With 700 wineries in Washington State and numerous more in neighboring states, wine grape growers have plenty of options when considering where to sell their grapes.
The entry of E.J. Gallo Winery, the world’s largest wine producer, into the Washington wine industry should help put growers in a strong position, Colin Morrell, director of grower relations for Constellation Brands Northwest based in Prosser, Washington, says. In addition, Ste. Michelle, one of the state’s founding wineries, appears to be in an expansion mode.
Speaking at a caucus presented last fall by the Washington Association of Wine Grape Growers, Morrell encouraged growers to plan ahead when deciding where to take their grapes and to negotiate early.
“Don’t wait until October when you have no leverage,” he said, adding that the best time to negotiate is when there’s a perceived shortage of grapes.
There are four main types of buyers:
- Large branded wineries, such as Ste. Michelle, Hogue Cellars, Precept, Pacific Rim, and Gallo
- Small wineries (about 600 of them) with production of about 250 to 100,000 cases
- Bulk wine companies, such as the Wahluke Wine Company and Coventry Vale
- Brokers. There are a couple in Washington working somewhat behind the scenes.
Large branded wineries
Large wineries want machine-harvested grapes, not hand picked. If you need to hire a custom picking service, the cost will be roughly $275 to $300 per acre, depending on whether it’s a modern machine that removes material other than grapes or a conventional picker. If you own a harvester, your costs will be lower.
The grower is usually responsible for shipping the fruit to the winery and paying the haulage cost.
Large wineries usually pay the market price, which is announced annually and is generally about 10 to 35 percent below the price estimated by the Washington Association of Wine Grape Growers and 5 to 15 percent below the average prices calculated by the National Agricultural Statistics Service, Morrell said. Wineries announce the price in late July or August each year, after the WAWGG price is out, when the wineries have a good sense of the size of the crop and have their plans in place.
Growers can obtain contracts that lock in prices for about two to four years, so regardless of what happens to the market price, they receive the contracted price. Usually, there’s a negotiation period after the contract is set during which the grower can sit down with the winery in the hope of adjusting the price upward, Morrell said. “A lot depends on what the winery’s needs are at the time and how good the grower is and the fruit is, and whether they would be willing to pay more for it.”
Wineries usually offer the option of per-acre pricing, which removes the incentive for the grower to produce high tonnage.
Advantages of selling to large wineries include the labor savings from mechanical harvesting, leaf removal, and prepruning. This allows growers more time to devote to other crops they might have, such as cherries or blueberries, and more flexibility in moving their crews.
A big advantage of working with large wineries is stability. They take their contracts very seriously and have lawyers who make wineries abide by them, which is good for both parties, Morrell said.
For medium to large growers, with 75 acres or more of grapes, selling to a large winery is a good way to go, even though the price might be lower than smaller wineries offer, he concluded.
The main difference in selling to a small winery is that hand picking is usually required, at a cost of about $100 to $175 per ton, or $400 to $800 per acre. Usually, a small winery will pay for trucking. If growers have their own trucks, the wineries will often pay them for hauling the fruit, but Morrell encouraged growers to keep the cost down.
“Don’t look at it as something to make profit on,” he said. “That will make it go smoother for both parties.”
Prices offered by smaller wineries can be anywhere from 10 percent below to 35 percent above the WAWGG prices, depending on the winery and whether the grapes are picked into bins or lugs.
Selling to wineries out of state can be a good option, Morrell said. Wineries in Oregon, Idaho, and Montana like the quality and consistency of Washington grapes. They tend to pay well, because they are used to buying expensive fruit, such as Pinot Noir.
A disadvantage of selling to small wineries is the additional labor required for thinning, leaf removal, and picking, and the difficulty of juggling various crops. “Often, growers drop the ball on their grapes if they’re dealing with cherry harvest,” Morrell said.
“You’re going to find, usually, that the really small wineries are the ones that are the highest maintenance and require the most work. Bigger ones tend to know the drill and are easy to work with. If you can handle it, it’s good to have all these different-sized wineries in your pool to sell to because you never know when one’s going to fall off and you need another one. You want to end the year with all your grapes picked. You don’t want to leave grapes in the vineyard.”
Another drawback of selling to small wineries is it’s easier for them to break a contract. If the grower and winery have a good relationship, it tends to work well, but it is not as stable as with a larger winery, Morrell said. However, there are growers with 1,000 acres or more of grapes who sell successfully to a large number of small wineries because they know it’s good business.
Wineries will seek out growers who have a reputation for growing good, consistent fruit and are establishing a name for themselves.
“There’s a niche for growers who are good at producing high-quality fruit for small wineries,” Morrell said.
Bulk wine companies
These operate in a similar way to the branded wineries in some respects. They take machine-harvested fruit and generally have viticulturists work with the growers, though they are usually less stringent than the branded wine companies.
Prices are generally lower, though not always, depending on their need for fruit. Many bulk wineries have their own vineyards and might pay more when their own crop is light than when they have a large crop. At the end of the season, they might try to push for a discount price.
Usually, their customers fall into different market tiers, and they are willing to pay more for grapes to supply their higher-tier customers. Generally, it’s good business because they are reliable and stable business partners and are willing to sign multiyear agreements.
In the past, some bulk wineries have done custom winemaking. The grower takes the fruit to the winery, and when the wine is sold, the grower receives the proceeds less the processing and storage fees.
“It seems to work pretty well,” Morrell said. “There’s a little bit of risk if they can’t sell the wine, but the only case I could see where that would happen is if you’re bringing in fruit that’s really low quality, the winemaker tastes it, and it’s not good enough to sell—and you can only look at yourself if that’s the case.”
Brokers generally handle hand-picked grapes in volumes of less than ten tons. The deals tend to be short-term and last minute and often involve buyers out of state.
Morrell said it’s a good way to move excess grapes if the crop picks out heavy or a customer didn’t take all the fruit they originally intended. He recommended that growers ask for signed contracts to reduce their risk.
“It’s important to protect yourself in case they don’t get paid,” he said. “It can be volatile. You think you have a deal, and then it’s gone. But I’ve sold a little fruit this way, and it worked out well.”
Ultimately, growers need to cultivate long-term, stable customers that they’ll enjoy working with year after year, he said.
“The most important thing is to do what it takes to produce high quality, ripe fruit. If your fruit is high quality, someone is going to buy it, and if not, you will struggle.”