California Association of Winegrape Growers theCrush volume 42, issue 8 A u g u s t 2015 Wine Market Trends and California Wine Although sales and consumption of California wines continue to increase nationally and internationally, changes in buying trends by U.S. consumers, and competition from imported wines and wines from other states indicate that California wine producers would benefit by marketing and building “Brand California.” This was the advice from four wine market observers who provided insights, trend data, and possible directions for the California wine market at CAWG’s 2015 Summer Conference & Annual Business Meeting July 23 in Napa. What the Numbers Say John Gillespie, president of Wine Market Council, said U.S. total table wine consumption grew to 302 million cases in 2014, its highest level ever, marking the 21st consecutive year of gains in consumption. Another positive trend is that annual U.S. per capita wine consumption reached its highest level ever in We have to re-educate consumers about 2014 – 3.14 gallons per U.S. adult – as California wines. the U.S. adult population (230 million) continues to grow. However, changes are occurring in wine consumption trends across generational lines, and among groups based on frequency of consumption. Of the 230 million U.S. adults, 101 million are wine drinkers, and 33 percent of these are considered high-frequency wine drinkers (a few times a week or more), accounting for more than 80 percent of all U.S. wine sales. The remainder are occasional wine drinkers, representing 67 percent of U.S. wine drinkers. High-frequency wine consumers continue to increase consumption, up 14 percent compared to two years ago. A troubling statistic is that wine consumption by occasional drinkers, a demographic where consumption has traditionally increased over time, declined 13 percent. The cause of this trend has not been analyzed, but Gillespie said, “My guess is that occasional drinkers are being exposed to a proliferation of other beverages (craft beers, etc.) which are taking up shelf space that used to be allocated to wine.” Gillespie listed the wine sales breakdown of highfrequency wine consumers by generation: Baby Boomers (1946 to 1964) – 38 percent; Gen X (1965 to 1984) – 19 percent; Millennials (1982 to 2004) – 30 percent; and over age 69 – 13 percent. Based on data from a recent three-month period, Gillespie said, “High-frequency Millennials buy a higher percentage of imports than high-frequency Boomers.” Millennials are also purchasing a higher percentage of wines from Washington, Oregon, New York and other states. Although California wine purchases are still higher in all consumer categories, Gillespie noted, “When we break down purchases by generation, the younger you are, the less likely you are to purchase a California wine." Global Perspective and Possible Threats Economist Mike Veseth, editor of The Wine Economist, and professor emeritus, University of Puget Sound, Tacoma, WA observed, “From a global perspective, California and the U.S. are perceived to be more important as a sales target than as a production threat.” He added, “Look for even more competition from international wine producers who are increasingly focused on the global market.” Veseth cited programs in the European Union that provide marketing funds to countries and regional producers to promote their wines in the U.S. In addition, the current strength of the U.S. dollar has made imported wines more affordable. Veseth also cautioned that uncertainties exist that can effect wine sales and market conditions. He cited a current issue with Canada regarding Canadian beef labeling and its sale in the U.S. that could trigger a trade war, with Canadian officials threatening higher tariffs on U.S. wines sold in Canada. He also cited situations in other countries where economic policies, neoprohibitionist politics and other economic issues have affected wine and alcohol sales. Veseth said, “Wine market conditions can change quickly, and sometimes the biggest threats come from outside the industry (politicians, taxes, economics), so it’s important to stay nimble.” He concluded, “California wines’ shifting fortunes are not entirely within our control.” Rebuilding Brand California "We need leadership to promote the quality and value of California wines," said Rob McMillan. 2 Rob McMillan, executive VP and founder of Silicon Valley Bank’s Wine Division discussed how fine wine sales have undergone a major shift in sales channels over the past 20 years from wholesale to direct sales. He said in 1995 there were 2,600 wineries and 3,000 distributors. In 2015 there are 8,800 wineries and 700 distributors. Today, 38 percent of fine wine sales are wholesale, and 50 to 60 percent of sales are some form of direct to consumer. McMillan stated, “The impact of Millennials on the wine market is, and will be, far less than what the marketplace has led us to believe.” The Boomer population relative to the whole market is much larger, and Millennials will not have the same numbers or the same wealth as the Boomer generation. Boomers today buy the most wine at all price points, especially at higher price points, and based on McMillan’s predictions, that will continue to 2020 and beyond. However, Boomers will not be around forever, and given the wine buying trends of younger consumers, the California wine industry would be wise to consider more coordinated promotion to maintain and grow sales. “We are seeing a greater move away from the historic models of California as the gateway grape producer. We have to re-educate consumers about California wines,” said McMillan. He cited the competitive threat of imported wines based on price, which makes them attractive to younger consumers, and the need to differentiate California wines. from imports. He said a possible approach to promoting California is sustainability, noting that grapes are more sustainably grown in California with a lower carbon footprint compared with imports, and with healthier farming practices that require fewer inputs. McMillan also advocates a California marketing order. He explained: “I’ve talked about a marketing order since 2004. People always give me reasons why it can’t be done, but I’d rather see someone step up and fail, than see current trends continue. Apathy is our greatest threat.” Amy Hoopes, chief marketing officer and executive VP of global sales for Wente Family Estates in Livermore said growers and wineries need to build brand value and move it forward with a singular voice to stay competitive. “We have to get out of our own state to understand what’s happening,” said Hoopes. “In California, the California appellation is seen as generic. But as you move across the country, it’s seen as an indication of quality and consistent value.” She cited the successful Meiomi brand that recently sold for $315 million. “This now shows that consumers accept a California appellation wine at $20/bottle, and that’s a good thing,” she said. Hoopes said perceptions of what California stands for are wines that are more fruit forward and more flavorful. California offers more and delivers value, and that gives producers a marketing opportunity. “When I go into China to sell wine, I don’t say I’m from Wente, I say I’m from California,” she said. “I can build the identity of our vineyards and wines, while also strengthening the overall brand California.” Alluding to the proliferation of California American Viticultural Areas (AVAs) and attempts to market them outside of California, she questioned whether consumers care much about them. Hoopes suggested, “The one common consumer demographic we should care about is that they buy and drink wine.” She also advised, “We need to approach it differently outside of the country than we do within the U.S.” Hoopes said, “To build a strong brand, we need unity and a strength of voice.” She concluded by listing three steps for California producers to keep the edge: 1) Commit to a point of difference, 2) Simplify to amplify, 3) Build strength in numbers. McMillan observed: “Right now there’s a lack of leadership in the industry. The California brand has to be built and no one is jumping in to do that.” He summarized: “We need leadership to promote the quality and value of California wines. We’ve done it before and we can do it again.” • August 2015 P r e s i d e n t ' s M e s s a g e The Pew Research Center reports that public attitudes in the United States have reached a tipping point in favor of legalizing marijuana. The Center cites a Gallup survey, which found 53 percent of Americans say marijuana should be legalized, compared to 44 percent who oppose. This is a dramatic change from 1969 when only 12 percent of Americans favored legalizing the drug and, just since 2001, support for legalization rose by 11 points. With voters in Oregon, Washington, Colorado and Alaska all having voted to legalize recreational use of marijuana, it’s no surprise that public attitudes have shifted. It’s widely expected that next year California voters will have an opportunity to vote for legalizing marijuana, and with other states having already plowed this ground, such a measure seems likely to pass in California. The question of legalizing marijuana is fast becoming a moot point, so attention must turn to preventing a host of potential problems associated with its legalization, including the distribution of marijuana to minors; ensuring criminal enterprises don’t profit from the sale of marijuana; reducing the violence currently associated with the cultivation and distribution of marijuana; preventing drugged driving; and safeguarding public lands from criminals illegally cultivating marijuana on those lands. The popular perception of marijuana is that it’s a ‘green’ crop: with small producers working small plots of land in harmony with nature and neighbors. However, there is a wide gulf between perception and reality. Recently, the state Joint Committee on Fisheries and Aquaculture held a hearing titled “Fish, Flows and Marijuana Grows: Drought and Illegal Impacts to Fisheries.” Sen. Mike Maguire (D-Healdsburg), chair of the committee, said in his opening remarks that illegal diversions from streams and rivers by pot growers have been “left unregulated for 20 years.” Assembly Member Jim Wood, D-Healdsburg, chimed in, “The amount of water being diverted (by pot growers) is staggering.” Charlton Bonham, director of the California Department of Fish and Wildlife (CDFW), said inadequate flows means a potential disaster for commercial fisheries and CDFW has received thousands of contacts in the past year from people reporting potentially illegal diversions from growers. Recently, Sean Pirtle, a Fish and Wildlife warden, caught two men with a tanker truck drawing water out of the Yuba River for what the officer said was likely for irrigation of marijuana plants. According to an article in the Appeal Democrat: Pirtle said, "there is still a lot of marijuana" in Yuba County. He said irrigating plants is just one way marijuana growers harm the environment. In Yuba County, he said, some growers have illegally killed wildlife and allowed pesticides to infiltrate water. Pirtle added, "There is habitat damage from stripping the land to grow marijuana. We have had deer caught in marijuana fencing." In Humboldt County, CDFW studied the effect of marijuana production on four watersheds and found that marijuana cultivation is having a major impact on the health of area streams. According to the study, from 2009 to 2012, the number and size of marijuana grows increased by 68 percent and 104 percent, respectively. And, during summer time low flow periods, 20 – 30 percent of stream flows were diverted to these grow operations. The resulting consequences to endangered fish are devastating. California’s farmers are required to comply with some of the world’s most stringent environmental and labor regulations. It is no secret that numerous marijuana growing operations in California are diverting water and harming fish and the environment. So, why are these marijuana growers getting a free pass? The imperative to protect fish has prevented the flow of water through the Delta, starving farmers in many areas of the state of much needed water. If marijuana is legalized in California, then it’s high time those growers follow the same rules imposed on other farmers. • John Aguirre, President S t a t e The Home Stretch As you read this, the state Legislature is adjourned for Summer Recess. The one-month break ends August 17, and when lawmakers return they will have to finish work on approximately 1,300 pieces of legislation. Among this large number of bills are four measures of interest to CAWG members. Not content with curent law, SB 3, by Sen. Mark Leno (D-San Francisco) seeks to increase the minimum wage to $13 an hour by 2017 (2013 legislation raised the wage to $9 an hour last year). After 2017, minimum wage increases would be increased according to inflation. “Call Before You Dig 16 Inches, or More” Last month, the California Department of Finance announced its opposition to SB 3 because the bill “results in significant, unbudgeted costs to the General Fund.” This announcement caused a few media outlets to speculate that Gov. Brown might look unfavorably on the bill should it reach his desk for final action. CAWG has opposed SB 3 since its introduction and joined with a large coalition of businesses and agricultural organizations working together against passage of the measure. “SB 119 is one of our biggest legislative concerns of the year,” said Brad Goehring, chair of CAWG’s Government Affairs Committee. As originally written by Sen. Jerry Hill (D-San Mateo), SB 119 required anyone who planned to dig 16 inches, or more, on their property to first contact an appropriate call center so that any subsurface installations (water, gas, electric lines) could be identified. That “approval to dig” call could take up to two days for a response. Proposed amendment on SB 119 deletes requirement to call before you dig 16 inches or more. While most other agricultural groups went neutral on the bill, CAWG “dug-in” in its opposition. Goehring said SB 119 was especially problematic for winegrape growers who would be required to call for every grape stake, grape vine or irrigation line placed in the ground. “If I have an unexpected break in an irrigation line, especially during a heat wave, I can't wait two days for an approval to dig in order to repair and keep from losing a crop or a vineyard," said Goehring. CAWG has been holding meetings with Sen. Hill to help fashion amendments favorable to all agriculture, not just winegrape growers. Among the proposed amendments is a change in the definition of excavation which deletes the 16 inch, or more, rule. However, language in the bill still encourages voluntary notification to a regional center when digging concerns exist. The bill also does not remove operator liability from failure to exercise reasonable care when digging causes damage to subsurface installations. Minimum Wage Increase Bill Still Moving California's minimum wage is currently set to increase from $9 per hour to $10 per hour on Jan. 1, 2016. 4 ALRB Orders and Limited Due Process Rights The Agricultural Labor Relations Board (ALRB) and an employer’s limited due process rights are at the core of AB 561 by Assemblywoman Noreen Campos (D-San Jose). The bill mandates that an employer, seeking a review of an ALRB decision, post a bond in the amount of the entire economic value of the order as determined by ALRB. Such a requirement could deter many employers from seeking their right to appeal due to their financial inability to post a bond amount. The bill also includes language to expand the authority of the ALRB’s General Counsel. A coalition comprised of CalChamber and more than 20 agricultural organizations, including CAWG, has been voicing opposition to the bill during legislative committee hearings. AB 561 will be heard in Senate Appropriations Committee with a final opposition fight likely to occur in the Governor’s Office. Protecting Employers from Frivolous Lawsuits Assemblyman Roger Hernandez (D-West Covina) is the author of AB 1506, a CAWG-supported bill aimed at protecting employers from costly litigation. According to the Labor Code Private Attorney General Act (PAGA), an employee can immediately sue for Labor Code violations (Section 226), which includes categories of information that must be continued on Page 5 August 2015 S t a t e continued from page 4 included in an itemized wage statement. Labor Code Section 226 is one area in which employers have seen an increase in frivolous litigation regarding technical violations that do not harm or injure the employee. Here’s one example. An employee initiated a lawsuit because their employer used a truncated name on the worker’s wage statement. AB 1506 will help protect employers from this type of capricious action by allowing an employer 33 days to cure any alleged violation. If the employer cannot fix the violation, the employee would still be able to file a civil action and obtain any unpaid wages, penalties and attorney’s fees. This reform would provide the appropriate balance of allowing an employer to correct unintentional errors without the threat of a multi-million dollar lawsuit that could put the employer out of business, while still protecting the employee. The Legislature reconvenes on Jan. 4, 2016. The last day for the Senate and Assembly to pass bills is Sept. 11. • I n d u s t r y PD/GWSS Research Continues Thanks to grower support, the PD/GWSS Referendum passed with more than 83 percent voting to continue the winegrape assessment for another five years. The assessment on winegrapes is currently set at 75 cents on every $1,000 of value. This year the PD/GWSS Board voted to recommend funding of 11 research projects for a total cost of approximately $2.75 million. Among the research projects, six are targeted for Pierce’s disease (PD), two for red blotch, two for vine mealybug, and one for the brown marmorated stink bug. Thirteen other projects were considered but were not recommended for funding Included in the PD research funding is money to develop a biological control of the disease and funding of Dr. Andy Walker’s research to breed PD-resistant winegrapes. Red blotch research will take place at UC Berkeley and Cornell University with investigations into the biology and potential vectors of the virus. Vine mealybug studies will evaluate commercial ant baits as a component of an integrated pest management program and ways to improve winter and spring controls of the pest. Oregon State University will take on risks posed by the brown marmorated stink bug and its impacts in western vineyards. Steve McIntyre, PD/GWSS board member, thanked everyone involved in the review process for helping to select the best projects to fund. • Skeletonizer May Have Hitchhiked into Napa County A destructive pest, with a Marvel comic book villain’s name, was discovered on June 24 in a Napa County vineyard. An adult male western grapeleaf skeletonizer (WGLS) was found in a sticky, pheromone-baited trap in Calistoga. More than one month later, no other finds in the Calistoga vineyard have been reported. “The extra traps we placed in the area have not caught any WGLS either,” said Humberto Izquierdo, assistant Napa County Skeletonizer caterpillar. Agricultural Commissioner. “All the traps have been checked at least twice.” Izquierdo says the insect is prevalent in the Central Valley and it could have hitchhiked into the Napa area on car, truck or piece of equipment. He added that past detections of the skeletonizer, in the Napa area, were single finds, as well. “We have protocol in place for when we have a detection and we are following it. The last thing we want to do is assume it was nothing and let the population of WGLS grow,” said Izquierdo. Winegrape growers and gardeners have been advised to remain vigilant for larval (caterpillar) stages. The caterpillar is yellow with bluish-purple stripes and the moth is an iridescent, metallic-blue. Skeletonizer moth. All larval life stages of the WGLS are voracious feeders that cause extensive damage to grape leaves. The last WGLS find in Napa County was in 2007. • F e d e r a l Clean Water Rule Criticism and Opponents Continue to Grow How many challenges to the Clean Water Act rule will it take to send the regulation back to the drawing board before it takes effect on Aug. 28, 2015? Currently, 31 states have filed lawsuits in federal courts asking the U.S. Environmental Protection Agency (EPA) and the Army Corps of Engineers (Corps) to do just that. Nearly all of the opposition to the Clean Water Rule can be summed up in two words – federal overreach. What started out to be a clarification of the scope of the Clean Water Act has turned out to be a broad expansion of the types of waters and lands that would be subject to federal permit requirements and limits on farming practices and other land-uses. Recently, attorney generals from 28 states sent a letter to Gina McCarthy, EPA administrator and Jo Ellen Darcy, assistant secretary of the Army, stating, “The increase in EPA's and ACOE's [Corps] jurisdiction comes at the direct expense of stateswhich previously had exclusive jurisdiction over state waters. Such action exceeds the statutory authority of Congress in enacting the Clean Water Act under the Commerce Clause and infringes upon the states' rights under the Tenth Amendment of the Constitution.” The American Farm Bureau Federation (AFBF) has been actively representing agriculture’s opposition to the rule and the federal overreach it has identified in the regulation’s language. In a document titled, Trick or Truth, the AFBF details how the waters rule would: "Expand federal power to restrict land use; Regulate so-called “streams” that are nothing more than subtle landscape features where rainwater channels; and Establish federal permit requirements for essential farm practices like crop protection and fertilizer use." 6 The latest chapter in the growing opposition to the EPA and Corps’ Clean Water Rule involves a number of internal memos released by the House Committee on Oversight and Government Reform. The more than 50 pages of documents revealed that the Army Corps of Engineers repeatedly criticized EPA officials for their abuse of the rulemaking process in producing the Clean Water Rule. Army Corps officials wrote that the entire economic analysis used to support the rule had no basis in either science or economics. The Corps documents also validate the AFBF’s own concerns that the rule makes it impossible for anyone, including the Corps, to know which features on the landscape are regulated, and which are not. The Corps even raised the concern that it would be difficult to determine whether “a low depressional area on a farm field that ponds water after a rainstorm for ten days” would be a regulated “water” or an excluded “puddle.” EPA insisted throughout the rulemaking process that “puddles” would not be regulated. AFBF is calling on EPA to immediately withdraw its flawed rule, go back to the drawing board and address the concerns of farmers, ranchers and business owners across the country. • California Emergency Drought Relief Act “I’ve introduced a lot of bills over the years, and this one may be the most difficult.” That’s how Senator Dianne Feinstein described the California Emergency Drought Act, a bill with both short- and long-term provisions designed to help communities cope with the ongoing drought and combat future droughts. Introduced with Senator Barbara Boxer (both D-Calif), the bill includes funding to provide assistance to drought-stricken communities, development of water treatment systems, investment in desalination projects, and the building of new reservoirs or increasing the capacity of existing reservoirs. The measure also describes additional steps that can be taken by government and agriculture to save water. Regarding agricultural conservation and groundwater recharge, the bill authorizes the Department of the Interior, and other water users, to pay irrigators to install drip irrigation or other technologies to conserve water, with a portion of the saved water to be used for groundwater recharge. There are a number of proposals to assist in the protection and recovery of fish populations including salmon and smelt. The bill also authorizes $2 million annually for five years for improved conveyance of water to refuges to help restore and protect critical wetland habitat, one of the goals of the Central Valley Project Improvement Act. • August 2015 W o r k i n g F o r Yo u Benefitting CAWG Members Only Summer Conference Report CAWG wants to make sure you know about two significant – and significantly different – members-only benefits. First, is CAWG’s Legal Services Program. This member benefit utilizes the legal expertise of Downey Brand, LLP, who also serves as counsel to the association. Each CAWG regular grower member can call the Downey Brand offices and receive one free thirty-minute consultation per calendar quarter: January 1 – March 30, April 1 – June 30, July 1 – September 30 and October 1 – December 31. CAWG’s 2015 Summer Conference was a hit! That was the vocal review expressed by attendees throughout the two-day event, July 22 – 23, in Napa. This year’s Summer Conference, held at the beautiful Silverado Resort and Spa in Napa Wine Country, provided a range of activities, including golf tournament play, an awards dinner and program recognizing excellence in the winegrape community, and educational presentations from leaders in the wine industry. Here’s a quick overview of the two-day event with a detailed report, including photos, posted on the CAWG website under Events and Education. To access your free consultation simply call (916) 444-1000 and tell the Downey Brand receptionist that you are a member of the California Association of Winegrape Growers and you want to use your free consultation under the CAWG Legal Services Program. A Downey Brand attorney will strive to return your call within 24 hours and will dedicate up to 30 minutes of time to answer your question. Sixty CAWG members and their guests took advantage of the conference opportunity to play a championship course redesigned by PGA Hall of Famer Johnny Miller. The annual golf tourney helps support CAWG PAC, an important part of the association’s success in Sacramento and Washington, D.C. This year’s PAC golf event helped the association’s political action committee – for the first time in CAWG’s history – reach over $100,000 for the year. Full details on how to use CAWG’s Legal Services Program are posted on the association’s website under Member Center. Congratulations to this year’s golf tourney winners First Place (four years in a row): J.D. Harkey, Chase Drake, Jeff Miller, Donovan Flores. Second Place: Trey Irwin, Craig Ledbetter Michael Monette, Andrew Jones Longest Drive Men’s: Jake Pauli Longest Drive Women’s: Jean Wittchow A second members-only benefit is CAWG’s 401(k) Retirement Savings Plan. As a member of CAWG, you and your employees can benefit from the combined purchasing power of a Multiple Employer Plan (MEP) for retirement savings. A MEP allows separate employers to join together into a retirement plan sponsored by a third party that bears responsibility for administering the plan. By participating, virtually all administrative tasks are handled through the plan’s advisor – Woodruff-Sawyer & Co. – one of the largest independent brokerage firms in the nation. As a CAWG participant, you’ll benefit from no annual audit, cost savings on investments, no individual Form 5500 reporting, and flexible plan features, including safe harbor, Roth, and profit sharing. Getting started is easy. Contact a retirement consultant at Woodruff-Sawyer & Co. (the plan advisor) at 415-399-6398 or email: [email protected]. • CAWG’s 2015 Awards of Excellence recognized the late Volker Eisele, Volker Eisele Family Estates and former CAWG Board Member, as Leader of the Year. Andy Beckstoffer, Beckstoffer Vineyards, received the association’s Grower of the Year award. First place golf tourney winners. Andy Beckstoffer with family and friends. Day 2 transitioned into educational programs as expert leaders in the wine community led lively and informative presentations on everything from consumer behavior on wine to how to grow the market for California wines. The lead story in this month’s Crush newsletter is a narrative of information from conference speakers and an example of the high-quality presentations that have become a standard for this annual event. Special thanks to sponsors Pan American Insurance Agency and QBE NAU Country Insurance Company. CAWG staff checks in golfer Bill Berryhill. • Good friends, good wine, good times. Au gu st 2015 c a l e n d a r NOVEMBER 11 - 12 CAWG Board of Directors — Monterey, CA 2016 JANUARY 26 - 28 Unified Wine & Grape Symposium — Sacramento, CA This edition of The Crush is sponsored by: MARCH 16 - 17 Day in the Capitol, Foundation Dinner, Board of Directors — Sacramento, CA Country Insurance Company California Association of Winegrape Growers theCrush first class u.s. postage paid permit no. 1596 sacramento, ca
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