1. State of the Grapes
Nat DiBuduo
President CEO
Allied Grape Growers

2. Winegrape Supply History & Forecasts
Sections
Winegrape Supply History & Forecasts
Winegrape Acreage Updates & Analysis
Varietal/Regional Expansion
Coastal Wines Trending
Future Varietal Supply, by Price Point
The Sustainability Movement

3. Winegrape Supply History & Forecasts

4. Economy/Winegrape Supply Interaction
Three short crops set stage for balance
Light crop in a much stronger market
Record crop &
huge coastal crop
Three “below average” crops
2017 & Beyond: Huge premium opportunity; low
end balancing occurring
Strengthening economy,
but relatively weak dollar
Recession
Strengthening Dollar,
Economic Optimism

5. California’s Production History and Potential
“Average” Yield

6. Acreage Updates & Analysis

7. Our forecast for 2017 is +/-15,000 new acres.
Planting Trends
Our forecast for 2017 is +/-15,000 new acres.

8. Pullout Trends

9. Statewide Vineyard Removal
+/-40,000 grape acres removed between the 2015 and 2016 harvests (estimate 18,000 winegrape)
+/-20,000 grape acres removed since 2016 harvest, with about 1/3 being winegrapes
Estimate up to 10,000 winegrape acres will be removed by the 2017 harvest.

10. Evolving California Acreage Base
Growing
Stable
Declining

11. Varietal/Regional Expansion

12. What’s Hot, What’s Not….
71% Red
29% White

13. Planting Trends, 2014-2016 2016 – 15 million vines
Cabernet Sauvignon - 35%
Chardonnay – 16%
Pinot Noir – 16%
Pinot Grigio – 7%
2015 – 19 million vines
Cabernet Sauvignon - 31%
Pinot Grigio – 17%
Pinot Noir – 15%
Chardonnay – 13%
2014 – 27 million vines
Cabernet Sauvignon - 29%
Chardonnay – 17%
Pinot Noir – 12%
Pinot Grigio – 12%

14. Central Coast or North Coast?
Popular Coastal Planting Regions
San Luis Obispo County
(Paso Robles)
Santa Barbara
County
Sonoma County
Napa County
Sonoma County
Sonoma County

15. Coastal Wines Trending

16. Tying Regions to Categories

17. “Coastal” Wine Shipments

18. Six-Year Average Price/Ton
North Coast AVA

19. CS: Cabernet Sauvignon
Solano County – Six-Year Weighted District Avg Pricing
+13.04%
CH: Chardonnay
SB: Sauvignon blanc
PG: Pinot Grigio
CS: Cabernet Sauvignon
PS: Petite Sirah
CF: Cabernet Franc
SY: Syrah
MER: Merlot
ZN: Zinfandel
PN: Pinot Noir

20. CS: Cabernet Sauvignon
Lake County – Six-Year Weighted District Avg Pricing
+7.17%
CH: Chardonnay
SB: Sauvignon blanc
CS: Cabernet Sauvignon
PV: Petite Verdot
PS: Petite Sirah
ZN: Zinfandel
SY: Syrah
MER: Merlot

21. CS: Cabernet Sauvignon
Mendocino County – Six-Year Weighted District Avg Pricing
+3.49%
CB: Chenin blanc
SB: Sauvignon blanc
CH: Chardonnay
PN: Pinot Noir
CS: Cabernet Sauvignon
GN: Grenache Noir
PS: Petite Sirah
ZN: Zinfandel
SY: Syrah
CAR: Carignane
MER: Merlot

22. CS: Cabernet Sauvignon
Sonoma County – Six-Year Weighted District Avg Pricing
+8.01%
CH: Chardonnay
PG: Pinot Grigio
SB: Sauvignon blanc
PN: Pinot Noir
PS: Petite Sirah
CS: Cabernet Sauvignon
ZN: Zinfandel
SY: Syrah
MER: Merlot

23. CS: Cabernet Sauvignon
Napa Valley – Six-Year Weighted District Avg Pricing
+6.03%
SE: Semillon
CH: Chardonnay
SB: Sauvignon blanc
PG: Pinot Grigio
CF: Cabernet Franc
CS: Cabernet Sauvignon
PS: Petite Sirah
SY: Syrah
ZN: Zinfandel
MER: Merlot
PN: Pinot Noir

24. Future Varietal Supply, by Price Point

25. Note:
Change stated cumulatively
Annual attrition rates estimated

26. Talking Points <$7/Bottle
<$7/bottle represents over half of all California wine shipments, by volume.
There is significant investment in both vineyards and wineries in the Central SJV to produce “California” wine.
Worldwide wine competition is fierce as the majority of the world’s wines (by volume) fall within this price range.
Vineyard removal and lack of new development will continue as the norm unless and until wine shipments <$7/bottle stabilize OR until production of SJV winegrapes regularly makes it way into >$7/bottle wines.

27. Note:
Change stated cumulatively
Annual attrition rates estimated

28. Talking Points $7-10/Bottle
This is a mostly stable retail price range, but on a very strong base (i.e. lots of volume in this tight price range).
The quality in this price range has been well established and strengthening for both grapes & wine.
There is currently interest from wineries to contract grapes and discuss possible planting contracts.
More and more, “coastal” wineries are looking to northern interior grape and wine supply when considering alternatives to control costs and expand program volumes.
A great place to be in the future, as the demand for high quality wine expands.

29. Note:
Change stated cumulatively
Annual attrition rates estimated

30. Talking Points $10-20/Bottle
This is the hottest, sizeable price segment presented today.
Quality within this price segment is known & established for both grapes & wine.
Winery interest is strong for grapes to satisfy consumer demand. Growers have been responding by planting more.
Extending wines by blending with lower-cost grapes is maximizing profit opportunity.
Conversely, the need for the upper end to extend creates opportunity for this category of grapes

31. Note:
Change stated cumulatively
Annual attrition rates estimated

32. Talking Points >$20/Bottle
Market behavior that drives industry pricing up starts here – at the top.
Price elasticity - How high is too high on pricing? Is there a bubble? Did I really say that?
Are some AVA’s in jeopardy of becoming mono-varietal?
Many vines are being planted in AVA’s contributing to this price category, but a high percentage are replants.
How much does “extending” to control costs degrade the overall quality of an AVA?

33. The Sustainability Movement

34. Sustainable Winegrowing
SWP Overview
What is Sustainability?
The Sweet Spot
Sustainable Winegrowing
Just a quick overview of the way we think about sustainability – it is about balancing the 3 Es of sustainability (which you have probably heard of before) or the environmental, economics and social equity (or the people aspect including neighbors and community and employees). The goal is to consider all of these things when you are making decisions in the vineyard or winery.

35. Industry Commitment California & Regional Programs
Sustainability Drivers
Industry Commitment
California & Regional Programs
Oregon
Washington
New York
International Programs
Australia
New Zealand
South Africa
Chile
Italy

36. Background CERTIFIED SUSTAINABLE Ensures: Launched January 2010
Updated in 2017 to allow Logo on Bottle
Ensures:
Environmental Stewardship
Conservation of Natural Resources
Socially Responsible Business Practices
Several years ago, we recognized that our own self-reporting would only take us so far, and people began asking for third-party verification of our efforts.
After 3 years in development by the same Joint Committee of growers and vintners who developed the self-assessment workbook, we launched our certification program in January 2010
Key drivers for certification
Choosing proactive over reactive – we have no interest in being overregulated we want to do it ourselves – because we know the industry best / being ahead of regulation
Certification provides credibility of claims through third-party verification and differentiates you in the marketplace
As you can see from some of these examples from South Africa, Australia, New Zealand and Oregon, the global marketplace is moving in this direction and certification is way to a way to communicate your commitment to sustainability to consumers, wineries and retailers and your peers
Business Value” proposition emphasizing the internal value (e.g. tool for internal goal setting and alignment on sustainability strategy, perhaps with a sub-bullet on efficiencies, cost savings, employee engagement and retention, etc.)

37. CERTIFIED SUSTAINABLE
CERTIFICATION
As of November 2016:
IN 2015, 25% OF THE STATEWIDE ACREAGE AND 64% OF THE STATEWIDE CASE PRODUCTION WERE CERTIFIED TO CCSW-CERTIFIED, LODI RULES, NAPA GREEN, AND/OR SIP CERTIFIED.
666
VINEYARDS WERE CCSW-CERTIFIED
113,220
WINEGRAPE ACRES WERE CCSW-CERTIFIED
(18% of California’s total acres)
to certification and other tools for communicating with stakeholders. Similarly, regional programs have evolved from purely educational programs to offering certification and communicating with stakeholders.
CERTIFIED SUSTAINABLE
sustainablewinegrowing.org
LODI RULES
lodiwine.com
NAPA GREEN
napagreen.org
SIP CERTIFIED
sipcertified.org
108
WINERIES WERE CCSW-CERTIFIED
175M
CASES WERE PRODUCED
by CCSW-Certified wineries
(65% of cases produced in California)
For a list of CERTIFIED SUSTAINABLE Participants, visit

38. Summary & Highlights
There is no shortage of winegrape acreage in California, although specific regions may experience tighter supply, particularly with certain varieties. Four-million-ton harvests are standard now.
Cab Sauv, Pinot Noir, Pinot Grigio and Chardonnay will continue to dominate California varietal offerings, but the future of product development may move more toward blends utilizing regionally appropriate varieties.
The stability of current market trends (since 2012) has produced a situation where supply is increasing in proportion to current increases in demand, by region and by variety.
Sustainability is something the industry already is – it’s a matter of documenting it. This documentation should bring additional marketability/return to both wineries and growers.