How can the industry lure new talent if the barriers to entry are becoming higher? Perhaps it’s time to consider new business models.
It’s no state secret that producers are price takers along our complex value chain. But what’s more surprising is that they’re risk takers by default, with changing weather patterns being the latest of numerous factors impacting farm gate income. Does it make sense that a value chain with many complex links is reliant on only one person, the producer?
Across most agricultural value chains, profitability increases and risk decreases the higher up the chain you are. But producers have no control over Mother Nature and in many cases they incur all the costs before receiving an income, and then market forces dictate the price of their goods.
I doubt there are many people who’d like to invest in a concern with this kind of business model. The market has been brutal. We’re subjected to a changing production environment with fewer and fewer producers, an ageing commodity and inability to lure young talent. But what keeps our producers on the land? Lifestyle perhaps?
If you consider the annual Vinpro bottle break down, it makes more sense to be a waiter pouring a bottle of wine than a producer making it. A waiter receives 10% of the retail price as “profit” compared with the primary producer who gets a meagre 2%. So why then don’t we see more producers exchanging the two-tone shirt for aprons? There’s another factor to take into account: the capital growth of agricultural land. The growth in value of land has outperformed the JSE by far over the past decade (source: JSE). The downside is you need to sell the asset to cash in on the growth.
So why are not more waiters turning to wine production? I’m no investment specialist, but it seems like a lucrative option. The short answer is that as time goes by the entry barriers to becoming a wine grape producer become more and more challenging. It’s not the just the high farm prices that keep us townsfolk from rushing to the Winelands. It’s the high cost of production means and movable assets, not to mention the Land Cruiser!
So how will the industry lure critically necessary and valuable new talent? We can’t only rely on the last generation of legacy genetics. It’s vital to sustain this valuable industry by attracting talent from a broader, possibly less traditional base.
Is the post-Zuma era not the time to be proactive and optimistic and be the change? Have we not become too emotional about the highly illiquid asset, namely land? Perhaps now is the time to be bold and transform by adopting an all-inclusive approach and modern business models, with government as a strategic partner, rather than the enemy.