Many of the clients I am dealing with are looking for a home with some land, and have not decided yet if they want a home with an established vineyard or one that they can create their own legacy from. To make that decision, we discuss the potential Cost (and reward) of ownership. In that discussion, we also discuss what type of wine they personally favor, and what location of Wine Country they are most interested in.
In the Assumptions done each year by the Research and Teaching teams at the UC Cooperative Extension and the Department of Agricultural and Resource Economics Department at UC Davis, a piece of land deemed suitable to grow grapes will have a small production in the 3rd year and could yield a fully producing facility by the 5th year. So, to begin with – you need to know that if you are purchasing a piece of property to create a vineyard – you will potentially be waiting 5 years before you begin seeing Revenue.
To be sure, growing wine grapes is a business – a good business. The ROI for clients, even in this uncertain marketplace, can produce a good income year after year if the vineyard is well run and well marketed. In our initial conversation, we will also discuss what type of owner you intend to be. The involvement, the actual labor and time you are able to contribute to the vineyard, the return you expect on the investment and the type of product you are interested in producing all need to be considered.
For instance, my wife’s family owns a Vineyard in this area – and at certain times of the year, she is out of the house before 5am to go check on the vines! If that’s not the level of commitment you have time for, we can talk about the cost of retaining a property manager. Often times their connections, and ability to get a little more fruit per acre create more revenue than the cost of their service! (Many of clients are only in Wine Country for a limited time each year, and so I’ve got great contacts for these type services!)
Fortunately, once the vineyard is in the ground, the costs to operate the vineyard from year to year are pretty predictable. It costs $2,500 to $3,500 and up per acre to farm every year. This includes all farming costs, including a Pickup Truck. The UC Davis 2010 estimate for the 3rd year of Operations for a Sonoma farm of 30 acres to be approximately $3,023 an acre. Other costs, such as insurance and interest expense have to be considered separately.
As with most business, the cost of labor (in this case harvesting) is considered separately as well at about $500 per acre in the 2010 UC Davis Study.
Grapes are sold by the ton and prices vary from area to area and from variety to variety. The Chart below reflects the 2010 prices for Grapes per ton in Sonoma:
Tons per acre varies considerably from variety to variety and from high quality grapes to low quality grapes. You can get as many as 10 tons to the acre or more for some varieties at lower qualities. But in general, you can estimate about 5 tons to the acre or less for high quality grapes of most varieties. Average yields for Pinot Noir will be a little lower and most white grape varieties a little higher.
You will also see a difference based upon when the vineyard was planted. Older standards called for planting grapes might also affect your yield. In the last 30 years the standard changed, and today vines are planted almost 2 times more densely than they were in the 1970s.
So, for a typical Sonoma County red wine grape variety, if you figure $2,000 a ton and 5 tons to the acre you should get about $10,000 an acre in revenue. Take away our average of $3,000 in costs + $500 per acre for harvest and you get $6,500 per acre in net income.
This is obviously not an exact science – and you can see that we’ve not calculated any management fees, or production fees if you decide to create your own wine from your grapes.
Right now there aren’t enough Sonoma County grapes to go around and wineries have to compete for available fruit. This can work to your advantage if you are willing to spend a bit of time through out the year getting to know the wineries in your area. Learn about the various techniques used, and don’t be afraid to talk about your vineyard. You’ll get lots of free stuff and probably make some new friends!
There are multiple vineyard properties for sale in Sonoma, and we compared those with vineyards for sale in Napa Valley recently. If you are considering purchasing a wine making operation in California. Call Mark Stornetta 707-815-8749 f you’d like to learn more about Napa Valley Vineyards for sale and Sonoma Wineries available, contact Mark Stornetta 707-815-8749 – I have a unique connection to this land, to the art of wine making, to the history of the Appellations, and the value of vineyards for sale in Napa and Sonoma. I can help you calculate your ROI and EBIT on a Vineyard or winery in California.