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An Analysis of the Grape Juice
Concentrate Industry:
Implications for Central California
Grape Producers
by
Mechel S. Paggi
Fumiko Yamazaki
Prepared for the California Association
of Winegrape Growers
C A B
C E N T E R F O R
A G R I C U LT U R A L B U S I N E S S
C ALIFORNIA A GRICULTURAL
TECHNOLOGY INSTITUTE
Center for Agricultural Business
California State University, Fresno
An Analysis of the Grape Juice
Concentrate Industry: Implications
for Central California Grape Producers
by
Mechel S. Paggi
Fumiko Yamazaki
Center for Agricultural Business
California Agricultural Technology Institute
California State University, Fresno
Published by the
California Agricultural Technology Institute
August 2007
CATI Pub. #040802
Table of Contents
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
About CAB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
California Grape Juice Concentrate Supply Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Juice Concentrate Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Product Substitutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Grape Juice Concentrate Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Argentina’s Grape Juice Concentrate Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Argentina’s Grape Juice Concentrate Industry Structure and Pricing . . . . . . . . . . . . . . . . . . . . 9
U.S. Grape Juice Concentrate Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
California Grape Juice Concentrate Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
California Grape Juice Concentrate Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Pricing Grape for Concentrates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Implications for Central Valley Growers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Tables
Table 1: California Grape Concentrate (tons) 2000-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 2: Grapes Crushed by California Processors by Pricing District . . . . . . . . . . . . . . . . . . 4
Table 3: U.S. Concord Juice Grape Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 4: Grape Juice Concentrate Supply and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 5: Apple Juice Concentrate Supply and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 6: Pear Juice Concentrate Supply and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 7: Argentine Grape Juice Crush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 8: Argentina Average Delivered Cost, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 9: 2005 Thompson Seedless Bases Price to Growers . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 10: U.S. Grape Juice Concentrate Cost of Production, 2006 . . . . . . . . . . . . . . . . . . . . . 16
Table 11: Net Returns with Alternative Prices and Yields for Thompson Seedless
Varieties Grown for Concentrate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 12: Weighted Average Thompson Seedless Prices District 13 . . . . . . . . . . . . . . . . . . . 21
Figures
Figure 1: Estimated Breakdown of Grapes Used for Concentrate (2000-2005) . . . . . . . . . 3
Figure 2: U.S. Juice Concentrate Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 3: U.S. Grape Juice Concentrate Imports 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 4: Argentine Grape Juice Concentrate Exports 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 5: Non-citrus Juice Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 6: Grape Juice Concentrate Price CY 1999-2005 and Estimated Cost
of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 7: Red Grape Juice Concentrate Prices CY 1999-2005 and Estimated
Cost of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 8: Comparison of Return for Raisins vs. Crush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
iii
Acknowledgments
This study was part of an initiative by the Central California Winegrowers
with funding made available by the California Department of Food and
Agriculture’s “Buy California Initiative” and the U.S. Department of Agriculture,
through the California State University Agricultural Research Initiative (ARI)
Program. The ARI is administered by the California Agricultural Technology
Institute (CATI), based at California State University, Fresno.
About the Authors
Mechel S. Paggi is the director of the Center for Agricultural Business, California
State University, Fresno. Fumiko Yamazaki is senior research economist, the Center
for Agricultural Business, California State University, Fresno.
About CAB
The Center for Agricultural Business (CAB) is one of four research units
comprising the California Agricultural Technology Institute, located at
California State University, Fresno. For more information on programs and
research, contact us at the following address:
Center for Agricultural Business
California State University, Fresno
2910 E. Barstow Ave., M/S 0F 115
Fresno, CA 93740-8009
Phone: 559-278-4405
Fax: 559-278-6032
Web: cati.csufresno.edu/cab
v
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 1
An Economic analysis of the Market
for Grape Juice Concentrate: Implications
for Central California Grape Growers1
INTRODUCTION
Grapes purchased for crush represent an important market alternative for
many California growers, particularly in the state’s Central Valley. In 2005,
more than 2.2 million tons of grapes grown in the Central California region,
from Stanislaus County to Kern County, were crushed for wine and concen-
trate, around 51percent of the statewide total. Of that total approximately
26 percent were raisin and table grape varieties. Many, if not most, were
destined for the production of grape juice concentrate. According to the
California Department of Agriculture annual crush report, an average of
about 16 percent of the total state grape crush has annually gone to pro-
duction of concentrate over the past six years. Growers whose raisin and
table type grapes were purchased for crush experienced substantial varia-
tion in their product value over the same period. Between 1999 and 2002
the weighted average price for raisin and table type grapes for crush
declined from $200 and $187 per ton to $76 and $80 per ton, respectively.
Although prices rebounded somewhat in 2003 and reached the $200 per
ton level in 2004, prices declined once again in 2005.2
The instability in crush prices for grapes traditionally used in concentrate
production, combined with other factors such as increasing input costs,
creates uncertainty regarding long-term sustainability for Central Valley
grape growers dependent on this segment of the market. More stable
prices at higher levels would help to induce the investments necessary to
lower production costs and/or increase yields, making growing grapes to
use in concentrate production a more viable business enterprise. However
the future prosperity of the California concentrate industry requires main-
taining a competitive price position relative to other domestic and interna-
tional suppliers limiting the prices processors can pay for grapes in this
market. Increased information regarding the various factors contributing to
the current market environment will facilitate better strategic business
planning for producers.
1
The research for this report was supported in part by California Department of Food and Agriculture
Specialty Crop Grant funds, provided to the Central California Winegrape Growers.
2
Smaller tonnages of white and red wine varietals are also purchased for concentrate production.
Prices for these grapes also experienced similar price instability over the same period. For example,
the average price for French Colombard grapes fell from $192 per ton in 1999 to $107 per ton in 2002.
Page 2 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
The specific objectives of this research project were twofold. The first was to
provide a detailed industry profile of the California grapes for concentrate
industry, including the dynamics of the domestic market, international
competition from imported grape juice concentrate and domestic and
international alternative fruit juice concentrates. The second was to provide
a detailed economic budget analysis of grape for concentrate production
systems and use that information in an analysis of the economic
sustainability of grapes for concentrate enterprises. In each case the analysis
was conducted to provide Central California grape growers with the infor-
mation necessary to evaluate the long-term sustainability of their current
and/or proposed operations. Because of the importance of raisin type
grapes to the concentrate industry in terms of number of growers and
amount of grapes going to crush, this report has a particular focus on the
Thompson Seedless variety used to produce white grape juice concentrate.
The report begins by discussing the supply factors, demand factors, and the
grape juice concentrate market structure. Following these sections is
information on the pricing structure for grape juice concentrate and grapes
used in concentrate production, and the implications for producer returns
based on costs developed in the enterprise budgets developed for this
study follows. The report concludes with a summary of the implications for
California producers and suggestions for additional research activities.
CALIFORNIA GRAPE JUICE CONCENTRATE SUPPLY FACTORS
The grape juice concentrate industry continues to be an important part of
the market for grape producers of California, especially in the San Joaquin
Valley, which is part of the larger Centeral Valley. The 2005 California Depart-
ment of Food and Agriculture (CDFA) Crush Report indicates an estimated
550,300 tons of California grapes were crushed for grape juice concentrate;
this is around 13 percent of the total state-wide crush of 4,330,064 tons and
about a 16 percent decline from 2004 for concentrate crush (Table 1).
Table 1. California Grape Crush for Concentrate (tons) 2000 – 2005
%
Concentrate
in Total % Total %
Year Concentrate Crush Change Crush Change
2000 744828 18.85% 3951185
2001 536614 15.93% -27.95% 3368265 -14.75%
2002 752295 19.86% 40.19% 3787139 12.44%
2003 506877 15.04% -32.62% 3370121 -11.01%
2004 658048 18.20% 29.82% 3615231 7.27%
2005 550300 12.71% -16.37% 4330064 19.77%
Source: CASS Final Grape Crush Reports
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 3
Grape juice concentrates are mainly sold as food ingredients. The majority of
white grape concentrate is used as an extender for juice products and as a
natural sweetener. Red grape juice concentrate is primarily used as a food
coloring agent.3 White juice concentrate is preferred for its neutral flavor
and red for its ability to hold color when blended with other juices. Red
concentrate is also being used to produce high intensity red colorant that
enhances the color and body of wines.
The grape juice concentrate market is linked directly to the overall market
for grapes in California. Many table grapes, wine grapes, and raisin grapes
find their way into concentrate production in a given year. Typically the
proportion of grapes going to concentrate is in large part a function of the
prices for alternative uses. While some grapes are contracted directly for
concentrate production, as prices for alternative uses increase, less product
is diverted to concentrate use.
While exact numbers are not available, industry estimates indicate that raisin
varieties comprise the majority of grapes used for concentrate in any given
year (Fig. 1). The primary processing facilities for California’s grape juice
concentrate industry are in the Central Valley, and the central San Joaquin
Valley is the growing region of the majority of grapes crushed for concen-
trate, specifically in grape pricing districts 12, 13 and 14. Total 2005 raisin-
type grapes for concentrate use amounted to approximately 25 percent of
the total crush for all varieties in these three pricing districts; that is down
from 31 percent in 2004 (Table 2, Page 4). Accordingly, the concentrate
industry is a significant year-to-year market alternative for producers in the
San Joaquin Valley region, particularly for producers of raisin type grapes.
Figure 1. Estimated Breakdown of Grapes Used for Conentrate
2000-2005
800,000 752,300
744,828
658,000
700,000
600,000 550,300
536,610
506,900
500,000
400,000
Tons
300,000
200,000
100,000
0
2000 2001 2002 2003 2004 2005
Winegrapes 165,000 126,500 105,000 67,000 18,000 50,000
Dark Reds (Rubired, etc.) 115,000 115,000 160,000 120,000 105,000 125,000
Table Varieties 85,000 80,000 55,000 60,000 90,000 80,000
Raisin Varieties 380,000 215,000 432,300 260,000 445,000 295,000
Source: Allied Grape Growers, 2006
3
Industry sources report that over 80 percent of the white grape juice concentrate produced in the
Central Valley is used in the production of juice drinks.
Page 4 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
Table 2. Grapes Crushed by California Processors by Pricing District
District District District District District District District District District
VARIETY 1 2 3 4 5 6 7 8 9
RAISIN GRAPES: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TABLE GRAPES: 0.0 0.0 0.0 0.8 0.0 0.0 0.4 0.0 0.0
WINE GRAPES (WHITE): 28,068.3 11,881.8 90,945.7 49,566.0 10,480.9 9,377.5 174,118.3 106,446.9 29,550.0
WINE GRAPES (RED): 33,894.0 19,824.5 139,912.4 131,249.3 8,381.2 19,891.4 142,468.1 172,436.3 42,923.4
Total All Varieties 61,962.3 31,706.3 230,858.1 180,816.1 18,862.1 29,268.9 316,586.8 278,883.2 72,473.4
District District District District District District District District State
10 11 12 13 14 15 16 17 2005
RAISIN GRAPES: 0.0 0.0 978.5 325,372.1 140,089.2 1,043.6 0.0 0.0 467,483.4
TABLE GRAPES: 0.0 1,373.4 237.5 21,945.3 80,534.8 2,097.6 0.0 0.0 106,189.8
WINE GRAPES (WHITE): 1,623.1 228,312.3 130,802.5 421,341.8 143,337.8 196.3 1,507.0 83,665.0 1,521,221.2
WINE GRAPES (RED): 15,056.1 527,802.3 182,513.1 606,179.1 161,575.2 1,587.8 3,095.1 26,380.5 2,235,169.8
Total All Varieties 16,679.2 757,488.0 314,531.6 1,374,838.3 525,537.0 4,925.3 4,602.1 110,045.5 4,330,064.2
Source: Final Grape Crush Report, 2005, California Department of Food and Agriculture, March 2006.
The U.S. grape concentrate industry also includes product made from
Concord grapes that account for much of the grape production in the
states of Washington, Pennsylvania, Michigan, New York and Ohio (Table 3).
California white grape juice concentrate is used as a blending agent in
Concord grape products. The level of U.S. Concord production in any given
year can affect the demand side for California concentrates (Table 4).
However, the unique qualities of Concord, such as its deep purple color
and flavor, limit its direct competition.
Table 3. U.S. Concord Juice Grape Production (tons)
1998 1999 2000 2001 2002 2003 2004 2005
Michigan 67,500 71,500 83,600 26,000 29,200 51,000 34,900 65,900
New York 87,000 152,000 111,000 107,000 104,000 104,000 99,200 137,000
Ohio 5,000 7,500 6,400 4,700 4,500 5,100 3,000 6,800
Pennsylvania 41,500 74,000 46,000 48,500 45,900 55,800 78,000 78,000
Washington 152,000 195,000 175,000 183,000 217,000 212,000 140,000 275,000
Others 250 2,050 2,250 650 2,200 900 920 460
US Total 353,250 502,050 424,250 369,850 417,800 428,800 356,120 563,160
Source: USDA, ERS, Fruit andTree Nut Outlook, Sept. 2005, amount may slightly overstate amount used in concentrate production.
Table 4. Grape Juice Concentrate Supply and Use.
1999 2000 2001 2002 2003 2004 2005
762,171 744,828 536,610 752,300 506,900 658,048 550,300 CA Grape Crush for Concentrate (tons)
30,486,840 29,793,120 21,464,400 30,092,000 20,276,000 26,321,920 22,012,000 CA GJC Production (x40 gal per ton)
8,400,000 7,500,000 7,400,000 9,917,224 7,551,743 9,520,568 9,514,618 US GJC Imports (68 Brix)
2,240,698 2,103,860 1,718,099 1,938,287 1,975,703 2,041,523 2,000,000 p US GJC Exports ( 68 Brix) *
6,159,302 5,396,140 5,681,901 7,978,937 5,576,040 7,479,045 11,000,000 US Net Trade in GJC ( 68 Brix)
17,260,479 14,585,715 12,715,443 14,363,964 14,742,144 12,243,406 19,361,441 Concord GJC Production (x 34.38 gal per ton)
53,906,621 49,774,975 39,861,744 52,434,901 40,594,184 46,044,371 52,373,441 Apparent US Consumption and Carryover of GJC
16% 15% 19% 19% 19% 21% 18% Imports as Percentage of US Comestic Consumption
p Preliminary Estimates from USDA, FAS, 2005.
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 5
The primary market for California grape juice concentrate is for use as a
blending agent in 100 percent juice or juice cocktail drink formulations. As
such, California grape juice concentrate is a commodity that must compete
not only with imported grape juice concentrate but also with domestic and
imported fruit juice concentrate substitutes. Apple and pear juice concen-
trate are the major substitutes because of their neutral taste in blending,
availability of supply and competitive prices. These juice concentrates
compete directly with California product in the lucrative 100 percent juice
drink market. Juice drinks and juice cocktails may contain alternative ingredi-
ents and thus provide an additional competitive dimension to the market.
Therefore it is important to have an understanding of all components of the
juice concentrate commodity market and their linkages to the competitive
position of California grape juice concentrate.
U.S. JUICE CONCENTRATE SUPPLY
In recent years much attention has been paid to the perceived consumer
preference for healthier and more nutritious products. For some commodi-
ties such as 100 percent juice drinks, label requirements dictate that only
juice concentrate may be used as an additive or sweetener. A growing
market for products that utilize juice concentrate as juice extenders and
sweeteners would presumably bolster the demand for grapes used in
concentrate production and be a positive factor in the long-run sustain-
ability of the industry in the Central Valley, particularly for raisin type grapes.
While the decision to utilize fruit juice concentrate is dictated by labeling
requirements and product integrity, the choice of which juice concentrate
to use is thought to primarily depend on relative prices. Other attributes
that contribute to the choice of juice and supplier include flavor, reliability
of suppliers, food safety, and quality concerns. However, due to the competi-
tive nature of the marketplace, the price of inputs on the bottom line for
the manufacturer – other things equal – likely dictates the choice of prod-
uct. As foreign suppliers improve their logistical capabilities and better
manage their supply chains, quality control and safety, the benefits Califor-
nia producers may gain by providing other desirable attributes will likely
diminish. If California grape juice concentrate production is to continue as a
sustainable part of the grape industry complex, processors must remain
price competitive with other juice concentrates from domestic and interna-
tional suppliers.
Product Substitutes
According to industry sources, apple juice concentrate accounts for about
72 percent of U.S fruit concentrate consumption. Therefore, the supply and
use of apple juice concentrate is of particular importance in understanding
the market for white grape concentrate. Similar to grape juice concentrate,
Page 6 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
domestic production of apple juice concentrate has declined in recent
years, while imports, primarily from China, have increased substantially
(Table 5). Because apple juice concentrate is a direct substitute for white
grape juice concentrate, the supply of apple juice concentrate and its
related prices help to set a boundary for determining expectations for
white grape juice concentrate prices. In the same way that prices of im-
ported grape juice concentrate from Argentina affect the market price for
grape juice concentrate, prices for imports of apple juice concentrate from
China affect the market price of apple juice concentrate.
Table 5. Apple Juice Concentrate Supply and Use (gallons)
1999 2000 2001 2002 2003 2004 2005
27,569,450 27,431,890 25,889,900 21,571,220 16,410,540 15,913,560 20,811,320 U.S. Apple Juice Concentrate Production (70/71 Brix)*
39,912,260 40,380,710 42,349,100 47,079,420 53,240,270 59,839,070 62,598,290 U.S. AJC Imports (7/71 0 Brix)
1,208,878 1,221,825 931,179 929,240 744,743 764,954 773,636 U.S. AJC Exports (70/71 Brix)
66,272,832 66,590,775 67,307,821 67,721,400 68,906,067 74,987,676 82,635,974 U.S. Apple Juice Concentrate Domestic Use (71/70 Brix
Source: USDA, ERS; U.S. Apple Association Coverted from SSE @ 1.047/7.865
Other juice concentrates play a lesser role in the overall juice sweetener
market. Most important among these is pear juice concentrate, which is
increasingly being utilized as a substitute for grape or apple juice concen-
trate. Data for U.S. pear juice concentrate production is not readily available
but is estimated by converting the reported figures for pears utilized for
juice into concentrate equivalents (Table 6). Imports of pear juice concen-
trate, as reported by the USDA’s Foreign Agricultural Service, provide the
bulk of the product in the U.S. market, accounting for around 80 percent of
the available supply.
Table 6. Pear Juice Concentrate Supply and Use (gallons)
1999 2000 2001 2002 2003 2004 2005
1,035,463 1,080,978 1,092,356 1,069,599 1,219,798 1,024,084 1,297,173 U.S. Pear Juice Concentrate Production (70/71 Brix)*
3,272,661 3,870,528 4,396,321 4,162,746 4,508,925 3,721,789 5,277,191 U.S. AJC Imports (7/71 0 Brix)
Source: USDA, NASS; * US PJC production estimated from for Juice Utilization Convertions from SSE for apples
Imports based on USDA, FAS, Aug 6, 2006, no export quantity reported.
By combining the information available for grape, apple and pear juice
concentrate, a picture of the juice concentrate sweetener market may be
developed. The information in Figure 2 is an approximation, given a lack of
exact data on specific use, and may overstate sweetener use as some
concentrate from grape varieties other than dark reds are used of other
purposes. Over the period 1999 to 2005, the total juice sweetener market
as described here has remained relatively stable with some growth in
recent years, averaging about 104 million gallons. Over the same period the
mix of juice sweeteners has changed somewhat. Grape juice concentrate –
domestic and imported – declined from approximately 33 million gallons to
around 28 million gallons. Over that period the net trade in grape juice
concentrate (imports less exports) has nearly doubled. Several factors that
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 7
Figure 2. U.S. Juice Concentrate Supply
140,000,000
120,000,000
100,000,000
80,000,000
Gallons
60,000,000
40,000,000
20,000,000
0
1999 2000 2001 2002 2003 2004 2005
US Grape Juice Concentrate Net Trade 6,159,302 5,396,140 5,681,901 7,978,937 5,576,040 7,479,045 11,000,000
US GJC Production EX Dark Red 26,886,840 25,200,000 16,860,000 23,692,000 15,480,000 22,120,000 17,000,000
PJC Imports 3,272,661 3,870,528 4,396,321 4,162,746 4,508,925 3,721,789 5,277,191
U.S. Pear Juice Concentrate Production 1,035,463 1,080,978 1,092,356 1,069,599 1,219,798 1,024,084 1,297,173
Apple Juice Concentrate Net Trade 38,703,382 39,158,885 41,417,921 46,150,180 52,495,527 59,074,116 61,824,654
US AJC Production 27,569,450 27,431,890 25,889,900 21,571,220 16,410,540 15,913,560 20,811,320
Note: Estimated supply for juice concentrates excluding dark reds, lemon and pineapple. Numbers include year-to-year
carryover
will be examined in greater detail have contributed to this decline in do-
mestic production share: changes in industry structure, relative prices of
imports, and relative price of substitute juice concentrates.
A similar trend may be observed in the supply of apple juice concentrate as
domestic production declined from about 28 million gallons to an average
of 18 million for the past three years. Over that same period net trade in
apple juice concentrate increased around 39 million gallons to almost 62
million gallons. Pear juice concentrate follows about the same pattern,
although domestic production has increased slightly, with imports growing
from around 3.3 million gallons in 1999 to an average of around 4.5 million
gallons over the past three years.
FOREIGN GRAPE JUICE CONCENTRATE SUPPLY
The availability of competitively priced alternatives of essentially equivalent
quality acts as a constraint on the amount of, and the price at which, domes-
tic suppliers are able to sell and hence the price they are able to pay for
grapes. To better understand the current and future effects of foreign
supplies requires an understanding of grape concentrate supplies from
exporters to the U.S. market. In 2005 the United States imported grape juice
concentrate from several countries; however, about 86 percent originates
Page 8 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
from Argentina, up from 72 percent in 1999 (Fig. 3). Therefore we concen-
trate our analysis on the Argentine market that is expected to continue as
the dominate source of imported grape juice concentrate.
Figure 3. U.S. Grape Juice Concentrate Imports 2005
By Volume, Total 9.5 million Gallons 68 Degree Brix
ITALY
MEXICO 1%
BRAZIL 3% Others
4% 1%
CHILE
5%
ARGENTINA
86%
U.S. Imports of Grape Juice Concentrate
Gallons
1999 2000 2001 2002 2003 2004 2005
Total 8356045 7521087 7429180 4672006 5195286 7346160 9514613
Argentina 6030887 5476584 5628994 3644697 4016547 6176898 8210707
72% 73% 76% 78% 77% 84% 86%
Argentina’s Grape Juice Concentrate Production
Argentina produces grapes throughout the country, but 94 percent of the
production takes place in two provinces: Mendoza (67%) and San Juan
(27%). Domestic use of wine has declined from 42 (11 gallons) liters per
capita in 1990 to a current estimate of 22 (5.8 gallons) liters per capita.
Much of this decline has been attributed to increasing domestic prices for
wine while income growth remains relatively stagnant. Despite the decline
in domestic consumption, Argentine wine production continues to increase.
Total grape crush has increased from 2.1 million metric tons in 2002 to an
estimated 2.9 million metric tons in 2006 (Table 7).
The area planted for wine grapes accounts for about 94 percent of the total
planted area of 215,000 hectares – up from 208,000 hectares in 2002.
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 9
Table 7. Argentine Grape Crush (MT)
Kind/Year 2002 2003 2004 2005 2006*
Red 666,217 683,500 860,000 930,000 1,000,000
White 627,214 600,000 643,000 700,000 820,000
Rose 814,401 910,000 999,000 1,000,000 1,000,000
Others** 49,670 28,269 55,460 70,000 80,000
Total 2,157,502 2,221,769 2,557,460 2,700,000 2,900,000
Planted Area (Hectares) 208,000 211,000 213,000 214,000 215,000
Grape Juice Concentrate (MT) 110,000 110,000 117,000 155,000 180,000
Source: The National Wine Institute (INV – www.inv.gov.ar) adjusted by FBuenos Aires
Production of grape juice concentrate in Argentina is effectively deter-
mined by the government of Argentina through the authority of the
Argentine National Wine Institute (INV), an autonomous government
agency headquartered in Mendoza province. The INV is under the authority
of the Secretariat of Agriculture of Argentina. The primary focus of Argen-
tine grape production is for wine. In an attempt to manage the supplies of
wine produced in any given year and avoid the build up of wine stocks, the
INV establishes the percentage of total grape production that is dedicated
to the production of sulfated grape must (SGM) in any given year. SGM is
then used in the production of grape juice concentrate. Reports for 2006
indicate that the INV will call for 30 to 32 percent of grape production to be
directed to SGM production. If this occurs it is expected that Argentina will
produce 180,000 metric tones of grape juice concentrate, up 16 percent
from 2005 and around 64 percent greater than the 110,000 metric tones
produced in 2002. Argentina produces predominately white juice concen-
trate, accounting for a reported 95 percent of domestic must production
in 2006.
The majority of Argentine grape juice concentrate production is exported –
around 88 percent. Currently over 50 percent is exported to the United
States, followed by Japan, Canada, the Russian Federation, Chile and South
Africa (Fig. 4, Page 10). If the trend in Argentina’s grape juice concentrate
production continues, there is every reason to suspect that it will remain
the world’s major supplier.
Argentina’s Grape Juice Concentrate Industry Structure and Pricing
According to reports from the USDA/FAS, there are 20 companies that
process SGM into grape juice concentrate. The SGM is taken to the proces-
sors for transformation to grape juice concentrate (CGM). The number of
concentrate exporters is estimated at 36, with a reported 19 firms contract-
ing for grape juice concentrate production.
Page 10 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
Figure 4. Argentine Grape Juice Concentrate Exports 2005
Others
11%
Chile
5%
Russia
6%
Japan
6%
United States
58%
Canada
6%
South Africa
8%
Source: Argentina, INV, 2006
With the INV determining the amount of grapes that will be destined to
CGM in any given year, the marketing process is predetermined on the
supply side. On the demand side the concentration plants offer a price to
producers for SGM to be further processed into CGM. The producers, on
the other hand, have an offer price that reflects their desired level of
compensation, a level higher than the concentrate offer price. The two
sides reach an agreement and the process proceeds. For the CY 2006, the
price offered by CGM producers is reported to be U.S. $0.11 per liter, with
growers requesting a minimum price of U.S. $0.15 per liter of SMG. The
Government of Argentina (GOA) also provides some buffer in price deter-
minations by offering a minimum grape price on a limited amount of
production for 180 days in order to provide interim financing for small and
medium size farmers until sales are negotiated. In January 2006, the GOA
intervention price was U.S. $110 per metric ton, for 180 days at 6.9 percent
interest. Using a conversion rate of approximately 170 gallons of must per
ton of grapes, the relative prices translate into a U.S. $71 per short ton
processor offer, U.S. $96 per short ton grower request, and U.S. $100 per
short ton GOA intervention price.
Exporters of Argentine grape juice concentrate are reportedly charged U.S.
$150 to produce one metric ton of CGM from SGM delivered for process-
ing. Using industry estimates for transport and handling charges of U.S.
$1.50 per gallon, the cost of Argentine grape juice concentrate is calculated
to be around U.S. $4.80 per gallon f.o.b. New York (Table 8). Combining the
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 11
f.o.b. estimate with the current per gallon duty on grape juice concentrate
of U.S. $0.67 provides a cost estimate of U.S. $5.47 for white grape juice
concentrate from Argentina, ex dock duty paid, New York. The exact price
for grape juice from Argentina will be subject to change depending on the
actual cost related to any particular exporter.
Table 8. Argentina Average Delivered Cost, 2006
Processing @ $150 per metric ton $2.80 per gallon
Grape Input Avg. Price $0.50 per gallon
Sub Total $3.30 per gallon
Freight and Handling $1.50 per gallon
F.O.B. New York, NY $4.80 per gallon
Source: USDA/FAS, Gain Reort, AR6004, 1/24/2006; Industy Sorucres. Average Grape input
price of grower request and concentrate price offer. See Appendix for detail cost breakdown.
California grape juice concentrate may command a price premium related
to many attributes: quality, ability to provide timely delivery, food safety, and
traceability concerns and marketing relationships, but ultimately price
competition remains the foundation of a sustainable industry. The Argen-
tine grape juice concentrate price provides a benchmark for California
grape juice concentrate producers in determining where their own pricing
points may be, and what they may be able to pay Central Valley grape
growers for their product.
U.S GRAPE JUICE CONCENTRATE DEMAND4
According to industry sources, the primary demand for California grape
juice concentrate comes from manufacturers of fruit juices and juice drink
blends – in particular, makers of beverages that require only grape juice to
qualify as 100-percent grape juice. Juice cocktails and juice drinks that
utilize fruit juice concentrates along with other non-fruit juice ingredients
represent another market segment.5 In addition, grape juice concentrate is
used as an ingredient in selected food products.
The overall market for juices in the United States has increased. Public data
on the consumption of non-citrus juices available from the USDA indicates
an increase in overall consumption, growing from around 1.7 gallons per
4
U.S. grape juice concentrate demand also includes demand generated in the export market.
However, exports have been a consistently stable proportion of total use, and data aggregation
prevents a detailed understanding of the market structure and specifics. A general discussion is
provided in Appendix 1.
5
Current FDA labeling rules are contained in Title 21, Sec. 101.30, included in Appendix 3.
Page 12 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
capita in 1980 to three gallons in 2004, or about three percent per year
(Fig. 5). Over the same period apple juice consumption has increased
annually on average of about four percent per capita, while grape juice
consumption increased a little over two percent. In 2004 apple juice ac-
counted for around 70 percent of the total non-citrus juice consumption,
followed by grape (13 percent), pineapple (nine percent), cranberry (seven
percent) and prune juice (one percent). Over the past five years grape juice
consumption appears to have reached a plateau of around .31 gallons per
capita per year.
In recent years the consumption of fruit drinks and fruit cocktails has also
increased. Unfortunately, publicly available data is limited, and the latest
USDA information reports per capita consumption at 7.7 gallons in 1999,
up from a reported 5.4 gallons in 1987. The increase in consumption of
around three percent per year is similar to that for overall non-citrus juice
consumption.
It is beyond the scope of this study to provide a detailed analysis of the
future demand for non-citrus juice and related juice drinks. However, given
the publicly available information, a gross approximation of the size of the
domestic market for grape juice concentrate can be derived. Current FDA
regulations require a minimum Brix level for 100 percent grape juice of 16º
brix. If a gallon of 68º brix grape juice concentrate yields 5.4 gallons of
reconstituted juice, an annual domestic grape juice consumption of 115
million gallons could be produced from around 21.3 million gallons of
concentrate.6 This would be the amount of concentrate needed to produce
the single strength equivalent of the currently reported domestic grape
juice consumption. This amount is far below the current estimate for U.S.
grape juice concentrate consumption, including imports, of about 52
million gallons.
This low level of domestic utilization in excess of domestic grape juice
consumption draws attention to the importance of concentrate as an
ingredient commodity. Grape juice concentrate use in the production of
other juices, juice drinks, cocktails, and as an ingredient in selected food
products is extremely important to the industry. Understanding the com-
petitive position of grape juice concentrate relative to competitive substi-
tutes in this ingredient market is crucial to addressing questions regarding
concentrate market linkages to the market for grapes in the Central San
Joaquin Valley.
6
U.S. population estimate of 294 million multiplied by .39 gallons per capita grape juice consumption.
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 13
Figure 5. Non-Citrus Juice Consumption
3.50
Prune
Pineapple
3.00
Cranberry
Apple
Gallons Per Capita, SSE 2.50 Grape
2.00
1.50
1.00
0.50
0.00
199 200
198 198 198 198 198 198 198 198 198 198 199 199 199 199 199 199 199 199 199 200 200 200 200
9/20 4/05
0/81 1/82 2/83 3/84 4/85 5/86 6/87 7/88 8/89 9/90 0/91 1/92 2/93 3/94 4/95 5/96 6/97 7/98 8/99 0/01 1/02 2/03 3/04
00 2/
Prune 0.09 0.10 0.08 0.06 0.07 0.07 0.07 0.06 0.07 0.04 0.04 0.33 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.02 0.02 0.03 0.03 0.03 0.03
Pineapple 0.31 0.28 0.29 0.28 0.27 0.34 0.39 0.43 0.43 0.44 0.50 0.50 0.47 0.41 0.35 0.38 0.38 0.34 0.29 0.32 0.30 0.31 0.32 0.34 0.26
Cranberry 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.15 0.14 0.17 0.16 0.15 0.19 0.16 0.17 0.20 0.21 0.23 0.20 0.17 0.21 0.21 0.21
Apple 1.08 0.96 1.21 1.32 1.53 1.53 1.52 1.62 1.60 1.45 1.72 1.51 1.56 1.78 1.77 1.57 1.69 1.54 1.79 1.78 1.78 1.77 1.79 1.93 2.12
Grape 0.25 0.24 0.24 0.33 0.29 0.23 0.22 0.30 0.27 0.31 0.28 0.36 0.38 0.35 0.29 0.45 0.38 0.41 0.27 0.44 0.34 0.33 0.37 0.41 0.39
Source: USDA, Economic Research Service, October, 2005
CALIFORNIA GRAPE JUICE CONCENTRATE INDUSTRY
Market Structure
Unlike Argentina, the California grape juice concentrate industry is charac-
terized by many input suppliers, concentration in the processing sector, and
many buyers on the product demand side.7 On the one hand there are
grape growers throughout California, primarily in the central San Joaquin
Valley, who look to the concentrate industry for a home for some if not all of
their product. In the middle are the processors whose numbers have
dwindled in the past few years. Those California processors face a market
with many highly price conscious domestic participants, along with export
opportunities. In each stage of the supply chain participants face a difficult
set of marketing challenges to remain economically viable.
As recently as 2003 the California grape juice concentrate industry was
comprised of six major producers (Grape Co, Canadaigua, Guimarra, San
Joaquin Valley Concentrate (SJVC), Delano Growers, and Vie-Del Co.), with a
combined production capacity of 25 to 32 million gallons.8 Today only three
7
The concord grape juice industry is considered to be a separate business model for purposes of this
report and represents one of the many customers for product produced in California.
8
Industry capacity estimates based on assessments provided by commodity brokers.
Page 14 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
commercial producers remain – Vie Del, SJVC and Delano Growers – with an
estimated capacity in excess of 26 million gallons based on 2004 production
levels.9 Industry downsizing has also taken place on the grower side, as
producers have removed or abandoned vineyards on an estimated 100,000
or more acres in the Central Valley. Reports indicate that acreage continues
to be removed from grape production and either transformed into other
crops or shifted to alternate uses such as residential development. With the
decline in domestic industry capacity and reduced supplies it is expected
that the amount of grapes utilized in the production of grape juice concen-
trate will likely remain at or below the levels of the past two seasons, given
normal weather.
Largely due to confidentiality concerns among the small number of firms
producing the vast majority of grape juice concentrate in the Central Valley,
individual firm operational characteristics and marketing strategies are not
readily available. In the case of Delano Growers, a cooperative, the operation
primarily processes the product of its members that is not marketed as
table grapes and produces white grape juice concentrate. The observed
behavior of the other two major industry participants in the procurement
of grapes for production of grape juice concentrate suggests the economic
model of an ologopsony with a price leader.10
In the Central Valley grape juice concentrate industry the dominant market
participant provides price leadership in its contracting activities and annual
announced price for grapes. The other major participant appears to procure
the supply required for its operation at or near the market leader’s price.
What is not known with certainty is the number of sellers and/or volume of
grapes that actually move through this spot market versus the volume of
grapes that is acquired by the companies under some form of contractual
arrangement. If a majority of the grapes are marketed through the spot
market, the possibility exists for predatory pricing by the limited number of
buyers since growers have few choices of where to market their grapes that
are not destined for other uses. However, if the buyers have a need for a
relatively fixed amount of grapes for annual production targets, contracting
with growers for a portion of that fixed amount may be a viable procure-
ment strategy. The current market procurement strategy appears to be a
mix of both.
One way to estimate the volume of grapes acquired through the spot
market is to observe the amount of grapes reported to be marketed at a
given price level. For example, in 2005 the spot market price of Thompson
9
Information supplied by Delano Growers indicates an annual capacity of 140,000 tons. A 1991 article
in Wines & Vines places Vie-Del Company capacity at around 150,000 tons. A combined capacity of
around 11.6 million gallons of grape juice concentrate at 40 gallons per ton of grapes processed.
No estimate of SJVC capacity is currently available.
10
An ologopsony is characterized by few buyers and many sellers.
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 15
Seedless grapes, the predominant variety used in white grape juice con-
centrate production, was reported to be $100 per ton. According to the
information available in the 2005 Grape Crush Report, about 24 percent of
the grapes in pricing district 13 and about 15 percent of the Thompsons in
district 14 were sold at the spot market price (Table 9). Although this is
clearly less than an exact estimate, it does suggest that the bulk of the
grapes are marketed in a fashion that returned greater than the an-
nounced spot market price. In addition, if the information related to
Thompson seedless marketing is indicative of how the industry functions,
then any analysis of the sustainability of the production of grapes for
concentrate in the Central Valley must be made based on a range of
possible prices, including those that exceed the observed spot market
prices of recent years.
Table 9. 2005 Thompson Seedless Base Price to Growers
District District
$ per ton 13 14
100 24.20% 15.01%
115-165 14.70% 39.41%
175 - 190 35.50% 7.66%
200 23.60% 37.92%
>200 2.00% 0.00%
100.00% 100.00%
Percent of Total 86.86% 13.14%
Source: California Grape Crush Report, March 2006
California Grape Juice Concentrate Pricing
To assess the near and longer-term sustainability of the market for grapes
used in concentrate, producers need a clear understanding of the market
fundamentals that influence prices. Among the factors that must be consid-
ered in such an analysis are the expected long-run domestic supply of
grapes available for concentrate production, expectations regarding the
price of alternative market uses (for the purposes of this study, raisins), and
the supply and expected price of substitute commodities. For Thompson
Seedless and other raisin varieties, the primary direct foreign competition of
white grape juice concentrate is from Argentina. Accordingly, it is important
to have a comparative set of variables in order to assess the competitive
position of the California industry relative to this major competitor. Given
what is believed to be a highly price-competitive market environment, the
primary measure of interest is the relative cost of production of California
grape juice concentrate. Information regarding production costs for grape
juice concentrate is important in helping to form expectations about
California for concentrate grape prices. For the domestic industry to be
Page 16 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
sustainable, a sufficient volume of grapes must be available – as an input to
the process – at a cost that allows California grape juice concentrate pro-
ducers to compete and the growers to profit.
Absent detailed information on operational costs provided by concentrate
producers, estimates of costs and prices provided by industry analysts are
used to estimate a range of break-even costs for producing grape juice
concentrate in the Central Valley. In 2006 the major producer of grape juice
concentrate announced an offer to purchase grapes at $125 per ton for
Thompson Seedless and $200 per ton for Ruby Reds. Combining these
announced prices and a range of cost estimates for producing grape juice
concentrate yields a breakeven price of between U.S. $5.24 -5.87 per gallon
for white and U.S. $7.12 – 7.75 per gallon for red (Table 10).
Table 10. U.S. Grape Juice Concentrate Cost of Production, 2006
Thompson Seedless Ruby Reds
$125 per ton for Grapes $200 per ton for Grapes
$3.12 per gallon $5.00 per gallon
$2.12 to $2.75 per gallon Processing Cost* $2.12 - $2.75 per gallon
$5.24 to $5.87 $7.12 - $7.75
FOB SJV Plants White GJC FOB SJV Plants Red GJC
*Proudction cost based on estimate of $85 to $110 per ton processing cost
basis @ 40 gallons of concentrate production per ton of grapes processed.
The estimates provided in Table 10 may be compared to the historic prices
reported for California grape juice concentrate. Combining the estimated
production cost with the average price per calendar year suggests that
California white grape juice concentrate prices have hovered at or near the
low range production cost estimate (Fig. 6). The market for red grape juice
concentrate displays a similar pattern; however, prices for red concentrate
are generally higher, with larger apparent margin in some years (Fig. 7). In
the absence of detailed operational costs from industry producers, it would
appear that the estimates of production costs for California grape juice
concentrate are within a reasonable range based on observed prices.
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 17
Figure 6. Grape Juice Concentrate Price CY 1999 - 2005
And Estimated Cost of Production *
8
7
6
Dollars Per Gallon 5
White CA
White Imp
4
ARG FOB NY
COP Cal
3
2
1
0
1999 2000 2001 2002 2003 2004 2005
White CA 6.7 5.81 4.60 4.94 4.87 7.20 6.90
White Imp 6.24 5.68 4.58 4.71 4.76 6.75 6.52
ARG FOB NY 4.8 4.8 4.8 4.8 4.8 4.8 4.8
COP Cal 7.12 5.245 4.27 3.995 4.52 7.12 6.195
Source: Avg. of Food Institute Monthly Concentrate Price Series Reported High/Low Range. CA COP
based on CASS grape crush weighted avg. price For Thompson Seedless and $85/ton concentrate
processing cost.
Figure 7. Red Grape Juice Concentrate Prices*, CY 1999 - 2005
And Estim ated Cost of Production
14
12
10
Dollars Per Gallon
8 CA Red Price
Imp Red Price
6 COP cal
4
2
0
1999 2000 2001 2002 2003 2004 2005
CA Red Price 10.5 9.975 8.5 8.06 7.25 7.5 8
Imp Red Price 9.5 9.5 8.75 7.4 7.5 8.5 8.8
COP cal 12.195 8.42 6.67 6.37 6.045 7.345 7.645
Page 18 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
Pricing Grapes for Concentrate
U.S. and Argentine grape juice concentrate prices both have an effect on
what processors may offer growers for their grapes. To remain economically
viable, California processors must provide a price attractive enough to
acquire the grapes from growers, but not so high as to prevent them from
being price competitive with foreign suppliers and/or alternative ingredient
prices. On one side of the equation, Thompson Seedless grape processors
must be able to compete with the price of grapes bound for other market-
ing alternatives, mostly raisins, either in the spot market or in the form of
contracts for dedicated production. On the other hand, the price of Argen-
tine grape juice concentrate (ex dock duty paid) acts as a boundary on the
price U.S. processors can charge for their product. The price processors
expect to receive feeds back into what they pay for their inputs – grapes
crushed for concentrate. Based on this relationship, ranges can be developed
for what San Joaquin Valley growers might be offered by concentrate
producers.
In recent years California processors have faced increasing competition from
imported concentrate and industry utilization of alternative products like
apple juice concentrate. In this increasingly competitive environment,
California processors have received an average of $5.86 per gallon for white
grape juice concentrate over the past seven years. If production costs for
California processors are in the range we have stipulated – $2.12 to $2.75 –
the implied price for grapes would appear to be around $150 to $124 per
ton based on the seven-year average price.
An additional complication facing white grape concentrate producers in
California is the competition they face from alternative marketing opportu-
nities available to raisin type growers. Most raisin growers not under con-
tract for concentrate have the alternative to market their grapes for crush or
for raisins. In the decision of what to offer growers for their grapes, concen-
trate producers must consider what it will take to entice growers away from
the raisin market. Determining the appropriate price requires an under-
standing of the historical relationship between grapes sold for crush and the
green raisin grape price equivalent. In addition, it is necessary to understand
how this relationship relates to the crop size and to have some estimate of
the potential crop size for any given harvest season.
Raisin grapes are marketed under a federal marketing order that pays
growers a price negotiated under a bargaining agreement. The initial price is
based on a percentage of the agreed price determined by the “free ton-
nage” percentage applied to the crop. The return to growers for the remain-
der of their grapes is based on a return to sales of the “reserve tonnage” that
is sold in the export market or other markets at a reduced price. Returns to
the reserve tonnage sales historically range from $0 to $100 per ton. For
example, in 2003, the free tonnage was set at 70 percent with a field price of
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 19
$810 per ton. The effective price to the grower, net of a reserve payment, was
$567. If the cost of harvesting grapes for raisins adds an additional $50 per
ton to the grower, the net price for green grapes before harvest would have
been around $76 per ton, based on 4.5 tons of green grapes per ton of
raisins. In 2003 the weighted average return to Thompson Seedless growers
for grapes delivered for crush was $96 per ton, just under the raisin free
tonnage price with an estimated reserve payment of $100 per ton, or $98
per ton. As indicated in Figure 8, this relationship will vary from year to year;
however, it does provide a glimpse of the close ties between the two mar-
kets and the complex nature of pricing decisions facing grape juice concen-
trate producers in their attempt to acquire grapes for production.
Fig. 8. Comparison of Return for Raisins (@100% Green) vs. Crush
1995-2001 with estimates for 2002-2005
$300.00
$250.00
$89 $93
Price Per Green Ton
$59 $109
$43
$200.00
$44+
$11
$150.00
Numbers between two lines
are the differences in green price $67
$32
$100.00 $44
based on USDA established dry-down.
$50.00
Estimates for 2002 & 2003 include assumptions regarding reserve pool payments.
2005 estimate provides no value for reserve pool.
$0.00
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Est. Est. Est. Est.
Raisin price - (Equivalent green) Average crush price
Source: Allied Grape Growers, 2006
The range of expected prices for raisin grapes going to crush for concen-
trate is also affected by the larger juice sweeteners market. This market
includes other fruit juice concentrates, in particular apple juice concentrate,
which is a ready substitute for many end users. Industry sources suggest
that grape juice concentrate remains a preferred ingredient due to its
unique qualities as a blending agent. As a result it seems reasonable that,
everything else being equal, Thompson Seedless grapes for concentrate in
the Central Valley will likely continue to be traded within a range estab-
lished by the dominant competing use – raisins – at the grape price equiva-
lent of the product of the major competitor – Argentina. Year-to-year varia-
tion within that range will be due to the size of the U.S. crop, inventory
management by the processors, overall market conditions in other produc-
ing countries, and the domestic and foreign supply of close substitutes.
Page 20 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
Implications for Central Valley Growers
The implications of this analysis for Central Valley growers of grapes that
may be used to produce concentrate will depend on the economics of the
individual enterprise. To allow for a preliminary assessment, the UC Coopera-
tive Extension service was contracted to develop budgets that examine
costs and returns for production of grapes for concentrate in the Central
Valley (Appendix I). The budget information allows growers to examine the
cost and return parameters relative to their own operations and to deter-
mine bottom-line outcomes under alternative scenarios regarding crop
prices and yields. Combining this with information on prior pricing behavior,
operators can have a reasonable idea of profitability under various scenarios.
The information provided in the UC Cost and Returns study contains a series
of tables for comparing returns under alternate yield and price combina-
tions. The tables allow producers to determine expected returns based on
three cost measures: 1) net returns per acre above operating cost, 2) net
returns per acre above cash costs, and 3) net returns per acre above total
costs (Table 11). Based on the cost estimates provided and the prices offered
for Thompson Seedless grapes over the study period, the key to profitability
for Central Valley producers is yield. Other things being equal, yields of nine
tons per acre or greater provide for positive returns above operating costs at
prices of $140 per ton or greater. Based on the weighted average price
reported for Thompson Seedless grapes in Price District 13, on average
growers with yields of nine tons or greater would have had a positive return
above operating costs in only three of the last seven years (Table 12).
As we consider the inclusion of other costs in the analysis, greater yields are
required to obtain a positive return over a wider range of prices. Thompson
Seedless growers in Pricing District 13 would have to have had yields at or
above 15 tons per acre to obtain a positive return in two of the past seven
years, given the reported weighted average price received.
Not all Thompson Seedless vineyards in the Central Valley are managed in
accordance with the cultural practices included in the UC Cost and Returns
Enterprise Budgets developed for this study. For example, more mature
vineyards may not be suitable for mechanical harvesting, and some opera-
tors may choose to use a more limited set of cultural practices in an attempt
to minimize production costs. Accordingly, individual operators need to
compare their own set of cultural practices to those outlined in the UC Cost
and Returns enterprise budgets to determine potential profitability. It is
believed, however, that the UC Cost and Returns Enterprise Budgets provide
a reasonable measure of the costs associated with sustainable vineyard
practices for a commercial Thompson Seedless production unit.11
11
A panel of industry representatives confirmed that the UC budget costs were reasonable estimates by
comparison to the individual cost items from their own operating budgets.
An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers Page 21
Table 11. Net Returns with Alternative Prices and Yields
For Thompson Seedless Varieties Grown for Concentrate*
NET RETURNS PER ACRE ABOVE OPERATING COSTS
PRICE YIELD (ton/acre)
$/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 27 157 287 417 547 676 806
160.00 207 357 507 657 807 956 1,106
180.00 387 557 727 897 1,067 1,236 1,406
200.00 567 757 947 1,137 1,327 1,516 1,706
220.00 747 957 1,167 1,377 1,587 1,796 2,006
240.00 927 1,157 1,387 1,617 1,847 2,076 2,306
260.00 1,107 1,357 1,607 1,857 2,107 2,356 2,606
NET RETURNS PER ACRE ABOVE CASH COST
PRICE YIELD (ton/acre)
$/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -381 -251 -121 9 139 268 398
160.00 -201 -51 99 249 399 548 698
180.00 -21 149 319 489 659 828 998
200.00 159 349 539 729 919 1,108 1,298
220.00 339 549 759 969 1,179 1,388 1,598
240.00 519 749 979 1,209 1,439 1,668 1,898
260.00 699 949 1,199 1,449 1,699 1,948 2,198
NET RETURNS PER ACRE ABOVE TOTAL COST
PRICE YIELD (ton/acre)
$/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -1,541 -1,411 -1,281 -1,151 -1,021 -892 -762
160.00 -1,361 -1,211 -1,061 -911 -761 -612 -462
180.00 -1,181 -1,011 -841 -671 -501 -332 -162
200.00 -1,001 -811 -621 -431 -241 -52 138
220.00 -821 -611 -401 -191 19 228 438
240.00 -641 -411 -181 49 279 508 738
260.00 -461 -211 39 289 539 788 1,038
* For detailed breakdown of cultural practices and related costs see Appendix 1
Table 12. Weighted Average Thompson Seedless Prices District 13
1999 2000 2001 2002 2003 2004 2005
200.28 125.5 85.74 77.72 96.1 199.94 163.27
Source: California Agricultural Statistical Services, Annual Grape Crush Report
Page 22 An Analysis of the Grape Juice Concentrate Industry: Implications for Central California Grape Producers
Individual operations may also vary based on how they market their grapes.
Thompson Seedless producers may be engaged in mixed enterprise opera-
tions that provide for some raisin production and some production for
crush. In these cases the ability to offset price variations across crops may
enhance profitability. Additionally, marketing arrangements and contracting
may offer the opportunity for some growers to lock in an average price
over a number of years that provides for a positive return in years where
spot market prices are depressed.12
Technical Conversion Note:
Grape Juice Concentrate 68º Brix conversion from 16º Brix single
strength equivalent gallons (SSE x 1.410) “ 7.57. Alternatively
SSE = 5.4 (GJC)
Pear Juice Concentrate 71º Brix conversion from 11.2º Brix
single strength equivalent gallons (SSE x 1.002) “ 8.014.
Apple Juice Concentrate 70/71º Brix conversion from single
strength equivalent gallons (SSE x 1.047) “ 7.865.
12
New varieties of raisin type grapes with higher yields, such as Selma Pete and Fiesta, provide
alternatives for those producers willing to replace existing or establish new production enterprises.
For concentrate production of raisin type grapes that utilize mechanical pruning and harvesting to
lower costs also offer advantages over traditional cane pruned Thompson Seedless operations.
Evaluation of cost and returns to establish new enterprises are provided in Appendix II, Budget B.
Appendix III provides overview of simulated results for alternative marketing scenarios.
Appendix I
Grape Juice Concentrate Trade Profile
Global Trade Update
Grape Juice and Concentrate
Imports
In 2005, the United States imported over $99 million worth of grape juice and concentrate, an
increase of over 43 percent from the previous year of $69 million as both prices and quantities
increased. Argentina is the major exporter of grape juice to the U.S. with a market share of
over 80 percent, with sales of almost $80 million, followed by Chile and Mexico with a market
share of around 5 percent with sales of around $5 million (Figure 1). Exports of grape juice
from Argentina have increased by 50 percent from the previous year value of over $52 million
(Figure 2). Four countries; Argentina, Chile, Brazil and Mexico accounted for around 94
percent of the U.S. imports of grape juice in 2005.
Figure 1. U.S. Total Grape Juice Imports from Major Countries: 2005
Total Value: $99 Million
ROW
Canada Italy 2%
Brazil 3% 1%
Chile
5% 4%
Mexico
5%
Argentina
80%
Figure 2. Values of U.S. Imports of Total Grape Juice: 2002 - 2005
100
90
80
70
Million Dollars
60
50
40
30
20
10
0
2002 2003 2004 2005
ROW 4184573 1325848 1142798 1690430
Italy 1232198 1077524 971406 1063757
Canada 3023359 3001155 4043355 3377466
Brazil 2977488 1999023 2824579 3763333
Chile 6968379 4677289 5469822 4881958
Mexico 1865960 1536607 1858572 5285229
Argentina 32565455 25563416 52749097 79243273
Exports
The United States exported almost $58 million worth of grape juice to the world market in
2005. This is around a 7 percent increase from the previous year of around $54 million. Over
56 percent of the U.S. grape juice exported was absorbed by Canada, at $33 million, followed
by Japan of almost $12 million – around 21 percent (Figure 3). Overall increases in U.S. grape
juice exports are linked to increased imports by several countries, including South Korea
(Figure 4). However, South Korea has reduced grape juice imports from the United States by
around 28 percent, from over $9 million in 2003 to around $6.7 million in 2005.
Figure 3. U.S. Total Grape Juice Exports to Major Countries: 2005
Total Value: $58 Million
United Kingdom
1% Thailand ROW
1% 5%
China
Taiwan 2%
2%
Korea South
12%
Japan Canada
21% 56%
Fruits Juices
Exports
The value of total fruit juice exports from the United States was around $773 million in 2005,
an increase of more than 10 percent from the 2004 level of $698 million (Table 1). Orange
juice holds the largest market share at 43 percent, followed by single fruit and vegetable juices
(20%), fruit and vegetable mixes (19%), grape juice (7%) and grapefruit juice (6%) (Figure 5).
The value of U.S. exports of all juices increased from 2004 levels, with the exception of
grapefruit juice and tomato juice. Increasing per unit prices of grapefruit juice exports
resulting from weather related crop shortfalls failed to make up for the decline in volume of
shipments.
Figure 4. Values of U.S. Export of Total Grape Juice : 2002 - 2005
60
50
40
Million Dollars
30
20
10
0
2002 2003 2004 2005
ROW 3887705 3958077 3520469 2851617
Thailand 639886 644320 705226 628017
United Kingdom 693325 900845 757024 677141
China 133375 2570 946839 920745
Taiwan 1312005 795016 1010446 929095
Korea South 9753796 9371515 5854174 6698884
Japan 13801964 12692180 12486524 11961976
Canada 27998627 28615666 29221663 33060833
Imports
Total fruit juice imports declined slightly in 2004 to around $830 million, down 1.13% from
the 2003 level of $839 million, but they increased significantly in 2005 to more than $986
million (Table 2). Apple juice commands the largest market share of value among U.S.
imports, reaching nearly $311 million (31%) in 2005, followed by orange juice with a value of
around $232 million (24%) (Figure 6). Imports of orange juice increased significantly, up 50
percent, from 2004. Imports of grapefruit juice continued at high levels due to decreased
supplies resulting from hurricane related crop damage – remaining at around 1 percent of total
juice imports at $11 million. Imports of grape juice continued to increase, reaching $99
million, up almost 43.8 percent from 2004.
Table 1. Values of U.S. Fruit Juice Exports: 2003 - 2005
United States Export Statistics To World
Commodity: 2009, Fruit Juices Nt Fortified W Vit Or Minls (Incl Grape Must) & Vegetable Juices, Unfermentd & Nt Containg Add Spirit, Whet Or Nt Containg
Added Sweeteng
Calendar Year: 2003 - 2005
United States Dollars % Share % Change
Commodity Description
2003 2004 2005 2003 2004 2005 2005/2004
Fruit Juice Nt Frtfd W Vit/Mnl Veg Juice No
2009 Spirit 732,368,040 698,587,350 772,675,088 100 100 100 10.61
200911 Orange Juice, Frozen, Sweetened Or Not 151,801,933 136,599,521 138,439,199 20.73 19.55 17.92 1.35
Orange Juice, Not Frozen,Of A Brix Value
200912 Not Ov 20 77,947,697 152,530,708 171,267,570 10.64 21.83 22.17 12.28
Orange Juice, Other Than Frozen, Sweetened
200919 Or Not 90,002,838 9,962,003 14,124,159 12.29 1.43 1.83 41.78
20091 Orange Juice 319,752,468 299,092,232 323,830,928 43.66% 42.81% 41.91% 8.27%
Juice Of Any Single Fruit/Vegtble
200980 Unfermentd Nesoi 128,171,986 123,476,230 156,273,567 17.5 17.68 20.23 26.56
Mixtures Of Fruit And/Or Vegetable
200990 Juices 118,398,563 124,076,891 146,763,026 16.17 17.76 18.99 18.28
Grape Juice Of A Brix Value <= 20, Nt Fort
200961 W/Vitam 11,893,228 15,289,797 15,788,323 1.62 2.19 2.04 3.26
Grape Juice, Nesoi,Nt Fortified With
200969 Vitamins/Min 45,086,961 39,212,568 41,939,985 6.16 5.61 5.43 6.96
20096 Grape Juice 56,980,189 54,502,365 57,728,308 7.78% 7.80% 7.47% 5.92%
Grapefruit Juice,Brix Value <=20,Nt Fort W
200921 Vitamin 22,442,088 23,585,260 17,549,997 3.06 3.38 2.27 -25.59
Grapefruit Juice,Nesoi,Nt Fortorified W
200929 Vitamins 51,891,443 41,512,935 31,160,696 7.09 5.94 4.03 -24.94
20092 Grapefruit Juice 74,333,531 65,098,195 48,710,693 10.15% 9.32% 6.30% -25.17%
Apple Juice Of A Birx Value <=20,Nt Fort
200971 W Vitamin 7,417,104 4,983,441 7,673,585 1.01 0.71 0.99 53.98
Apple Juice, Nesoi,Nt Fortified W Vitamins,
200979 Unferm 10,740,253 13,813,102 14,065,635 1.47 1.98 1.82 1.83
20097 Apple Juice 18,157,357 18,796,543 21,739,220 2.48% 2.69% 2.81% 15.66%
Juice Of 1 Citrus Fruit, Brix Value <=20, Nt
200931 Fortf 5,880,106 4,953,608 7,941,702 0.8 0.71 1.03 60.32
Juice Of Other Single Cirtus Fruit,Nt
200939 Frot,Nesoi 5,363,581 4,527,400 5,341,600 0.73 0.65 0.69 17.98
20093 Cirtus Juice 11,243,687 9,481,008 13,283,302 1.54% 1.36% 1.72% 40.10%
200941 Pineapple Juice Of Brix Value 1,694,763 1,255,616 1,427,136 0.23 0.18 0.18 13.66
200949 Pineapple Juice, Nt Fort., Unfermnt, Nesoi 2,913,351 1,769,185 2,115,523 0.4 0.25 0.27 19.58
20094 Pineapple Juice 4,608,114 3,024,801 3,542,659 0.63% 0.43% 0.46% 17.12%
Tomato Juice (Dry Weight Content Less
200950 Than 7%) 722,145 1,039,085 803,385 0.1 0.15 0.1 -22.68
Figure 5. Values of U.S. Export of Fruit Juices: 2005
Total Value: $773 Million
Pineapple Juice
0%
Cirtus Juice
2%
Grapefruit Juice Tomato Juice
Apple Juice
6% 0%
3%
Grape Juice
7% Orange Juice
43%
Mixtures Fruit/Vegetable
19%
Single Fruit/Vegtble
20%
Table 2. Values of U.S. Fruit Juice Import: 2003 - 2005
United States Import Statistics From World
Commodity: 2009, Fruit Juices Nt Fortified W Vit Or Minls (Incl Grape Must) & Vegetable Juices, Unfermentd & Nt Containg Add Spirit, Whet Or Nt Containg
Added Sweeteng
Calendar Year: 2003 - 2005
United States Dollars % Share % Change
Commodity Description
2003 2004 2005 2003 2004 2005 2005/2004
Fruit Juice Nt Frtfd W Vit/Mnl Veg Juice No
2009 Spirit 839,534,998 830,060,682 986,432,398 100 100 100 18.84
Apple Juice Of A Birx Value <=20,Nt Fort
200971 W Vitamin 29,276,287 27,124,027 23,105,713 3.49 3.27 2.34 -14.81
Apple Juice, Nesoi,Nt Fortified W Vitamins,
200979 Unferm 241,729,626 287,415,141 287,588,873 28.79 34.63 29.15 0.06
20097 Apple Juice 271,005,913 314,539,168 310,694,586 32.28% 37.89% 31.50% -1.22%
200911 Orange Juice, Frozen, Sweetened Or Not 239,028,340 133,639,056 215,800,225 28.47 16.1 21.88 61.48
Orange Juice, Not Frozen,Of A Brix Value
200912 Not Ov 20 25,483,916 19,441,823 14,711,013 3.04 2.34 1.49 -24.33
Orange Juice, Other Than Frozen, Sweetened
200919 Or Not 1,821,272 1,567,071 1,791,116 0.22 0.19 0.18 14.3
20091 Orange Juice 266,333,528 154,647,950 232,302,354 31.72% 18.63% 23.55% 50.21%
Juice Of Any Single Fruit/Vegtble
200980 Unfermentd Nesoi 115,341,606 149,098,872 198,680,133 13.74 17.96 20.14 33.25
Grape Juice Of A Brix Value <= 20, Nt Fort
200961 W/Vitam 14,903,865 19,921,606 24,945,698 1.78 2.4 2.53 25.22
Grape Juice, Nesoi,Nt Fortified With
200969 Vitamins/Min 24,276,997 49,138,023 74,359,748 2.89 5.92 7.54 51.33
20096 Grape Juice 39,180,862 69,059,629 99,305,446 4.67% 8.32% 10.07% 43.80%
200941 Pineapple Juice Of Brix Value 16,052,561 11,491,442 16,383,247 1.91 1.38 1.66 42.57
200949 Pineapple Juice, Nt Fort., Unfermnt, Nesoi 77,331,315 69,370,415 69,379,757 9.21 8.36 7.03 0.01
20094 Pineapple Juice 93,383,876 80,861,857 85,763,004 11.12% 9.74% 8.69% 6.06%
Juice Of 1 Citrus Fruit, Brix Value <=20, Nt
200931 Fortf 17,481,655 17,832,092 20,550,714 2.08 2.15 2.08 15.25
Juice Of Other Single Cirtus Fruit,Nt
200939 Frot,Nesoi 10,292,499 9,734,148 9,339,299 1.23 1.17 0.95 -4.06
20093 Cirtus Juice 27,774,154 27,566,240 29,890,013 3.31% 3.32% 3.03% 8.43%
Mixtures Of Fruit And/Or Vegetable
200990 Juices 24,632,952 22,101,770 18,117,328 2.93 2.66 1.84 -18.03
Grapefruit Juice,Brix Value <=20,Nt Fort W
200921 Vitamin 547,080 9,521,144 9,725,289 0.07 1.15 0.99 2.14
Grapefruit Juice,Nesoi,Nt Fortorified W
200929 Vitamins 332,030 2,040,206 1,355,179 0.04 0.25 0.14 -33.58
20092 Grapefruit Juice 879,110 11,561,350 11,080,468 0.10% 1.39% 1.12% -4.16%
Tomato Juice (Dry Weight Content Less
200950 Than 7%) 1,002,997 623,846 599,066 0.12 0.08 0.06 -3.97
Figure 6. Values of U.S. Import of Fruit Juices: 2005
Total Value: $986 Million
Grapefruit Juice
1%
Mixtures Fruit/Veg Tomato Juice
2% 0%
Pineapple Juice Cirtus Juice
9% 3% Apple Juice
31%
Grape Juice
10%
Single Fruit/Veg
20%
Orange Juice
24%
Appendix II
Budget A
ESTIMATED COSTS TO PRODUCE
GRAPES FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY
THOMPSON SEEDLESS VARIETY
Prepared by
Karen L. Klonsky UCCE Extension Specialist, Department of Agricultural and Resource Economics,
UC Davis
Richard L. De Moura Research Associate, Department of Agricultural and Resource Economics, UC Davis
This study was conducted as part of a study of the U.S. grape juice concentrate industry initiated by the Central
California Winegrowers. Funding for the project has been made available by the California Department of
Food and Agriculture's Buy California Initiative and the U.S. Department of Agriculture.
1
ESTIMATED COSTS TO PRODUCE GRAPES
FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY
Thompson Seedless Variety
CONTENTS
INTRODUCTION ................................................................................................................................................. 2
ASSUMPTIONS.................................................................................................................................................... 3
Production Operating Costs ................................................................................................................................. 3
Cash Overhead Costs ........................................................................................................................................... 5
Non-cash Overhead Costs.................................................................................................................................... 6
REFERENCES ...................................................................................................................................................... 8
Table 1. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE............................................... 9
Table 2. COSTS AND RETURNS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE ................ 10
Table 3. MONTHLY CASH COSTS – GRAPES FOR CONCENTRATE ....................................................... 11
Table 4. RANGING ANALYSIS ....................................................................................................................... 12
Table 5. WHOLE FARM EQUIPMENT, INVESTMENT, AND BUSINESS OVERHEAD COSTS ............. 13
Table 6. HOURLY EQUIPMENT COSTS ........................................................................................................ 14
INTRODUCTION
Estimated costs to produce Thompson Seedless grapes for concentrate are presented in this study. The
information in the report is derived from interviews with growers who produce grapes mainly for wine and
raisins with concentrate as an option. Wine production that goes to concentrate is often decided by the winery,
whereas raisin growers often have until some time around the end of June to make the decision to convert from
raisins to concentrate. At that point, the growers will modify the remaining cultural practices such as irrigation,
pest and disease control, and harvest. Practices described are compiled from grower interviews based on what-
if scenarios for concentrate production. California does not have varieties available for planting that are bred
specifically for concentrate production, but uses white and red varieties grown for wine and raisin production.
For concentrate production, growers should consider the varieties that are adaptable to mechanical pruning and
mechanical harvest to reduce labor costs. Cane pruned varieties such as Thompson Seedless appear to not be
readily adaptable to mechanical pruning, but is the variety grown in the San Joaquin Valley for either table
grapes, raisin, and/or wine. Cultural practices, especially in canopy management vary by the type of
production.
The University of California does not discriminate in any of its policies, procedures or practices. The university is an affirmative action/equal opportunity employer.
2
ASSUMPTIONS
The assumptions refer to Tables 1 to 6 and pertain to sample costs to produce Thompson Seedless
grapes for concentrate in the San Joaquin Valley. The cultural practices described are based on grower
interviews, and represent suggested production operations and materials to be considered when producing
grapes for concentrate. Timing of and types of cultural practices will vary among growers within the region
and from season to season due to variables such as weather, soil, and insect and disease pressure. The use of
trade names and cultural practices in this report does not constitute an endorsement or recommendation
by the University of California nor is any criticism implied by omission of other similar products or
cultural practices.
Land. The hypothetical vineyard, owned and operated by the grower, is located on previously farmed
land in the San Joaquin Valley. The farm is comprised of 120 acres, 40 acres of concentrate grapes being
established and 75 acres of raisin grapes. Roads, irrigation systems, and farmstead occupy the remaining five
acres.
PRODUCTION YEARS OPERATING COSTS
Trellis System. No specific trellis system is used in this study. Common trellis systems are variations
of the vertical two wire design with and without cross braces. Trellis repairs are done annually and the cost is
not taken from any specific data. For various reasons such as trellis type, age, and mechanical damage, the
repair costs will vary from year to year. Repair labor hours are estimated and are not a representative sample of
grower costs. The repair materials are assumed to be included in Investment Repairs under Cash Overhead
Costs.
Vines. The Thompson Seedless vines are planted on a 7-ft. x 12-ft (vine x row) spacing at 519 vines per
acre. The life of the vineyard at planting is expected to be 25 years. In January/February of each year, sick
vines are replaced by layering.
Pruning. Pruning is done during the winter months – December and/or January. The vines are cane
pruned and the prunings are placed in the row middles and shredded during the first mowing, then incorporated
into the soil with the April discing. Suckers are removed from the vine trunks in April.
Fertilization. Forty pounds per acre of nitrogen (N) as UN-32 is divided and applied in equal amounts
in May and June. Neutral zinc at five pounds of material per acre is applied in May with the disease and insect
application.
Irrigation. Water costs plus labor, which includes checking the drip lines, constitute the irrigation cost.
Irrigation labor also includes servicing the clock and filters, set-up and injection of chemicals, checking,
replacing, and repairing drip lines and laterals. In this study, water is calculated to cost $5.67 per acre-inch or
$68.00 per acre-foot. Water costs vary considerably among districts and the water cost in this report represents
a cost within that range. Thirty acre-inches are applied during the growing season from April through late
September. No assumption is made about effective rainfall and runoff.
Pest Management. The pesticides and rates mentioned in this cost study are listed in UC Integrated
Pest Management Guidelines, Grapes. For information on other pesticides available, pest identification,
monitoring, and management visit the UC IPM website at www.ipm.ucdavis.edu. Information and pesticide use
3
permits are available through the local county agricultural commissioner's office. Pesticides mentioned in this
study are used to calculate rates and costs. Although growers commonly use the pesticides mentioned, many
other pesticides are available. Adjuvants are recommended for use with many pesticides for effective control,
but the adjuvants and their costs are not included in this study. Pesticide costs may vary by location, brand, and
grower volume. Pesticide costs in this study are taken from a single dealer and shown as full retail.
Pest Control Advisor (PCA). Written recommendations are required for many pesticides and are made
by licensed pest control advisors. In addition the PCA will monitor the field for agronomic problems including
pests and nutrition. Growers may hire private PCA’s or receive the service as part of a service agreement with
an agricultural chemical and fertilizer company. No costs for a PCA are included in this report.
Weeds. The row middles are mowed four times – March for frost control and to shred prunings, May,
June, and August prior to harvest. The row middles are disced in April for weed control and to incorporate the
vine prunings. Vine row weeds are controlled with three Roundup spot sprays – April, June, July.
Insects. Kryocide insecticide for worm control (grape leaffolder, omnivorous leafroller, western
grapeleaf skeletonizer) is applied in early May at bloom with the powdery mildew and foliar fertilizer spray.
Provado insecticide is applied in July to control leafhoppers.
Diseases. The major diseases considered in this report are powdery mildew, and Phomopsis cane and
leaf spot. Wettable sulfur is applied soon after budbreak in late March or early April. A second application is
made in April. Dusting sulfur is applied once in April, in May, and in June. A sterol inhibitor, Rubigan, is
applied in May at early bloom (with the worm and zinc spray) and a strobilurin fungicide, Flint, in June, two
weeks after bloom.
Harvest. A custom operator mechanically harvests the crop. Harvest costs in this report are $225 per
acre, which is a mid-range of costs provided by the growers. A commercial trucking hauls the grapes to the
processor for $10 per ton. Hauling costs will vary depending upon the hauling distance.
Yields. An average yield of 12-tons per acre is assumed over the 25-year life of the vineyard, beginning
in the fourth year.
Returns. The market price in this report, based on grower inputs for 2004, is $200 per acre for both
white and red grape varieties. A range of returns over various yields are shown in Table 4.
Pickup/ATV. It is assumed that the grower uses the pickup for business and personal use. Estimated
business mileage for the ranch is 3,300 miles. The all terrain vehicle (ATV) is used for spot spraying weeds
and is included in that cost. It is assumed that the ATV will be used another two-hours per acre for checking
the vineyards including the irrigation system.
Labor. Labor rates of $12.73 per hour for machine operators and $11.05 for general labor includes
payroll overhead of 34%. The basic hourly wages are $9.50 for machine operators and $8.25 for general labor.
The overhead includes the employers’ share of federal and California state payroll taxes, workers' compensation
insurance for vineyards (code 0040), and a percentage for other possible benefits. Workers’ compensation
insurance costs will vary among growers, but for this study the cost is based upon the average industry final rate
as of January 1, 2004 (California Department of Insurance). Labor for operations involving machinery are 20%
higher than the operation time given in Table 1 to account for the extra labor involved in equipment set up,
moving, maintenance, work breaks, and field repair.
4
Equipment Operating Costs. Repair costs are based on purchase price, annual hours of use, total
hours of life, and repair coefficients formulated by the American Society of Agriculture Engineers (ASAE).
Fuel and lubrication costs are also determined by ASAE equations based on maximum PTO horsepower, and
fuel type. Prices for on-farm delivery of diesel and gasoline are $1.45 and $1.88 per gallon, respectively. The
fuel prices are averaged based on four California delivery locations plus $0.24 per gallon, which is one-half the
difference between the high and low price for regular gasoline in 2003 from the California State Automobile
Association Monthly Survey. The cost includes a 2.25% sales tax (effective September 2001) on diesel fuel and
7.25% sales tax on gasoline. Gasoline also includes federal and state excise tax, which can be refunded for on-
farm use when filing your income tax. The fuel, lube, and repair cost per acre for each operation in Table 1 is
determined by multiplying the total hourly operating cost in Table 6 for each piece of equipment used for the
selected operation by the hours per acre. Tractor time is 10% higher than implement time for a given operation
to account for setup, travel and down time.
Interest On Operating Capital. Interest on operating capital is based on cash operating costs and is
calculated monthly until harvest at a nominal rate of 6.89% per year. A nominal interest rate is the typical
market cost of borrowed funds. The interest cost of post harvest operations is discounted back to the last
harvest month using a negative interest charge.
Risk. The risks associated with crop production should not be minimized. While this study makes
every effort to model a production system based on typical, real world practices, it cannot fully represent
financial, agronomic and market risks, which affect profitability and economic viability. Growers may
purchase Federal crop insurance to reduce the production risk associated with specific natural hazards.
Insurance policies vary and range from a basic catastrophic loss policy to one that insures losses for up to 75%
of a crop. Crop insurance is not included in this report, but insurance costs will depend on the type and level of
coverage.
Cash Overhead Costs
Cash overhead consists of various cash expenses paid out during the year that are assigned to the whole
farm and not to a particular operation. These costs include property taxes, interest on operating capital, office
expense, liability and property insurance, sanitation services, equipment repairs, and management.
Property Taxes. Counties charge a base property tax rate of 1% on the assessed value of the property.
In some counties special assessment districts exist and charge additional taxes on property including equipment,
buildings, and improvements. For this study, county taxes are calculated as 1% of the average value of the
property. Average value equals new cost plus salvage value divided by 2 on a per acre basis.
Insurance. Insurance for farm investments varies depending on the assets included and the amount of
coverage. Property insurance provides coverage for property loss and is charged at 0.676% of the average
value of the assets over their useful life. Liability insurance covers accidents on the farm and costs $645 for the
entire farm.
Office Expense. Office and business expenses for 120 acres are estimated at $75 per producing acre or
$8,625 annually for the ranch. These expenses include office supplies, telephones, bookkeeping, accounting,
legal fees, road maintenance, etc. The cost is assumed and not taken from any specific data.
Management/Supervisor Wages. Salary is not included. Returns above costs are considered a return
5
to management.
Investment Repairs. Annual maintenance on investments (Non-Cash Overhead) are calculated as 2%
of the purchase price for the irrigation system, building, tools, fuel tanks and establishment costs.
Non-Cash Overhead Costs
Non-cash overhead is calculated as the annual capital recovery cost for ownership of equipment and
other farm investments.
Capital Recovery Costs. Capital recovery cost is the annual depreciation and interest costs for a capital
investment. It is the amount of money required each year to recover the difference between the purchase price
and salvage value (unrecovered capital). It is equivalent to the annual payment on a loan for the investment
with the down payment equal to the discounted salvage value. This is a more complex method of calculating
ownership costs than straight-line depreciation and opportunity costs, but more accurately represents the annual
costs of ownership because it takes the time value of money into account (Boehlje and Eidman). The formula
for the calculation of the annual capital recovery costs is ((Purchase Price – Salvage Value) x Capital Recovery
Factor) + (Salvage Value x Interest Rate).
Salvage Value. Salvage value is an estimate of the remaining value of an investment at the end of its
useful life. For farm machinery (tractors and implements) the remaining value is a percentage of the new cost
of the investment (Boehlje and Eidman). The percent remaining value is calculated from equations developed
by the American Society of Agricultural Engineers (ASAE) based on equipment type and years of life. The life
in years is estimated by dividing the wear out life, as given by ASAE by the annual hours of use in this
operation. For other investments including irrigation systems, buildings, and miscellaneous equipment, the
value at the end of its useful life is zero. The salvage value for land is the purchase price because land does not
depreciate. The purchase price and salvage value for equipment and investments are shown in Table 5.
Capital Recovery Factor. Capital recovery factor is the amortization factor or annual payment whose
present value at compound interest is 1. The amortization factor is a table value that corresponds to the interest
rate used and the life of the machine.
Interest Rate. The interest rate of 6.25% used to calculate capital recovery cost is the USDA-ERS’s ten-
year average of California’s agricultural sector long-run rate of return to production assets from current income.
It is used to reflect the long-term realized rate of return to these specialized resources that can only be used
effectively in the agricultural sector. In other words, the next best alternative use for these resources is in
another agricultural enterprise.
Establishment Cost. Costs to establish the vineyard are used to determine capital recovery expenses on
investment for the production years. Establishment cost is the sum of the costs for land preparation, trellis
system, planting, vines, cash overhead and production expenses for growing the vines through the first year that
grapes are harvested minus any returns from production. The vineyard is expected to produce in the third year,
therefore the Total Accumulated Net Cash Cost in the third year represents the establishment cost. For this
study the estimated cost is $6,956 per acre or $278,240 for the 40-acre vineyard. The establishment cost is
spread over the remaining 22 years of the 25 years the vineyard is in production.
Irrigation System. The previous vineyard is assumed to have an irrigation system that has been
refurbished. The drip line is laid on the ground prior to planting. After the trellis system is installed, the drip
6
line is clipped to the bottom trellis wire. The system includes the installation labor, filters, fertilizer injector,
time clock, and valves. Although the materials will have a useful life equivalent to the vineyard, the irrigation
system can be included in the vineyard establishment costs or as in this case an improvement to the property
with a 25-year life.
Land. The land was formerly a vineyard, but has been out of production for two years. The open land
was planted to grain crops. Land in the San Joaquin Valley for grape production ranges from $4,500 to $6,500
per acre (CA Association of Farm Manager and Real Estate Appraisers). For this report, a land value was of
$5,800 per acre or $6,052 per producing acre is used (five of the 120 acres are not planted). It is assumed the
grower originally purchased the land with an established vineyard. The annual cost of land is interest only
since land does not depreciate.
Building. The metal buildings are on a cement slab and comprise 2,400 square feet.
Tools. This includes shop tools, hand tools, and miscellaneous field tools such as pruning tools.
Fuel Tanks. Two 250-gallon fuel tanks using gravity feed are on metal stands. The tanks are setup in a
cement containment pad that meets federal, state, and county regulations.
Equipment. Farm equipment is purchased new or used, but the study shows the current purchase price
for new equipment. The new purchase price is adjusted to 60% to indicate a mix of new and used equipment.
Annual ownership costs for equipment and other investments are shown in Table 5. Equipment costs are
composed of three parts: non-cash overhead, cash overhead, and operating costs. Both of the overhead factors
has been discussed in a previous section. The operating costs consist of repairs, fuel, and lubrication and are
discussed under operating costs.
Table Values. Due to rounding, the totals may be slightly different from the sum of the components.
Acknowledgment. Appreciation is expressed to those growers and other cooperators who provided
support for this report.
7
REFERENCES
American Society of Farm Managers and Rural Appraisers. 2004. 2004 Trends in Agricultural Land and Lease
Values. California Chapter of the American Society of Farm Managers and Rural Appraisers,
Woodbridge, CA.
American Society of Agricultural Engineers. (ASAE). 1994. American Society of Agricultural Engineers
Standards Yearbook. St. Joseph, Missouri.
Barker, Doug. April 22, 2003. California Workers’ Compensation Rating Data for Selected Agricultural
Classifications as of January 1, 2004 (Updated). California Department of Insurance, Rate Regulation
Branch.
Boehlje, Michael D., and Vernon R. Eidman. 1984. Farm Management. John Wiley and Sons. New York, New
York
California State Automobile Association. 2004. Gas Price Survey 2003. AAA Public Affairs, San Francisco,
CA.
Central California Winegrowers (October, 2004). Interviews with association members.
Christensen, Pete. Training Table Grape Vineyards. 1998. University of California Cooperative Extension,
Tulare, CA. Pub. #TB 11-98.
Clarke, Dan. 2000. Concentrate 101. Wine Business Online. Available http://winebusiness.ocm/html/Monthly
Article.cfm?
Doanes. 1984. Facts and Figures for Farmers. 1984. Doane Publishing, St. Louis, MO.
Farm Advisors. (September, October 2004). Interviews with Steve Vasquez, Fresno County Farm Advisor and
Bill Peacock, Tulare County Farm Advisor.
Jensen, Frederick L., William L. Peacock. Thompson Seedless. 1998. University of California Cooperative
Extension, Tulare, CA. Pub # TB7-97.
University of California Statewide IPM Project. 2003. UC Pest Management Guidelines, Grapes. University of
California, Davis CA. http://www.ipm.ucdavis.edu
USDA-ERS. 2004. Farm Sector: Farm Financial Ratios. Agriculture and Rural Economics Division, ERS.
USDA. Washington, DC http://www.ers.usda.gov/data/farmbalancesheet/fbsdmu.htm; Internet; accessed January
5, 2004.
Vasquez, Stephen J., George M. Leavitt, William L. Peacock, L. Peter Christensen, Stephen R. Sutter, Kurt J.
Hembree, Karen L. Klonsky, Donald G. Katayama, and Richard L. De Moura. 2003. Sample Costs to
Establish a Vineyard and Produce Dried-on-Vine Raisins, San Joaquin Valley. University of California
Cooperative Extension and the Department of Agricultural and Resource Economics. Davis, CA.
8
Table 1. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE – Thompson Seedless
SAN JOAQUIN VALLEY - 2004
Operation Cash and Labor Cost per acre
Time Labor Fuel, Lube Material Custom/ Total
Operation (Hrs/A) Cost & Repairs Cost Rent Cost
Cultural:
Prune: (hand) 11.00 122 0 0 0 122
Prune: Tie Vines 5.00 55 0 11 0 67
Vines: Layer to replace missing vines 1.00 11 0 0 0 11
Trellis: Repair (labor only, see text) 2.00 22 0 0 0 22
Weed: Winter Strip Spray (Roundup, Goal, Surflan) 0.54 8 4 67 0 79
Irrigate: (water & labor) 3.05 34 0 170 0 204
Weed: Mow 4X (includes shred prunings) 0.96 15 10 0 0 25
Prune: Sucker Trunks 1.25 14 0 0 0 14
Weed: Spot Spray 20% acres 3X (Roundup) 1.59 24 2 13 0 39
Weed: Disc 0.29 4 2 0 0 7
Disease: Mildew (Wettable Sulfur) 1.53 23 15 1 0 40
Disease: Mildew (Dusting Sulfur) 0.92 14 7 5 0 26
Fertilize: through drip (UN32) 0.10 1 0 16 0 17
Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer: (Zn) 0.76 12 8 33 0 52
Disease: Mildew (Flint) 0.76 12 8 25 0 44
Insect: Leaf Hopper (Provado) 0.76 12 8 33 0 52
Pickup: Business use for vineyard 1.50 23 18 0 0 41
ATV 4WD: Miscellaneous vineyard use 2.00 31 2 0 0 33
TOTAL CULTURAL COSTS 35.01 436 83 374 0 893
Harvest:
Harvest: Machine Harvest & Haul 0.00 0 0 0 345 345
TOTAL HARVEST COSTS 0.00 0 0 0 345 345
Interest on operating capital @ 6.89% 25
TOTAL OPERATING COSTS/ACRE 436 83 374 345 1,264
Cash Overhead:
Office Expense 75
Liability Insurance 6
Sanitation 19
Property Taxes 106
Property Insurance 31
Investment Repairs 171
TOTAL CASH OVERHEAD COSTS 408
TOTAL CASH COSTS/ACRE 1,671
Non-Cash Overhead: Per producing Annual Cost
Acre Capital Recovery
Land 6,052 377 377
Drip Irrigation System 950 76 76
Buildings 522 46 46
Tools-Shop/Field 104 10 10
Fuel Tanks 30 2 2
Vineyard Establishment 6,956 589 589
Equipment 437 59 59
TOTAL NON-CASH OVERHEAD COSTS 15,052 1,160 1,160
TOTAL COSTS/ACRE 2,832
9
Table 2. COSTS AND RETURNS to PRODUCE GRAPES FOR CONCENTRATE – Thompson Seedless
SAN JOAQUIN VALLEY - 2004
Quantity/ Price or Value or Your
Acre Unit Cost/Unit Cost/Acre Cost
GROSS RETURNS
Grapes for Concentrate 12.00 ton 200.00 2,400
OPERATING COSTS
Vine Aids:
Tying Materials 1.00 acre 11.50 11
Custom:
Machine Harvest 1.00 acre 225.00 225
Haul to Crusher 12.00 ton 10.00 120
Herbicide:
Roundup Ultra Max 2.16 pint 8.56 18
Goal 2XL 1.00 pint 16.21 16
Surflan 4 AS 2.64 pint 16.96 45
Irrigation:
Water 30.00 acin 5.67 170
Fungicide:
Wettable Sulfur 6.00 lb 0.21 1
Dusting Sulfur 30.00 lb 0.18 5
Rubigan EC 4.00 floz 2.50 10
Flint 1.50 oz 16.49 25
Fertilizer:
UN 32 40.00 lb N 0.41 16
Neutral Zinc 50% 5.00 lb 0.92 5
Insecticide:
Kryocide 6.00 lb 3.00 18
Provado 1.6 Solupak 0.75 oz 43.96 33
Labor (machine) 13.93 hrs 12.73 177
Labor (non-machine) 23.40 hrs 11.05 259
Fuel - Gas 8.08 gal 1.88 15
Fuel - Diesel 21.12 gal 1.45 31
Lube 7
Machinery repair 30
Interest on operating capital @ 6.89% 25
TOTAL OPERATING COSTS/ACRE 1,264
NET RETURNS ABOVE OPERATING COSTS 1,136
Cash Overhead:
Office Expense 75
Liability Insurance 6
Sanitation 19
Property Taxes 106
Property Insurance 31
Investment Repairs 171
TOTAL NON-CASH OVERHEAD COSTS 408
TOTAL COSTS/ACRE 1,671
Non-Cash Overhead:
Land 377
Drip Irrigation System 76
Buildings 46
Tools-Shop/Field 10
Fuel Tanks 2
Vineyard Establishment 589
Equipment 59
TOTAL NON-CASH OVERHEAD COSTS 1,160
TOTAL COSTS/ACRE 2,832
NET RETURNS ABOVE TOTAL COSTS -432
10
Table 3. MONTHLY CASH to PRODUCE GRAPES FOR CONCENTRATE – Thompson Seedless
SAN JOAQUIN VALLEY - 2004
Beginning JAN 04 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Ending DEC 04 04 04 04 04 04 04 04 04 04 04 04 04
Cultural:
Prune: (hand) 122 122
Prune: Tie 67 67
Vines: (Layer canes to replace missing vines) 11 11
Trellis: Repair 22 22
Weed: Winter Strip Spray (Roundup, Goal, Surflan) 79 79
Irrigate: (water & labor) 11 15 22 46 52 32 26 204
Weed: Mow 4X (includes shred prunings) 6 6 6 6 25
Prune: Sucker Trunks 14 14
Weed: Spot Spray 20% acres (Roundup) 13 13 13 39
Weed: Disc 7 7
Disease: Mildew (Wettable Sulfur) 40 40
Disease: Mildew (Dusting Sulfur) 9 9 9 26
Fertilize: through drip (UN32) 9 9 17
Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer: (Zn) 52 52
Disease: Mildew (Flint) 44 44
Insect: Leaf Hopper (Provado) 52 52
Pickup: Business use for vineyard 3 3 3 3 3 3 3 3 3 3 3 3 41
ATV 4WD: Miscellaneous vineyard use 3 3 3 3 3 3 3 3 3 3 3 3 33
TOTAL CULTURAL COSTS 228 85 24 103 104 133 123 44 32 6 6 6 893
Harvest:
Harvest: Machine Harvest & Haul 345 345
TOTAL HARVEST COSTS 345 345
Interest on operating capital 1 2 2 3 3 4 5 7 0 0 0 0 25
TOTAL OPERATING COSTS/ACRE 229 86 25 105 107 137 128 396 32 6 6 6 1,264
Cash Overhead:
Office Expense 6 6 6 6 6 6 6 6 6 6 6 6 75
Liability Insurance 6 6
Sanitation 2 2 2 2 2 2 2 2 2 19
Property Taxes 53 53 106
Property Insurance 15 15 31
Investment Repairs 14 14 14 14 14 14 14 14 14 14 14 14 171
TOTAL CASH OVERHEAD COSTS/ACRE 97 23 23 23 23 23 91 23 23 21 21 21 408
TOTAL CASH COSTS/ACRE 326 109 48 128 129 160 219 418 55 27 27 27 1,671
11
Table 4. RANGING ANALYSIS
SAN JOAQUIN VALLEY - 2004
COSTS PER ACRE AT VARYING YIELD TO PRODUCE GRAPES FOR CONCENTRATE – Thompson Seedless
YIELD (ton/acre)
9.00 10.00 11.00 12.00 13.00 14.00 15.00
OPERATING COSTS:
Cultural Cost 893 893 893 893 893 893 893
Harvest Cost 315 325 335 345 355 365 375
Interest on operating capital 25 25 25 25 25 26 26
TOTAL OPERATING COSTS/ACRE 1,233 1,243 1,253 1,263 1,273 1,284 1,294
Total Operating Costs/ton 137 124 114 105 98 92 86
CASH OVERHEAD COSTS/ACRE 408 408 408 408 408 408 408
TOTAL CASH COSTS/ACRE 1,641 1,651 1,661 1,671 1,681 1,692 1,702
Total Cash Costs/ton 182 165 151 139 129 121 113
NON-CASH OVERHEAD COSTS/ACRE 1,160 1,160 1,160 1,160 1,160 1,160 1,160
TOTAL COSTS/ACRE 2,801 2,811 2,821 2,831 2,841 2,852 2,862
Total Costs/ton 311 281 256 236 219 204 191
NET RETURNS PER ACRE ABOVE OPERATING COSTS
PRICE YIELD (ton/acre)
$/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 27 157 287 417 547 676 806
160.00 207 357 507 657 807 956 1,106
180.00 387 557 727 897 1,067 1,236 1,406
200.00 567 757 947 1,137 1,327 1,516 1,706
220.00 747 957 1,167 1,377 1,587 1,796 2,006
240.00 927 1,157 1,387 1,617 1,847 2,076 2,306
260.00 1,107 1,357 1,607 1,857 2,107 2,356 2,606
NET RETURNS PER ACRE ABOVE CASH COST
PRICE YIELD (ton/acre)
$/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -381 -251 -121 9 139 268 398
160.00 -201 -51 99 249 399 548 698
180.00 -21 149 319 489 659 828 998
200.00 159 349 539 729 919 1,108 1,298
220.00 339 549 759 969 1,179 1,388 1,598
240.00 519 749 979 1,209 1,439 1,668 1,898
260.00 699 949 1,199 1,449 1,699 1,948 2,198
NET RETURNS PER ACRE ABOVE TOTAL COST
PRICE YIELD (ton/acre)
$/ton 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -1,541 -1,411 -1,281 -1,151 -1,021 -892 -762
160.00 -1,361 -1,211 -1,061 -911 -761 -612 -462
180.00 -1,181 -1,011 -841 -671 -501 -332 -162
200.00 -1,001 -811 -621 -431 -241 -52 138
220.00 -821 -611 -401 -191 19 228 438
240.00 -641 -411 -181 49 279 508 738
260.00 -461 -211 39 289 539 788 1,038
12
Table 5. WHOLE FARM ANNUAL EQUIPMENT, INVESTMENT,
SAN JOAQUIN VALLEY - 2004
ANNUAL EQUIPMENT COSTS
Cash Overhead
Yrs Salvage Capital Insur-
Yr Description Price Life Value Recovery ance Taxes Total
04 60HP 4WD NarrowTractor 36,000 15 7,009 3,467 145 215 3,827
04 ATV 4WD 6,700 5 3,003 1,070 33 49 1,152
04 Disc - Tandem 8' 6,800 10 1,203 844 27 40 911
04 Duster - 3 Pt 5,000 5 1,629 907 22 33 962
04 Mower-Flail 8' 9,600 15 922 964 36 53 1,053
04 Orch/Vine Sprayer 500 gal 20,378 5 6,638 3,696 91 135 3,922
04 Pickup Truck 1/2 Ton 26,000 7 9,863 3,529 121 179 3,829
04 Sprayer ATV 20 gal 350 10 62 43 1 2 47
04 Weed Spray 3PT 100 gal 3,500 10 619 434 14 21 469
TOTAL 114,328 30,948 14,954 490 727 16,172
60% of New Cost * 68,597 18,569 8,972 295 436 9,703
* Used to reflect a mix of new and used equipment.
ANNUAL INVESTMENT COSTS
Cash Overhead
Yrs Salvage Capital Insur-
Description Price Life Value Recovery ance Taxes Repairs Total
Building 2,400 sqft 60,000 20 5,329 203 300 1,200 7,032
Drip Irrigation System 38,000 25 3,038 128 190 760 4,116
Vineyard Establishment 278,240 22 23,571 940 1,391 5,564 31,466
Fuel Tanks 2-300 gal 3,500 30 350 256 13 19 70 359
Land 696,000 25 696,000 43,361 0 6,960 0 50,321
Tools: Shop/Field 12,000 15 1,133 1,206 44 66 240 1,556
TOTAL INVESTMENT 1,087,740 697,483 76,761 1,328 8,926 7,834 94,850
ANNUAL BUSINESS OVERHEAD COSTS
Units/ Price/ Total
Description Farm Unit Unit Cost
Liability Insurance 115 acre 5.60 644
Office Expense 115 acre 75.00 8,625
Sanitation Fee 115 acre 18.96 2,180
13
Table 6. HOURLY EQUIPMENT COSTS
SAN JOAQUIN VALLEY - 2004
COSTS PER HOUR
Actual Cash Overhead Operating
Hours Capital Insur- Fuel & Total Total
Yr Description Used Recovery ance Taxes Repairs Lube Oper. Costs/Hr.
04 60HP 4WD NarrowTractor 1,066.10 1.95 0.08 0.12 0.88 4.91 5.79 7.95
04 ATV 4WD 400.20 1.60 0.05 0.07 0.50 0.72 1.22 2.94
04 Disc - Tandem 8' 199.50 2.54 0.08 0.12 1.10 0.00 1.10 3.84
04 Duster - 3 Pt 239.70 2.27 0.06 0.08 0.73 0.00 0.73 3.13
04 Mower-Flail 8' 133.40 4.34 0.16 0.24 4.31 0.00 4.31 9.04
04 Orch/Vine Sprayer 500 gal 400.60 5.54 0.14 0.20 3.58 0.00 3.58 9.46
04 Pickup Truck 1/2 Ton 285.00 7.43 0.26 0.38 1.91 9.91 11.82 19.88
04 Sprayer ATV 20 gal 150.20 0.17 0.01 0.01 0.10 0.00 0.10 0.28
04 Weed Spray 3PT 100 gal 200.40 1.30 0.04 0.06 0.61 0.00 0.61 2.01
14
Appendix II
Budget B
ESTIMATED COSTS TO ESTABLISH AND PRODUCE
GRAPES FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY
Prepared by
Karen L. Klonsky UCCE Extension Specialist, Department of Agricultural and Resource Economics,
UC Davis
Richard L. De Moura Research Associate, Department of Agricultural and Resource Economics, UC Davis
This study was conducted as part of a study of the U.S. grape juice concentrate industry initiated by the Central
California Winegrowers. Funding for the project has been made available by the California Department of
Food and Agriculture's Buy California Initiative and the U.S. Department of Agriculture.
1
ESTIMATED COSTS TO ESTABLISH AND PRODUCE GRAPES
FOR CONCENTRATE IN THE SAN JOAQUIN VALLEY
CONTENTS
INTRODUCTION ................................................................................................................................................. 2
ASSUMPTIONS.................................................................................................................................................... 3
Establishment Operating Costs ............................................................................................................................ 3
Production Operating Costs ................................................................................................................................. 5
Cash Overhead Costs ........................................................................................................................................... 7
Non-cash Overhead Costs.................................................................................................................................... 7
REFERENCES .................................................................................................................................................... 10
Table 1. SAMPLE COSTS PER ACRE TO ESTABLISH A VINEYARD....................................................... 11
Table 2. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE............................................. 13
Table 3. COSTS AND RETURNS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE ................ 14
Table 4. MONTHLY CASH COSTS – GRAPES FOR CONCENTRATE ....................................................... 15
Table 5. RANGING ANALYSIS ....................................................................................................................... 16
Table 6. WHOLE FARM EQUIPMENT, INVESTMENT, AND BUSINESS OVERHEAD COSTS ............. 17
Table 7. HOURLY EQUIPMENT COSTS ........................................................................................................ 18
INTRODUCTION
Estimated costs to establish a vineyard and produce grapes for concentrate are presented in this study.
The information in the report is derived from interviews with growers who produce grapes mainly for wine and
raisins with concentrate as an option. Wine production that goes to concentrate is often decided by the winery,
whereas raisin growers often have until some time around the end of June to make the decision to convert from
raisins to concentrate. At that point, the growers will modify the remaining cultural practices such as irrigation,
pest and disease control, and harvest. Practices described are compiled from grower interviews based on what-
if scenarios for concentrate production. California does not have varieties available for planting that are bred
specifically for concentrate production, but uses white and red varieties grown for wine and raisin production.
For concentrate production, growers should consider the varieties that are adaptable to mechanical pruning and
mechanical harvest to reduce labor costs. Cane pruned varieties such as Thompson Seedless appear to not be
readily adaptable to mechanical pruning and therefore are not considered in this report.
The University of California does not discriminate in any of its policies, procedures or practices. The university is an affirmative action/equal opportunity employer.
2
ASSUMPTIONS
The assumptions refer to Tables 1 to 7 and pertain to sample costs to establish the vineyard and produce
grapes for concentrate in the San Joaquin Valley. The cultural practices described are based on grower
interviews, and represent suggested production operations and materials to be considered when establishing a
vineyard and producing grapes specifically for concentrate. Timing of and types of establishment and cultural
practices will vary among growers within the region and from season to season due to variables such as
weather, soil, and insect and disease pressure. The use of trade names and cultural practices in this report
does not constitute an endorsement or recommendation by the University of California nor is any
criticism implied by omission of other similar products or cultural practices.
Land. The hypothetical vineyard, owned and operated by the grower, is located on previously farmed
land in the San Joaquin Valley. The farm is comprised of 120 acres, 40 acres of concentrate grapes being
established and 75 acres of raisin grapes. Roads, irrigation systems, and farmstead occupy the remaining five
acres.
Establishment Operating Costs (Table 1)
Establishment Notes. Vineyard establishment costs and operations do not significantly differ from
those vineyards established for wine, raisin, or table grapes. The typical variations are in variety, canopy
management (pruning and training), plant spacing, and the trellis system. Although some growers are
harvesting in the second year, in this report, it is assumed a more typical harvest is in the third year.
Site Preparation. This vineyard is established on ground previously planted to vineyards or orchards.
Land coming from vines or trees should be fallowed for two years except for a possible grain crop. The land is
assumed to be fairly level. A custom operator chisels the ground (subsoils) twice to a depth of 4-5 feet. The
grower floats the land to smooth and level the surface. Afterwards the ground is disced twice to apply and
incorporate preplant herbicide. Nematode samples should be taken from land formerly in vines or trees and
fumigated if necessary. Most operations that prepare the vineyard for planting are done in the year prior to
planting, but costs are shown in the first year.
Trellis System. A commercial company installs the trellis system in December of the first year or
January of the second year (January in this report). The trellis system is a vertical two-wire design. Trellis
materials include 1.25 lb x 7-ft T-posts, 4 lb x 9.5-ft rail end posts, 1/4 x 40-inch rod, 12.5 gauge fruit and catch
wires. Also a 14-guage wire is strung at 24-inches to hold the drip tubing.
Planting. Planting starts by laying out and marking vine sites in late winter. In the spring, holes are
dug and the vines are planted and protected with an open carton placed over the vine. The vines are planted on
a 7-ft. x 11-ft (vine x row) spacing at 565 vines per acre. In the second year 2% or 11 vines per acre are
replanted for those lost in the first year.
Vines. No specific variety is planted in this study, but the data refers to spur pruned varieties, such as
white varieties - French Colombard, Chenin Blanc - and the red varieties – Rubired, Royalty, Salvador. The
vines in this report are purchased as dormant vines that have been bench grafted or field budded onto
nematode/phylloxera resistant rootstock. The life of the vineyard at planting is expected to be 25 years and the
grapevines are expected to begin yielding fruit in three years.
3
Training/Pruning. Training and pruning to establish the vine framework will vary with variety and
trellis system. Training to establish the vine framework includes tying, shoot thinning, shoot positioning and
pruning. Bilateral cordon training and spur pruning is the selection of the main shoot and its upper laterals or
branches that form the trunk and cordon. They are tied to the stake and cordon wire while unwanted shoots are
removed, including any suckers arising from the rootstock. Quadrilateral cordon training requires the addition
of crossarms. Dormant pruning begins in January of the second year. The young vines are pruned back to a 2-
bud spur. Shoot thinning is done twice a month in April and May, shoot thinning and cordon training twice a
month in June and July. In the third year, shoot thinning is done in April and shoot positioning in May.
Irrigation. In this study, the water is assumed to cost $5.67 per acre-inch or Table A. Applied
$68.00 per acre-foot. Water costs plus labor constitute the irrigation cost. Water Irrigation Water
costs vary considerably among districts and the water cost in this report represents a Year AcIn/Year
cost within that range. Irrigations occur during the growing season from March 1 8
2 18
through September. No assumption is made about effective rainfall or runoff. The 3+ 30
amount of water applied to the vines during the establishment years is shown in Table
A. The drip irrigation system is described under Non-Cash Overhead.
Pest Management. The pesticides and rates mentioned in this cost study as well as other materials
available are listed in UC Integrated Pest Management Guidelines, Grapes. Pesticides mentioned in the study
are commonly used, but are not recommendations.
Insects. Beginning in the third year, Kryocide insecticide is applied in early May at bloom (combined
with Rubigan and zinc) to control worms (grape leaffolder, omnivorous leafroller, western grapeleaf
skeletonizer). Provado insecticide is applied in July to control leafhoppers.
Diseases. The major diseases treated in this study are powdery mildew, and phomopsis cane and leaf
spot. A dusting and spraying program for these diseases begins the third year with a wettable sulfur application
soon after budbreak in late March or early April. Dusting sulfur is applied twice in April and once in June. A
sterol inhibitor (SI) - Rubigan in this study - is applied in May during early bloom (combined with worm and
zinc spray) and once in June, two weeks after bloom.
Weeds. Treflan herbicide is applied and incorporated during land preparation in the fall of the first year
prior to planting. Vineyard floor management begins in late winter, February of the second year, with a strip
spray in the vine row with Roundup, Surflan, and Goal. In the first year, the middles are mowed twice and
disced twice. In the second and subsequent years, the row middles are disced in April and mowed in March,
May, June, and August. The vine rows are spot treated with Roundup in late April and early August.
Fertilization. Liquid nitrogen fertilizer – UN32 - is applied in equal amounts through the drip system in
May and June. Five pounds of N is applied in the first year, 10 in the second year, and 20 in the third year.
Zinc as neutral zinc is applied with the bloom spray (Kryocide and Rubigan).
Harvest. Harvest begins the third year. The crop is mechanically harvested by a custom harvest
operator and hauled to the processor by a custom hauler.
Yields. The vineyard yields approximately six-tons of fresh grapes per acre.
Returns. In this study, the fresh fruit is sold to a concentrate processor for which the grower receives
$200 per ton, the current estimated market price.
4
Production Years Operating Costs
Pruning. Pruning is done during the winter months – December and/or January. The vines are
mechanically hedged or box pruned, followed with hand pruning to touch-up and clean the vines. The prunings
are mechanically raked from the vine row, then shredded during the first mowing and incorporated into the soil
with the April discing. Canopy skirting (mechanical) is done with the grower’s equipment in June and in July.
Cane Pruned Varieties. Thompson Seedless, one of the top varieties used for concentrate, and Fiesta, a
new variety are both cane pruned and not taken into account in this report.
Fertilization. Forty pounds per acre of nitrogen (N) as UN-32 is divided and applied in equal amounts
in May and June. Neutral zinc at five pounds of material per acre is applied in May with the disease and insect
application.
Irrigation. Water costs plus labor, which includes checking the drip lines, constitute the irrigation cost.
Irrigation labor also includes servicing the clock and filters, set-up and injection of chemicals, checking,
replacing, and repairing drip lines and laterals. In this study, water is calculated to cost $5.67 per acre-inch or
$68.00 per acre-foot. Water costs vary considerably among districts and the water cost in this report represents
a cost within that range. Thirty acre-inches are applied during the growing season from April through late
September. No assumption is made about effective rainfall and runoff.
Pest Management. The pesticides and rates mentioned in this cost study are listed in UC Integrated
Pest Management Guidelines, Grapes. For information on other pesticides available, pest identification,
monitoring, and management visit the UC IPM website at www.ipm.ucdavis.edu. Information and pesticide use
permits are available through the local county agricultural commissioner's office. Pesticides mentioned in this
study are used to calculate rates and costs. Although growers commonly use the pesticides mentioned, many
other pesticides are available. Adjuvants are recommended for use with many pesticides for effective control,
but the adjuvants and their costs are not included in this study. Pesticide costs may vary by location, brand, and
grower volume. Pesticide costs in this study are taken from a single dealer and shown as full retail.
Pest Control Advisor (PCA). Written recommendations are required for many pesticides and are made
by licensed pest control advisors. In addition the PCA will monitor the field for agronomic problems including
pests and nutrition. Growers may hire private PCA’s or receive the service as part of a service agreement with
an agricultural chemical and fertilizer company. No costs for a PCA are included in this report.
Weeds. The row middles are mowed four times – March for frost control and to shred prunings, May,
June, and August prior to harvest. The row middles are also disced in April to incorporate the vine prunings.
Vine row weeds are controlled with three Roundup spot sprays – April, June, July.
Insects. Kryocide insecticide for worm control (grape leaffolder, omnivorous leafroller, western
grapeleaf skeletonizer) is applied in early May at bloom with the powdery mildew and foliar fertilizer spray.
Provado insecticide is applied in July to control leafhoppers.
Diseases. The major diseases considered in this report are powdery mildew, and Phomopsis cane and
leaf spot. Wettable sulfur is applied soon after budbreak in late March or early April. A second application is
made in April. Dusting sulfur is applied once in April, in May, and in June. A sterol inhibitor, Rubigan, is
5
applied in May at early bloom (with the worm and zinc spray) and a strobilurin fungicide, Flint, in June, two
weeks after bloom.
Harvest. A custom operator mechanically harvests the crop. Harvest costs in this report are $225 per
acre, which is a mid-range of costs provided by the growers. A commercial trucking hauls the grapes to the
processor for $10 per ton. Hauling costs will vary depending upon the hauling distance.
Yields. An average yield of 12-tons per acre is assumed over the 25-year life of the vineyard, beginning
in the fourth year.
Returns. The market price in this report, based on grower inputs for 2004, is $200 per acre for both
white and red varieties. A range of returns over various yields are shown in Table 5.
Pickup/ATV. It is assumed that the grower uses the pickup for business and personal use. Estimated
business mileage for the ranch is 3,300 miles. The all terrain vehicle (ATV) is used for spot spraying weeds
and is included in that cost. It is assumed that the ATV will be used another two-hours per acre for checking
the vineyards including the irrigation system.
Labor. Labor rates of $12.73 per hour for machine operators and $11.05 for general labor includes
payroll overhead of 34%. The basic hourly wages are $9.50 for machine operators and $8.25 for general labor.
The overhead includes the employers’ share of federal and California state payroll taxes, workers' compensation
insurance for vineyards (code 0040), and a percentage for other possible benefits. Workers’ compensation
insurance costs will vary among growers, but for this study the cost is based upon the average industry final rate
as of January 1, 2004 (California Department of Insurance). Labor for operations involving machinery are 20%
higher than the operation time given in Table 2 to account for the extra labor involved in equipment set up,
moving, maintenance, work breaks, and field repair.
Equipment Operating Costs. Repair costs are based on purchase price, annual hours of use, total
hours of life, and repair coefficients formulated by the American Society of Agriculture Engineers (ASAE).
Fuel and lubrication costs are also determined by ASAE equations based on maximum PTO horsepower, and
fuel type. Prices for on-farm delivery of diesel and gasoline are $1.45 and $1.88 per gallon, respectively. The
fuel prices are averaged based on four California delivery locations plus $0.24 per gallon, which is one-half the
difference between the high and low price for regular gasoline in 2003 from the California State Automobile
Association Monthly Survey. The cost includes a 2.25% sales tax (effective September 2001) on diesel fuel and
7.25% sales tax on gasoline. Gasoline also includes federal and state excise tax, which can be refunded for on-
farm use when filing your income tax. The fuel, lube, and repair cost per acre for each operation in Table 2 is
determined by multiplying the total hourly operating cost in Table 7 for each piece of equipment used for the
selected operation by the hours per acre. Tractor time is 10% higher than implement time for a given operation
to account for setup, travel and down time.
Interest On Operating Capital. Interest on operating capital is based on cash operating costs and is
calculated monthly until harvest at a nominal rate of 6.89% per year. A nominal interest rate is the typical
market cost of borrowed funds. The interest cost of post harvest operations is discounted back to the last
harvest month using a negative interest charge.
Risk. The risks associated with crop production should not be minimized. While this study makes
every effort to model a production system based on typical, real world practices, it cannot fully represent
financial, agronomic and market risks, which affect profitability and economic viability. Growers may
6
purchase Federal crop insurance to reduce the production risk associated with specific natural hazards.
Insurance policies vary and range from a basic catastrophic loss policy to one that insures losses for up to 75%
of a crop. Crop insurance is not included in this report, but insurance costs will depend on the type and level of
coverage.
Cash Overhead Costs
Cash overhead consists of various cash expenses paid out during the year that are assigned to the whole
farm and not to a particular operation. These costs include property taxes, interest on operating capital, office
expense, liability and property insurance, sanitation services, equipment repairs, and management.
Property Taxes. Counties charge a base property tax rate of 1% on the assessed value of the property.
In some counties special assessment districts exist and charge additional taxes on property including equipment,
buildings, and improvements. For this study, county taxes are calculated as 1% of the average value of the
property. Average value equals new cost plus salvage value divided by 2 on a per acre basis.
Insurance. Insurance for farm investments varies depending on the assets included and the amount of
coverage. Property insurance provides coverage for property loss and is charged at 0.676% of the average
value of the assets over their useful life. Liability insurance covers accidents on the farm and costs $645 for the
entire farm.
Office Expense. Office and business expenses for 120 acres are estimated at $75 per producing acre or
$8,625 annually for the ranch. These expenses include office supplies, telephones, bookkeeping, accounting,
legal fees, road maintenance, etc. The cost is assumed and not taken from any specific data.
Management/Supervisor Wages. Salary is not included. Returns above costs are considered a return
to management.
Investment Repairs. Annual maintenance is calculated as 2 percent of the purchase price.
Non-Cash Overhead Costs
Non-cash overhead is calculated as the annual capital recovery cost for ownership of equipment and
other farm investments.
Capital Recovery Costs. Capital recovery cost is the annual depreciation and interest costs for a capital
investment. It is the amount of money required each year to recover the difference between the purchase price
and salvage value (unrecovered capital). It is equivalent to the annual payment on a loan for the investment
with the down payment equal to the discounted salvage value. This is a more complex method of calculating
ownership costs than straight-line depreciation and opportunity costs, but more accurately represents the annual
costs of ownership because it takes the time value of money into account (Boehlje and Eidman). The formula
for the calculation of the annual capital recovery costs is ((Purchase Price – Salvage Value) x Capital Recovery
Factor) + (Salvage Value x Interest Rate).
Salvage Value. Salvage value is an estimate of the remaining value of an investment at the end of its
useful life. For farm machinery (tractors and implements) the remaining value is a percentage of the new cost
of the investment (Boehlje and Eidman). The percent remaining value is calculated from equations developed
by the American Society of Agricultural Engineers (ASAE) based on equipment type and years of life. The life
7
in years is estimated by dividing the wear out life, as given by ASAE by the annual hours of use in this
operation. For other investments including irrigation systems, buildings, and miscellaneous equipment, the
value at the end of its useful life is zero. The salvage value for land is the purchase price because land does not
depreciate. The purchase price and salvage value for equipment and investments are shown in Table 5.
Capital Recovery Factor. Capital recovery factor is the amortization factor or annual payment whose
present value at compound interest is 1. The amortization factor is a table value that corresponds to the interest
rate used and the life of the machine.
Interest Rate. The interest rate of 6.25% used to calculate capital recovery cost is the USDA-ERS’s ten-
year average of California’s agricultural sector long-run rate of return to production assets from current income.
It is used to reflect the long-term realized rate of return to these specialized resources that can only be used
effectively in the agricultural sector. In other words, the next best alternative use for these resources is in
another agricultural enterprise.
Establishment Cost. Costs to establish the vineyard are used to determine capital recovery expenses on
investment for the production years. Establishment cost is the sum of the costs for land preparation, trellis
system, planting, vines, cash overhead and production expenses for growing the vines through the first year that
grapes are harvested minus any returns from production. The Total Accumulated Net Cash Cost on Table 1, in
the third year represents the establishment cost. For this study the cost is $7,096 per acre or $283,840 for the
40-acre vineyard. The establishment cost is spread over the remaining 22 years of the 25 years the vineyard is
in production.
Irrigation System. The previous vineyard is assumed to have an irrigation system that has been
refurbished. The drip line is laid on the ground prior to planting. After the trellis system is installed, the drip
line is clipped to the bottom trellis wire. The system includes the installation labor, filters, fertilizer injector,
time clock, and valves. Although the materials will have a useful life equivalent to the vineyard, the irrigation
system can be included in the vineyard establishment costs or as in this case an improvement to the property
with a 25-year life.
Land. The land was formerly a vineyard, but has been out of production for two years. The open land
was planted to grain crops. Land in the San Joaquin Valley for grape production ranges from $4,500 to $6,500
per acre (CA Association of Farm Manager and Real Estate Appraisers). For this report, a land value was of
$5,800 per acre or $6,052 per producing acre is used (five of the 120 acres are not planted). It is assumed the
grower originally purchased the land with an established vineyard. The annual cost of land is interest only
since land does not depreciate.
Building. The metal buildings are on a cement slab and comprise 2,400 square feet.
Tools. This includes shop tools, hand tools, and miscellaneous field tools such as pruning tools.
Fuel Tanks. Two 250-gallon fuel tanks using gravity feed are on metal stands. The tanks are setup in a
cement containment pad that meets federal, state, and county regulations.
Equipment. Farm equipment is purchased new or used, but the study shows the current purchase price
for new equipment. The new purchase price is adjusted to 60% to indicate a mix of new and used equipment.
Annual ownership costs for equipment and other investments are shown in Tables 3 and 8. Equipment costs are
composed of three parts: non-cash overhead, cash overhead, and operating costs. Both of the overhead factors
8
has been discussed in a previous section. The operating costs consist of repairs, fuel, and lubrication and are
discussed under operating costs.
Table Values. Due to rounding, the totals may be slightly different from the sum of the components.
Acknowledgment. Appreciation is expressed to those growers and other cooperators who provided
support for this report.
9
REFERENCES
American Society of Farm Managers and Rural Appraisers. 2004. 2004 Trends in Agricultural Land and Lease
Values. California Chapter of the American Society of Farm Managers and Rural Appraisers,
Woodbridge, CA.
American Society of Agricultural Engineers. (ASAE). 1994. American Society of Agricultural Engineers
Standards Yearbook. St. Joseph, Missouri.
Barker, Doug. April 22, 2003. California Workers’ Compensation Rating Data for Selected Agricultural
Classifications as of January 1, 2004 (Updated). California Department of Insurance, Rate Regulation
Branch.
Boehlje, Michael D., and Vernon R. Eidman. 1984. Farm Management. John Wiley and Sons. New York, New
York
California State Automobile Association. 2004. Gas Price Survey 2003. AAA Public Affairs, San Francisco,
CA.
Central California Winegrowers (October, 2004). Interviews with association members.
Christensen, Pete. Training Table Grape Vineyards. 1998. University of California Cooperative Extension,
Tulare, CA. Pub. #TB 11-98.
Clarke, Dan. 2000. Concentrate 101. Wine Business Online. Available http://winebusiness.ocm/html/Monthly
Article.cfm?
Doanes. 1984. Facts and Figures for Farmers. 1984. Doane Publishing, St. Louis, MO.
Farm Advisors. (September, October 2004). Interviews with Steve Vasquez, Fresno County Farm Advisor and
Bill Peacock, Tulare County Farm Advisor.
Jensen, Frederick L., William L. Peacock. Thompson Seedless. 1998. University of California Cooperative
Extension, Tulare, CA. Pub # TB7-97.
University of California Statewide IPM Project. 2003. UC Pest Management Guidelines, Grapes. University of
California, Davis CA. http://www.ipm.ucdavis.edu
USDA-ERS. 2004. Farm Sector: Farm Financial Ratios. Agriculture and Rural Economics Division, ERS.
USDA. Washington, DC http://www.ers.usda.gov/data/farmbalancesheet/fbsdmu.htm; Internet; accessed January
5, 2004.
Vasquez, Stephen J., George M. Leavitt, William L. Peacock, L. Peter Christensen, Stephen R. Sutter, Kurt J.
Hembree, Karen L. Klonsky, Donald G. Katayama, and Richard L. De Moura. 2003. Sample Costs to
Establish a Vineyard and Produce Dried-on-Vine Raisins, San Joaquin Valley. University of California
Cooperative Extension and the Department of Agricultural and Resource Economics. Davis, CA.
10
Table 1. SAMPLE COSTS PER ACRE TO ESTABLISH A VINEYARD
SAN JOAQUIN VALLEY - 2004
Cost Per Acre
Year: 1st 2nd 3rd
Tons Per Acre: 0.0 0.0 6.0
Planting Costs:
Land Prep: Chisel 2X (Custom) 300
Land Prep: Level (Float) 7
Land Prep: Disc/Apply Herbicide (Treflan) 1st pass 12
Land Prep: Disc (Incorporate Herbicide) 2nd pass 7
Plant: Survey & Layout Vineyard 76
Plant: Dig, Plant, Wrap Vines 170 2
Vines: 565 Per Acre (2% Replant In 2nd Year) 1,497 29
Install Drip System (See Drip System in Non-Cash Overhead)
Install Trellis System 3,000
TOTAL PLANTING COSTS 2,069 3,031 0
Cultural Costs:
Prune: Dormant 55 133
Prune/Training: (Sucker, Tie & Train) 442 110
Fertilize: applied through drip line (UN32) 3 5 9
Irrigate: (water & labor) 79 132 204
Weed: Winter Strip-vine row- Spray (Goal, Surflan) 79 79
Weed: Disc Middles Yr 1, 2X. Yr 2+, 1X. 14 7 7
Weed: Spot Spray (Roundup) 3X. 42 42
Weed: Mow Middles Yr 1 2X. Yr 2+ 4X. 16 25 25
Weed: Hand Hoe 33
Insect: Leafhoppers (Provado) 54
Disease: Mildew (Wettable Sulfur) 2X 44
Disease: Mildew (Dusting Sulfur) 3X 26
Disease: Mildew (Flint) 46
Insect: Worms (Kryocide). Disease: Mildew (Rubigan). Fertilize: (Zn) 54
Pickup: Business Use 41 41 41
ATV: General Use 33 33 33
TOTAL CULTURAL COSTS 219 861 907
Harvest Costs:
Harvest: (Machine) & Haul 285
TOTAL HARVEST COSTS 0 0 285
Interest On Operating Capital @ 6.89 92 182 23
TOTAL OPERATING COSTS/ACRE 2,380 4,074 1,215
Cash Overhead Costs:
Office Expense 75 75 75
Liability Insurance 6 6 6
Sanitation Services 19 19 19
Property Taxes 70 70 72
Property Insurance 6 6 7
Investment Repairs 32 32 32
TOTAL CASH OVERHEAD COSTS 208 208 211
TOTAL CASH COSTS/ACRE 2,588 4,282 1,426
INCOME/ACRE FROM PRODUCTION 0 0 1,200
NET CASH COSTS/ACRE FOR THE YEAR 2,588 4,282 226
PROFIT/ACRE ABOVE CASH COSTS 0 0 0
ACCUMULATED NET CASH COSTS/ACRE 2,588 6,870 7,096
11
Table 1. continued
Cost Per Acre
Year: 1st 2nd 3rd
Tons Per Acre: 0 0 6.0
Capital Recovery Cost:
Land 377 377 377
Drip Irrigation System 76 76 76
Shop Building 46 46 46
Shop Tools 10 10 10
Fuel Tank & Pump 2 2 2
Equipment 25 28 62
TOTAL CAPITAL RECOVERY COST 536 539 573
TOTAL COST/ACRE FOR THE YEAR 3,124 4,821 1,999
INCOME/ACRE FROM PRODUCTION 0 0 1,200
TOTAL NET COST/ACRE FOR THE YEAR 3,124 4,821 799
NET PROFIT/ACRE ABOVE TOTAL COST 0 0 0
TOTAL ACCUMULATED NET COST/ACRE 3,124 7,945 8,744
12
Table 2. COSTS PER ACRE TO PRODUCE GRAPES FOR CONCENTRATE
SAN JOAQUIN VALLEY - 2004
Operation Cash and Labor Cost per acre
Time Labor Fuel, Lube Material Custom/ Total
Operation (Hrs/A) Cost & Repairs Cost Rent Cost
Cultural:
Prune (mechanical) 0.00 0 0 0 85 85
Hand Prune/Clean Up Vines 4.00 44 0 0 0 44
Prune: Rake Prunings (mechanical) 0.23 4 2 0 0 5
Weed: Winter Strip Spray (Roundup, Goal, Surflan) 0.54 8 4 67 0 79
Irrigate: (water & labor) 3.05 34 0 170 0 204
Weed: Mow 4X 0.96 15 10 0 0 25
Weed: Spot Spray 20% acres 3X (Roundup) 1.73 26 2 13 0 42
Weed: Disc 0.31 5 2 0 0 7
Disease: Mildew (Wettable Sulfur) 1.67 25 17 1 0 43
Disease: Mildew (Dusting Sulfur) 0.92 14 7 5 0 26
Fertilize: through drip (UN32) 0.10 1 0 16 0 17
Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer: (Zn) 0.83 13 8 33 0 54
Prune: Skirt Vines/Rake Prunings (mechanical) 0.63 120 5 0 0 125
Disease: Mildew (Flint) 0.83 13 8 25 0 46
Insect: Leaf Hopper (Provado) 0.83 13 8 33 0 54
Pickup: Business use for vineyard 1.50 23 18 0 0 41
ATV 4WD: Miscellaneous vineyard use 2.00 31 2 0 0 33
TOTAL CULTURAL COSTS 20.13 388 94 363 85 929
Harvest:
Harvest: Machine Harvest & Haul 0.00 0 0 0 345 345
TOTAL HARVEST COSTS 0.00 0 0 0 345 345
Interest on operating capital @ 6.89% 23
TOTAL OPERATING COSTS/ACRE 388 94 363 430 1,297
Cash Overhead:
Office Expense 75
Liability Insurance 6
Sanitation 19
Property Taxes 107
Property Insurance 32
Investment Repairs 174
TOTAL CASH OVERHEAD COSTS 412
TOTAL CASH COSTS/ACRE 1,710
Non-Cash Overhead: Per producing Annual Cost
Acre Capital Recovery
Land 6,052 377 377
Drip Irrigation System 950 76 76
Buildings 522 46 46
Tools-Shop/Field 104 10 10
Fuel Tanks 30 2 2
Vineyard Establishment 7,096 601 601
Equipment 499 66 66
TOTAL NON-CASH OVERHEAD COSTS 15,253 1,179 1,179
TOTAL COSTS/ACRE 2,889
13
Table 3. COSTS AND RETURNS to PRODUCE GRAPES FOR CONCENTRATE
SAN JOAQUIN VALLEY - 2004
Quantity/ Price or Value or Your
Acre Unit Cost/Unit Cost/Acre Cost
GROSS RETURNS
Grapes for Concentrate 12.00 ton 200.00 2,400
OPERATING COSTS
Custom:
Prune Mechanical 1.00 acre 85.00 85
Machine Harvest 1.00 acre 225.00 225
Haul to Crusher 12.00 ton 10.00 120
Herbicide:
Roundup Ultra Max 2.16 pint 8.56 18
Goal 2XL 1.00 pint 16.21 16
Surflan 4 AS 2.64 pint 16.96 45
Irrigation:
Water 30.00 acin 5.67 170
Fungicide:
Wettable Sulfur 6.00 lb 0.21 1
Dusting Sulfur 30.00 lb 0.18 5
Rubigan EC 4.00 floz 2.50 10
Flint 1.50 oz 16.49 25
Fertilizer:
UN 32 40.00 lb N 0.41 16
Neutral Zinc 50% 5.00 lb 0.92 5
Insecticide:
Kryocide 6.00 lb 3.00 18
Provado 1.6 Solupak 0.75 oz 43.96 33
Labor (machine) 15.58 hrs 12.73 198
Labor (non-machine) 17.15 hrs 11.05 190
Fuel - Gas 8.13 gal 1.88 15
Fuel - Diesel 25.11 gal 1.45 36
Lube 8
Machinery repair 34
Interest on operating capital @ 6.89% 23
TOTAL OPERATING COSTS/ACRE 1,297
NET RETURNS ABOVE OPERATING COSTS 1,103
Cash Overhead:
Office Expense 75
Liability Insurance 6
Sanitation 19
Property Taxes 107
Property Insurance 32
Investment Repairs 174
TOTAL NON-CASH OVERHEAD COSTS 412
TOTAL COSTS/ACRE 1,710
Non-Cash Overhead:
Land 377
Drip Irrigation System 76
Buildings 46
Tools-Shop/Field 10
Fuel Tanks 2
Vineyard Establishment 601
Equipment 66
TOTAL NON-CASH OVERHEAD COSTS 1,179
TOTAL COSTS/ACRE 2,889
NET RETURNS ABOVE TOTAL COSTS -489
14
Table 4. MONTHLY CASH to PRODUCE GRAPES FOR CONCENTRATE
SAN JOAQUIN VALLEY - 2004
Beginning JAN 04 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
Ending DEC 04 04 04 04 04 04 04 04 04 04 04 04 04
Cultural:
Prune (mechanical) 85 85
Hand Prune/Clean Up Vines 44 44
Prune: Rake Prunings (mechanical) 5 5
Weed: Winter Strip Spray (Roundup, Goal, Surflan) 79 79
Irrigate: (water & labor) 11 15 22 46 52 32 26 204
Weed: Mow 4X 6 6 6 6 25
Weed: Spot Spray 20% acres (Roundup) 14 14 14 42
Weed: Disc 7 7
Disease: Mildew (Wettable Sulfur) 43 43
Disease: Mildew (Dusting Sulfur) 9 9 9 26
Fertilize: through drip (UN32) 9 9 17
Insect: Skeletonizer (Kryocide). Disease: Mildew (Rubigan). Fertilizer: (Zn) 54 54
Prune: Cut Canes/Rake Prunings (mechanical) 63 63 125
Disease: Mildew (Flint) 46 46
Insect: Leaf Hopper (Provado) 54 54
Pickup: Business use for vineyard 3 3 3 3 3 3 3 3 3 3 3 3 41
ATV 4WD: Miscellaneous vineyard use 3 3 3 3 3 3 3 3 3 3 3 3 33
TOTAL CULTURAL COSTS 141 85 24 94 105 198 189 44 32 6 6 6 929
Harvest:
Harvest: Machine Harvest & Haul 345 345
TOTAL HARVEST COSTS 345 345
Interest on operating capital 1 1 1 2 3 4 5 7 0 0 0 0 23
TOTAL OPERATING COSTS/ACRE 141 86 25 96 108 202 193 396 32 6 6 6 1,297
Cash Overhead:
Office Expense 6 6 6 6 6 6 6 6 6 6 6 6 75
Liability Insurance 6 6
Sanitation 2 2 2 2 2 2 2 2 2 19
Property Taxes 54 54 107
Property Insurance 16 16 32
Investment Repairs 15 15 15 15 15 15 15 15 15 15 15 15 174
TOTAL CASH OVERHEAD COSTS/ACRE 98 23 23 23 23 23 92 23 23 21 21 21 412
TOTAL CASH COSTS/ACRE 239 109 48 119 131 225 286 419 55 27 27 27 1,710
15
Table 5. RANGING ANALYSIS
SAN JOAQUIN VALLEY - 2004
COSTS PER ACRE AT VARYING YIELD TO PRODUCE GRAPES FOR CONCENTRATE
YIELD (ton/acre)
9.00 10.00 11.00 12.00 13.00 14.00 15.00
OPERATING COSTS:
Cultural Cost 929 929 929 929 929 929 929
Harvest Cost 315 325 335 345 355 365 375
Interest on operating capital 23 23 23 23 23 23 23
TOTAL OPERATING COSTS/ACRE 1,267 1,277 1,287 1,297 1,307 1,317 1,327
Total Operating Costs/ton 141 128 117 108 101 94 88
CASH OVERHEAD COSTS/ACRE 412 412 412 412 412 412 412
TOTAL CASH COSTS/ACRE 1,679 1,689 1,699 1,709 1,719 1,729 1,739
Total Cash Costs/ton 187 169 154 142 132 124 116
NON-CASH OVERHEAD COSTS/ACRE 1,179 1,179 1,179 1,179 1,179 1,179 1,179
TOTAL COSTS/ACRE 2,858 2,868 2,878 2,888 2,898 2,908 2,918
Total Costs/ton 318 287 262 241 223 208 195
NET RETURNS PER ACRE ABOVE OPERATING COSTS
PRICE YIELD (ton/acre)
$/box 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -7 123 253 383 513 643 773
160.00 173 323 473 623 773 923 1,073
180.00 353 523 693 863 1,033 1,203 1,373
200.00 533 723 913 1,103 1,293 1,483 1,673
220.00 713 923 1,133 1,343 1,553 1,763 1,973
240.00 893 1,123 1,353 1,583 1,813 2,043 2,273
260.00 1,073 1,323 1,573 1,823 2,073 2,323 2,573
NET RETURN PER ACRE ABOVE CASH COST
PRICE YIELD (ton/acre)
$/box 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -419 -289 -159 -29 101 231 361
160.00 -239 -89 61 211 361 511 661
180.00 -59 111 281 451 621 791 961
200.00 121 311 501 691 881 1,071 1,261
220.00 301 511 721 931 1,141 1,351 1,561
240.00 481 711 941 1,171 1,401 1,631 1,861
260.00 661 911 1,161 1,411 1,661 1,911 2,161
NET RETURNS PER ACRE ABOVE TOTAL COST
PRICE YIELD (ton/acre)
$/box 9.00 10.00 11.00 12.00 13.00 14.00 15.00
140.00 -1,598 -1,468 -1,338 -1,208 -1,078 -948 -818
160.00 -1,418 -1,268 -1,118 -968 -818 -668 -518
180.00 -1,238 -1,068 -898 -728 -558 -388 -218
200.00 -1,058 -868 -678 -488 -298 -108 82
220.00 -878 -668 -458 -248 -38 172 382
240.00 -698 -468 -238 -8 222 452 682
260.00 -518 -268 -18 232 482 732 982
16
Table 6. WHOLE FARM ANNUAL EQUIPMENT, INVESTMENT,
SAN JOAQUIN VALLEY - 2004
ANNUAL EQUIPMENT COSTS
Cash Overhead
Yrs Salvage Capital Insur-
Yr Description Price Life Value Recovery ance Taxes Total
04 60HP 4WD NarrowTractor 36,000 15 7,009 3,467 145 215 3,827
04 ATV 4WD 6,700 5 3,003 1,070 33 49 1,152
04 Brush Rake 11' 6,500 10 1,149 807 26 38 871
04 Cane Cutter 11' 2,500 20 130 219 9 13 241
04 Disc - Tandem 8' 6,800 10 1,203 844 27 40 911
04 Duster - 3 Pt 11' 5,000 5 1,629 907 22 33 962
04 Mower-Flail 8' 9,600 15 922 964 36 53 1,053
04 Orch/Vine Sprayer 500 gal 20,378 5 6,638 3,696 91 135 3,922
04 Pickup Truck 1/2 Ton 26,000 7 9,863 3,529 121 179 3,829
04 Sprayer ATV 20 gal 350 10 62 43 1 2 47
04 Weed Spray 3PT 100 gal 3,500 10 619 434 14 21 469
TOTAL 123328 32,227 15,979 526 778 17,283
60% of New Cost * 73,997 19,336 9,588 315 467 10,370
* Used to reflect a mix of new and used equipment.
ANNUAL INVESTMENT COSTS
Cash Overhead
Yrs Salvage Capital Insur-
Description Price Life Value Recovery ance Taxes Repairs Total
Building 2,400 sqft 60,000 20 5,329 203 300 1,200 7,032
Drip Irrigation System 38,000 25 3,038 128 190 760 4,116
Vineyard Establishment 283,840 22 24,045 959 1,419 5,677 32,101
Fuel Tanks 2-300 gal 3,500 30 350 256 13 19 70 359
Land 696,000 25 696,000 43,361 0 6,960 0 50,321
Tools: Shop/Field 12,000 15 1,133 1,206 44 66 240 1,556
TOTAL INVESTMENT 1,093,340 697,483 77,236 1,348 8,954 7,947 95,485
ANNUAL BUSINESS OVERHEAD COSTS
Units/ Price/ Total
Description Farm Unit Unit Cost
Liability Insurance 115 acre 5.60 644
Office Expense 115 acre 75.00 8,625
Sanitation Fee 115 acre 18.96 2,180
17
Table 7. HOURLY EQUIPMENT COSTS
SAN JOAQUIN VALLEY - 2004
COSTS PER HOUR
Actual Cash Overhead Operating
Hours Capital Insur- Fuel & Total Total
Yr Description Used Recovery ance Taxes Repairs Lube Oper. Costs/Hr.
04 60HP 4WD NarrowTractor 1,066.10 1.95 0.08 0.12 0.88 4.91 5.79 7.95
04 ATV 4WD 400.20 1.60 0.05 0.07 0.50 0.72 1.22 2.94
04 Brush Rake 11' 250.40 1.93 0.06 0.09 0.91 0.00 0.91 2.99
04 Cane Cutter 11' 100.00 1.31 0.05 0.08 0.95 0.00 0.95 2.39
04 Disc - Tandem 8' 199.50 2.54 0.08 0.12 1.10 0.00 1.10 3.84
04 Duster - 3 Pt 11' 239.70 2.27 0.06 0.08 0.73 0.00 0.73 3.13
04 Mower-Flail 8' 133.40 4.34 0.16 0.24 4.31 0.00 4.31 9.04
04 Orch/Vine Sprayer 500 gal 400.60 5.54 0.14 0.20 3.58 0.00 3.58 9.46
04 Pickup Truck 1/2 Ton 285.00 7.43 0.26 0.38 1.91 9.91 11.82 19.88
04 Sprayer ATV 20 gal 150.20 0.17 0.01 0.01 0.10 0.00 0.10 0.28
04 Weed Spray 3PT 100 gal 200.40 1.30 0.04 0.06 0.61 0.00 0.61 2.01
18
