There have been a number of recent comments on the Web about the increasing cost of cabernet sauvignon grapes from the Napa viticultural district (eg. Napa Cabernet prices at worryingly high levels). These comments are based on the outrageously high prices of those grapes compared to similar grapes from elsewhere in California. On the other hand, some people seem to accept these prices, based on the idea that Napa is the premier cabernet region in the USA.
However, it is easy to show that the Napa cabernet grape prices are way out of line even given Napa's reputation for high-quality cabernet wines.
The data I will use to show this come from the AAWE Facebook page: Average price of cabernet sauvignon grapes in California 2016. This shows the prices from last year's Grape Crush Report for each of 17 Grape Pricing Districts and Counties in California. The idea here is to use these data to derive an "expected" price for the Napa district based on the prices in the other 16 districts, so that we can compare this to the actual Napa price.
As for my previous modeling of prices (eg. The relationship of wine quality to price), the best-fitting economic model is an Exponential model, in this case relating the grape prices to the rank order of those prices. This is shown in the first graph. The graph is plotted with the logarithm of the prices, which means that the Exponential model can be represented by a straight line. Only the top five ranked districts are labeled.
As shown, the exponential model accounts for 98% of the variation in the rank order of the 16 grape districts, which means that this economic model fits the data extremely well. For example, if the Sonoma & Marin district really does produce better cabernet grapes than the Mendocino district, then the model indicates that their grapes are priced appropriately.
Clearly the Napa district does not fit this economic model at all. The model (based on the other 16 districts) predicts that the average price of cabernet grapes in 2016 should have been $3,409 per ton for the top ranked district. The Napa grapes, on the other hand, actually cost an average of $6,846, which is almost precisely double the expected price. This is what we mean when we say that something is "completely out of line"!
In conclusion, 16/17 districts have what appear to be fair average prices for their cabernet sauvignon grapes, given the current rank ordering of their apparent quality. Only one district is massively over-pricing itself. Even given the claim that Napa produces the highest quality cabernet wines in California, the prices of the grapes are much higher than we expect them to be. If we bought exactly these same grapes from any other grape-growing region then we would pay half as much money — the "Napa" name alone doubles the price. Something really has gotten out of hand — we are paying as much for the name as for the grapes.
Part of the issue here is the identification of prime vineyard land, for whose grapes higher prices are charged (see As the Grand Crus are identified, prices will go even higher). The obvious example in Napa is the To Kalon vineyard (see The true story of To-Kalon vineyard). Here, the Beckstoffer "pricing formula calls for the price of a ton of To Kalon Cabernet grapes to equal 100 times the current retail price of a bottle" of wine made from those grapes (The most powerful grower in Napa). This is a long-standing rule of thumb, and it explains why your average Napa cabernet tends to cost at least $70 per bottle instead of $35.
Anyway, those people who are recommending that we look to Sonoma for value-for.money cabernet wines seem to be offering good advice.
While we are on the topic of California cabernets, we can also briefly look at the vineyard area of the grapes. I have noted before that concern has been expressed about the potential domination of Napa by this grape variety (see Napa versus Bordeaux red-wine prices), but here we are looking at California as a whole.
A couple of other AAWE Facebook pages provide us with the area data for the most commonly planted red (Top 25 red grape varieties in California 2015) and white (White wine grapes in California 2015) grape varieties in 2015. I have plotted these data in the next two graphs. Note that the graphs are plotted with the logarithm of both axes. Only the top four ranked varieties are labeled.
On the two graphs I have also shown a Power Law model, as explained in previous posts (eg. Do sales by US wine companies fit the proverbial "power law"?). This Power model is represented by a straight line on the log-log graphs. As shown, in both cases the model fits the data extremely well (97% and 98% of the data are fitted), but only if we exclude the three most widespread grape varieties. Note, incidentally, that there is slightly more chardonnay state-wide than there is cabernet sauvignon.
The model thus implies that there is a practical limit to how much area can be devoted readily to any one grape variety — we cannot simply keep increasing the area indefinitely, as implied by the expectation from the simple Power model. The data shown suggest that this limit appears to be c. 40,000 acres, at least for red grape varieties (ie. increase in vineyard area slows once this limit is reached).
Both chardonnay and cabernet sauvignon have twice this "limit"area, which emphasizes their importance in the California grape-growing economy. However, the Power-law model indicates that we cannot yet claim that the domination by these grapes is anything unexpected.
Olena Sambucci and Julian M. Alston (2017. Estimating the value of California wine grapes. Journal of Wine Economics 12: 149-160) have subsequently pointed that the price estimates are likely to be underestimates, as they apply only to grapes sold (not to grapes crushed by the grower). This would probably increase the average prices of the grapes in the more expensive areas, because the retained grapes are more likely to be of better quality than the sold grapes..