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SA wine under pressure – as elsewhere in the wine world

South Africa’s wine industry is facing a huge dilemma: despite its wines being better than ever, a global glut and local tastes for alternatives are resulting in declining volumes. 

The situation is worsened by clogged-up ports, load-shedding, the threat of increased excise tax and the high cost of living.

“We have to do things differently — there’s no quick fix,” says Rico Basson, CEO of the newly-established industry umbrella body South Africa Wine.

Despite rave reviews for South African wines — including by wine fundi Tim Atkin — export volumes are declining. In the year to end-August 2023, total wine exports fell from 400.5-million litres to 317-million litres. Local wine sales showed a modest increase.

The “Agricultural Outlook for the Period 2023-2032” report from the Bureau for Food & Agricultural Policy says the area under wine grapes dropped to below 90K ha in 2022 for the first time since 1998.

Only 12% of producers are sustainable, 49% are making little profit (or just breaking even) and an alarming 39% are loss-making.

The industry provides about 269,000 direct and indirect jobs and contributes R55bn to South Africa’s GDP (1.1%), according to SA Wine.

The wine export marketing council is Wines of South Africa (WoSA), a nonprofit organisation. Its efforts are funded by a levy raised on the volume of exports, and it is responsible for export promotions of South African wine in important international markets.

WoSA spokesperson Maryna Calow tells the FM: “There is a worldwide issue with wine sales. It is not just the South African wine industry. All our [overseas] competitors are in exactly the same predicament.”

She says South African producers receive no financial help from the government. In stark contrast, the EU and the French government are spending €200m on the destruction of surplus wine to support struggling producers and shore up prices.

Consumers are thinking twice about how they’re spending their money, and we also have to consider that wine is a luxury lifestyle product. It’s not a must-have.

Maryna Calow of WoSA

According to Calow, the largest drop-off in South African export volumes occurs in the lower-priced and entry-level wines, as well as in bulk exports. “Premium wines are still doing quite well,” she says.

WoSA’s response to declining sales is to focus on the “premiumisation” of excellent wine in key markets such as Canada, the US, the UK, Germany, the Netherlands and Sweden. “Premium is where the value lies for our producers … you get more for each bottle of wine. That is where you’re going to put yourself in a favourable position to reinvest in not only your business, your vineyards, your cellar and your equipment, but also your workers,” Calow says.

WoSA is exploring new markets in Asia, mainland China, Hong Kong and Japan. “We are working in Nigeria, Ghana, Uganda, Tanzania, Kenya and Angola as well — there’s a lot of opportunity on the continent. It’s not traditionally a wine-drinking market, so education is essential.”

The relatively low price of South African vineyards is attracting international buyers. More than 130 of South Africa’s approximately 520 wine farms (about 25%) are owned by people from 26 countries, including Germany, the UK, Russia, France, Switzerland, China, Argentina, India and Malaysia.

“They’re investing in infrastructure, updating and upgrading the cellars and the equipment in the cellars, and they’re paying decent wages and salaries. They’re focusing on premium and quality wines and on decent price points, so it can only have a positive impact in the long run,” says Calow.

Govt again the bugbear

Basson is optimistic that the industry will grow with a cohesive strategy and united action supported by key role-players, including the government. One of the biggest threats to growth is political uncertainty, which puts potential capital expenditure on hold.

“People are in a wait-and-see position. While that may be OK in any other segment, when you do that in agriculture with long-term crops, you fall behind,” he says.

The crisis in South African ports is another constraint. It is causing financial losses as well as reputational damage that will be hard to reverse. Urgent government action is necessary to deal with this. And Basson mentions a further matter. He says if excise taxation in the February 2024 budget is increased to 20% it would be “the biggest killer for this industry”.

He has great praise for farmers, who “are doing a good job”. He suggests that to improve profitability they could look into their cultivar mix, use technology and turn to alternative energy.

Source: Financial Mail

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