Worth the Hype? Tall Vines Raise Profits for Some – Tradeoffs for All

Abstract

<h3>Summary</h3> <h3>Goals:</h3> The sudden popularity of tall vines among grapegrowers took some nurseries by surprise. Is this popularity rooted in economic reality? This analysis quantifies the claimed benefits of tall vines relative to regular vines from the grower9s perspective using a net present value (NPV) model. We leverage these potted green vine value estimates to discuss the forces that explain the recent emergence of tall vines in the California grape industry and their prospects for the future. <h3>Key Findings:</h3> The NPV of planting tall vines instead of regular vines varies widely by grape variety and region in California because of regional differences in input costs and grape prices. Under reasonable assumptions, the estimated profit differential of tall vines over regular vines ranges from $1.64/vine to $7.31/vine. A break-even analysis indicates that tall vines are more profitable if the yield drag (i.e., reduced future yield due to pushing young vines into early production) is less than 35%, while regular vines are more profitable if the yield drag is greater than 55%. <h3>Impact and Significance:</h3> The expected future profits generated by a grapevine at the time of planting accrue slowly over its productive lifespan, which can complicate growers’ investment decisions. Our NPV model captures key elements of a grower9s decision to plant tall vines versus regular vines. While the true value of planting tall vines may vary by grower depending on their production conditions and market circumstances, the model, results, and discussion of this paper can help growers to evaluate more objectively the potential benefits of tall vines. This paper also informs stakeholders more generally about the potential effect of vine height differentiation in the broader industry.