Why the Napa Valley earthquake is unlikely to affect wine prices

Winemakers in California's storied Napa Valley are hopeful that Sunday's magnitude-6.0 earthquake spared most of the region's 2013 vintage. At some wineries, bottles and barrels rolled off shelves and burst, fermentation tanks ruptured, and fine wine was running in rivulets through the streets. Elsewhere, however, the wine appeared largely secure.

Alison Crowe, the winemaker at Garnet Vineyards, was overjoyed to find that nothing was damaged in a large warehouse where she keeps barrels outside of American Canyon, close to the epicenter of the earthquake. At another facility, stacks of  barrels had been jostled and were teetering precariously, but they had not fallen. She and her crew carefully restacked them in case of an aftershock.

"This earthquake is hitting us all pretty hard," Crowe said. "It strikes right at the center of what most Americans think of when they think of wine."

Luckily, the damage appeared to be more symbolic than structural. "Most wineries in Napa Valley are located north of where the earthquake was centered," read a statement from the Wine Institute, a trade group. Those facilities "seem to have experienced minimal damage and disruption."

Winemakers are still taking inventory of the damage. "It's a little early to tell," said Robert Smiley, an expert on the wine industry and the former dean of the business school at the University of California, Davis. "It doesn't look like the supply is affected much."

Napa Valley is more important to the history of winemaking than to actual wine production. Less than 4 percent of the wine produced in this country comes from Napa. Roughly nine-tenths of U.S. wine comes from California, but most of those grapes are grown in the state's Central Valley, which was not affected by the earthquake. Most wine enthusiasts won't have trouble finding their favorites -- except for those who insist on Napa bottles.

Those wineries that did lose barrels might raise prices on what they have left. "There's definitely going to be an additional level of scarcity to Napa wines," said Nick Petrillo, an industry analyst at IBIS World. But he added that the Napa wines will have to compete with quality bottles from nearby regions, such as Sonoma Valley, that lack Napa's fame but have similar grapes and climates.

Grapes from Napa already trade at a premium. The wholesale price of grapes crushed in the valley -- before fermentation, bottling and distribution -- was $3,684 per ton in 2013, according to the U.S. Department of Agriculture. The average price for the state as a whole was only $712 per ton.

Initial calculations by the U.S. Geological Survey indicated that the earthquake caused roughly $100 million in property damage, according to The Wall Street Journal. More than a hundred people were treated for injuries at a local hospital, though no deaths were reported.

The earthquake would have been much more dangerous had it struck during working hours instead of at 3:20 a.m., Crowe, the winemaker, said. "Whenever you go into what we call the barrel stacks, you've got walls of barrels on either side of you, and there’s this narrow space that you’re walking down, and it's dark," she said. "I always think of earthquakes."

The timing of the quake was fortunate for another reason, Crowe said. Most of the 2014 grapes are still safely on the vine, since the harvest has yet to begin in earnest. Any wine that has been lost is likely from grapes that were harvested last year or in 2012, and Napa Valley's 2014 vintage should be excellent, Crowe said.

California's wine industry has largely escaped serious consequences from the drought that has devastated farmers in other parts of the state. The price of California wine has remained stable for several years, and yields have increased despite the drought, said IBIS World's Petrillo. He ascribed the industry's resilience to more efficient irrigation and to the grapes themselves, which can tolerate drought for a few seasons.

That tolerance might be breaking down this year, Crowe said. Her colleagues in the Central Valley are bracing for reduced yields.

Meanwhile, she said, "We're hoping for a wet winter."

Max Ehrenfreund is a blogger on the Financial desk and writes for Know More and Wonkblog.
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