Although John Platters guide has thickened considerably over the past 25 years ,all is not well in the South African wine industry as it faces a number of major challenges.
South Africa (SA) ranks joint 7th with China out of the world’s top 10 wine producing countries. China have a lot of young vineyards that will start bearing in the next three years and it is then likely to overtake SA. It is thus an important player both internationally and, in the Cape, where the vast majority of wine is produced, with some small plantings in the Eastern Cape and Kwazulu Natal .
Wine adds considerable tourism value and is also an important employer both with farm labourers, in the cellar and where applicable, at the farms which have restaurants, conference facilities and even accommodation.
Following independence and the restructuring of price control ,co-ops and control boards, including the influence of KWV, have fallen away allowing producers to expand their presence overseas. Internationally, South African wines have become acceptable following the abolition of apartheid however they remain relatively unknown in most markets.
Unfortunately, the rush to export and secure hard currency has led to producers, in most cases, undervaluing and going for mass supermarket type business leading to the value of SAs wine exports being far lower than those of its competitors, with the possible exception of Argentina.
In terms of the millions of hectolitres produced ,Italy( 42.5) is number one followed by France ( 36.7)and Spain (32.1) .These three dominate the world stage ,followed by the USA (23.3) and Australia (13.70 ) with the next five countries tightly lumped together in similar size, Argentina (11.8),China and South Africa both at( 10.8),Chile( 9.5) and Germany (7.7).
The number of farms where grapes are grown has decreased from 3145 in 2016 to 3029 and the number of wineries has fallen from 568 in 2016 to 546 .On the other hand wine consumption has increased marginally to 449.7m litres from 436.m in 2016 whereas .This still pales when compared to beer sales of over three billion litres.
International sales are up to 448.4 m litres compared to 428.4 m in 2016 with the UK and Germany accounting for 107 m hectolitres and 84m respectively. Other countries we export to range from 27m hectolitres in the USA and France , between 20 to 25m to Netherlands ,Russia and Canada, Denmark and Sweden with China at number 10 with 18m.
Problems facing the industry include:
- Very poor profitability with only half the farms breaking even or being marginally profitable, together with societal pressure for transformation which has seen failures such as Solms Delta ,Nelsons Creek and the KWV initiative with Nosey Pieterse.
- Very poor prices for wine in general with some selling for less than the equivalent size bottle of water. A major distributor says it’s the worst trading environment they have ever encountered!
- Poor economic growth, cash strapped consumers and anti-advertising laws.
- The recent four-year drought has reduced crops dramatically and has driven up fixed costs driving bulk wine prices above international averages and sending international buyers elsewhere.
- Wine growing areas being in relatively expensive real estate areas eg Stellenbosch ,Franschoek ,Hermanus and with increased costs of, security due to farm attacks and input prices, including electricity and labour. Vineyards are also susceptible to real estate developments where planning permissions can sometimes be obtained.
- Carbon footprint of exports from South Africa to Europe and relatively few free trade deals because there is very little government support .The wine industry is seen as a bastion of Afrikaans culture despite the little-known fact that founder Simon van der Stel was of mixed ancestry .
- Fruit farming , citrus and stone fruit is more profitable than grape or wine farming leading to some marginal vineyards replaced by fruit farms
Well capitalised and cost-effective producers who have built or can build a strong brand using conventional as well as new era social media tactics and thus achieve acceptable sales prices will be better placed to survive.
Marginal producers will increasingly be forced to sell their grapes to their more successful counterparts will to disappear from the industry and the industry will continue to contract , losing jobs and forex income.
Government assistance to aid transformation and assist with marketing and exports is welcomed as the wine industry is an important player in the tourism and hospitality sector as an employer . Australia and New Zealand have trade agreements with all major Far East wine markets exempting them from or giving them very low import duties for their wines. SA Government has yet to ratify any trade agreements for wine with these countries putting local producers at a disadvantage.
- Ian Scott is the Managing Partner at BDO Cape Town and a member of both the hospitality tourism and real estate and agriculture industry groups at BDO
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