What's Next for Natural Disaster-Prone Wine Country?

"We lost a vineyard in 2017." This was an aside from Tripp Donelan, but it suck out above his other anecdotes. I left wondering, "how do you protect a vineyard or winery from risks you can't always anticipate?"

Since I moved to California in 2013, Napa and Sonoma Counties have experienced some of the worst natural disasters in recent Bay Area history. The 2014 South Napa earthquake- which shook my husband and I awake in San Francisco- was the largest to hit the region since the Loma Prieta earthquake 25 years earlier. An eight-year drought spanning 2011-2019 crippled both Valleys. And the widely-reported damage from the 2017 and 2018 fire seasons put wine tourism, and thus local economies, on unstable footing. It's unclear how Northern California wine country could have prepared for this triple-threat. There are existing measures to help alleviate these risks, such as seismic upgrades to permanent structures, water-saving agricultural practices, and wildfire insurance. However, each of these measures requires high-cost capital investments and an acceptance of the risks themselves (I wonder if Tripp Donelan ever rationalized with "this fire damage is horrible, but it won't happen to Donelan Family Wines...") A part of me wonders if there is an opportunity for winemakers or distributors to capitalize on natural disasters through scarcity. I am still in search of a bottle from Silver Oak's "earthquake vintage" (2013).

My goal this quarter is to investigate how the wine industry thinks about threats from their natural surroundings. I hope to continually update this post by answering (or coming closer to the answer for) the following questions:

1. Are Tier 1 parties able to distribute risks across the Three Tier system?
2. How does risk manifest on the balance sheet? Is it a Capex item (seismic upgrade, new irrigation, etc) or is it reflected in revenues (variable pricing)?
3. How are different risks weighted? For example, is a drought a higher cost because it is more likely or a lower cost because it is easier to predict?

Stay tuned for updates.

Cheers!

Sources

https://www.usgs.gov/news/south-napa-earthquake-–-one-year-later

https://www.drought.gov/drought/states/california

https://www.cnbc.com/2019/11/17/californias-sonoma-wine-country-reckons-with-wildfire-damage-to-tourism.html