State of the Industry: Today & Tomorrow Unified Wine & Grape Symposium Nat DiBuduo

1. State of the Industry: Today & Tomorrow Unified Wine & Grape Symposium Nat DiBuduo Allied Grape Growers January 26, 2011

2. Presentation Outline • Part 1: Industry Issues • Part 2: Inventory Analysis • 2010 Estimated Production • Production vs. Shipments • Special Report on Concentrate • Part 3: Development/Growth Trends • AGG Nursery Survey • Supply Trends 2011 • Cost of Production: California Winegrapes • Part 4: Closing • Take-Home Messages

3. Market Factors Recession (global & domestic) Consumer behavior Global supply (imports/exports) Industry Planning Crush report and acreage report Planting/supply needs for future Availability of reliable information (both domestically and globally) Investment in facilities (capacity) Grower/Winery Relationships Cultural practices – needs vs. costs Vineyard/Farming plans Price determination (when & how) Changing quality standards Harvest determination (objective vs. subjective) Industry Issues

4. Process Issues (Vitculture/Winemaking/Marketing) Sustainability - Self assessment vs. certification program Invasive Pests – EGVM, LBAM, GWSS, Mealybug Promotion of domestic wine – “California” appellation (sustainability is only step one) Research & investment in viticulture & winemaking to compete globally Assessments, Regulation & Taxation Mandatory assessments Ag issues within the legislature – Immigration, 40 hour week, card check, etc. Label issues before TTB Drawbacks The ongoing pursuit of new & higher excise tax Industry Issues

5. Part 2: Inventory Analysis

6. Production Analysis A regional look at production

7. Production Analysis .370 Other

8. Production Analysis

9. Production Analysis Concentrate • White concentrate: • Very short market • Spot prices above $10.00/gallon • Apple concentrate is also in short supply and at prices above grape • Stable foreign grape concentrate supplies are questionable • Red concentrate : • High demand • Pricing at +/-$12.00/gallon • Foreign product is on short side • California recognized as the go-to source for quality red concentrate

10. Inventory Analysis Higher end supply filling lower end demand

11. Part 3: Development/ Growth Trends

12. 2011 Nursery Survey • Allied Grape Growers conducted a confidential & voluntary survey of California nurseries to determine up-to-date planting trends: • Data represents approximately 3/4 of the major varietal vine sales in the state, by variety, and region. • Data is not directly comparable to last year’s based on participation and the voluntary nature of the survey . • Dependent upon vine spacing, total potential planted acreage identified via the survey represents between 14,000 and 17,000 acres. • Survey participation was skewed toward the larger state nurseries. Smaller, coastal nurseries were not as likely to participate, therefore the resulting data is likely missing some level of coastal influence.

13. 2011 Nursery Survey

14. 2011 Nursery Survey • Other Whites Include • French Colombard • Sauvignon Blanc • Symphony • Other Reds Include • Malbec • Petite Verdot • Petite Sirah • Ruby Cabernet • Barbera

15. Supply Trends 2011 Chardonnay • The Numbers: • 10% non-bearing • 3.64% AGR • The Supply Trend: • Growth at lower end • Minimal pullouts • The Implication: • Growth is manageable • Large crops could be problematic • Annual displacement by imports is possible

16. Supply Trends 2011 Pinot Grigio • The Numbers: • 21% non-bearing • 8.32% AGR • The Supply Trend: • Growth at lower end • Plantings slowing • The Implication: • Growth is manageable based on current sales • We don’t know market capacity • May be cannibalizing other white wines

17. Supply Trends 2011 Muscat Alexander • The Numbers: • 25% Non-Bearing • The Supply Trend: • Short thru 2012 • 2010 planting explosion begins bearing in 2013 • The Implication: • Big shift in supply coming • Limited use, but hot! • We don’t know market capacity • If it’s a fad, we’re in trouble

18. Supply Trends 2011 Cabernet Sauvignon • The Numbers: • 12% Non-Bearing • 4.34% AGR • The Supply Trend: • Short, but becoming in balance with demand • Growing supply at low end • The Implication: • Plant cautiously • Manageable supply given shipment growth • Plant where feasible for the long term

19. Supply Trends 2011 Merlot • The Numbers: • 3% Non-Bearing • 1.15% AGR • The Supply Trend: • Pullouts/Grafting still? • Flat supply thru 2014 • The Implication: • No “new” production • Likely to see stronger market in future • Only plant where feasible for the long term

20. Supply Trends 2011 Pinot Noir • The Numbers: • 18% Non-Bearing • 6.79% AGR • The Supply Trend: • New production mostly thru 2012 • Planting slowing • Newest production mostly at the low end • The Implication: • New supply coming in to match price demands • High end mostly in balance

21. Supply Trends 2011 Rubired • The Numbers: • 26% Non-Bearing • 10.65% AGR • The Supply Trend: • New production mostly after 2011 • Planting explosion in 2009 & 2010 • Mostly planted under contract • The Implication: • Limited use in wine • Dependent upon concentrate market

22. Supply Trends 2011 Zinfandel • The Numbers: • 3% Non-Bearing • The Supply Trend: • Pullouts/Grafting a factor into the future • New acres mostly at low end (White Zin) • The Implication: • Markets balancing with continued shift from White to Red in Lodi • No significant opportunities for growth, except maybe in Napa

23. 2011 Cost Survey • Allied Grape Growers conducted a survey of California growers to determine up-to-date planting & production costs: • The purpose of this exercise is to share current-day costs of production, vineyard acquisition and development costs. • We pose the questions: • What is a reasonable ROI for vineyard investment, and should a grower have profit as well as a return on investment for the land? • Where is the balance of yield and price for breakeven? • Can the winery/consumer pay what it takes in these current times to cover these costs?

24. Production Cost with ROI Napa/Sonoma Per Acre Costs

25. Production Cost with ROI Mendocino/Lake/Solano Per Acre Costs

26. Production Cost with ROI Central Coast Per Acre Costs

27. Production Cost with ROI California Interior Per Acre Costs

28. Production Cost with ROI

29. Part 4: Closing

30. As always, the wine industry faces many challenges from market issues, to planning and relationship issues to taxation/regulation and process issues. The 2010 winegrape crop was likely below average overall. This downward swing in production, coupled with increasing wine shipments could go a long way toward re-establishing overall market balance. Planting has slowed significantly at the high end. Most new vineyards in the state have been planted in the interior regions for value-priced wines. Growers are planting mostly red grapes, but popular varieties for planting include: Cabernet Sauvignon, Chardonnay, Rubired & Muscat Alexander. Costs of acquisition/development/production continue to increase. Today’s market prices are mostly economically unsustainable. Take-Home Messages

31. Special Presentation Grower of the Year:

32. Special Presentation Grower of the Year:

33. History in Farming Commitment to Sustainability Industry & Community Involvement Awards & Acclamations VINO FARMS

34. For more information, come see us at Booth 826 Or visit us at: alliedgrapegrowers.org