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SA wine farmers feeling the pressure

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Various challenges facing the South Africa’s wine industry are causing the 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% 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 596ha to 96 753ha 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 chairman 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 South African Wine Industry Information and Systems (SAWIS), local revenues from the wine industry contribute more than R36bn 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 R9bn, and volume growth of 3% to 428m 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 that: “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 that 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 110m versus the current 48m 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 50m litres, over the past two years to more than 400m 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 South Africa (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 SA’s ninth-biggest wine export market, realising exports of around 15.7m 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.

Looking ahead to 2017’s grape production, wine producers and viticulturists expect a harvest close to last year’s size of 1.47m tonnes, compared with the previous year’s harvest of 1.51m tonnes, owing to heat, drought, black frost, wind and a decline in area under vines. – This story originally appeared in finweek.

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