(I’m interrupting my series on investment in farms for a few posts on current topics)
I’m currently in Northern California visiting family for the week and happened to have a serendipitous encounter with the CEO of a mid-size winery in the Napa Valley while camping with friends. This winery is probably a label that Ric Rhinehart (President of the SCAA and known wine connoisseur) would recognize. I’ll call this gentlemen “Tom”.
This conversation was really interesting and inspirational in the sense that it showed what can be possible farming a high value crop. There are a lot of things that the coffee industry can still learn from the wine industry, not just on the retail or sensory side of things, but also on the farm.
My conversation with Tom focused on the vineyard side of things – how they manage the vineyard and how this reflects the value of the end product, the grapes that are the starting point for great wine. Given the informal setting and the impromptu nature of this conversation, I’m going to sum up some of the interesting points that we talked about and reflect how that might apply to coffee farms.
Above all, given the vertically integrated nature of the wine business, there is a deep understanding that quality comes from the vineyard and that no amount of winemaking will turn mediocre grapes into an amazing wine. Quality grapes are those that are slightly water stressed and will be picked only when they achieve optimum ripeness for the wine, based upon the amount of sugar in the fruit. The vineyard, which is over 500 acres with 9 varietals, is managed in dozens of small blocks, depending on the varietal/clone/rootstock combination, the condition of the soil and the microclimate of each block. Each of these blocks gets managed on an individual basis. Tom was especially proud of the relationship that the vineyard has with the farm workers. 110 full time employees work on the vineyard and take advantage of the 5 acre organic garden that is planted onsite and he told me that last month someone retired after 37 years working on the vineyard. To this label and for Tom, sustainability is this tripartite relationship between the workers, the land and the crop and is evidenced by the 130 years of history of growing grapes on this site.
The quality that comes from this type of management is known and compensated for – an average ton of cabernet sauvignon grapes grown in Napa sold for $5,930 during last years’ harvest, compared to a CA statewide average for red wine grapes of $840 a ton. That’s a 7X price premium over the average cabernet. At 69,000 tons of the 510,000 of the cabernet grapes produced just in California, these premium grapes represent 14% of the total.
Over several glasses of wine (Tom’s and others), we nerded out on the farm management of the vineyard and the current challenges facing small coffee farmers. The interesting points I’ve summarized here.
Managing at a granular level – The unit of management in the vineyard was the block, which represents a unique combination of genetic and environmental conditions and therefore required specific management. In Central America, I see farmers managing on a parcel level. A parcel is usually defined geographically, not on a genetic nor environmental basis. The coffee that comes from a farm tends to be a field blend – a farmer will not separate their harvest by varietals (there is no incentive to do so). In a vineyard, the varietals are separated and managed differently Most management is done with a view to productivity and not towards quality. Which brings us to…
Quality vs. Productivity trade off – This is really at the heart of what Caturra vs. Castillo is about and about the other discussions of newer, rust resistant varieties. Farmers are predominantly compensated on a weight or volume basis and have very little conception of what quality is to their end user. We are just beginning to compensate for it, through microlots, quality premiums and the like.
Quality premiums – The current quality premiums aren’t nearly to the level that Napa sees for their grapes. Let’s take Guatemala as our example. Guatemala produced nearly 3.5 million 60-kg bags of coffee in 2014-2015. Napa cabernet was 16% of the total California cabernet production – it was the –super-premium. Sixteen percent of 3.5 million puts us at half a million bags, more or less. If we assume an average price of $1.50 last year, a Napa like premium on these half million bags would be $10.50 a lb. Which is about the average price of the top 25 coffees in last years CoE for Guatemala – a total of ~430 bags.
Innovations and applied research – Looking at the GxExM framework at a vineyard shows how much research, innovation and technology is available to make decisions. Grapes are also another crop with a vary narrow genetic base, and who have suffered through devastating diseases as a result of this (Phylloxera, Pierce’s disease). The response has been to graft rootstocks that are more resistant and more research into breeding. For the “E” – there is so much more data available to a grape grower on environmental conditions, than that for a coffee grower. As Tom mentioned – he manages for water and knows fairly well what the requirement for each block is and what they have received so far. Which gets us to M. I think the biggest difference is that the management leads towards a defined idea of quality, which is at odds with production. You don’t want a really fecund vine, with lots of fruit and leaves. Well watered and fertilized grapes do not make the best wines.
The bottom line is that every decision on the farm is linked to the quality of the final product. There are clear financial incentives to do so. For a coffee farmer, the incentives for quality aren’t quite as strong and not as clear. It isn’t new news – Michael brought this up last year, and Paul and our colleagues are trying to link coffeeland watersheds, the downstream users and how to create market incentives for farmers to adopt practices that promote increases in the quality and quantity of water downstream. However, when we look at the precision management of Napa valley vineyard and the focus on quality, it shows us what management tied to market and quality incentives looks like and gives us a model to improve upon.