EUGENE (AP) — The Oregon wine industry is facing a dilemma.

The state's grape production is continuing to expand even as wine sales have dropped off, prompting concerns about oversupply.

'Not only are we producing more grapes, but more acres are coming online," said Ted Farthing, executive director of the Oregon Wine Board. 'We need to do a lot more work on the demand side."

Farthing and other wine experts recently gathered in Eugene to discuss the industry's outlook at an annual symposium.

With national unemployment still hovering at about 10 percent, the 'jobless recovery" from the recession continues to rattle consumer confidence, he said.

Wines produced in Oregon tend to be more pricey, making them less attractive to distributors who want to move large volumes of product, said Eugenia Keegan, a wine industry consultant.

Oregon winemakers sold about 1.66 million cases of wine in 2009, down 5 percent in volume from the prior year, according to the USDA's National Agricultural Statistics Service.

In terms of value, however, wine sales dropped about 16 percent, to $202 million, according to NASS.

As high-end wineries have been forced to knock down their prices, they've begun competing more with mid-level wineries, said Rob McMillan, head of the wine division of Silicon Valley Bank in Saint Helena, Calif.

As a result, the wine industry has felt pressure to reduce prices across the board, he said.

Wineries can only lower their prices to a certain point without risking their overall business, McMillan said.

For that reason, producers should now focus on consumer research and providing more value for the dollar, rather than engaging in a race to the bottom, he said.

'Focus on the experience part, not the price part," McMillan said.

Amid softening demand and lower prices for wine, Oregon grape production rose 16 percent in 2009, to 40,200 tons.

Nearly one-fourth of Oregon's 19,300 vineyard acres has not yet reached maturity, so production can be expected to continue growing based on existing plantings.

'You have two disjointed forces going on," said Matt Novak, president of Results Partners, a vineyard management company in Oregon's Willamette Valley.

To make matters worse, there's a lot of finished product left to sell. Inventories of Oregon wine from 2008, 2007 and earlier vintages have topped 2 million cases, according to NASS.

Without much incentive to buy grapes, winemakers may decide not to renew contracts with farmers — particularly if they have enough of their own grapes, Novak said.

'Wineries are favoring their estate vineyards," he said.

Trouble in the state's wine industry began brewing in 2008, when the financial crisis hurt food service sales, Novak said.

Slower wine turnover in restaurants affected distributors and wineries in 2009, hitting grape growers in late summer, he said.

A ton of Pinot Noir grapes, the region's signature variety, fell in price last season from about $3,000 to $2,000, he said.

'We're the last people to feel it and the last to come out," Novak said.

In light of the economic situation, it's a good time for growers to remove inefficient vineyard blocks, he said.

'When in doubt, rip it out," Novak said.

Vineyards can be 'mothballed," but it's not cheap or easy, since growers must still spend money on pesticides to prevent the blocks from becoming disease centers, he said. 'It's not a very attractive scenario."

During past down cycles, farmers in California have removed vast acreage to curb overproduction, Novak said.

Hopefully, it doesn't have to come to that in Oregon, which has much fewer vineyard acres, he said. 'I'd prefer if we sell our way out of it."