Rising demand for top quality wines is outpacing the development of vineyards to supply suitable grapes in California, according to a report released yesterday.

The latest issue of the MKF Research Monthly estimates that California will need to develop nearly 18,000 additional acres of top quality vineyards by 2010 to meet demand for its wine. While some of this development may come from replanting or better management of existing vineyards, new vineyard development will be needed to satisfy much of the growing demand.

"The demand for the best wines continued to rise, although at a somewhat slower pace than during the boom years of 1998-2000," Barbara Insel, managing director of Research noted.

The high-end wine segment is the fastest growing and most profitable segment of the U.S. wine market - and one where California has successfully defended its market share from imports and other US regions.

"Only a limited number of regions in the state are suitable for the development of the needed vineyards," Insel said. "Overreaction to the grape cycle discouraged new planting of top quality vineyards from 2001 to 2003, although the high-end of the market saw relatively little of the pricing pressures experienced in the lower priced segments of the market. There was always a market for the best quality grapes," she said.

The North Coast, for example, where much of the high-end wine is produced, has seen only about a 10% price drop on average since 2001, compared with 23% or more in the Central Valley.