Grapes Left Unharvested: What's Happening in California's Wine Industry

California wine is facing its most devastating time in its history. Right now vineyards in the states have grapes on them not picked. In some cases not worth picking the grape and land is getting fallowed. Our guest today is Rodney Schatz who manages 1100 of acres of vineyards who has been facing this challenge and had to change some of his vineyard to other crops. He also operates a winery. There's lots of vineyards you could drive by and see the fruit still hanging and there's vineyards that from the year prior you can still see the fruit hanging. So we're in a stress situation where we spent money to farm, we spent money to make the wine and now again we're hoping somebody's going to come in and buy wine. I've been doing this for 40 some years. Yeah we used to come out of it. I don't know about this one. This is a little different because it's so dramatic. I'm Siamak Khorrami. Welcome to California Insider. Rod it's great to have you on. Welcome. Thank you very much. Pleasure to be here. There is a phenomenon right now with the wine space, wine industry in California and vineyards. You operate in this space. Can you tell us what's happening right now? A lot is happening right now in the wine industry and the vineyard side particularly. So in the region I come from of Lodi you could drive around any part of the district and you'll see vineyards removed, vineyards abandoned in some sort of distress, but it's a fact of the current situation where there's really not a big market for the grapes and so people have to push them out, put in other crops, decide what to do, hopefully can afford to do. Banking is difficult so there's a lot of tough decisions being made. Property values drop dramatically so you're seeing you know fire sales sometimes on vineyards that you know just need to go and so there's an opportunity for somebody else to come move in. How big is the problem? Quite large. So the California Association of Wine Grape Growers and Family Wine Makers did a survey on acreage and the acreage in the whole state roughly went from close to 600,000 acres several years ago to where we're down to about 450. Wow. Most of that's been taken out in the last year or two, roughly 40,000 acres in the last year and we expect to see another roughly 40,000 go out this year. So it's not just in my region although we're probably the leader in what's getting pushed down valleys say Modesto through Bakersfield, there's vineyard removals, but the coastline as well. Napa included, Sonoma County, Lake County, Mendocino, the South Coast, everybody's feeling the hurt from the depressed market. And the buyers are not buying the grapes is that? So if you're a winery and you need fruit you're going to go buy it or you're going to contract with it and maybe typically you would do a three or five year term contract with a grower so that you had a significant supply of fruit to get you through the coming years. Well as soon as the wine sales drop all kinds of heck goes on because they don't need the fruit. They then are obligated if they're under contract so they're not going to go out and purchase new fruit from maybe a grower who's come out of contract so that creates kind of a snowball event and where we're at now is there's so few contracts left that there's this indecision factor going on. The wineries don't want to buy until they absolutely need it and the growers are trying to figure out should we just try and keep the vineyard alive? Should we just try and continue to farm with the idea that it's going to come back using hope as the method of success which doesn't work very well. 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So there's abandonment and then with this current season vineyards where the grower tried to produce hoping he would get a contract nothing ever happened therefore the fruit hangs. Our own farm is included in that so we we've taken out about 130 acres this year something similar last year so we're we're significantly reducing our vineyard operations. How much acreage do you have and are you able to sell? Yeah so partly we have a winery and this kind of brings up a whole nother issue of bulk wine but having our own winery and our own vineyards a little different perspective and so a lot of what we do is sell wine in bulk to other wineries. So in our operation all grapes are coming in. My family's operation where certainly I'm trying to help out and make that work there's some vineyards that we just couldn't bring in this year I had no room to bring the fruit to the winery. Saying that it's probably a good thing because nobody's buying this bulk wine that we've produced or they are in very small increments. So we're in a stress situation where we spent money to farm we spent money to make the wine and now again we're hoping somebody's going to come in and buy wine and that's the current challenge in the market. Is it getting worse from what you're seeing or? Last week there was the wine grape symposium in Sacramento which is like the industry's get together of talking about what's happening in the wine industry and education programs and it's a place where growers and wineries and people get together and meet and socialize and it's a week of winery success I guess. But in this case the storyline is basically most districts are depressed districts being say Napa or Sonoma or Lodi or whatever. There's lots of bulk wine on the market and then on top of that the crush was significantly down from last year which is good but it wasn't because we didn't produce the grapes it's because the grapes stayed on the vine and we're not brought to the winery. So we're all waiting for March to come when the crush to California grape crush report comes out and there's predictions and the you know the economists in the industry are saying it's going to be x this and this many tons and we already know it's significantly less than last year and even more significant than the previous years. So the industry is doing everything it can to not bring in fruit take vineyards out to overcome this challenge of too much product on the market. Thank you for watching California Insider on YouTube. If you like our content make sure to press the like button and comment so that the algorithm can reach more people. If you're not a subscriber yet make sure to subscribe to our channel so that we can update you with the trends and issues that are going on in California. Now let's go back to the interview. Now you mentioned that there is the grape is on the vine in a lot of areas. Do the farmers are they spending money to plant or it doesn't cost them anything going forward? How does it? Yeah so so just kind of the cost to produce an acre of grapes could be somewhere between you know two thousand dollars on the lowest end and 10 12 even 15 in some of the prized areas of the state. So that's a significant amount of money just to produce your crop and then not sell it. So the economics are tough and people have to make that decision. Do I farm it one more year? Do I actually go out there and prune those grapes onto the ground so that the vineyard can then produce another year? And if you need to borrow bank money you're probably not going to get it because the banks are watching this very closely and I would assume that a bank is going to say you know we're not lending unless you have a contract and a path to success. So it's discussed. What about taking out these vines? What's the cost? How does that work? Yeah very expensive. So in the last four or five years the air pollution board has created a program where in what I'm going to call the old days prior to four or five years ago we would physically push the vineyard in a pile let it dry up and burn it. That was it and then we'd collect all the steel and whatnot and clean the field up and we're ready to go to plant something else. So in the last few years the scenario is that you have to have an approved curtain burner which is a machine that comes in and burns up the vineyard without creating smoke theoretically which is a lie because it does create smoke to some degree especially when they start up in the morning you see this big black cloud take off. So what they're trying to do is actually defeating the purpose in my opinion. But the cost to remove we figure somewhere around three thousand dollars an acre in our area. So you know you have to go pick up the drip hose pull out the end post cut the wires and then you've got equipment that's coming in to push it out and then pile it up and burn it. So and there is a little bit of subsidy from the state around a thousand dollars an acre for vineyard removal but it's certainly not covering your cost and in some areas it's even more dramatic than that. And we are hearing about also fines if people abandon their vineyards. Can you tell us about that? Partly it's not a bad idea in the sense that let's say you're vineyard next to me and you're producing and growing and I abandon mine and I let the weeds the pests and the diseases run rampant because I can't afford to do anything. That could flow onto your property that could affect you and dramatically as well. I mean it's not unheard of to see mildew pressure blow through one field to another and just wipe out a guy's crop. So it is a good thing but it's going to be difficult to do when people don't have the resources to take out the vineyard they're trying or need to abandon. And so I guess it's yet to be seen when the first violation comes down the line as to what's going to happen. And how much is the cost of picking these grapes? You get two scenarios one hand picking versus machine picking. Clearly the machine is a more efficient and cost effective way. We figure about $500 an acre to just harvest the fruit and get it in a truck. That doesn't get it to the winery that just get it out of the field. Hand picking could be anywhere from $250 to $500 a ton to pick. So a machine might go through and pick seven or eight or ten tons for $500 whereas you may be spending $3,000 to hand pick. So it's pushing mechanization very hard. So even with the machine picking at that rate there is not enough buyers to want to pay? No not at this moment. No because the market's severely depressed. People are drinking less. There's this whole movement with what they call GLP-1, the weight loss drugs or the diabetes drugs. 40 million people are on this drug in this country. They're not drinking wine. I'm not saying it's a bad thing it's just this is affecting our business. And then the other big effect is imports where we're seeing a lot of wine coming to this country. You mentioned the imports. Can you tell us what's happening there? There's a lot of imported wine coming into the United States and whether that's bottled wine or bulk wine it's a very significant amount of wine to the point where it's more almost more than what we produce in this current vintage of 2025. It's almost equal. So we're going to produce 2.25 million tons this year is kind of the number. And literally if you convert that to gallons that same amount of gallons is coming into this country either in a bottled product or a bulk product. So we like the tariffs. We like the idea that you know imports are going to change the world for us so to speak. Slow down the imports. You know it's a double-edged sword. You hate to see somebody else lose something in a world where we're all drinking less pulling out our vines and going through the same emotional stress that maybe is going on in France or Australia or wherever. But the key takeaway is that the United States is the one place where everybody wants to bring their wine. So imports are a big factor. So half the market is domestic and half of it is import. Well I'm a little over the skis on that. It's more like about 40 percent. So it's not a 50-50. It's more of a 60-40 situation. 60 is the American or mostly California versus imports. And kind of I want to kind of bring this in as an example from an organization that I've been reading about for a few years called the United States Wine Trade Alliance. And it's a group of people that are working for their you know to benefit themselves. Likely they should. And they're importers and distributors, restauranteurs, you know people with a hand in the game who are importing wine. And their goal is to stop tariffs. And while I can understand that because that's affecting their business when say they bring in French wine and they're selling it to their customers in Atlanta or New York or someplace. That's their business. But what I see is a scenario where these people of this organization could take the time to look to California or the other 49 states for that matter. Every state is producing wine. But take a look at California and say wow there's all these varieties. Even in my district Lodi alone there's a hundred different varieties of wine to choose from. Why wouldn't a wine shop in New York want to have something unique and different that came out of Lodi in a time where they're having financial issues bringing in wine from Europe. That would benefit us. It would benefit them. It would open the eyes to the world. And I think open the eyes to the wine world for consumers that they have. And showcase what California can do or the other 49 states for that matter. There's possibilities for us to consume more California wine. Absolutely. Yes. And it's at your fingertip. It's go online. Just about everybody has a website and they're trying to sell wine. Most of the producers are very small in this country and in California to the point where they make less than 5,000 cases of wine. So a little winery in the foothills of California that makes 3,500 cases of Barbera and Sangiovese and things that you don't regularly see in the grocery store would love to sell that to a palate to some restaurant chain or to a wine shop in some other part of the country. So I think it's just a matter of how do we get these people to find each other and then open their eyes a little bit to what we can do. We all get focused in our ways and it changes hard. So we have to break down those barriers. But it's here. There's so much wine right here. Now Rod, some people have told us that the California wine is a lot more expensive than the French wine. And that's why they don't buy California wine. And we've been covering this topic and some of the audience have told us. What are your thoughts on this? I can tell you that there's a lot of very inexpensive wine in California. And I think, not to bash Napa, but that's the first place you think of when you say California wine. And their wines are expensive. And it's very common to see a hundred plus dollars for a bottle of wine. But that's not the norm. And you can go to your local grocery store and you can see that there's a shelf full of wine that could be from five dollars to twenty five dollars. And that's a good range for most Americans to work in. So to say that the French, you know, are going to have a less expensive, they may have a more popular, less expensive wine. Right. And some of the drawbacks for us in California is the distribution system that we have to go through to get my ten dollar wine that's ten dollars on the shelf to you here in Irvine. Or even other parts of the country that might be further. Much different. Yeah. So it's expensive to do. And when you have big conglomerates that are kind of controlling that whole grocery chain and distribution situation and a handful of distributors that are nationwide, then the barriers for us for a small winery that produces five thousand cases to get in there is very difficult. So you're saying a lot of these small players in California that have a lower cost wine, they cannot get on the shelves across the country. Yeah. And meanwhile, other countries are selling in those shelves. It's an interesting business when you have imports that are done by large conglomerates worldwide. So let's say, you know, some of the bigger players might be bringing in wine from Australia and then bottle it here and they may have only paid a dollar or two a gallon for the wine. It's pretty good wine and it can get on the shelf for less than ten dollars. That competes directly with me. So those imports are hurting me. When you have French bottled wine and there's so much of it that they're drowning in, they're looking anywhere to move it and they'll sell it off cheaper and they'll bring it in. So the tariffs are helping us offset some of that. So you're seeing the impact of the tariffs? A little bit, yeah. And also the weakness of the dollar is another big hit. I last week talked to a couple of my distributors who are importers as well, both East Coast. They're not huge, but they're not small. They're not, you know, insignificant players. Both of them said that in this last year, they've had to spend about a half a million dollars more for the cost of tariffs and then the value of the dollar being weak to import the same amount of wine. So they're trying to keep it coming in and they're trying to maintain for their customers what they want. Saying that, they're also seeing that at the lower end, they need more of my product. So I'm feeling a little bit good about the idea that the tariffs may actually be working for us. And we'll see. This spring will be kind of the telltale sign. We've got some new distribution that we've already, you know, moved into other states where we've never been. And as we speak, we're bottling wine today. So that's a good thing. That's great. And what about when you mentioned somebody from Australia, the wine comes here, the juice comes here and then it gets bottled here. Is it branded American or Canada or is it Australia? Yeah, so no. What they can do is technically in this current situation is take about 25 percent of that wine, blend it with California wine and call it American. So there's this whole issue of the American appellation that we're trying to to put the kibosh to. So there is currently an assembly bill, I think it's 18, 1585, I think. But the point of the bill is in California is to eliminate that scenario and to say that if you're going to use the American appellation on the bottle, then it has to be American wine. It can't come from some other part of the world. It can't be disingenuous to the consumer. It's got to be truth in advertising or truth in labeling to say if it's American, California or it's blended with possibly another state or more likely another state would blend with California. In essence, you'll probably end up seeing if this law passes, you probably won't even see the American appellation in California because who's going to bring in wine from New York to blend with California to make an American wine? They're going to just stick with California or whatever the appellations are. So that's going to help the farmers. They're going to help us dramatically in California only. So this is a California bill. So it's not completely changing the scenario for the rest of the country, but it does make a statement since, you know, 80 plus percent of the wine in the country comes from California. So if you're going to bottle it here, produce it here, sell it here, and this law passes. So it can't be putting foreign wine in there. How much was the tariffs? 15 percent for Europe depends on the country. So I think South America, maybe 10 percent. So wine didn't have its own category of tariffs? No, no tariffs. Although, you know, Trump did threaten like the French, we're going to put a hundred percent tariff on this and that if he didn't get his way. But none of that came through fruition. So it's 15 percent. But the story I'm hearing from distributors is that they're able to kind of overcome that with maybe reduced price that they're paying for it, jacking the price a little bit here and the consumer still getting their bottled product that they want, which is fine. I mean, I don't really have a beef with the bottled product. It's the bulk wine that comes in and it just loses identity and, you know, the consumer really doesn't even know what they're buying. So it's detrimental. So tell us more about that. Is there tariffs on the bulk wine? Yeah, similar situation. So there's this whole duty drawback thing, I'm sure we've talked about that, where I guess the simplest way to say is if you import something, you're going to pay duties, taxes, fees, whatever to bring it in. Now, the rub is you're a big winer and you bring in all this product and you have to pay these fees. But if you export your wine out of the country, you get those costs back. So it's really an incentive not to export. It's an incentive to import wine. Well, we have enough problems with import wine. We really don't need to present a way for people to want to bring in more imported wine. So if you export a portion of it, you get all of it back? It's almost 100% return. So if you have X number of dollars spent to bring in, that amount can be used to offset the export. So you bottle it here, you export some of it, well, you bottle it here and probably keep it here. But that fee that you had to pay to import, you can deduct it. That's your duty drawback. You can take that off of your expense. So then that's going to compete with local? Oh, totally. So we bring in 450 million gallons of wine based on 22, 23 numbers into the United States. 450 million gallons of wine. We export about 77. But then you don't have to pay any taxes or fees on the 400. So a guy like me, my goal, I would love to export all of it because I would save some fees, but I'm not going to import wine. I have a hard time selling my own wine, much less buy imported wine. So when you have big beverage companies playing this game, it really hurts. It really hits us. Do they get their fees waived on everything that they're importing or just the part that they're exporting? In-kind products. So whether it's wine, basically we're talking about. And so whether it's in a bottle or bulk, it's traded. And so, yeah, the offset can come either way. So is it a lot cheaper to bring the bulk here? Oh, by far. So imagine like our scenario here in California, where nobody's really actively selling bulk wine at a great price, that's happening around the world. So if you're looking to really find the cheapest wine in the world, go to Australia, go to Southern Europe, go wherever, bring it in. And then if you get this duty drawback, you're almost bringing it in for less than a dollar a gallon, which is super cheap. And how much is it to buy it here? If I were to buy here instead of importing, how much would it be per gallon? Per gallon, prices now are somewhere in the range of, in my area, three to $4 a gallon. So your cost will be a third or 25% of buying local. Yeah, exactly. Yeah. Yeah. So for us at those prices, we're not covering our farming costs or our winemaking costs. We're just kind of squirrel caging and creating nothing, really just providing product for no profit. And when you start bringing in cheap wine, that just exacerbates the problem and keeps us in this squirrel cage, so to speak. And we can't get out of it. So what do you guys need to get this fixed? Does it need to be a federal law? Is it the California law? Well, the California law would, on the American appellation, certainly is driving it in the right direction. I think the tariffs are in the right direction. Of course, the wheat dollar is helping. The fact that our consumption's down, we need to increase our marketing, sell more product, and also defend some of the fake things that are happening in the world. We have, for example, we'll beat up on Canada a little bit. We as United States buy 50 million gallons of quote unquote wine from Canada. Well, it's not wine per se. Wine is a product made from grapes or fruit. Well, they're bringing in grain alcohol and they call it wine and they bring it in and it goes into these little ready to drink mixes. You see the beat box and the this and that really high alcohol drinks for certain types. But the Canadians, this happened, I want to say it was in around 2000. It was a trade agreement that allowed them to use the word wine to bring in this or to sell grain alcohol as the word wine. Well, and the other thing that happens when the conglomerates buy that product here, they pay a wine tax, not a alcohol tax. So that's even like 25% of what they should be paying. So there's a lot of fake news going on there. And then the other thing with Canada, you know, Trump wanted to make them the 51st state, jokingly, I think, and boy, that really hit a nerve and they pulled California wines off the shelf and Oregon and Washington wines. So prior to that, about 35% of our export was going to Canada. And while there's still some going there, it's a big hit, a big financial hit to the whole industry. That's also hurting us because now we're not exporting roughly another billion dollars worth of wine that would go to Canada. So that's something that needs to be negotiated. Another of your community, you know, the farming community, how is it impacted by what you guys see in these vineyards? Has it had a big impact on you? Sure. Yeah. I don't know that you can feel it yet in our community, but the banking industry, let's say you're a vineyard equipment sales person, all the industries that support the vineyard and the wineries are going to hurt because people aren't going to buy grape steaks and grape vines and plant and use diesel and all these things. So, yeah, we're going to see an effect over the next year or so pretty, pretty dramatically. And then, like I mentioned before, the price of, or the value of the land has dropped dramatically because what do you do with what used to be roughly a hundred thousand acres of vineyard in Lodi? And it's going to be something along the lines of 65,000 acres here shortly or less. Now we have the ability to put trees in and do other things. So you're going to see some of that, but it takes dollars, it takes money to do that. And what about the farming community? You guys are, we've heard that you guys are very close and collaborate and you're resilient. Can you tell us more about that? Do you think you guys will come out of that? I've been doing this for 40 some years. Yeah, we used to come out of it. I don't know about this one. This is a little different because it's so dramatic, you know, used to be, well, we had some ups and downs, like any scale would go. And, you know, a couple of bad years was followed by a couple of good, maybe some steady growth, but this one has really knocked the wind out of a lot of people. So the community is probably complaining more than ever. I don't see them jumping off bridges yet, but there's a lot of woe is me going on. And so you're going to see, you know, vineyards broken up into smaller parcels for sale for home sites. You're going to see other crops produced. You're going to see just the general idea that there's less income, maybe people having to vacate the industry and go find a job in town. That's happening. So there's a lot of issues coming down. When people switch, and you did that yourself to other crops, does it pay the same? Does it work out the same or does it not pay? Well, it's probably paying better than right now. Well, it's zero for a lot of people. We hope so. And that's the goal, right? Is to do something better. But a lot of that's uncertain. You don't know. So a lot of people are jumping into nuts, almonds and walnuts and pistachios and things. And while those are good, viable, strong crops and commodities in California, you know, too much is too much also. So where does it end? One thing to consider in all this big picture for my area of Lodi is we still have probably the best place in California to have water and have access to water. And although it's starting to cost more, we still have water. Whereas you see, and I'm sure you've heard maybe down Kern County and Fresno and Kings Camp, places where the water is a huge issue and they're having to remove crops because they can't irrigate them. What are the impacts of changing from vines to other kinds of, you mentioned pistachios, almonds and other kinds of trees. So there's lots of trees going in the area, which is going to affect mainly groundwater. And when I mentioned earlier that, you know, we're in the greatest spot, you know, in California for water, which we probably are. Now with vineyard removal, we're going to see, and we are seeing large amounts of nut crops and other tree crops going in. The problem with that is that they use at least twice as much water as the grapes. So groundwater impact is going to be a bigger issue. And that, you know, eventually leads to sinking your well deeper or the cost of surface water. If you're in a place where you get surface water from an irrigation district, those costs are going to go up. So we're going to see water become more significant in our area, just like we're seeing in the rest of the state. And then the same way with wastewater, which is a huge part of the wine side where we have a fee for the pond every year. We have test wells that we have to maintain, monitor, report on. And it's not that I get to report, we have to hire an engineer to do the report. All those costs get pushed back onto what it costs to produce the wine. One thing we did do that's extremely significant that I want to mention is we have a worm farm and these worms are really helping us out tremendously with our wastewater. That's not to say we still have to pay all these fees, but this worm farm was just brilliant technology and we feed them our wastewater and they clean up the water so we can reuse it in the vineyard. Very, very positive. One of the good things that comes out of having regulation, you start to figure out how to do things more efficiently. We're not trying to destroy the land and the earth, that's our livelihood. We're the ones that are trying to make it right, but we're getting taxed and over-regulated. Well, hopefully things will recover soon. We hope. Rodney Schatz with Peltier Winery, it was great to have you on California Insider. Thank you very much, I appreciate it. What do you think about the situation with California wine? Should the state do more for this industry? Let us know in the comments or email us at siamakacaliforniasider.com. We read all of your emails and comments. I'm Siamak Khorrami, this is California Insider, we'll see you next time.