Category: Financial

If This Was Easy, Everyone Would Do It.

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king on laptop with a calculator

By: Susan DeMatei, founder of WineGlass Marketing

Setting expectations is difficult. After all, we all want perfection and success, so isn’t it just positive thinking to predict that your campaigns will be victorious? That’s what “The Secret” tells us, anyway.

  But while it can’t hurt to take a stab at manifesting abundance and contemplating gratitude, you are likely using more concrete values, such as benchmarks and previous performance, to project the results of your marketing campaigns to your management.

  We submit additional data points to anticipate reasonable responses to your marketing campaigns. These data points are:

•             What environment exists around this campaign?

•             What workload can I reasonably handle successfully?

•             What does my management consider, including the cost of goods sold?

  Let’s break each of these down and include some real-life winery examples.*

CONTEXT: What Have you Done for me Lately?

  Many marketing decisions are best made with data. Your database is your guidebook; you should know the segments within, their values, and their behavior. Historical data empowers you to make informed decisions. If you don’t have it, that’s fine, but then expect a low degree of certainty in your predicted response. You should test some targeting, offers, and messages to learn what your database responds to.

  But along with performance benchmarks, it helps to know the history of communication with your customers. Don’t expect them to wake up quickly if you haven’t talked to your database in a predictable cadence or included information about your brand, people, or location to engage them. Customer communications are like any other relationship: the dialog needs thoughtful nurturing. If you only reach out when you have something you need (selling wine), your recipients might turn deaf to your calls to order.

  Take the case of a recent boutique client who, because of the current economic conditions, had cut all social media and emails out over the past two years. Without a tasting room, he felt it prudent to stop all marketing until his new vintage release. It had been a year since his last email, two years since his last social post, and he was ready to release his next vintage. We recommended warming up the audience weeks ahead with updates about the brand, the people, the vintage, and the vineyard. Why spend time on this step? Because you remind consumers who you are and why they fell in love with you in the first place. He declined, citing that he wanted to avoid spending money on any activities that were not about sales.

  We also recommended we launch a low-level advertising program to gather new mailing list signups from Meta for a few hundred dollars. Why? We know that databases naturally decay at a rate of about 2% a month, and with such a long hiatus between touchpoints, there would likely be a fair amount of database degeneration. Meta is the most efficient channel for adding contacts to a database without a tasting room. He also declined this recommendation, insisting we send the email to his database to launch the new wine. It was a beautiful email. He obsessed over every line of copy and took time in the design. It was perfect.

  The database did not return with one single order. It did result in a 10.5% bounce rate (wrong addresses), a meager 6% open rate, and zero clicks. He had expected sales to be like previous years before he cut out all consumer communication. He learned marketing isn’t a faucet you can turn on and off, and one single channel is only part of the story. The sales may come in from an email, but each transaction is influenced by social media posts, emails about the brand, texts on events, or other communications that keep your consumers interested and engaged with your winery. Without hearing from the winery in almost a year, the response was silence when the time came for the new release.

  The parable? Keep up with your marketing – especially now. When you need sales post more, communicate honestly and resist the urge to shrink back into a shell to wait out the storm. Over time, if you share information of value on a consistent schedule with consumers, they will become reliable buyers. This ongoing two-way communication is a responsibility and a commitment, but it’s worth it in the long run. How long, you ask? In our experience, it takes six to nine months of repetition and best practices to train a database to open and click on your emails to the benchmark standards we share here.

Dashboard of Benchmarks

WORKLOAD: If We Could Hold Time in a Bottle.

  It is possible to do everything right, and still be disappointed. Another client recently came to us wanting to use Enolytics for email segmentation. Typically, they had launched one mass email each quarter to their entire database and wanted to learn if breaking it up into segments would bring in more sales. They were specific about the goals – they wanted 4x the cost (our fees) in sales. We dove in, quickly outlined a half dozen segments we wanted to try with email offers, and began the program. From the first week of May to the first week of July, we executed eight emails to micro-segments and brought in over $60,000 in sales – almost 5x our fees. When we paused for a mid-program touch base, we were surprised when the program was canceled.

  Why? They explained that executing eight emails instead of one was a lot of work for their team, which was not set up to work with an agency daily, reviewing copy and images and supporting the resulting sales and customer queries the campaigns created.

  This highlights our second expectation variable—time. Yes, segmentation is effective, and yes, best marketing practices take time and thought, so prepare for that. Set reasonable internal expectations for the time and effort it takes to support smart marketing.

COGS: Rhymes with Dogs, but not as Awesome.

  What your winery considers costs can vary. Typically, the Cost Of Goods/production costs aren’t up for debate. The cost for grapes by ton, barrels, and storage are documented and outlined in the COO’s spreadsheets. However, the Cost Of Goods Sold is another number entirely, as when marketing gets involved, it becomes less defined. A tasting room is likely the most expensive channel to sell if you add up the mortgages or rent, staff, overhead, groundskeeping, utilities, etc. But few wineries consider that. Why are wineries quick to ignore some costs but then obsess about advertising dollars or outsourcing fees?

  Our third example is on this topic, which we battle with frequently. We worked with a substantial Napa Winery, which, seeing tasting room traffic wane, wisely wanted to test whether they could attract consumers to buy wine over $100 purely online. Up for the challenge, we outlined Meta and Google ads and set up for a three-month test. We aimed to sell a three-pack of wine online to brand-new people outside their database.

  At the end of the test, we had spent $7200 and brought in $21k in sales—or a ROAS of 2.89. We were thrilled as the average Return on Ad Spend is around 1.5 for Google and 1.7 for Meta. But we were up for a surprise when our client did not consider the campaign a success. Why? Because they included our cost along with the ad spend, which made it closer to breaking even.

  There are a couple of breaks with logic when including outsourcing fees in your cost of goods sold, and I’m not just saying this to defend our costs. (Ok, maybe I am a little bit.) First, when your employees execute programs internally, it isn’t free. There is still a cost to having employees. You need to include or exclude consistently. The second flaw is that you don’t take a break and go home early when adding outsourced support. No, you are freeing yourself or your team to do other critical tasks of value. So instead of considering outsourcing as just a drain on funds, look at it as paying to accomplish a goal.

  Another point this winery missed was lifetime value of these customers. Remember that the future value of these 42 new consumers is still being determined. Two months later, seven ordered again, and now are a total value of $30k and 50 orders.

BRING IT HOME

  I will leave you with a last cautionary tale combining all three above areas into one misadventure. This involves a very successful central California winery with multiple locations. They intensely focused on traffic to their tasting rooms but needed to create a thoughtful remarketing email program. Since the last marketing manager left, they had not routinely emailed their database in over 18 months. As predicted, the database was sluggish in responding initially, but as our segmentation and repetition continued, we saw sales increase more readily. We micro-targeted groups of 300 – 1000 based on recency and product choice. The client was dubious, and we routinely had to remind him that with small lists come small sales. (After all, a 5% response on a list of 350 recent buyers of a certain SKU is only about two orders). After two and a half months, we had made back the money spent on our retainer and were just starting to see the database respond, but the client pulled the plug, saying the test was “a disaster.” Why? From his point of view, he said he could have done nothing and been in the same spot. I’m sure that is true, but it’s unclear how they’d ultimately succeed sitting on cases of unsold wine with no customers!

  Since they hadn’t done much online sales before, I inquired about his internal barometer for online sales success, to which he replied 4x our retainer cost. I asked him if he included his own employees’ costs when evaluating the tasting room channel, to which he replied, “That’s none of your business.”

  This example combines so many mistaken assumptions about marketing. First, a conjecture that marketing performs immediately at full steam. Second, an lack of understanding that regular segmented emails do bring a higher % of conversions, but realizing the lists are smaller so the number of sales might seem small. (But, they add up.) Third, the inconsistency of including manpower cost in one channel but not another. Finally, unrealistic metrics for success. I have heard some creative KPIs before, but never that marketing shouldn’t cost anything – that the benchmark was comparing any marketing costs to the cost of doing nothing. Doing nothing will always be cheaper. And easier.

  What’s the point of my rant? Well, I got to vent, so if you made it this far, thanks for that. But know there are no tricks. There is no silver bullet. There is no magic tool, database, or platform that will bring you thousands of dollars. Like all things in life, selling your wine takes thought and focus. Marketing is a process that takes time – assume 6-12 months. And money – assume 5% of your gross sales. And effort – sometimes yours, sometimes others. But if you set reasonable expectations and communicate your goals, you can succeed by improving over time.

  Ultimately, the cost of not doing marketing is assuredly failure, which is a far greater cost than anything you might risk with a few ads or emails.

  Susan DeMatei founded WineGlass Marketing; the largest full-service, award-winning marketing firm focused on the wine industry. She is a certified Sommelier and Specialist in Wine, with degrees in Viticulture and Communications, an instructor at Napa Valley Community College, and is currently collaborating on two textbooks. Now in its 12th year, her agency offers domestic and international wineries assistance with all areas of strategy and execution. 

  WineGlass Marketing is located in Napa, California, and can be reached at 707-927-3334 or wineglassmarketing.com

How does Grape Crop Insurance Work

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man with handful of hail in a vineyard

By: Trevor Troyer – Agricultural Risk Management, LLC

Grape crop insurance is an Actual Production History (APH) policy. This means it uses a vineyard’s historical production to determine how much is covered. You are covering an average of your tons per variety. Since crop insurance is subsidized the insurable varieties, prices per ton, premiums, etc. are all set by the USDA. These are all set per county and state. This also means that there is no difference from one insurance company to the next. If anyone represents that they can get you a lower premium for the same coverage, it is false.

  You will need to set up individual databases for each variety. If you have vineyards in different locations, you can often times set up the same variety separately. This can be good when you have a claim. You might have a loss in one location but not the other. You don’t want your production co-mingled, as you may not have a payable loss at that point.

  The databases can go back up to 10 years, if you have the production. Minimally 4 years is needed to set up an APH database. If the vines have just become insurable then a Transitional Yield (T-Yield), based on the county and variety, can be used to fill in up to three years. If you purchase a vineyard that has been producing you can transfer that production history. You must have records or some way to prove that history though. The database can only be set up as far as you have production records to prove the yields. Production records are not required at the time you sign up for crop insurance or at production or acreage reporting times. But it can come up during a claim or a review.  So, it’s important to have records to prove your historical production.

  Here’s what the 2024 Crop Insurance Handbook says about grape production records:

  “Settlement sheets, sales receipts, machine harvest records, certified scale records, pick records and final or year-end statements from a winery, cannery or processor must indicate net paid tons of Grapes delivered by variety. Converting gallons of wine to tons of grapes does not qualify as acceptable records.”

  It is especially important to keep good records if the grower is “vertically integrated.”

  “A producer is vertically integrated when all stages of production of a crop, from acquisition of materials to the retailing or use of the final product, are controlled by one person, or by different persons that are related.”- Crop Insurance Handbook.

  If the entity that owns the vineyard is a winery, then they would be vertically integrated. Even if they sell some of their grapes to other wineries.

  Vines need to be in their 4th growing season for the grapes to be insurable. A minimum of 4 years is needed to do the average, if the grapes have just become insurable then a T-Yield, as mentioned before, is used in place of any missing years.  Usually, the third growing season after being grafted is considered insurable. The vines must have produced an average of at least two tons per acre in at least one of the three preceding crop years. There can be exceptions to this rule. Sometimes there are other requirements located in the “Special Provisions” for that particular county. In California the USDA Davis Regional Office (DRO) puts out Informational Memorandums that lay out specific requirements for the state of California. These differ from other growing regions in the US. You are able to make higher yield requests that can be approved by the USDA Davis Reginal Office.

  Grape crop insurance is available in the following states; Arkansas, California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and Washington. Crop insurance is not available for grapes in all counties in each of these states though. For a list of insurable counties, you can look at the RMA’s website at rma.usda.gov or contact your agent. Even though there may be differences between AVAs in a given county, the insurability, prices, premiums are set per county not AVA.

  Insurable varieties are also different between states and counties. The varieties are usually set by what has been being grown in that county or what a particular climate in a state/county allows for. Even if a particular variety is not listed it can be insured. There are Types/Practices for each county that list out specific varieties and also make allowance for others. For example, it may list Cabernet Sauvignon, Chenin Blanc, Gewurztraminer, Grenache, Cabernet Franc and so on. If a particular variety is not listed it can usually be insured under “Other Varieties”, “Other White Varieties” or “Other Red/Pink Varieties.”

  Having a lot of varieties that are not specifically listed causes these different varieties to be lumped together in the database. This can cause problems if you have varieties that yield differently. But this is still better than not having any coverage at all. Any coverage is better than no coverage as can be attested by many growers in California a couple years ago during the wildfires.

  It may happen that your production is low in particular year. You might have had a claim paid or not, but what about your database and average going down? This isn’t good for the overall average of your database.  You may elect an optional endorsement when you sign up called Yield Adjustment.

  “For APH yield calculation purposes, insureds may elect to substitute 60 percent of the applicable T-Yield for actual yields (does not apply to assigned and temporary yields) that are less than 60 percent of the applicable T-Yield to mitigate the effect of catastrophic year(s). Insureds may elect the APH YA and substitute 60 percent of the applicable T-Yield for low actual yields caused by drought, flood, or other natural disasters.” – 2024 Crop Insurance Handbook.

  This can make a big difference; you want your yields to stay up so that your average does. This makes it more likely to have a claim paid at the time of a loss. You cannot cover 100% of your average production. You can choose coverage levels from 50% to 85%. There is a built-in production deductible. Coverage levels are in 5% increments. Coverage levels are obviously relative to premium, the lower the coverage the lower the premium, themore coverage you buy the higher the premium. What the correct coverage for your needs is something your crop insurance agent can help you with. 

  Crop insurance is subsidized through the Federal Government. The USDA Risk Management Agency oversees crop insurance. The RMA’s website is www.rma.usda.gov

The Contract Packaging Agreement

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By: Brad Berkman and Louis Terminello, Greenspoon Marder

A few times on these pages, we’ve written about contracts of various types to assist brand owners in proper planning for brand manufacture, introduction and distribution. In this article, we’ll take something of a deeper dive into production agreements in a contract package or custom crush arrangement.

  First, building a winery, and perhaps developing a vineyard, is an extraordinarily time-consuming and expensive process. Returns on investment may take many years to see back. In addition, winemaking (as well as brewing and distilling), is a manufacturing process that requires great deals of expertise, technological know-how and a deep appreciation for the art form. Taking a brand to market and getting placed on wine lists and by-the-glass programs require a very different set of skills. Enter: the brand owner and the contract package relationship.

  It’s worth noting that brand owner, though a common term in the industry, is also a term of art in the beverage law. Since the writers of this article are striking their keyboards in Florida, we’ll refer to Florida Beverage Law for quick analysis.

  561.42 FL. Stat. makes the first reference to “brand owner” in the Florida Beverage Law. The statute is Florida’s tied-house evil statute prohibiting direct and/or indirect interests between upper-tier industry members and retailers. Brand owners are lumped in and treated similarly to manufacturers, distributors, importers, primary American sources of supply, registrants, and/or any broker or sales agent or salesperson. By this definition, brand owners, absent the presence of a statutory exception, are treated as upper-tier industry members and subject to tied-house laws and restrictions. This is generally true in all states.

  Brand owners, when appropriately licensed, are permitted to enter into contract packaging agreements with manufacturers. Both are upper-tier industry members and certain tied-house restrictions are inapplicable. Prior to finalizing the production agreement, a federal wholesalers permit is required, as issued by the Alcohol Tax and Trade Bureau (TTB), and in many instances, state permits are required as well. The reader should keep in mind that an alternative licensing paradigm exists called an “Alternating Proprietorship” arrangement where the brand owner, via a different licensing scheme, acts as a tenant of the winery and produces its own product on the winery’s premises. This article will focus on the former arrangement.

  Negotiating and finalizing the terms of a production agreement can be a daunting task. The brand owner and manufacturer share a common goal, but agreeing on the terms which will lead to the goal of a final product could be challenging generally because of the bargaining positions and goals of the parties.

  What follows is a look at some of the essential terms of a contract package or custom crush agreement that both parties to the contract should consider carefully. By no means is this an exhaustive list, and competent alcohol beverage contract attorneys should be retained to assist.

•             Quantities and Pricing:  Total quantities produced under the agreement require careful consideration, and for the brand owner in particular. There must be a meeting of the minds on production levels prior to focusing on other areas. Brand owners should be careful not to enter into agreements where production quantities and commensurate pricing/costs are higher than anticipated sales over the same time period. Managing brand building resources against production costs is essential. Phrased another way, brand owners should carefully manage their production dollars to ensure the required monies are available for marketing and sales spends.

                  On the flip side, manufacturers must consider the volume expectations of the brand owner. They must consider whether they can meet the production requirements of the brand owner. In the alternative, they must carefully consider allocating valuable production time to brand owners whose volume requirements are too low, which ultimately cuts into revenue potential.

•             The Juice:  Manufacturing services need to be clearly stated. The parties need to determine whether the winery will actually be producing and supplying the wine to be used or if it will be outsourced from a different winery and bottled at the contract packer’s premises. Quality specifications need to be determined and assurances need to be made that the end product will comply with quality standards established by the parties. By extension, provisions should be included for how to deal with a finished product that does not comply with agreed upon quality standards.

•             Raw Goods and Production Material:  Any ingredient specifications, if required, should be determined, agreed to, and set forth in the agreement. As with the above, finished product assurances (as to quality) should be included, as well as methods for dealing with materials not in compliance with quality standards.

                  The same should be considered with production materials. Bottles, caps, labels, cases and other constituent parts must be considered. Central issues such as how these items will be procured, that is whether the winery will procure these items and build their costs into the finished product or whether the brand owner should source them out and supply these items as required. Quality assurances need to be addressed as well, and in particular, how to manage materials that do not comport with quality standards.

                  Another seemingly innocuous issue is storage fees associated with the storing of raw goods and production materials at the packager’s location. Associated costs for storage services should be memorialized in the agreement. Hidden or undetermined fees may add up quickly, causing revenue issues for the brand owner and could potentially lead to disputes among the contracting parties.

•             Exclusivity and Production and Supply Goals:

                  Serious consideration must be brought to the issue of exclusivity by both parties. Brand owners need to determine early on whether a potential contract packager has the ability to supply all the requirements of the brand owner. Conversely, the packager must also make honest inquiries as to its ability to produce and pack according to the brand owners’ requirements. Generally, the preferred approach is the middle ground.  That is to say, a reasonable production number based on the brand owners’ requirements and the contract packer’s ability to produce should be agreed upon and memorialized in the contract packaging agreement. Under this scenario, both parties have a reasonable expectation as to their respective performance requirements under the agreement and an understanding of the benefits incurred. The issue of exclusivity could become moot, if the production and supply numbers are agreeable to both parties.

•             Production Forecasting and Scheduling:  Another area for the parties to agree upon prior to execution of the agreement, is anticipating production needs over time to ensure that the packer can produce according to a set schedule and the brand owner can rely on goods being ready according to their sales and marketing needs. Anticipated variances and procedures for adjusting product forecasts and scheduling should be memorialized as well.

•             Recall:  A system and procedures for recall should be established and memorialized as well, with allocation of costs based upon the reasons for recall. Recalls may occur for myriads of reasons, and when addressing this issue parties to an agreement should devise a method for determining the cause that led to recall. It should be clear that determining cause guides the parties in allocating costs for the same.

  Contract packaging agreements can be complicated agreements to negotiate and draft, requiring many more provisions than those stated above. Ultimately, agreeing on terms that satisfy the operational requirements of both parties is ideally supported by the legal protections required by both parties. As a word of warning, take care in proceeding forward with these types of agreements. Having experienced legal counsel involved is the most prudent course of action.

A Short and Quick Guide to Wine Importation Regulatory Process

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row of Spanish wine bottles

By: Brad Berkman and Louis Terminello

Importing wine into the United State may initially seem like a daunting task. Licensing requirements and related matters appear to be complex with requirements at both the federal and state levels. With proper planning and guidance, the insurmountable becomes a manageable process. This article will act as a short guide to the initial licensing and regulatory concerns encountered by new importers.

Licensure At the Federal Level

  Importation of wine into the stream of commerce of the United States is regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB). Prior to importation, the potential importer must qualify to hold a TTB Basic Permit as an Importer. TTB examines the qualifications of the owners and officers through a personal questionnaire process that is executed under the penalty of perjury to ensure that the individual applicant is not impaired from holding the permit. Qualifications of applicants can be found in the Code of Federal Regulations. Printed below are the code sections showing the requirement for licensure and the required qualifications for licensure.

§ 1.20 Importers.

  No person, except pursuant to a basic permit issued under the Act, shall:

(a) Engage in the business of importing into the United States distilled spirits, wine, or malt beverages; or

(b) While so engaged, sell, offer or deliver for sale, contract to sell, or ship, in interstate or foreign commerce, directly or indirectly or through an affiliate, distilled spirits, wine, or malt beverages so imported.

§ 1.24 Qualifications of applicants.

  The application of any person shall be granted, and the permit issued by the appropriate TTB officer if the applicant proves to the satisfaction of the appropriate TTB officer that:

(a) Such person (or in case of a corporation, any of its officers, directors, or principal stockholders) has not, within 5 years prior to the date of application, been convicted of a felony under Federal or State law, and has not, within 3 years prior to date of application, been convicted of a misdemeanor under any Federal law relating to liquor, including the taxation thereof; and

(b) Such person, by reason of the person’s business experience, financial standing or trade connections, is likely to commence operations as a distiller, warehouseman and bottler, rectifier, wine producer, wine blender, importer, or wholesaler, as the case may be, within a reasonable period and to maintain such operations in conformity with Federal law; and

(c) The operations proposed to be conducted by such person are not in violation of the law of the State in which they are to be conducted.

  In conjunction with the personal questionnaire process, the applicant entity is disclosed including ownership structure. Among other things, certain signing authorization forms are prepared, and parties are assigned signing authority on TTB documents.

  In addition to the Importers Basic Permit, it is wise for the applicant to apply for a federal wholesaler’s permit. This permit will allow the licensee to ship alcoholic beverages in interstate commerce. The process for applying for this license is quite similar to the federal importers permit. For consistency purposes, below is a reprint of the code section establishing the requirement for this license.

§ 1.22 Wholesalers.

  No person, except pursuant to a basic permit issued under the Act, shall:

(a) Engage in the business of purchasing for resale at wholesale, distilled spirits, wine, or malt beverages; or,

(b) While so engaged, receive, sell, offer or deliver for sale, contract to sell, or ship in interstate or foreign commerce, directly or indirectly or through an affiliate, distilled spirits, wine, or malt beverages so purchased.

  Both federal permits, if the application process is managed properly and barring any unforeseen issues, should be issued within 45-60 days.

  It’s important to note that basic permits do not expire. They remain in effect until revoked, suspended, voluntarily surrendered or automatically terminated. Automatic termination can occur by operation of law when there is an unreported change in the licensed entity. In particular, change in ownership or stock transfers, among other things, must be reported to TTB on the appropriate forms within 30 days of the occurrence. If they are not reported, the basic permit will terminate by operation of law. It is essential that any contemplated change to the business be analyzed for its effect on the license and reported appropriately if required.

  As an additional note, the foreign winery/production facility must be registered with the FDA as a food facility. A registration number is assigned and must be available at the time of importation or the wine will not clear customs.

Product Approval

  Prior to importation, certain wines may be required to go through a formula approval process conducted by the TTB laboratory, though most do not. Generally, if there are added ingredients including flavorings, formula approval process is required. However, most wines produced and containing only grapes should not require formula approval. Other alcoholic beverages such as spirits and malt must be analyzed separately, as those products tend to have a more stringent formula approval process.

Certificates of Label Approval (COLA’s)

  All imported wine labels must be submitted to the TTB prior to importation and approved. Approval results in the issuance of a Certificate of Label Approval, more commonly called a COLA, which is required to be presented to US Customs at the port of entry, along with other documents.  TTB will examine the label to ensure that all mandatory labeling requirements are met. The wine label approval process can be complex, particularly for a first-time submitter. Certain pieces of information need to be affixed and positioned according to the regulations or the label will be rejected by TTB until brought into compliance. It would be beneficial, especially for the first-time submitter, to consult an expert when commencing the COLA process.

State Licensing

  As noted, TTB regulates the importation of beverage alcohol in foreign and interstate commerce. Prior to brand introduction in any state, it is incumbent on the importer to determine which state licenses are required prior to selling the wine within the borders of that state. As a general rule, some sort of non-resident permit is required, and often times brand registration as well. This is not a one-size-fits-all model, and these writers stress that each state’s requirements be examined carefully, and the appropriate licenses must be obtained.

Will Crop Insurance Cover Losses to My Vines?

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man on cell phone inspecting grapes in vineyard

By: Trevor Troyer, 
Vice-President of Operations 
for Agricultural Risk Management

Does crop insurance cover losses to my vines? What can I do about vine loss or damage?  Half of my vineyard got burned due to wildfires.  I have major freeze damage on half my vineyard.  What can you do?  Crop insurance only covers losses to your grape crop not your vines.  Is there any vine coverage or assistance for that?

  Yes there is! I get a lot of questions on this so thought to address it in this article.

  Grapevine crop insurance coverage is available for the 2025 crop year. The sign-up deadline is November 1st in all states where it is available.

  The states where you can obtain this coverage are: California, Idaho, Michigan, New York, Ohio, Oregon, Pennsylvania, Texas and Washington.  It is not available in all counties though.  The counties that are listed in the actuarial documents are not the same as the Grape crop insurance program.  This  program is available for grafted grapevines only.

  What is covered with this insurance product?  The Causes of Loss that are listed in the Grapevine Crop Provisions are below:

11. Causes of Loss

(a) In accordance with the provisions of section 12 of the Basic Provisions, insurance is provided only against the following causes of loss that occur within the insurance period:

(1) Freeze;

(2) Hail;

(3) Flood;

(4) Fire, unless weeds and other forms of undergrowth have not been controlled or pruning debris has not been removed from the vineyard;

(5) Insects, diseases, and other pathogens if allowed in the Special Provisions; and

(6) Failure of the irrigation water supply if caused by an unavoidable, naturally occurring event that occurs during the insurance period.

(b) In addition to the causes of loss excluded in section 12 of the Basic Provisions, we will not insure against damage other than actual damage to the vine from an insurable cause specified in this section

  The vine needs to be completely destroyed, or is damaged to the extent that it will not recover in the 12-month insurance period from November 30th.

  Any damage other than damage to the grapevine from an insured cause is not covered.  For example, chemical drift, terrorism etc. are not covered.  Failure to follow good farming practices or the breakdown of irrigation equipment are also not covered.

  For the grapevines to be insurable they must be adapted to the area they are being grown in.  They must be being grown and sold for fruit, wine or juice for human consumption.  The vines must be grafted to be insurable as well.  The Crop Year begins December 1 and extends through to November 30 of the following year. You must have a minimum of 600 vines per acre to be insurable also.

  Vines are classified into 3 stages of growth for the policy.  Here are the exact definitions:

(a) Stage I, from when the vines are set out through 12 months after set out;

(b) Stage II, vines that are 13 through 48 months old after set out; and

(c) Stage III, vines that are more than 48 months old after set out.

  Values are determined by the Stage (age) of the vine and the county they are located in.  Obviously Stage III vines are worth more than Stage I vines.  These prices are set by the USDA Risk Management Agency.

  You can choose coverage levels for your Grapevine insurance from CAT (Catastrophic) to 75%.  CAT insurance is 50% coverage but you only get 55% of that 50% value per vine. Coverage increments are 5%, so you have 50%, 55%, 60%, 65%, 70% and 75%.   There is a sort of a double deductible with Grapevine insurance.  You have a damage deductible and a value/price deductible.  For example, if you choose 75% coverage you would have a 25% damage deductible.  That means that the first 25% of damage is not payable.  So, if you had 30% of your vines killed because of a freeze you would have a payable claim of 5% (30% minus 25% deductible).  There is also a value deductible as well. Again, if you have 75% coverage you would have a grapevine value deductible of 25%. For example, if the grapevine is Stage III in California in Napa County it would be worth $39.  At the 75% coverage level the dollar amount for that vine would be $29.25.

  There is an optional endorsement that changes the damage deductible.  This endorsement does cost a little more but is worth it, in my opinion.  This is called the Occurrence Loss Option or OLO for short.  It changes the damage deductible to a 5% damage trigger.  If your loss is 5% or more of the total value of the vines in a unit you would have a payable loss.  Plus, you are paid on the full value percentage of the loss.  So, if you had a 30% loss, you would get paid on the full 30%.  This does not change the value percentage of the coverage level, if you choose 50% you get that amount.  You cannot exceed the total insured value, Liability, of the vines in any case. 

  Once you sign up and complete all the forms with your agent, they are then submitted to the underwriter.  The underwriter will open an inspection and an adjuster will come and take a look at your vineyard.  The adjuster will determine if the grapevines in your vineyard are insurable.  The vines could be uninsurable for any of the following reasons.  The vines are unsound, diseased or in someway unhealthy.  They could have been grafted within a 12-month period before the beginning of the insurance period. Or they could have been damaged prior to the beginning of the insurance period.  Once the adjuster has completed the inspection, it is sent to the underwriter and then on to the USDA Risk Management Agency for final approval. 

  If you have damage from an insured Cause of Loss, you should contact your agent to get a claim opened.  It is always best to get a claim opened up sooner rather than later.  48 – 72 hours after discovering damage is best.  I know that a lot of growers want to wait and see how much damage there is before they do anything.  It is always better to get a claim opened up rather than wait and see.  If there is not enough damage, then you just let the adjuster know.  After you open up a claim an adjuster should be out within 10 days to inspect the vineyard.  Do not remove any damaged vines until it has been inspected!   In my opinion this is a good program, and it will provide protection to vineyards.  It will help to mitigate losses from Freeze, Hail, Flood, Fire et

The Refined Palette of Investment

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Exploring Wine as a Strategic Asset

wine bottle laying on blue silk

By: Shana Orczyk Sissel – Founder, President & Chief Executive Officer of Banríon Capital Management

In a time period marked by the unpredictable swings of traditional markets, many investors are turning their attention to more tangible assets that provide not only financial returns but also offer a personal and luxurious experience. Among these alternatives, fine wine is becoming increasingly appealing. As a long-time observer and participant in the alternative investment space, I have seen a significant uptick in wine investment interest, particularly among investors aiming to diversify their portfolios while adding a uniquely personal touch.

Why Wine?

  The appeal of investing in wine is layered and robust. Historically, fine wine has shown remarkable resilience in the face of economic downturns, often outperforming traditional stocks and bonds during inflation and market instability. This resilience is largely due to wine’s status as a luxury item, with its value driven by limited supply and increasing global demand. The finite production of certain vintage wines means that as bottles are consumed, the remaining ones become rarer and potentially more valuable. This positions wine not just as a hedge against inflation but as a compelling means for capital preservation.

Wine Fundamentals for Investors

  For those new to wine investing, understanding the fundamentals is crucial. Key factors to consider include the reputation of the vineyard, the quality and rarity of the vintage, and proper storage conditions to preserve the wine’s value. Investing in wine requires a strategy for buying, storing, and eventually selling:

●     Selection: Focus on well-known regions like Bordeaux, Burgundy, and Napa Valley, which historically produce wines that appreciate in value.

●     Storage: Proper storage is critical and should be in a climate-controlled environment to protect the wine’s quality and longevity.

●     Insurance: Like any valuable asset, wine collections should be insured, especially as their market value increases.

●     Exit Strategy: Knowing when and how to sell is as important as knowing what to buy. Most fine wines reach a peak market value at a certain point of maturity.

Personalization at Its Best

  Investing in wine is a deeply personal experience. Each bottle has its own story, tied to its origin, vintage, and the subtleties of its taste. This personal dimension allows financial advisors to engage with their clients on a deeper level. Offering wine as dividends, for instance, instead of traditional cash payouts, forges a more meaningful connection between investors and their investments. Imagine the moment of pride an investor feels when uncorking a bottle from “their” vineyard’s wine while entertaining at home.

Strengthening Relationships

  For advisors, the wine industry offers a distinctive way to deepen client relationships. Discussing wines, sharing tastings, and exploring vineyards can be powerful relationship-building experiences. These interactions allow advisors to connect with clients in settings that extend beyond conventional business environments, fostering a sense of camaraderie and shared interest.

  In the same vein, effectively marketing a vineyard or winery to financial advisors can enhance these relationships further. Invite advisors to your property for tours, tastings, and in-depth discussions about your production process and business philosophy. When advisors are familiar with a vineyard’s story, its commitment to quality, and its unique offerings, they are better positioned to recommend these investments confidently to their clients.

Diversification Through Wine

  Wine offers substantial diversification benefits. Its low correlation with conventional financial assets like stocks and bonds means it can help smooth out portfolio volatility, providing steadier returns over time. Incorporating wine into an investment portfolio can act as a buffer against market swings, appealing to those seeking more stability in their investment journey.

Avenues for Investing in Wine

  There are several options when it comes to investing in wine, each offering unique benefits and risks. Direct ownership of bottles or cases is the most traditional method, providing control over selection and requiring knowledge of wine regions and proper storage. Alternatively, wine funds offer ease through professional management, though they lack liquidity and involve fees. Those preferring a more traditional market approach might consider wine stocks, which involve investing in publicly traded companies related to the wine industry. Wine futures, or “en primeur,” allow investors to buy wine before it is bottled, potentially at lower prices, but this comes with its own set of risks related to market and production quality.

  Emerging trends like wine exchange platforms and crowdfunding are modernizing wine investment. Exchange platforms provide transparency and liquidity, enabling the trading of wine much like stocks. Crowdfunding platforms let investors buy shares in vineyards or wine projects, reducing the barrier to entry and allowing participation in potential profits from wine production without substantial upfront investment. We work closely with advisors to help them tailor and better understand the investment options that work best for individual clients.

Seizing Opportunities in the Regulatory Landscape

  Recent shifts in regulatory frameworks have opened new avenues for winemakers and investors. With the ability to raise capital from the public more freely than before, vineyards and wineries can now explore new ways of funding their operations and expansions. However, despite the high demand, there are surprisingly few wine funds available, offering a niche yet potentially lucrative investment opportunity. A thorough understanding of the market and regulatory environment will ensure investors can identify and capitalize on the best offerings.

Targeting a Broader Investor Base

  The demographic of wine investors is expanding, with women in particular drawn to the combination of cultural appreciation, luxury, and investment potential that fine wine offers. Wineries have a significant opportunity to cater to this demographic, especially at tastings, which predominantly attract couples and women. Additionally, social media has introduced new marketing channels that are not only more cost-effective compared to traditional advertising channels like television, but also resonate strongly with the female market. Influencers can provide a personal touch and create authentic connections with products, while “mom memes” underscore wine’s cultural integration.

Global Market Trends

  The global wine market is experiencing significant shifts, influenced by changing consumer behaviors and economic conditions. According to Spherical Insights, the global wine market size is projected to reach $583 billion by 2032 with a compound annual growth rate of 5.7%. Emerging markets, especially in Asia and parts of Africa, are developing a robust appetite for luxury wines driven by increasing wealth and a growing middle class. As a result, demand is likely to keep rising, potentially pushing prices higher in well-established and emerging wine markets alike.

  In Europe and North America, consumption patterns are stabilizing, but the interest in high-quality, sustainable, and boutique wines is growing. This shift towards premium products supports higher price points and can enhance investment returns.

The Future of Wine Investing

  The future looks promising for the wine sector. As awareness of its benefits grows, more investors are likely to explore how wine can complement their portfolios. For newcomers, starting with a reputable wine fund can provide a secure and enlightening entry into the market, combining financial benefits with the pleasure of ownership.

The Last Sip

  Wine investing extends beyond simple asset acquisition; it’s about embracing a lifestyle and crafting a portfolio that mirrors personal tastes and passions. For those eager to incorporate sophistication and personalization into their investment strategy, wine offers an enticing path. Whether you’re a seasoned collector or new to the world of wine, the right investment strategy can transform every sip into not just a taste of exquisite craftsmanship but also a toast to financial prosperity.

As Founder, President & Chief Executive Officer of Banríon Capital Management Shana Orczyk Sissel helps independent advisors navigate the complex world of alternative investing, bridging the gap between public and private alternative investment opportunities. Additionally, she assists clients with investment platform development, alternatives in portfolio construction and developing best practice in alternative investment due diligence. In this role, Ms. Sissel assisted in the launch of Armada ETF Advisors, and served as a key advisor in the firm’s recent launch of its first ETF product, the Home Appreciation U.S. REIT ETF (HAUS).

Vine to Value: Making a Grand Exit from Your Winery

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ramp with the word Exit

By: Carlos Lowenberg, Lowenberg Group

For winery owners, the journey from vine to vintage is a labor of love, patience, and meticulous attention to every detail. It’s easy to get swept up in the business, but one important aspect that often gets overlooked is creating an exit plan. An exit strategy for a winery business is not just about the financials – it’s about preserving your life’s work and ensuring the future you’ve crafted can thrive without you.

  As a longtime business transition advisor, I understand the unique challenges and opportunities winery owners face. Timing is everything when it comes to viniculture Vintners must contend with weather, soil conditions, and market fluctuations that can make long-term planning difficult. Additionally, wine as a product has complexities – from branding and customer loyalty to aging requirements that span years, if not decades.

  I advise clients in this position to start their exit roadmap much earlier than one would expect. A solid five-10-year runway allows you to properly stage your exit while still being hands-on to groom successors and prime your business for an optimal transition.

Key Value Drivers

  For wineries, some of the most important value drivers that will attract buyers are the strength of your brand reputation, track record of wine quality and ratings, and sustainable environmental practices. Having a seasoned, proven management team in place is also crucial, as is cementing sources of recurring revenue like wine club memberships and contracted distribution pipelines.

  Transparency into your financials, operations, and sales will be non-negotiable for buyers assessing your winery’s value. Can you easily quantify production costs and pricing models? How efficient and modern are your facilities and equipment? Do you have rigorous quality control, food safety compliance, and chain of custody processes? The more you can showcase operational maturity and documented business fundamentals, the greater your winery’s valuation.

Taking Your Time

  Maximizing value in your winery prior to an exit is all about setting the stage for an optimal transition window. Buyers will scrutinize everything from your production capacity and equipment to your vineyard management practices. Are your facilities modernized and prepared to scale up seamlessly under new ownership? How automated are your processes? Do you have a proven supply chain and quality control programs to ensure consistency from year to year?

  The more you can demonstrate your winery as a turnkey business with documented, replicable processes and identified areas for growth and efficiency gains, the more it elevates your worth. Mature wineries that have successfully built their brand name and market presence while continuing to innovate will clearly be more coveted acquisition targets.

  I cannot overstate the importance of cultivating a stellar team to drive the value of your business.  Their passion and institutional knowledge surrounding your winemaking approach are invaluable. Retaining and incentivizing this core team through strategies like equity incentives or tailored succession plans prevents brain drain and keeps your proven playbook for distinctive, high-quality wines intact long after you exit.

  The patience and planning to strategically invest in the right areas over a multi-year period to strengthen your winery and brand value reap dividends in the form of top-dollar exit valuation and a smoother transition to the next regime.

Tax Advantages Through Planning

  I also can’t stress enough the importance of getting a head start on tax planning for your winery exit. With an issue as multifaceted as providing for your family and employees and mitigating your tax burden, a well-designed, long-term tax strategy is indispensable.

  Strategies like setting up trusts, gifting private stock to children and grandchildren, and finding tax-advantaged ways to transfer assets out of your estate can provide major savings over time. Charitable giving vehicles like donor-advised funds are another way to reduce your taxable income while benefiting causes important to you and your local community.

  If you plan to keep your winery operation within the family, exploring options like an intentionally defective grantor trust can allow you to freeze the value of assets transferred while removing them from your estate long before your exit. Life insurance policies can also be used to offset any inequitable distributions if not all children will end up involved. The possibilities are endless when you start planning ahead.

Building the Ultimate Advisory Team

  Given the intricate interplay of real estate, agriculture, taxation, distribution, and federal and state beverage regulations, you’ll want a team of experts guiding your vineyard legacy’s transition out of the gates. Assembling this team should begin two to three years before your target exit date. Vital team members include:

●    A tax attorney and CPA focused on estate, gift, and generational wealth transfers.

●    A vineyard operations consultant and winemaker with industry expertise to accurately quantify your assets, evaluate management, and represent fair market value.

●    A mergers & acquisitions advisor or investment banker to identify suitable buyers and negotiate favorable terms (this could also be completed in-house with the right staff).

●    A wealth manager to protect your personal assets throughout the transition.

●    Of course, at the core should be a seasoned business transition strategist who has helped other owners avoid pitfalls and exit successfully.

  This transition dream team will map out the unique considerations your winery needs like transferring real estate and land rights, assessing inventory and barreling assets, retaining key talent through earnouts or equity incentives, and account for legal distribution restrictions as you change ownership structures.

Leaving a Legacy

  There are few professional pursuits as spiritually rewarding as growing a winery business from the roots up. The wine flowing from your cellars is a vintage distillation of years of hard work, perseverance, and your vision brought to life. It’s only natural you’ll want that legacy preserved as you pour your last glass and hand over the reins.

  By being proactive and viewing your exit as the grand finale rather than an afterthought, you can dramatically increase the odds of a prosperous transition that provides for your family’s future while honoring the tradition and community you’ve established. Thoughtful planning and the right advisors are the keys to unlocking a fitting encore for your winemaking career.

  So let’s raise a glass to your next chapter, one that rewards the fruits of your labor while allowing your vineyards’ legacy to be grown and enjoyed for generations to come. Your journey from vine to value can have a storybook ending – if you start mapping that path today.

8 Proven Ways to Elevate Winery Revenue in a Changing Market

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two people clinking their champagne glass

By: Jonathan Smalley, President and CEO of SmaK Plastics

The Times They Are A-Changin

According to CNN, global wine consumption has fallen about 6% between 2017 and 2022. Consumers have changed their drinking habits and inflation has eroded their disposable income.  That means nearly 1.9 billion fewer wine bottles were consumed last year than in 2017.

  Today, operating a successful winery requires more than just producing exceptional wines.

It demands a strategic approach to maximize operations space, production and labor, reduce overhead costs, and increase revenue and create growth.

•   The wine industry is evolving. Gen X-Z tastes are changing.

•   Wineries are at the intersection of artistry and business acumen.

•   Behind the scenes, winemakers and CFOs grapple with OpEx challenges.

•   At the same time, retail shelf space is getting more crowded – with flavored beverages.

  In this article, we will explore proven methods to increase winery revenue.

1.  Diversify Offerings to Attract a Broader Audience: An effective method to boost winery revenue is by diversifying product offerings to appeal to a wider customer base. While the core product remains wine, expanding into related areas such as events, food, and merchandise can significantly increase revenue streams.

     Silver Oak Cellars has successfully diversified its offerings. In addition to its acclaimed Cabernet Sauvignon, the winery hosts events like wine dinners and tastings. The winery’s online store also features branded merchandise, from glassware to clothing.

2.  Create a shelf space strategy – Evaluate and create modernized, distinctive labeling. Craft an eye-catching and distinctive packaging design for your Wine Club offers. Consider packaging that not only highlights your brand but also communicates the craft and quality of your wine.

     Create open communication with distributors and retailers about your differentiation and process. Collaborate on promotional events (where legal). Utilize data to ID regional preferences to tailor your product assortment. Consider P-O-S displays that showcase the craftsmanship behind your wines. Utilize shelf talkers and promotional signage to highlight unique tasting notes, food pairings, and any awards or accolades your wines have received        

3.  Expand Specific Production to Match Trends – Create craft beverages that meet emerging trends. Be a trendsetter. Consider new methods to expand your production to deliver new flavors that buyers want.

     Be aware: Buying used oak barrels used can sound affordable, but is risky. Used barrels can come with risk of bacterial contamination as well as a lower impartment of oak. And used tanks are not warranted by manufacturers.

4.  Implement Wine Club Memberships for Customer Loyalty – A new, modern wine club can create a loyal customer base, consistent revenue and a strong sense of community. Offer exclusive benefits such as early access to new releases, discounts on purchases, and members-only events.

     Ridge Vineyards is known for its exceptional Zinfandels and Cabernet Sauvignons. Ridge has a well-established wine club called the Monte Bello Collector Program. Members receive allocations of limited-production wines, invitations to member-only events, and access to library releases. This not only generates consistent revenue for the winery but also strengthens the connection between the brand and its customers.

5.  Enhance Online Presence and E-commerce – In the digital age, an online presence is crucial for wineries. Establishing a user-friendly website, utilizing social media, and implementing e-commerce capabilities can broaden a winery’s reach and drive sales directly to consumers. Invest in strong brand visibility and “edutainment.” Provide insight. Engage with your audience online and offline to create a community around your brand. A strong and recognizable brand can attract attention from retailers and consumers, and lead to increased shelf space.

     La Crema Winery has effectively expanded its online presence. The winery’s website offers a seamless e-commerce experience. La Crema actively also engages with its audience on social media platforms, and has created a virtual community around its brand.

6.  Optimize Production Space – Unleash the Cellar Potential: Say goodbye to wasted corners and hello to reimagined production. Evaluate every nook and cranny. Reorganize with precision. Utilize the space that is wasted on racking.

     Embrace flexible, movable vertical storage to increase capacity without sacrificing accessibility. Utilize stackable solutions to create skyward profits. Stackable fermentation, production, blending and aging solutions increase production, allow easy access, and deliver results. Easily blend without having to un-stack, un-rack and re-rack-and-stack barrels.

7.  Shorten the Distance and Vessel Use Between Processing Stages – Modernize your production Transfers. Reduce barrel transfer time with a streamlined, repurposed container layout. Redefine your processing flow to minimize transfer time, reduce labor, and eliminate spillage risks.

     Increase efficiency across all processes. Streamline labor-intensive tasks, from juice movement to cleaning, stacking, and maturation. Optimize productivity across your square footage. And vanquish the evaporation enemy.

8.  Embrace Modern Winemaking Techniques with Oxygen – Permeable Polyethylene Tanks:

  In recent years, wineries have increasingly turned to innovative winemaking equipment, such as poly, food-grade plastic tanks, to optimize production efficiency and cut costs. These tanks, made from high-quality polyethylene, present a viable alternative to traditional oak barrels.

  Oxygen-Permeable Polyethylene Tanks provide winemakers with a more cost-effective and sustainable solution. The use of plastic tanks aligns with sustainability goals. These vessels require less water and chemicals to clean, are lightweight and can be used for all winemaking processes, last more than 25 years, and reduce the demand for dwindling oak resources.

  Les Bourgeois Vineyards, situated in California, has successfully incorporated plastic tanks into its winemaking process. By investing in Oxygen-Permeable Polyethylene Tanks, the winery has reduced operational costs associated with barrel purchasing, maintenance and replacement. The polyethylene tanks allow Seghesio Vineyards to allocate resources to other aspects of production.

•    Poly tanks give winemakers scalability, and stackable use of production space.

•    Polyethylene vessels are sustainable. (Water and Labor Savings). These tanks can be utilized in all aspects of winemaking: production, fermentation, maturation and transport to bottling.

•    French oak barrels are produced at approximately two barrels per 100-year-old tree. Oak barrels must be sanitized using chemicals and large quantities of water. And they’re only good for 4-5 years.

•    Advanced, Oxygen-Permeable Polyethylene Tanks are long-lasting, controllable and breathe like a barrel.

•    Winemakers can easily and quickly expand capacity and space use. Polyethylene tanks are easy to move, clean and stack. And have low up-front capital cost.

Summary

   A combination of strategic planning, modern communication, customer engagement, adaptability to market trends, and new production techniques is required to grow winery revenue.

  Wineries can both build strong relationships with their customer base, and create sustainable higher margin revenue by diversifying offerings. At the same time, wineries must work strategically to create additional market pull, and shelf space. This can be created via consistent (short and unique) communication, and community building.

  Wineries must look forward to the future buyer profile and engage prospect/buyers via modernized wine clubs, enhanced online presence, and content.

  Wine owners and financial managers must also look at methods to reduce OpEx costs, streamline and increase production efficiency, sustainability and margins and revenue.

  These methods can help wineries steadily grow in a competitive market.

Author’s Bio

Jonathan Smalley, President and CEO of SmaK Plastics.  An expert in the production, fermentation, aging and transport of craft beverage and food production solutions. Over the last 20 years, he successfully directed the engineering and development of successful products for more than 4,000 global wineries, cideries and food processors.

Overview of Grape Crop Insurance

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broken fencing and damaged grapevines

By: Trevor Troyer, 
Vice-President of Operations 
for Agricultural Risk Management

What is Federally subsidized crop insurance? What is Grape Crop Insurance and how does it work? 

The Federal Crop Insurance Corporation (FCIC) was created in 1938. Originally coverage was limited to major crops. It was basically an experiment at that time, until the passage of the Federal Crop Insurance Act in 1980. The 1980 Act expanded the number of crops insured and areas in the US. In 1996 the USDA Risk Management Agency (RMA) was created. RMA’s purpose was to administer the Federal Crop insurance programs and other risk management related programs.

  Perennials are very different from traditional row crops or vegetable crops.  But a lot of the risks are very much the same.  Drought, freeze, wildlife damage, fire/smoke and the list goes on. From what can be seen the risks can actually be more with perennials.  It doesn’t matter if it’s an apple orchard, avocado grove or vineyard, your investment is subject to the elements all year round. Things may happen after you harvest that might affect the following year’s crop production. 

  Grape Crop Insurance goes back to 1998, the current policy was written in 2010. Crop insurance is a partnership with authorized Insurance companies and the FCIC. Crop insurance is partially subsidized through the USDA. Currently there are 13 Approved Insurance Providers (AIPs) authorized to administer crop insurance policies with the USDA. Prices and premiums are set by the USDA per crop, state and county. There is no price/premium competition from one company to the next because of this. Independent insurance agents sell for these 13 different insurance providers.

  Grape crop insurance is available in the following states; Arkansas, California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and Washington. Crop insurance is not available for grapes in all counties though. Insurable varieties are also different between states and counties. As mentioned, before prices are different between states and counties as well. The USDA price for a ton of Pinot Noir in Oregon is different than a ton of Pinot Noir in New York.

Grapes are insured under an Actual Production History (APH) plan of insurance. An average of the vineyard’s production per variety is used. Grapes need to be in their 4th growing season to be insurable. A minimum of 4 years is needed to do the average, if the grapes have just become insurable then a Transitional Yield (based on the county and variety) is used in place of any missing years. A maximum of 10 years can be used to determine the average if a vineyard has been in production for that amount time. Basically, you are insuring an average of your tons per acre per variety.

  With crop insurance you cannot cover 100% of your average production. You can choose coverage levels from 50% to 85%. There is a built-in production deductible. Coverage levels are in 5% increments. Coverage levels are relative to premium, the lower the coverage the lower the premium, the more coverage you buy the higher the premium. It comes back to how much risk you feel safe with. For example, if you have Cabernet Sauvignon and your average is 5 tons per acre. At the 75% coverage level you would be covered for 3.75 tons per acre. You would have a 25% deductible (1.25 tons per acre). To have a payable loss you would have to lose more than 25% of your average production in a year.

  Crop insurance is designed to help a grower have enough money to be able to produce a crop the following year.  It is not set up to replace profits lost from an insurable cause.  I have had winery owners complain to me that it doesn’t cover the cost of how much their wine is worth.  While I can totally understand this, it is the growing costs that are being insured against loss. Crop insurance does not cover the production costs of making wine or juice etc.  Only the Causes of Loss that are listed in the policy are being insured against.  It doesn’t cover the inability of a grower to sell his grapes or broken contracts with wineries or processors. 

  Here are the Causes of Loss for Grapes from the National Fact Sheet from the USDA:

Causes of Loss

You are protected against the following:

•    Adverse weather conditions, including natural perils such as hail, frost, freeze, wind, drought, and excess precipitation;

•    Earthquake;

•    Failure of the irrigation water supply, if caused by an insured peril during the insurance period;

•    Fire;

•    Insects and plant disease, except for insufficient or improper application of pest or disease control measures;

•    Wildlife; or

•    Volcanic eruption.

Additionally, we will not insure against:

•    Phylloxera, regardless of cause; or

•    Inability to market the grapes for any reason other than actual physical damage for an insurable cause of loss

  Crop insurance is partially subsidized through the USDA. Premiums are subsidized from 100% at Catastrophic Coverage (there is an administrative fee though) to 38% depending on coverage level chosen.  A lot of growers “buy-up” coverage from 65% to 80% and their premium subsidy is around 50% to 60%. 

  Hopefully you don’t have a lot situations where you would have a loss.  But as a grower you need

to assess your risks.  These have to be taken into consideration for the growing region your vineyard is located in. Here are some other questions to ask yourself.  What are your break-even costs?  Do you know your cost of production with projected inflation? Have you evaluated the risk of a severe crop loss? What varieties are planted in your vineyard?  Some types of Vitis vinifera are more susceptible to weather issues than others. Are you able to repay current operating loans without crop insurance in the event of a loss?

  Our job as a crop insurance agent or crop insurance agency is not to convince you that you need crop insurance.  It is to help you make an educated decision, based on your risks, on whether or not you need crop insurance.  And then, if it is a good fit to mitigate your risks, to determine how much coverage is needed.  No one wants to have a loss but they do unfortunately happen.

Basic Mechanics & Benefits of the Alternating Proprietorship Arrangement

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2 men looking at wine bottles on a table with a country map

By:  Louis J. Terminello, Esq. and Bradley Berkman, Esq.

Brand owners and wineries have options available when negotiating a wine packaging arrangement. This article will focus on the mechanics of an alternative to the standard contract packaging relationship. As a jumping-off point, contract packaging arrangements are one in which a winery will contract with a brand owner to produce and bottle wine for the brand owner. In the world of wine production, this is commonly referred to as a custom crush arrangement.

   It is a relationship of independent contractors, memorialized in an agreement where the brand owner pays a fee for the bottling services of the winery, and the winery, in most instances, delivers the final bottled product to the brand owner. The beverage alcohol licenses required are both federal and state production/winery licenses held by the winery, and almost always a federal wholesales license issued by the Alcohol Tax and Trade Bureau (TTB) – which is held by the brand owner – and other state licenses are required.

  All production reporting prepared and submitted by the winery and excise taxes, though almost always charged to the account of the brand owner, are reported, and paid by the winery. For all intents and purposes, the brand owner acts as both brand owner and distributor within the three-tier system and reports and pays excise tax at the state level, if required. Both parties benefit from this type of bottling arrangement. For the winery, this arrangement is an additional revenue stream. For the brand owner, a product can be brought to market without the high costs of investing in a production facility.

  Separate from the above arrangement, TTB has a unique licensing scheme available that may be more advantageous to wineries and brand owners for numerous reasons and is referred to as an alternating proprietorship arrangement.

Alternating Proprietorship Defined

  In the alternating proprietor relationship, an existing winery agrees to lease its winery premises to another party for the production of the “lessees” wine. The parlance typically used is “host” and “tenant.” The established winery acts as the host of the premises (think landlord) while the tenant “leases” the winemaking premises to produce its wine. There is an actual and permissible operational shift. Responsibility for, and the activities of, production may be taken over by the tenant operator. The relationship should be memorialized in an agreement between the parties, but the relationship requires application and approval by TTB before commencing production. 27 USC 24.136 (the Federal Code of Regulations) establishes the terms and requirements of the arrangement and is reprinted here for the reader’s review.

27 USC 24.136

§ 24.136 Procedure for alternating proprietors.

(a) General. Wine premises, or parts thereof, may be operated alternately by proprietors who have each filed and received approval of the necessary applications and bonds and have qualified under the provisions of this part. Where operations by alternating proprietors are limited to parts of the wine premises, the application will describe areas, buildings, floors, or rooms which will be alternated and will be accompanied by a diagram delineating the parts of the wine premises to be alternated. A separate diagram will be submitted to depict each arrangement under which the wine premises will be operated. Once the qualifying documents have been approved, and operations initiated, the wine premises, or parts thereof, may be alternated. Any transfer of wine, spirits, or other accountable materials from one proprietor to the other proprietor will be indicated in the records and reports of each proprietor. Operation of a bonded winery engaged in the production of wine by an alternate proprietor will be at least one calendar day in length.

(b) Alternation. All operations in any area, building, floor, or room to be alternated will be completely finished and all wine, spirits, and other accountable materials will be removed from the alternated wine premises or transferred to the incoming proprietor. However, wine, spirits, and other accountable materials may be retained in locked tanks at wine premises to be alternated and remain in the custody of the outgoing proprietor.

(c) Bonds. The outgoing proprietor who has filed bond as required under § 24.146 and intends to resume operation of the alternated areas, buildings, floors, or rooms following suspension of operations by an alternating proprietor shall execute a consent of surety to continue in effect all bonds. Where wine, spirits, or other accountable materials subject to tax under 26 U.S.C. chapter 51 are to be retained in tanks on the wine premises to be alternated, an outgoing proprietor who has filed bond as required under § 24.146 shall also execute a consent of surety to continue the liability of all bonds for the tax on the materials, notwithstanding the change in proprietorship.

(d) Records. Each proprietor shall maintain separate records and submit a separate TTB F 5120.17, Report of Bonded Wine Premises Operations. All transfers of wine, spirits, and other accountable materials will be reflected in the records of each proprietor. Each proprietor shall maintain a record showing the name and registry number of the incoming or outgoing proprietor, the effective date and hour of alternation, and the quantity in gallons and the percent alcohol by volume or proof of any wine, spirits, or other accountable materials transferred or received.

Summation of Basic Requirements:

  An examination of the code helps us parse out the basic requirements and responsibilities of the proprietor under the alternating relationship. Foremost, bear in mind that under this production paradigm, both entities, while conducting their respective operation, are treated as  proprietors under the law. Focusing on the requirements of the tenant proprietor, TTB requires that:

•    The alternating tenant proprietor must qualify as a bonded winery and obtain a Federal basic permit as a wine producer to conduct operations at the host’s location. 

•    The tenant proprietor must comply with record and reporting requirements of its operations by preparing and submitting its own operational reports to TTB just as any other fully functioning wine operation must do.

•    The tenant proprietor must obtain TTB approval of an application for a Certificate of Label Approval (COLA) before bottling the wine at the host’s location.

•    The tenant alternating proprietor must pay the excise tax for wine bottled and removed from the host’s location.

•    By extension, the tenant proprietor must hold an adequate bond to conduct its operations.

  There are a variety of benefits to the tenant producer under this production relationship. Perhaps the most significant, depending on the production levels of the host, is the availability of the reduced excise tax rates under the Craft Beverage Modernization Act (CBMA). The tenant’s own production levels are considered exclusive of the host’s production levels. The reduced tax rate, which may not be available under a standard custom crush arrangement, may now be available to the tenant winery contingent upon its own production levels which is an attractive benefit to the tenant proprietor.

  Note that TTB will scrutinize applications of alternating proprietorship to be sure the arrangement is not jeopardizing tax revenue, among other issues. Some of those additional areas of concern include an applicant’s attempt to qualify as a producer to take advantage of state tasting room regulations or to engage in direct-to-consumer (DTC) sales.

   Although these options may be available to a tenant proprietor, the spirit of the intent of this bottling relationship should be the guiding principle. All other benefits may be available and are certainly worth exploring. Experienced counsel should be consulted if any uncertainty is present as to the permissibility, processes, and procedures of structuring an alternating proprietorship arrangement.