SA wine farm­ers feel­ing the pres­sure

CityPress - - Business - – Fin­week NATALIE GREVE busi­ness@city­

Var­i­ous chal­lenges fac­ing South Africa’s wine in­dus­try are caus­ing wine farmer num­bers to shrink.

South African wine pro­duc­ers are fac­ing bruis­ing mar­ket head­winds, bat­tered by low-cost com­peti­tor prod­ucts, low do­mes­tic rain­fall, stag­nant prices and cost in­fla­tion.

Ac­cord­ing to in­dus­try body VinPro, only around 44% of farm­ers are op­er­at­ing at breakeven level and 40% are mak­ing a loss.

The to­tal num­ber of grape pro­duc­ers and ar­eas un­der vine­yard has, mean­while, de­clined from 3 232 to 3 139 and from 98 596 hectares to 96 753 hectares re­spec­tively, with sub­se­quent job losses.

Crit­i­cally, the av­er­age net farm­ing in­come lan­guishes at around R45 000/ha – some R25 000/ha be­low what is re­quired in or­der to re­main sus­tain­able over the longer term.

“We need to in­crease wine prices col­lec­tively to get to that level,” VinPro chair­per­son An­ton Smuts told at­ten­dees at the Ned­bank VinPro In­for­ma­tion Day in Cape Town last month.

“[We need to] stop the dump­ing of wine at cheap prices in our ex­port mar­kets – it hurts the in­dus­try as a whole,” he said.

Ac­cord­ing to the SA Wine In­dus­try In­for­ma­tion and Sys­tems (Sawis), lo­cal rev­enues from the wine in­dus­try con­trib­ute more than R36 bil­lion to the na­tional GDP, while the sec­tor pro­vides em­ploy­ment to more than 300 000 peo­ple.

While it was en­cour­ag­ing that the in­dus­try saw ex­port value growth of 10% to nearly R9 bil­lion, and vol­ume growth of 3% to 428 mil­lion litres in 2016, bulk wine, which is sold at lower prices, re­mains the big­gest con­trib­u­tor in terms of vol­ume.

Pro­fes­sor Nick Vink, dean of Stel­len­bosch Univer­sity’s agri­sciences fac­ulty, said: “Since [the dawn of] democ­racy in 1994, the in­dus­try has be­come heav­ily de­pen­dent on ex­ports, which is now see­ing slow growth. It’s time to get back to that ear­lier drive of qual­ity and re­fo­cus on the do­mes­tic mar­ket to get us out of the cur­rent slump.”

VinPro man­ag­ing di­rec­tor Rico Bas­son said a stronger do­mes­tic mar­ket fo­cus, in­ge­nious mar­ket­ing and a col­lec­tive drive to­wards higher price points could re­turn the in­dus­try to pre­vi­ous highs. More­over, a new EU wine agree­ment as from Jan­uary is ex­pected to as­sist value growth, with an ad­di­tional tar­iff-free quota of 110 mil­lion ver­sus the cur­rent 48 mil­lion litres.

Do­mes­ti­cally, South Africans ap­pear to be in­creas­ing their up­take of the lo­cally made prod­uct. The lo­cal mar­ket has grown more than 14%, or by 50 mil­lion litres, over the past two years to more than 400 mil­lion litres at the end of De­cem­ber 2016.

Fur­ther afield, Chi­nese ap­petite for wine im­ports ap­pears to be ac­cel­er­at­ing, pro­vid­ing a fer­tile mar­ket for lo­cal wine.

In­dus­try as­so­ci­a­tion Wines of SA (Wosa) says China was iden­ti­fied well over five years ago as a “ma­jor” fu­ture growth mar­ket for the South African wine in­dus­try. Wosa com­mu­ni­ca­tions man­ager Maryna Stra­chan said that China was South Africa’s ninth-big­gest wine ex­port mar­ket, re­al­is­ing ex­ports of around 15.7 mil­lion litres in 2016 – a growth of 39% on 2015.

The lo­cal in­dus­try will also look to ex­pand its mar­ket share in the US as well as else­where in Africa.

“France re­mained China’s pri­mary source for imported bot­tled wines, Aus­tralia came in sec­ond, fol­lowed by Chile, Spain, Italy, the US, South Africa, Ar­gentina, New Zealand and Por­tu­gal,” Sawis re­ported.

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