Grape Contracts, Wildfire, and Smoke Exposure

July 19, 2021

Wine Business Daily News

Downey Brand partner Dale Stern was quoted for this Wine Business Daily News article about the contractual ambiguities of the phrase “smoke taint” in wine grape contracts. Dale explains how thresholds for detectable smoke compounds should be specified in the wine grape contracts.

Read the full article below or on the Wine Business Daily News website.

By Kerana Todorov, Reporter, Wine Business Daily News

Allied Grape Growers administers about 500 grape contracts statewide. Of those, about 80 were rejected in 2020, according to the organization.

Altogether, between 165,000 and 325,000 tons of California winegrapes were not harvested in 2020 because of “actual or perceived concerns of quality loss due to wildfire smoke exposure,” according to a legal analysis of the 2020 winegrape rejections released July 7. Total losses to grape growers totaled $601 million, according to the 13-page report on smoke taint Downey Brand, LLP prepared for Allied Grape Growers and the California Association of Winegrape Growers.

“We can’t afford to repeat what happened last year,” said John Aguirre, president, of the California Association of Winegrape Growers, said during an online seminar on the report.

More research on smoke exposure is needed to understand smoke exposure, including determining threshold levels for smoke compounds, testing methodologies for the grapes and wine, the speakers said.

“What is the definition of smoke taint?” asked Allied Grape Growers president Jeff Bitter. “It’s a buzz word.”

Is it the detectable presence of smoke compounds? Or is it the “commercial viability of grapes and wine?,” Bitter asked. “In other words, is there a graduation from smoke exposure to smoke impact to actual smoke taint.”

“And, and that’s something that needs to probably be defined or understood, at least between the parties of the contract,” Bitter said. “The word ‘taint’ is often used very loosely in contracts,” Bitter said. “And since there’s no standard industry definition for smoke taint, it quickly becomes a matter of interpretation between the parties.”

Grape contracts should either define smoke taint and specify how it is measured or refrain from using the word “taint” in the contract, Bitter said.

“Many active grape purchase agreements are devoid of a clause that provides remedy in the event of smoke exposure,” Bitter said.

“But when there’s no clause, it leaves the determination of suitability much more open for interpretation. And you end up often relying on other quality statements in the contract, that imperfectly address smoke exposure,” Bitter said.

What does not work, explained Bitter is having a one-size-fits all approach. The language does not leave much “leeway” to deal  with smoke exposure events. “It shifts all the power and control and decision making into the winery’s hands,” Bitter said Different grape varieties have different baseline concentrations, Bitter said, referring to smoke compounds. There are also different standard production procedures for the fruit, such as removing skins before fermenting white grapes, he said.

“So a one size fits all smoke exposure clause doesn’t necessarily work considering that not all grapes react the same to smoke during fermentation,” Bitter said. “So the solution direction here is to discuss and negotiate the specific tolerance for smoke impact based on one of three things or all of these things type, variety and price point.”

Dale Stern, partner at Downey Brand, explained thresholds for detectable smoke compounds should be specified in the grape contracts, given the laboratories’ ability to detect compounds continues to improve.

Contracts should include smoke clause that should be negotiated between the grower and the winery up front , Stern said. That’s “so that we don’t end in a situation like we’ve been in recent years, where there is nothing determinative in the contract and it’s left to just one party to the contract to make the call,” Stern said.

There should be “clear thresholds or criteria, alongside each listed chemical in a contract, or in an addendum or in a policy from the winery…something that makes it clear what’s expected of the grower and what the winery is going to be testing to,” Stern said.

Some wineries perform a sensory analysis to determine whether or not to accept or reject fruit. Simply stating in a contract that a sensory analysis will be performed to determine whether the fruit was affected by smoke exposure is too vague, Stern said.

“It’s unclear as to what is expected of the grower when they deliver the grapes and what the wineries standards or criteria are going to be,” Stern said. There should be some criteria.

“For example, how will the sensory panel be performed?” Stern asked.

Laboratory analyses should be performed along with the sensory analysis, Stern said. “As we saw last year, there were some grapes that tested well above the detectable levels of (smoke marker) Guaiacol. But when the wine was made, several sensory panels were run and there was no detectable damage to the wine at all. And I’m sure the reverse is true as well,” Stern said.

Wineries and growers should share laboratory results, Stern said. “Will the winery be entitled to reject the grapes? Or will they impose a price adjustment to those grapes,” Stern asked.

Allied Grape Growers’ recommendations also include:

• Scaled pricing for fruit exposed to smoke.

• Post-harvest evaluations.

• Increase communications between the growers and wineries to address smoke concerns.

• Consider crop insurance to mitigate the risks of smoke exposure.

Aguirre said after the seminar that CAWG and other industry organizations asked U.S. Rep. Mike Thompson, D-CA, and other members of the California delegation after the 2018 fires for $5 million in federal funding for research on wildfire smoke and “methods to predict, prevent and mitigate smoke damage to grapes and wine.”

Since then Wine Institute and other industry groups in the states of Oregon and Washington have joined the effort, Aguirre said. Two million were obtained in the fiscal year 2019/2020 and $3.5 million the following fiscal year. “Good progress” is being made to obtain $5 million in funding for the next fiscal year 2021/2022, according to Aguirre. In addition, researchers at UC Davis, Oregon State University and Washington State University have submitted a $7.9 million grant proposal, he said.