Economics of the wine industry in the United States

¶ … Economics of the U.S. Wine Industry

The wine industry in the U.S. began small with most of it accounted for by import until its expansion in California in the early 20th century (Geisler 2006). It was prohibited for a time and then revived in the early 70s and directed by aggressive demands for better quality wine products. Between the 70s and the late 90s, wine consumption went up and down. By 2004, the U.S. Department of Agriculture reported U.S. wine consumption at 2.3 gallons. California has more than 1,800 of wineries in the U.S.A. And accounts for 90% of total U.S. wine production. Other high wine-producing states are Washington, New York and Oregon. Half of California's grapes are used to produce wine. As of 2005, 633,000 acres were planted to grapes in California. Of this total, 477,000 acres were bearing and 45,000 acres were non-bearing. California's total acreage as of 2005 was 934,750 acres. Its 1991 production of 2.2 million tons increased to 3.1 million tons in 2005. The total U.S. grape production in 2005 was 4 million tons (Geisler).

The U.S. ranked fourth among wine producers in the world with exports at 350 million liters and worth $614 million, according to 2005 statistics (Geisler 2006). Most of it went to the United Kingdom and was worth $150 million and $128 million to Canada. The rest went to countries, including Japan, the Netherlands, and Italy. These wine exports accounted for 95% of the total exported wine from the U.S., originating from California. These were California's third most important agriculture products, the first being almonds and cotton. Records, however, stated that the U.S. imported more wine and wine products than it exported. In 2005, it imported wine grape products at $3.7 billion, mostly from France, Italy and Australia. In 2005, the average California processed red wine grapes per ton was $633.48, white wine grapes at $506.37 per ton and the average price for all varieties per ton was $532.78 (Geisler).

The U.S. wine, grape and grape products industries contributed $162 billion to the economy, according to the Congressional Wine Caucus of 182 senators and representatives with interest in these industries (Insel et al. 2007). This was the conclusion arrived at by the study conducted by the U.S. Forest Service and University of Minnesota, using the IMPLAN model. It measured the full economic impact of the grape, wine, grape juice, table grape and raisin industries on employment, agricultural statistics, product revenues, taxes and other items. Co-chair of the caucus, Congressman Mike Thompson commented on how the industries had economically catalyzed the growth potential of all 50 states. He said that policymakers could support legislation, which would further enhance the industries to continue producing superior products and contributing to the economy. The study furthermore disclosed that the industries had provided 1.1 million full-time jobs by 23,856 grape growers at 834,759 acres planted to grape and worth #3.5 billion in farm gate grape sales. This trend increased the number of wineries from 2,904 in 2000 to 4,929 in 2005 or a 70% increase in five years, generating combined sales revenues of $11.4 billion. The wine industry thus accounted for an additional distributor share of $2.7 billion of American wine revenues, $9.8 billion in retail and restaurant share of American wine revenue, $27.3 million wine-related tourist visits and $3 billion estimated wine-related tourism expenditures. Other grape products yielded profits too. Grape juice and grape product sales had $1.669 billion retail value, table grape at $3 billion and raisins at $560 million. These gains translated into a total of $17.1 billion in federal, state and local taxes paid (Insel).

Congressman George Radanovich of Mariposa, California, co-chair of the caucus, mentioned other benefits from the industry boom (Insel et al. 2007). It helps preserve agricultural lands. Vineyards and wineries revitalize and support the local economies in rural communities. They have contributed more than $129 million. Grapes, grape juice and wine have also been proven to be good for the heart. Being capital-intensive and labor-intensive, it generates tourism profits. Its economic impact exceeds the preservation of agricultural lands, creation of jobs and tourism expenditures but extends to suppliers and local communities. In New York alone, the grape and wine industry has been contributing $6 billion yearly to the state's economy and has, thus, been supporting businesses and ultimately as well as substantially to the national economy, according to Senator Hillary Clinton. The U.S. grape and grape products industries are mostly concentrated in California at roughly 90% of the nation's wine production. Grape juice production is concentrated in Washington, New York, Pennsylvania and Michigan (Insel et al.).

Wine consumption in the U.S. was approximately 21 million hl in 1999, 72% of which was sourced from California (Summer et al. 2001). Of this volume, 20% was imported and about 8% was produced outside California. Three-quarters of these imports came from Europe, specifically Italy and France. Important issues confronting the development of the demand for wine in the United States through the years would be the quantity and quality response to wine prices, response to aggregate income changes with impending recession, and adjustments in state, provincial and local wine marketing regulations. Individual states possess the authority to regular marketing of alcoholic beverages in the U.S. The interstate commerce clause of the U.S. Constitution says that states may not limit commerce among themselves except for compelling local reasons. However, the 21st Amendment has been interpreted to mean that states have more grounds to regulate alcohol. Local regulations have strained national distribution systems and substantially restricted direct shipments by wineries to customers. The restrictions have favored local wholesalers and retailers and continue to affect production elsewhere despite political attempts to reduce or counter them. The observation was that wine consumers are not organized or effective enough to effect reform (Summer).

Although the U.S. is considered the fourth most important wine-producing country in the world, its domestic wine consumption does not compare with that of European countries (Biancalana 2002). In proportion to its high wine production, California's average yearly consumption per capita was less than 10 liters or 2.64 gallons. In comparison, yearly wine consumption in France or Italy, where it is highest in the world, is more than 50 liters or 13.2 gallons. European grape varieties cultivated in the U.S. include international varieties, like Cabernet Sauvignon, Merlot, Pinot Noir, Chardonnay and Sauvignon Blanc. Italian species, such as Sangiovese, Nebbiolo, Zinfandel, Barbera and Primitivo were also introduced. California has gained renown as a major wine producer in the country at 90% of total national production. Wine quality in this state has been considered excellent, mainly because of the drastic but necessary changes introduced by California producers in the early 80s.and as the natural consequences of changes introduced in the early 60s. The most cultivated varieties in this state are the Charonnay, Sauvignon Blanc and the Riesling and the main red varieties such as Cabernet Sauvignon, Merlot, Pinot Noir, Sangioverse, Syrah and Zinfandel. The most important and renowned wine-producing parts of California are Napa Valley, Mendocino, Sonoma and Carneros. Napa Valley's enology is known for using wood both for fermenting and refining wines. Sonoma continues to build a reputation for high quality production, particularly of Chardonnay, Cabernet Sauvignon and Zinfadel. Carneros has the advantages of ideal climatic conditions, proximity to San Francisco and San Pablo Bay, sunny days, abundant streams of air and fog conducive to the slow maturing and developing of grape. Its main products are Chardonnay and Pinot Noir. Mendocino produces wines made of Chardonnay, Sauvignon Blanc, Gewurztraminer and Riesling, Zinfandel and Petite Syrah. Other areas in California, which produce noteworthy wines are Sierra Foothills, Livermore Valley, Monterey County, Carmel Valley and Paso Robles (Biancalana).

Oregon produces much less wine than California but its wines are nevertheless interesting, particularly the red grape Pinot Noir, because of the state's cool climate (Biancalana 2002). The most cultivated white grapes are Chardonnay, Pinot Gris and Riesling. The most important wine-producing areas in the state are Willamette, Umpqua Valley, Rouge Valley, Columbia Valley and Walla. Unlike in other wine-producing states, laws in Oregon require at least 90% of the named variety instead of only 75%. Because of tts Merlot and Cabernet Sauvignon, Oregon is now considered among the most important wine-producing states in the U.S. (Biancalana).

The state of New York on the east coast produces excellent wines from European varieties for which it has been building a strong reputation (Biancalana 2002). Its wine production is divided between wines produced with European varieties and those with hybrids and local species. Among its most important hybrid products are Cayuga, Niagara, Syval Blanc, Vidal Blanc and Vignoles. Texas is another state that has gained renown as an important wine producer. Its recent focus has been on international grapes varieties, the most cultivated ones in the U.S. The main white species grown in this state include Chardonnay, Chenin Blanc, Sauvignon Blanc and Riesling, while the most important red varieties include Cabernet Sauvignon and Merlot. Its main wine areas are High Plains, Trans-Pecos and Texas Hill County (Biancalana).

The state of Virginia may be considered a pioneer in wine making in that the very first wine cultivation experiments for the purpose of wine making were held here in the early 1600 (Biancalana 2002). By the end of the 1800s, Virginia was already an important wine-producing state, although interrupted by prohibitionism. The industry was revived by local produces and investors who started investing on quality production again in the early 70s. Its present focus is mainly on Chardonnay, although the state also produces local varieties and hybrids as do other states in the east coast. Among its most important white hybrids are Seyval Blanc, Vidal Blanc and red hybrids Norton and Chambourcin. It also cultivates European species like Chardonnay, Riesling and Viognier for white species and Cabernet Franc, Cabernet Sauvignon, Merlot and Barbera for red species. The most important wine areas in Virginia are Eastern Shore, Shenandoah Valley, Northern Neck, North Fork of Roanoke, Rocky Knob and Monticello (Biancalana).