Two large harvests in a row are masking a scramble for vineyards in California that is only going to intensify in the next five years.
America's thirst for wines – and premium wines – continues to grow, while the prime areas in Napa and Sonoma County are basically already planted out. Water rights in other areas of California are a huge issue, says vineyard appraiser Tony Correia.
"Water is the greatest limitation to the growth of our industry," Correia said Tuesday at the Wine Industry Financial Symposium in Napa. "I think we'll see state control or at least state monitoring of groundwater use in the next few years."
Paso Robles, one of the hottest areas on California's coast both figuratively and literally, has seen its water level drop 70 feet (21 meters) in some areas. Local residents are complaining as their wells have run dry. And Paso is no isolated case.
"The city of Cambria just passed a law making it illegal to use district water for anything but human consumption," Correia said. "If you water your azaleas with it four times, the city cuts off your water." Cambria is in wine-producing San Luis Obispo County.
David Meddaugh, a senior vice president at Bank of America, said bankers have to look carefully at water rights when considering giving loans for new vineyard plantings.
"Are there riparian sources? If so, how much can you take from that?" Meddaugh said. "Can you store it? If you don't have riparian rights, what is your water supply?"
In a battle reminiscent of the movie "Chinatown," the city of Los Angeles has fought Imperial Valley farmers over water from the Colorado River.
Wine growing is not the most water-intensive type of farming, but new vineyard plantings take a lot of water for the first few years. The situation has not been helped by many San Joaquin Valley farmers switching from wine grapes to almonds, which require much more water. Wine grapes have been a less predictable and profitable crop for non-appellated San Joaquin Valley, which still produces the great majority of California appellation wines.
As for the better-regarded vineyard areas, Steve Spadaratto of Stag's Leap Wine Cellars says, "I'm very concerned with consolidation on the supply level. If you look at my former employer Kendall-Jackson, they're snapping up vineyards."
Hugh Reimers, COO of Jackson Family Wines, says one reason wine is not in short supply in California is that yields continue to rise. The 7.6 tons per acre average in 2012 was California's highest ever.
But Reimers adds that in seven of the last 11 vintages, California's grape harvest was actually smaller in volume than sales of California wines. That means wineries have been storing bulk wines in big years for use in smaller ones. However, with U.S. wine consumption averaging 3.3 percent annual growth for the last decade, California farmers can't keep up.
That gives the rest of the world some good news: Bill Leigon, former president of Hahn Family Wines, estimates that imports might make up 50 percent of the U.S. market before the end of the decade.
"When I look at branding, what are we branding?" says Hahn, who oversaw the creation of Cycles Gladiator and Rex Goliath. "We're not branding California. We're branding chardonnay, cabernet, pinot noir. One of my French partners told me, thanks for teaching the world about cabernet and chardonnay. Now we can come in and clean your clock."
If they have the water.