Economics Hits Napa Valley Hard

Is vineyard expansion in Napa Valley still possible in difficult economic times?

California’s historic Napa Valley is facing one of the most serious economic crises in its history. It has been projected that the valley will be unable to meet the demand for its grapes by next year. California has moved from the glut of 2005 to the most severe shortage of winegrapes in recent memory. The benefactor will be imports, which are expected to increase their market share over the next years.

The answer to this economic dilemma is obvious: plant more grapes. But the price of prime agricultural property in Napa Valley has risen to unbearable heights. The least favored sites in Chiles and Pope Valleys (far from the valley floor but entitled to the Napa Valley AVA) have risen as high as $75,000 per acre. Even more stunning is the value of prime acreage in places such as Stag’s Leap, Rutherford, and Oakville, where current asking prices have risen as high as $300,000 per acre!

Since the price of California winegrapes is heavily influenced by Central Valley fruit, Napa Valley farmers face the grim possibility that they may be unable to receive a price for their fruit that justifies buying expensive acreage and extending vineyard properties.

Adding to the dilemma is the fact that, even if farmers plant new vineyard property, they won’t come online for three years. Meanwhile, imports grab ever larger shares of the American market.