A Treasury bond nets greater return than vineyard

Aug 18, 2008

The Stockton Record yesterday ran a story about the dismal economics associated with growing grapes in the San Joaquin Valley, based on a study co-authored by UC Cooperative Extension viticulture advisor in San Joaquin County Paul Verdegaal.

The story, written by veteran ag reporter Reed Fujii, opened with a telling quote from local farmer Brad Goehring, who helped with the cost study.

"At best, we're looking at about a 4 percent return on investment," he was quoted. "You could sell your land, liquidate everything, put your money into a Treasury bill and earn essentially the same return."

The UC cost-of-production study, based on a hypothetical vineyard, estimates that year-to-year operating profits of less than $1,000 an acre get eaten up by overhead costs, such as taxes, insurance and management expenses. The value of land, initial vineyard planting costs, farm buildings and equipment runs the accounting deep into the red, losing more than $2,000 an acre, the Record's story reported.

The sad conclusion was given in a quote from Verdegaal:

"In a true economic sense ... grape growing, or probably most of agriculture, from what we've seen the last few years anyway, doesn't pay."

The story ended with one ray of hope. It says the long down cycle in winegrape prices may be on the upswing. Growers and others have recently reported spot market prices of $500 to $550 a ton for cabernet sauvignon and $600 for chardonnay, Fujii wrote. That's much higher than the $393 per ton average for last year.

The cost study, Sample Costs to Establish and Produce Winegrapes (Cabernet Sauvignon), San Joaquin Valley North, was one of 12 released this month by the UC Davis Department of Agriculture and Resource Economics. For more, see this news release on the cost studies.

By Jeannette E. Warnert
Author - Communications Specialist