The wine industry in California, once called 'the land blessed by God', is facing a crisis. Consumers are drinking less alcohol, annual wildfires continue, and labor shortages during harvest seasons are compounding the challenges. Farmers are abandoning vineyards, with some tearing them up altogether, and even long-established wineries that have been around for over 50 years are shutting their doors, tarnishing the reputation of wine estates.
The 'Liv-ex California Wine 50', which indexes the major wine transaction prices traded on financial markets worldwide, fell by 10.5% over the past year as of the 8th. Over two years, the decline deepens to 15.3%. This index is the most reputable wine-related market indicator in the world. It is calculated by the London International Vintners Exchange (Liv-ex). The index compares the current values of the 50 most traded California wines against a baseline of 100 set in January 2004. Notable wines included in the index are 'Screaming Eagle', priced above 5 million won domestically, 'Opus One', created in collaboration between the legendary American winemaker Robert Mondavi and the Rothschild family, and Ridge Monte Bello, which ranked first over celebrated French wines in the 'Judgment of Paris 30th Anniversary Tasting' in 2006. The index, which was above 400 in 2022, has dropped below 300 this year.
The market decline has also adversely affected even the highest-end wines, akin to a disaster for everyday consumer wines. According to the San Francisco Chronicle earlier this month, California wine growers are expected to abandon a significant portion of this year's grape harvest. For two consecutive years, over hundreds of thousands of tons of grapes have gone unsold and may rot on the vine. Throughout the state, 162 million square meters (approximately 49,000 acres) of vineyards have either been closed or abandoned. 'Valley Farm Management', which has operated a grape farm in Monterey County for 51 years, has decided to close its business this year. This region is known for both affordable and high-quality production. Company representative Jason Smith noted in a media interview, 'Last year, if we produced ten bottles, nine were sold, but this year the sales rate plummeted to 40%. It's an emotionally difficult decision, but from a numbers perspective, it was an easy decision.'
The situation in the Lodi area, which produces the most wine in California, is even more dire. According to the U.S. Department of Agriculture (USDA), Lodi accounts for 20.5% of the state's wine grape production. This year and last, over 400,000 tons of grapes have hung on the vines unsold in Lodi. With declining profitability, 20% of the vineyards have been uprooted. Stewart Spencer, director of the Lodi Wine Commission, told ABC in an interview, 'The grapes that were not harvested last year have rotted in the field, turning black,' adding that 'harvesting would not even cover labor costs.'
The most fundamental reason for this is the collapse in demand. According to polling agency Gallup, the percentage of U.S. adults who responded that they 'currently drink alcohol' stands at 54%, the lowest level since the first survey in 1939, marking an 86-year record low. Reputable alcoholic beverage research firm IWSR reported that overall U.S. alcohol consumption decreased by 2.6% in 2023 and by 1% last year, marking a decline for two consecutive years. Adding to this, the strong tariff policies pursued by the Donald Trump administration exacerbated the situation. Following the onset of the tariff war in April, a 15% additional tariff was imposed on all imported materials used in wine production, including European cork, French oak barrels, and Chinese glass bottles. As a result, the price competitiveness of California wines, which were already relatively high, decreased further. This is especially problematic as major export countries like Canada, which were primary markets for California wines, instituted retaliatory tariffs on U.S. alcoholic beverages, effectively blocking export opportunities.
The recurrent major wildfires have been shaking the foundations of the wine industry annually. Following major wildfires in 2020 that burned approximately 270 million square meters (about 82,000 acres), the wildfires that occurred last month left property damages of $65 million (about 90 billion won) in Napa Valley, a key region filled with high-end wineries. The impact of wildfires extends far beyond property damages and affects all areas of grape cultivation. Even if the vines are not directly burned, the 'smoke taint' damage, where grapes and aging wines absorb smoke, alters the flavor of the wine and can be much more detrimental. A winery representative mentioned in an interview with CBS last month, 'After the wildfires, it tasted like licking an ashtray, and I had to pour all the wine down the drain that I had made for two years.'
Recently, the labor shortage crisis due to stricter immigration laws has emerged just ahead of harvest season. Grape harvesting requires intensive labor between September and October. Typically, wineries secure temporary labor in volunteer or part-time forms during this period. However, this year, intensified crackdowns have resulted in labor shortages. California local media KQED reported that over half of California's agricultural workforce consists of undocumented immigrants. As the Trump administration significantly increased the budget for Immigration and Customs Enforcement (ICE) and intensified crackdowns, wineries have been struggling to find workers during the harvest season. Despite the efforts of local nonprofits to assist, it has not been enough. Michael Kaiser, vice president of WineAmerica, stated, 'If there's no one to pick the grapes, they will simply rot on the vine.'
Just three years ago, California wineries were regarded as top investment destinations. They were attractive enough to attract major domestic conglomerates. In 2022, Shinsegae acquired California's renowned winery, Schaefer Vineyard, for 300 billion won (approximately $250 million). This amount was equivalent to 28 times the winery's annual net income. Shortly thereafter, Hanwha Solutions acquired Seven Stones, a Napa Valley boutique winery through its U.S. subsidiary, Hanwha Solutions USA Holdings Corporation. The price Hanwha paid for the winery was about $34 million (approximately 44.5 billion won).
That period marked the last golden age of the California wine market. Large transactions disappeared following the peak in 2022. Conversely, there is now an oversupply of properties available for sale. As of July last year, there were 36 listings related to wineries and commercial vineyards in Napa and 58 in Sonoma alone. Some of these include well-rated famous wineries like Napa's 'Vineyard 29' ($65 million) and Sonoma's 'Medlock Ames' ($44 million).
Even LVMH Moët Hennessy Louis Vuitton, the French luxury goods group, sold the famous Napa Valley winery 'Newton Vineyard', which it acquired in 2001 and owned for 24 years, to a private investor on the 5th. This winery lost 93% of its vineyards and most of the wine portions aging for sale due to the wildfires in 2020. LVMH completely suspended operations of the winery in February of this year and began seeking new ownership. A representative from the wine real estate firm Vintner's Vault noted, 'There are more vineyard and winery listings on the market than in over a decade,' adding, 'While there are many listings expected after mid-2024, transactions have been nearly nonexistent.'
Wine industry experts have warned that the crisis facing the California wine industry may not be a temporary downturn due to economic cycles. Climate change and shifts in consumption preferences among younger generations are becoming an unstoppable new normal. Rob McMillan, the wine sector representative of Silicon Valley Bank, warned in this year's annual report, 'The wine industry can no longer afford to rest on past methods.' He added, 'Wineries that fail to introduce new grape varieties that are more climate-resilient and develop new marketing strategies to appeal to young consumers will ultimately be rendered obsolete.'