Analysis of Idahos Grape and Wine Industry

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Analysis of Idahos Grape and Wine Industry
By Stacie Woodall
Major Professor Garth Taylor Committee
members Philip Wandschneider and John Foltz
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Three Integrated Studies!
1. Costs of Establishing a Vineyard
2. Agribusiness and Tourism Impacts
3. Valuing a Wine Trip in Canyon County
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Background

• Wine grapes were first planted in 1870
• Prohibition eradicated all vineyards
• Vineyards began to emerge again in the 1970s
• Today, grapes are the 4th largest fruit industry
  in the state

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Most Idaho vineyards are planted along the Snake
River in Canyon County
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1,000 acres planted to wine grapes
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The Economic Feasibility of Growing Wine Grapes
in Idaho

• Stacie Woodall
• Robert Smathers
• R. G. Taylor

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Model Vineyard

• 40 acre farm
• 35 acres planted to grapes
• Land is owned, managed and operated by grower
• Sandy loam soil
• Southern exposure
• Moderate slope

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Capital Investment
Equipment and Machinery 181,600 Other
investments 561,960 Total
Capital Investment 743,560
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Labor Requirements

• Installation of trellis and irrigation systems
• Pruning, training, thinning, spraying,
  fertilizing, and cultivating
• Harvesting

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Economic Analysis

• Total cost to establish vineyard
• 13,809 / acre

• Total net establishment costs
• 8,583 / acre

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Economic Analysis

• Annualized cost investment
• 1,056 / acre

• Average net return
• 726 / acre

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Conclusions

• Viable Operation
• HOWEVER
• Extremely capital and labor intensive
• Risks
• Contracts vs. producing own wine

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Contribution of the Grape and Wine Industry to
Idahos Economy

• Stacie L. Woodall
• John C. Foltz
• Philip R. Wanschneider
• R.G. Taylor

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Overview

• Size
• Impacts
• - Agribusiness Impacts
• - Tourism Impacts
• - Comparison

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Idaho Grape Production
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Idaho Wine Production
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Wine Consumption
Tasting Room Sales
4.2 M on sales of 26,300 cases
All Other Sales
10.7 M on sales of 116,600 cases
In-State Sales
7.9 M on sales of 73,000 cases
Exports
7.0 M on sales of 70,000 cases
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Employment
Grape production 49 Wine production
66 Total employment 115 jobs
David Straley
Essie Fallahi
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Taxes

• In 2001, 2.3 million was collected on ALL wine
  sold in Idaho

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Tourism
Tourism Survey ? Why? ? When? ? How?
? Goals?
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Canyon County Wine Tourists

• Typically drinks wine on a regular basis
• 83 percent drink wine every week

• Prefer moderately priced wines
• 8 - 15 per bottle

• 60 come from inside the state

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Canyon County Wine Tourists

• Alternative activities
• Decision influences
• Location of purchases
• Discovery of Canyon County wineries

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Tourist Expenditures
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Impacts of Idahos Grape and Wine Industry

• As an agribusiness industry
• As tourism or recreation
• - Tourism is a category of exports

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So, what exactly are impacts?

• Driven by exports new money
• Non-base and base industries
• Multiplier Effect

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Input/Output Analysis

• Tool used for economic analysis and forecasting
• IMPLAN database
• - wine grape sector
• - wine sector

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What is Wine Agribusiness?
Farm Suppliers

• Agribusiness Examples
• Dairy and Cheese
• Beet farmer and sugar
• Wine Agribusiness foundation The Grape Grower
• Backward links
• Forward links
• Excluded
• Wholesale
• Wine Distributor

Backward Linked
Forward Linked
Wineries
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Canyon County Impacts
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Idaho Impacts

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Wait a minute, did I read those tables right?
YES!
Canyon County impacts are larger than Idaho
because
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Tourism Impacts

• What are tourism impacts?
• Complications
• - Tourism is not an industry
• - Price consistency (margins)
• - Degree of substitution
• Calculation

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• STEPS
• IMPLAN sectors
• Purge imports
• Margining expenditures

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Tourism Multipliers

• Tourism multiplier
• Weighted average multiplier
• Weights are the of tourism expenditures in
  category
• Multipliers of sectors where tourists spend their
  money

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Canyon County Tourism Impacts

• Canyon County Tourism Multipliers
• - Sales Multiplier 1.89
• - Job Multiplier 17.51

• Scenarios
• - Festival (650 groups) 81 from outside Canyon
  County
• - 125,000 sales impact 1.2 jobs
• - Annual Visitors (5,000 groups)
• - 960,000 sales impact 9 jobs

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Idaho Tourism Impacts

• Idaho tourism multipliers
• - Sales Multiplier 2.12
• - Job Multiplier 24.88

• Scenarios
• - Festival (650 groups) 40 from outside Idaho
• - 82,000 sales impact 1 job
• - Annual Visitors (10,000 groups)
• - 1.3m sales impact 15 jobs

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Agribusiness vs. Tourism Impacts

• Backward linkages
• Exports
• (2/3 of tourism agribusiness)
• Unique industry

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Valuing Idaho Wineries with a Travel Cost Model
Stacie L. Woodall Philip Wandschneider John
Foltz R.G. Taylor
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Objectives

• Consumer surplus and elasticity
• Is Napa Valley Effect occurring OR
• Variables influencing wine tourists visits to
  Canyon County

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Demand for Wine Tourism

• NOT the demand for wine
• The demand for wine tourism
• Willingness-to-pay for winery visits
• Price of a winery visit is the travel cost
• Site dependent

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Travel Cost Model

• Estimates a demand function for a site

Number of visits miles traveled
Visitors pay implicit price
Estimate consumer surplus
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Demand Specification

• Q (P, S, Y, Z)
• Where
• Q number of trips
• P own price
• S closely related goods
• Y income
• Z tastes and preferences

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Definition of Variables
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Own Price

• Concept Minimum travel cost
• Just wine trip itself
• Just travel expenses
• Which travel expenses?
• Imputed vs. actual expenditures
• Opportunity cost of time

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Closely Related Goods
? Wineries ( of wineries visited per
trip) ? Lodging in Canyon County ? Stayed at
home
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Income and Tastes Preferences
Income -- annual household income Tastes and
Preferences ? Connoisseur (Price paid per
bottle) ? Drink (the lusheffect) ?
Advertising
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Demand Estimation

• Truncated Poisson regression
• Over-dispersion
• Endogeniety

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Your Turn

• What are you willing-to-pay for a trip to the
  Canyon County wineries?

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Travel cost demand
Adjusted R2 43 Mean trip 2.8 per year
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Willingness-to-Pay

• Consumer surplus
• 5.40 per visit
• 15 per year
• (5.4 2.8 mean of trips per year)

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Price Elasticity

• Price inelastic -0.5
• Compare golf -.7, fishing -.2, fishing
  site -.4
• Reasons
• - Unique site
• - High quality site
• - Small portion of income

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Closely Related Goods

• Number of wineries visited
• - not significant
• Lodging in Canyon County
• - significant and negative
• Stayed at home
• - significant and positive

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Income

• Significant and negative
• Income versus time constraint

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Tastes and Preferences

• Connoisseur
• - not significant
• Drink
• - significant
• Advertising
• - significant

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Conclusion

• Unique study
• Variable significance primary
• - Target wine tourism
• - Canyon County is not yet Napa Valley
• ?localized market low value
• ?proximity of wineries is not important

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What I hope to be doing a lot more of in the
future!