Why Vineyards Are Tearing Out Vines

A wine glut is prompting grape growers in California to tear out vines that have been in production for decades.

This vine reduction is part of a wider phenomenon of oversupply around the world, as more and more countries, such as Australia, have joined the wine industry at the same time as demand from consumers has dropped.

Video Spotlight:  

This post is based on the CBS News article, Lodi grape growers rip out vines due to demand decline, by James Taylor, March 22, 2024; the KCRA article, How the San Joaquin Valley transitions business amid global decline in wine demand by Maricela De La Cruz, March 19, 2024; the Forbes article, Why The World Has A Huge Wine Glut And Why It’s Only Going To Get Worse, by John Mariani, September 8, 2023; and the YouTube videos in the Spotlight. Image source: Alexander Porter/Image Source

Discussion Questions:

1. What type of capacity problem is facing the wine industry in California and the rest of the world?

Guidance: The wine industry has been an important economic driver in California for a long time, accounting for 422,000 jobs in the state.  More than $5 billion worth of grapes are grown there.  Some vineyards have been part of treasured family farms for decades, and there are even some vines that are over 100 years old.  Planting and cultivating a quality vineyard takes time, but faced with losing more and more money, farmers are having to make difficult choices.

California and other major wine producers like Chile, France, and Australia, have a problem of overcapacity, or too much capacity.  This is true for both the vineyards and for wine production.  For instance, Australian wineries hold about two years worth of inventory, and these stores could go bad if not sold soon.

France received money from the EU last year to destroy almost 80 million gallons of wine, changing it into pure alcohol that can be used in the manufacture of cleaning supplies or perfume.

2. What factors have caused the industry to have overcapacity?

Guidance: One factor is that many countries have entered the wine industry, including countries from the former Soviet Union, South America, and Australia and New Zealand, along with new regions of the United States.  This has led to a huge supply of wine.

Unfortunately, at the same time, there has been a decrease in consumption among Gen Y and Z.  In part this is due to negative health perceptions associated with the drinking of wine, and in part to competition from other alcoholic and non-alcoholic beverages. Simultaneously, California grape growers have seen their costs double since 2022.

In Australia, a key problem has been relations with China, originally thought to be a huge potential market.  However, during COVID, trade tensions led to high tariffs bringing Chinese imports of Australian wine to a halt.  China just announced that it would lift these tariffs at the end of March 2024, so there may be some relief in sight. However, with two years of inventory on hand, Australian wine producers still have a long way to go to clear their glut.

Russia, which was also thought to be a large potential market, has seen its imports of wine blocked due to its war on the Ukraine.

3. What are California grape growers doing to get rid of their excess capacity?

Guidance: California grape growers are ripping out up to 50,000 acres of vineyards.  One difficulty for some in the San Joaquin Valley, Central California’s rich agricultural area, is that new laws about air quality prevent farmers from burning the vines as they did in the past and as farmers in other parts of California are still allowed to do.

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