Small Business

States Pour Government Money into Wine


Though vineyard profits are scarce, most states see wineries as good tourism investments, so all 50 fund them

Dick Seibert has lost money every year since he opened Knob Hall Winery in rural Maryland in 2006. Now he's looking for the financing needed to double his vines to 60 acres by yearend. "We're not making money yet, although we're not that far away," says Seibert, 58.

Seibert's optimism is buoyed by the silent partner he shares with many young wineries: his state government. He has received some $8,000 in aid from the state, including $1.50 of the $3.50 cost of each of the 4,000 vines he planted in his first two years. Five other vineyard owners in Maryland—where the number of wineries has doubled to almost 50 since 2005—are getting a total of $75,000 in state grants this year to expand production capacity. "The whole concept is to become a destination [for visitors] from Baltimore and Washington, a great day trip," says Seibert, sketching out his vision of a profitable future for the verdant hillsides, 75 miles from the capital, where his family has farmed soybeans and corn for more than two centuries.

A decade ago, only a handful of states subsidized wineries, according to WineAmerica, the industry trade group. Now all U.S. states offer funding for them. Viticulture "is at the core of agri-tourism, and states should do more" to support it, says Cary Green, chief operating officer of WineAmerica. Texas, which has 212 wineries, allocates $2.3 million a year for wine research, marketing, and grants for producers, nine times the level in 2005. Ohio spent more than $1.1 million on subsidies for its wine industry in the 12 months through June, up 38 percent over the previous year. And Virginia dedicates 70 percent of its tax of 30¢ per bottle of wine—a total of about $1.3 million this year—to promote the industry.

The federal government is bellying up, too. The 2008 Farm Bill, which sets spending priorities through 2012, for the first time earmarked money to support specialty crops, including programs that help wineries. This year the U.S. will spend $500,000 on 18 Virginia projects, including pest control and a plan to map potential vineyard sites via satellite. An additional $40,000 of federal money will go toward encouraging alternative vine growing strategies in Idaho, and $9,000 will be spent to improve highway access to vineyards in Colorado.

There are now 6,600 wineries in the U.S., in all 50 states—even Alaska has 13 and Hawaii has 5—up from 574 in 34 states in 1975. Like Seibert's, though, few of these small businesses turn a profit in the first decade or two after they open. "It takes 5 years to get started, 10 years to have consistency, and when you get to 20 or 25 years old, from then on the vine gains complexity," says Andrew Bell, president of the American Sommelier Assn. in New York.

Nonetheless, state officials see vineyards as a smart investment. Beyond creating jobs in rural areas, officials say they keep family farms in business, attract vacationers and day-trippers, and raise revenue through alcohol taxes. "More than 1 million people visited [Virginia] wineries from out of state last year, so [vineyards] are a growing economic engine," says Todd Haymore, the state's Agriculture and Forestry Secretary.

To get more cash rolling in, many wineries are diversifying. In Morgantown, W. Va., Forks of Cheat Winery hasn't turned a profit since owner Jerry Deal planted his first vines 22 years ago. While he expects production to jump 10 percent this year, to 1,000 cases, he also has added fruit trees and blueberries to supplement the winery's revenue, and he's continuing to work his day job as a real estate appraiser. On New York's Long Island, Bedell Cellars & Corey Creek Vineyard has struggled for most of its 30 years of operation, despite winning accolades from Wine Spectator magazine. In 2003, Michael Lynne, executive producer of the Lord of the Rings trilogy, bought Bedell and poured millions of dollars into expansion and improvements, says the winery's CEO, Trent Preszler. To boost revenues, Lynne built a 4,000-square-foot mahogany deck for wine tasting parties and weddings. The operation still doesn't make money. "It's a capital-intensive business," Preszler says. "It takes a lot of investment over a period of years."

Knob Hall's Seibert, a former lobbyist for the National Association of Manufacturers, inherited his family farm from an uncle. Although he had little capital, he grew convinced that the best way to keep the land in the family was to turn it into a vineyard, since soybeans typically pay about $200 an acre, vs. some $4,200 per acre for grapes. While every vintage still means more red ink, Seibert hopes to boost efficiency by planting more grapes and building his own production facility instead of leasing space at a nearby winery to make his wine. "I want to keep the family farm and keep it sustainable," he says. "There's nothing that I can see in agriculture right now that pays for the upkeep of a farm, except wine."

The bottom line: Government money is flowing into the wine industry, even though it takes decades for most vineyards to turn a profit.

Keith F. Girard is a contributor to Bloomberg Businessweek .

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