HomeMy WebLinkAboutWine Industry & The Future of Agriculture on LI's North Fork
The Institute for Social Analysis
The State University of New York at Stony Brook
WORKING PAPER SERIES
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"The Wine Industry
and the
Future of Agriculture
on
Long Island's North Fork"
MICHAEL ZWEIG, SUNY Stony Brook
"
STONY BROOK
STATE UNNERSITY OF NEW YORK
Social and Behavioral Sciences
State University of New York at Stony Brook
Stony Brook, New York 11794-4356
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Stony Brook Working Papers
Department of Economics
The Wine Industry and the Future
of Agriculture on
Long Island's North Fork
By
Michael Zweig, SUNY Stony Brook
Research Paper No. 290
September 1986
StonyBrook
Circulated by: WORKING PAPER COORDINATOR
Department of Economics
State University of New York at Stony Brook
Stony Brook, New York 11794-4384
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TABLE OF CONTENTS
List of Tables
Acknowledgements
Introduction to the Issues p.l
Grape Growing on Eastern Long Island p.4
The Economics of Wineries p.IO
Comparing Returns to Grape Growing
and Wine Making p.13
The Role of Tax Shelters
and Development Rights p.15
Potential Size of Grape and Wine
Industry in Southold Town p.16
Economic Impact of Vineyards p.17
Economic Impact of Wineries p.19
.
Economic Obstacles to Industry Growth
Market Niche
Quality
Tourist Flows
Imbalance of Grape Acreage
and Winery Capacity
Risks and the High Cost of Entry
Public Policy Issues
Creating an Agricultural Preserve
Zoning for Wineries
Tourism, Commercial Zoning
and Gentrification
Local Government Finance
Conclusion
References
p.22
p.22
p.24
p.25
p.28
p.29
p.30
p.3l
p.33
. p.35
.p.37
p.39
p.42
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LIST OF TABLES
I .
Agricultural Land Use By Crop,
Southold Town, 1986
p.4
,
II. Grape Acreage Planted and Bearing,
Southold Town and Suffolk County, 1986 p.5
III. Distribution of Planted Grape Acreage
by Variety, Southold Town, 1986
p.5
IV. Production and Gross Revenue Per Acre
Grapes and Wine p.6
,
V. Typical Investment for 36 Acre Vineyard
Vinifera Grapes, Long Island, 1985 p.7
VI. Vineyard Operating Cost Per Acre
Fifth Year and Beyond p.8
VII. Composition of Total Cost for 36 Acre
Vineyard, Vinifera Grapes, Long Island, 1985
.
VIII.Capital Costs by Winery Size
p.9
\
p.10
IX. Average Production Cost of a Bottle of Wine
by Winery Size p.12
X. Grape and Wine Yield From Various Acreage p.17
XI. Per Acre Input Requirements
Grapes and Selected Other Crops p.17
XII. Input Requirements for Selected Grape Acreage p.18
XIII.Winery Capital Requirements
for Selected Acreage
XIV. Selected Winery Operating Costs
for Selected Acreage
XV. Home of Visitors to Pindar Winery
p.20
p.21
p.27
XVI. Estimated East Coast Vinifera Acreage, 1986 p.28
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ACKNOWLEDGEMENTS
~
This study grows out of discussions I had while
serving on the Economic Advisory Committee to the Southold
Town Board, on the North Fork of Eastern long Island. It
was formulated in consultation with the Economic Advisory
Committee, chaired by William Behr, joined by Warren
Cannon, William Gardner, and George Wieser. Professor
Glen Yago, Director of the Economic Research Bureau at
SUNY Stony Brook, provided encouragement and helpful
suggestions.
Funding for the study was provided by Southold Town
and the Suffolk County Industrial Development Agency. I
want to thank Southold Town Supervisor Francis Murphy, and
other Town Board members Jean Cochran, Ray Edwards, George
Penny, Jay Schondebare, and Paul Stoutenburgh for their
support and confidence. I would like to thank Suffolk
County IDA Chairman Thomas Junor, and Tom Hanlon of the
IDA, for their support. Suffolk County legislator Gregory
Blass also provided helpful support.
I had able research assistance from Roberto Burguet,
a graduate student in Economics at SUNY Stony Brook. I
received valuable help from many librarians, at the New
York City Public library, the Main library at SUNY Stony
Brook, and at the St.Helena, California, Public library,
which houses an important collection of wine related
books, journals, and other documents.
In the course of discussions on the Economic Advisory
Committee, I drew special benefit for this study from
remarks by Robert Anrig, Vice-President of North Fork Bank
and Trust, Ed latham, owner of Latham Farms in Orient, and
John Wickham, owner of Wickham Fruit Farm in Cutchogue.
My guide into the workings of the industry has been
Larry Fuller-Perrine, Research Support Specialist/Grapes
at the long Island Horticultural Research Lab of Cornell
University. Without his knowledge, ability to explain
complicated issues, and sense of the dynamics of the
industry as a whole, I could not have formulated the
proposal or done the research.
In California, I was introduced to the wine industry
by Tom and Allison Cottrell, Cottrell Winery Consulting in
St.Helena, California. They facilitated my visit, helped
to make appointments for me, and contributed to my
understanding of the industry.
.
In the course of investigating the grape and wine
industry, I spoke with many people on Long Island, in
Upstate New York, in Virginia, and in California. Each
person contributed to my knowledge. They agreed to speak
with me without knowing me, and gave graciously of their
time and knowledge. I would like to thank the following
people for their help.
ON LONG ISLAND
Alan Barr, owner, Barr Vineyard
John Bedell, owner, Bedell Cellars
Robert Bidwell, owner, Bidwell Vineyard
Ray Blum, owner, Peconic Bay Vineyard and Winery
operator, Soundview Vineyard
Hank Boerner, Boerner Assoc., Carle Place
Director, New York Wine/Grape Foundation
Richard Carr, owner, Manor Hill Vineyard
Allan Connell, Soil Conservation Service, Riverhead
Bud Cybulski, Chair, Southold Town Farmland Preservation
Commit tee
Dr. Herodotus Damianos, owner, Pindar Vineyard and Winery
President, Long Island Grape Growers Association
Sal DiChiarra, Manager, Southold Vineyard
David Emilita, Southold Town Planning Board Consultant
George Fey, Long Island Tourism and Convention Commission
Cynthia Fuller-Perrine, Island Wine Promotions, Peconic
Ron Goerler, owner, North House Vineyard and Jamesport
Vineyard
Jerry Gristina, owner, Cutchogue Vineyards
Scott Harris, Southold Town Assessor
Dan Kleck, winery consultant, Southold
Dorothy Klewicki, Administrative Assistant, Suffolk County
Department of Real Estate
Walter Krupski, Assistant Vice-President and Senior Branch
Officer, North Fork Bank and Trust, Greenport
Patricia Lenz, owner, Lenz Vineyard and Winery
Peter Lenz, owner, Lenz Vineyard and Winery
Peter Manning, Orient, and U.S. Department or Agriculture,
Boston
Charles Massoud, owner, Ursula and Charles Massoud
Vineyard
Dick McGovern, owner, McGovern Sod Farms, Melville
Lawrence Milius, Vice-President, Southold Savings Bank
Dave and Steve Mudd, owners, Mudd's Vineyard and
operators, Lerner, Manor Hill,
Theurer/Wolf and Palmer Vineyards
Marilyn Norkelun, Broker, Floyd King Realty, Orient
Richard Olsen-Harbich, Winemaker, Bridgehampton Winery
Gary Patzwald, Winemaker, Palmer Vineyard
Bob Pellegrini, owner, Cutchogue Vineyard
Ralph Pugliese, owner, Pugliese Vineyard
.
Paul Pylko, Peconic
Richard Ressler, owner, Ressler Vineyard
Donna Rudolph, Assistant Vineyard Manager, Ressler Vineyard
Luis San Andres,owner, San Andres Vineyard
Ray Sandidge, Cellar Master, Pindar Winery
Bill Sanok, Agricultural Program Leader, Co-operative
Extension, Riverhead
Dianne Schultze, Secretary, Southol~ Town Planning Board
John Simicich, owner, Mattituck Vineyard
Kathy Simicich, owner, Mattituck Vineyard
Ben Sisson, Vineyard Manager, Ressler Vineyard
Bill Skolnik, General Manager, Pindar
Beverly Smith, CAST Director, Greenport
Jeanette Smith, Fruit Specialist, Co-operative Extension,
Riverhead
Melissa Spiro, Summer Intern, Southold Town Planning Board
George Sullivan, Sullivan & Preston, CPA, Southold
Curt Tabor, Orient
John Talbot, Senior Vice-President, Southold Savings Bank
Raymond W. Terry, Jr., President, Southold Savings Bank
Mrs. Uhlinger, Executive Director, Nassau-Suffolk
Horseman's Association
IN UPSATE NEW YORK
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George Casler, Professor of Agricultural Economics,
Cornell
Kenneth Gardner, Land Use Specialist, Co-operative
Extension, Department of Agricultural Economics, Cornell
Paula Gilbert, Senior Planner, Raymond, Parish, Pine, &
Weiner, Inc., Tarrytown
James McGrath Morris, Editor, VINEYARD & WINERY MANAGEMENT
(formerly EASTERN GRAPE GROWER & WINERY NEWS
Gene Pierce, owner, Glenora Wine Cellars
Director, New York Wine/Grape Foundation
Gerald B. White, Co-operative Extension, Professor of
Agricultural Economics, Cornell
IN VIRGINIA
Carolyn Bowen, Zoning Administrator, Fauquier County
Andrew Evans, Deputy Zoning Administrator, Albemarle County
Doug Flemer, owner, Ingleside Plantation
President, Virginia Vintners Association
Lou Ann Ladin, Wine Marketing Specialist, Virginia
Department of Agriculture and Consumer Services, Richmond
Sharon Livingston, owner, Hartwood Vineyard
President, Virginia Vineyard Association
Amelia Patterson, Planner, Albemarle County Planning Dept.
Archie Smith, Jr., owner, Meredyth Vineyards
Archie Smith, III, Vice-President for Production, Meredyth
Vineyards
Al Weed, owner, Mountain Cove Vineyard
.
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IN CALIFORNIA
.
Oavid Barnes, Corporate Banking Officer, Bank of America,
St.Helena
Lance Bonds, Appraiser, Napa County Assessor's Office, Napa
Keith Bowers, Viticulture Specialist, Co-operative Extension,
Napa
John L. Brown, Vice-President for Administration and
Finance, Beckstoffer Vineyards, St.Helena, and member,
St.Helena City Council
Frederick L. Cannon, economist, Bank of America Center,
San Francisco
Philip E. Crundall, Senior Planner, Napa County
Conservation, Development and Planning Department, Napa
Chuck Dake, broker, UpValley Associates, Realtors,
St.Helena
Jack Davies, owner, Schramsberg Vineyards, Calistoga
Robert A. Dwyer, Executive Director, Napa Valley Vintners
Association, St.Helena
Art Finklestein, owner, Whitehall Lane Winery, St.Helena
Sam Folsom, Public Affairs, The Wine Institute,
San Francisco
George Goldman, Co-operative Extension, Department of
Agricultural Economics, University of California, Berkeley
James Hickey, Director, Napa County Conservation,
Development and Planning Department, Napa
Michael Jones, Corporate Banking Officer, Bank of America,
St.Helena
Kenneth Milam, Planning Director, Sonoma County, Santa Rosa
Kirby Moulton, Co-operative Extension, Department of
Agricultural Economics, University of California, Berkeley
Eric Neil, Cellar Master, Joseph Phelps Winery, St. Helena
Nell Neil, St.Helena
Dr. Richard Neil, former member, Napa County Planning
Commission, St.Helena
Nancy Pridmore, realtor-broker, Vintage Properties, Napa
Frank Rodriguez, United Farmworkers of America, AFL-CIO,
Rutherford
Sandra St.Amant, Executive Assistant, Napa Valley Grape
Growers Association, Napa
Wade Stevenson, Director, Economic Research Department,
The Wine Institute, San Francisco
Mel Varrelman, Napa County Board of Supervisors, St.Helena
Agapito Vazquez, Director of Field Services, California
Grower Foundation, St.Helena
.
THE WINE INDUSTRY AND THE FUTURE OF AGRICULTURE
ON LONG ISLAND'S NORTH FORK
by Michael Zweig
INTRODUCTION TO THE ISSUES
Long Island's grape and wine industry, newly created
within the past 15 years, exemplifies change and
development in the area. At the same time, the industry
provides opportunity for continuity amid the change,
contributing as it does to the preservation of the rural
and agricultural character of Eastern Long Island.
This study assesses the potential impact of the grape
and wine industry on the local economy, and evaluates
public policy issues raised by the industry. Before
treating these subjects in detail, some basic elements of
context should be identified.
.
Agriculture is an important part of the Suffolk
County economy. In dollar volume, Suffolk is the leading
agricultural county in New York State, with $92.2 million
in sales in 1982, the most recent census year. Of the
nearly 50,000 acres then devoted to farming in Suffolk,
12,000 acres were located in Southold Town, making it the
most rural and agricultural section of Suffolk County, and
of Long Island.
The importance of agriculture to the Southold economy
has been recognized in the Town Master Plan, which calls
on the Town to "preserve Southold's prime farmland and
encourage the continuation and diversification of
agriculture as an important element in the life and
economy of the Town."(l) The Plan's commitment to
agriculture fully reflects the desires of the Southold
population, as sampled for the Greenport-Southold Chamber
of Commerce in 1984. "There is strong sentiment for the
continuation of agricultural businesses," based on the
finding that "most respondents (57%) favor pUblic support
for farming."(2)
Despite the widespread commitment to agriculture, it
must be understood that change is imminent in Southold.
The Town is no longer an area largely isolated from New
York City and Western portions of Long Island, left alone
to go about its business free from the development
pressures which have pushed the length of Long Island.
No one can keep development pressure and change out
of the area. The critical task of planning, and the most
important local challenge to the political leadership and
people of the Town in the coming few years, will be to
harness and channel this development to recreate a
liveable community with a sound economic base, respecting
also the unique environmental features of the North Fork.
It is possible that development on the North Fork can
be reconciled with continued rural life. The fact that
change is inevitable does not mean that agriculture must
decline. Actually, for agriculture to succeed it too must
change. In a 1985 report to the New York State Department
of Agriculture and Markets, the management consulting firm
Arthur D. Little found that "New York agriculture has
failed to innovate in the production of new crops," but
that "with innovative, entrepreneurial leadership, New
York can compete for markets in a wide variety of
commodities and products."(3)
The emerging grape and wine industry on the North
Fork has the potential to play an important role in the
preservation of local agriculture. The New York State
Legislature recognized and promoted the industry's role
statewide in 1976, when it passed the Farm Wineries Act to
facilitate the establishment and success of small
wineries. This is in keeping with the 1984 Legislative
declaration of intent that "It is the declared policy of
the state to. conserve, protect and enhance the
agricultural lands of this state."(4)
The grape and wine industry is not the only growing
agricultural activity in Southold and Suffolk County. Sod
farms, nurseries, floriculture, horse farms -- all these
have expanded in recent years. More traditional row
crops, especially potatoes and vegetables, continue to
dominate local land use, despite declining acreage, and
will continue to be an important part of the agricultural
economy for many years into the future.
In one important respect, the grape and wine industry
is different from other agriculture. The industry
combines the traditional farming activity of raising a
crop with the industrial process of wine making and
commercial activities associated with a sophisticated
marketing strategy. The integration of agriculture,
industry, and commerce into one economic activity, often
undertaken by a single business enterprise, makes the
industry more complex than most agriculture, and puts
strains on traditional zoning classifications.
This study of the grape and wine industry should
properly be taken as part of the discussion required to
assess the overall future of agriculture and open rural
land on the North Fork. Experience from all parts of the
country demonstates that, in the face of serious pressure
for suburban development, agriculture can be preserved
only with a combination of two factors: 1) zoning to limit
2
nOn-agriculural uses; and 2) economically viable
agriculture which will attract and sustain farming in the
areas reserved for it.
.
In the face of strong development pressure, of the
sort now facing the North Fork, agricultural land can not
be preserved without large lot zoning to protect it. But
no zoning protection can work if there is not an
economically viable use for the land under the terms of
the zoning code.
Before coming to the issues connected with zoning
appropriate to the preservation of agriculture, it is
therefore important to determine whether we can reasonably
expect farming to continue as an economically sound .
activity on the North Fork. A positive conclusion is not
at all obvious. The farm crisis shaking U.S. agriculture
has been widely reported. Agricultural land use on Long
Island has steadily fallen in front of the seemingly
inexorable sprawl of metropolitan New York, which has now
begun to penetrate Southold Town. Many people have
concluded that agriculture on Long Island is doomed,- that
the best Southold residents can expect is to manage the
sprawl, and make whatever living can be gotten from it.
A careful analysis of the economics of the grape and
wine industry on Long Island challenges such predictions.
There are reasons to conclude that grape growing and wine
making could provide long term agricultural use for much
of the land in Southold. Other crops may well also
contribute to this goal.
3
GRAPE GROWING ON EASTERN LONG ISLAND
The 1983 Southold Town Master Plan Update states that
12,000 acres were then devoted to agriculture in the Town.
Since that time, several hundred acres have been converted
to housing or commercial uses. Table I shows the
estimated current acreage devoted to various crops in
Southold Town.
TABLE I.
AGRICULTURAL LAND USE, BY CROP
SOUTHOLD TOWN, 1986
CROP ACREAGE
Potatoes
Vegetables
Grain
Grapes
Nursery and Sod
Fruit
Horse Farms
Non-agricultural uses
TOTAL
3,500
3,000
2,500
752
600
280
100
900
11,632
Source: author's estimates, in consultation with Suffolk
County Agriculural Extension agents and others
In 1986, 752 acres of grapes are in the ground in
Southold Town, occupying 6.5% of Southold farmland. An
additional 211 acres have been planted in Riverhead and
Southampton Towns, bringing the total grape acreage in
Suffolk County to 963 acres, roughly 2% of County farm
land. The soil and microclimatic conditions of the North
Fork ma~e it an especially suitable location for grapes,
accounting for the concentration of acreage there.
Table II shows the 1986 acreage planted to grapes,
and the acreage bearing a commercial crop, for Southold
Town and Suffolk County. Only two-thirds of the acreage
planted is bearing, reflecting the young age of much of
the vines. If all land currently owned by vineyards
available for grapes were so planted, Southold Town would
have 1052 acres of grapes, and over 1500 acres would be
planted in Suffolk County. The prospects for additional
planting, and for attracting still greater investment in
grape acreage in the future, will be analyzed in
subsequent sections of this report.
4
TABLE II
GRAPE ACREAGE PLANTED AND BEARING
SOUTHOLD TOWN and SUFFOLK COUNTY __ 1986
SOUTHOLD SUFFOLK
Bearing 507 671
Planted 752 963
Additional
available(a) 300 542
Number of
vineyards(b) 22 35
Average
planting 34.2 27.5
a. currently owned by vineyard, suitable for planting, but
not yet in grapes.
b. a vineyard is a single business entity, with or without
an associated winery, sometimes planted on several
parcels.
source: author's survey
Table III shows the distribution of acreage devoted
to various varieties of grape in Southold Town. It is
based on a detailed survey of 14 growers, covering nearly
three-fourths of planted acres in the Town. Vinifera
grapes account for 88% of the sample, table grapes 3%,
with the rest in French-American hybrids.
TABLE III
DISTRIBUTION OF PLANTED GRAPE ACREAGE BY VARIETY
SOUTHOLD TOWN -- 1986
VARIETY % OF TOTAL
Chardonnay 40.7
Cabernet Sauvignon 17,0
Merlot 9.6
Riesling 8.5
Pinot Noir 7.6
Seyval 5.5
Table grapes (all varieties) 3.0
Gewurztraminer 2.6
Cabernet Franc 1.6
Other 3.9
source: author's survey
5
There are three broad classes of grape grown in the
United States: native American varieties, such as Concord;
vinifera varieties, such as CnardonnaYi and hybrids, such
as Seyval. There are substantial differences in the wines
produced from these grapes, and in the market value of the
wines. Growers on Long Island have concentrated on
vinifera grapes, from which the classic fine European
and California wines are made.
There is an astonishing variation in price received
by growers for a ton of grapes of a given variety. For
example, in Napa Valley, California, in 1985, one ton of
Chardonnay grapes sold at prices ranging from $100 to
$2,300. A ton of Cabernet Sauvignon brought its grower
anywhere from $147.59 to $1,700.(5)
Price variations reflect differences in sugar content
and acidity, as well as other factors determining the
quality of the grape and thereby limiting the quality of
the wine which can be produced from the grape. The price
a given grower will receive depends critically on the
skill of the vineyard manager and the labor tending the
vines, and on detailed characteristics of soil and climate
at the spot the grapes are grown. Yield per acre is
similarly dependent on skilled labor and astute vineyard
management.
.
TABLE IV
PRODUCTION AND GROSS REVENUE PER ACRE
GRAPES AND WINE
Grape Yield Gross Revenue Wine Yield Gross Revenue
tons/acre from grapes gal. bottles from wine
2.5 $2,500 375 1875 $13,125
3.0 3,000 450 2250 15,750
3.5 3,500 525 2625 18,375
4.0 4,000 600 3000 21,000
Table IV indicates the gross revenue generated by an
acre of grapes in Suffolk County, at different yields.
The Table is based on a standard conversion factor of 150
gallons of wine produced from one ton of fruit, and five
750 mI. bottles per gallon of wine. [A case of wine
contains 2.4 gallons, or twelve bottles.]
As noted above, grape prices vary considerably, both
by variety and by grower source. Grape prices in Table IV
were set at $1,000 per ton, reflecting a weighted average
of prices for Suffolk-grown grapes received by effective
growers in the area in 1985. Wine was priced at $7 per
bottle for Table IV, also broadly representative. Of
course, wines made from expensive grapes, like Chardonnay,
will sell for higher prices than blends or varietal wines
made from less expensive grapes.
6
For the 1986 harvest, an average yield of 2.5 tons
per acre seems most likely. This is considerably less
than the 3.5 tons per acre most growers anticipate for
planning purposes, based on experience in developed grape
growing regions. The lower local yield reflects the
immaturity of many vines just coming into bearing, and
inexperience among area growers. Still, some well tended
vineyards will likely realize 4 tons per acre in 1986.
In 1986, the 509 bearing acres of grapes in Southold
Town will produce about 1272 tons of grapes with a gross
market value of $1.27 million. If these grapes were all
crushed and made into wine locally, 190,875 gallons of wine
with a market value of $6;68 million would result. (We will
see below that winery capacity in Suffolk County is not
sufficient to process all grapes grown in the area.) The
full bearing acreage in Suffolk County in 1986 will
produce about 1677 tons of fruit, enough to make nearly
252,000 gallons of wine valued at $8.8 million.
What does it cost to generate these revenues? A
recent study analyzed vineyard costs on Long Island.(6)
Table V shows its findings for the investment needed to
establish a 36 acre vineyard on a 40 acre farm, close to
the average setting for Southold Town.
TABLE V.
TYPICAL INVESTMENT FOR 36 ACRE VINEYARD
VINIFERA GRAPES, LONG ISLAND, 1985
Item Per Farm % of Per Acre
Total of Grapes
Land (40 acres) $280,000 43.9 $7,778
Machinery & Equipment 62,269 9.8 1,730
Building 16,000 2.5 444
Irrigation 51,800 8.1 1,439
Vineyard Establishment
& Development (3 years) 227,736 35.7 6,326
Total 637,805 100.0 17,717
Source: G.B.White and J.L.Smith, "Cost of Production of
Vinifera Grapes on Long Island, 1985," p.14
7
A grape vine requires a minimum three years after
planting to begin to bear fruit. Not until the fifth year
can it be expected to reach a mature yield, and the
quality of the fruit continues to improve, with proper
care, for a few years more. The useful life of a vine
depends upon the variety and the care given, and ranges
from 15 to 25 years or longer before the fruit yield
begins to decline and the vine is replaced.
Vineyard development costs shown in Table V bring the
vineyard to its first production, after the third year.
During this period no revenue comes in. For purposes of
Federal income taxes, these costs are capitalized and
taken as depreciation expense once the vineyard produces a
commercial crop.
Exclusive of land costs, it takes about $10,000 per
acre to develop a vineyard to the point of bearing in
Suffolk County. Once mature, the operating costs to grow
and harvest grapes require $1177 per acre, as detailed in
Table VI.
TABLE VI
VINEYARD OPERATING COST PER ACRE
FIFTH YEAR AND BEYOND
33.6
Total(a)
1177
100
Labor
Equipment
Materials
Dollars
Percent
of total
$447
38.0
156
13.3
396
a. includes custom harvest cost of $177.50/acre
Source: G.B.White and J.L.Smith, "Cost of Production for
Vinifera Grapes on Long Island - 1985," p.12
Table VII displays all costs incurred by a typical 36
acre vineyard growing vinifera grapes on Long Island, in
1985 prices. $3,461 are needed to pay operating costs
and cover all fixed costs assigned to each acre of grapes,
including land costs. While it is appropriate to consider
the opportunity cost of money tied up in land as a cost of
farming, a case can be made that the cost should not be
charged against revenue from the crop. It is also
appropriate to treat the land separately, as an investment
which will return a capital gain when sold. This seems
reasonable for Suffolk County.
8
TABLE VII
COMPOSITION OF TOTAL COSTS FOR 36 ACRE VINEYARD
VINIFERA GRAPES, LONG ISLAND -- 1985
Costs $ per acre
Fixed
Land Charge(a)
Capital Recovery (depreciation
Machinery and Equipment
Buildings
Irrigation
Vineyard
Property Taxes
utilities, telephone
Insurance
Office expenses
and interest)
$291
43
140
535
$ 700
1,009
100
50
50
20
Variable
Growing and Harvesting
Hauling to Winery
Interest on Operating Capital(a)
Management (5% of gross receipts)
Total Cost per Acre
Cost Per Acre, Land Excluded
1,177
60
75
220
$3,461
2,761
Cost per Ton: 3 Ton Yield
3.5 Ton Yield
4 Ton Yield
1,154
989
865
Cost Per Ton
Land Excluded: 3 Ton Yield
3.5 Ton Yield
4 Ton Yield
920
789
690
a. 9% interest charge
Source: G.B.White and J.L.Smith, "Cost of Production for
Vinifera Grapes on Long Island -- 1985," p.15
It is possible to make a living growing grapes on Long
Island, given careful tending of the vines. Taking an
average price of $1,000 per ton for grapes, a yield of
four tons per acre will generate $135 per ton harvested
beyond full costs of production. This yield will net the
farmer $540 per acre, or $19,440 a year from a 36 acre
farm, after mortgage payments on the land. The farm will
net $44,640 a year without considering land costs.
9
THE ECONOMICS OF WINERIES
While it is possible to make a living as a farmer
growing grapes, the livelihood is precariously subject to
weather and market fluctuations in product price, as is
farm income derived from any other crop. Grapes differ
from other crops, however, in their ready and historic
association with processing into a high value product,
wine. On Long Island, as everywhere else in the world
where grapes are grown, wineries have been established in
conjuction with the newly planted vineyards.
There is a wide variety of estimates for the cost of
constructing a winery. The most variable component is the
cost of the building itself, which can range from a
strictly functional structure to an architectural show-
piece. Equipment can be new or used, technologically
sophisticated or more ordinary and affordable. The
quality and type of cooperage will depend upon the goals
the winemaker sets. Table VIII sets forth the single best
set of estimates for the capital costs of establishing a
small winery in New York.(7)
Item
TABLE VIII
CAPITAL COSTS BY WINERY SIZE
Winery Size (gallons)
6,000 12,000 25,000 50,000 100,000
$29,700 64,200 118,200 207,900 372,000
50,800 75,800 152,800 284,000 538,700
81,800 163,000 254,300 345,100 647,900
162,300 303,000 525,300 837,000 1,558,600
$27.05 25.25 21. 01 16.74 15.59
Equipment
Cooperage
Building
Total
$/gal.
Source: C.C.Vreeland, J.R.Brake, and G.B.White, "An
Investment Analysis of New York Small Premium
Wineries," p.13
The cost estimates in Table VIII were done in 1982,
based on synthetic engineering models rather than actual
survey data from operating wineries. The results are
consistent with other engineering studies of winery costs,
reported by Kirby Moulton in a 1981 economic analysis of
small wineries in California.(8)
Moulton also reports findings from a survey of 14
California wineries ranging in size from 2,000 to 120,000
gallons. Average cost reported for buildings, cooperage,
and equipment was $14.40 per gallon of production. These
lower costs seemingly reflect the willingness and ability
of California winemakers to "make do" with buildings and
equipment less costly than the brand new inputs assumed in
engineering studies.(9) No comparable survey data exist
10
for Long Island wineries, but sketchy preliminary
information seems to indicate that the actual equipment
and cooperage costs are in line with Table VIII, while
building costs are much higher.
As preparations are being made for the 1986 harvest,
there are five wineries in Southold Town, and three more
in Riverhead and Southampton Towns. Suffolk County
wineries range in capacity from 3,000 to 80,000 gallons,
and have a combined capacity to produce 188,000 gallons of
wine a year. With the completion of two more wineries
already under construction, local winery capacity will
reach 300,000 gallons by the 1987 harvest.
Table IX describes average costs of production for a
bottle of wine produced in a small winery, including both
operating and capital costs for 1982. With $600/ton grape
prices then prevailing in New York State, average total
cost to produce a bottle of wine ranged from $2.99 in the
larger "small" winery (100,000 gallon capacity) to $3.68 a
bottle in the smallest. For every $100 increase in the
price of a ton of vinifera grapes, about $.13 is added to
the cost of making a bottle of wine. Allowing a cost of
$1,000 a ton for Long Island vinifera grapes, $.53 is
added to the production cost of a bottle of wine, bringing
the range to from $3.52 to $4.21 per bottle.
It is difficult to know how to adjust the 1982 costs
in Table IX for subsequent price changes. Reviewing the
major elements, the $l,OOO/ton vinifera grape price used
above, some 40% of total costs, is already the average
1986 cost, so there is no need to adjust grape prices
further. A considerable fraction of packaging (bottles)
and equipment is imported. From 1982 into 1985 the dollar
strengthened greatly and foreign goods became cheaper.
Since then the dollar has weakened again almost to its
1982 levels, so those prices are about the same. Despite
some increase in depreciation because of higher building
costs, capital outlays, another 15 to 20%.of the total,
have gone down dramatically because interest costs have
been cut about in half. The substantial saving in capital
costs has offset the increase in other costs, taken at the
rate of general inflation. It is likely that the overall
effect of price changes since 1982 has been negligible.
There are, however, two reasons to believe that the
costs shown in Table IX somewhat understate realities for
Long Island, both related to the fact that Long Island
wineries specialize in premium wines made from vinifera
grapes. Compared to the up-state experience on which
Table IX is based, Long Island wineries will age their
wines longer, thereby incurring larger costs from holding
inventory. Long Island wineries will also use a more
expensive combination of cooperage. These considerations
might increase the cost per bottle of Long Island wine not
11
more than 5% beyond the totals shown in Table IX. When
the higher cost of vinifera grapes is also included, the
production cost of Long Island .wine' ranges from $3.70 to
$4.45 per bottle.
TABLE IX
AVERAGE PRODUCTION COST OF A BOTTLE OF WINE
BY WINERY SIZE
WInery She (6R....ON~ )
Ita.. 6,000 12,000 25,000 50,000 100,000
Variable Costs ..-Average cost per bottle---
Grapes ($600/ton) 1.058 1.058 1. 058 1.058 1.058
"fg supplies 0.051 0.051 0.051 0.051 0.051
PackagIng 0.599 0.599 0.599 0.599 0.599
Excf.. taxes 0.066 0.066 0.066 0.066 0.066
Manager loperator 0.327 0.245 0.157 0.098 0.059
Labor 0.177 0.141 0.293 0.304 0.199
Marketf ng 0.310 0.310 0.310 0.310 0.310
Utilftfes 0.063 0.063 0.063 0.063 0.063
Offfce supplfes 2.:.2l! 0.016 2.:.2l! 2.:.2l! 2.:.2l!
AVERAGE VARIABLE COSTS 2.667 2.549 2.613 2.565 2.421
FIxed Costs
Insurance 0.036 0.035 0.028 0.022 0.020
, Capftal outlays 0.758 0.725 0.594 0.466 0.432
Property taxes 0.062 0.062 0.046 .0.031 0.029
80ndf ng & If cense 0.014 0.011 0.009 0.008 0.010
Repel rs & ..Intanance 2.:..!ll ~ 9.JJl ~ ~
AVERAGE FIlED COSTS Llli. 0.971 ~ ~ ~
- -
AVERAGE TOTAL COSTS 3.680 3.520 3.402 3.179 2.993
. ASSUMPTIONS: Grape pri ce $600 per ton; and cos t of capf ta 1 lIS (nomf nal) .
Source: C.C.Vreeland, J.R.Brake, and G.B.White, "An
Investment Analysis of New York Small Premium
Wineries," p.18
Selling costs are an important consideration for any
winery. If the wine is marketed through a wholesale
distributor, the winery may lose up to 50% of the retail
price to the wholesaler's discount. If the winery
distributes its own wine to local restaurants and
merchants, a smaller discount is lost, often 33%. Beyond
the discount, about 2% more of gross revenue must pay for
the van and driver needed by the winery for delivery.
Even when the winery sells directly through its
tasting room, and receives the full retail price, there
are significant selling expenses. The tasting room must
be built, furnished, and maintained. A salesperson must
be paid. In addition, wine must be poured to visitors.
One Virginia winemaker kept records and concluded that on
average his winery poured one bottle of wine for every
case sold through the tasting room, a selling cost of 8.5%
without considering other expenses for the tasting room.
1 ?
Some California wineries have begun to charge $1.25
for wine tasting, by requiring visitors to buy a wine
glass before the pouring. The step is controvertial
there, and is practiced in only a couple of Long Island
wineries. In a young industry concerned about barriers to
the public, charging for tastings is of limited value in
defraying the selling expenses of a tasting room.
There is no rule governing the share of wine sales
accomplished through various distribution channels. In
general, the larger the winery the greater the share of
its product which must be sold at discount. Long Island
wineries report a wide range of experience, with the
fraction sold through the tasting room varying from 5% to
40%.
To calculate an average selling expense, it is
reasonable to set a 50% discount for wholesale channels, a
35% discount and delivery expense for winery sales to
restaurants and liquor stores, and an estimated 15%
selling charge for the tasting room. If a large winery
sells 95% through a distributor, and 5% through its
tasting room, an average selling expense of 48.25% must be
charged against retail value of the wine in calculating
net income to the winery. A small winery selling 40% of
its wine through the tasting room and delivering the rest
to area stores and restaurants must give up 27% of gross
revenues to distribution costs. To some extent at least,
economies of scale arising from larger production capacity
is undermined by the diseconomies of scale involved in
marketing larger volumes of wine, when greater fractions
of output must be sold through deliveries and then through
wholesale distributors.
COMPARING RETURNS TO GRAPE GROWING AND WINE MAKING
To compare the economics of growing grapes with the
economics of making and selling wine as well, consider an
average size Southold vineyard, on which 35 acres of
grapes are planted. At 3.5 tons harvested per acre, the
farm will produce 122.5 tons of grapes a year, grossing
$122,500 in revenue. For comparison, in 1982 the average
Suffolk County farm sold products valued at $116,719.(10)
Excluding the cost of land, the grape farmer will incur a
cost of $789 per"ton (see Table VII). The farmer
therefore nets $211 per ton of grapes, $738.50 per acre,
and $25,847 for the year from the whole farm.
Now suppose the grape grower also has a winery in
which s/he processes all fruit grown on the farm. 122.5
tons of grapes will create 18,375 gallons of wine (at 150
gallons per ton), enough for 91,875 bottles a year. If
the wine is made in a 25,000 gallon winery, it costs on
average $2.344 to produce a bottle of wine (see Table IX),
13
not counting the grapes, which the winery supplies to
itself from its vineyard, and not counting the 5% addition
for special costs associated with vinifera wines. The
cost of producing the wine from the vineyard grapes comes
to $215,355, to which must still be added some charge for
the grapes, and the 5% surcharge. If the winery charges
itself the market price of the grapes it uses, at $1000
per ton, $122,500 must be added to the cost, bringing the
total to $337,855. Adding the vinifera surcharge brings
the total cost of producing 91,875 bottles of wine to
$354,748, an average $3.86 per bottle.
At an average $7 per bottle selling price, the farm
winery will generate $643,125 in gross revenue per year
from the product of the grapes grown on the farm. When
the total costs of production are subtracted, the farm
makes $288,377 for the year, from which all selling costs
must be paid. Applying a 35% selling expense ratio to
gross revenues indicates a selling expense of $225,094,
leaving a net income of $63,283 for the farm, nearly two
and half times the income provided by the grapes alone.
To this can be added income from wine made of grapes
purchased from other growers, up to the capacity of the
winery.
It is possible to make a living growing grapes, and
it is reasonable to expect that a comfortable living can -
be earned from a farm winery. As with any farm or
business, these results depend on hard work, effective
management, and the ability to market the product. For
those with the money, or access to sufficient credit, and
a willingness to take risks in an untried market, invest-
ment in the grape and wine industry on Long Island can be
attractive.
Several dozen people have already come to this
conclusion and invested considerable sums of money in the
grape and wine industry of Long Island. None of the grape
growers is a local farmer who switched to grapes from
another crop. Each grower bought land in the area in
order to establish a vineyard. Practically all the land
now in cultivation for grapes had been planted in potatoes,
although some had been in vegetables, or fallow, when it
was purchased for grapes.
No single stereotype characterizes the investor drawn
to the Long Island grape and wine industry. Some are
professional people, some successful small businessmen,
some executives of large corporations. Some are absentee
owners who rely completely on hired management, others are
deeply involved in the day to day operations and do much
of the physical work themselves, together with family
members. Some commute to the area on weekends, others
have moved to their farm places and become full community
members. Some are more attracted to the agricultural
14
aspects of grape growing, others concentrate on the
techniques of making fine wine, others have a special
penchant for promotion and marketing. Some will succeed,
others have already failed.
Beyond the cost of land, the 963 acres of grapes now
planted in Suffolk County represent an investment of
about $9.6 million. Winery capacity of 300,000 gallons is
already committed in the area, representing roughly $7.5
million additional investment. Although an individual
grape grower may prosper without owning a winery, it is
not reasonable to expect a grape growing industry to hold
land open over thousands of acres without sufficient
wineries in the immediate area to process the grapes.
THE ROLE OF TAX SHELTERS AND DEVELOPMENT RIGHTS
A common view expressed on Long Island is that the
desire to shelter income from Federal tax has motivated
the growth of the local grape and wine industry. In fact,
investors have benefited from certain provisions of the
Federal tax code. Three features of the code have been
especially important. The investment tax credit has
subsidized part of the costs. The right to apply a five
year accelerated cost recovery schedule (ACRS, sometimes
known as accelerated depreciation) to vineyard
establishment and development costs has exaggerated the
losses from early years of operation for tax purposes.
Taken together with the third feature, the ability to use
losses from one business to offset taxable income from an
. unrelated source, investors have been able to shelter at
least part of their income from Federal tax. This of
course makes investment in the grape and wine industry
more attractive than it otherwise would be.
These tax advantages are available to investors in
many businesses. Among the many methods to shelter income
from taxation, investment in a vineyard is far from the
top of the list, inferior to oil and natural gas, cattle,
timber, or shopping centers, to name a few. Vineyard
development costs, 35% of the initial outlay, cannot be
expensed when incurred. Although these costs, when
capitalized, are subject to quite favorable depreciation,
the investor must wait three years before any tax
advantage, because depreciation of capitalized development
costs must wait until the first commercial crop. Unlike
classic tax shelters, vineyards require constant attention
and hard work.
Tax considerations are an important part of the
financial plan of any vineyard, or other business. It
would, however, be incorrect to say that tax advantages
drive investment in the grape and wine industry, as is
sometimes claimed by critics of the industry.
15
-
The sale of development rights can be taken as an
indication that the land owner plans to keep the land in
agricultural use, since such a sale precludes the use of
the land for any other purpose. Table II shows that 1,052
acres of land are owned by vineyards in Southold Town. By
June, 1986, development rights for 177 of these acres had
been sold or offered for sale to the Town or Suffolk
County.(ll) Of the 10,880 agricultural acres used for
other purposes in Southold Town, development rights for
1,064 acres had been sold or offered for sale. Vineyard
owners have offered development rights on 16.8% of their
land, whereas all other owners of farmland have offered
rights on only 9.8% of their land. This result is
consistent with grape growers' claims that they are
serious about turning their investments into long term,
economically viable agricultural activity.
POTENTIAL SIZE OF GRAPE AND WINE INDUSTRY
IN SOUTHOLD TOWN
The most recent version of the Master Plan Update for
Southold Town recognizes that in the future less acreage
in the Town will be devoted to farming. After allowing
for growth of other uses, 9,950 acres remain zoned
agricultural-residential on the Southold Town map. All
agricultural areas are open to housing development. No
area is set aside as an agricultural preserve.(12)
Not all agriculturally zoned land will be used for
agriculture. In Suffolk County in 1982, 10.5% of land in
farms was tied up in house lots, ponds, roads, wasteland,
and other uses beyond agriculture.(13) If this ratio is
applied to Southold Town, about 8,900 acres remain in the
Master Plan as potential cropland.
The great majority of farmland in Southold Town is
suitable for grape growing, possessing the soil, grade,
and drainage required. Taking 80% as a conservative
estimate of acreage suitable for grapes, about 7,000 of
the 8,900 acres of cropland proposed in the Master Plan
could become vineyards. This is a physical maximum, which
mayor may not be achieved in practice, depending on the
economics of grape growing compared with other land uses,
and depending on zoning in the Town.
Table X indicates the amount of grapes which can be
expected from different levels of planting in Southold
Town, and the amount of wine which can be made from these
grapes. When the 750 acres now planted in Southold
mature, they will yield 2,625 tons of grapes, enough to
produce 393,750 gallons of wine. If the full 1,050 acres
now available to grape growers in the Town were planted,
enough grapes would be grown to produce over 550,000
gallons of wine. If all 7,000 acres technically suitable
for grapes in Southold Town were planted in grapes, the
16
Town would produce about 25,000 tons of grapes and be able
to support over 3.6 million gallons of winery capacity.
TABLE X
GRAPE AND WINE YIELD FROM VARIOUS ACREAGE
Acreage Tons of Grapes Gallons of Wine
750 2,625 393,750
1,050 3,675 551,250
1,500 5,250 787,500
2,000 7,000 1,050,000
3,500 12,250 1,837,500
5,000 17,500 2,625,000
7,000 24,500 3,675,000
Assumptions: 3.5 tons/acre, 150 gallons/ton
ECONOMIC IMPACT OF VINEYARDS
Table XI compares the per acre requirements of labor,
chemicals, and equipment used to grow grapes with the
amounts required to grow other crops important in local
agriculture. Grape growing requires more than six times
the direct labor involved in growing potatoes, but uses
less labor than cauliflower or cabbage growing. Of the
crops surveyed, grapes required by far the least
fertilizer, and used just over have as much chemicals as
potatoes, although more than cauliflower or cabbage
require. An acre of grapes involves considerably more
equipment operating costs (fuel and repairs) than the
other crops.
TABLE XI
PER ACRE INPUT REQUIREMENTS
GRAPES AND SELECTED OTHER CROPS
Input Grapes Potatoes Cauli flower Cabbage
Labor
hours/yr 91.7 14.5 129.1 128.4
Fertilizer
$/yr $110.10 182.44 260.51 187.00
Chemicals
$/yr $228.91 418.57 132.81 146.58
Equipment
operating
costs $/yr $156.14 116.34 88.45 100.65
Source: Derived from G.B.White and J.L.Smith, "Cost of
Production for Vinifera Grapes on Long Island,"
and S.S.Lazarus and G.B.White, "The Economic
Potential of Crop Rotations in Long Island Potato
Production," with current prices drawn from survey
of local equipment and chemical dealers.
17
No strictly comparable study has been made for other
crops grown on Eastern Long Island. The owner of one sod
farm indicated, however, that about $500 per acre is
required for fertilizer and lime to grow sod over a two
year planting cycle, resulting in an annual chemical cost
lower than any of the crops in Table XI. Another $900 is
required for labor to plant, grow, and harvest an acre of
sod. This $450 annual labor cost per acre of sod is
essentially the same as the $447 per acre of grapes shown
in Table VI.
Using the information in Tables VI and XI, it is
possible to compute the impact on the local economy of
various levels of grape planting. Table XII shows how
many full time equivalent jobs (2,000 hours per year) are
involved in tending different amounts of mature vines.
The grower was presumed to contract out the harvest.
Practically the entire cost of mechanical harvest ($177.50
per acre) is accounted for by equipment costs, since it
takes only about one hour of machine-operator labor to
harvest an acre of grapes.
TABLE XII
INPUT REQUIREMENTS FOR SELECTED GRAPE ACREAGE
Acreage
Labor(a)
Materials Equipment
$xOOO $xOOO
.
750
1,050
1,500
2,000
3,500
5,000
7,000
35
48
69
92
161
230
321
297
416
594
792
1,386
1,980
2,772
117
164
234
312
546
780
1,092
Harvest(b)
$xOOO
133
186
266
355
621
887
1,242
a. full time equivalent employment (2,000 hrs./yr), not
counting harvest labor
b. contract mechanical harvest, at $177.50 per acre
Source: derived from Tables VI and XI
As a rough rule of thumb, it takes one person full
time to maintain 20 acres of grapes in New York.(14) In
practice, a 35 acre vineyard will engage one full time
manager/skilled equipment operator, often the owner, and
part time seasonal employment concentrated in the pruning
and tying months of December to May, and in the September-
October harvest period, if hand picking occurs. About 80%
of the labor hours are low paid, at $4.50 to $5.00 per
hour, while about 20% of the time involves labor now paid
about $6.50 to $7.00 per hour.
18
Almost all of the expenses of operating a vineyard
are paid to local businesses and individuals. The labor
pool is not dependent on migrant labor. Chemicals and
fertilizers are all purchased through area dealers, as are
other materials used in establishing and maintaining the
vineyard. Tractors and trucks are purchased and
maintained by local dealers, although harvest equipment
and some other specialty items have been purchased through
dealers outside the area. As the industry grows, more
complete local provision of vineyard needs can be
expected.
In addition to the operating costs detailed above,
the full economic impact of the vineyards includes costs
of establishing the vineyard, an additional $10,000 per
acre (see Table v) after land charges. Most of the
materials and labor are supplied locally, but until now
the vines, amounting to 14% of establishment costs, have
been imported. As local vineyards expand, a greater share
of vines for new development may originate here, if a
specialized nursery business for vinifera vines emerges.
ECONOMIC IMPACT OF WINERIES
Even greater than the impact of vineyards is the
potential economic effect of associated wineries in the
area. While vineyard acreage will be concentrated on the
North Fork because of its unique soil and microclimate,
wineries may be spread more evenly through Eastern Long
Island. How the wineries are distributed among the East
End Towns will depend critically on zoning considerations,
as well as on tourist flows and how the general character
of an area meshes with the image the winery seeks to
project in its marketing strategy.
The potential economic impact of wineries discussed
below should be understood to extend to the entire East
End. We will first consider the impact of building the
wineries, and then look at their operation.
The cost of establishing a winery depends on its size
and on its architectural design. In practice, a wine
region has wineries of different sizes, with relatively
many small wineries accounting for a small share of total
production, and a few large wineries which produce the
majority of the wine.(15) Suffolk County already displays
this pattern. The two largest wineries in 1987 will
account for 60% of capacity, while the three smallest will
provide just 7% of capacity. Average capacity will be
30,000 gallons.
Capital costs for establishing wineries of different
sizes are displayed in Table VIII. Taking an average cost
based on the proportion of winery capacity of different
sizes actually found in Suffolk County, $18.25 per gallon
19
results. If we adjust for 75% higher building costs in
Suffolk County, compared with those on which Table VIII is
based, we can conclude that it costs $25.00 to establish a
gallon of wine making capacity in Suffolk County. About
$10.00 of this will be for equipment and cooperage, the
remaining $15.00 for building costs.
Table XIII shows the estimated capital investment
required to build wineries of sufficient capacity to
process all grapes grown on the North Fork, for selected
total acreages. Costs were derived by applying the per
gallon figures derived in the previous paragraph to the
wine production sustained by various acreage, as shown in
Table X. The per gallon cost was assumed constant for all
levels of production, reflecting the assumption that the
size distribution of wineries remains constant as the
region grows. This latter assumption is probably false,
since the observed distribution of winery size in areas
larger and more developed than Long Island is more
unequal than the currently existing distribution on Long
Island. It is likely that as the Long Island region
grows, a larger share of total wine production will be in
larger wineries (100,000 gallons or more), despite a
proliferation of small farm or estate wineries in the
6,000 to 25,000 gallon range. In such an event, Table
XIII likely overstates somewhat the investment required at
larger acreages.
TABLE XIII
WINERY CAPITAL REQUIREMENTS FOR SELECTED ACREAGE
Vineyard Winery Winery Capital Outlays
Acreage Capacity $ million
000 gal. Building Other Total
1,500 787.5 $11.8 $ 7.9 $19.7
2,000 1,050.0 15.7 10.5 26.2
3,500 1,837.5 27.6 18.4 46.0
5,000 2,625.0 40.1 26.3 66.4
7,000 3,675.0 55.1 36.8 91.9
Of the capital expenses projected in Table XIII,
building costs will all accrue to area contractors and
subcontractors. At present, cooperage and much of the
equipment used in a winery must be purchased from dealers
outside the area. As the industry develops, it is
reasonable to expect that specialized commercial
establishments will-enter the area to cater to the needs
of winery construction and equipment.
The operation of wineries generates a steady flow of
income to area residents. Aside from the purchase of
grapes from local growers, wineries support a labo: force
involved in production and a number of technicians who
repair and maintain winery equipment. In small wineries
20
.
the owner may act as cellar master and winemaker, but in
larger wineries these functions provide jobs for highly
skilled and well paid people. Further, a winery will
engage professional employees for marketing and sales.
Table XIV shows estimated expenses for two elements of
winery costs especially important to the local community:
production labor, and repair and maintenance work. Cost
per bottle is 20% higher than costs shown in Table IX, to
reflect inflation since 1982, the year on which Table IX
is based.
TABLE XIV
SELECTED WINERY OPERATING COSTS FOR SELECTED ACREAGE
Vineyard
Acreage
Winery Capacity
million bottles
Winery Operating Costs
$ million
Production Maintenance
Labor and Repair
1,500 3.94 $1.4 $ .5
2,000 5.25 1.9 .6
3,500 9.19 3.3 1.1
5,000 13.13 4.7 1.6
7,000 18.38 6.6 2.2
Source: Derived from Table IX
As the grape and wine industry grows, serious labor
shortages will arise considering the currently available
labor pool. In the vineyards, it will be difficult to
find hundreds of people to do pruning and tying work in
the winter months. Growers have already experienced
problems finding a steady workforce. To alleviate some of
the problem, most vineyards are arranged to facilitate
mechanical harvesting of mature vines.
Seasonal workers in the industry complain of low
wages, the lack of health and other benefits, and the
short spells of employment, which make it impossible to
collect unemployment compensation. These are problems
the industry will have to address if it is to secure a
more stable and committed work force.
Experience suggests that a 25,000 gallon winery will
employ three or four professional people, including a
general manager, sales manager, winemaker, and cellar
master, at an average salary of $25,000 a year. For every
million gallons of wine making capacity, then, about 150
professional jobs will be created, with an estimated
payroll of $3.75 million.
Although a few vineyard managers and winemakers now
working in the industry grew up in the area, most of these
skilled personnel have come to Long Island from elsewhere.
As the industry becomes a stable and larger part of the
?1
economy, however, more young people from the area will be
able to find high paying, responsible jobs in the
industry, after technical training in agricultural college
programs, and on the job. The industry will also support
agronomists, viniculturists, and chemists. Even a modest
sized industry of 2,000 acres can be expected to support
between 150 and 200 relatively highly paid full time jobs.
To appreciate the potential impact of the grape and
wine industry on the Long Island economy, one must add
together the effects of the vineyards and additional
substantial contributions from wineries. Combining the
information contained in Tables XI, XIII, and XIV, it
appears that of all agricultural uses of land on Long
Island, per acre the growing of grapes and making of wine
generates the most employment and the greatest use of
intermediate inputs from local merchants.
ECONOMIC OBSTACLES TO INDUSTRY GROWTH
On the basis of physical and technical considerations
alone, the grape and wine industry could involve a maximum
of about 7,000 acres in Southold Town, with an economic
impact described above. But the physical possibility of
a particular growth pattern does not mean that such growth
will be justified on economic grounds and actually occur.
Even though initial indications of possible success have
attracted investment significant enough to establish more
than 950 acres of vineyards and ten wineries on Eastern
Long Island, it does not necessarily follow that still
greater growth will be justified as well. We turn now to
the prospects for further development of the grape and
wine industry on Long Island, focussing on the most
important economic obstacles which will need to be
overcome if the industry is to expand.
MARKET NICHE: Wine is a highly differentiated
product. In recent years, there has been a substantial
slowing in the growth of the overall wine market in the
United States, after a decade of exceptionally strong
advance during the 1970s. Consumption of table wine
actually declined 6.5% in 1985, compared with 1984. Only
the phenomenal growth of wine coolers at the low end of
the market allowed total wine consumption to increase by
4.7% in the year. For comparison, table wine consumption
grew at an average rate of 9.9% from 1970 to 1975, and
11.2% per year from 1975 to 1980.(16)
Table wine products are also highly differentiated,
ranging from cheap jug wines to fine vintage varietals.
Long Island wine makers are aiming for the premium end of
the market, producing fine wines from vinifera grape
varieties. [There is no standard industry definition
of "premium" wine. Usually, the term refers to wine
selling for at least $5 per 750 mI. bottle.] In the
22
highly stratified world of wine, premium wines have been
spared the recent declines experienced by the rest of the
table wine segment. "Even the more bearish industry
analysts call for consumption of California premium wine
to increase by 6 to 8 percent annually through the end of
the century."(17)
Shifts in demand for different kinds of wine reflect
changes in the pattern of income distribution in the
United States. At least since the late 1970s, a greater
fraction of the population has earned income below $20,000
a year, while a greater fraction has also earned income in
excess of $60,000 a year. The relative decline of middle
income families has caused important shifts in marketing
strategies for a broad range of goods and services.(18)
As income has become more polarized, goods and services
aimed at the high, and low, end of the market have done
well, compared with products traditionally purchased by
middle income people. The growth in demand for wine
coolers and premium wine, in the midst of an overall slump
in table wine sales, is consistent with this pattern.
In 1985, over 577 million gallons of wine were
supplied to U.S. markets. Of this, 23.7~ came from
foreign sources. Within the United States, California
dominates wine production, accounting for 9l.3~ of all
domestic output in 1985. New York, which produced over 24
million gallons of wine, is the second highest producing
state, with 5.4~ of production.(19) Premium wines account
for roughly 25~ of California output.(20) In the total
wine market, Long Island production is vanishingly small.
To become established, Long Island wines must find a
market niche in the metropolitan New York City area. To
enter this market successfully, winemakers and industry
leaders will have to devise a careful marketing strategy,
based on the excellence of the wine and the fact that it
is produced in New York.
Long Island wineries have had some initial success in
selling to fine wine shops and expensive restuarants in
New York City. The wines are gaining recognition in
restaurants on Long Island as well. The fact that the
Long Island Grape Growers Association has produced an
attractive brochure describing the industry, with the
backing of the New York Wine/Grape Foundation, is another
positive step.
Long Island wines will compete against California and
European premium wines. With respect to the latter, Bank
of America economist Frederick Cannon has concluded that
"Unlike the standard wine producers, however, premium
producers do not have to contend with ever expanding
European wine surpluses. Acreage of premium European
vines is limited and is not expanding."(2l) There is
23
some reason to believe that an imaginative marketing
strategy will be able to establish high quality Long
Island wines in the growing premium end of the market.
It will not be easy.
QUALITY: The foundation of any premium wine region
must be the quality of the wine it produces. On this
question, there is every reason for optimism that Eastern
Long Island can grow to its maximum potential as one of
the world's fine wine regions.
The natural setting of Eastern Long Island,
especially the North Fork, is conducive to growing high
quality vinifera grapes, from which premium wines are made
in the best wine regions of the world. The soil and
microclimatic conditions are close to those found in
Bordeaux and the Napa Valley.(22) It is "the perfect
combination for excellent wine grapes.~(23)
Despite the newness of area wine making, Long Island
wines have already achieved promising critical notice.
Writing in one of the leading wine course books in the
United States, Kevin Zraly says that Long Island is a "very
exciting region to watch...more and more wineries...will
be producing world-class wines in the next few years."(24)
After discussing the wineries of the Finger Lakes and
Hudson Valley regions, Hugh Johnson goes on to say that
"Still more encouraging is the creation of a new vineyard
area on the North Fork of the eastern end of Long
Island."(25) Writing in the latest edition of his classic
encyclopedia, Alexis Lichine refers to Long Island as "one
of the most promising viticultural areas in the United
States."(26)
We saw earlier that grape prices for a given variety
from the same region can vary enormously, depending on
their quality. It is not enough to plant vinifera grapes.
They must be raised carefully to produce high quality
fruit. It is not enough to make a wine with a varietal
name. Great skill and care must be exercised to create a
fine wine.
The potential for Long Island to develop into a first
rate wine region depends critically on the availability of
highly skilled and creative growers and wine makers, and
an array of technical support staff. At the moment, there
are some skilled and resourceful people pushing the young
industry ahead, but there is much inexperience and more
talent will have to be attracted to the area for it to be
fully successful. It is difficult for a new entrant in
any business to compete for the best talent. With the
promise of pioneer work, a good start has been made. As
the industry gains in stature, it will be able gradually
to attract still more capable and experienced people.
24
Suffolk County wisely has begun to support a full
time grape specialist for Eastern Long Island, in co-
operation with Cornell University. The funding initially
is on a year to year basis. The position should be made
permanent. An enologist should be added to the co-
operative extension staff to provide much needed technical
assistance to the fledgling wine industry.
TOURIST FLOWS: Experienced wine makers commonly say
that high quality wine does not sell itself. Often told
as a lament, the observation underscores the importance of
marketing and the need to consider all available marketing
channels carefully when assessing the prospects of a
single winery or an entire region.
Direct retail sale of. wine through the tasting room
is an important marketing channel for any small winery.
The ability to receive full market value for the sale,
free from discounts to merchants or wholesalers, adds to
the net income of the winery, despite the costs of
building and operating the tasting room.
Sales through the tasting room rely on flows of
tourists. To estimate the relationship between tourist
flows, overnight accommodation requirements, and the wine
industry, several assumptions and calculations are
required.
From Table II, we know that if all acreage now owned
by vineyards were planted to grapes, about 1,500 acres of
vines would produce in Suffolk County. This would supply
input for 3.94 million bottles of wine (see Table XIV).
At the most extreme, assume that all wine must be sold
through the tasting room. Of course, this is never the
case, but if we know what the tourist requirement is to
sell all the wine this way, it will be easy to scale
the number down by whatever fraction of total sales we
eventually assign to the tasting room.
The number of visitors required to sell 3.94 million
bottles of wine depends completely on the number of
bottles of wine an average visitor buys when s/he comes to
a winery. There is a wide range of experience. One study
of New York wineries found through a survey that in 1979
in the Finger Lakes region, an average visitor bought 3.45
bottles of wine, while in Southeastern New York
(principally the Hudson Valley) the average visitor bought
only 1.75 bottles.(27)
Two winery owners in Virginia who had measured the
flows for their own wineries in 1986 said that they sell
more than 2 bottles of wine per visitor. However, owners
of two small wineries on Long Island each thought that as
many as 150 people would have to come through in order to
sell 100 bottles of wine, although they emphasized that
25
they had not actually measured the flows. No data are
available for Napa Valley experience on this matter. From
the range of available experience, it would appear
conservative to expect that Long Island wineries will sell
on average one bottle of wine to each visitor.
To sell the full wine production of 1,500 acres
through area tasting rooms, therefore, 3.94 million people
would have to pass through them. Since the average
visitor goes to more than one winery when coming to the
area, a smaller number of people are required as tourists
to account for any given number of winery visits. A study
conducted by the Napa Valley Vintners Association in 1983
found that the average visitor to a winery in Napa Valley
visited 1.6 wineries in the Valley.(28) Applying this
ratio, 2.46 million tourist would have to come to the
North Fork to generate 3.94 million visits to area tasting
rooms.
Most tourists drawn to the wineries will be day
trippers not requiring overnight accommodations. In Napa
Valley, located about as far from San Francisco as the
North Fork is from New York City, about 13% of visitors
stay overnight in commercial accommodations.(29) This
ratio implies that 320,000 people would stay overnight on
Eastern Long' Island over a year, if the entire wine
production from 1,500 acres were to be sold to tourists.
The visitors will be concentrated in the seven month
period April through October, when the harvest and crush
ends. Spreading the tourists evenly over 210 days yields
a daily accommodations requirement for 1,524 people,
enough to fill 762 rooms on the average night. Since a
relatively greater flow of tourists can be expected on
week-ends, the peak demand for rooms will be higher than
the simple average.
The fraction of wine actually sold through tasting
rooms varies greatly with the size of the winery. If 20%
is taken as a reasonable average for the region, then 304
people per night (20% of 1,524) would have to find
accommodations in the area through the seven month period,
occupying 152 rooms. To calculate the accommodations
requirement for any fraction of sales through the tasting
room, multiply the fraction by the 1,524 people needing a
place to stay if all wine is sold directly to tourists.
If the whole 7,000 acres of grapes were planted on
the North Fork, and all the wine made in the area, 1,418
people would require accommodations on an average night
from April to October, assuming that 20% of the wine must
be sold through tasting rooms.
If visitors buy more than one bottle of wine each, as
is the practice elsewhere, tourist requirements decline.
If visitors go to more than 1.6 wineries per trip, tourist
26
.
requirements also decline.
The California experience that 13% of visitors stay
overnight is consistent with available evidence on the
home of visitors to Long Island wineries. Table XV shows
the home of visitors to Pindar Winery, as recorded in
the winery guest book for the three month period April _
June, 1986. It seems likely that most of the visitors
from beyond the New York City and Long Island area came
as guests with friends or relations from the area. They
then required overnight accomodations in about the same
proportion as the rest of the visitors. If all Long
Island visitors are day trippers, and all New Yorkers
require an overnight in the area, then about 12% of total
visitors need accommodations.
TABLE XV
HOME OF VISITORS TO PINDAR WINERY
April 1 - July 2, 1986
Home Location
Number of Registrations
% of Total
Suffolk County
Nassau County
New York City
Other
Total
984
284
175
367
1,810
54%
16
10
20
100
Source: Pindar Winery Guest Registration Books
We have seen that a reasonable set of assumptions
leads to a conclusion that if all 1,500 acres now owned by
vineyards on Eastern Long Island were planted in grapes,
and all the wine were produced in the area, associated
tourist flows would require 152 rooms a night for the
seven-month season. This is well less than half of the
'79 hotel and motel rooms available in Southold Town, and
a small part of the 4,302 rooms available in the five East
End towns, without counting bed and breakfast rooms.(30)
The grape and wine industry is of course not the main
tourist attraction on the East End, so the demand for
accommodations projected above may not be met by existing
commercial facilities. A full study of tourist flows, the
availability of hotel, motel, and bed and breakfast rooms
on the East End, and their occupancy rates, must still be
done. Such a study is necessary to know the degree to .
which a Possible lack of tourist accommodations may
constrain the growth of the wine industry, and the extent
to which a growing wine industry will compete with other
users of hotels and motels in the area. The wine industry
ooes, however, attract tourists well beyond the normal
Summer season, and will provide a solid basis for
e~tending the tourist trade through the grape harvest.
77
IMBALANCE OF GRAPE ACREAGE AND WINERY CAPACITY: The
tourist projections derived above assumed that all grapes
grown in the area were made into wine on Eastern Long
Island. Actually, this is not true. The fact that Long
Island winery capacity lags far behind planted grape
acreage is a major problem for the industry. Excess
grapes must be sold elsewhere, and the market for vinifera
grapes on the East Coast is near saturation.
There are about 950 acres of vinifera grapes planted
on Long Island. Table XVI shows how Long Island fits in
with other areas growing vinifera grapes on the East
Coast.
TABLE XVI
ESTIMATED EAST COAST VINIFERA ACREAGE - 1986
Area Planted
Vinifera Acreage
Virginia
Long Island
Upstate New York
Other
Total
1,000
950
550
1,000
3,400
Source: author's survey
Eastern Long Island vineyards will harvest about 650
acres of vinifera grapes in 1986. Assuming an average
yield of 2.5 tons per acre, there will be enough grapes to
make about 232,000 gallons of wine, compared with the
188,000 gallons of winery capacity in the area. In two
years, the full 950 acres will bear, at a more mature
average 3 tons per acre, enough to support almost 430,000
gallons of capacity. If the industry achieves its desired
yield of 3.5 tons per acre, current plantings will support
about 500,000 gallons of capacity.
Long Island growers will have to sell more than 290
tons of vinifera grapes off the Island in 1986, the crop
in excess of local wine making capacity. This will put a
strain on prices. When another 113,000 gallons of
capacity now under construction comes on line in 1987,
local demand will about balance supply. Subsequent years
will require continual expansion of winery capacity if
Long Island grapes are to find an adequate market.
Long Island wines are a tiny fraction of the New York
market for premium wine. Long Island vinifera grapes,
however, are a substantial fraction of the East Coast
market. If no additional winery capacity is built for
1988, and 3.5 tons per acre are harvested on Long Island,
the fruit from 380 acres of grapes will have to find a
28
market elsewhere, more than a third of the crop. This
would add about 15% to the supply available outside
Long Island, and is sure to have a depressing effect on
grape prices.
One step Southold Town might take to address this
problem is to make clear to the industry and the public
that additional winery capacity is a public policy goal.
Whether by allowing free standing wineries, or by
streamlining procedures for the review of applications and
site plans for new wineries, Eastern Long Island Towns can
influence the course of investment in the industry.
RISKS AND THE HIGH COSTS OF ENTRY: Another serious
economic obstacle to industry growth is the high initial
investment required, whether for land, the establishment
of a vineyard, or the construction and outfitting of a
winery. The problem is exacerbated by the reluctance of
banks to finance investment in the industry. Some banks
on the East End will not lend money to support investment
in a new vineyard or winery, unless they have a pre-
existing long standing business relationship with the
applicant. The attitude is that investment in the wine
industry on Long Island is so risky that it is not
appropriate for a bank to handle it. In this view,
underwriting the industry belongs in the realm of venture
capital.
This is exactly the policy now being followed by Bank
of America, which has historically been the leading banker
to the California wine industry. In the currently
troubled wine market, Bank of America will not loan
money to support any new vineyard or winery. Their
officers also refer to venture capital as a source of
financing.
Prices paid for Southold Town land intended for
vineyards passed $10,000 an acre in 1986. In Napa Valley,
bare land can cost $25,000 an acre, if it 1s available at
all, and one planted vineyard sold for over $40,000 an
acre in 1986. "Vineyard values in the (Napa Valley area)
continued to climb despite surplus grape supplies because
of continued growth in premium wine consumption and the
future limitations in high-quality wine grape acreage."(3l)
Southold Town land prices are high by historic
standards in the area. But North Fork grape acreage is
naturally severely limited, as it is in Napa Valley, here
surrounded by the sea, there by mountains. High land
prices can be sustained by the ability to produce a high
value product on this strictly limited base. While no
grower or wine maker wants high land prices, the fact that
North Fork land can produce fine premium wine indicates
that high land prices need not be an insurmountable
barrier to agricultural growth.
No one can say whether the grape and wine industry
will be able to flourish on Eastern Long Island. It is a
risky proposition. While the technical capacity to build
a world class wine region exists, great skill, dedication,
imagination, and luck will be needed to overcome the
obstacles described above. Despite the risks, there are
reasons to believe that each obstacle can be overcome, and
that a viable, broadly based grape and wine industry might
be established on the North Fork and adjoining Towns on
Eastern Long Island. In some respects, the outcome will
be influenced by public policy, to which we now turn our
attention.
PUBLIC POLICY ISSUES
The growth of vineyards and wineries brings with it
questions of public policy, especially with regard to
taxes and zoning. The North Fork is beginning to
experience intense pressure for development, and stands
ready to go the route already travelled by previously
rural areas further west in Suffolk and Nassau Counties.
Policy towards the grape and wine industry is one aspect
of the larger policy response to these development
pressures.
.
As suburban development pressure reaches a rural
area, land prices are bid up. Higher land prices put a
double burden on the farmer: 1) higher taxes, to the degree
the farmland is taxed in proportion to market value rather
than economic value in agriculture; 2) higher land values,
making it more difficult to justify economically the
continued use of the land in farming, especially for low
value crops.
Under these economic pressures, farmers tend to sell
land to developers, if not immediately, then as the farm
passes between generations. Farmland tends to shift to
higher value crops, in relation to costs, to support the
higher taxes and land values. On Long Island, a shift out
of potatoes and vegetables into sod and nursery stock has
come at the initial stages of agricultural decline in many
areas of Western Suffolk and Nassau Counties. This
pattern is now being repeated on the North Fork, as sod
and nursery operations move in from western towns where
development has finally overwhelmed agriculture.
At present, the North Fork has no zoning protection
for agriculture. Every farm can be sold off in two acre
plots for development, a process which has accelerated in
recent years. Commercial establishments have spread along
the Main Road and the North Road between hamlets. The
rural character of the area is slipping away, yet it is
exactly a rural character which will attract, and then be
sustained by, grape growing for premium wineries.
30
Eastern Long Island is in a better position to resist
traditional development pressure because it can sustain a
grape and wine industry. If it can be established, a wine
region on the North Fork would be a strong basis for long
term continued agriculture. An established wine region is
an extremely valuable economic asset, not easily swept
aside.
We have already seen that growing grapes and making
wine are economically viable activities on the North Fork.
We have seen that this industry generates more jobs and a
greater volume of intermediate purchases than any other
agricultural use of the land. But the grape and wine
industry cannot take hold unless agricultural land itself
is protected from development. This is the task of the
zoning ordinance. .
.
CREATING AN AGRICULTURAL PRESERVE: In the mid-
1960's, Napa County California was experiencing the
beginnings of development pressure from the San Francisco
Bay Area, an hour or so away. The entire agricultural
valley was zoned for one acre plots, and subdivisions were
multiplying. To hold back the development of the area as
a bedroom community, in 1968 the County Board of Super-
visors created an Agricultural Preserve, encompassing the
entire Napa Valley floor, in which a 20 acre minimum plot
size was enforced. Later the minimum was raised to 40
acres, where it stands today.
.
This strict protection of agricultural land from non-
agricultural uses has been extremely effective in
preserving the rural character of Napa Valley. Many other
counties in the United States have created similar zoning
classifications to hold agricultural land free from all
non-agricultural uses.
The preservation of agriculture is a stated goal of
the Southold Town Master Plan. In the context of heavy
development pressure now confronting the Town, strict
zoning protection for agriculture is necessary. The best
way to accomplish this is to create an agricultural
preserve, in which very large lot zoning will effectively
restrict housing, and in which commercial development will
not take place.
The detailed boundaries for such a preserve will be
debated at length. Roughly defined, it should be bounded
on the west by the Riverhead/Southold Town Line, on the
east by Horton Road on the western edge of the hamlet of
Southold, on the south by the Main Road, and on the north
by Sound Avenue, Bergen Avenue, Oregon Road, and the North
Road. This area contains approximately 9,000 acres of
farmland.
31
The area just defined is still more or less a
contiguous mass of farmland. It is the foundation of
agriculture in Southold Town, and gives the area its rural
setting. Preserving agriculture in Southold Town means
preserving this block of land for farming.
The appropriate size of lot for an agricultural
preserve is much debated across the country. If the land
is to be used for farming, the minimum lot size must be
large enough to sustain a farm family. It is not clear
how to determine such a size, since it will vary by crop.
Still, it is possible to arrive at a reasonable and
practical estimate for Southold Town.
In Suffolk County in 1982, there were 797 farms,
whose average size was 63 acres. 70% of these farms (554)
provided the principal occupation and livelihood for the
operator. It seems reasonable to assume that the 243
farms which did not provide the principal livelihood to
their operator were among the smallest farms. Since there
were 331 farms of a size one to nine acres in the County,
we can conclude that 88 small farms were able to sustain
their operator. Taking into account the size distribution
of the remaining farms, about half the farms in Suffolk
County which could support an operator were 52 acres or
less.(32)
On the basis of Suffolk County experience, it is
reasonable and practical to apply a 25 acre minimum lot
size in an agricultural preserve. This lot size would
mean that a farm would have to be a minimum 50 acres
before it could be divided. This corresponds to the
median size of an economically viable farm in the County.
A 25 acre lot will sustain an economically viable farm.
In 1982, it was sufficient to sustain about two thirds
of all farm operators in the County, without reference to
specific crop. A 25 acre farm planted in grapes would be
economically viable if well managed, and certainly viable
if a 10,000 gallon winery were built to process the grapes
grown on 20 acres.
An agricultural preserve covering 9,000 acres of
prime Southold farmland restricted to 25 acre plots would
be effective in preserving the rural character of the
area. It would be economically sound because there are
a number of proven agricultural activities, not just
grapes, which can sustain a family on a 25 acre farm.
Existing farms less than 25 acres, and other preexisting
zoned uses within the preserve, would be protected by a
"grandfather clause."
A zoned agricultural preserve should be augmented by
other public policies designed to keep land in farming.
The Town and County should continue to purchase
development rights. Farmers should continue to be
32
encouraged to place their land in an agricultural district
in exchange for lower taxes and freedom to farm without
nuisance suits by non-agricultural neighbors. It may seem
redundant and a waste of money to add such measures to the
zoning protection, but zoning can be changed by a single
vote. To guard the agricultural character of the area
from political vicissitudes, other long term commitments
to farming need to be in place.
ZONING FOR WINERIES: Beyond the general zoning
required broadly to protect agriculture, wineries present
special zoning issues that seem to be very difficult to
solve. The problem is that a winery typically combines
three types of economic activity: farming, industrial
processing, and commercial sales. It is the commercial
activity which raises the most difficulty in the
community.
Wineries have been in operation in Southold Town for
less than ten years. Wineries have been in Napa Valley
for over 125 years. Napa Valley political and industry
leaders are still struggling to write an operational
definition of a winery, faced with the same controversies
that have already arisen in Southold. "The question
before the [Napa County Planning] Commission today is what
activities beyond the actual making, bottling and selling
of wine at an established winery are or should be
recognized by the County as part of a normal winery's
operations, as an accessory use or rejected as a non-
agricultural commercial activity."(33)
The question just posed has not yet been resolved in
Napa County. A review of the Napa Valley experience does,
however, provide helpful guides for Suffolk County.
Authorities there have done more to address the issues
than in Virginia or Upstate New York, where wineries are
much more spread out, where tourism is not so intense, and
where zoning still can be quite informal, or even non-
existent.
!
,
Limited commercial activity is allowed at Napa Valley
wineries. Beyond tours, tastings, and the sale of wine
made by the winery, a limited array of wine-related
products are sold, including wine glasses, cork pullers,
and T-shirts showing the winery name. Other promotional
events are allowed, often with restrictions. For example,
any concert or special musical event must be authorized by
a use permit, which is granted only if the winery can show
that the proceeds will go to a local charity or community
organization. The use permit also requires adequate
parking, sanitation, and safety provisions for the event.
Serving meals can be allowed in connection with private
parties or with a promotional cooking school.
33
The problem in Napa Valley is to allow wineries to
undertake those commercial activities necessary and
appropriate to their survival as wineries, and prevent a
business establishment from operating a restaurant, retail
store, concert hall, inn, or other commercial venture
under the guise of a winery.
Tasteful restraint by the industry and general common
sense have been the principal means by which boundaries
have been set on winery operations in Napa Valley. Recent
pressures to take advantage of the exceptional tourist
trade, particularly in the context of a wine industry in
some economic distress, have broken past restraint, and
Napa County now is engaged in the task of making explicit
some limitations which heretofore have been understood. In
a striking parallel with Southold Town, Napa authorities
shut down one winery earlier this year because the winery
had overstepped the bounds of accepted commercial use.
Recent proposed legislation in Napa County would
limit the size of kitchen facilities to make it impossible
to cook for more than a few people, thereby making a
restaurant in the guise of a winery impractical.
Similarly, proposed legislation would restrict the area
allowed for sales.
In Napa County, a small winery does not need a use
permit to operate on a vineyard in the agricultural
preserve area. The winery is treated as an agricultural
processing facility allowed farmers for their own crop in
agricultural-zoned areas. If a winery wants to exceed the
bounds of commercial activity allowed for a farm winery,
it must locate in a commercial zone.
.
In Virg:nia, state law allows a vineyard to set up a
farm winery as a matter of right on agricultural land, as
long as its wine is made from at least 5l~ fruit grown by
the farm. There are about 35 farm wineries in Virginia,
the largest producing about 30,000 gallons a year. Most
are very small, even by Long Island standards. No
conflicts have arisen between Virginia wineries and local
zoning authorities regarding commercial activity.
The New York State Farm Winery Act, first passed in
1976, permits a relatively broad range of commercial
activity for farm wineries. In addition to the wine and
wine related supplies allowed to be sold elsewhere, the
New York law permits the sale of "any food or food product
not specifically prepared for immediate consumption on the
premises." Any souvenir of the winery or of New York
State may also be sold.
To be considered a farm winery in New York, the
winery must produce less than 50,000 gallons of wine a
year, and it must make wine from fruit grown "exclusively"
34
in New York State. A winery of greater capacity, or which
uses out-of-state fruit, must be licensed as a commercial
winery. Commercial wineries are also allowed a broad
range of commercial activity, but must pay a higher
license fee.
Conflict has arisen in Southold Town because a farm
winery has come to exceed 50,000 gallons capacity, yet
wants to continue operations although not in a commercial
zone. There is no need to require a winery with capacity
greater than 50,000 gallons to locate in a commercial
zone, nor is there a need to convert agricultural zoning
to commercial in order to accomodate the growing winery.
The Town Board may wish to authorize a use permit for a
commercial size winery, including restrictions which
require it to operate under all rules for a farm winery
other than size, and which make clear that the use permit
is restricted to the winery, and does not run with the
land as a permanent variance to commercial status.
.
TOURISM, COMMERCIAL ZONING, AND GENTRIFICATION: As
the grape and wine industry grows on the North Fork, the
area will certainly become a greater tourist attraction.
Aside from traffic congestion, heavy tourist flows can
have a negative effect on local people if shops catering
to the tourist trade replace merchants who have provided
important services to the community.
The North Fork has historically attracted a summer
tourist population. The tourist flow drawn by a wine
industry will not just involve greater numbers than
before; it will bring a different type of tourist. .The
wine related tourist will be more transient, staying a day
or two at most, if staying overnight at all. This fact
explains why tourism related to the wine industry will
tend to distort the local commercial mix in a way not yet
experienced on the North Fork.
Transient tourists demand services very different
from those required by tourists who stay in the area for
an extended period, in a summer home or rented cottage.
The transient tourist has no need for a hardware store or
shoe repair or dry cleaning services; no need for a
locksmith or store that sells work clothes or household
appliances. Yet these are products demanded by "resident
tourists" and local people alike. The transient tourist
wants souvenirs, restaurant meals, designer clothes and
trendy art objects. Transient tourists, especially those
attracted by the premium end of the wine market, also
bring money to back up their desires.
The result, when left to market forces, tends to
favor the transient tourist over the local resident and
resident tourist. Rents in commercial buildings go up,
and merchants catering to the transient tourist come to
35
dominate commercial uses, as the high rents drive out of
business or to other, more remote, locations the basic
services which are essential to the life and character of
a rural community. Main street is not simply more crowded
with cars; it has entirely different stores and merchants.
There is no question that a growing grape and wine
industry will generate these pressures. Fortunately, at
least two sources of experience and guidance exist to help
Southold Town deal with them. Communities in Napa Valley
have begun to address commercial land use through zoning,
and urban neighborhoods across the country have devised
many responses to gentrification, a process which includes
the commercial changes experienced as the wine industry
develops.
The City of St.Helena, in Napa County, is debating an
amendment to its zoning ordinance which would create four
commercial districts, including a "local serving commer-
cial district to provide an appropriate location for com-
mercial uses which serve the everyday needs of local
residents. Uses which do not serve local residents are
not appropriate in these locations." The proposed ordi-
nance includes a detailed list of almost 150 commercial
activities, allocating them across the proposed zoning
districts.(34) The debate surrounding this legislation
will be instructive for all people who face the issues.
In many ways, the economic strains to which the North
Fork is just becoming subject parallel the process of
gentrification experienced in all the major urban centers
of the country. As professional people and business
executives settle into an area traditionally inhabited by
working-class and minority populations, the neighborhood
changes. Housing costs rise and traditional residents, or
their children, can no longer afford to live there. Shops
and stores change to reflect the tastes and spending power
of the new population, often accompanied by resentment and
friction with traditional residents. New condominiums are
built, which overload streets with traffic and disrupt
existing skylines. New political forces are set in
motion, challenging traditional leadership to find ways to
accommodate sharply conflicting interests.
Community groups have formed in most major U.S.
cities to address the problems of gentrification. Every
borough of New York City has experience. Residents of the
North Fork might gain helpful insights by contacting some
neighborhood organizations in New York City to find out
more about the dynamics of gentrification, and what
communities have done to protect the interests of their
residents while accommodating inevitable change.
.
Change is coming to the North Fork, with or without a
grape and wine industry. Undoubtedly, the presence of a
premium wine region so close to New York City and Boston
will contribute to a rural gentrification of the area.
But the dedication of North Fork land to condominiums,
expensive summer homes, retirement homes, and housing for
professional people working in Riverhead and Brookhaven
Towns will also put stress on the present residents of the
Town, and will be a gentrification of a different
type. The lack of affordable housing in the Town is an
early sign of gentrification, not at all the result of the
grape and wine industry.
LOCAL GOVERNMENT FINANCE: With respect to local
government finance, the extension of grape acreage in place
of other crops in the area will not have remarkable direct
consequences. Farmland planted in grapes is assessed at
the same value as 'land planted to other crops. If devel-
opment rights are sold, Southold Town assessments are
reduced by the same proportion on vineyards as on other
farmland.
.
There are two ways in which vineyards may pay higher
taxes than other farmland: 1) if the land is in an
agricultural district, and 2) if the local authorities
choose to tax the poles and trellises supporting the vines
as a capital improvement to the land.
If a vineyard is in an agricultural district, it is
entitled to a reduction in property tax, as is any such
farm. The lower assessment is supposed to reflect the
lower value of land dedicated to agriculture, based on the
economic return to the farm, compared with the market
value of the land when exposed to development pressure.
The New York State Board of Equalization and Assessment
imposes an add-on to the (reduced) assessed value of land
planted to orchards, and a larger add-on to vineyards, to
reflect the fact that orchard and vineyard land has a
higher economic value as a farm than other crops. The
most recent add-on for vineyards on Long Island is $990 an
acre, almost doubling the assessed value of vineyards
compared with other crops planted on land in the same
mineral soil group. Even with this add-on, the vineyard
owner realizes a tax saving by putting the land in an
agricultural district.
When a vineyard is established, over $1,000 an acre
is expended to put in poles and wires for the trellises
that support the grape vines. New York State law allows
local authorities to consider the trellis a capital
improvement to the land, just like a barn, and to assess
the poles and wires as a capital improvement, in addition
to the land assessment. Actual practice varies around the
State. In Upstate counties, poles and wires are in fact
taxed, whereas Southold Town has not exercised its option
37
to impose such a tax on local vineyards. In Napa County,
vineyards are assessed for poles and wires, increasing the
tax paid by about $90 per acre per year.
Vineyards will generate significantly greater revenue
than other agricultural land uses, indirectly, because of
the associated wineries and the tourist flows attracted by
them. Wineries have already added millions of dollars of
capital improvement to Suffolk County agricultural land.
Many more millions will follow as the industry grows.
To the degree that vineyards attract a greater
tourist flow, and to the degree that the additional
tourists spend money in the Town or County, additional
sales tax revenue accrues to local government.
Hotels and motels in Napa County assess a 10% tax on
overnight room charges, as do many areas with substantial
transient tourist flows. To judge the impact of such an
accomodations tax on local government revenue, consider
the tourist flows projected above in connection with the
analysis of direct sales by wineries from their tasting
rooms. If 20% of the wine made from 1,500 acres of grapes
were sold directly to tourists, travelers would demand 152
rooms per night for the seven month season April-October.
At an average rate of $65 per night, this would generate a
total direct expense of $2.07 million in the area. The
consequent $207,000 in revenue from a 10% tax would be
divided between State, County, and Town governments
according to whatever formula would be included in the
legislation creating the tax.
Increased revenue from tourist flows is not pure
gain to local government. Tourists cost local government
substantial amounts of money in police protection and road
construction and maintenance. Until a detailed study of
the extent, costs and potential revenues for tourism is
done for Eastern Long Island, the full tax implications of
the wine industry can not be fully understood.
While vineyards may generate somewhat greater tax
revenues than other agriculture, many people claim that
farming of any sort provides less net revenue to local
government than housing built on the land. However, the
most recent study of the impact of residential development
on local government finance in an agricultural area con-
cludes "that over a wide range of densities (0.2 units per
acre to 4.5 units per acre) the ongoing public costs of
new residential development will exceed the revenues from
such development."(35) The study notes that most previous
analyses of the question have come to the same basic
conclusion.
.
38
,
The American Farmland Trust study just cited limits
its attention to residential development, without
considering the tax implications of associated commercial
growth. Adding in the net revenue effect of commercial
development may, or may not, alter the end result. In any
event, for one reason or another residents of suburban
communities pay higher property taxes than residents of
rural communities, and local governments in suburban areas
have both greater revenues and greater expenditures than
their rural counterparts.
CONCLUSION
.
The North Fork is confronted with a choice. It can
easily go the route of residential and commercial
development so typical of the history of Western Long
Island and other fringe areas of metropolitan centers
across the country. Or it can preserve its agricultural
and rural character. Residential development may, or may
not, relieve the tax burden felt by current local
residents, but when marginal tax considerations are
compared with choices about the very character of the
area, it seems wise to focus thought on the broader issues
of the kind of community the North Fork will be.
When Louisa and Alex Hargrave demonstrated that
vinifera grapes can be grown on the North Fork and made
into fine wine, they discovered a precious resource that
makes Eastern Long Island a unique spot in the New York
metropolitan area. The fact that the North Fork has the
technical and economic potential of becoming a fine wine
region means that the area has the potential to go a
different path from the rest of Long Island, based on
agriculture as the highest and best use of the land.
The land base for a Long Island fine wine region is
severely limited by nature. Its core is the central
portion of the North Fork, 7,000 acres surrounded by the
sea. Augmented by at most a few thousand acres in
Riverhead and on the South Fork, there is nowhere else for
fine wine to originate in the area. Once established, the
land in such a region will be extremely valuable exactly
because it is absolutely limited despite demand for it.
No suitable alternative land is available. Further, the
value of the land will be supported by the value of the
wine produced from it, as is the case in Napa Valley.
For nearly 350 years, the North Fork has had a viable
eccnomic base as an agricultural and fishing community.
Economically and culturally, it has been distant from New
York City, oriented more towards its historic roots in New
England. The North Fork has attracted a regular summer
tourist population which has respected the rural character
of the area and supplemented the local economy, providing
an additional source of employment and income.
39
.
~
The traditional balance among agriculture, fishing,
and tourism is now irreversibly challenged by residential
and commercial development. The Southold Town Master Plan
calls for a continuation of the historic three-legged
economy for the area, but does not say how these
activities can be secured in the face of mounting
pressures to the contrary. This is the principal local
problem facing the North Fork community.
Agriculture can be preserved if adequate zoning is in
place and vigorously enforced to protect the rural
character of the area, and if crops can be grown which
economically justify the use of the land for farming.
Based on experience allover the country, agricultural
land which can be divided into one, two, or five acre
plots will be divided and swallowed 'up piece by piece over
a period of years by residential and commercial uses. The
short run economic advantages of continual subdivision
will dominate the market, which has no adequate mechanism
to evaluate the long term social benefits derived from
creating or maintaining a particular character for an
entire area. This is the task of zoning. When I began
this study, I did not anticipate the great significance of
large lot zoning for Southold Town.
If Southold Town acts to establish an agricultural
preserve with 25 acre minimum plots, there are significant
reasons to be optimistic that the grape and wine industry
on Long Island can help to secure agriculture as the
highest and best use of the land. Initial investments in
the industry, although providing tax advantages to their
owners, are based on the expectations of, and genuine
prospects for, long term economic profit.
Suffolk County and Southold Town have been among the
pioneers in the United States in implementing the purchase
of development rights to keep farmland in farming. These
policies are known and respected in California, Upstate
New York, and Virginia, among the many places which have
struggled to find practical ways to sustain agriculture
when development pressures mount. Some of these areas
have had success using large lot zoning as another weapon
in the battle. Suffolk County and East End Towns would be
wise to study and apply their experience, as they have
done with ours.
Southold Town now faces the most profound set of
local issues it has seen in many years. Perhaps not since
it was first settled has the very character of the area
been so deeply challenged. There are extremely powerful
forces operating to turn the region into a residential
area with associated commercial districts, and a tourist
trade drawn by the surrounding waters.
.
40
.
,
There is nothing inevitable about this outcome. The
fact that the North Fork could become a world class wine
region gives the community a choice to preserve
agriculture, for grapes and many other crops as well.
The preservation of agriculture, however, cannot mean
that there will be no change on the North Fork. Change
and development must come. Usually the term "developer"
has connoted residential, industrial, or commercial
development, as though those economic activities were the
only ones to bring progress. On the North Fork,
development can also be driven by agriculture.
I
[
.
41
.
14. Gerald B. White, "Economic Opportunities for Fruit,"
in NEW YORK AGRICULTURE 2000, New York State Oepartment of
Agriculture and Markets, 1985, p.119
15. See Gerald B. White, "Economic Opportunities for
Fruit," op.cit. Table 1, p.115; and Kirby Moulton, "The
Economics of Wine in California," in BOOK OF CALIFORNIA
WINE, University of California Press/Sotheby Publications,
1984, p.300
16. IMPACT, June 1, 1986, p.3
17. Frederick L. Cannon, Economist at Bank of America, San
Francisco, in "Wine Industry Study," an unpublished
internal Bank of America report, 1985, p.7
18. Bruce Steinberg, FORTUNE MAGAZINE, November, 1983
19. WINES & VINES, July, 1986, pp.25 and 31
20. Frederick Cannon, op.cit., p.6
21. F.L.Cannon, op.cit., p.6
22. Thomas H.E.Cottrell, "Smooth Sailing for Long Island
Vineyards," in WINES & VINES, November, 1983, pp.lOO-l03.
Richard T. Harbich, "Vinifera Growing on Long Island," in
VINIFERA WINE GROWERS JOURNAL, Winter, 1982, pp.215-219
23. PATTERSON'S CALIFORNIA BEVERAGE JOURNAL, Los Angeles,
October, 1984
24. Kevin Zraly, WINDOWS ON THE WORLD COMPLETE WINE
COURSE, Sterling, New York, 1985
25. Hugh Johnson, THE WORLD ATLAS OF WINE, Simon and
Schuster, New York, 1985, p.264
26. Alexis Lichine, NEW ENCYCLOPEDIA OF WINES AND SPIRITS,
4th Edition, Knopf, New York, 1985, p.540.
27. Richard C. Cooper, SOME ECONOMIC ASPECTS OF SMALL
WINERIES IN NEW YORK, Department of Agricultural
Economics, Cornell University, 1981, p.15
28. reported in NAPA VALLEY TOURISM PROJECT, a study done
by ESA, San Francisco, November, 1984, p.13
29. derived from data in NAPA VALLEY TOURISM PROJECT
report
30. George Fey, Long Island Tourism and Convention
Commission, phone conversation, July 7,1986. The LITCC
estimate for Southold is less than the 553 rooms reported
in the Southold Town Master Plan Update Background Studies
43
'.
~
31. F.L.Cannon, op.cit., p.7
32. Derived from 1982 CENSUS OF AGRICULTURE, New York,
County Data, United States Department of Commerce, Bureau
of the Census, p.126
33. "What is a Winery?" Memorandum to Napa County
Conservation-Development and Planning Department, from
James Hickey, Director, November 6, 1985
34. Second Draft Proposed Ordinance of City of St.Helena
Amending Commercial District Regulations, June 17, 1986
35. DENSITY RELATED PUBLIC COST, American Farmland Trust,
Washington, D.C., 1986, p.39
I
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44