Fin24

Farmers urged to adapt or die

2010-11-29 15:30

Cape Town - Agriculture in general and wine production in particular need to change to ensure profitability and long-term sustainability, Standard Bank Group [JSE:SBK] said on Monday.

Pressure on the South African industry was intensifying as vineyards aged and international competition for market share increased, said the bank's director of agricultural banking Willie du Plessis.

The local wine industry had seen incremental growth in production over the past 12 years. However, production in the past year had shown a 5% drop.

"The local wine industry is not only an important contributor to the agricultural sector as a whole, but is also an industry that lends itself to national prestige and has a very important tourism focus," he said.

However, a host of local and international factors had forced producers to re-examine their business models, cultivars and markets.

Producers should be acutely aware of making decisions based on current events without an eye on the future.

South African producers were experiencing a production trend towards white wine cultivars. The price of white wines had caught up with a red wine market that was taking strain from global oversupply.

Producers had taken advantage of this trend and shifted focus to white wine production.

That producers are willing to change their wine stock was a good thing, because they were managing risk better through diversifying their cultivar composition and using a balanced crop to mitigate risks.

Changing vines and balancing varietals were ways to ensure biodiversity, Du Plessis said.

"However, leaning heavily towards the whites raises the issue of the price squeeze versus the cost squeeze.

"From Standard Bank's perspective, ensuring income is more important than an exclusive focus on costs."

As producers adapted to price pressures, the age of local vineyards had reached a point where decisions needed to be made to ensure the long-term sustainability of the industry.

Local producers were currently uprooting more vines than were being planted.

Planting of vines decreased by more than 60% over the past five years. About 82% of all new vines that had been planted had been white cultivars.

As a consequence of new planting dynamics and the ageing of local vineyards, South Africa's present vineyard age distribution for both white and red was not at ideal levels.

It is expensive to replant vineyards  - it takes at least four years to bring a new vineyard into full production, and years more to produce a commercially viable wine.

This puts enormous pressure on cash flow and increased the producer's risk.

It also makes adapting to fleeting market demands very difficult.

There were fresh trends related to the ways and the markets in which people consumed wine, and producers need to understand them to retain existing markets or capture new ones.

"The answer lies in entering new markets with your existing products, so that you continue to generate income while you replant your vineyards. By expanding your markets, you also give yourself a buffer against market shifts, because if you're in enough markets, at least some of them will buy whatever you offer," he said.

Du Plessis said this was crucial as local demand for wines has remained very much the same since 1993.

According to recent research from Vinexpo, China was expected to become the seventh-largest wine consuming country by 2012, with consumption increasing to one billion bottles a year.

"This demand offers real opportunities for South African winemakers," Du Plessis said.

Comments
  • David Finlayson - 2010-11-29 16:00

    As with every other industry that exports a large part of its production, the South African wine industry is struggling due to the strength of the Rand. With overseas buyers almost always paying in foreign currency and not being prepared to accept an increase in prices due to global economic prssures as well as the fact that all competing wine producing countries are lowering prices, it makes for tough times in our industry. More exporters are turning to the local market, thereby flooding the market, often with lesser quality wines which the consumer nonetheless buys to save themselves money.Given that there is a new cellar launching almost every week in South Africa, the cake is being cut into smaller pieces for those already taking a bite. Changing the plantings and labels one produces is the same as turning the proverbial oil tanker whilst it steams ahead at full speed. All the South African banks would do well to take a long term view and help support the local winegroers, especially the small guys through these tough times.

  • Boertjie - 2010-11-29 16:08

    You say farmers must adapt or die??? They are dying already through farm murders without adapting!!

  • JD - 2010-11-29 16:16

    Looking at the wine industry it does not surprise me to see them struggling to find new business and or to hold onto existing business. If they can base their marketing and working together on the Australian model South Africa has a chance. Unfortunately the industry believes in using unqualified people (relatively cheap) to drive their marketing efforts. The end result is limited success. The other issue is that the farmers have had it too good over the last couple of years and are also to clever to work as brand South Africa. Everyone wants to be the hero and that results in zero. Change to planting olive trees - it suits the wine farmers better. Cheers

  • rix - 2010-11-29 16:24

    why don't you help them by 1. telling the government to smell the coffee on their ineffective land reforms and non existent rural security; 2. fight fertiliser cartels so that they can at least compete on input prices; and 3. stop ripping them off on interest and other bank charges......I suppose the latter won't happen anytime soon.

  • samson gudluza - 2010-11-29 17:27

    Where in this story is it reported "Adapt or die"? I never thought that News24 would descend to such cheap gimmicks! Can you imagine what our easily-alarmed farming community, as well as the usually alarmist majority of the white community will be reacting like? And I don't mean only packing for Perth...

  • Futile - 2010-11-29 17:33

    Really a bad choice of words given the horrific amount of farmers killed in South Africa

  • HK - 2010-11-29 21:21

    Not only a bad choice for a subject line, but while we're at it....."white wine" is a racist term and should be chanced in accordance to reflect the greater South African population.....

  • jacquesotto - 2010-11-30 01:12

    Listen Willie Du Plessis. Farmers dont tell you how to invest so who the F£$%^ are you to them to adapt, plant more red, Diversify. These people have been producing wine since 1659 and Standard bank has been banking how long. I am a chef so next thing i am going to do is give advice to Iran on what the best nuclear reactor would be for them to ensure sustainable growth. Willie you are their to lend money and make a killing on the interest. Lets forget about diversifying and how about cutting bank cost and passing it on to the farmers. This will increase there return as they wont have to sweat blood for you. It will ensure they free up some cash to plant red cultivars which you so desperatly need. Now how does that sound Willie. There is always two sides of the commercial argument

  • LB @HK - 2010-11-30 08:23

    Ok brighty what would you call it ?? White wine is a International named brand for the colour of the grape you chop . Its people like you that can only play the race card .

  • Me@LB - 2010-11-30 09:14

    LB, you need schooling, because "white wine" is not "a(n) International named brand", even you know it is derived from "the colour of the grape you chop". Chopping the vines is not a good idea either.

  • jannie - 2010-11-30 12:09

    Maybe wine farmers shoud check their local maket prices and then adapt

  • Brett - 2010-11-30 12:34

    @jaquesotto.....Great comment. If he knows so much whats he doing in bank....time to pull on the Kortbrooke Willie!

  • Rob Armstrong - 2010-12-02 08:02

    I think Willie has a little more research to do on the term Biodiversity. "Changing vines and balancing varietals are ways to ensure biodiversity." Biodiversity has nothing to do with this, its all the different species (plant, animal, bird and insect) and their health in and around your crop that affects the biodiversity, regardless of whether its red or white or grape or citrus or cow or sheep.....ensuring the health of our local biodiversity is the key to long term sustainability, not which cultivar you think we should be planting. And this Adapt or Die nonsensical headline is just a little sensitive don't you think? Shame on you.

  • Rob Armstrong - 2010-12-02 12:13

    I think Willie has a little more research to do on the term Biodiversity. "Changing vines and balancing varietals are ways to ensure biodiversity." Biodiversity has nothing to do with this, its all the different species (plant, animal, bird and insect) and their health in and around your crop that affects the biodiversity, regardless of whether its red or white or grape or citrus or cow or sheep.....ensuring the health of our local biodiversity is the key to long term sustainability, not which cultivar you think we should be planting. And this Adapt or Die nonsensical headline is just a little sensitive don't you think? Shame on you.

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