Wednesday, March 14, 2007

Economics of Wine Making

I was surprised to learn that prime vineyards sell for $300,000 to $500,000/acre in the Napa Valley. Those kind of numbers make our recent Midwest land prices of $5,000 and $6,000/acre sound like chump-change.

How could they possibly pay that amount for their land? I decided to try to figure it out. Here is my “back-of-the-envelop” calculation.

A typically vineyard will hold 450 grape vines and will yield 18 pounds of grapes/vine, or 8,000 pounds of grapes. When those 8,000 pounds are crushed, fermented and bottled it will yield about 2,700 bottles of wine. If you sell your wine for $10/bottle, you would gross $27,000/acre without taking out ANY expenses, not much of a return/acre on a $300,000 to $500,000/acre investment.

I’m not smart enough to figure out how to make money with those land costs, but I’m certain that there are much smarter people than I out there.

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