Not all wine grape farms and cellars are alike, and there is no one winning recipe that will lead to ultimate prosperity in the wine industry. Use averages as a guideline, but look at individual business models in context when doing future planning.
This was the message wine industry specialists conveyed to representatives of six business banks at an informative VinPro session held in Paarl recently.
According to Rico Basson, VinPro managing director, 2013 was the perfect year for the South African wine industry. Low EU production, a weak exchange rate and record South African harvest led to a hike in exports. Excise increases were the lowest in 10 years and the country experienced a tourism boom.
However, the wine industry didn’t create sustainable value from these conditions. Although SA’s export volumes grew by nearly 8% from 2012 to 2013, value expressed as €/litre dropped by 31% in the same period.
“The industry needs an adaptable, globally competitive and profit-driven approach to turn the tide. Don’t neglect local sales; adapt to shifts in especially bulk wine trade and broadcast a unified Brand SA message,” he said.
Innovation and precision of execution are also crucial, as “not all farms and cellars are alike”.
KICK-START INVESTMENT IN VINES
John Barnardt, CEO of Bonnievale Cellar, agreed with Basson, saying that cellars should continuously look at alternative business models and adapt theirs to the changing environment.
“The wine industry’s greatest competition is other operational branches with faster financial turnarounds,” Barnardt said. He urged financial institutions to differentiate between producers and adjust loan structures accordingly. Banks can, for example, source information regarding a specific producer’s cultivar and age composition, production and cash-flow from the producer cellar he/she delivers wine grapes to.
“Kick-start the wine industry by formulating a proposal that will make it more attractive for producers to plant vineyards,” Barnardt challenged financial institutions.
LOOK GLOBAL, ACT LOCAL
According to Nico Spreeth, CEO of Vititec, wine grape plantings started plummeting in 2004. Consequently, producers are under pressure to push production from a smaller area of ageing vines.
Close to 2 000 ha were planted in 2013, compared to the recommended industry average of 5 000 ha. Spreeth expected this figure to increase in 2014.
“Don’t just do what you’ve always done. Keep up to date with global trends, but adapt plantings according to your own business model; be it bulk, packaged, premium or standard,” he said.
Cabernet Sauvignon and Merlot remain the most dominant cultivars globally, with Tempranillo and Granache close be-hind. “Why aren’t we planting the latter two?” he asked.
MAKE THE SUMS ADD UP
Pieter van Niekerk, VinPro agro-economist, commended producers for adapting viticultural practices to increase production from a smaller vineyard area, but warned that this is not sustainable and advocated vineyard renewal.
Vineyard establishment costs R190 000/ha on average. Full production is reached in year five, when 100% of the rec-ommended total annual cash expenditure of R27 000/ha (excluding provision for renewal and entrepreneurial remunera-tion) applies. At a recommended yield of 22 tons/ha and grape price of R2 500/ton, a gross farming income of R55 000/ha can be earned, translating into a net farming income of R28 000/ha.
“Take note of what top producers are doing right,” Van Niekerk said. “They obtain the right balance between quality and production at the right price, spend smart, mechanise more and use labour more effectively.”
GET R1 EXTRA AT FARM LEVEL
According to Christo Conradie, VinPro manager: Wine Cellars, primary producers need R1/litre more at farm level to be sustainable.
To increase the 52 cents/litre grape farmers currently earn, efficiency needs to be increased at production, cellar and val-ue-chain level, with more strategic market positioning. “A mindshift is needed from a production-driven supply-chain ap-proach to a market-driven value-chain,” Conradie added.
CONVERTING DATA INTO INTELLIGENCE
According to Conradie, the conversion of the myriad of wine industry resources into business intelligence is crucial.
“By expanding the scope from their own individual blocks to cellar, regional and industry level, producers have a more ef-ficient way of measuring their performance and adapting their strategies accordingly,” explained Christo Spies, CEO of FarmMS, developer of the WineMS farm and cellar information management system.