Over the past couple of years the South African wine industry has been under pressure due to a strong rand and the ongoing effects of the recession, coupled with a slowdown in demand from supermarkets and a “trading down” as consumers were choosing cheaper wines.

However a new sense of optimism is buoying the wine industry. Record export levels are expected in 2013, and South Africa is expecting its third biggest wine grape harvest ever, according to Wines of South Africa (WOSA), an industry body representing all South African producers of wine.

South African wine exports for 2012 reached 417-million litres, 10-million litres more than the previous record of 407-million litres achieved in 2008 and a 17% increase on volumes in 2011 (357 million litres), WOSA said on their website.

“The record levels are the result of a more favourable currency, as well as the global shortage of wines, stemming from a significant drop in the recent harvests of competitor wine-producing nations in Europe, Latin America, Australia and New Zealand,” says Su Birch, the CEO of WOSA.

“At this stage, all indications are that this year`s local crop could be the third biggest in recorded history.  This is assuming that good weather conditions continue, there is a speedy and peaceful resolution to the farmworker strikes and harvests come in on time,” she says.

The SA wine industry

The South African wine has a history dating back to 1659. Although South Africa has been producing wine for more than 350 years, it was only after the end of apartheid that its wine industry was able to reconnect with the global sector.

Production is concentrated around Cape Town, with major vineyard and production centres at Paarl, Stellenbosch and Worcester. Other notable regions are Klein Karoo region, the Northern Cape region around the Orange River, Kwazulu-Natal and the Eastern Cape Province.

The South African wine industry encompasses wine (natural, fortified and sparkling), wine for brandy, distilling wine, brandy and other spirits distilled from distilling wine, and grape juice and grape juice concentrate for use in wine and non-alcoholic products.

A total of 67.5% of South African wines produced are white, whilst 32.5% are red, said a report by PwC. The most popular white wine produced is Chenin Blanc, and the most popular red wine is Cabernet Sauvignon, according to SA Wine Industry Information & Systems (SAWIS).

South Africa is the 8th biggest producer of wine in the world, contributing 3.5% of global production. The UK is the biggest export destination, followed by Germany, Russia, Sweden, and USA, SAWIS said on its website.

Bulk wine exports

Bulk (i.e. non-packaged) exports accounted for 59% of volumes in 2012. Over the past decade, there has been a marked trend towards bulk exports of wine instead of bottled wine. Bulk wine exports from the New World wine-producing countries have risen from 20% to over half of wine volumes traded, according to WOSA.

New World wines refer to those from countries like South Africa, the US, Argentina, Chile, Australia, New Zealand, and Canada. They are called this to differentiate them from the wine from traditional sources in Europe, like France.

In South Africa, in 2009 39% of exports were in bulk, in 2010 40%, in 2011 49% and to date this year, 56%, says WOSA communications director André Morgenthal. Says Andre: “Bear in mind that the profit margin on bulk is much lower than on bottled, and that margin is now being taken in the overseas markets.”

Exporting wine in bulk rather than in bottles is a trend that is not going to go away – “it is a structural change in the industry,’ says Andre. The SA wine industry loses about 107 jobs for every 10 million litres of bulk wine exported.

“Obviously we would prefer the accent to be on packaged wines, from a reputational perspective for Brand South Africa, in terms of job retention in the packaging industry and also to maintain sustainable profit margins for producers,” Su says.

“We are therefore greatly encouraged by the recent growth of packaged exports to North America, Japan, China, as well as several increasingly affluent African nations, all to regions where we have been increasing our marketing investment,” she says.

Nigerian market

Nigeria is potentially a big market that WOSA is targeting for exports of South Africa wines. Nigeria has the second largest economy in Africa, with a projected annual GDP growth of 11.8% until 2016 and a population of 156 million that is increasing by 2.35% a year.

“The volume of wine exported to Nigeria between 2007 and 2011 has shown a compound annual growth rate of 24.12%,” says Sapta Bhattacharyya, the associate vice president of global research company Aranca.

“Nigeria’s wine market is worth US$300-million a year and will grow to reach US$37-million by 2015. Currently, Europe held the lion`s share of this market with some 60% of volumes sold, but South Africa was the next biggest player with a 22% by volume share,” says Sapta.

He estimates that 5.2 million people, representing the top 10% of earners in Nigeria, account for 43% of consumption expenditure in the country. This was the group that South African wine makers should target as potential wine consumers.

South African wine exports to Nigeria grew by 12% for the 12 months to March 2012. Most wine consumed in Nigeria is red, which accounted for 73.6% of volumes sold, says Sapta.

Climate change and farm worker’s strikes

In response to a question about whether climate change will effect grape production, WOSA communications director André Morgenthal said: “To a certain extent, yes, but this will only become evident in the next 10 to 20 years.  We already see successful vineyard plantings along the West and East Coast. The climate ‘change’ is too erratic at this stage in order to chart it consistently and scientifically.”

Another more immediate threat is the farm workers strikes that began in November last year in the Western Cape Province: “The farm workers strike has not affected wine production and exports. It has affected mainly table grapes and deciduous fruit,” says Charles Whitehead, manager at SAWIS.

WOSA, on the other hand, believes they have been detrimental: “The strikes were disruptive and destructive, but mostly in table grape and fruit industries.  For the wine producers, road closures in November prevented the successful transport of wine for exports, which means a loss in income. Due to the intimidation, labour did not go to work, which means a loss in production days (packaging, vineyard work, etc.).  The increased wage has serious implications on some farm’s bottom line.  The industry is already under immense pressure,” says Andre.

Source : abdas.org