Farming has always been a risky cash flow endeavor. You invest in land (whether you own it or lease it), you purchase fixed assets and raw materials, you secure water rights and you plant the fields. After months of labor and cultivation, you finally have something to sell. That's definitely a riskier model than the building contractors in our office who require a downpayment, hang sheetrock for a few days and then want to be paid by the end of the week.
In our business, we work with farmers and investors who recognize that smart farming operations can be profitable cash flow opportunities with steady returns. However, the longer it takes to get paid, the riskier the investment.
That's why I'm so intrigued by the Idaho wine industry. There are almost 50 wineries in the state, and a 2008 study by Boise State University measured the economic impact of the wine industry to be nearly $73 million. However, I highly doubt these vintners are in it for the money. Their business plans are long-term and capital-intense. Growers need three to five years to produce suitable grapes. From purchasing grapes to selling a bottle of wine, the winemakers could be self-funding their operations for two to three years before recognizing any revenue. This is not an industry for impatient people.
Like many farmers and ranchers, grape growers and winemakers are driven by a dedication to the craft. Even those who do not imbibe can appreciate the cultivation of the crop and processing time it takes to create a finished product. Appreciation for viticulture aside, how do we grow the industry?
The Idaho Wine Commission has done a great job of promoting the industry and gathering resources for growers and winemakers. In agriculture you often see the economic theory of "co-opetition" at work, and Idaho's wineries are a prime example. Co-opetition is the theory that when competitors can cooperate to expand the industry, it will be mutually beneficial to all involved. The players in Idaho's wine game are coaching the rookies and investing their resources to help the industry grow. Private investors with time (and money) are able to fund these long-range business plans.
This is where farming and winemaking are closely linked. Farmers and ranchers understand the importance of owning and controlling the production and distribution chains in their businesses. Livestock operators who can control their own feed prices are better prepared for market fluctuations. Similarly, winemakers who can contract with grape growers on the input end and/or negotiate with bottlers on the output end will be in a better position to manage their cash flow.
I read a recent article saying there may be a global wine shortage in the future. Worldwide consumption of wine has increased almost 10 percent since 2000, thanks to countries including China and the United States. Supplies are down as traditional wine-producing countries such as Spain, France and Italy are growing less grapes.
Idaho currently has less than 1,600 acres of grapes, but the supply and demand curves are in our favor. Now is the time to invest in Idaho wines, and if there is a shortage of wine down the road, it will be nice to have a healthy supply in our own backyard.