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Turrentine to Central Coast:
Control Your Water Before Sacramento Does

Central Coast Insights conference delves into hot topics of the region

by Andrew Adams
Gale Sysock, Doug Wilson and Tony Stephen offered predictions for the coming year during the 2014 Central Coast Insights symposium.
San Luis Obispo, Calif.—Wineries and growers in California’s Central Coast region remain optimistic and plan to expand their businesses in coming years despite serious concerns about water.

California’s drought has hit San Luis Obispo County and the rest of the Central Coast particularly hard. While Sonoma and Napa counties enjoyed some late-winter storms that eased water worries a bit, most of that precipitation missed the Central Coast. Added to the drought are concerns about overdraft from the groundwater basin surrounding Paso Robles, Calif.

At the recent Central Coast Insights symposium hosted March 13 by the Wine Industry Symposium Group, the group’s president Kathy Archer highlighted some of the findings from a recent survey of Central Coast winemakers, growers and others in the wine industry.

Water supply and unusual weather are now viewed as the top factors that will have a negative impact on the Central Coast’s wine industry during the next three years. That’s changed from a year ago, when environmental regulations and a slow economic recovery were the biggest worries.

Almost 80% of those surveyed cited water availability as their top concern. To deal with the situation, 76% said they’d add “water-saving technology” and 27% would look for untapped water resources, but 20% admitted they were not prepared for the drought.

The same survey found that a majority of wineries are planning to expand their production in coming years. Nearly 65% reported they expect to expand production in 2014, and slightly less than 70% said they expect to make more wine than in 2013.

Of those planning to increase production, 28% said they’re planning a 10% increase, and 26% said they would expand by 20%. Most of this growth can be attributed to the large 2012 harvest, but when asked about how they plan to use available capital in the coming year, 60% said they would be spending their money on vineyard redevelopment.

Update on water issues
Matt Turrentine, a former broker with Turrentine Brokerage and now partner in the investment firm Grapevine Capital Partners, moderated a session about the current water and land-use issues in Paso Robles.

Turrentine is also on the board of the group Paso Robles Agricultural Alliance for Groundwater Solutions, or PRAAGS, that has advocated for a water district to manage the region’s groundwater basin, which is suffering a serious overdraft from agricultural and residential wells. “What has pushed this issue to the forefront this year is the last few years of drought have exacerbated the issue,” he said.

San Luis Obispo County passed a moratorium on any new well throughout the county last year. Kami Griffin, acting director of the county’s planning department, said those companies or property owners with a “vested right” can secure an exemption from the ordinance. She said the county has approved 17 of these projects for 1,528 acres. The county is still reviewing several more applications for a total of 1,967 acres of potential development.

Turrentine said water is the “hottest topic in (California state capital) Sacramento” right now and told the audience that the situation in Paso Robles is not as dire as that faced by many communities in the Central Valley, where he said the ground is literally sinking from the lack of groundwater.

California is one of the few states in the nation where local authorities and private landowners control groundwater use, but Turrentine said that is destined to change. “If you fast forward 10 years there will be regulation and management of groundwater in California,” he said.

Growers and residents in the Paso Robles area would be wise to form a local groundwater district now rather than wait for the state to move in set water policy for the region in Sacramento, he said.

Executive insights
Later during the conference, a panel of winery owners and executives shared their thoughts about the prospects for the Central Coast wine industry and its perception in the market.

“When you look at the Central Coast in terms of quality for price, it’s always beaten what’s up north,” said John H. Niven, the vice president of sales and marketing for Niven Family Wine Estates, which is composed of six brands including Baileyana Winery, Tangent and Zocker.

When asked about how the region handled the recession, Niven said this reputation for lower prices and higher value helped. “In a weird way we were positioned to take advantage of the marketplace at the time,” he said.

Tim Snider, president of Fess Parker Winery in Santa Barbara, Calif., argued, “The moniker of value sometimes holds you back.”

Snider said his winery has found success by tightening the appellation focus of certain wines and moving them up in the market. A Santa Barbara County Pinot Noir, for example, can become a Sta. Rita Hills AVA Pinot with a higher price. “I still believe that’s a big opportunity for the Central Coast,” he said.

Those on the panel agreed that securing distribution and selling wines still remains the biggest challenge. Jason Hass, partner and general manager of the winery Tablas Creek Vineyard in Paso Robles, said the winery’s production is split nearly 50-50 between direct-to-consumer and wholesale, but DtC represents about 80% of total revenue. He said he’s found that the wholesale market supports the winery’s success with DtC sales. “It’s not a place where we look for profits, but for exposure,” he said.

Ron Denner, owner of Denner Vineyards winery, said he currently enjoys allocated sales with consumers waiting about a year to join the winery’s wine club. Denner said he’s planning to expand the winery’s production in coming years, and he’s concerned about whether the DtC model can support that growth. “Can we maintain that model in the future? We don’t know,” he said.

When asked about water, Hass said the winery staff has worked for some time to limit water use but is still seeing a shortage. “We have an excellent well that is producing half as much water as it was three years ago,” he said.

Hass said new vineyards are being planted on St. George rootstock, with wider spacing and head training, to mimic the older style of California dry farming. He said this approach and other strategies have pushed vine roots deeper, making the plants more resilient to dry conditions. “From the beginning we’ve been trying to wean our vineyard off of irrigation,” he said.

A panel of executives from some of the state’s largest vineyard owners also offered their predictions for the coming year. Gale Sysock, vice president of Delicato Vineyards, said the drought will be far more damaging if it persists into 2015.

Right now, he said, most vineyards are doing well and with winery tanks full from the bountiful 2012 and 2013 vintages, and the wine industry should handle a short crop in 2014. “I see a very healthy 2014 and beyond,” he said.

Doug Wilson, vice president of Silverado Investment Management Co. (formerly Silverado Premium Properties), said it’s been “business as usual” and has entered into agreements for 90% of its potential crop. He said the remainder will be slowly sold as the season progresses and the company has a better idea of how the coming harvest looks.

Based on current bud formation, Scheid Vineyards director of sales Tony Stephen said 2014 looks like it will produce a good crop, but he’d be surprised if California sees another record. “I can’t see the crop being off substantially,” he said.

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Wine Industry Metrics
Off-Premise Sales » Month   12 Months  
September 2014 $575 million
$7,743 million
September 2013 $550 million $7,311 million
Direct-to-Consumer Shipments » Month   12 Months  
September 2014 $163 million
$1,708 million
September 2013 $141 million $1,538 million
Winery Job Index » Month   12 Months  
September 2014 166
September 2013 145 192
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