Gallic Syndrome to Strike Napa
1) In 2005, a mega-crop created an estimated surplus of 1,000,000 cases of Napa Valley Cabernet! Much of this surplus (and surpluses of Merlot, Chardonnay, etc) are fueling brands by Fred Franzia/Bronco, Don Sebastiani & Sons, and Gallo (Napa Valley Vineyards & Louis Martini). All of these brands are selling for $15 or less and are doing quite well. The 2006 harvest looks to be of average level, so the pressures of oversupply won't come off quite yet.
2) Much Napa Cabernet is truly average (gasp! sacriledge!). Its true. Most of Napa's 45,000 acres are on the valley floor, often with deeper soil and high vine vigor. The fruit is good, but its not good enough to support Cabernet prices of $30+, in my opinion.
3) Most of the remaining planting options in Napa County are in outlying areas (like Pope Valley, Chiles Valley, Wild Horse Valley) that are shunned by most wineries. Fruit planted here will not generate the same interest as Napa Valley proper and will thus see downward price pressure. Hillside plantings are virtually banned in Napa and will be the best place to ride out the coming years.
4) Imports are probably the biggest challenge to Napa's aristocracy. Australia, Chile, Spain, South Africa, even France and Italy are all able to produce wines of greate quality at prices below Napa's. Imports grew about 11% last year while California grew at 4% and 2006 shows this trend continuing so far. California wineries, particularly Napa, are not currently equipped to compete on a global level.
5) Land costs, in particular, will make it difficult for us to compete. At $150,000 per acre for valley floor Napa vineyards, you will struggle to get a 5% return on your grape farming efforts right now (assuming you can find a buyer for your grapes!). Wineries and vineyards are still selling for high prices, but I just can't see it continuing unless there are enough people willing to forgo a return on their investment just to have a small slice of the Napa pie.
6) As Megan at Wine & Spirits Daily points out, Don Sebastiani was recently heard to say "Napa Valley grape prices are not prepared for (global) competition." and "Napa Valley has invited that competition. The perception that Napa will always be Napa is lazy thinking..."
As I implied at the top, I don't think that the high-end Napa producers will be affected by this (those in the hills or those in highest-priced AVA's like Rutherford and Oakville). Those wines, good or bad, are scarce enough and still in very high demand. Its the generic Napa floor wines that, in my opinion will be hardest hit.
You can already see evidence of this stratification in the California State Crush Report. The highest price paid for Napa (District 4) Cabernet was $26,500 per ton (probably a per-acre contract gone horribly wrong) and the lowest was $200 per ton (only enough to cover the costs of picking) with thousands of tons sold for $3,000 and below. The average, according to table 6, was $3,970 per ton...
[see this link to USDA statistics for California in 2005 ]
This tells me that the Gallic Syndrome is already in effect. The question is, what will it mean for "brand Napa". My guess is that higher-end consumers will begin to focus on sub-apellations like Mt. Veeder or Stag's Leap and that "Napa Valley" will become a much less valuable thing to have on one's label.