Vineyard Values for 1999

Not very long ago Napa and Sonoma Valley's wine industry was in near panic mode. Those of us who follow the industry heard apocalyptic tales of the coming crash which would be due to either a glut of grapes on the market or financial ruin brought on by phylloxera, a root louse that was methodically destroying thousands of vineyard acres as it had done a generation earlier.

In fact, though, Napa and Sonoma Valley wineries and grape growers are today experiencing a revival the likes of which no one has ever seen.

The wine business, like every other industry, has seen it's ups and downs. However, the roller-coaster of the last five years is enough to give the most hardened businessman heart-burn. Five years ago, 15% of the vineyards and wineries in Napa were in or near bankruptcy. Today, demand for wine vineyard land has broken all previous records.

What is going on here? A brief summary of the influences weighing on the wine industry follows:

1. Phylloxera At the turn of the century, Napa and Sonoma Valley's booming wine industry was nearly wiped clean off the face of the earth by a parasite with the unlikely name Phylloxera. Phylloxera attacks grape vines by burrowing into the roots of the plant and destroying the vine from under ground. Once a vineyard has been infected there's no cure other than tearing out the entire vineyard.

When Valley growers started replanting in the 1960s, they chose a root stock called AXR-1 that they were told was resistant to the pestilence. Unfortunately, they were told wrong. In the last ten years, several thousand acres of Napa and Sonoma Valley vineyards have been replanted and more are susceptible to infection from the disease. At present, only 8% of Napa vineyards remain planted on the deceased AXR-1 root stock, while almost 30% of massive Sonoma county's vineyard land is yet to be replanted.

The good news is that the slight reduction in the grape supply has helped hold grape prices up. Until recently, this has been small consolation to vineyard owners who are faced with costs of up to $30,000 per acre to replant.

However, nothing has had a greater impact on the market for Napa and Sonoma Valley grapes than an obscure medical report published two years ago and only recently reported in the American media.

2. The French Paradox. The "French Paradox," is that while the French eat more fat, smoke more smelly cigarettes and exercise less than everybody else on the planet, they manage to live longer and are freer from heart disease than just about anybody else.

How is that possible? Medical researchers discovered that certain elements in red wine reduce cholesterol in the body and lead to healthier hearts. In fact, research, independently confirmed by two separate organizations, demonstrated undeniably that drinking up to five glasses of wine a day prolongs life.

After the national news program `60 Minutes,' aired a feature story on the "French Paradox" last year, sales of red wine jumped 25% across the board and haven't slowed down since.

My friends in the industry have confirmed that sales have broken all records and activity in Napa and Sonoma county tasting rooms has never been busier.

3. Wine Kills Bacteria. As if this weren't enough, a study published in the British Medical Journal (Vol 311, pp. 1657, 12/23/95) demonstrated that red wine actually had properties in it to kill live bacteria. Researchers dropped e-coli, salmonella and other bacteria into separate dishes of red wine, white wine, 10% straight alcohol, tequila, plain water and Pepto-Bismol. The red wine killed more germs faster than any of the other alcohol based liquids.

The researchers proved that it wasn't the alcohol that killed the germs. They learned that, somehow, during the fermentation process an element called poly-phino is formed and becomes part of the wine itself. The poly-phino is an effective anti-septic, anti-bacterial agent. They found that not only does wine aid in digestion but in combination with poly-phino can eliminate germs, stop diarrhea and food born illnesses.

What does all this mean to the wine industry and in particular how will this news affect vineyard values? Simply put, greater demand means higher prices for wine and higher prices for wine means higher prices and values for vineyard land.

The fact is, vineyard land values have been on a trajectory straight up since 1960. Below is a simple chart, based on actual sales over the last 30 years.

In 1992, I projected that the sales of certain select vineyards would exceed $100,000 per acre by the year 2000. I was criticized by winery owners, vineyard owners, C.P.A.'s, the vineyard owners association, and many real estate sale brokerage firms. In mid 1998, a 43 acre piece of vineyard land sitting just north of Opus One winery sold for $4,300,000 in cash. "I told you so." Will we hit my $125,000 per acre for an "ultra premium" vineyard in the year 2000? You bet we will. I will be here to say, "I told you so," again.

The crush average market condition has had its ups and downs since 1978 and, not surprisingly, grape values have had a direct impact on the value of vineyard land. Below are average prices since 1978 for three of Napa and Sonoma's major varietals:

The above chart shows a steady upward trend in grape values over the last 20+ years. Napa and Sonoma Valley grapes continue to fetch the best price per ton in the country. The average price per ton for grapes in California counties (other than Napa and Sonoma) was $775 this year. The natural corollary is that Napa and Sonoma Valley vineyard land also fetches the best price per acre. The average vineyard acre in Napa Valley sold for $55,500 since 1998 with premium acres selling for as much as $100,000 per acre.

1999 will be another record-breaking year for the wine industry as the concept that wine is good for you sinks into the consumers consciousness. With supply down due to El Nino's devastation, grape prices should break all records again this year.

Vineyard land values too are shooting up and we should see some record breaking sales before the year is over. In my 32+ years in the business I have never seen so much activity and interest from all over the world in vineyard land.

If you own vineyard land and have been waiting to sell, now's the time. We're looking at the first seller's market in years. Then again, with all trends pointing upward, it's not a bad time to hold and own Napa Valley vineyards.

If you are thinking of buying a vineyard, I suggest that you go to my web site http://www.bergmanvineyards.com and select the link for my questionnaire. Fill in the blanks and click on the submit button. I would be happy to help you create your dream of living in the wine country.

Vineyard Shoppers Questionnaire

John Bergman Bergman Euro-National Established in 1967 (707) 887-9822 (707) 887-1211 Fax E-mail John Bergman

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