Grape growers have a new resource in developing contracts with wineries.
When finding buyers for their crop, many grape growers look for wineries they can call friends. After all, the wine industry is built on relationships, and the network lacing the business together in Washington State is renowned for its supportiveness. It's the kind of climate where buyers and sellers often shake hands to make a deal.
But they seal it with a good contract.
Contracts are one of the most important tools a grower has to ensure the success of his or her operation, according to Vicky Scharlau, executive director of the Washington Association of Wine Grape Growers. "A good contract benefits all parties, and keeps the industry healthy," she notes. "It doesn't have to be adversarial. It just has to be good business practice, with good understanding between the parties."
The issue is important enough to the grape growers association, Scharlau says, that it was the first chapter developed for its on-line tutorial on sustainable practices, www.vinewise.org. And at its annual meeting in early February, the group introduced a template contract that can help growers to "get paid and stay paid," Scharlau said.
Kennewick, Washington, attorney Tim Coleman helped the association develop that guideline, although he cautions growers to use it as a resource rather than a working document. "Most of the standard contracts out there now are weighted in favor of the buyers," he points out. The new template recognizes the grower's needs.
But a multitude of factors, from delivery dates to payment schedules to Brix at harvest, can make every deal between a grower and a winery unique. That doesn't mean growers have to start from scratch with every client, Coleman said. Instead, they can work with an attorney to develop a "standard" contract for their own vineyard, which they can then adapt to fit the needs of each buyer.
Jim Holmes, owner of Ciel du Cheval Vineyard, near Benton City, Washington, agrees, even though, ironically, he still runs his business on handshakes. "I don't recommend that for everyone," Holmes laughs, "but I've been doing this for 30 years. I've got 26 different buyers for 26 acres of grapes, so no one customer can hurt me. And I've got a list of people waiting for my grapes. If anybody causes me problems, they're out the door."
But most growers aren't in Holmes's position. After 30 years of selling grapes, Holmes knows the many pitfalls that can beset growers, from bankrupt wineries to late payments to rejected crops. A clearly written contract, he emphasizes, is the best protection a grower has, but it's equally important for all parties to understand the meaning of every term and provision.
Holmes conducted an information session on contracts at the industry's 2007 Grape Summit. He said growers should start by developing a good understanding of the buyer, including his or her winemaking background, financing, and business plan.
"A contract is just a pile of words if you don't understand the issues," he said. MOG, or materials other than grapes, he points out, can mean many things, from leaves and twigs to mildew or crushed clusters. And a simple phrase like "absence of mildew" might be defined by area, the amount of skins exposed to mildew, or the number of grapes.
Both parties in a contract must understand not only the standards the contract sets out, but the means of measuring those standards, as well. "For example, you might use sugars to determine ripeness," Holmes said. "But if you measure sugars with a refractometer, you'll get a different number than if you measure with a hydrometer. It might be only a slight difference, a half point or so, but it could provide the basis for rejection, or a reason not to pay."
Holmes said growers for the last few years have been particularly vulnerable to the dangers posed by a weak contract because of the surplus of grapes on the market, especially for contracts based on tonnage delivered instead of acreage. "If you have a contract that tells you how to grow the grapes—the type of trellis system to use, the number of clusters per vine, that sort of thing—that can affect the amount of tonnage. You can thin the grapes to the point where you don't make any money."
And the trend toward longer hang times to ripen grapes can also affect a grower's profits when a tonnage contract is in place. "It's been shown that hang time can reduce a crop by as much as 40 percent," Holmes said. "For a late harvest, your crop could be diminished considerably, and you could easily end up without enough tonnage."
Oasis Farms's president Brenton Roy, Prosser, Washington, said both grape growers and buyers for the most part are aware of the need for good contracts. Roy, who is vice president of the grape growers association, said the wine industry in Washington State is healthy and robust, largely because of the support the members give each other.
But, too often, growers are willing to allow things like late payments to slide. "If you polled growers, most would say they'd wait a week or two before they would even give a winery a call," he said. That can mean a loss of payment rights if a winery is facing serious financial difficulties like bankruptcy.
Washington State law provides all growers with a powerful tool called a processor lien, explains Michael Paukert, an attorney with the Spokane firm of James, Vernon and Weeks. That statute automatically moves the grower to the front of the line of creditors—ahead even of banks—if a processor, or winery, fails to pay according to contract. The lien remains in effect 20 days after a processor misses a payment date.
But Paukert said a processor lien must be perfected properly, with all notices filed accurately and on time, to remain effective after 20 days. That means payment dates must be stated clearly in the contract, he said, and the notices filed promptly. A missed payment should prompt a grower to call his or her attorney immediately.
Roy emphasizes that contract negotiations and procedures like a processor lien shouldn't be looked at as adversarial, but simply as good business practice. The grape association's efforts to educate growers about contracts is intended to strengthen the mutual relationship between buyers and sellers.
"We're trying to get something out there that's strictly from the grower's point of view," he explains. "We're trying to help them dot the i's and cross the t's. We want to keep this good relationship going for as long as possible, because our ability to work together is priceless."