Wine producers have been under severe pressure for the past few years, and this year will probably be no exception. While Vinpro continues to alert Government and other decision-makers to these realities in order to help create a more conducive environment for growth, producers can find inspiration in the way in which their cohorts overcome financial hardship and other challenges.
“South Africa’s 529 wineries and 2 693 wine grape producers are still facing harsh realities that are severely hampering their ability to recover from the ripple effect of Covid-19 trade restrictions,” says Vinpro chairman Anton Smuts.
This year is expected to be one of the most expensive production years yet. Apart from import and export challenges at the Cape Town Port Terminal, which leads to delays in cash flow, shortages and price increases, it can cost an average of 15% more to produce wine grapes this year (compared to the 10-year average annual increase of 6.7%), while wine price increases are likely to move sideways or remain below 5% as the industry continues to work on reducing the wine surplus. “Although there is great variation between business models, these are some of our most notable observations,” says Anton.
Input costs such as fertilisers, crop protection products and herbicides are expected to increase exponentially. Labour, which accounts for 40% of production costs, will also be much more expensive after the implementation of minimum wage increases of 16% and 6.9% that came into effect in March 2021 and 2022. Add to this nearly R1.50/litre fuel increases and a 9.6% electricity hike implemented in March and April respectively.
In addition to a 4.5% increase in excise duty, cellars may also have to absorb a further hike of almost 15% in glass prices due to shortages, as well as a double-digit increase in other costs related to packaging such as paper, cardboard, plastic, labels and closures.
“We are well aware that all these factors put tremendous pressure on the cashflow and financial stability of our wine grape producers and cellars. They are the heartbeat of local communities in the Western and Northern Cape. If they aren’t able to make ends meet, it will take food out of the mouths of their employees and their families.”
Vinpro keeps engaging
These are the realities that Vinpro emphasised in discussions with Government and other decision makers over the past few months.
“We have made urgent appeals to Government over the past few months, including a request for special dispensations regarding excise duty and the national minimum wage – with the provision that the industry will return to normal levels as the sector reaches economic recovery,” Anton says.
Although Government did not heed the industry’s plea for the minimum wage, and the industry requested an even greater dispensation regarding excise tax, it was positive that the 4.5% increase in wine excise duty was much lower than the 8% hike in 2021.
“We will continue to make the voices of our producers and cellars heard at Government level and join hands with our industry partners and other stakeholders to address challenges at the port, the shortage of glass and other packaging materials, illegal trade, harm reduction and other obstacles, thereby creating a more conducive environment for growth,” Anton says.
Mind shift is needed
“I believe the South African wine industry will rise again to reach its full potential and rebuild to be stronger, more sustainable, resilient and competitive,” Anton says.
“However the environment out there is not going to get any easier. That’s why it’s important for each of us not to lose hope, but to remain determined to be successful in our business endeavours. Do some introspection on your business model, gain a fresh perspective and make a mind shift to turn challenges into opportunities.”
While there is no single recipe for success, Anton encourages wine grape growers and cellars to learn from those who have managed to survive and even expand during the pandemic and beyond.
“Keep your finger on the pulse of the wine landscape in terms of market trends, stock levels, pricing and cultivars. Spend time in your core markets and monitor, evaluate and continually adjust to improve vineyard and cellar efficiency. Then also act quickly when making a business decision, aligning it with your vision and taking it on with a clear action plan, outcomes and milestones,” Anton says.
Successful producers and cellars also know how to manage their costs carefully and make the most of knowledge transfer opportunities such as webinars, farmers’ days and information days and share ideas and advice with other businesses. Good owners and managers are also actively involved in their companies and focus on strategic partnerships to grow their businesses.