ECONOMIC SUSTAINABILITY OF CANADIAN GRAPE INDUSTRY. A COMPARATIVE ANALYSIS OF OKANAGAN VALLEY AND NIAGARA PENINSULA SOSTENIBILIDAD ECONÓMICA DE LA INDUSTRIA CANADIENSE DE UVAS. UN ANÁLISIS COMPARATIVO DEL VALLE DE OKANAGAN Y LA PENÍNSULA DE NIAGARA

BALINT, Gabriel1*; BALINT, Stela2 1 Okanagan College, School of Business,583 Duncan Ave. Penticton, BC, Canada 2 HortiCARO, St Catharine, ON, Canada *Corresponding author: gbalint@okanagan.bc.ca Abstract Sustainability is a broad concept, and its economic component is not often incorporated when sustainable farming practices are studied. This study analyses some economic parameters related to the size of vineyard operation as individual business or associated with a winery. Data has been collected from British Columbia Wine Institute, British Columbia Grape Growers Association, Grapes Growers of Ontario and Statistics Canada. Overall, Ontario has a higher percentage of growers with total acreage over 20 acres, and less vineyards under 20 acres associated with a winery compare to Okanagan Valley. Data suggest that most of the vineyards under 6 acres have also a boutique winery in order to have a sustainable business.Besides terroir and wine quality, the tourism seems to play an important role in the economic sustainability of vineyard/winery operations under 6 acres, located in Okanagan Valley. The total acreage in Ontario is almost double than in British Columbia, but the number of growers is half of this from British Columbia. This study suggests that there is not a minimum acreage to be economically sustainable as long as the operation is located in a touristic area, in the proximity of an urban settlement, with great potential to grow high quality grapes. Also, vineyard/winery entities tend to have better economic results comparing to independent growers. Keywords: Canadian wine regions, economic sustainability, farm size, tourism, 1. Introduction Sustainability is a broad concept that many industry and agriculture operations embracein their daily activitiesin the last decades. This concept integrates three components, environmental and social responsibilities with an economic goal to create value for the business and society. According to the Report of World Commission on Environment and Development,a common definition of sustainability is “meeting the needs of the present generation without compromising the ability of future generations to meet their needs” (United Nation report, 1987).Many studies have been conducted on sustainability in the viticulture sector in California, and most of the practitioners concluded that sustainability definition must be reduces at the “Three Es“concept: economic viability, environmental health, and social equity (Hoffman et al. 2010).Sustainability became an important goal for Canadian wine and grape industry even if it is a voluntarily decision, and not necessary with an economic return as it was found in other countries as well (Gilinsky Jr.et al. 2015). Analyzing the currentliterature,thereis no clear picture of the economic advantageofsustainablewineproduction (Forbes and De Silva 2012, Tee et al. 2007). Nowadays,thereseemstobeabroadconsensusthatinternaldriversplayamuchlargerrolethanexternalmotivati ons in adopting sustainable practices in wine industry.Szolnoki(2013)pointedout thatitisstillverydifficulttodefinetheterm“sustainability”becausenotonlyeverycountrybutalsoeveryentrepr eneurhasadifferentunderstandingofsustainabilityinthewineindustry. In the agricultural sector, increasing competition, unpredictable weather patterns, and barriers to trade can pose serious threats to the sustainability of many farm operations(Colton and Bissix, 2005). The same authors stated that small family operated farms are disappearing at a rapid rate.Small and family enterprises can be severely affected because of the lack of financial, human and material resources needed to plan, organize and execute different strategies to make necessary improvements (Alonso and Liu,2012).However, some studies on French wine industry did not find any correlation between the size of the vineyard and the ability to have a sustainable business.In the case of the wine sector, entrepreneurs continuously face competition from other wine regions, in some cases declining or shifting consumer demand, the seasonal challenges of achieving consistent product quality, and the costs associated with these processes to sustain their sector. The Canadian wine and grape industry is relatively young comparing to other parts of the world. Its diversity and thenumerous awards received for its wines attracted attentionfrom markets all around the world. Due to the fact that wine is a luxury good, consumers who are interested in purchasing wine are often associated with high incomes. Therefore wine consumers are more sensitive to quality than price. In the last decade the demand for British Columbia wines has increased by 32% (Kane, 2010). According to Carol Nelson from BC Tourism, the success of the industry is primarily due to the improved quality of wine and secondly due to tourism (Kane, 2010).Together, British Columbia and Ontario produce more than 95 percent of the total wine production in Canada, while Okanagan Valley and Niagara Peninsula represent 85 and 95 percent of the production in their province. The demand for BC wine is growing faster than vineyards can supply. The rising price of land in the BC Okanagan, which is among the most expensive in the world, makes it hard for vineyard owners to increase production or to even enter the market. The structure of the Okanagan wine industry in terms of numbers and size of both wineries and vineyards compared to Niagara Peninsula wine region is quite intrigued. Whilethereisagrowingbodyofresearchexaminingthe profitability of grape and wine businesses engaging in sustainable development, to the best of our knowledge, not to many studies have specifically focused on understanding the economic sustainability of vineyard/winery operation size. This task is hard to achieve in the New Wine World regions where the industry is very dynamic, and the wineries have followed different business models and source their grapes from various vineyards. This paper is an exploratory study on two Canadian wine regions to possibly understanding the factors that make small vineyard/winery operations to have a sustainable business. Material and methods Niagara Peninsula and Okanagan Valley are both located in areas with the best suitable conditions for growing grapes in Canada. Water bodies have a great effect in moderating the climate in both areas (Figures 1 and 2). However, Okanagan Valley is dominated by hot and dry summers, mountains that surround the valley having the most influential effect. Besides quality of wines produced in the area, tourism played a major factor in their development. Given the limited secondary data availabletoachievereliableinformation, various resources have been consulted for data accuracy. Data came mainly from the following grape and wine organizations: British Columbia Grape Growers Associations BC Winegrape Council, BC Wine Institute, Grape Growers of Ontario, Canadian Vintners Association and Statistics Canada. In each of the two vinicultural areas there are 3-5 wine/grape operators that own multiple vineyards and wineries such as Constellation brands and Andrew Peller. Most of the biggest vineyards and independent growers are associated with this companies. The impact of the tourism on local wine industry was analyzed based only on the total direct revenue related to on site restaurants, accommodation and events. Different parameters (acres, tonnage, sales, price, revenue/acre, full time vineyard equivalent, payroll, revenue per winery/acre, volume Canadian wine)have been compiled and discussed to understand the economic sustainability of Okanagan Valley growers with acreage under 10 acres. Results and discussion Theimpact of the geographicalpositioningofwineriesonthecost/benefitevaluationofsustainabilitycouldberelatedtopossible differences inthe localorganizationof theentiresupply chainor to climatic conditions which could relevantly increase the ease of managing sustainable practices(i.e.areasless susceptibletofungaldiseases). Not only the average price per ton of grapes but also the price per bottle is much higher when comparing Okanagan Valley with Niagara Peninsula. (table 1). In terms of costs (data not shown), small vineyard/wineries operations from Okanagan Valley have the advantage of selling most of their wine production on site, through their tasting room or restaurants. Transportation or using other distribution channel, along with the provincial legislation can cut considerably the margins for vineyard/winery operations in Niagara Peninsula (OMAFRA, 2013). As a consequence, in order to be sustainable economically the grape and wine industry from Ontario must compensate through increasing the size of operations. The average size of Ontario operations is almost double for each size category (table 2). Another worth observation is that Ontario wineries sell an impressive amount of wine as International Canadian Blend, which is bottled in Canada but contains just a percentage of wine made with Ontario grapes (data not shown). This approach might be economically sustainable for the big operators but not for the local grape growers. By comparison, the wine industry from British Columbia is focusing more on local grapes, which can be seen in the ratio between winery owned vineyards versus independent growers (table 1) Tourism is a major factor in the overall Canadian wine and grape industry’s impact on the economy. Canadian wineregions are l o c a t e d i n p r o x i m i t y o f US border with great potential to attract the increasing number of Americans interested in wine and culinary tourism. International travelers spend more and stay longer than domestic travelers. With 2.4 million annual visitors, the Ontario wine regions have developed alarge and loyal tourist following, enhanced by the proximity of its major wine region to the popular tourist destination of Niagara Falls. Muchlikein Ontario,estimated a onemillion annual visitors,winetourism is significant and growing throughout British Columbia, particularly in the Okanagan Valley. There is a strong focus on wines made from locally grown grapes in British Columbia. E v e n if th e w ines produced in British Columbia carry the highest average bottle prices of any of the Canadian provinces, the rate of increasing demand is tremendous high. Data is showing that the revenue that is coming from the wine tourism in Okanagan Valley is very close to that from Niagara Peninsula, even the vineyard acreage is significant higher in Niagara Peninsula compare to Okanagan Valley (Table 1). While in Niagara Peninsula the ratio between winery acreage owned versus independent grape growers is 30/70, the ratio is almost the opposite in Okanagan Valley. This suggests that the wineries from Okanagan Valley might have a better control on the crop quality. The overall revenue reported to the acreage size owned seems to be bigger when taking into consideration the winery revenue along (table 2). The net value added per worker is a not a great estimator for economies of large scale in our case(data not shown). Further, the use of this estimator is quite interesting as it is almost impossible to measure economies of scale directly (i.e. a decrease of average cost when the farm size increases) in agriculture due to the non-fixity of the cost of family labor. The acreage distribution in Okanagan Valley is reflecting the land availability and diversity in topography (table 3 and 4). The biggest vineyard acreage is located in South of Okanagan Valley, where the topography allowed planting on big plots. Another consequence of this is having bigger vineyards and lower number of growers. On the other hand, Penticton/Naramata area is dominated by a higher number of vineyards with small acreage. The Naramata Bench topography has a tremendous effect on the vineyard size.The high cluster density of vineyard/winery located in this region, attracts a high number of wine tourists who are able to taste a diversity of varieties and wine styles. Conclusion The partial data presented indicates that size cannot be a good indicator of the economic sustainability of a vineyard/winery operations. Location seems to be a major factor that affect both variety suitability (quality) and the tourism activity (selling). A vertical integration (downwards and upwards) in the wine industry seems to be the best approach when the size of the operation is small. References AGRICULTURE and AGRI-FOOD CANADA.2009.“Canadian Wine Industry.”Web. 20 Nov 2010. ALONSO, A.D., LIU, Y. 2012. Coping with changes in a sector in crisis: the case of small Spanish wineries, J of Wine Research Vol. 23, 81-95. COLTON, J.W., BISSIX, G., 2005. Developing agritourism in Nova Scotia: issues and challenges. Journal of sustainable agriculture, 27 91-112 FORBES, S.L., De SILVA, T.A., 2012. Analysis of environmental management systems in New Zealand wineries. Int. J. Wine Bus. Res., 24 98–114. 30. GILINSKY JR, A., NEWTON, S.K., VEGA, R.F. 2016. Sustainability in the global wine industry: Concepts and cases. “Sustainability of Well-Being International Forum. Florence 2015, Agriculture and Agricultural Science Procedia 8 37 – 49. HOFFMAN, M., LUBELL, M., HILL, V. 2010. Defining sustainable viticulture from the practitioner perspective, Practical Winery and Vineyard, Spring Issue, 1-5. KANE, MARI. 2010. “Get lost and happy in Okanagan wine country.”Marikane.com. Nd. Web. 20 Nov. 2010. OMAFRA, 2013.Starting a winery in Ontario, 100 p., Ministry of Agriculture and Food and Ministry of Rural affairs, Publication 815. SZOLNOKI, G. A. 2013. A cross-national comparison of sustainability in the wine industry. J. Clean. Prod., 53 243–251. TEE, E.; BOLAND, A.M.; MEDHURST, A. 2007. Voluntary adoption of Environmental Management Systems in the Australian wine and grape industry depends on understanding stakeholder objectives and drivers. Anim. Prod. Sci., 47 273–283. UNITED NATIONS, 1998.Report of the World Commission on Environment and Development, 42/187. Table 1 Comparative Data from the Wine industry of British Columbia, Okanagan Valley, Ontario and Niagara Peninsula Vineyard/Winery Location Economic Indicators of Canadian Wine Business Number of Grape growers Acreage (acres) Crop Tonnage (tons) Sales grapes (mil.) Average price ($/t) Revenue per acre ($) Maintenance per acre Full time vineyard equiv. Payroll mil. Wineries Production cases (mil) Cases wines (100% Canadian) Full time winery equiv. Payroll (mil. $) Revenue 100% Canadian wine per acre (mil. $) Winery revenue 100% Canadian wine (mil. $) Wine industry tourism (mil. $) Wine industry tourism Full time equiv. Payroll (mil. $) Tourists (mil) Ontario 456 18383 64226 78.7 1225 4279 4400 1903 55.3 180 8.3 2.1 2936 169.8 0.014 Niagara (ON) 387 14600 49501 60.6 1225 4153 4400 1511 43.9 92 4.2 1.07 1500 84.5 0.009 Peninsula British Columbia 929 10260 27745 47.2 1703 4605 4600 988 34 275 4.8 1.44 1126 62.0 0.019 Okanagan Valley (BC) 744 8619 23307 39.7 1703 4605 4600 829 28.5 172 3.0 0.9 704 38.7 0.014 262.5 134 199.8 127.9 311.1 3214 124.7 20 159.0 1643 63.7 2.4 246 2615 87.9 3 153.8 1634 54.8 1 Table 2 Vineyard Acreage Distribution between wineries/and independent growers NUMBER ACRES % of ACRES BC Winery Owned / Leased Acreage BC Grower Owned / Leased Acreage 412 vineyards* (254 wineries) 517 vineyards (464 growers) 6,892.4 3,367.4 67.2 32.8 ON Winery Owned/Leased 201 vineyards 7720 44 ON Grower Owned 246 vineyards 10623 56 Table 3 Vineyard acreage distribution between winery owned and independent growers across the grape regions of Okanagan Valley Region Winery own Acreage (acre) No. of Vineyards Wineries Oliver Osoyoos Kelowna/West Kelowna 2,457.0 1,037.3 756.8 91 38 41 37 10 29 Independent growers Acreage No. of Vineyards (acre) 1,182.2 112 507.4 70 280.2 44 Penticton / Naramata 531.4 73 45 483.9 121 Summerland / Peachland 237.9 23 18 166.6 36 Okanagan Falls 534.0 22 18 59.8 13 Kaleden 54.0 7 2 75.0 21 Table 4 Distribution of vineyards according to the size categories in Okanagan Valley VINEYARDSIZE NUMBER ofVINEYARDS %byNUMBERofVIN EYARDS TOTALACRESbyVINEY ARDSIZE %ACREAGE 0.00–3.00acres 190 36.7% 322.36 9.6% 3.01–5.00acres 5.01–10.00acres 10.01–20.00acres 20.01–40.00acres Over40.00acres 123 151 37 11 5 23.8% 29.2% 7.2% 2.1% 1.0% 520.75 1,141.14 518.62 328.47 536.15 15.5% 33.9% 15.4% 9.7% 15.9% A B Figure 1 A- Main Viticulture Regions in Ontario; B- Sub-Appellations from Niagara Peninsula A B Figure 2 A-Main Viticulture Regions in British Columbia; B- Main Sub Regions of Okanagan Valley

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