Filed Under:Claims, Catastrophe & Restoration

Wildfires trample California's $58 billion wine industry

Flames from a wildfire burn Monday, Oct. 9, 2017, in Napa, Calif. The fire is one of several burning across Northern California's wine country. (AP Photo/Rich Pedroncelli)
Flames from a wildfire burn Monday, Oct. 9, 2017, in Napa, Calif. The fire is one of several burning across Northern California's wine country. (AP Photo/Rich Pedroncelli)

Updated 4:17 p.m. EST

(Bloomberg) -- The fires ravaging Northern California stand to leave the area’s renowned wine industry with damage that will be felt long after the final flames burn out.

At least four Napa Valley vineyards have been destroyed or significantly damaged, and the toll may be even worse in Sonoma County to the west. Though the majority of grapes have already been picked for the season, the smoke effects on those remaining may mean they have to be thrown out, diminishing this year’s vintage.

Related: 5 things to know about wineries and wildfire claims

Thousands displaced; at least 21 dead


The wildfires continue to rage after suddenly and swiftly sweeping through the region starting Sunday night, leaving at least 21 people dead and displacing thousands in an area that’s home to a thriving tourism industry and some of the nation’s most valuable vineyards. While it’s too early to gauge the extent of damage to California’s wine industry, which contributed almost $58 billion to the state economy last year, the effects are likely to be lasting.

“A significant amount of acreage will likely be out of commission for a while” in the regions, said Phil Lynch, a spokesman for Brown-Forman Corp., which owns Sonoma-Cutrer vineyards and markets Korbel champagne. “If it’s only smoke damage, it’s one season. If it’s fire damage, it’ll be three or four seasons.”

Sonoma-Cutrer, known for its Chardonnays, is located in Sonoma County just a five-minute drive from where some fires blazed, while champagne maker Korbel lies further from the fires. Brown-Forman won’t be able to assess the properties until the flames are under control, Lynch said.

Still assessing


Other vintners were waiting to see the scope of the damage. Napa and Sonoma are home to more than 1,000 wineries, according to Gladys Horiuchi, a spokeswoman for the Wine Institute of California. The areas produce the highest-end grapes in the state, which makes 85 percent of U.S. wines.

“We can’t make an accurate assessment of the damage to vineyards and wineries because people have been evacuated and don’t have access to the properties,” Horiuchi said.

Winds gained speed on Wednesday, increasing the risk of more fires. The National Weather Service has issued red flag warnings and watches for the region.

Even if damaged wineries have insurance, the recovery could be long and expensive. The claims process could take several months to a year, depending on the length of the reconstruction, said Rob Gall, a managing director at insurance broker Marsh & McLennan Cos. Business income loss could be significant, he said.

Related: 5 questions agents must ask when writing winery and vineyard insurance

The fires mark the second natural disaster in three years for the area, which was hit by a magnitude 6.0 earthquake in 2014 that caused at least $500 million in economic damage, according to the U.S. Geological Survey. Beyond the destruction to wineries, the latest disaster means lost revenue for all parts of the industry that caters to wine tourists.

“The economic impact could be significant, when you consider lost business at all the wineries, hotels and restaurants,” said Ken Freeman, owner of Freeman Vineyard & Winery in Sonoma County’s Sebastopol, who’s had several groups cancel trips this week. “Nobody wants to appear to be celebrating when there’s so much devastation around.”

Properties destroyed


The Napa Valley Vintners trade association reported that as of Tuesday afternoon nine members have sustained damage to wineries, outbuildings or vineyards, in addition to the four that were significantly hit or beyond repair.

Paradise Ridge Winery in Santa Rosa and Signorello Estates in Napa were among those consumed by flames. Nicholson Ranch Winery in Sonoma was damaged, but not destroyed. Gundlach Bundschu, California’s oldest continuously family-owned winery, and Scribe Winery, both in Sonoma, were in close proximity to fires, but haven’t burned. E. & J. Gallo Winery’s William Hill, in Napa, sustained cosmetic and landscaping damage at its winery and minimal vineyard damage, the company said in a statement.

Flames fed by a gas line, burns in the debris of a fire ravaged home, Tuesday, Oct. 10, 2017, in Napa, Calif.

Flames fed by a gas line, burns in the debris of a fire ravaged home, Tuesday, Oct. 10, 2017, in Napa, Calif. Wildfires whipped by powerful winds swept through the California wine country sending thousands fleeing as flames rages unchecked through high-end resorts, grocery stores and tree-lined neighborhoods.(AP Photo/Rich Pedroncelli)

Constellation Brands Inc., which owns 32 California wineries including Robert Mondavi, Meiomi and Woodbridge, shuttered its tasting rooms in the area out of concern for the safety of employees and to assess damage. Treasury Wine Estates Ltd.’s holdings, including Acacia Vineyard, Chateau St. Jean, Etude, Beringer and Stags’ Leap, also closed.

Related: Wildfire claims and coverage questions

“A lot of wineries are not operating,” said Michael Honig, president and chief executive officer of Honig Vineyard & Winery and chairman of Napa Valley Vintners. “Some people don’t have generators and they don’t have power.”

About 73,000 utility customers in Napa and Santa Rosa lacked electricity service as of Tuesday afternoon as a result of the wildfires, PG&E Corp. spokeswoman Ari Vanrenen said in a phone interview.

Buffer zones for fires


The hills above the popular Silverado Trail, site of dozens of iconic wineries, have been especially hard hit by the Atlas Peak fire stretching along the eastern side of Napa Valley.

Flames haven’t reached the Napa Valley floor, home to Honig Winery and properties such as Opus One and Robert Mondavi. The valley floor tends to be less dry, with little of the brush and scrub oak that is feeding the fire in the hills above.

Vineyards can serve as a buffer zone for fires, which may explain why a relatively small number of wineries in the area have been destroyed, said Rob McMillan, executive vice president and founder of Silicon Valley Bank’s wine division. Still, the vineyard damage can be severe, he said.

“The loss of those grapes, they’re effectively irreplaceable for that five-year period at least,” he said. “The only source of that kind of wine is in these two counties — if you’re looking for a Sonoma County Pinot Noir or a Napa Valley Cabernet, these are the only places to get it.” 

The revenue lost from one destroyed acre over the course of five years is about $360,000, plus the cost of replanting and farming during that time, he said.

California’s coast is the most valuable wine-producing region in the country, said Stephen Rannekleiv, a beverage analyst at Rabobank International. The lion’s share of grapes in the state are grown in the San Joaquin Valley, where Cabernet Sauvignon grapes go for about $400 a ton. By contrast, the same fruit from Napa Valley usually costs closer to $7,000 a ton, and can sell for as much as $50,000.

Dan Sumner, an agricultural economist at University of California, Davis, said consumers buying wines priced at $60 or more may see higher price tags due to smaller volumes of some vintages.

“They’re going from wines you can’t afford to wines you really, really can’t afford,” he said.

Tainted grapes


As smoke settles in vineyards, tainted grapes won’t be used in high-end wines, Sumner said, because winemakers won’t compromise their brands. The grapes that are still in the fields are some the highest-priced Cabernet Sauvignons or Merlots, Sumner said.

Related: 5 property insurance risks to watch [infographic]

“These wines have to have character and flavor,” he said. “If you’ve got a reputation for making $100 wines that everyone loves, you’re not going to make that vulnerable by slipping in some tainted grapes. That may mean there’s less of this vintage in the market, in which case consumers would notice.”

If 10% to 15% of the crop in the region is destroyed or unusable, the cost to the wine industry for the current vintage alone could be in the neighborhood of $100 million, not including damaged or destroyed structures, Sumner said.

Honig said one down vintage is unlikely to have a significant effect on prices.

“They might just speed up release of the 2018 to accommodate the shortfall from 2017,” he said.

The vast majority of grapes in the region were already harvested before the fires began. The grapes that remain were largely Cabernet Sauvignon, according to Napa Valley Vintners.

Hotels, spas


The hotels and restaurants that serve the wine industry and its tourism have also been affected. Carneros Resort & Spa is under a mandatory evacuation, according to its website. Meadowood Napa Valley is closed until at least Oct. 15. Calistoga Spa Hot Springs was closed Tuesday due to power outages. Silverado Resort and Spa evacuated guests on Sunday. Its structures are currently intact, according to a statement on its website.

Winds died down on Tuesday, making it easier to combat the flames. Still, the efforts to quench the fires are far from complete, said Jonathan Cox, a spokesman for Cal Fire, the state’s Department of Forestry and Fire Protection.

“This is eventually going to become a recovery effort,” Cox said. “It’s months, if not years, of infrastructure and rebuilding to do especially in these hard-hit cities.”

Copyright 2017 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Related

Wine country ‘in shock’ as fires ravage iconic California region

California wildfires continue to burn throughout Napa and Sonoma valleys, leaving at least 11 dead and 1,500 buildings destroyed.

Featured Video

Most Recent Videos

Video Library ››

Top Story

Interpreting dwelling clauses in homeowners' policies

While insureds are riding a winning streak in these disputes, insurance companies continue to deny claims on the basis of residency.

Top Story

Top 10 cities attracting millennial homebuyers

When they want to start settling down, many millennials are opting for the quieter life paired with plenty of career opportunities.

More Resources

Comments

eNewsletter Sign Up

Claims Connection eNewsletter

Breaking news on disasters, fraud, legal trends, technology, and CE initiatives for the P&C claim professional – FREE. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.