Business Day interviewed Rico Basson, head of wine industry body Vinpro, which represents grape growers, wine farms and large wine producers.
Many of the challenges the wine industry faces mirror those of listed food producers who are also facing exorbitant input costs, a weak consumer, policy uncertainty and problems at Transnet ports delaying exports.
How is the wine industry doing now that the lockdown alcohol and travel bans are over?
We are grateful that liquor sales hours have normalised and that international visitors are returning. The wine industry is now in a rebuilding phase. It may take three to five years to neutralise the impact the bans had. Growth can only start after this.
While the industry is slowly but surely recovering from the loss in revenue caused by the bans, producers are also confronted with an exponential increase in input costs.
How much are input costs including power, fuel and fertiliser increasing?
While there is variation between the business models at each farm or cellar, the reality is the 2022 wine grape crop will be much more expensive to produce than previous crops. In 2022 the average expenditure at farm level could increase by up to 15%, compared to the 10-year average annual increase of 6.7%. Certain input costs are expected to double.
Wineries may also have to absorb a further nearly 15% increase in glass prices, as well as a double-digit hike in other costs related to packaging, as paper, cardboard and plastic prices rise.
Can wine farms absorb some of the costs and pass some on to consumers?
The wine industry must cope with rising input costs. We do not have a choice, but it places an extreme burden on grape producers and wineries’ cash flow and financial sustainability, which affects their ability to both reinvest and keep their people employed.
Price increases for wine will most likely remain below 5% or there will be no increase, as the industry is still working on reducing the wine surplus from lockdowns.
How much does the wine industry contribute to SA’s GDP?
The wine sector annually contributes R55bn to GDP and provides employment to more than 265,000 people.
Wine businesses form the backbone of the economy and communities in the Western and Northern Cape, with 80% of the 529 wine cellars being small, medium and micro-sized enterprises, most of which are now under severe financial strain.
How are delays and challenges at the ports affecting wine exporters?
Improving the infrastructure of harbours is critical if businesses are going to grow. Vinpro is in constant discussions with Transnet as well as shipping agents and companies about the efficiency of the ports.
We share information to facilitate planning. However, some shipping delays are a function of a larger international situation that does not fall within the control of the wine industry.
Can anything be done about export delays?
The alternatives include wine farms switching to shipping companies that have capacity, the shipping of wine in alternative cargo containers [ISO tanks] that carry more wine.
With trouble at the Cape Town port, wineries are considering using the PE or even Walvis Bay. The Durban port was also an option, but now faces huge problems due to the recent flooding.
We receive great support from the Western Cape government, who is also working on a comprehensive project to address the port situation. Unfortunately, the shipping challenges we are now experiencing may be with us for a few more months.
The wine industry often points out how much excise tax it pays. Is it true the government earns more in sin taxes and VAT than grape growers and wine producers earn?
Yes, in 2020, the government earned R6.1bn from excise and VAT on wine products, compared to producers’ gross income of R5.8bn.
Have retailers been supportive of the local wine industry, specifically with regard to the alcohol ban? Pick n Pay, for example, says it bought more wine locally than planned in 2021 to support local wineries who lost out due to the bans.
The retailers were kind to the industry. Retail had its own difficulties during the pandemic and was also involved in many conversations to convince Nedlac [National Economic Development and Labour Council and the government to lift the bans.
You have asked for policy certainty for the wine industry. What specifically do you mean?
The industry needs both conducive policy and policy certainty for business to grow. The wine tax regime needs changes. This includes looking at trade tariffs.
There needs to be certainty about land ownership. The expropriation debate drives uncertainty and certainty would help the agricultural sector, which is a big employer. The triple BEE scorecard requirements are difficult for agri-processing and small businesses to meet.
The government could provide support with the socioeconomic aspects such as a workers’ social housing stipend. Additionally, tourism is not supported enough. Crime needs to be reduced to increase tourism. Black and emerging farmers and black-owned wineries also need more government support.
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