1. Allied Grape Growers, 2015. All rights reserved. San Joaquin Valley Winegrowers Association Harvest 2015 &Future Opportunities Nat DiBuduo Allied Grape Growers November 20, 2015

2. Allied Grape Growers, 2015. All rights reserved. Four Part Presentation Part 1: A look at California Supply Part 1: A look at California Supply Production trends Production trends Acreage forecasts Acreage forecasts Part 2: What Happened with the 2015 Harvest? Part 2: What Happened with the 2015 Harvest? What’s a grower to do? What’s a grower to do? Part 3: Pros & Cons of the Industry Part 3: Pros & Cons of the Industry Part 4: Understanding and Managing Market Risk Part 4: Understanding and Managing Market Risk

3. Allied Grape Growers, 2015. All rights reserved. Part 1: A look at supply

4. Allied Grape Growers, 2015. All rights reserved. A look at supply

5. Allied Grape Growers, 2015. All rights reserved. Factors affecting crop size as compared to last year: Mother Nature – Shorter Crop Mother Nature – Shorter Crop Off 20-25% in the coast Off 20-25% in the coast Off less than 10% in the interior Off less than 10% in the interior New Plantings New Plantings Added 30-35K bearing acres from 2012 plantings (3 years non-bearing assumed) Added 30-35K bearing acres from 2012 plantings (3 years non-bearing assumed) Newer plantings producing more each year Newer plantings producing more each year Vineyards Removals (Predominantly Interior) Vineyards Removals (Predominantly Interior) Removed 25,000 winegrape acres in 2015 Removed 25,000 winegrape acres in 2015 A look at supply - Lots of moving parts

6. Allied Grape Growers, 2015. All rights reserved. A look at supply

7. Allied Grape Growers, 2015. All rights reserved. Six-year average = 2,690,281 tons In 2014 we were right at our six-year average, but that was with record-breaking bearing acreage. In reality, yields were light. For 2015, we see yields similar to 2014 (below average) A look at supply

8. Allied Grape Growers, 2015. All rights reserved. * *2015 non-bearing acreage includes an assumption that approximately 20,000 acres were planted this year. A look at supply

9. Allied Grape Growers, 2015. All rights reserved. A look at supply

10. Allied Grape Growers, 2015. All rights reserved. A look at supply

11. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business

12. Allied Grape Growers, 2015. All rights reserved. Supply Potential - All Wine

13. Allied Grape Growers, 2015. All rights reserved. Segmenting the Business Essentially, the California Coast Range is the geographic line that represents the +/- $10/bottle pivot point in the market. <$10 >$10 = <$10 = $10-20 = >$20

14. Allied Grape Growers, 2015. All rights reserved. Part 2: What happened with the 2015 harvest?

15. Allied Grape Growers, 2015. All rights reserved. The 2015 Harvest Buyers (or lack thereof) Buyers (or lack thereof) Pricing Pricing Crop size Crop size Late season buying Late season buying Sustainability Sustainability What’s a grower to do? What’s a grower to do?

16. Allied Grape Growers, 2015. All rights reserved. Let’s not be afraid of our own shadow….or making tough decisions! What’s a Grower to Do?

17. Allied Grape Growers, 2015. All rights reserved. Vineyard Evaluation Know what your average production level is! Be honest with yourself. Know what your true costs of production - not only per acre, but per tons produced. Know what your average price per ton has been then factor in the new paradigm of SJV winegrape pricing. Evaluate the alternatives you have What alternative crops can you grow on your land taking into account development costs & timing, water, gross & net per acre. Check with a reliable appraiser or real estate agent on the true value and marketability of your vineyard. The current real estate market is high and of questionable sustainability. What’s a Grower to do?

18. Allied Grape Growers, 2015. All rights reserved. What’s a Grower to Do? We have observed many new plantings statewide, BUT………..

19. Allied Grape Growers, 2015. All rights reserved. What’s a Grower to Do? ……now we see significant removals in the interior.

20. Allied Grape Growers, 2015. All rights reserved. What’s a Grower to Do?

21. Allied Grape Growers, 2015. All rights reserved. Part 3: Pros and cons In the business

22. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the business The economy The economy Foreign competition Foreign competition Consumption trends Consumption trends

23. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business The Economy

24. Allied Grape Growers, 2015. All rights reserved. Graph Source: The Gomberg Fredrikson Report - 2014 Annual Wine Industry Review 30.8 66.6 69.7 45.9 California Wine Shipment Volume Shown in millions of cases shipped, 1980-2014 Recession directly affects the wine business categorically.

25. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Foreign Competition

26. Allied Grape Growers, 2015. All rights reserved. +20% +30% +23% Pros and Cons in the Business Foreign Competition

27. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption and Categorical Competition

28. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

29. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

30. Allied Grape Growers, 2015. All rights reserved. “Millennials generally drink more premium wine than the typical US wine consumer, but they are not yet the core consumers of ultra-premium wines. The sweet spot of millennial consumption appears to be the $10-25/bottle range.” - Stephen Rannekleiv - Rabobank Beverage Industry Analyst Pros and Cons in the Business Consumption Trends

31. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

32. Allied Grape Growers, 2015. All rights reserved. Pros and Cons in the Business Consumption Trends

33. Allied Grape Growers, 2015. All rights reserved. Part 4: Understanding and Managing Market Risk

34. Allied Grape Growers, 2015. All rights reserved. What creates market risk? OVERSUPPLY -Either from a supply/demand imbalance caused by a multi-year, longer term issue Or from a large crop or series of large crops (generally a shorter term issue) Understanding/Managing Risk

35. Allied Grape Growers, 2015. All rights reserved. Understanding/Managing Risk Some Closing Comments Different Varieties & Relationships Planting contracts dictate what to plant, but consider your current mix of varieties as well as who you sell to. Little to no Central SJV planting contracts are currently being offered. Ask your buyer if they would like the SJV grower to be available for them in the future and how to develop a partnership with them to remain viable. Different Crops Evaluate your property for suitability of alternative crops. Different Options Do you want to continue farming? Do you want to consider leasing your vineyard or maybe even selling it & retiring? Different Landscape of the SJV in the future?

36. Allied Grape Growers, 2015. All rights reserved. What’s a Grower to Do? Allied Grape Growers Is a grape marketing cooperative We are in the business of representing grape growers We are in the business of selling grapes to wineries, concentrate producers, dehydrators and other grape buyers We are not in the nut business We are NOT telling anyone to remove or sell their economically sustainable vineyards. We are telling growers to be smart businessmen and assure your future and the future of your families!

37. Allied Grape Growers, 2015. All rights reserved. In Summary Considering where market growth is, this is prime opportunity to differentiate for the above $5 “California” bottle. In order to successfully grow grapes for price points below $5, it will require non-traditional production levels and the ability to out-produce those worldwide, which have much lower costs of production.

38. Allied Grape Growers, 2015. All rights reserved. Please visit us at: alliedgrapegrowers.org