15 Aug 2013 Kiss or curse for wine industry as bulk exports soar
“Bulk is a complete disaster for the SA wine industry,” says expert and columnist Neil Pendock. “We are losing jobs and the defining quality characteristics of SA wine.”
“It is not good to be known primarily as a bulk exporter,” agrees Erhard Wolf, Distell’s grape & wine supply GM. SA is indeed at risk of becoming just that. Bulk exports have soared from 32,3% of SA’s exports in 2005 to double that level in the first five months of 2013. “The global trend is towards bulk wine exports,” says Yvette van der Merwe, SA Wine Industry Information & Systems (Sawis) executive manager. “But SA is at the extreme.”
SA, says Van der Merwe, is regarded as a New World wine producer together with Argentina, Australia, New Zealand, Chile and the US. Across those six countries, which account for a quarter of global wine exports, packaged wine makes up 53% of total exports and bulk wine 47%, she says.
The surge in demand for bulk wine was sparked by drought in the world’s three biggest wine-producing countries: France, Italy and Spain. The International Organisation of Vine & Wine (OIV) reports a combined 12% fall in the three countries’ wine production. Together, they produce 55% of the world’s wine. Put in perspective, the 930m litres (18%) fall in France’s wine production in 2012, as reported by the OIV was just short of SA’s total wine production of 1,095bn litres.
SA ranks as the ninth-largest wine producer and fifth-biggest exporter.
“SA was perfectly positioned to benefit,” says Rico Basson, executive director of wine farmer services organisation VinPro. “We had our biggest harvest ever, and the benefit of the weak rand.” Of SA exports in 2013, Basson says about 170m litres will be packaged (bottles and boxes) and 150m litres will be branded bulk, exported by major players such as Distell for bottling in Europe. The 180m litre balance will find its way into the “grey” bulk spot market, he says.
“The situation has opened a short-term opportunity for SA to shift volume and, on average, bulk exports should be profitable because of the weak rand,” says Basson. “But I don’t think many bulk markets are sustainable.” His concern is echoed by Van der Merwe.
One of these bulk markets is Russia, which Sawis reports has increased imports of SA wine from 11,2m litres in the 12 months to June 2012 to 46m litres in the 12 months to June 2013. In the latest 12-month period, bulk exports accounted for 97% of the total and made Russia SA’s third-largest export market after the UK and Germany.
Exports to Spain and Italy also soared from a negligible 250000l in the 12 months to June 2012 to 28,5m litres in the 12 months to June 2013. France increased its imports from SA from 10m litres to 24m litres. Virtually all exports to the three countries were in bulk form. Russia is buying wine from SA to distil into vodka, says Pendock. Spain, where wine production fell 300m litres in 2012, is traditionally Russia’s biggest bulk supplier. A sizeable portion of exports to Italy is destined to become balsamic vinegar, says Wolf. France is using large quantities of SA wine to produce brandy, Van der Merwe says.
Wolf’s concern is that the bulk export party could end abruptly. “It has happened in the past,” says Wolf. “I also question whether all wine bespoke for bulk exports will actually be sold.” There are signs the party is winding down. “Bulk prices are flattening out and even falling,” says Wolf. A recovery in European production, in particular France, where the agricultural ministry forecasts a 13% (520m litre) rise in wine output in 2013, is apparently driving down prices.
Dutch bank Rabobank notes: “In Europe, strained supply after the light harvest in 2012 appears to be easing.” Exports from Australia, New Zealand and Argentina have also fallen this year, the bank says.
Basson believes the normal level of SA’s bulk wine exports is around 50% or even as low as 40% of total exports. If an adjustment were to happen fast, SA could again face a rising wine surplus…..