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A GROWING OPPORTUNITY
The rapid growth of the English sparkling wine industry has created unique opportunities for farmers in the South East to tap into the lucrative world of vineyards. Simon Baillie-Hamilton, agricultural law partner, and James O’Connell, business law partner, at Sussex law firm Mayo Wynne Baxter, explore the benefits, complexities and legal aspects farmers need to consider.
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English wine has experienced a renaissance in recent years, with numerous vineyards being planted during the past decade. Sparkling wine has proved popular, especially along the south coast, due to its favourable geology and a warming climate that has made grape growing much more feasible in most of southern England. The number of wineries has increased markedly, but as demand for English wine still outstrips supply, they are seeking to secure a steady supply of grapes, which opens a unique opportunity for farmers to cultivate vineyards on their land. While such collaborations can bring numerous benefits, significant upfront investment is usually required, given the long lead-in time; three or four years from initial planting of a brand-new grapevine through to first harvest. For own-label wines, a further two years can be added for the maturation process.
DIVERSIFICATION OF RISK
The growing demand for English sparkling wine outstrips current production levels, with even the largest vineyards struggling to meet demand. This means farmers could potentially double their yield and still sell their harvests. The price per tonne, as for other crops, can be volatile, influenced by many things such as the weather and harvest quality. Suffice to say, however, that there is currently a significant premium for grapes and yield per hectare can be impressive. The allure of the wine industry lies not only in the potential financial gains, but also – putting fun aside – in the diversification of risk, which can be especially appealing to farmers seeking new avenues for stability and growth. Moving away from traditional agricultural practices mitigates at least some
of the uncertainties associated with arable or livestock farming. The rise of wine tourism also means farmers with ambitions of attracting visitors to their land to taste their wines can find themselves at the forefront of a burgeoning trend and benefiting from an additional income stream and enhanced prestige.
LOCAL APPEAL
Unlike other crops that may be distributed widely, grapes grown for wineries typically stay local. This not only reduces transportation costs but also strengthens local supply chains. Moreover, selling grapes locally ensures a more stable pricing environment compared with commodities wholly exposed to global markets. As the English sparkling wine industry continues to thrive, farmers could negotiate deals with wineries, such as reserving a portion of their harvest to produce their own-label wine, tapping into the market for local produce while also allowing them to a share of the entire value chain.
UPFRONT INVESTMENT
Establishing a vineyard requires a longterm commitment and a different approach. Vineyards necessitate consistent care and maintenance over several years and farmers must be prepared to dedicate their land exclusively to grape production, accepting a period of reduced crop yield before their grapes become commercially viable. Returns may take three to five years to materialise. Furthermore, successful viticulture requires specialised knowledge and skills. Farmers must be prepared to engage with the technical aspects of grape growing or consider outsourcing to viticulture firms for guidance and assistance.
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NAVIGATING LEGAL CONSIDERATIONS
Collaborations between farmers and wineries necessitate clear legal agreements to protect the interests of all parties involved. Landowners may opt to lease their land to wineries, ensuring an adequate period for the wineries to recoup their investments in the vines. Alternatively, commercial arrangements such as joint ventures can be established, with farmers providing labour and machinery while leveraging the expertise of the winery. It is vital to consult legal experts to draft contracts, including agreements with viticulture firms responsible for planting and trellising, as well as purchasing contracts and investment arrangements.
FINANCIAL READINESS
Investing in a four-to-five-year project requires careful financial planning, including assessing the availability of funds and exploring financing options. Considering potential tax implications is crucial. Although vineyards generally qualify for agricultural property relief for inheritance tax purposes, it is prudent to consult with tax professionals to understand the consequences of transitioning from traditional farming practices to viticulture. Additionally, farmers considering producing their own labelled wines should consider trade marking their brand names or logos to protect their intellectual property. While establishing vineyards requires a long-term commitment, proactively addressing potential challenges and seeking professional advice will ensure farmers embark on a successful journey into the world of viticulture.