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Wildfires trample California’s $58bn wine industry

Wine country blaze: plumes of smoke rise from a mountain behind a vineyard at Chateau St Jean in Kenwood, California (AP Photo/Jeff Chiu)

LOS ANGELES (Bloomberg) – The fires ravaging Northern California stand to leave the area’s renowned wine industry with damage that will be felt long after the final flames burn out.

At least four Napa Valley vineyards have been destroyed or significantly damaged, and the toll may be even worse in Sonoma County to the west. Though the majority of grapes have already been picked for the season, the smoke effects on those remaining may mean they have to be thrown out, diminishing this year’s vintage.

The wildfires continue to rage after suddenly and swiftly sweeping through the region starting on Sunday night, leaving at least 17 people dead and displacing thousands in an area that’s home to a thriving tourism industry and some of the most valuable vineyards in the US. While it’s too early to gauge the extent of damage to California’s wine industry, which contributed almost $58 billion to the state economy last year, the effects are likely to be lasting.

“A significant amount of acreage will likely be out of commission for a while” in the regions, said Phil Lynch, a spokesman for Brown-Forman Corp, which owns Sonoma-Cutrer vineyards and markets Korbel champagne. “If it’s only smoke damage, it’s one season. If it’s fire damage, it’ll be three or four seasons.”

Sonoma-Cutrer, known for its Chardonnays, is located in Sonoma County just a five-minute drive from where some fires blazed, while champagne maker Korbel lies further from the fires. Brown-Forman won’t be able to assess the properties until the flames are under control, Lynch said.

Other vintners were waiting to see the scope of the damage. Napa and Sonoma are home to more than 1,000 wineries, according to Gladys Horiuchi, a spokeswoman for the Wine Institute of California. The areas produce the highest-end grapes in the state, which makes 85 percent of US wines.

“We can’t make an accurate assessment of the damage to vineyards and wineries because people have been evacuated and don’t have access to the properties,” Horiuchi said.

Even if damaged wineries have insurance, the recovery could be long and expensive. The claims process could take several months to a year, depending on the length of the reconstruction, said Rob Gall, a managing director at insurance broker Marsh & McLennan. Business income loss could be significant, he said.

The fires mark the second natural disaster in three years for the area, which was hit by a magnitude 6.0 earthquake in 2014 that caused at least $500 million in economic damage, according to the US Geological Survey. Beyond the destruction to wineries, the latest disaster means lost revenue for all parts of the industry that caters to wine tourists.

“The economic impact could be significant, when you consider lost business at all the wineries, hotels and restaurants,” said Ken Freeman, owner of Freeman Vineyard & Winery in Sonoma County’s Sebastopol, who’s had several groups cancel trips this week. “Nobody wants to appear to be celebrating when there’s so much devastation around.”

The Napa Valley Vintners trade association reported that as of Tuesday afternoon nine members had sustained damage to wineries, outbuildings or vineyards, in addition to the four that were significantly hit or beyond repair.

Paradise Ridge Winery in Santa Rosa and Signorello Estates in Napa were among those consumed by flames. Nicholson Ranch Winery in Sonoma was damaged, but not destroyed. Gundlach Bundschu, California’s oldest continuously family-owned winery, and Scribe Winery, both in Sonoma, were in close proximity to fires, but haven’t burned. E&J Gallo Winery’s William Hill, in Napa, sustained cosmetic and landscaping damage at its winery and minimal vineyard damage, the company said in a statement.

Constellation Brands, which owns 32 California wineries including Robert Mondavi, Meiomi and Woodbridge, shuttered its tasting rooms in the area out of concern for the safety of employees and to assess damage. Treasury Wine Estates’ holdings, including Acacia Vineyard, Chateau St Jean, Etude, Beringer and Stags’ Leap, also closed.

“A lot of wineries are not operating,” said Michael Honig, president and chief executive officer of Honig Vineyard & Winery and chairman of Napa Valley Vintners. “Some people don’t have generators and they don’t have power.”

About 73,000 utility customers in Napa and Santa Rosa lacked electricity service as of Tuesday afternoon as a result of the wildfires, PG&E Corp. spokeswoman Ari Vanrenen said in a phone interview.

The hills above the popular Silverado Trail, site of dozens of iconic wineries, have been especially hard hit by the Atlas Peak fire stretching along the eastern side of Napa Valley.

Flames haven’t reached the Napa Valley floor, home to Honig Winery and properties such as Opus One and Robert Mondavi. The valley floor tends to be less dry, with little of the brush and scrub oak that is feeding the fire in the hills above.

California’s coast is the most valuable wine-producing region in the country, said Stephen Rannekleiv, a beverage analyst at Rabobank International. The lion’s share of grapes in the state are grown in the San Joaquin Valley, where Cabernet Sauvignon grapes go for about $400 a ton. By contrast, the same fruit from Napa Valley usually costs closer to $7,000 a ton, and can sell for as much as $50,000.

Dan Sumner, an agricultural economist at University of California, Davis, said consumers buying wines priced at $60 or more may see higher price tags due to smaller volumes of some vintages.

“They’re going from wines you can’t afford to wines you really, really can’t afford,” he said.

As smoke settles in vineyards, tainted grapes won’t be used in high-end wines, Sumner said, because winemakers won’t compromise their brands. The grapes that are still in the fields are some the highest-priced Cabernet Sauvignons or Merlots, Sumner said.

“These wines have to have character and flavour,” he said. “If you’ve got a reputation for making $100 wines that everyone loves, you’re not going to make that vulnerable by slipping in some tainted grapes. That may mean there’s less of this vintage in the market, in which case consumers would notice.”

If 10 to 15 percent of the crop in the region is destroyed or unusable, the cost to the wine industry for the current vintage alone could be in the neighbourhood of $100 million, not including damaged or destroyed structures, Sumner said.