"Arizona House Committee on Commerce Special Joint Meeting Minutes and Wine Industry Economic Impact Analysis"
Summary
Minutes and attachments from a special joint meeting of the Arizona House of Representatives Committee on Commerce and Committee on Land, Agriculture & Rural Affairs held January 18, 2022, in the Fifty-fifth Legislature, Second Regular Session. The minutes record members present and absent, a meeting convened at 11:15 A.M. and adjourned at 11:55 A.M., and presentations by High Peak Strategy LLC and the Arizona Wine Growers Association. The agenda lists one presentation on Arizona agriculture, manufacturing and wine, followed by public testimony. Attachments include the request-to-speak report, the attendance record, a wine industry economic impact analysis presentation and a wine tourism brochure with itineraries for the Sonoita, Willcox and Verde Valley regions. The document closes with the reference list of an October 2021 economic analysis for the AZ Wine Growers Association.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
ARIZONA HOUSE OF REPRESENTATIVES
Fifty-fifth Legislature - Second Regular Session
COMMITTEE ON COMMERCE
Report of Special Meeting
Tuesday, January 18, 2022
House Hearing Room | -- 11:00 A.M.
Convened 11:15 A.M.
Recessed MINUTES RECEIVED
Adjourned 11:55 A.M. [-l3- 2.2
Members Present
Members Absent
Mr. Carter Mr. Cook (excused)
Mr. Chavez Mr. Espinoza
Mr. Kaiser Mr. Wilmeth (excused)
Mrs. Liguori
Mr. Meza “
Mr. Chaplik, Vice-Chairman
Mr. Weninger, Chairman
Agenda
Original Agenda — Attachment 1
Request to Speak
Report — Attachment 2
Committee Attendance
Report — Attachment 3
Presentations
Name Organization Attachments (Handouts)
Spencer Cohen, PhD - High Peak Strategy LLC 4
Kris Pothier Arizona Wine Growers Association 5, 6
$Y
hey Uk ars Don Dye
Jacquelife Denlinger, Committde Secretary
January 18, 2022
(Original attachments on file in the Office of the Chief Clerk; video archives available at http://www.azleg.gov)
COMMITTEE ON COMMERCE
January 18, 2022
eonvened ! WIS,
ad joumed HSS gy
ARIZONA HOUSE OF REPRESENTATIVES
Fifty-fifth Legislature - Second Regular Session
SPECIAL JOINT MEETING AGENDA
COMMITTEE ON COMMERCE
AND
COMMITTEE ON LAND, AGRICULTURE & RURAL AFFAIRS
DATE Tuesday, January 18, 2022 ROOM HHR I TIME 11:00 A.M.
Members of the public may access a livestream of the meeting here:
https://www.azleg.gov/videoplayer/?clientID=6361 162879SeventID=202201 1032
Members:
Commerce:
Mr: Carter. Mr. Kaiser Mr, Wilmeth
Mr. Cook Mrs. Liguori Mr. Chaplik, Vice-Chairman
Mr. Chavez Mr. Meza Mr. Weninger, Chairman
Mr. Espinoza
Land, Agriculture & Rural Affairs
Ms. Barton Mr. Diaz Mr. Sierra
Ms. Blackwater-Nygren Ms. Epstein Mr. John, Vice-Chairman
Mr. Cook Mr, Fernandez B Mr. Dunn, Chairman
Ms. Dalessandro Ms, Griffin
t. Presentation: “Made in AZ: How Arizona agriculture and manufacturing are creating economic development through award-
winning wines”
o Presenters:
« Spencer Cohen, PhD — High Peak Strategy LLC
« Kris Pothier — President, Arizona Wine Growers Association
« Becky Blaine — Deputy Director, Arizona Office of Tourism
2. Public Testimony
DF
01/12/2022
People with disabilities may request reasonable accommodations such as interpreters, alternative formats, or
assistance with physical accessibility. If you require accommodations, please contact the Chief Clerk's Office at
(602) 926-3032 or through Arizona Relay Service 7-1-1.
Page 1 of 1
Attachment._- [.
Information Registered on the Request to Speak System
House Commerce (1/18/2022)
2, Public Testimony
Attachment 2.
ARIZONA STATE LEGISLATURE
Fifty-fifth Legislature - Second Regular Session
COMMITTEE ATTENDANCE RECORD
Special Joint Meeting (COM/LARA)
COMMITTEE ON COMMERCE
CHAIRMAN: Jeff Weninger VICE-CHAIRMAN: _Joseph Chaplik
DATE 01/18/22 [22 {22 /22 /22
CONVENED Hots Am m m m m
RECESSED
RECONVENED
ADJOURNED Souq
MEMBERS
Carter i
Chavez a
Cook exc
Espinoza - oo ce
Kaiser . Avan
Liguori Le
Meza UV
Wilmeth exc
Chaplik, Vice-Chairman WA
Weninger, Chairman VA
V Present --- Absent exc Excused
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learn from vineyard stewards ‘who have been. cultivating these regions for
With Arizona’s grape variety ranging from: Syrah, Petite Sirah, Grenache and
to Viognier, Sangiovese, Zinfandel and Cabernet Sauvignon, there isa wine for ev
palate. Come and explore Arizona to discover:what makes the grape-growing regio
of Sonoita, Willcox and Verde Valley'so special.
Shop Local
Explore the vineyards, meet wine lovers, shop local
outlets and soak in the culture of our major wine-
'
izona’s skillfully crafted wines have earnedinternational _#.-. ool a . ; : _ growing regions. Just don’t forget to buy a bottle
im, won numerous awards and have even been ps or two before you head to the next one.
{at the White House. Whether a new lover of wine : :
an enophile, we invite you to explore our three : 5 : a a
gest wine regions, Each offers an excellent opportunity we : ay : Ari zona wi nes.com
get outdoors, discover your next favorite wine and oe " Me of ) j
ake in everything Arizona has to offer.
Start planning your visit to award-winning
wineries right from our website:
Tours & Shuttles
Whether walking or riding a Segway, in a‘car or on
horseback, the options for touring the Arizona wine
regions are as unique as the wines that grow here.
Vineyards, wineries and tasting rooms offer group
and private tours; many with shuttlés from Tucson,
Scottsdale and Sedona:
Arizona‘Hops and Viries
: WG ee
Sonoita Itinerary
MORNING
Start your day with a homemade cinnamon roll
or savory breakfast at the Horseshoe Café &
Bakery. This diner serves classic breakfast fare
starting at 6 a.m. horseshoecafe-bakery.com
Travel South on Hwy. 90 to discover Kartchner
Caverns State Park. This stalactite wonder,
discovered in 1974, was kept a secret for four
years until young cave explorers shared the
pristine cavern with the property owners. Book
an advanced tour reservation for your visit.
azstateparks.com/kartchner
Head to downtown Sonoita and visit the tasting
rooms and vineyards, Looking to try something
different? Swing into Flying Leap Distillery to
taste cask-aged brandies, vodkas or bourbon
made from wine grapes. The hand-hammered
copper stills are manufactured in Germany,
flyingleapvineyards.com
AFTERNOON
When you get hungry, but are too engrossed
in the wine you're sampling, simply order an
antipasto platter delivered to you from the Café.
cafesonoita.com
EVENING
After a day of experiencing the local wines, head
to The Steak Out Restaurant & Saloon for a fine
cut of steak cooked over a mesquite grilf. Take in
the old west elegance and unwind from a day of
exploring Southern Arizona, azsteakout.com
For unique accommodations, consider one
of the region's wineries. Purveyors such as
KieFJoshua Vineyards and Dos Cabezas Wine
Works have their own suites. Ifa lodge is more
your speed, stay at the one-ofa-kind Soncita Inn.
soncitainn.com
15
Willcox Itinerary
MOR
Start with a visit to a Sky Island for an early morning
hike. Starting east of Willcox, you can explore
nature at the Chiricahua National Monument and
gaze at the wonderland of rocks. Or go southwest
of Willcox and hike the Dragoon Mountains;
beware of the ghost towns within. nos.goyv/chir
AFTERNOON
Head to the country store at Apple Annie’s
Orchard for lunch, served Monday — Friday. Try
a daily soup, sandwich or seasonal wrap. Save
room for their homemade pie. While on the farm,
participate in their “you-pick’” fruit crops and
select from apples, peaches and pears.
appleannies.com
Arrive at Old Town Willcox and explore the tasting
rooms in the historic town center along the Willcox
Wine Trail. Tasting rooms here open around 11.a.m.
Leave your mark on Wilcox by adopting a vine.
Exclusive to Birds & Barrels Vineyards, you have
an opportunity to meander into the vineyard and
choose a grape vine of your choice to adopt.
Mexican fare doesn’t get any more authentic than
what you'll find at La Unica Tortilleria Y Taqueria.
Wander in from the tasting rooms to indulge in
large portions and light, crispy tortilla chips.
Make sure to ask for the hot salsa.
LCN RTGS
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Region Overview
Page4 Vineyards & Tasting Rooms
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Verde Valley Itinerary
MORNING EVENING
Enjoy a shaded courtyard on Cottonwood’s Walk under the stars on an easy hike down to
Main Street while you dine on red-velvet waffles the Verde River on the Old Town Jail Trail found
right off Main Street. 1307 N. Main Street
(Parking and trail head)
with beer-battered chicken and amazing
chilaquiles at Crema Café.
crermacottonwood.com oe . we .
For a memorable dining experience, visit Merkin
Take a water to wine tour by kayaking along a Vineyards Osteria and try their famous prickly
scenic stretch of the Verde River and make your pear infused mac & cheese.
way to the Tuscan farmhouse at Alcantara merkinvineyardsosteria.com
Vineyards for wine tasting.
sedonaadventuretours.com Hotel. If with a group, consider the penthouse
alcantaravineyard.com . ,
¥ accommodations or choose the hotel’s
AFTERNOON charming cottage. thetavernhotel.com
Enjoy a late picnic lunch at Page Springs Cellars
where they make everything from wine to the
mustard and sausage you'll find on their
charcuterie boards. pagespringscellars.com
Spend the rest of your afternoon visiting the
tasting rooms that line Main Street in Cottonwood,
including Arizona Stronghold, Carlson Creek,
Burning Tree and Pillsbury Wine. vwwwinetrail.com
Settle in for an overnight stay at the quaint Tavern
SONOITA REGION
The Sonoita region is Arizona’s first American Viticultural Area (AVA). The area was designated
n AVA for its similarities to the Indicazione Geografica Tipica region of Italy, known
“
its “Super Tuscans.” The unique geographical location, climate and soil characteristics of
the Sonoita AVA produce award-winning Sauvignon Blanc, Cabernet Sauvignon, Malbec,
Merlot and more. Because of the region’s natural water retention, and the cool air blowing
over the mountains, the Sonoita AVA offers exceptional conditions for producing wine.
With a dozen tasting rooms throughout the region, the vineyards and wineries of the
Sonoita AVA invite you to discover a new taste of Arizona.
Monsoons
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& © 1. ALCANTARA VINEYARDS
3445 S. Grapevine Way
Cottonwood, AZ 86326
alcantaravineyard.com
© 2. ARIZONA STRONGHOLD
1023 N. Main Street
Cottonwood, AZ 86326
azstronghold.com
3. BODEGA PIERCE - CLARKDALE
1341 W, State Route 89A
Clarkdale, AZ 86324
bodegapierce.com
© 4, BURNING TREE CELLARS
1040 N. Main Street
Cottonwood, AZ 86326
burningtreeceliars.com
9 5. CABAL CELLARS
417 Hull Avenue
Jerome, AZ 86331
cabalcellars.com
S 6. CADUCEUS TASTING ROOM
158 Main Street -
Jerome; AZ 86331
caduceus.org
5 7. CARLSON CREEK -
“ COTTONWOOD
1010 N. Main Street
Cottonwood, AZ 86326
carlsoncreek.com
9 8. CHATEAU TUMBLEWEED
1151 W. State Route 89A
Clarkdale, AZ 86324
chateautumbleweed.com
& © 9. CLEAR CREEK VINEYARD
& WINERY
4053 E. Highway 260
Camp Verde, AZ 86332
clearcreekwineryaz.com
& 9 10. D.A.RANCH
1901 Dancing Apache Road
Cornville, AZ 86325
daranch.com
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[AS © 11. DEL RIO SPRINGS VINEYARD
974 N. Grandview
Paulden, AZ 86334
delriospringsvineyard.com
12. FLYING LEAP VINEYARDS -
SEDONA
390 N, State Route 89A
Sedona, AZ 86336
flyingleapvineyards.com
© 13. FOUR EIGHT WINEWORKS
140 Main Street
Jerome, AZ 86331
four8wineworks.com
& ? 14. GRANITE CREEK VINEYARDS
2515 N. Road 1 East
Chino Valley, AZ 86323
granitecreekvineyards.com
& & 15. |AVELINA LEAP VINEYARD
& WINERY
1565 N. Page Springs Road
Cornville, AZ 86325
javelinaleapwinery.com
4 16. MERKIN VINEYARDS OSTERIA
1001 N. Main Street
Cottonwood, AZ 86326
merkinvineyardsosteria.com
& } 17. OAK CREEK VINEYARDS & WINERY
1555 N. Page Springs Road
Cornville, AZ 86325
oakcreekvineyards.net
9 18. PAGE SPRINGS CELLARS
1500 N. Page Springs Road
Cornville, AZ 86325
pagespringscellars.com
4 19. PASSION CELLARS - JEROME
417 Hull Avenue
Jerome, AZ 86331
passioncellars.com
20. PILLSBURY WINE COMPANY
1012 N. Main Street
Cottonwood, AZ 86326
pillsburywine.com
& & 21. SALT MINE WINE
536 W. Salt Mine Road
Camp Verde, AZ 86322
saltminewine.com
& © 22. SOUTHWEST WINE CENTER
‘601 Black Hills Drive
Clarkdale, AZ 86324
southwestwinecenter.com
© 23. TANTRUM WINES
918 N. Main Street
Cottonwood, AZ 86326
tantrumwines.com
9 24. WINERY 101
1019 N. Main Street
Cottonwood, AZ 86326
winery101.com
9 25. WINERY 1912
320 N. State Route 89A
Sedona, AZ 86336
winery1912.com
ARIZONA WINE GROWERS
ASSOCIATION
WINE INDUSTRY ECONOMIC IMPACT ANALYSIS
October 2021
=A HIGH PEAK STRATEGY
ARIZONA?
WINE GROWERS
Attachment: bo
KEY FINDINGS
e Arizona wine production, measured in net production, has grown at
quickened pace, nearly tripling (160% growth) in volume between
2012 and 2019. As of July 2021, there were 118 licenses for “farm
wineries,” defined as wineries that produce between 200 and 40,000
gallons of wine per year.
e Wine production, distribution, and sales activities, including mark-ups
generated from the sale of wine from wholesalers to retailers and
restaurants, supported 420 direct workers and $45.0 million in
business revenues in 2019.
e Wine tourism, representing additional, non-wine spending on hotels,
fuel, restaurants, and other travel expenses, directly supported 390
workers and $33.7 million in business revenues.
e The combined economic impact of the Arizona wine industry,
including direct activities and additional jobs, income, and revenues
supported through business-to-business transactions and household
consumption, totaled 1,270 jobs, $55.6 million in labor income, and
$155.9 million in business revenues in 2019. Each job in the wine
industry was associated in 2019 with a total of 1.6 jobs across the
state economy.
e These impacts in turn supported federal, state, and local tax revenues
of $29.8 million in 2019.
INTRODUCTION
Arizona’s wine production dates to the earliest vineyards planted in North
America. Spanish explorers reportedly established vineyards in Southern
Arizona as early as the mid-16" century. The Arizona wine industry thrived
and was among the largest centers of wine production in the U.S. until the
advent of state and then federal prohibition in the early 20" century. The
industry was shuttered and then remained dormant until the 1970s, when
scientific research pointed to the soils and terrain as suitable for production
of high quality grapes.
Today Arizona is home to two American Viticultural Areas (AVAs), both
located in the southern part of the state. The 526,000-acre Willcox AVA, was
established in 2016, within a large, shallow basin at elevations ranging
between 4,135 feet and 4,700 feet. The Sonoita AVA was established in
1984. The AVA is 208,000 acres with elevations ranging between 4,500 and
5,000 feet above sea level. The Verde Valley region, located in central
Arizona at elevations between 3,200 and 5,000 feet, is currently being
petitioned for AVA status.
’ The wine industry contributes to Arizona’s statewide and local economic
growth through multiple mechanisms. Wine production involves the hiring of
workers and wage outlays for winemakers, sales staff, and other direct
employment, and the generation of revenues from on- and off-site sales.
Wineries also support tourism through tasting rooms and placemaking.
Lastly, wine produced in Arizona is then sold downstream through various
AZ Wine Growers Association October 2021
Economic Analysis Page i
channels, including wholesalers, restaurants, bars, and grocers, each of
which generates revenues through added mark-ups. All these impacts
support additional! jobs, income, business sales, and tax revenues through
supply chain transactions and worker household expenditures. For example,
sales and employment among grape producers who sell their output to
wineries, aS well as the contracting of various services, such as cooperage,
and purchasing of glass and other key inputs and supplies.
The Arizona Wine Growers Association has commissioned this report to
provide a detailed, data-rich assessment of the economic contributions of the
wine production to Arizona economy. Findings will support the Arizona Wine
Growers Association’s work to further support the growth of the industry and
communicate its importance to legislators and other stakeholders.
Methods
Analysis draws on multiple state, federal, and private vendor sources. Data
on wine production is primarily sourced from the U.S. Treasury Department
Alcohol, Tobacco, Trade, and Tax Bureau (TTB). Employment is estimated
through use of federal data sources, including series by the U.S. Bureau of
Labor Statistics and U.S. Census Bureau. Wine tourism estimates rely on the
2017 Arizona Office of Tourism Arizona Wine Tourism Industry study,
updated using industry growth to represent 2019 conditions. Economic and
fiscal impacts are estimated using IMPLAN, an input-output model.
Interviews were also conducted with industry stakeholders. A list of
individuals who participated in this study can be found in Appendix A.
Outline of Report
The remainder of this technical report is organized as follows:
e Wine industry direct measures. Volume, revenues, employment,
and income indicators directly tied to the production of wine in
Arizona.
e Economic and fiscal impacts. Additional jobs, income, revenue,
and taxes supported through upstream business-to-business
transactions (indirect) and household consumption expenditures
. (induced) from the production and sale of Arizona wine and wine
tourism.
e¢ Summary and conclusions. Review of key findings.
AZ Wine Growers Association October 2021
Economic Analysis Page 2
WINE INDUSTRY DIRECT MEASURES
Vineyards and Grape Production
Grape production is concentrated in three regions of the state: the Wilcox
AVA, in southeastern Arizona; Sonoita AVA, along the Mexico border; and
the Verde Valley, located in central Arizona and currently in consideration for
AVA designation. Statewide, in 2020 there were an estimated 1,650 planted
vineyard acres in production (Pierce, 2020), The Wilcox AVA is the largest
grape producing region of the state. According to a 2013 vineyard study, the
Wilcox AVA represented nearly 67% of all acreage planted and 75% of all
grape production that year (USDA National Agriculture Statistics Service,
2014),
Red varieties represent the overwhelming share of grape production in
Arizona. A 2016 study of the Verde Valley found that more than 80% of
planted acreage was for red varieties, including Syrah (17.85 acres), Petite
Syrah (11.75 acres), and Cabernet Sauvignon (11.4 acres) (Pierce, 2020).
There are 24 commercial vineyards covering 125 acres in the proposed
Verde Valley AVA, with plans by some existing vineyards to expand by 40
acres in the near future. The proposed AVA is also home to 11 wineries (U.S.
Alcohol and Tobacco Tax and Trade Bureau, 2020).
Arizona grapes range between $2,000 and $2,500 per ton. This is generally
more expensive than major grape production regions of the U.S., such as the
Central Valley in California and Yakima Valley in Washington state. For
example, in 2019, the average price for wine grapes grown in California was
$827 per ton across all varieties (albeit wide variation in quality, region, and
varieties);' in 2020, average prices fell 20% (California Department of Food
and Agriculture, 2020). In 2017 (latest crush report), the average price per
ton for Washington state wine grapes across varieties and AVAs was $1,198
(Washington State Wine Commission, 2017).
Current and Future Challenges for Vineyards
Industry stakeholders interviewed for this study expressed concern about the
availability of grapes and planted acres now and in the coming years. The
higher price for Arizona wine grapes compared with other regions reflects
strong demand for Arizona grapes among a fast growing state wine industry.
Even if there is a significant increase in planted acres, newly planted vines
typically take three to five years to bear fruit usable for wine production.
Land use competition with much more water-intensive crops (e.g., corn,
pecans) is also inhibiting factor in vineyard growth and production, according
to some stakeholders. More volatile weather patterns likely influenced by
climate change may also adversely impact grape production; intense rain
and late season frosting can be severely damage grape wines.
1 Napa County grapes cost nearly $4,600 per ton in 2020.
AZ Wine Growers Association October 2021
Economic Analysis Page 3
Agriculture land costs aiso vary widely by region. The Wilcox region ranges
around $4,000 and acre, whereas land in the Verde Valley—also a popular
vacation destination—can cost $50,000 per acre or higher.
Expertise js viticulture is also critical; even if farmers wish to convert part of
their acreage to potentially much more profitable wine grapes, they may not
have the experience and knowledge base in wine grape cultivation to be
successful. The Southwest Wine Center at Yavapai College was established in
2009 and has been an important source of human capital for the industry,
offering associate degrees in viticulture and enology to address this growing
demand for talent.
Wineries and Wine Production
As of 2020, according to the U.S. Alcohol and Tobacco Trade and Tax
Bureau, there were 145 bonded winemaking locations (albeit some of these -
locations are owned by the same vintner; Exhibit 1), These bonded
locations are spread across 13 counties, with more than 80% within the
counties of Yavapai, Santa Cruz, Cochise, and Maricopa. Since 2005, the
number of bonded locations has grown at an annual compound growth rate
of 14% per year. Wineries nationally increased 8% over the same period.
Exhibit 1. Licensed Winery Locations, Arizona, 1999-2020
160
140 -
120
Al
ry
Srriil.
1999 2000 2001 2002 2003 2004 2005 5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ‘216 2017 2018 ‘2019: 2020
yn
o
oO
NS
So
Source: U.S. Alcohol and Tobacco Tax and Trade Bureau (2021).
As of july 2021, there were 118 licenses for “farm wineries,” defined as
wineries that produce between 200 and 40,000 gallons of wine per year
(Exhibit 2).2 According to Arizona law, farm wineries that produce less than
20,000 gallons are ailowed to self-distribute to retailers and restaurants
(Arizona Department of Liquor Licenses and Control, 2017). Farm wineries
2 Wineries in Arizona that produce above 20,000 gallons a year must sell their wine
through a licensed distributor.
AZ Wine Growers Association October 2021
Economic Analysis Page 4
that exceed this amount in a calendar year must work with a licensed state
distributor for off-premises sales.
Four wineries possess licenses to sell to wholesalers, while 10 are licensed to
directly ship their wines to Arizona residents. After adjusting for multiple
licenses per business, including among those with multiple farm winery
licenses, there are an estimated 114 unique winery labels in Arizona (as of
July 2021). The low number of wineries licensed to sell to wholesalers (4)
indicates that most wineries sell their wine via direct-to-consumer, and thus
outside the multi-tiered distribution & sales system. Only an additional 10
wineries are licensed to ship direct to consumer, indicating that the vast
majority of these direct-to-consumer sales are transacted on-premises at the
winery or remote tasting room.?
Interviewees expressed frustration with the current regulatory framework for
winemaking in Arizona, The current upper limit of 20,000 gallons for self-
distribution is viewed by interviewees as unnecessarily low and often
imposes an artificial limit on growth. Wineries typically grow their business
first through self-distribution, developing relationships with local and regional
grocery and liquor stores and restaurants. The advent of this 20,000 gallon
limit for self-distribution, according to interviewees, thus significantly curtails
growth opportunities.+
Exhibit 2. Arizona Winery Licenses, as of July 2021 (license # in
parentheses)
License Type Description Nomperin
In-state producer (#1) Allows winery to sell to an in-state A
wholesaler.
: Arizona winery that produced beiween
Farm Winery (#13) 200 and 40,000 gallons annually. 18
Allows winery to ship limited amounts of
Direct Shipment Wine (#17W) wine produced at their winery to Arizona 4
residents,
Remote tasting rooms located in Arizona
Remote Tasting Room (#19] and are owned and operated by a 37
licensee that concurrently owns a farm
winery licenses.
An agreement between a "host" Farm
Custom Crush (#21) Winery and a "tenant" Farm Winery to 10
produce wine on behalf of the tenani.
Source: Arizona Department of Liquor Licenses and Control (2021); Arizona State
Legislature (2021).
3 A small number of Arizona wineries are either meaderies or cideries. Both are
technically wineries, though the business models differ slightly from traditional grape-
based wine production.
4+ Winemakers producing less than 20,000 gallons can, and often do, work with
distributors, but the amount is decided by the winery, and can be any amount less
than their total sales volume.
AZ Wine Growers Association October 2021
Economic Analysis Page 5
Production
In 2019, Arizona wineries moved 97,500 cases of wine from bonded to non-
bonded sales locations in 2020 (Exhibit 3), an approximate (albeit
imperfect) measure of production.° Arizona’s wine production in 2019 ranked
30% among states, based on TTB net production data (Exhibit 4).
Exhibit 3. Net Production, Still and Effervescent Wine (Bottled),
Arizona, 2012-2020
Cases of Wine
120,000
99,100 _ 100, 600
100,000 iereencnsnetinet gy gpqee se wns 97,500
60,000 ------ bo
50, 700 50, 000
40,000 ~-38,800
20,000 -
2012 2013 2014 2015 2016 2017 2018 2019
Source: U.S. Alcohol and Tobacco Tax and Trade Bureau (2021).
Exhibit 4. Bottled Wine Net Production by State, Cases, 2019
Rank State Taxable Withdrawals*
Thousands of cases
1 California 259,411.6
2 New York 14,276.1
3 Washington 12,648.5
4 Pennsylvania 11,292.0
5 Oregon 5,747.6
6 Chio 2,802.2
7 Texas 2,667.3
8 Vermont 1,827.5
9 Michigan 1,544.6
10 North Carolina 1,517.7
30 Arizona 100.6
Source: U.S. Alcohol and Tobacco Tax and Trade Bureau (2021).
*Taxable withdrawals are not a perfect measure of wine sales. Withdrawals refer to
the transfer of wine from a bonded location to a non-bonded location (both can be
° Net production is based on the amount of wine that is bottled and moved from a
bonded to a non-bonded (and thus taxable) location for sale. Net production volumes
reflect wine volumes after some evaporation, removal of sediment due to racking,
and other volume losses in the winemaking process.
AZ Wine Growers Association October 2021
Economic Analysis Page 6
the same premise) for sale. However, withdrawals do serve as a reasonable proxy for
sales, both over time and in comparison with states.
Exhibit 5. License Holders and Share of Production by Production
Volume Levels, Arizona, Cases, 2019
Range License Holders Share of Production
Volume
Between 15,000 and 25,000 cases 2 22.4%
Between 5,000 and 15,000 cases 9 38.6%
Between 2,000 and 5,000 cases 15 22.4%
Between 500 and 2,000 cases 23 13.4%
Less than 500 cases 28 - 3.3%
Source; Arizona Department of Liquor Licenses and Control (2020).
Note; in 2019, 93 winery licenses reported production volumes, out of 105 active.
licenses. These 105 licenses were held by 77 unique wine license owners.
Wine Revenues, Employment, and Income
In 2019, wineries in Arizona generated an estimated $42.8 million in
revenues, including on-premises direct-to-consumer sales, direct shipments,
and sales via distribution channels (based on a discounted amount sold to
distributors). Total employment directly employed among wineries in Arizona
summed to 390 with associated labor compensation (including wages plus
estimated supplemental benefits) of $16.5 million (Exhibit 6).°®
An additional $2.2 million in revenues were generated through mark-ups
from the sale of Arizona wine throughout the 3-tier distribution system,
including from wholesaler to retailer and restaurant, and sale to final
consumers. Combined, the wine industry supported direct revenues of
$45.0 million in 2019.
Exhibit 6. Wine Production and Sales Direct Impacts, 2019
Labor
Employment income Output
Wineries 390 $16.5 $42.8
Mark-ups 30 ~ $1.1 $2.2
Wholesalers, ret ailers, rest aurants
Total 420 $17.6 $45.0
Sources: U.S, Census Bureau (2020); U.S. Bureau of Labor Statistics (2021); U.S
Bureau of Economic Analysis (2021); High Peak Strategy LLC (2021).
§ In 2019, according to the U.S. Bureau of Labor Statistics, there were 43 employers
in Arizona whose primary industry classification was “winery”—the remaining licensed
wineries were either classified as an industry other than “winery” (e.g., wholesaler,
restaurant) or were sole proprietors with no employees (U.S. Bureau of Labor
Statistics, 2021). Businesses defined in federal employment records as wineries
employed an annual average of 350 workers in 2019, though the total amount of
workers will vary throughout the year.
AZ Wine Growers Association October 2021
Economic Analysis Page 7
Growth Opportunities
Some winemakers, having tried to export their wine outside Arizona, have
turned their focus to the in-state market. Arizona wine remains a small
minority of wine sales in the state, often outcompeted by wine from
California, Washington, Oregon, and foreign imports. The Phoenix region is
among the fastest growing metropolitan areas in the country. Winemakers
see this large population base as important still largely untapped for Arizona
wine. Married this growth opportunity, many millennials put a high premium
on farm-to-table and local brand consumption.
Wine Tourism
Wineries draw both in-state and out-of-state visitors seeking daytrip or
overnight excursions. According to the Arizona Office of Tourism, in 2017
Arizona wine tourism directly generated $41.9 million in revenues, including '
$12.0 million in gasoline store sales and $14.5 million in hotels, motels, and
other accommodations. There were an estimated 600,000 visitors to
vineyards and tasting rooms in 2017, of which approximately 57% were day
trip-trippers and 43% overnight visitors (Fitch, Combrink, & Pitts, 2017, p.
31).
In this analysis, we update these figures for year 2019 and remove wine
tourist wine purchases to avoid double-counting of economic impacts. Year
2019 estimates were generated by inflating estimates from 2017 to 2019
dollars and scaling non-wine purchases based on growth in the adult
population ages 25 and above, based on U.S. Census Bureau data (2021).’
In 2019, wine tourism directly supported 390 jobs, $13.5 million in labor
income (inclusive of supplemental benefits), and $33.7 million in wine
tourism spending.
ECONOMIC AND FISCAL IMPACTS
Additional economic activities—measured in jobs, income, and revenue—are
support by wine production through the upstream purchases of various
supplier goods and services, referred to as indirect impacts. Further
impacts accrue through direct and indirect workers who spend a share of
their earned income on various types of household consumption, such as
groceries, fuel, dining out, and entertainment; these impacts are referred to
as induced impacts. The sum of direct, indirect, and induced impacts is
referred to as total economic impacts. These impacts in turn support
taxable activities and spending, measured as fiscal impacts.
The primary tool for assessing these broader economic impacts was the
IMPLAN Arizona model, an input-output model custom-built to reflect the
unique intra- and inter-industry transactions and household spending within
the state economy.
7 According to the U.S. Census, the Arizona adult population 25 years of age and
above increased approximately 5% between 2017 and 2019.
AZ Wine Growers Association October 2021
Economic Analysis Page 8
Economic Impacts
In 2019, the production distribution, and sale of Arizona wine was associated
with a total economic impact of $91.4 million and 690 workers (Exhibit 7).
Exhibit 7. Economic Impacts of Wine Production and Sales, 2019
Direct Indirect Induced Total
Employment 420 120 150 690
Labor Income {mils $) $17.6 $7.1 $7.7 $32.4
Output (mils $) $45.0 $22.1 $24.4 $91.4
Sources: IMPLAN Group LLC (2021); High Peak Strategy LLC (2021).
Wine tourism, representing allied spending on hotel accommodations, dining
out, and related day-trip and overnight travel expenses, directly supported
390 jobs and $33.7 million in output (Exhibit 8).®
Exhibit 8. Economic Impacts of Wine Tourism, 2019
Direct Indirect Induced Total
Employment 390 110 80 580
Labor Income {mils $} $13.5 $5.5 $4.2 $23.2
Output (mils $) $33.7 $17.4 $13.3 $64,4
Sources: IMPLAN Group LLC (2021); Arizona Office of Tourism (2017); High Peak
Strategy LLC (2021).
Total economic impacts of the wine industry in Arizona in 2019 are presented
in Exhibit 9 below. In 2019, the industry—based on the combined impacts
of wine production, sales, distribution, and wine tourism—supported nearly
1,300 jobs and $155.9 million in businesses output. Each direct job in the
wine industry was associated with 1.6 jobs across the Arizona state economy
(1,270 total jobs + 810 direct jobs).
8 Wine tourism estimates were based on the 2017 Arizona Office of Tourism wine
tourism impact estimates (Fitch, Combrink, & Pitts, 2017). However, to avoid double-
counting, estimated spending on wine by wine tourists was removed from the 2019
estimate. Furthermore, 2017 estimates were scaled to 2019 by: 1) inflating values to
2019 dollars, based on implicit price deflators published by the U.S. Bureau of
Economic Analysis (2021); and 2) increasing impacts based on the 2-year increase in
the adult population in Arizona ages 25 and older, drawing on U.S. Census Bureau
population data for Arizona.
AZ Wine Growers Association October 2021
Economic Analysis Page 9
Exhibit 9. Total Economic Impacts of Wine Industry in Arizona, 2019
Direct Indirect Induced Total
Employment 810 230 230 1270
Labor Income (mils $)} $31.1 $12.6 $11.9 $55.6
Output (mils $) $78.7 $39.5 $37.7 $155.9
Sources: IMPLAN Group LLC (2021), Arizona Office of Tourism (2017); High Peak
Strategy LLC (2021).
Fiscal Impacts
The above economic impacts in turn support taxable spending and activities
across the state. In 2019, Arizona wine industry—including the production,
distribution and sale, and wine tourism activities—supported an estimated
$29.8 million in federal, state, and local taxes (Exhibit 10).
Exhibit 10. Total Fiscal Impacts of Wine Industry in Arizona, 2019
Government Level Tax Payments
Federal Taxes $17.5
State Taxes $7.1
County Taxes $0.9
Subcounty General and Special District Taxes $4.3
Total $29.8
Sources; IMPLAN Group LLC (2021); Fitch, R., Combrink, T., & Pitts, T. (2017); High
Peak Strategy LLC (2021).
SUMMARY AND CONCLUSIONS
Arizona is a fast growing hub for high quality wine grapes and wine
production. The state is home to two American Viticultural Areas, the Wilcox
and Sonoita AVAs, and has a third AVA, the Verde Valley, pending federal
review and designation. Between 2012 and 2019, net wine production
volumes nearly tripled (160%) as the number of new wineries continues to
grow and existing wineries expand operations. As of July 2021, there were
118 licenses for “farm wineries,” defined as wineries that produce between
200 and 40,000 gallons of wine per year.
The production and sale of wine, along with wine tourism spending (such as
on hotels, restaurants, and travel expenses) in 2019 directly supported 810
workers across the state with labor compensation (including supplemental
benefits) of $31.1 million. Wine production and distribution directly
generated an estimated $45.0 million in business revenues across the state
in 2019. Factoring in indirect and induced impacts, the wine industry in
Arizona in 2019 was associated with an estimated 1,270 jobs, $55.6 million
in income, and $155.9 million in business revenues. These impacts in turn
supported federal, state, and local tax revenues of $29.8 million in 2019.
AZ Wine Growers Association October 2021
Economic Analysis Page 10
There are significant upside opportunities for the Arizona wine industry.
Arizona is one of the fastest growing states in the U.S., spurring increasing
demand for local, high quality wine. However, there are several perceived
constraints on this growth. Interviewees for this project expressed concerns
about the availability of grapes, the supply of which is being outstripped by
new demand, driving up prices. Stakeholders also called attention to the
current regulatory framework for wine as unnecessarily inhibiting winery
growth. According to some stakeholders, this is particularly the case for a
20,000 gallon upper limit per farm winery license on production before a
winery is compelled by Arizona law to work exclusively with a licensed
distributor for all off-premises wine sales.
AZ Wine Growers Association October 2021
Economic Analysis Page 11
APPENDIX
Appendix A. Wine Industry Interviews
Individual Affiliation
Brooke Lowry Ide Vino Stache
Kris Pothier Chateau Tumbleweed
Maynard James Keenan Caduceus Cellars, Merkin Vineyards,
Four Eight WineWorks
Michael Pierce Bodega Pierce Winery
Mickey Sarkett Action Beverage
Rod Young Arizona Stronghold, Provisioner
Wine
Todd Bostock Dos Cabezas Wine Works
Appendix B. Description of Data Sources
The following data sources were used for this report:
U.S. Bureau of Labor Statistics’ Quarterly Census of
Employment and Wages. Employment and wage data for workers
covered in the Arizona state unemployment insurance system, i.e.,
payroll workers. Employment is reported by detailed North American
Industry Classification System codes.
U.S. Economic Census. Detailed data on employment, wages, and
value of shipments for Arizona businesses for year 2017. Published by
U.S. Census Bureau,
U.S. Alcohol and Tobacco Tax and Trade Bureau. Data on net
production and federally licensed operations in Arizona by calendar
year and month.
U.S. Bureau of Economic Analysis. Implicit price deflators used to
adjust prior years’ sales and income estimates to 2020 dollars.
U.S. Census Bureau American Community Survey 1-Year
Estimates. Population estimates used to adjust data for tourism
based on growth from 2017 to 2019.
Arizona Department of Liquor Licenses and Control. Produciton
volumes by winery license annually.
IMPLAN. An input-output economic modeling too! for assessing
indirect and induced impacts of wine production, distribution, and
wine tourism spending in Arizona.
AZ Wine Growers Association October 2021
Economic Analysis
Page 12
BIBLIOGRAPHY
Arizona Department of Liquor Licenses and Control. (2017, November 22). A.R.S. §4-
205.04: Farm winery license license: issuance: regulatory provisions: retail site: fee.
Retrieved from Arizona Department of Liquor Licenses and Control:
https://www.azliquor.gov/LiquorLaws/ViewTitle.cfm?TitleID=25
Arizona Department of Liquor Licenses and Control. (2020). Production by Winery Lincense,
2019, Phoenix: State of Arizona.
Arizona Department of Liquor Licenses and Control. (2021, July 9). Liquor License
Application Kits. Retrieved from Arizona Department of Liquor:
https://www.azliquor.gov/query_historical/master.csv
Arizona State Legislature. (2021). 4-205.04. Farm winery license; issuance; regulatory
provisions; retail site; fee. Retrieved from Arizona State Legislature:
https://www.azleg.gov/ars/4/00205-04.htm
California Department of Food and Agriculture. (2020). California Grape Crush Report.
Sacramento: California Department of Food and Agriculture. Retrieved from
https://www.nass.usda.gov/Statistics_by_State/California/Publications/Specialty_an
d_Other_Releases/Grapes/Crush/Final/2020/2020_final_grape%20crush.pdf
Fitch, R., Combrink, T., & Pitts, T. (2017). The Arizona Wine Tourism Industry - 2017.
Phoenix: Arizona Office of Tourism.
IMPLAN Group LLC. (2021). IMPLAN [2019 Arizona State Model]. Huntersville, NC, USA.
Pierce, M. (2020). Arizona Wine Industry. Prescott: Yavapai College.
U.S. Alcohol and Tobacco Tax and Trade Bureau. (2020, February 28). Proposed
Establishment of the Verde Valley Viticultural Area. Retrieved from Federal Register:
https://www.federalregister.gov/documents/2020/02/28/2020-04012/proposed-
establishment-of-the-verde-valley-viticultural-area
U.S. Bureau of Economic Analysis. (2021, August). Gross Domestic Product: Implicit Price
Deflator [GDPDEF]. Retrieved August 4, 2021, from retrieved from FRED, Federal
Reserve Bank of St. Louis;: https://fred.stlouisfed.org/series/GDPDEF
U.S. Bureau of Labor Statistics. (2021). Quarterly Census of Employment and Wages.
Washington D.C.
U.S. Census Bureau. (2020). 2017 Economic Census [dataset: ECNBASIC2017]. Washington
D.C.
U.S. Census Bureau. (2021). American Community Survey 1-Year Estimates [2017 and
2019]. Retrieved from U.S. Census Bureau.
U.S. Treasury Department. (2021). Wine Statistics. Retrieved from Alcohol, Tobacco, Trade,
and Tax Bureau: https://www.ttb.gov/wine/wine-statistics
USDA National Agriculture Statistics Service. (2014). ARIZONA VINEYARD SURVEY - 2013.
Washington D.C.: USDA.
AZ Wine Growers Association October 2021 |
Economic Analysis Page 13 i
Washington State Wine Commission. (2017, May). 2017 Grape Crush Report. Retrieved
from Washington State Wine Commission: https://www.washingtonwine.org/wp-
content/uploads/2021/05/2017-Washington-Wine-Grape-Production-Report. pdf
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