A Bruised Industry

South Africa’s wine industry is facing a number of challenges, which has seen the number of wine producers shrinking. But these conditions won’t persist indefinitely.

- Natalie Greve

Despite their liquid yields being imbibed by oenophiles the world over, South African wine producers are facing bruising market headwinds, battered by low-cost competitor products, low domestic rainfall, stagnant prices and cost inflation.

According to industry body VinPro, only a third of local grape producers currently farm at financially sustainable levels, while return-on-income levels have dropped to below 1%. Around 44% are operating at a breakeven level and 40% are making a loss.

The total number of grape producers and areas under vineyard has, meanwhile, declined from 3 232 to 3 139 and from 98 596ha to 96 753ha respectively, with subsequent job losses.

Critically, the average net farming income currently languishes at around R45 000/ha – some R25 000/ha below what is required in order to remain sustainable over the longer term.

“We need to increase wine prices collectively to get to that level,” VinPro chairman Anton Smuts told attendees at the Nedbank VinPro Information Day in Cape Town last month.

“[We need to] stop the dumping of wine at cheap prices in our export markets – it hurts the industry as a whole,” he said.

And it’s not an industry that South Africa can do without. According to the South African Wine Industry Information and Systems (SAWIS), local revenues from the wine industry contribute more than R36bn to the national GDP, while the sector provides employment to more than 300 000 people.

While it was encouraging that the industry saw export value growth of 10% to nearly R9bn, and volume growth of 3% to 428m litres in 2016, bulk wine, which is sold at lower prices, remains the biggest contributor in terms of volume.