Wineries in the United States generally take one of three paths when they set out to purchase grapes from a grower, dependent upon their production goals.
Throughout the United States, American Viticultural Areas (AVA's) are increasing in number. Concurrently, the number of wineries and vineyards, visitors, and overall economic impact is increasing as well. Even the non-wine consumer in the United States can reference Napa Valley, and likely even Sonoma, as places in the US where quality wines are being made. Beyond these AVA's however, are states and regions where wine is an increasingly important business. However, the basis of the wine industry is still rural agriculture and farming, and as such, participants can deem the practice of negotiating contracts as over-complicated with documents that appear unnecessarily long. After all, they counter, all you need to know is how much you want to sell or purchase, and how much it costs. At its core, this assumption does get to the heart of the transaction. In reality though, there are actually, many, many more considerations that the grape grower, and the winery purchasing those grapes, should consider well before bud break in the spring, and certainly before harvest in the fall. In the next few paragraphs, we will look at the three basic contractual grape purchase models that dictate how grapes get from the vineyard to the winery.
The Tonnage Contract
The first model, and often the default model in young or emerging wine regions, is the tonnage contract. The tonnage contract is, on its face, a contract where a winery contracts with a grower to purchase a specific varietal of grapes for a price per ton. There may be percentage allotments greater or less than the stated figure, but overall, the winery knows the quantity it will be getting of X varietal from the grower, and at what price.
The Acreage Contract
The second model, the acreage contract, looks at the relationship between the wine and vineyard differently. Often, an acreage contract is developed for the following reasons: 1) the winery wishes to seek lower yields on a specific block of the vineyard so as to increase quality and flavor concentration, 2) the winery wishes to retain a specific vineyard block to knowingly work with year after year - whether due to quality considerations, consistency in fruit, or both, and 3) the winery may have specific viticultural practices the winery seeks to have implemented that can only be done by segregating a portion of the vineyard, and keeping track of those activities they wish to see performed. Estimates for vineyard production can generally be very accurate, and the winery may have a target for the production that comes from the winery. The important element is that the winery has greater input as to whether a block is producing 2 tons of premium Pinot Noir from the acre, or 10 tons of under-ripe Merlot per acre. Because the price is set based upon a delineated parcel, the grower and winery are confident they will both be able to obtain what they need from the transaction.
The third model becomes slightly more complicated, but offers potential benefits to both the winery and the grower. A lease of land, either already under vine or to be cultivated, may offer a winery long-term stability in the knowledge that it will continue to work with the same parcel of land and the same vines, while have the freedom and flexibility to do with those vines what it deems fit and necessary to achieve certain quality ends. A lease of land has the added benefit of providing the winery with a possessory interest in the vineyard, and there the possibility of transition into an estate winery, if they did not already have vines under acre that they were producing wine from. In order to be an estate winery, a winery must have an interest in the land where the grapes are grown, and produce and bottle wine from said grapes in the same viticultural area. In addition to a lease for the land, the winery may contract with the grower to cultivate or continue farming the land, and ensure an excellent harvest.
Before the additional specifics of a grape purchase contract can be determined, it is wise to examine the model of the winery or vineyard you wish operate, and determine what options work best for your business in consultation with your lawyer. Of course, many more considerations exist, and we will examine those contractual issues in future discussions.
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