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THE UC/AIC QUARTERLY

THE NEWSLETTER OF THE UC AGRICULTURAL ISSUES CENTER
VOLUME 13. NO. 2. 1999


Contents

Wine Outlook Workshop: Markets, Contracts, Labor

Grower / Wine Construct

AIC Advisory Board

AIC Associate Directory

Farm Labor

China Symposium

Exotic Pests and Diseases: Biology, Economics, Public Policy

UC Executive Seminar Set for Mid-December

New Center Volume Looks at Urban/Farmland Issues

Sumner Speaks to WTO Session

AIC Publication List

AIC Video List

Wine Outlook Workshop:

Markets, Contracts, Labor


         On July 7, the AIC held its second annual Winegrape Outlook Workshop at the Buehler Alumni Center on the UC Davis campus. About a dozen speakers addressed the group on three main topics: international markets, winery/grower contracts and risk management, and hired farm labor.

Wine Markets

As the world's fourth-largest wine producer, the U.S. has a well-established role in the global wine market, but the winds of competition are blowing.

About 150 growers, vintners and others at the Center's annual Winegrape Outlook Workshop heard Barry Bedwell, president of Allied Grape Growers, describe world-wide trends in the industry. Views on the global and U.S. wine industry outlook also were presented by Robert Nicholson of International Wine Associates, and Augustin Huneeus of Quintessa Winery.

Three nations, the U.S., Australia, and Chile dramatically expanded global wine exports during the 1990s. By 1997, all three were exporting between 40 and 60 million gallons yearly, about as much volume as Europe's Bordeaux region—although only about one-third the market value. Europe's traditional wine countries still dominate the world's wine supply, with France (20.3%), Italy (19.2%) and Spain (12.8%) producing over half of the total. The U.S. share, mostly from California, is 9.5%.

During the 1990s, trends in grape acreage and wine production in different regions of the world varied:

  • In Western Europe (France, Italy, Spain, Portugal, Germany, Austria and Greece), both acreage and production trended downward during the decade. Producing acreage, for example, dropped as much as 20%.

  • In South America (Argentina, Chile, and Brazil) and in South Africa, acreage and production were generally steady.

AIC Advisory Board

William F. Allewelt, Jr., Chair
President Emeritus, Tri/Valley Grower
Karen Caplan President and CEO, Frieda's Inc.
Dan Dooley, Vice Chair
Attorney, Dooley & Herr
Ralph Grossi
President, American Farmland Trust
Brenda Jahns Southwick
Attorney
California Farm Bureau Federation
Betsy Marchand
Special Program Coordinator
Yolo County Flood Control and
Water Conservation District
Milenda G. Meders
Friends of Extension
Owner/Operator, Madera County Farm
Jack Pandol
President, Grapery, Fresno
Henry Schacht
Agriculture Consultant and Writer
Terry Scranton
Retired Executive Vice President
Bank of America
Dorcas Thille
Hansen Trust Advisory Board
Owner, J.K. Thille Ranches
Richard Zacky
Manager, Engineering & Development, Zacky Farms

AIC Associate Directors

Science and Technology
Julian M. Alston, Professor
Agricultural & Resource Economics
UC Davis
International Trade
Colin A. Carter, Professor
Agricultural & Resource Economics
UC Davis
Resources and the Environment
Keith C. Knapp, Professor
Soil & Environmental Sciences
UC Riverside
Agribusiness Issues
Jerome B. Siebert, Extension Specialist
Agricultural & Resource Economics
& Policy, UC Berkeley
Rural-Urban Issues
Alvin D. Sokolow, Extension Specialist
Human & Community Development
UC Davis
Commodity Policy and Market Issues
Daniel A. Sumner, Professor
Agricultural & Resource Economics
UC Davis
  • In the U.S., both acreage and production were higher. (Acreage rose from less than 300,000 to between 350,000 and 400,000; production went up more than a third.)
  • In Australia both acreage and production were markedly higher. A substantial part of Australian premium grape acreage (Chardonnay, Shiraz, Cabernet Sauvignon and Merlot) is still non-bearing. "Their wine will have a major impact on world markets," said Bedwell. Australia may have "a perceived premium position" in future global markets, Nicholson added, but California is in a position to challenge. Australia's wine industry plan calls for $4.5 billion in annual sales by the year 2025. In 1998, Australia's domestic and export wine shipments were about one-third of California's.
Meanwhile, Bedwell said, recent state figures have increased the estimates of bearing and non-bearing wine grape acreage in California, with a 44% increase in total acreage of primary premium varietals projected by the year 2001. The North Coast region, he added, is in the least exposed position in regard to potential over-production, followed by the Central Coast, the North Valley, and the Central/South Valley.

Based on his many years as a key figure in the industry, Augustin Huneeus had some sage advice for the California wine industry: Don't count too much on exports. Chile, for example, can produce quality wines cheaply. But California wines have a unique advantage: California itself. "In 40 years, the one constant I have seen is the evolution toward quality. But it is place, much more than variety, that defines a quality wine. Our wines, grown here—that's what we should sell," Huneeus said.

Grower/Winery Contracts

In June, the Center sent a questionnaire about winegrape contracting practices to all 12,000 growers and wineries in California. Preliminary findings from this survey were reported by Dale Heien, Rachael Goodhue, and Hyunok Lee of the UC Department of Agricultural and Resource Economics. Survey questions dealt with written versus oral contracts, methods of determining price, bonus/penalties and other aspects of winegrape contracts. A detailed report will be published by the Center later this summer.

A few highlights of the preliminary analysis, based on about 2,000 responses:

  • Statewide, 70% of responding growers use written contracts, 11% use oral only, 9% use both (with different wineries), and 10% use neither. The highest percentage of written contracting was in the southern San Joaquin Valley (74%) and the lowest in the Central Coast (56%).
  • Pricing procedures are almost evenly divided among "stated in contract" (31%), "negotiated yearly" (27%) and "reference price," tied to some more general level (35%).
  • The average California grape grower has been in business 19 years, and with the same winery for nine years. The figures were generally similar in all regions.
  • Grape acreages reported by respondents reflected industry-wide patterns (indicating that the survey returns are representative): 25% of the respondents, 10 acres or less; 22%, 11 to 25 acres; 15%, 26 to 49 acres; 11%, 50 to 99 acres; 11%, 100 to 199 acres; 8%, 200 to 499 acres; and 9%, 500 acres and more.
Contracts are one form of risk management. Lee described another: federal crop insurance, a tool used by some growers to mitigate the impact of substantial fluctuations in yield. Catastrophic coverage is provided at no premium and $60 processing fee for 50% yield guarantee at 55% of the USDA price. Although multiple peril crop insurance has been available since 1981, only about 7% of California grape growers are insured. Participation is higher in the Central Valley than in coastal regions.

AIC Staff

  • Daniel A. Sumner, Director
  • Ray Coppock, Communications Specialist
  • Sandy Fisher, Administrative Specialist
  • Karen Jetter, Program Researcher
  • Kathy Karg-Eichler, Office Assistant
  • Marcia Kreith, Program Analyst
  • Laurie Treacher, Office Assistant
The AIC Quarterly is published four times a year by the University of California Agricultural Issues Center, One Shields Avenue, Davis, CA 95616. For additions or corrections to our mailing list: telephone 530-752-2320, fax 530-752-5451 or email agissues@ucdavis.edu. The AIC Quarterly, AIC Issues Brief, a complete list of our publications and more can be found on our website at https://aic.ucdavis.edu.

Farm Labor

Monthly farm employment in California ranges from 200,000 in February to 600,000 in September. Weekly wages average $230. Nine out of ten workers are immigrants, and four or more of the ten are probably unauthorized. That's the sketch of California farm labor provided to the Winegrape Outlook Workshop by Philip Martin, UC Department of Agricultural and Resource Economics.

Middlemen (farm labor contractors, custom harvesters and other third-party employers) have become more important and now account for about 40% of all farm employment—50% to 60% in some seasonal tasks.

Farm employers are challenged by four developments:

  • Minimum wage rates (now $5.15 federal, $5.75 in California), the possibility of future raises in that rate, and the high percentage of fringe benefits in total labor costs.
  • The new INS strategy of comparing paperwork (checking social security numbers, for example) and telling employers to inform their employees of discrepancies.
  • Increased attention on farm labor contractors who violate labor laws, particularly those paying less than minimum wage.
  • Changing labor union strategies.
Mechanization, Martin pointed out, can be a crucial factor. It's easier to mechanize an expanding commodity such as wine grapes, because new acreage can be planted for machines. About half of the wine grapes grown in the Central Valley and the Central Coast are mechanically harvested, but only 20 percent of those in the North Coast. Generally, the less expensive the grapes, the more likely they will be mechanically harvested.

In response to questions, other points made by Martin and by Herbert Mason, California State University, Fresno, professor and new member of the state Agricultural Labor Relations Board:

  • The day labor market, in particular the construction industry with its higher wages, draws off many agricultural workers.
  • Changes in the welfare system are not expected to have any impact on the agricultural labor supply, since virtually all new agricultural workers come from outside the U.S.

China Symposium

The AIC co-sponsored a symposium with the International Agricultuaral Trade Research Consortium which attracted about 100 scholars from around the world to San Francisco on June 25th and 26th. Two full days of economic research presentations included intensive discussions of China's trade policies, analysis of World Trade Organization membership for China, China's domestic agricultural policy, and prospects for agricultural trade growth. AIC director Daniel Sumner chaired the meeting and associate director Colin Carter made a plenary session presentation. Draft papers from the meeting are available on the AIC website at:
https://aic.ucdavis.edu

Exotic Pests and Diseases:

Biology, Economics, Public Policy

The increasing threat to California (and the world) of exotic pests and plant and animal diseases is a complex puzzle that demands equal attention from biologists, economists and public policy-makers—and it got that attention during the Center's recent conference in Sacramento.

"Pest and disease prevention and eradication programs, on both the animal and plant sides, are the very infrastructure of our agriculture; they are like roads and bridges," said Ann Veneman, former secretary of the California Department of Food and Agriculture. Since some invaders are urban and environmental pests, all Californians have a stake in exotic pest policy, Center director Dan Sumner said.

More than 150 policy-level stakeholders, and others, took part in the day-long conference. In addition to broader analyses of the global problem, they heard reports of 14 case studies developed in collaboration with CDFA, the US Department of Agriculture's Animal and Plant Health Inspection Service (APHIS) and agricultural industries. High-ranking government spokespersons included CDFA Secretary Bill Lyons, USDA Deputy Secretary Richard Rominger, and Isi A. Siddiqui, trade advisor to the US Secretary of Agriculture, as well as Veneman.

"Our objective in this project is to use the science, the regulatory information and the economics to consider the full set of costs and benefits associated with exotic pest programs," Sumner said.

The lead-off session featured presentations on the biology of invasive species by UC Davis Professors Jim Carey (Entomology) and Mark Rejmanek (Evolution and Ecology). Sumner then outlined economic principles for evaluating exotic pest policy.

Two points reiterated by regulatory agency officials and others are the need to (1) coordinate programs and (2) convince decision-makers as well as the public of the scope and urgency of the threat.

Lyons: "When animal and plant disease and pest prevention are debated in the public policy arena, especially as they relate to budgetary policies, key data on the value of these programs are often lacking."

Rominger pointed out that a presidential executive order last February coordinated federal agency exotic pest and disease programs and established a National Invasive Species Council.

Veneman: "I'm not saying the public should fund every pest and disease prevention and eradication program—but I certainly think public funding has a strong role. We need to keep educating legislators and the public."

The conference marked a milestone in the Center's project, Exotic Pests and Diseases: Biology, Economics, Public Policy. Still to come are completion of the policy analysis of particular pests, and evaluation of specific regulations. A volume of scientific papers is planned. The proceedings of the May 25 conference are scheduled for publication in October. (If you would like your name on the distribution list, contact the Center.) A 13-minute Center-produced video outlining the problem in California, the regulatory programs and the policy issues—also titled Exotic Pests and Diseases—is now available. ($15. includes shipping and sales tax.)

UC Executive Seminar Set for Mid-December

This year's annual UC Executive Seminar on Agricultural Issues, with the theme "Marketing Through the New Global Retailers," is scheduled for December 13, with senior executives and directors of West Coast food companies among the speakers. The UC Center for Cooperatives joins AIC in co-sponsoring the event.

Dealing with the changing structure of retailing and food distribution and its implications for the food industry, the day-long seminar will hear presentations by industry leaders on:

Outlook for food and agriculture
Dr. Jerome Siebert, Economist, UC Berkeley

Marketing through the food chains: the food service industry
Dick Spezzano, Consultant and retired VP, Produce and Floral Division, Vons Markets

Christine McGlasson, Director, Food Services
Marketing, Blue Diamond Growers

The challenge to major food commodities
Harry Cleberg, CEO, Farmland Industries
Don Schriver, Exec. VP, Dairy Farmers of America

Lunch speaker
Richard DeBurgh, Food Service Director, Glendale School District

The challenge to fresh and frozen fruits and vegetables
Russ Hanlin, Retired CEO, Sunkist Growers
Dennis Mullin, CEO, Agrilink Foods
Marco Dimare, The Dimare Company

The challenge to nuts and branded lines
Walt Payne, CEO, Blue Diamond Growers
Tom Shelton, President, Joseph Phelps Vineyards

Concluding observations
Mahlon Lang, Moderator, Director, University of California Center for Cooperatives

The seminar will be held from 8:30 AM to 4:45 PM at the Doubletree Hotel in Sacramento. Also open to all is a reception and dinner held the evening before the seminar (December 12) at 6 PM at the Doubletree.

New Center Volume Looks at Urban/Farmland Issues

Sometimes a single viewpoint illuminates an intractable policy problem, but often a group of informed—and intimately concerned—observers may come closer to real-world solutions. That's the approach of a volume just published by the Center. It's California Farmland and Urban Pressures: Statewide and Regional Perspectives, described as "a comprehensive view of California's farmland protection problem."

The 210-page book consists of papers by 10 authors, representing a diverse set of backgrounds and perspectives, including community activists, farmers, land use experts and UC academics. Edited by Albert Medvitz, Alvin D. Sokolow and Cathy Lemp, it is the first single volume to address many different but highly relevant aspects of the farmland-urbanization issue in California: fringe area problems, the state policy framework, the work of land trusts, local policy developments, and land market dynamics.

With an introduction by Sokolow and Medvitz, the volume presents both statewide patterns and regional and local studies. Sokolow, with the UC Davis Department of Human and Community Development and associate director of the Agricultural Issues Center for Rural-Urban issues, is an extension specialist in public policy. Medvitz is a Rio Vista rancher, international consultant on environmental and agricultural issues, and a regional director of the California Farm Bureau Federation.

In their introduction, Sokolow and Medvitz look at the seriousness of the often over-simplified problem, including the urban side of the equation: "The great challenge in California is to figure out how to maintain a healthy and prosperous agricultural industry in an urban and rapidly urbanizing state. The most pertinent policy tools thus deal with the direction, rate and efficiency of urban growth." Although local governments currently "do the heavy lifting" within a state policy and legal framework, they add, "It is possible to strike a reasonable balance in which state policies and guidelines are made more explicit and local governments are given substantial fiscal incentives (including increased local revenue-raising capacities) without severely restricting the ability of communities to decide their public futures."

The first chapters deal with historical and demographic trends in California, urban fringe conflicts, the state policy context, and private sector efforts (land trusts, conservation easements). The regional and local chapters describe trends and developments in Napa County, Marin County, the Central Valley/North Bay, northern Sacramento Valley, and Ventura County, focusing on the forces of urbanization, farmland policy and community politics.

California Farmland and Urban Pressures is available from the Center for $20. (Price includes postage and sales tax.)

Sumner Speaks to WTO Session

On June 28, the USDA and the U.S. Trade Representative held a one day session in Sacramento to hear views on the upcoming round of multinational trade negotiations. Center director, Daniel Sumner presented views on an agricultural negotiating position and strategy. Sumner noted the benefits of rapid elimination of trade barriers and export subsidies and pointed out that extending the Uruguay Round Agreement would create open markets for agriculture in about a decade. Sumner cautioned that re-opening of previous agreements or focusing internal support would delay a deal with little effect on market opening.

AIC Publication List AIC Video List


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