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The Grape, Wine, & Ornamental Situation and Outlook 2017

The Grape, Wine, & Ornamental Situation and Outlook 2017. Miguel I. Gómez and Jie Li Dyson School of Applied Economics and Management Cornell University Cornell Agribusiness Economic Outlook Conference Ithaca, January 24 th , 2017. Situation & Outlook for Grapes and Wine.

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The Grape, Wine, & Ornamental Situation and Outlook 2017

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  1. The Grape, Wine, & Ornamental Situation and Outlook 2017 Miguel I. Gómez and Jie Li Dyson School of Applied Economics and Management Cornell University Cornell Agribusiness Economic Outlook Conference Ithaca, January 24th, 2017

  2. Situation & Outlook for Grapes and Wine

  3. Value of Utilized Production of Grapes, New York, 1997-2015 Source: New York Agricultural Statistics, 2016

  4. New York Grapes Utilization, 2013-2015 Estimated 2016 grape production: 165,000 tons, 13.7% up from 2015 Source: Fruit Report, New York Field Office, NASS, USDA, 2016

  5. Grape Prices in New York, 2005-2015 Source: Fruit Report, New York Field Office, NASS, USDA, 2016.

  6. Grapes Grown and Processed in NY Received by Wineries and Processing Plants, 2011-2015a Source: New York Agricultural Statistics, 2016.

  7. Total Wine Consumption, U.S. 1999-2015 Source: Wine Institute; Department of Commerce; Gomberg, Fredrickson and Associates, 2016

  8. Overview – Wine • Shipments into US trade channels increased in 2015 - retail value of $55.8 billion • Total wine sales in food stores and other off-premises outlets keep growing, accounts for 80% • Direct to consumer shipping (E-commerce) grew 8.1% in 2015, a new record high in volume and value • Shipments of sparkling wine and champagne continue growing - up 9% over the previous year • Desert wine experiencing a growing trend in the past several years – up 5.5% over the previous year Source: Wine Institute. 2016

  9. U.S. Wine Export Destinations, 2011-2015 Value (Million Dollars) Source: Wine Institute; Department of Commerce; Gomberg, Fredrickson and Associates, 2016

  10. U.S. Wine Exports, 2015 • Value of US wine exports totaled 1.61 billion – up 7% over 2014, recovering from the decrease in 2014/2013 • 39% (value) to EU, up 20%; and 29% to Canada, down 5%; followed by Japan, Hong Kong and China • Increased exports driven by increase in trade volume to EU • Opportunities • Increasing reputation of U.S. wines • Growing demand for U.S. wines worldwide • Challenges • Heavily-subsidized foreign competitors • High tariffs and strong dollar Source: Wine Institute; Department of Commerce; Gomberg, Fredrickson and Associates, 2016

  11. Outlook – New York Grapes 2016/2017 Crop production expected to be up 13.8% in 2016 • Exceptional drought in the Finger Lakes and in the bond out Erie and Niagara county, almost everywhere in New York • Smaller berry size but cleaner fruit due to less disease pressure as well as sweetest crop in recent years • Late season rains increased vine health and berry size pushing the Concord crop very close to the 10-year average

  12. Grape Prices • Price for major varieties Cabernet France, Cabernet Sauvignon, Chardonnay, Concord, and Riesling higher in 2016 • Price for hybrid varieties expected to be lower in 2016 Direct to consumer online sales in New York expected to grow- • Governor vetoes online liquor bill • Pennsylvania (PA) passed legislation allowing direct to consumer (DTC) shipping to PA residents

  13. Outlook – U.S. Grapes U.S. grape production likely to increase in 2016/2017 • Primarily due to higher production in California • winter rains and a relative normal growing season help alleviate drought impacts • Expected larger grape production in Washington, New York, Pennsylvania, Michigan, Ohio and Taxes Domestic grower prices for some wine grapes (Cabernet Sauvignon, Pinot Noir, Pinot Grigio and Sauvignon Blanc) likely to go up due to the estimated smaller crop in 2016 in key regions

  14. Outlook – U.S. Wine Trade Inexpensive imports keep increasing • Domestic consumption far exceeds domestic production, wine consumption in the US would grow by 11% between 2015 and 2018 • The growth of the fine wine category will slow to 9-13% from 14% in 2016 Wine exports continue growing but slowing down, • Unique quality, excellent value, and good reputation • Canada: exports expected to grow • Continental Europe: continue to grow thanks to educational and promotion effort • Japan: slow down or decrease due to the abandon of Trans-Pacific Partnership deal

  15. Opportunities and challenges • Wine sales continue to grow, particularly, more demand for wine in $12-25 range • Premium wine sales expected to increase between 10 to 14% above 2016 level • Opportunities for cooler regions, which make good quality sparkling wines • Demographic shift will impact the wine industry, with the retiring wine-loyal baby boomers being replaced by less affluent millennials---marketing effort? • If economic conditions continue to improve, however, per capita consumption should be slightly higher in 2017. • Labor costs and labor shortage---dominant concerns

  16. Ornamental Crops: Situation and Outlook

  17. New York Floriculture – Growing Area: 2013-2015 (Operations with $10,000+ in sales) Source: Floriculture Report, New York Field Office, NASS, USDA, 2016

  18. Grower Cash Receipts of Floriculture Products, New York, 2008-2015 Source: Floriculture Report, New York Field Office, NASS, USDA, 2016

  19. Value of Floriculture Production by Plant Category, New York, 2011-2015 Source: Floriculture Report, New York Field Office, NASS, USDA, March 2015

  20. Wholesale Values of Floriculture Production, by Grower sizea, New York and United States, 2013-2015b Source: Floriculture Report, New York Field Office, NASS, USDA, 2016

  21. Nursery Crops: Outlook Average Profit Margins, 2015/2016 2015 2016 Source: Nursery Management’s 2015 State of the Industry Report

  22. Nursery Crops: 2017 Outlook • Majority (84%) of growers confident that demand for nursery crops will increase ─ expect to increase profit margins in 2017 • 72% raised prices in 2015, and 70% of growers plan to increase prices again in 2017 • Increasing production of propagation materials, container-grown shrubs in 2017 • Expected some shortages in field-grown trees, container-grown trees and propagation materials in the market in 2017 Source: Nursery Management’s 2015 State of the Industry Report

  23. Ornamental Crops: Present and Future • A sustained growth in 2016 given it’s an election year, • A promising growth in next two or three years • However • The industry facing some uncertainty: • Demographic shifts • Structure change---consolidation and de-consolidation Source: Nursery Management’s 2015 State of the Industry Report

  24. What’s important for growers? • Raise prices? But price right!! • Send the right message to the target consumer segment • Baby boomers retiring, generation X taking over, millennials making up the deficit • Diversify marketing strategy and use more social medial platforms • Take actions to avoid being over-leveraged • Better to have a succession plan

  25. SWD Management and Impact on Profits Spotted Wing Drosophila (SWD) • Insect pest native to eastern Asia • Having a devastating effect on soft skinned fruits (blueberries, raspberries, blackberries, cherries, etc.) • U.S. crop losses due to SWD are estimated at $718 million annually • Relative performance of alternative SWD management strategies • Does it make sense to include monitoring in management strategies?

  26. Thank you for your attention!QUESTIONS? Miguel. I Gómez Dyson School of Applied Economics and Management Cornell University mig7@cornell.edu 340D Warren Hall

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