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South African vineyard owners are nervous about what the future holds for the industry, facing price pressure and for many, an unsustainable return on investment.
South African vineyard owners are nervous about what the future holds for the industry, facing price pressure and for many, an unsustainable return on investment.

Critical price problem for SA wines

ECONOMIC NEWS

Fin24 - Apr 24th 2017, 15:16

Stellenbosch - Looking out at his 50-hectare estate in a valley nestled below the Helderberg mountains, winemaker Ken Forrester beams with pride in his achievements over 20 years in the business. 

"We never had a bad year, it's been a consistent grow," said Forrester, who is based in Stellenbosch.

But like many South African vineyard owners, he is nervous about what the future holds for the industry, facing price pressure and for many an unsustainable return on investment.

"Look at this moisture, it's perfect, this one is ready to be picked," Forrester told AFP as he caressed a handful of chenin blanc grapes.

"It's very important to pick the grapes at the right time. If not, the blend that you're creating is an average one, and with an average one you achieve nothing because anyone else can do it."

In 2016 "Mr Chenin" as he is known to his friends made 500 000 bottles of his trademark versatile, zesty white.

But increasing quantity will not be enough to keep his business viable, Forrester warned.

"There's a critical price problem for the South African wines. It's very difficult to get the right prices," he said.

Cape Town's Vinpro winemakers association says 40% of its 3 200 members are loss-making and 900 have thrown in the towel in the past decade even as national production rose around 50% between 2005 and 2015 to 9.68 million hectolitres with 4.12 million exported.

Last year production fell back 19%, according to the Paris-based International Organisation of Vine and Wine.

"South African wine producers have an average 2% return on investments for their wine production and that is too low to be sustainable," said Edo Heyns, Vinpro's communications chief.

'Image and branding'

Despite the industry's challenges, wine production remains vital to South Africa's economy: it employs 300 000 people and in 2015 contributed $2.77bn (about R36bn) to South Africa's gross domestic product.

"We need to get better prices for our wine," says Heyns. "South African brands are often viewed as value for money only. That needs to shift for quality, image and branding."

Forrester agrees, lamenting exports of mainly cheap wines, calling it "a bad mistake because this positioned us incorrectly in the market place."

Former Springboks flanker Jan "Boland" Coetzee wore the national side's jersey six times before following his forebears and buying a vineyard in Stellenbosch in 1980.

Coetzee, now 72, is critical of the recent quantitative rather than qualitative approach, even though South Africa is now the world's eighth largest wine producer.

"When the market opened up to exports in 1994, everybody was curious about South Africa. But instead of selling our better wines, we were selling bulk wines by millions of litres. The only kind of brand we had was price, and the price was cheap," he said.

Although South African wines have begun to break onto the international stage and win critical recognition, they are still saddled with their humble viticultural origins.

Those origins go back three centuries, but the industry took a hit notably in the 1980s amid international sanctions imposed over apartheid.

After those sanctions were lifted, producers moved to offload stocks, with little heed for price.

"I was shocked in Europe the other day because guys are willing to spend more for a bottle of water from Norway... than for a bottle of South African wine," said Coetzee.

In a bid to increase the market value of the country's output, industry organisation Wines of South Africa (Wosa) has sought to reshape the perceptions of overseas buyers.

'Save the industry'

"We have 500 odd wine brands, but we don't have one that stands out and is recognised worldwide. That's one of our challenges," said Wosa chief executive Siobhan Thompson.

Forced to do battle with new world wines from Australia and Chile, the South African wine industry is struggling in traditional markets like Germany and Britain while expanding into China and elsewhere in Africa.

"We don't have the consumer demand that can drive up the prices to the level that one wants. The SA market is relatively small," said Nick Vink, a lecturer at Stellenbosch University's Department of Agricultural Economics.

Experts warn the industry is facing an uphill struggle when it comes to growing the domestic market and attracting newly affluent drinkers from among the black majority.

"If you're sort of cutting more than half of your market off and say we're not going to sell to them - or we can't sell to them - you're cutting yourself off from a large proportion of what you need to sort of save the industry," Vink added.

For Coetzee, the veteran winemaker and rugby star, the future is in the hands of young winemakers.

"Only the producers can turn around the image of South African wines," he said. "Our new generation is very talented, they can make it happen."
Fin24.com 

Read more about: wosa | vinpro | agriculture | agribusiness

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