Oregon's economy and the wine industry

In February, the Oregon Wine Board released an industry economic impact study done by Full Glass Research.  Given the improbably rosy conclusions, the research firm is aptly named.  Among the findings:

• The Oregon wine industry contributed $3.35B to Oregon’s economy in 2013.
• Some 600 wineries sold 2.7M cases, generating revenue of $363M
• Over 17,000 wine-related jobs produced $527M in wages.
• Wine tourism generated $208M.
• Winery tax and licensing added $63M to state coffers.

On the surface, the figures look impressive but when taken in context and proportion, they diminish considerably.  If one considers the employment figure, for instance, 17,000 or more wine-related jobs somehow tied to 600 wineries would mean nearly 30 per winery.  Fewer than twenty wineries in the state employ 30 people.  Such an accounting is thus an extrapolation that would likely include every employee at The Allison, part-time maids at B&B's, the employees of every new restaurant opened in wine country and so on.  Furthermore, $527M in wages would mean that the average job paid $31,000, far above the $18,000 average for the leisure and hospitality industry compiled by the Oregon Blue Book. 

One could argue that since 40% of wine produced in Oregon is purchased intra-state, that portion of the cited $363M of revenue cancels out in terms of Oregon economic impact as each dollar going to a winery is a dollar coming out of another Oregon pocket.  However, if the whole $363M of tangible benefit is allowed to stand and the $208M of tourism could be deemed directly attributable to wine, over 80% of the purported $3.35B remains unaccounted.

So what comprises this remaining 80%?  If Oregon wine is an industry at all, it is really a cottage one as there isn't a regional vertically integrated supplier infrastructure apart from viticulture.  Barrels come from France via California, most equipment suppliers are located outside Oregon and even most warehousing and shipping is based out-of-state.  Vineyard supplies are generally furnished locally but run maybe $1,000 per acre.  With 40K acres planted in Oregon, that adds only another $40M.  Wineries supplies might be twice that given the expense of barrels so say, $80M.  

As to wages, vineyard labor averages around $4,000 per acre so again, with 40,000 acres, the labor total would be around $160M.  Most Oregon wineries are sole proprietorships with maybe one part-timer to help.  So, adding the larger wineries and granting an average of four employees, average payroll is at most $150,000.  Spread across 600 wineries (many virtual), that buoyantly amounts to $90M, making total direct labor about $250M. 

Most noteworthy about the tax and license contribution figure is its incidental proportion to the overall state budget.  With Oregon’s 2015 budget at $9.5B, the $63M afforded by the wine industry represents well less than 1% of the whole.

The major direct components (sales, tourism and real winery/vineyard material and labor inputs) together aggregate to a little less than $1B.  One could augment this by double counting the cited $128M crop value as sales to wineries but the real economic impact is already in the cost of labor and materials.   The direct economic impact of Oregon wine might thus stretch to $1.2B but at $3.35B the taffy breaks.

Notably, economic impact studies rarely, if ever, disclose their tabulation methodology in an appendix.

A paragraph on banking, however, reveals even if only in a small degree specious inputs.  Banking is said to employ 85 people and generate some $20M in revenue related to wine in Oregon.  Vastly the greatest share of winery lending is based in California.  Bank revenue of $20M would come largely from interest.  At the 4% prevailing rate, $20M would equate to $500M in lending whereas winery lenders (almost exclusively California-based) estimate that there are perhaps 50 “bankable” wineries in Oregon with the entire Oregon portfolio well below $500M.  The presence of Oregon banks other than depositories in the industry is negligible, so that rather than 85 bank employees being devoted to wine, in reality not a single one is.

The compounding of these plausible truths and the double and triple counting of revenue serve only to underwrite the preservation and furtherance of the organization.  We would be better served by honestly addressing and investing in the marketing shortfalls and needs that keep Oregon wine from really being a $3.35B industry.