Crisis & Change for Washington Wine

Is the Washington State wine industry in a crisis? How you answer this question depends on where in the industry you sit and how you define a crisis. Certainly the news this year, as reported at The Wine Economist and elsewhere, is not good news. About 10,000 acres of the 60,000+ acres under vine appear to be surplus to requirements. Serious adjustments on both the supply and demand sides of the market are necessary. Change is in the wind.

Crisis and change has been a recurring theme to my economic research starting with my 1990 Oxford University Press book Mountains of Debt. Vested interests, structural rigidities, and simple momentum often lock nations, industries, and people into particular paths while the conditions around them evolve. Sometimes the only thing that can break the pattern is a crisis.

So let’s put the Washington situation in context and think about the future. Herewith several brief points to stimulate thinking.

Crisis is a durable feature of global wine.

The history of wine is a history of crises, mostly local or regional but some (think phylloxera) both global and transformational. University of Adelaide wine economist Kym Anderson’s history of the Australian wine industry, for example, is told in terms of five cycles of boom and bust. If he were to revise his history today, Prof. Anderson would have to add a sixth crisis to the list: the collapse of much of the Aussie industry due to the loss of its biggest export market, China.

Prohibition created crisis in the United States and many other countries a century ago and it took decades for the wine industry to really recover. As I wrote in a chapter of my book Wine Wars II, wine consumption actually increased during the Prohibition period in the United States as consumers exploited a loophole in the law that allowed for home production of up to 200 gallons of wine a year for household use. The quality of much of the wine was very low and alcoholic strength was valued above all.

The legal wine market that emerged when Prohibition was lifted leaned toward sweet, high-proof wines; it took years (until the 1960s in many places) for production of conventional table wines to become the norm. This was as true in Washington as elsewhere, where wines like the NAWICO Port shown here were the popular choice.

Washington’s current wine crisis is part of a global problem.

Washington’s wine crisis hasn’t happened in isolation. It is best scen in the context of a global wine glut, which has been the focus of several recent Wine Economist columns. As global wine consumption first stalled and then declined after several decades of steady growth the market shifts mean there is too much wine produced and too many vineyards growing grapes. It happened slowly and then suddenly and it happened almost everywhere. In Washington and California. In Bordeaux and Rioja. A friend reports driving by abandoned vineyards in Tuscany.

Like Tolstoy’s unhappy families, the story of each afflicted wine region is different, but they all happen in the context of global over-supply. Exporting  your way out of a wine surplus is harder when so many others are trying to do the same.

Washington’s Wine Crises: California Wine Bill

Washington is no stranger to wine crisis, as I have written on The Wine Economist, and it is interesting to review two cases in particular: the California Wine Bill of 1969 and the Langguth wine bust of the 1980s. Both situations were damaging at the time, but proved useful in the longer-term evoluations of the industry.

Wine sales became legal with the end of Prohibition but the market in Washington was not completely open. Washington producers gained a measure of protection from out-of-state (that is, California) producers because they could work directly with distributors whereas “foreign” wine had to go through the state liquor agency.

The California Wine Bill of 1969 (I have heard it called the “Gallo Bill”) leveled the playing field and took away the home-state advantage. Washington producers could not compete with the inexpensive wines that flooded in from California and so they were forced to turn up-market for sales. A quality wine indsutry emerged since that was the only kind that made sense.

As The Wine Economist reported, the Washington industry’s long-term decline as a protected industry reversed course and the modern wine sector emerged. The transition was far from painless and some producers disappeared. But Chateau Ste Michelle, Washington’s leading wine producer, can trace its roots back to the NAWICO and Pommerelle wines that the California Wine Bill crisis helped erase from store shelves.

Langguth Boom and Bust

The successful German wine giant F.W. Langguth boasts a brand portfolio that includes the famous Blue Nun brand. Langguth was attracted to Washington state by the success of Chateau Ste Michelle’s Riesling wines (which are still today, I think, one of the most popular on-premise by-the-glass wine selections).  Seeking to ride Riesling’s rising tide, they became the first important international investors in the Washington wine industry when they entered the market in the early 1980s.

Vineyards and a winery were required and soon appeared. The owners of Sagemoor Farms agreed to develop the 221-acre Weinbau vineyard on the previously vine-free Wahluke Slope. A state-of-the-art $5 million winery was constructed near Mattawa, far away form Chateau Ste Michelle’s big facility near Seattle.

Five million dollars doesn’t seem like a lot of money for a winery today, but back then it was big bucks (Ste Michelle’s big complex in Woodinville, built just a few years earlier, cost about $7 million). To build such a big winery out in the middle of nowhere on speculation of future market growth must have seemed crazy.

And, in fact, the project collapsed in just a few years and the Langguth family pullled out of Washington state. The history of the project makes good reading. Opinions vary about what caused the collapse. Maybe the project was ahead of its time (dry Riesling, for example, when sweeter wines were the market sweet spot). Maybe the project was poorly managed, with too much distance between those pulling the strings and those actually doing the work.

In any case, the Langguth label disappeared. The Weinbau Vineyard became a key element of a growing Wahluke Slope vineyard scene. The shiny new production facility was sold to Snoqualmie Vineyards, which was then an important producer and is now a value label in the Ste Michelle portfolio. Mattawa might still be pretty much out in the middle of nowhere, but now there are several shiny facilities producing lots of wine.

Creative Destruction

This brief account of wine industry crises in Washington and around the world has only scratched the surface of the topic. What are the lessons we can learn from this history? The first, which is where this column started, is that crises are a durable feature of the wine industry and once a given crisis is over the best thing to do is to beging preparing for the next one! Some of the crises from a century or more ago (think phylloxera and Prohibition) cast a long shadow that still affects us today in some respects.

But there is another lesson here, which was suggested to me when I talked with Seattle Times writer Erik Lacitis, whose report on Washington wine appeared in the Seattle Times’s Pacific NW Magazine over the weekend. Lacitis didn’t write about wineries closing their doors, although some have done so. Instead, he focused on winery start-ups and the many new folks who enter this business every year.

In fact, as Lacitis makes clear, the industry is remarkably resilient and each painful crisis lays the foundation, in one way or another, for future growth. The California Wine Bill, for example, destroyed part of the Washington industry but set a course for premium wine that was exactly in line with the way the market developed.

The Langguth collapse was painful, too, but left us with those production facilities near Mattawa and the vines that became the Wahluke Slope AVA, one of the state’s most important wine regions.

Is this an overly-optimistic way to think about Washington’s wine problems today? Perhaps. But I note without comments that the Langguth winery near Mattawa is now a custom crush facility, the sort of place where the next generation of Washington wineries get their start.


Want to dig deeper into Washington wine industry history? I recommend two classic books:

The Wine Project: Washington State’s Winemaking History by Ronald Irvine with Walter L. Clore (1997) and

Washington Wines & Wineries: The Essential Guide 2/e by Paul Gregutt (2010).

2 responses

  1. I can’t help but wonder if Erik Lacitis is writing about the opening of wineries due to selective observation, i.e. he wants the industry to grow so looks for evidence it is happening. But maybe he is seeing something and the market is about to bottom out?

    Over the past twelve months I have toured wine regions of France and California, and my observation is two fold.

    First, People with the means or the skill to acquire the means are still seeing the wine lifestyle, not the wine business because of the rosè colored glasses they are wearing.

    Second, It isn’t the €200MM that France spent to dump or re-direct wine, or the glut of California wine, or the unpicked vineyards of California, Washington and Oregon that concern me for the wine business. It is the thousands of newly planted non producing vineyards that haven’t been included in those numbers yet. It is also the fact that companies like Gallo can use the wine and distill it to make more inexpensive fizzy flavored drinks in a can, steering the next generation away from wine.

    We might just be seeing the tip of the iceberg.

    • You raise good points. The Lacitis article, which is unfortunately behind a pay-wall, paints a pretty even-handed picture of the challenges facing new wineries.

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