Foreign brooms sweep clean in SA vineyards
International investors are pumping money into the country’s celebrated Winelands, bringing welcome relief to a stressed industry. By
South African wine estates are being scooped up, with a number of prestigious properties – including Uitkyk, Villiera and Kleine Zalze – acquired by international investors over the past few months.
They join a long list of formerly locally owned properties bought with foreign money: Alto, Ernie Els, Warwick, Le Bonheur, Ken Forrester, L’Avenir, Stellenbosch Vineyards, Neethlingshof and others.
Similar trends have been evident in other countries, such as France and New Zealand.
SA’s currency discount
In South Africa, the currency discount works in the investors’ favour.
Roland Peens, CEO of Wine Business Advisors, explained: “Frankly, these assets are just so cheap compared to other regions, and that’s what makes them so attractive.”
Peens said investors were backing the local wine sector for the long haul. It takes time to institute new planting strategies. “These are very, very long-term investments.”
And many South African estates are struggling: vineyards are becoming too expensive to farm and wine volumes taken up by big players like Distell are falling.
“The supply in the market has come down 20% over the past 20 years. There is a real declining demand for entry-level wine.”
On the flipside, there is growing demand for fine wine. South Africa has about 100 producers of premium wine – products fetching lofty prices with good margins.
Peens said foreign owners generally know how to handle luxury wine assets and develop them. Globally, the luxury market has boomed and wine has been growing at 6%-plus per year for decades.
“South Africans seem too scared ... too risk-averse. The stronger hands of the European owners understand farming and the wine industry better.”
The sector is being squeezed: Wines of South Africa (Wosa) says export volumes are down 5% and the value of exports 2.4%, to
R9.9-billion (from R10.2-billion in 2021).
In total, 368.8 million litres of wine left South African shores last year, about 20 million litres less than in 2021 – because of shipping constraints at Cape Town harbour due to industrial action and adverse weather conditions.
Wosa’s 2022 SA Wine Industry Economic Report suggests many wine businesses are in trouble: only 3% of respondents said they would operate as usual and 22% said they would not survive. Eighty wineries are expected to close this year, putting 25,000 jobs at risk.
Celebrated wine judge and writer Michael Fridjhon noted in Wine magazine last week that the figures are “frankly chilling”.
“Only 9% [of wine farms] are making enough money to replace vineyards as they age (or succumb to sickness). Fifty percent are breaking even on cash flow – but without the surplus necessary to replant. Three percent are cash-neutral while 38% are actually bleeding money.”
The UK, South Africa’s biggest wine export market, has grown by 5% in volume, but the second largest market, Germany, declined by 17% in value and 9% in volume, mostly due to rising inflation in that country, and an increase in living costs.
Fridjhon said foreign owners used hard foreign currency to upgrade farms. Citing Glenelly, previously a run-down fruit farm in Idas Valley, he said owner May de
Lencquesaing, the former owner of the Château Pichon Longueville Comtesse de Lalande in Bordeaux, bought the property in 2003 at the age of 78, planted vineyards and spent about R100-million on the cellar.
“Now, it’s a spectacular property. All of this has happened in the last 20 years. All of this is done in euros rather than in rands. All of this is, in fact, to the good of the industry. I can’t think of a single reason why it shouldn’t be encouraged.”