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Similar to other areas of agriculture, the wine industry relies on crop insurance from the U. S. Department of Agriculture's Risk Management Agency to cover substantial product losses.

The insurance protects a grower against production or revenue losses when an insured crop does not meet a preset production guarantee. Covered losses include losses due to adverse weather, fire, insects and disease, wildlife damage, and irrigation failures.

"It's the minor losses that clip you," says Joe Herman, the owner of Karma Vista Vineyards and Winery in Michigan. "It's almost better to have a total loss."

From the vineyard standpoint, coverage must be provided for the trellis and vines, and the policy must protect the vineyard from everything from vandalism to accidents to fires--especially because the lag between planting and harvesting to bottling and selling takes roughly four years for most varietals.

Wineries are susceptible to a number of risks associated with working with a liquid product, from leakage and mechanical breakdowns to contamination.

"Those are critical coverages for the product itself," says consultant Ed Kempkey, of Kempkey Risk Management Services. "They'll be able to collect loss of profit ? or maybe if the product isn't finished yet and in some cases can't be replaced, the potential future profits."

A STATE STEPS IN TO HELP

With wineries and vineyards popping up in nearly every corner of the country, states are not able to rely on universal risk management data and strategies.

Washington, which quickly became the third-largest U.S. wine-producer, saw the need to develop risk management tools for the state's wine-makers. The goal, according to the Washington Association of Wine Grape Growers Executive Director Vicky Scharlau, was twofold.

"We were organized to help growers get information to continually improve their grape quality," she says. "With the greater publicity and prominence our growers were receiving, we saw the need to develop these tools to take them to a higher level."

New insurance and risk management tools were also necessary to help sustain the Washington wine industry. In many cases, she says, people without much background in growing and harvesting grapes were entering the industry with unrealistic expectations of the risk and the potential losses.

"We found that there are more people entering the industry because of a romantic notion of running a winery or starting a vineyard," she says. "However, most of these people didn't understand the marketing or business side of wine-making. From a risk-management perspective, we were trying to minimize the risk to the industry. We didn't need waves of people entering the wine-making industry and hurting those who are already in it."

The risk management tools, which were developed over a two-year period by the Washington Wine Industry Foundation and funded by the RMA, were designed to help fledgling winegrowers, as well as established vintners and vineyards.

In creating the tools, the WAWGG surveyed growers about their risk management and sustainability practices. The questions ranged from how the winery chose its crop site to how it approached a potential lender. Based on the feedback, researchers developed tools that coach growers through topics such as business planning, marketing, crop insurance, lending and banking, site properties, soil and water management, human resources, and labor relations.

Scharlau says growing grapes can be troublesome if people don't understand the nuances of the industry--from local and regional weather patterns to the worldwide market for wine. Take the complexity of how contracts work between growers and wineries.

"This relationship is very important," she says. "If you don't have a contract with a winery, don't even think about growing."

Washington winegrowers work with researchers from Washington State University and community colleges to control risks and help students learn about the needs of the state's wineries.

Scharlau says that wineries and growers were discovering that they couldn't rely on hiring someone outside of the industry that didn't understand the business.

October 15, 2005

Copyright 2005© LRP Publications