marijuana farmers, and it broke my heart to see those vineyards ripped out, and have hoop houses put in. They’re ugly to look at and just as often as not, they get abandoned in three or four years, but the outline of those hulking houses remain. It’s changing the landscape, and not for the better.”