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The Organic Opportunity: Will the U.S. Wine Industry Miss Out?

January 2017
 
by Pam Strayer
 
 

Every day, it seems the world is trending more and more toward organics. Sales of organic food are skyrocketing. England’s Prince Charles announced that’s he’s joining a new initiative to keep more of the world’s carbon in soils through organic farming techniques. And around the globe, organically grown wine is one of the fastest growing categories.


So to what extent does the U.S. wine industry factor into this worldwide trend? So far, very little.


On the production side, organic wine grapes account for an estimated 5% of total vineyard acreage worldwide. In France 9% of all vineyards (or 146,000 acres) are organic, while in Alsace, 15% of the vines are certified organic or Biodynamic.


In contrast, of the acres planted to vines in California (home to 85% of U.S. wine grapes), just 2.4% are certified organic. And organic wine grape vineyard acreage has been declining slowly in recent years. According to California Certified Organic Farmers (CCOF), the largest certifier, wine grape vineyard acreage has declined 10% during the past four years—from 11,514 acres in 2012 to 10,405 acres in 2015.

 

While some regions are organic hot spots—Mendocino (24%), Napa (7%) and Oregon (7%)— elsewhere, the statistics are much lower. Sonoma and Paso Robles vineyards are both under 3% organic, while Lodi, the coastal valleys and the Central Valley are lower still.

 

Contrast this with Europe, where both production and consumption of organically grown wines show strong growth. While U.S. production of certified organic wine has declined, U.S. consumption of these products has increased, growing at rates between 10% and 20% per year in volume between 2013 and 2016, according to Nielsen, far above the industry average.

 

Organic wine is still a niche market in the United States, comprising only 1% of wine sold by volume and 2% of wine by value, according to Nielsen, but the data show sustained and rapid growth for both domestic and foreign organically grown wines.

 

In the off-premise channel in 2016, case volume grew 10% for organic wines—nearly five times the average volume growth. On the revenue side, organic wines rose 12%—roughly double the average of all wine.


Are American vintners tracking these market signals? Are they interested in getting into the growing organic market?


Trends driving growth today and in the future
Supermarket wines that are organic are doing well—very well: Bonterra, America’s largest organic wine brand (approaching 500,000 cases), had its best year ever in 2016, earning it a coveted Wine Star Award as American Winery of the Year from Wine Enthusiast magazine and a Hot Brand award from Impact newsletter. The brand, which makes only “Made with Organic Grapes” wines, grew 20% in volume.


Millennials are embracing organics, and Americans across the board worry about harmful ingredients:
Millennials, who grew up with organic food, are the group most interested in organic products, but consumer research shows that most Americans are concerned about potentially harmful ingredients. According to a new study about food from Mintel, an international market-research company, 60% of millennials, 55% of Gen-Xers, and 46% of baby boomers worry about potentially harmful ingredients in the food they buy.


Organically grown fine wines are better than ever: Each year the Daily Meal, one of the country’s top foodie websites, picks the Top 100 Wineries in the United States. In 2015 and in 2016, half of the top 10 wineries (Ridge, Tablas Creek, Calera, Heitz and Robert Sinskey) all had organic estate vineyards.

 

A UCLA study released in 2016 in the Journal of Wine Economics underscores the point more broadly. Studying wine reviews for 74,000 wines to compare eco-certified wines made with sulfites to conventionally grown wines, researchers found that organically grown wines, on average, rated four points higher in critics’ reviews.


Organic viticulture has a bigger toolkit than it used to and more data to back up its cost-effectiveness: Long-time organic growers say that the the field of organic viticulture has grown enormously during the past few decades. Though it’s never a risk-free endeavor, there are far more products available (organic fungicides and insecticides, better compost, new biopesticides), more and better research (though much more is needed) and growing support from farm advisors. More producers have switched from fossil fuel to biodiesel, and some are even employing no-till approaches.

 

Though farming costs are still a point of contention, at the Organic Winegrowing Conference sponsored by the Napa Valley Grapegrowers this past summer Ivo Jeramaz of Grgich Hills Estate presented figures showing that his annual costs for 365 acres of certified organic vines in Napa were no more than for comparable, chemically farmed vineyards. A 2016 study from the University of California looked at Biodynamic vineyard costs in the North Coast and confirmed that Demeter-certified farming practices were economically profitable for Mendocino growers, a region with grape prices far below those commanded in Napa.


Climate change is going to mean more droughts and hot spells: Water and heat are big issuesfacing the wine industry. Organic vines tend to need less water applied, because soils are built up with compost and contain more organic matter, which holds water far better. According to Fruition Sciences, a vineyard-monitoring company with A-list winery clients around the world, organic vines are far more resilient in the face of increasing drought and heat waves.


Troubling trends for the status quo
U.S. wineries may be blindsided by a number of trends that could play out. Just as food producers were surprised by the grassroots consumer movements for GMO-free and gluten-free products, wineries could find themselves unprepared for a potential future wine category—glyphosate free. If that scenario played out, being “sustainable” would not be enough for growers who still use using glyphosate.


Consumers want to know what they’re eating and drinking and are testing food, marijuana and wine for pesticides: The arc of consumer interest is expanding from questions about additives to concerns about agrichemicals. Retailers are routinely testing. Industry reports on the food-testing industry predict 7% annual growth during the next five years. Herbicide testing is the biggest category, followed by fungicide testing.


After widespread news about the discovery of glyphosate in beer, breast milk and bread, the FDA announced this year that it would start regularly testing foods for glyphosate, which bioaccumulates in humans. The EPA is currently reviewing the carcinogenic potential of glyphosate and expected to announce its findings in 2017. Activist group Moms Across America began testing wine for glyphosate, finding in at least one test 1 part per billion (ppb) for an organically grown wine and 28 ppb for a conventionally grown wine. Though that dose may not sound like a lot, the latest peer reviewed studies (including one from Michael Antoniou of King’s College in London) found harmful impacts in rats beginning at extremely low doses (less than 1 ppb).

 

The wine industry may find it hard to offer a compelling counter narrative. California keeps precise, publicly available, pesticide records. The data shows that wine grape growers used 707,975 pounds of glyphosate in vineyards in 2014.

 

If these statistics are more widely trumpeted, will the public still believe the wine industry is “natural?” What will happen when more citizen testing groups find glyphosate in hundreds of wines and broadcasts their findings on social media?


In Europe, the political tide is turning against pesticides, including neonicotinoids and glyphosate, which are widely used in the wine industry: The fight in Europe got started with neonicotinoids, the bee-killing insecticides that are currently banned in the EU, until bee populations recover from widespread die-offs. The news that California wine grape growers use Imidacloprid widely—56,861 pounds of it were applied to 226,068 acres in 2014—has not hit newsstands yet—but it could.

 

The second major battle currently raging in the EU concerns glyphosate. After the United Nations’ International Agency for Research on Cancer (IARC) classified the pesticide as a probable carcinogen, grassroots sentiment against Roundup soared to the extent that major European nations could not muster enough votes to renew glyphosate’s long-term license in the EU. (Glyphosate has only an 18-month extension instead of the 15-year renewal that maker Monsanto had sought.)

 

In France, one national television exposé on pesticides (on the show CASH Investigations) shocked viewers nationwide, presenting test results of one Bordeaux child’s strand of hair showing the presence of 44 different vineyard pesticides.


The French Energy and Environment Minister Segolene Royal is calling for the nation to stop using glyphosate. Italy has restricted its use on wheat. French vintners now refer to the “pre-Cash Investigations era” and “post-Cash Investigations era.” Legislation has been proposed to rapidly reduce pesticide use 25% by the year 2020 and another 25% by 2025.


What could prevent a similar public relations situation from happening to the wine industry here?


European organic winemakers see the United States as the best market for future sales: At the 2016 Unified Wine & Grape Symposium, Danny Brager of Nielsen presented market research showing more than 30% of U.S. wine consumers are interested in organic wine.

 

To date, Bonterra has had little competition from domestic producers, a fact that has not escaped the notice of European organic wine producers who look to the United States as their best market for growth. In a recent survey of Italy’s organic vintners presented at BioVin Italy, 31% saw the United States as their hottest new market, ranking it first among all regions.

 

If the consumer pendulum swings toward glyphosate-free wines, European producers have a big advantage. The big three—Spain, France and Italy—already make three-quarters of the world’s organic wines, each producing quantities that are higher (percentage wise) than their overall market share.

 

Spain produces 27% of organically grown wine (versus 14% of the world’s wine overall); France makes 22% (versus 17% overall), and Italy makes 22% (versus 16% overall), according to Agence Bio 2014 and Wine Institute stats.


In comparison, the United States makes less than 2% of organic-labeled wine (versus 11% overall).

Imported organic wines already are making their mark with American consumers. In 2016, organic wine grew 11% by volume; imported organic wines grew 14%, double that of American organic producers at 7%. Foreign organic wine revenues grew more than domestic organic in revenue, generating 14% growth in dollars (versus 9% for domestic).

 

Bronco reads the (organic) tea leaves
This could be viewed as an opportunity. Is it time to go boldly forward? Seize the day?


One winery is reading the organic tea leaves—and that is JFJ Bronco Winery. Owner and president Fred Franzia (aka Mr. Two-Buck Chuck) announced in 2016 that he’s committed to organics in a big way, converting 5,000 of his 40,000 acres of vines to CCOF certification and replacing glyphosate with French plows. He’s already (albeit quietly) a major player in organics, selling more than 140,000 cases per year of his Green Fin wines at Trader Joe’s for $4-$5 per bottle.


Bronco’s newly certified acreage will go into its Rare Earth brand, also sold at Trader Joe’s. Franzia could wind up selling as much as 400,000 cases of organically grown wines each year.


The takeaway: Hedge your bets?
For years, consumers bought organic foods to avoid agrichemicals and additives. Wine wasn’t considered risky because no one had tested it for glyphosate.


Glyphosate now has the potential to be a game changer, creating new risks for the wine industry. Will consumers want to steer c lear of products known to contain glyphosate? Especially when, unlike organic food, there’s no price premium for organically grown wines?


Any activist group can send wine out to be tested (for $100 per bottle) and publish the results online. Food Democracy Now did this for food, citing Cheerios and Doritos for their levels of glyphosate, a story that made the Daily Mail in the U.K.


Luckily for wineries that are interested in exploring this market, there is the option to launch a new brand and start small. Chateau Ste. Michelle has been doing just that. The Washington state-based company owns the Snoqualmie ECO wine brand, which boasts 300 acres of vines producing 20,000 cases of wine “Made with Organic Grapes” wine annually. That’s one way for big wineries to put a toe in the water. The knowledge of how to grow, make and market these wines would stand a winery in good stead if consumer demand for the organically grown wine category suddenly heats up.

 

As any good marketer knows, markets are conversations. In France, the conversation has led to being 9% organic. Is there a clear path here in the U.S. for growth? Time will tell. But if wineries don’t start now and get ready, they may miss the boat—the one the European wineries are already on.
 

 
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