Grape Quality: In the Eye of the Beholder?

Over last 14 yea= rs, there has been a definite evolution

Concepts of qual= ity

Grapes are custom farmed

Wineries are more involved with farming

Grape contracts have = not caught up. We lawyers have work to do with our clients to help them define what the issues are.

This talk is a part o= f that effort. Because I think the question I was asked to talk about, is itself a mistaken question.

It’s not h= ow to define quality that’s the problem,

It’s who g= ets to define it, that’s the issue.

These categories= can be used in many industries.

Classic differen= ce between buying Land’s End or custom tailored.

In grapes, there= are two markets

One for a commod= ity grape: like a California appellation chardonnay.

One for custom farmed= grapes: single vineyard, ENTAV clone, specific trellis, hillside.

As wineries compete i= n the North Coast for quality, they rely more and more on custom farmed grapes to create t= he quality they need in the bottle. So more and more, grapes in this region are not commodities= . And this is reflected in hi= gher prices this region commands over others.

Grape contracts evolv= e as this trend continues. When I started they were one page. Now they usually run 15 p= ages. Part of the change is the need to specify more of the terms which make the grapes a custom-farmed product.

Classis by the n= umbers approach.

But this is now = only the starting point.

Must have these numbe= rs. But the winemakers may want the grower to wait for something else to develop.

These define a n= egative quality. Things that we don’t want to see.

Again, these are= a standard part of most grape contracts.

Necessary, but n= ot sufficient.

Here is an examp= le of a typical statement in a high end grape contract.

Winery wants grower to recognize that they are trying for high quality grapes.

Does this clause= justify rejecting grapes? That’s the hard part.

An unscrupulous winer= y could always use a clause like this to reject perfectly sound grapes. Because there is= no definition of quality in the agreement, it becomes a game of “what am I thinking?” My law professors= used to play this game.

Perhaps in an egregio= us case, it would. But these statements don’t typically have a real purpose in the agreement.

This is where I = think as lawyers, we could do a better job.

Why are these st= atements here? What’s the real issue?

Difference between objective/subjective: Can you ask an independent= third party to perform the = test for you?

Winemakers don&#= 8217;t operate by the numbers.

They are looking= for a particular type of ripeness.

Only be found by tasting.

Will depend on t= he style of wine they want to make.

Will depend on t= he weather patterns of that season.

Will vary from v= ineyard to vineyard.

Will vary from y= ear to year.

No way to quanti= fy it.

Philosophy my background.

There is somethi= ng to this.

And when we look at w= hat winemakers are trying to evaluate when they taste a grape for ripeness.

This is about al= l that we can say.

Here’s whe= re we lawyers can help, in my opinion.

This is where th= e real issue is.

And current grape contracts don’t define the issue very well.

These solutions put the risk back on the winery, to some extent, fo= r having the right to make the ca= ll.

A sliding scale of increased winery involvement.

Wineries know that they can’t define quality. So they want to control the farming practices.

I have seen many variations, which can be arranged on this scale. Increasing involve= ment by the winery.

These are extreme example of what is found in some high priced grap= e contracts.

Of course, at a = high enough price, any grower might agree to this.

Again, are any o= f these reason to reject the grapes?

At this level of= detail, perhaps the winery should do it themselves.

Have actually pu= t this one together.

It was the winery’s idea.

Can’t ment= ion who was involved.

I thought it was clever.

Grower got a gua= ranteed return. Winery got the control.

Haven’t se= en this one yet.

But it makes sen= se to me.

Here grower does the = work. In the previous one, the winery did the work.

But the work is = paid for separately.

The winery doesn= ’t really pay for the grapes, as it’s a vineyard lease.

Financial terms would= have to be worked out. But bottle price bonus would be a possibility.

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	Gra= pe Contracts
	Vin= eyard Leases
	Lic= ensing and Regulation
	Mer= gers and Acquisitions
	Tra= demarks

	Attorn= ey since 1983
	Attorn= ey in Wine and Grape Industry since 1992
	CFO, B= elvedere Winery (350,000 cases) and
	Hambre= cht Vineyards (500 acres) 1988-1992
	Two im= portant achievements
	Sunridge Nurseries, ENTAV = clones
	CAWG, Chardonnay with natu= ral flavors
	Experi= ence on both sides
	Buying= and selling
	Termin= ating and enforcing
	Drafti= ng for winery and grower


	Over l= ast 14 years, there has been a definite evolution

	Concep= ts of quality

	Grapes= are custom farmed

	Wineri= es are more involved with farming

	Grape = contracts have not caught up. We lawyers have work to do with our clients to help them define what the issues are.

	This t= alk is a part of that effort. Because I think the question I was asked to talk about, is itself a mistaken question.
	ItR= 17;s not how to define quality that’s the problem,
	ItR= 17;s who gets to define it, that’s the issue.


	These = categories can be used in many industries.
	Classi= c difference between buying Land’s End or custom tailored.
	In gra= pes, there are two markets

	One fo= r a commodity grape: like a California appellation chardonnay.
	One fo= r custom farmed grapes: single vineyard, ENTAV clone, specific trellis, hillside.<= /font>

	As win= eries compete in the North Coast for quality, they rely more and more on custom farmed grapes to create the quality they need in the bottle. So more and more, grapes in this region are not commodities. And this is reflected in higher prices this region commands over others.

	Grape = contracts evolve as this trend continues. When I started they were one page. Now th= ey usually run 15 pages. Part of the change is the need to specify more of t= he terms which make the grapes a custom-farmed product.


	Here i= s an example of a typical statement in a high end grape contract.

	Winery= wants grower to recognize that they are trying for high quality grapes.

	Does t= his clause justify rejecting grapes? That’s the hard part.

	An uns= crupulous winery could always use a clause like this to reject perfectly sound grap= es. Because there is no definition of quality in the agreement, it becomes a = game of “what am I thinking?” My law professors used to play this game.

	Perhap= s in an egregious case, it would. But these statements don’t typically have= a real purpose in the agreement.

	This i= s where I think as lawyers, we could do a better job.

	Why ar= e these statements here? What’s the real issue?


	Differ= ence between objective/subjective: Can you ask an independent third party to perform t= he test for you?
	Winema= kers don’t operate by the numbers.
	They a= re looking for a particular type of ripeness.
	Only b= e found by tasting.
	Will d= epend on the style of wine they want to make.
	Will d= epend on the weather patterns of that season.
	Will v= ary from vineyard to vineyard.
	Will v= ary from year to year.
	No way= to quantify it.


	Classi= s by the numbers approach.

	But th= is is now only the starting point.

	Must h= ave these numbers. But the winemakers may want the grower to wait for something els= e to develop.


	These = define a negative quality. Things that we don’t want to see.

	Again,= these are a standard part of most grape contracts.

	Necess= ary, but not sufficient.


	Philos= ophy my background.

	There = is something to this.

	And wh= en we look at what winemakers are trying to evaluate when they taste a grape for ripene= ss.

	This i= s about all that we can say.


	Here&#= 8217;s where we lawyers can help, in my opinion.

	This i= s where the real issue is.

	And cu= rrent grape contracts don’t define the issue very well.


	These = solutions put the risk back on the winery, to some extent, for having the right to make= the call.


	A slid= ing scale of increased winery involvement.

	Wineri= es know that they can’t define quality. So they want to control the farming practices.

	I have= seen many variations, which can be arranged on this scale. Increasing involvement by the winery.


	These = are extreme example of what is found in some high priced grape contracts.


	Of cou= rse, at a high enough price, any grower might agree to this.

	Again,= are any of these reason to reject the grapes?

	At thi= s level of detail, perhaps the winery should do it themselves.


	Have a= ctually put this one together.
	It was= the winery’s idea.
	Can= 217;t mention who was involved.
	I thou= ght it was clever.

	Grower= got a guaranteed return. Winery got the control.


	Haven&= #8217;t seen this one yet.

	But it= makes sense to me.

	Here g= rower does the work. In the previous one, the winery did the work.

	But th= e work is paid for separately.

	The wi= nery doesn’t really pay for the grapes, as it’s a vineyard lease.<= /font>

	Financ= ial terms would have to be worked out. But bottle price bonus would be a possibilit= y.