Giving credit where credit is due

Wines & Vines, Nov, 1996 by Jean Deitz Sexton

Since the early 1970s Murphy had enjoyed a business relationship with Pacific Coast Farm Credit, the California branch of the venerable lending institution whose sole mission is to financially support American agriculture.

At the time Murphy and his wife Doreen had decided to make their home and raise their family in Sonoma County's Alexander Valley, an ethereally beautiful wine region marked by rolling hills and silver-fog laden mornings. They settled in on a 20-acre homestead Murphy bought in 1967. A UC-Davis graduate with a degree in animal science, Murphy had previously operated a successful retail meat market in Berkeley.

Murphy paid cash for those first 20 acres; he and Doreen still live on the original property. Two years later he added to his holdings, buying the Highway 128 parcel on which the Murphy-Goode winery now sits.

From the beginning the Murphy-Goode collaboration was a charmed one, viticulturally and financially. Originally, Murphy's 20 acres contained prunes and "a little bit of vineyards," says Murphy. Eventually, he and his partner, Dale Goode, converted the parcels to full grape production, planting what were to become prized Chardonnay and Sauvignon blanc varietals.

When Murphy went to Pacific Coast Farm Credit to establish a lending relationship he already had the hallmark of an ideal credit applicant. He came with his own collateral, 20 acres of debt-free prime California vineyards. He knew something about grape growing. And he was in the vineyard business for the long haul.

Good fortune gave Murphy premium grapes; his own sound fiscal policy gave him good credit. "Everything we took in we plowed back into the business. We never took a large profit. We were always debt reducing, paying off our loans early," says Murphy.

From the early '70s to the present, Pacific Coast Farm Credit has been Murphy-Goode's only lender. The two organizations have grown together: Murphy now owns 350 acres in the Alexander Valley. In Sonoma county, Pacific Coast Farm Credit was housed in a small office Murphy used to visit on Steele Lane in Santa Rosa; now it has its own formal office building in Windsor.

By the time Murphy and Dale Goode thought about expanding their operation to a full-fledged winery, they had a solid credit rating with Pacific Coast Farm Credit and years of successfully fighting the vagaries of grape growing. Would-be vintners can learn much from their experience, according to Pacific Coast Farm Credit.

For one thing, the Murphy-Goode wine label began with a huge competitive edge: their own grapes. Wineries starting from scratch need to think ten years down the line; that's how long it will take for them to realize any profit, says Pacific Coast vice president Bill Rodda, who specializes in vineyard and winery financing.

"Someone brand new to the business is a concern. Even corporations who want to get into the business face challenges. Coca-Cola failed because it did not realize the complexities of the wine business. If someone is new we want to see them surrounding themselves with vineyard, production and marketing expertise," Rodda says.

Doctors, lawyers and CEOs who decide to dabble in viticulture often get out after a few years. "They need a tremendous amount of capital behind them," notes Terry Lindley, Pacific Coast Farm Credit's vice president of marketing. "Usually, they greatly underestimate the amount of capital required and the challenges of marketing."

Building up a label's brand equity takes years. Murphy-Goode was able to leverage its reputation for growing excellent ultra-premium grapes. For someone starting out in 1996 the game is even tougher. "The biggest financial challenge is for wineries to locate enough product, due to the grape shortage," Lindley says. Many wineries are not lucky enough to be their own captive supplier, in the manner of Murphy-Goode. Finding grapes in a hot market now is a challenge for all wineries, new or established.

The hot wine market has also changed the current financial climate. Right now, the "sunshine lenders" are back in the business, says Lindley. They are the commercial lenders who fade in and out depending on the health of the market.

"Presently the money supply is pretty good in the industry. Lenders have dollars and they are pretty aggressive."

But when the party's over and the market cools off, the sunshine lenders will leave. Pacific Coast Farm Credit, on the other hand, dances with the one who brought them. The mission of Pacific Coast Farm Credit is to financially back agriculture, good times and bad. "When things get tough again we'll be here," says Rodda. "We also offer competitive rates so we keep the commercial banks honest."

While Pacific Coast has a particular affinity for agriculture, it doesn't mean its wallet is open to all comers. "We certainly are a more approachable lender but just as stringent," says Lindley. "We see ourselves as long term partners with agriculture so we have to be structured pretty conservatively."

The organization does its due diligence on all credit applicants and has seasoned personnel handling accounts. Some of them, such as Rodda, come from the commercial lending business.