American Vineyard Magazine’s Grape, Nut and Tree Fruit Expo State of the Wine & Concentrate Grape Industry Jeff Bitter Allied Grape Growers November 14, 2017

First: Look at the SJV position in wine market How are we positioned from the supply side and what are the implications for the future? First: Look at the SJV position in wine market Next: Supply history and outlook Next: Challenges in relation to “neighboring” California wine regions Last: Factors driving success & issues that are threats

Allocations – Grapes & Wine

Planting Trends

Central Valley Wine Shipment Trends About 2% annual loss in recent years

“The bottom line is that, following the 2015 crop, we will still need to remove about 36,000 acres…”

Estimated Interior Winegrape Removals

…..But, it’s not all bad!

$7-10/Bottle >$10/Bottle

Allocations – Grapes & Wine

…..so how do we get into the other segments of the market?

Planting Trends The north valley has represented a clear majority of interior plantings in recent years

Production Breakdown

Note: Change stated cumulatively Annual attrition rates estimated

.....so what are we expanding in here in the valley?

Note: Change stated cumulatively Annual attrition rates estimated

What Needs to Come Out? Any red grape that struggles to achieve uniform color and/or high sugar “Unpopular” consumer varieties like Zinfandel, Merlot and Syrah Generics? – Not necessarily Low production vineyards

AGG Central Valley Yields

Behavior Catalyst ...so what is driving the wine business today? Premiumization empowered by the economy Behavior Catalyst

Economic Performance Key Measures GDP – Gross Domestic Product Inflation Unemployment rate Other Important Indicators Stock market indexes (S&P, Dow Jones, etc.) Rate of national debt reduction Labor productivity Housing affordability Surveys Consumer Confidence/Consumer Sentiment

Gross Domestic Product, 2015-2017 Chart source: https://tradingeconomics.com

Inflation & Unemployment U.S. Inflation Rate, Previous Year Chart source: tradingeconomics.com U.S. Unemployment Rate, 2015-2017 Graph source: Bureau of Labor Statistics

Major U.S. Market Indexes: 2015-2017 Chart Source: http://money.cnn.com 11/08/2017

Consumer/Economic Confidence http://news.gallup.com 11/08/2017

Consumer/Economic Confidence

California Winegrape Market Points Although there is no shortage of total winegrape acreage in California, coastal regions or more likely to experience tight supply, particularly on certain varieties and/or in specific regions. The supply pressure created by excess interior grapes/wine over the last few years is now mostly diminished with increased vineyard removals. “Reliable” and “stable” market trends since 2012 have allowed us to plan on increasing supply in proportion to projected increases in demand, by region and by variety. Opportunities in the interior come specifically from strong production and/or above average quality allowing inclusion in price points above $7/bottle.

Concentrate Industry Review

Concentrate Market White Concentrate: Market remains economically unsustainable for California. Finally transitioned from long to balanced in 2017. Argentinian crop was short for the second year in row. California concentrate is selling at $9.00+/gallon. If 100% juice drinks were still popular, we would be experiencing major shortage of product. Permeate (Red 200) – the by-product of crystal-color (75% of volume) – is providing cheap sugar product. Red concentrate: Stable demand/relatively balanced market. The diglucoside anthocyanin is still one of the most stable. California (Red 1,000): $12.00+/gallon. Producers selectively re-signing expired contracts.

Concentrate Market

Go Green or Make Raisins?

Raisin Varieties in Crush

Thank you AGG Staff, 2017