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  • Linda Murphy
Written by
  • Linda Murphy
6 Feb 2009
 

Pressure on water grows

It was a gloriously sunny, 72 ºF in Sonoma today, so warm that I wore shorts for most of the afternoon. But this is not a good thing, this balmy weather in February, and we had it for most of January, too. When we should be bundled up in coats, and drying our wet umbrellas by the fireplace, we are applying sunscreen and driving to the coast for a picnic.

Northern California is in a major drought phase, with scant rainfall in 2009 and unseasonably warm weather at a time when it should be cold and wet. These warm conditions tell grapevines to push out buds way ahead of schedule – as early as a month – making them prone to frosts that most certainly will come in March, burning the new growth and severely limiting yields.

Since the start of the rainfall year in July, Santa Rosa, the heart of Sonoma county, had received just 7.28 inches of rain; the average is 17.5 inches. Northern California municipalities are already calling for mandatory water conservation measures for spring and summer, and grapegrowers face a dilemma: drain their already-low irrigation reservoirs for sprinkler-fed frost protection if temperatures drop below 32 degrees, or save the water for irrigation during what could be a very warm summer.

The drought has left Lake Mendocino and Lake Sonoma, the primary providers of water to both agriculture and residents in Mendocino and Sonoma counties, and which feed the once-mighty Russian River, at precariously low levels. At a time when some parts of the US are enduring ice storms, Northern Californians are sipping iced tea, though those involved in agriculture aren’t doing so happily.

Climatic conditions in California, as elsewhere, are no longer 'normal'; it’s a Vegas-style crap shoot for growers to decide how to manage their water resources, not knowing what’s ahead.

Job cuts

Sign of the lousy economic times: Jess Jackson (pictured above with his wife Barbara Banke) of Jackson Family Wines, which includes the ubiquitous Kendall-Jackson brand and dozens of others, this week laid off some 170 of its 810 employees, according to the Santa Rosa Press Democrat newspaper.

'We’re not disclosing the numbers, but there was a reduction in force affecting every area of the organization', Caroline Shaw, spokeswoman for Jackson Family Wines, told the Press Democrat. She said the organisation needed to adjust staffing due to the shaky economy. Winemakers, marketers, administrative assistants, accountants and hospitality staff were among the employees axed, according to the Press Democrat.

I heard through the grapevine that Jackson might eliminate and/or consolidate some of his high-end wine brands, among them Anakota, Atalon, Lokoya, Verite and Cardinale. Their similar price tags and conflicting messages leave them vulnerable to extinction. Any one of these brands could last forever, yet no one should be surprised if they drift away. Such is the nature of the current wine market.

Tax hikes continued

An update on Jancis's initial report on the tax proposals.

SchwarzeneggerCalifornia winemakers have climbed into the boxing ring with muscle-bound California governor Arnold Schwarzenegger, who has proposed a tax increase on wine that would raise the amount producers pay from 4 cents to 29.6 cents per 750 ml bottle. The tax, if approved, will most certainly be passed on to the consumer, in the form of increased retail prices. Thus, it will cost us more to drown our financial sorrows in a good bottle of California wine.

Schwarzenegger hopes to install the tax when the California legislature approves his budget – a battle that has gone on for months between Republicans and Democrats, with no resolution in sight. California’s budget deficit is expected to hit $42 billion by the middle of 2009, and the actor-turned-governor is looking at alcoholic beverages as a major means to refill state government coffers. Stock your cellars now, before what is commonly known as a 'sin tax' kicks in.

Robert Koch, the CEO/president of the California Wine Institute, told Schwarzenegger that 'Wine Institute stands united with other California producers, distributors and retailers of wine, beer and distilled spirits, in opposing any excise tax increase on licensed beverages. We understand the dire situation that the state of California is facing and recognize California's budget shortfall and the administration's desire to generate revenue, but we strenuously object to the singling out of our industry to bear more than our fair share of the burden.

'What is referred to as a "nickel a drink" (tax) is simply a euphemism to disguise a measure that would raise the state's wine excise tax by 640 per cent. California's wine excise tax would soar from 20 cents a gallon to $1.48 a gallon.'

Excise taxes are imposed at the producer level, as opposed to sales taxes, which are paid directly by consumers when they purchase. In America’s three-tier sales system, the price a winery charges a wholesaler is doubled by the time a customer buys it from a retailer. Since the proposed tax would be levied at the winery level, it would result in the tax being doubled at the retail level. If retailers and restaurateurs follow their traditional mark-up schemes, they will profit from the tax increase, and consumers will pay more.

As Jon Fredrickson of Gomberg, Fredrickson & Associates, a California wine industry watcher, told attendees at the Unified Wine & Grape Symposium in Sacramento last week: 'So the state only gets one-half to one-third of the actual surtax increase, a wasteful and inefficient revenue mechanism detrimental to both industry and consumers.'

Lower-priced wines would be particularly hard-hit if the tax is implemented. As Jerry Hirsh of the Los Angeles Times wrote, if the tax increases, Fred Franzia’s Charles Shaw 'Two Buck Chuck' wine will become Two and a Half Buck Chuck. Franzia told Hirsch: 'The profit margin is already so low we will have to raise the price.' His simple, cookie-cutter wines have great appeal to novice wine drinkers, and I would hate to see a 50-cent price increase turn them off to wine and have them back in the beer aisle.

On the East Coast, a similar scenario is unfolding. New York governor David Paterson's 2009-10 proposed budget includes an increase in the excise tax on wine, from 18.9 cents per gallon to 51 cents, and eliminates funding for the New York Wine and Grape Foundation, run by the enthusiastic and diligent Jim Trezise, whose efforts have let Americans know that New York wines rival those from California, Oregon, Washington and elsewhere.

Trezise’s foundation gets $1 million from the governor and $1.8 million from the state legislature. It raises its own money to achieve a combined $3.8 million budget, which helps fund the Cornell University grape research program, wine trails, regional branding groups, advertising and a wine competition. All that is in jeopardy.

A silver lining in Paterson’s budget proposal is his endorsement of wine sales in New York grocery stores. Sales are currently limited to licensed liquor/wine shops, yet having wine available in grocery stores would give consumers more choice, create price competition, and bring an estimated $100 million to $200 million annually in franchise fees to New York state. Yet small shops worry that they could no longer stay in business.

Nothing is easy in these harsh economic times, and the solutions Schwarzenegger and Paterson propose may not sit well with many wine drinkers. This is an issue to be continued …