Major change "imminent" for beleaguered South African wine industry
Major change is on the cards for South African wine producers, who continue to face financial pressure due to the ongoing drought, according to VinPro.
The trade organsation, which represents 2,500 South African wine producers, conducted a survey of nearly 500 farmers in the season leading up to the 2017 harvest , and it has concluded that a structural shift is inevitable for the industry.
The survey revealed that the average net income of a producer in 2017 was R6,645 per hectare last year, 1% lower than 2016. However, for wine grape farms to be sustainable, Vinpro claimed they need to realize a net farming income of at least R27,000 per hectare.
“Although a slightly larger 2017 wine grape harvest resulted in an increase in gross farming income, it did not keep up with above inflation hike in output costs, and many producers still realize a new farming income that is not sustainable in the long run,” said Vinpro’s senior agricultural economist Andries van Zyl.
The average gross farming income increased by 6% to R54,158/ha in 2017, while total production costs rose by 7% to an average of R47,513/ha.
Meanwhile, production costs, including direct cost, labour, mechanisation, fixed improvements and general expenses have doubled in the past decade. And to add to producers' woes, costs are predicted to rise a further 9% in 2018, while a 17% increase in the minimum wage with effect from May 1st will pile on more economic pressure.
Although the average producer is still not farming at sustainable income levels and more than a third of the participation farms operate at a loss, the most profitable producers are still gaining margin throughout the respective wine grape producing areas.
“Many producers will remember 2017 as a game changer due to the shrinking global wine supply and the pressure of the ongoing drought,” said Van Zyl. “This can be either positive or negative. With the ageing and decreasing vineyard status, a structural shift is imminent, as local supply adjusts to meet global and local demand. There is now an opportunity for Brand SA to reposition itself in the market, ensuring a much-needed reinvestment in local supply.”
In a further blow to the South African wine industry, the government yesterday announced a hike in excise duty for the country’s wine and brandy industry.
|”The above inflation excise tax is extremely disappointing, especially given the fact that the industry reached and even exceeded the tax incidence targets agreed upon in 2014” said Vinpro’s MD Rico Basson. “It is of utmost importance that the wine industry works closely together with Government and organised agriculture to find solutions and garner support for the current socioeconomic situation, especially in rural communities,” says Basson.
Axe Hill winery owner Mike Neebe tsaid that as things stood the government made more money out of the wine industry than the industry did itself.
"The reality is that sin tax is a convenient government revenue stream that increases annually … and adds to an already overloaded bureaucratic burden, which the industry is subjected to, including a plethora of levies and fees payable to various government and non- government entities," he told Business Day