The impact of uncertainty

Even if the president’s budget never gets through Congress wholly intact, the chilling effect on the wine market will have broad unintended consequences.

For example, the proposed 21 percent decrease in the U.S. Department of Agriculture’s $17.9 billion budget will impact many wine-trade organizations. The Wine Institute currently receives nearly one-third of its roughly $21 million budget from the Market Access Program. The MAP program supplies funding for overseas marketing and promotional activities to build commercial export markets for agricultural products and commodities and is a partnership with U.S. agricultural trade associations, Foreign Agriculture Service, cooperatives, and state and regional trade groups such as the Napa Valley Vintners.

Because only one-fifth of the USDA’s budget is discretionary and because MAP funding falls within this category, it’s likely that if the budget passes the $7 million currently provided to the Wine Institute will be affected. This will also have a trickle-down effect to Napa Valley Vintner activities.

According to NVV’s Communication Manager Cate Conniff, “The proposed USDA budget cuts are for the federal fiscal budget year starting Oct. 1, 2017. The NVV starts the process of applying for MAP funds through the Wine Institute in the spring and typically finds out in early July what funding is being allocated. While we certainly hope to be able to maintain this funding, we at least have some advance notice that future MAP support may be at risk.”

Conniff emphasized the word “proposed” budget and highlighted that the NVV programs are not wholly dependent on the Wine Institute.

“We receive a small fraction of what the Wine Institute funding is from the USDA,” she said, “so although important, we can make adjustments that would more than likely modify rather than eliminate any international programs. Of course, like most anyone involved with agriculture, we are concerned about these proposed cuts and their implications.”

Conniff went on to say, “We work with the Wine Institute on a lot of different programs and are in contact with them often. They are working with their representatives in Washington on this and any number of other issues. This is to say that it is early in the process, that we are in touch with the Wine Institute and that we will make strategic adjustments as necessary.”

As John F. Kennedy said in his 1962 State of the Union address, “The time to repair the roof is when the sun is shining.”

But if you don’t know how much money you have in the bank how can you begin to fix the roof?

And even if the budget never gets enacted, these proposed cuts will cause a pause (or at least a hesitation) in planning, new hiring, retention and other initiatives. And this comes at a time when metaphoric rainclouds are on the horizon — the U.S. demand for wine has begun to slow in recent years, so efforts to find new markets to help maintain growth are important both now and in the future. And like any strategic planning, what is done today has its effect three to five years down the road.

I am concerned that the demand for expensive wine will slow, driven primarily by the slowing consumption behavior of the baby boomers not being made up by the millennial generation. Skeptics of my viewpoint often highlight that consumption of wines costing more than $25 continues to grow, but I point to the fact that it is a rare Napa Valley cabernet that is anywhere near $25, with many bottles over $100, some at about $200 or higher.

These changes and uncertainties may accelerate a trend that is already underway. The recent 2017 Silicon Valley Bank’s State of the Wine Industry report found that 30 percent of U.S. winery owners were considering or expecting a sale of their winery during the next five years, with an additional 20 percent saying a sale was “possible,” driven largely by the baby boomers’ wanting to retire but also by the desire to cash out when the market is up.

The consequence of all this turmoil suggests that we are headed for some interesting days ahead. To be sure there will be a few who grow rich in the coming years, but there will be many who will not. The president’s proposed budget cuts will result, at best, in pauses in strategic efforts, with changes in demographics driving trends already underway, all of which will affect the future of the Napa Valley.

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Originally published in the Napa Register, April 2017