Cape Town - In real terms, South African wine lovers have never found wine "cheaper" than it is today.
In the short term consumers may smile, but commentators warn that the heady potion, just like the wine producers' cash flow, could evaporate if current economic conditions in the industry persist much longer.
The reason for the low prices is an oversupply on global markets, which is filtering through to the South African marketplace as well.
Wine Cellars SA chairperson Henk Bruwer says bulk producers not directly involved in offshore markets are consequently under pressure. The Australian situation is currently as serious as that in South Africa.
"Producers' finances have been in the red for the past five years. I am becoming increasingly concerned that the industry downturn has been too long."
About 80% of all South African wine is supplied by bulk producers. Retailers are exerting tremendous pressure on them to sell their wine cheaply.
The country does not currently have a surplus and none is predicted for 2009.
In the past surpluses led to low market prices - but, despite current market conditions, prices are not rising, says Bruwer. He believes there is no excuse for the low prices.
The poor prices could force producers from the market. Frans Weilbach, PricewaterhouseCoopers specialist partner for the wine industry, says the anticipated slight increase in prices will not nearly compensate for higher input costs.
According to Bruwer, the return on capital for farmers supplying bulk producers is currently between 4% and 5%, while the cost of capital is 15.5%. It costs, on average, some R40 000/ha to produce grapes.
At present it is not uncommon for certain producers to show a loss of R10 000/ha, reports Weilbach.
Bruwer points out that inflation in the wine industry is running from 29% to 31%.
Vines are being cut down more than they are being planted. This has been the trend for two years, he adds.
Exports of wine from South Africa have risen recently. This further contributes to the scarcity of red and white wines in the country.
Bruwer reckons less white wine will be produced in future.
A large number of producers do not have the R100 000-odd required to replace an old vineyard, and there is little government support for an industry that generates billions in excise duty and contributes to the balance of payments.
Weilbach says consolidation is increasing here, as it is overseas, but at a slower pace.
The Stellenbosch region is experiencing greater pressure because less is being produced per hectare.
"The price (of wine) should be double what it is," declares Weilbach. It is also more expensive for private cellars to produce.
Johan Reyneke of Reyneke Wines in Stellenbosch says, however, that some of the smaller cellars have managed to succeed by establishing strong brands directed at niche markets.
In the current global economic climate exports (currently more than 50% of the wine grape harvest) are not expected to increase as vigorously as in the past.
- Sake24