Data from the U.S. Census Bureau has some surprising comparisons of California County wineries. This graphic demonstrates this based on 2010 numbers. Napa and Sonoma are no surprise, but the prominence of San Luis Obispo as the third highest county caught more than a few people!
This graphic really demonstrates how wide ranging the wine industry has become in the state. And may settle some debates about the prominence of certain counties!
The Center For Rural Pennsylvania recently published a comprehensive study of the state’s wine industry. The 19 page report is chock full of interesting facts, cogent analysis and should be required reading for anyone interested in wineries located in Pennsylvania. The report, written by professors Dombrosky and Gajanan, compares Pennsylvania’s wineries to those located in neighboring states and illuminates both the strengths and challenges facing the industry. It notes the following interesting facts (among others):
1. Over the last five years, the Pennsylvania wine industry has grown rapidly, although not as quickly as is occurring in Ohio, Maryland, Virginia and North Carolina.
2. The states of New York, Ohio, Virginia and North Carolina have “significantly higher levels of state funding” for research and promotion than does Pennsylvania.
3. Pennsylvania is the 5th largest grape producer in the United States.
4. Pennsylvania ranks 6th among the Eastern states for wine production.
5. In the five-year period of 2007-2012, Pennsylvania wineries received governmental loans totaling $1.1 million.
6. In the same five-year period, the Pennsylvania Winery Association received grants totaling an additional $550,000.
7. The Pennsylvania wine industry is operating at only 76% of its capacity
8. The “principal players” of the Pennsylvania wine industry -- other than the wineries themselves -- are the Pennsylvania Liquor Control Board, Pennsylvania Winery Association, Pennsylvania Wine Marketing and Research Board and Pennsylvania State University.
9. A staggering 81% of all Pennsylvania wine is sold directly by wineries to wine outlets or tourists, such that wine tourists represent an “essential distribution” channel. There are almost “no sales” of Pennsylvania wines through wholesalers or distributors.
10. All Eastern states (except Pennsylvania) permit direct shipping of wine to consumers, a fact which is likely to change in the near future, as Pennsylvania appears close to privatizing the functions of the Liquor Control Board.
In Romeo & Juliet, Juliet famously asks “what's in a name? That which we call a rose by any other name would smell as sweet.”
Wineries located in southern New Jersey have asked themselves the same question, but have responded with a different answer. As recently noted by National Public Radio, southern New Jersey wineries are promoting their products by separating their businesses from the Garden State. They refer to the “Outer Coastal Plains” as designating the location of their wineries. Wineries located in northwestern New Jersey, by contrast, fully embrace their state and collectively refer to their businesses as being located in “Vintage North Jersey.”
Whatever they are called, the best New Jersey wines have recently garnered rave reviews, beat expensive French wines in blind taste tests and received cash grants for promotional purposes. In a move to boost tourism and economic development, the Outer Coastal Plains Vineyard Association recently snared a $33,000 grant from the USDA, while Vintage North Jersey received a slightly smaller grant to support marketing and tourism activities.
Whether New Jersey wineries seek to rebrand the geographic location of their business or promote their locale, marketing suggests that -- notwithstanding Juliet's famous soliloquy -- names are important. Perhaps just as important, cash grants are available in many jurisdictions to support marketing and the associated tourism efforts of local wineries.
I recently had the opportunity to have lunch with Nick Frey. Nick has served for 14 years as President of the Sonoma County Winegrape Commission. This month is his last month before his “retirement.” Karissa Kruse, currently Marketing Director, will be taking over on May 1.
It has certainly been an interesting 14 years for Nick following his move to Sonoma from the Midwest. Nick started as Executive Director in 1999. He presided over one of the biggest changes in the organization in 2006. That year, with the help of enabling legislation, the Sonoma grape growers voted to reform as a state commission, bringing with it a mandatory assessment for the County’s grape growers.
Nick cites to the initiation of “conjunctive labeling” as a key accomplishment during his supervision of the organization. For those unfamiliar with “conjunctive labeling,” in October, 2010, the wine growers voted to require that every winery in the county label its wines with a sub-appellation including the words “Sonoma County” on the label. Anything bottled after January 1 of this year must include that designation. Nick pointed out to me that, with the number of labels growing in Sonoma, conjunctive labeling will help promote all the wines of Sonoma and enhance the Sonoma “brand.”
I asked Nick about his view of the future issues that the Sonoma wine growers would face. “Increased regulation” he immediately responded. He cited the fact that labor laws, pesticide use and water regulations have expanded significantly in the last few years. He also views that air quality issues, including restrictions on diesel engines will be a clear thrust of potential regulation and continued required improvement by the wine growers.
Nick was also instrumental in leading to the delay in the Ag Waiver. We have written about the Ag Waiver on several occasions. The waiver increased regulatory requirements for planning for diminished erosion at vineyards in the county. Nick provided extensive comments to the recently effort raising points about targeting a land use that has been at the forefront of conservation efforts.
Nick intends to continue to advise the wine growers and remain active in his “retirement”. He also has some farmland, but it has high levels of boron. Given Nick’s knowledge and experience, my guess is he will address that boron shortly, and that he won’t be fading off into the sunset.
Best wishes to Nick on his retirement and to Karissa on her new position.
A recent New York Times article profiled wineries located in southern New Jersey and reported that many of the state’s finest are superior to more the popular and expensive French wines. Pennsylvania wineries have recently received similar positive reviews. Surging wine exports from both states support the view that these states produce some excellent wines. The obvious difficulty which Garden State and Keystone state producers confront is one of perception summed up by the old real estate adage: “location, location, location."
Even if not consistently true, French wine “sounds better” than wine produced from grapes grown in New Jersey and Pennsylvania.
What’s a New Jersey or Pennsylvania producer to do? Plenty.
Consider the following:
1. Be our own advocate. Promote your region and the increasingly positive press New Jersey and Pennsylvania wines are garnering.
2. Become known in your community. Focus sales efforts on established restaurants, country clubs and bars. Establish your brand in your community. This provides welcome revenue while reducing sales and distribution costs.
3. “Pretty Up” your label with elegant printing and interesting artwork. Consumers welcome aesthetically pleasing goods.
4. Consider a provocative name. Recent studies show strong sales of brands with such names.
5. Participate in local and regional trade associations, including those which set high standards for members and which promote these standards.
6. Use social media to promote your wine.
7. Be creative in your advertising.
8. Energize your tastings. Sponsor music or art festivals.
9. Emphasize any awards you may have won.
10. Seek “third-party” validation for your wine in the form of positive publicity from independent third parties.
Wineries in the northeast have much to offer, they may just need to make their brands better known.
According to widely circulated press accounts, Anheuser-Busch InBev, brewers of the iconic Budweiser beer, has been sued for allegedly understating the alcohol content of its beer and "watering down" its product. The company disputes the claims and has vowed to fight. Whatever the outcome of the litigation, one of the lessons wine producers can learn from it is the importance of accurately stating the alcohol content of the wine they produce.
The TTB requires wine labels to accurately describe the beverage sold. Regulations focus on everything from vintage date, brand name, health warnings and the like. As to alcohol content, wine labels must either accurately state the alcohol content or identify the wine as either a "table wine” or “light wine” (with an alcohol content between 7-14%) or "dessert wine" (with an alcohol content above 14%).
Even unsubstantiated allegations of mislabeling can cause public relations nightmares, regulatory scrutiny and consumer class action lawsuits. Claims can run the gambit and can include everything from consumer fraud, to breach of contract, mislabeling and alleged violations of various state and federal requirements.
When it comes to accuracy in labeling, a variation of the old saw applies: a properly measured ounce of prevention is worth an accurately weighed pound of cure.
Reminder: Federal labeling requirements are detailed and specific. Failure to comply with them may result in the imposition of fines. Be sure to consult with a lawyer before printing your labels.
Bill Koch is very well known these days in the wine world. Mr. Koch has been actively pursuing parties in the wine distribution chain. He has alleged that he was sold counterfeit wine. Mr. Koch named six different wine sellers, distributors and auctioneers in his lawsuits, the outcomes of which have attracted much attention and may have repercussions in the industry.
Counterfeiting by the bottle
Unfortunately, it is too easy to counterfeit using bottles. Today, I could buy an empty bottle of 1996 Chateau Petrus on eBay for 99 cents – for a bottle that could sell for over $2,000 if filled with the real thing. You can buy one just like the one in this picture. Just fill that bottle up with some less expensive wine, cork it and you are in business to make a major profit!
Or take an old bottle, remove the cheapo label, put on an ancient looking label you have made on your word processor that calls it a great Bordeaux. Look for a willing buyer or auction house to sell it for you.
Counterfeiting the grape
Counterfeiting can also happen with grapes and can even fool the experts. Recently, E & J Gallo revealed that it had purchased Shiraz and Merlot grapes that it had been told by growers was Pinot Noir. These cheaper grapes went into Red Bicyclette “Pinot Noir.” In all, twelve people were convicted of fraud by the French courts.
Mr. Koch and the 1787 Thomas Jefferson Bottle
Mr. Koch is a purchaser of the now infamous “Thomas Jefferson” wine, was sold to him. The seller believed that the wine was a 1787 vintage and that the bottles’ etching of “Th. J” indicated Thomas Jefferson as the first owner. However, after his purchase, Mr. Koch requested that the Jefferson Foundation verify the bottles came from Thomas Jefferson. The Foundation declined. In the end, significant evidence was presented that the etchings on the bottles were made within the last 100 years.
Legal Claims
Stung by the apparently counterfeit wine, Mr. Koch sued. Being creative lawyers, Mr. Koch’s attorneys asserted claims against six different parties in the wine’s sales chain. The claims that were asserted in some of the several lawsuits included:
1. Breach of Contract – With an agreement for sale and purchase, there is grounds for a claim that there was a contract for the sale of a specific famous wine. If that statement is not true, the contract is breached. Under laws of most states, an aggrieved party has 4 years to file a claim for breach of a written contract and 2 years for an oral contract.
2. Breach of Warranty – It is common for sellers to describe their product as “excellent” or the “best.” This sets up a potential for breach of a “warranty.” Most auction houses sell wines “as is” and affirmatively state that they do not make any representation or guarantee. Some courts will enforce these statements, but will look at other facts to decide if there is a warranty.
3. Negligence – Buyers will argue that the seller is in a position of greater knowledge about what is in the bottle and must take care to be correct about descriptions. This creates a “duty of care” in selling bottles to insure that the bottle contains what sellers say it contains. This is normally a two year claims period after the sale.
4. Fraud – When a seller knowingly sells counterfeit wine and a buyer can prove that he would not have purchased the bottle but for statements made by the seller, there is a claim for fraud. Each state statute controls what has to be shown in order to prevail on a fraud theory.
5. Negligent Misrepresentation – If a seller does not knowingly make fraudulent statements, they can still be sued under a negligent misrepresentation theory. That theory states that a party makes an assertion of fact, without having a basis for the belief. If that fact is incorrect and material, it forms the basis of a negligent misrepresentation lawsuit.
6. Unfair Business Practices – Most states have statutes that prevent unlawful, unfair or fraudulent business practices. These laws may differ by state. A court would review the facts to determine if there is a business practice that does not pass legal muster.
Sellers who wish to avoid liability under these theories must make it absolutely clear, both in writing and in all their oral statements, that they do not guarantee or warrant what they are selling. If this is done sufficiently, a court is more likely to decide that this is a situation for applying the old adage - “buyer beware.”
Bill Koch spent $500,000 for 4 bottles of hand blown glass with initials “TH. J.”, and, as yet, has failed to recover any of that money. In fact, a U.S. Appeals Court just dismissed his suit against some parties, based on the passage of the statute of limitations.
As a follow up to our previous articles on the Napa River and Sonoma Creek proposed Ag Waivers, the San Francisco Bay Regional Water Quality Control Board has delayed March's public hearings on the proposed TMDL requirements. The stated reason was "(n)umerous comment letters, staff turnover and the need to evaluate our strategy in light of the above."
There were 19 comments. The comments included discussions about the emphasis on vineyards to the exclusion of other sources. Also, comments pointed up that there were substantial duplications in the proposal and currently existing regulations.
Stay tuned as this appears to have taken an interesting turn.
In our last entry, we discussed a new program for vineyards in Napa and Sonoma. The program deals with TMDLs. We had some good questions asked after the blog. Now that written comments to the regulatory authority are in, people are interested in March's hearings.
The six most frequent questions were:
1. What are TMDLs?
Maybe the best question. Total Maximum Daily Loads are developed by states or local agencies under the Clean Water Act to address waste discharges affecting water bodies. They state the maximum amount of a pollutant that be discharged and still allow the water to meet quality standards.
2. How does a government agency decide what to regulate?
Each of the regulatory authorities sample water bodies to decide what the "impairment status" is. Is the water in a stressed condition? What is causing that condition? Should limits be set for the cause of the problem? Most of the current TMDLs address metals found in water areas. Some address fecal coliform. Others can address sediment. You can review impacted water bodies on EPA's Clean Water Act website.
3. If I am not in Napa and Sonoma, should I care?
The San Francisdo Regional Water Control Board is implementing this first effort in the country targeting vineyard operations. In other areas of the country, restrictions have not isolated farm activities by a specific product. Is this the first of a trend?
4. Why Napa/Sonoma Rivers?
Before drafting these proposed regulations, the Control Board reviewed a number of waterways. It determined that the population of steelhead and salmon in the Napa and Sonoma rivers had dramatically decreased from their levels in the 1940s. This is an indication of the declining "health" of those two rivers. So, the Board determined that sediment coming largely from vineyards was having a negative impact on river health.
5. What is the Farm Plan that is required?
The Board wants to be sure that vineyards have a true inventory of lands and roads on a farm. The Plan needs to not just inventory, but also to have a strategy to implement new controls to stop loss of topsoil and sediment. This also will address pesticides used that may make it to a waterway.
6. How do I find someone to help with a Farm Plan?
The Board will certify third parties who are qualified to help prepare these plans.
We will keep you up to date on developments. This is an interesting effort that will surely be the first of many similar efforts around the country.
When it comes to environmental issues, it seems that acronyms are essential to the discussion. So be warned that this blog is full of them.
In many parts of the country, environmental agencies are increasing the amount of regulations regarding Total Maximum Daily Loads (“TMDLs”) of waste that can be discharged to streams or rivers. There is an increasing focus on agricultural land uses. The type of regulated “waste” can be residues of pesticides, sediment and organic material that can reach water.
In Napa and Sonoma, the San Francisco Bay Regional Water Quality Control Board has taken the next step and now designated TMDLs for most vineyards in Napa and Sonoma. The Board determined that both the Napa River and Sonoma Creek, as well as their tributaries had been impacted by particulates. This determination lead to proposal of the first, and what is likely not to be the last, vineyard TMDLs.
The story starts like this (with an acronyms warning). In California, there are nine regional Water Quality Boards. These Boards place waste discharge requirements, called WDRs, on discharges affecting water. These WDRs are most often in response to persons who file Reports of Waste Discharge (“ROWD”), required when persons discharge waste that may affect water quality. In agricultural operations, too much sediment or too high a level of pesticides runoff reaching a creek can be considered a “waste discharge” which must be reported to the Regional Water Quality Board
In 2008, the San Francisco Bay Regional Water Quality Control Board set numbers for TMDLs that addressed vineyard discharges to streams and rivers – pesticides, agricultural chemicals and sediment. The Board then developed its first program to regulate the discharges from Napa and Sonoma vineyards. The newly proposed regulations have been published and comments can be made before February 1. Public hearings are scheduled for March.
The proposed regulations apply to “Vineyard Properties” and will create a program that will run for 5 years. During that 5 year period, the Board will evaluate the program and its effectiveness.
These Vineyard Properties are generally divided into three groups.
1. If a Vineyard Property is less than 5 acres, with stream setbacks, you fit within the category of persons who may file a Notice of Non-applicability, stating TMDL regulations do not apply to you.
2. If a Vineyard Property is 5 acres or more, with parcels totaling 40 acres or more on a 5% slope or less OR a total of 20 acres or more with over 5% slope, you may apply for a Conditional Waiver.
3. If you have more than one acre on slopes of 30% or more AND you have “highly erosive soils,” you must file a ROWD.
Under the proposal, there are administrative requirements that each of these three groups should follow. Several examples include:
There are a number of questions regarding the proposal. For one, the proposal does not define exactly what is meant by “parcels” and whether the term includes adjoining property owned by others or used for non-agricultural activities. It appears that the Board’s intent is to include operations which are managed as one single vineyard facility and count all of the acres regardless of who owns them. However, there is no extensive definition of what makes a facility a single facility and whether or not non-agricultural or non-wine growing areas are to be included in the acreage count.
Also, there is no detail on how to calculate the percentage of slope. Can you consider any differences in agricultural practices designed to fit highly sloped areas? In the “real world,” vineyards do not have a uniform slope.
Additionally, the proposal does not address in detail what parts of the conditional waivers or farm plans will be reviewed by the Board and what options or penalties will be assessed if vineyards either are incorrect in their initial decisions or if the plans are determined to be insufficient. Keep in mind that the “farm plan” is to be kept on site and may be reviewed by the Board upon request. What happens if the reviewer does not believe it is sufficient.
The Board has estimated that the new proposal will affect over 85% of the vineyards in Napa and Sonoma. The other 15% is regulated by the North Coast Regional Water Quality Board – and that Board is beginning to consider similar regulations.
The proposed Napa and Sonoma requirements and definitions are very technical and require close review. The practical effect for many who already participate in programs like the Napa Green Certified Winery Program only need to make new filings, pay additional annual fees and annual reporting. But for others, added rules, forms, reports and expenses will result. More information is available on the Board’s proposal from its website or from our firm.
