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Production and Marketing Risks Associated with Wine Grapes in Washington |
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By R.J. Folwell,
B.D. Gebers, R. Wample, A.F. Aegerter, and T. Bales* |
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 Copy
of XB1035E in pdf format
may be downloaded here. |
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On-line
only. The overall objective of this research was to conduct an economic
analysis that accounts for both production and market risks of Cabernet
Sauvignon, Chenin Blanc, and White Reisling wine grape vineyards in
Washington. The production risk addressed is in terms of low wintertime
temperatures killing the fruiting buds, and the market risk is in
terms of resulting price variation as the market supply and demand
changes. A computer simulation model was constructed that accounts
for both risks, and results are discussed. |
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The
Washington wine grape producing region has many similarities to other
prominent wine grape producing areas throughout the world. The desirable
climate conditions during the growing season and cold temperatures
during the winter months help the vines achieve full dormancy...Bud
kill is a major production risk that can reduce the tonnage the grower
harvests and the profit level realized. This type of risk has occasionally
precluded the investment in wine grape vineyards in Washington. |
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The
overall objective of this research was to conduct an economic analysis
which accounts for both production and market risks of Cabernet Sauvignon,
Chenin Blanc, and White Riesling wine grape vineyards in Washington.
The production risk addressed is in terms of low wintertime temperatures
killing the fruiting buds and lowering yields. The market risk is
in terms of resulting price variation as the market supply and demand
changes. To account for both risks in a simultaneous fashion, a computer
simulation model was constructed which combines weather (temperature)
impacts on bud kill and yields which in turn impacts prices through
price flexibility coefficients and costs of production. The simulation
model was run 2,000 times over the assumed life of 19 years of a vineyard
to determine the average net returns, internal rate of return (IRR)
, net present value (NPV), and investment payback period by variety
planted. |
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The
analysis assumes that the producer does not employ any type of risk
management strategies. Examples of such strategies would be the
use of wind machines for possible protection against low winter
temperatures or forward contracting at fixed prices to reduce market
price variability. |
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*Dr.
Ray Fowell is a professor at Washington State University. He is
involved in research for viticultural, enological, and economic aspects
of wine grape production in Washington, specifically focusing on analyzing
the production and marketing risk in producing various varieties of
vinifera grapes in Washington research. |
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Dr.
Folwell is currently acting as Interim Coordinator of the Viticulture
and Enology Program. As acting coordinator his is involved in directing
the Viticulture and Enology
Education Consortium, which includes WSU, Columbia Basin College,
Walla Walla Community College, Wenatchee Valley Community College,
Yakima Valley College and the Washington Wine Commission. The purpose
of the Education Consortium is to better serve the growing needs
of the Washington wine industry. One method to meet the growing
needs is with the development of the new Viticulture and Enology
degree option at Washington State University.
For
more indepth information see the new viticulture and Enology site
at http://www.wineducation.wsu.edu/. |
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*B.D. Gebers
is a former graduate research assistant; R. Wample is a horticulturalist;
A.F. Aegerter is a research associate; and T. Bales is a graduate
research assistant. |
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