Hundreds of small vineyards in Oregon, Washington, and California could go out of business after this year’s disastrous grape harvest. By now you’ve probably heard that major wineries have rejected grapes worth millions of dollars, leaving the vineyard owners to sort out the aftermath themselves. For some vineyards, it’s already too late to find back-up buyers. Their grapes will raisin and then rot on the vine. Other growers, who were smart or lucky enough to purchase insurance, may receive some compensation. Oregon, Washington, California, and the federal government may also provide financial assistance to prevent the collapse of vineyards in affected regions.
Why does smoke taint matter?
- Grapes don’t get washed before being made into wine. Dust, pesticides, pollutants, bugs, and smoke particles from the vineyards are crushed, fermented, and bottled along with the grapes. Not surprisingly, grapes grown right next to a busy road taste very different than grapes grown next to a field of lavender. Grapes grown in areas affected by wildfires will taste different than grapes grown away from the smoke.
- This year, wildfires rained down ash and smoke across the West. Microscopic smoke particles bond to grape skins. Vineyard owners point out that lab tests can pinpoint the specific molecules responsible for ashy-tasting wines. Winemakers contend that the human mouth is the most sophisticated instrument for detecting smoky flavors. Angry growers argue that taste tests are subjective, that lab tests are perfectly capable of revealing whether the bad-taste particles are present, and that wineries have unfairly rejected perfectly good grapes.
- If you talk to any winemaker, they’ll tell you that problems with wildfires transcend the ashy particles. Smoke blocks sunlight, which is vital for proper ripening and flavor development. On a good year, the sugar and the flavors all ripen around the same time. This year, the smoke threw off of the sugar levels for many vineyards and tons of grapes were picked before they were phenolically ripe (flavor ripe, if you like).
- Wind, rain, and proper sorting cure some of the smoke particle problems. But underdeveloped flavors are not so easily resolved. There are many flavor and color additives on the market today, but serious winemakers prefer not to use them. (It’s akin to adding red food dye, sugar, and tomato extract to correct anemic tomatoes in a tomato soup. It’s edible but doesn’t compare to perfectly ripe tomatoes.)
How do vineyard owners get paid?
Compensation for vineyard owners varies widely across the industry. Most are paid by the ton. Some vineyards have longstanding, multi-year contracts with wineries and get paid a portion prior to harvest. Other vineyards sell to new wineries every year. In most cases, growers receive the bulk of their income after the grapes have been harvested. The grape business has lean margins. Losing a single crop could put growers out of business.
Was it legal for the winemakers to cancel their contracts?
- Wine is a grape product and winemakers are generally within their rights to cancel contracts for sub-par grapes. (Just as consumers are not obligated to purchase sub-par products in the free market.) At the same time, smoke does not affect all vineyards equally. It’s possible that many of the grapes were perfectly fine, as the growers claim, and would have made good wine. It will all come down to the validity of their individual contracts.
- If there was a no-fault “cancellation” clause, then the winemakers can probably walk away. If there was a “satisfaction” clause, then the winemakers could cancel the contract if they were not satisfied with the grapes. If there was a “risk of loss” clause and the grower bore all the risk of damage or loss, then the winemaker could walk away by claiming that the grapes were damaged. If there was a force majeure or “act of god” clause, the winemakers might be able to walk away as well.
- On the other hand, if the contracts contained a “notice” provision, then it could limit winemakers’ ability to cancel without giving the growers proper written, notice. It’s likely that the winemakers who decided to cancel on the day that the grapes were supposed to be picked, breached their contracts.
How can winemakers and vineyard owners avoid legal fallout in the future?
- Wildfires are a fact of life in the West. Winemakers and growers cannot exist without each other. They will have to overcome their differences and find a mutually beneficial solution. Some have suggested that the industry should come up with objective standards for smoke-taint levels so that winemakers can’t cancel contracts on a whim and growers can’t sell sub-par grapes. Of course, this would necessitate consensus on an acceptable level of smoke-taint.
- Another solution is to compensate the growers equally throughout the year rather than at the end of harvest. Growers work throughout the year to manage the vines so it makes sense for them to get paid throughout the year even though the final product is not ready until fall. Winemakers could enter into installment sales contracts with a satisfaction clause so that they are not forced to pay the final installment on a worthless product. This idea would align both the winemaker and the grower’s goals. Since they’re usually paid by the ton, growers are usually motivated to increase yields. Winemakers do not necessarily want higher yields if it means sacrificing quality. Paying growers throughout the year is psychologically easier for both winemakers and growers to bear and allocates the risk of loss more fairly than the current industry standard.
What are the lessons for people outside the wine industry?
- Make sure you read the fine print. Sometimes the most important provisions are in the miscellaneous section—so take the time to read carefully.
- Make sure you understand every provision and paragraph in your contracts.
- It’s always better to have things in writing—many of the smaller growers did not have written contracts with smaller wineries. Proving that you have an enforceable contract is an uphill battle when you don’t have it in writing!
- If the contract is for something so valuable that its loss would devastate your business, spend the money to have a professional review it. The alternative is to pay an attorney thousands to enforce a deal that has gone sour.
