Winetech | WhaleTales Blog by Chris von Ulmenstein

South Africa’s wine industry has made great strides in the past ten years, from being a bulk exporter of ‘cheap and cheerful’ wines to being on the ‘brink of breaking into the international fine wine spotlight’, wrote Mike Ratcliffe, owner of Warrick Wine Estate, in the Sunday Times recently.

Ratcliffe writes that the bulk export of low cost South African wines damaged our country’s image as a wine-producing country, but that this is being turned around, with excellent quality wines being exported. He ascribes the success of the wine industry to the folloiwng:

* tackling the reputation and improving the quality, for example, of a cultivar such as Pinotage, which was ‘mocked in global circles’. Ratcliffe praises the industry’s ability to accept criticism (however UK wine writer Rebecca Gibbs experienced the opposite in a Pinotage workshop at CapeWine 2012).

* The young up and coming winemakers are innovating, and ‘breaking down barriers and pushing the envelope of experimentation’, and challenging region and variety. The older guard and wine co-operatives are changing ‘their business models and driving quality innovations’.

* South African wines are as good and some even better than their international counterparts, and are being recognised by international wine buyers and wine drinkers. This was confirmed at CapeWine 2012, where heaps of praise was showered upon the South African wine industry. This is making winemakers more confident about their wines.

* The industry is producing more quality wines, and the prices of these wines are increasing, as more of them are exported.

* More co-operative marketing is taking place, CapeWine 2012 having been the most excellent showcase of our country’s top wines. Despite their differences, ‘the wine industry is presenting a strong and united front’.

Alongside Ratcliffe’s article was one entitled ‘Wine farms look wobbly’, sad to see after the euphoria created for our wine industry at CapeWines 2012. Quoting a report by VinPro and Winetech, it shared that high costs are slashing profits, the cost per hectare having increased by 61% to over R30000 in the past 7 years, mainly due to electricity, fuel and water cost increases. Income has dropped from R1 per 750 ml bottle in 2004 to 38 cents now. Some optimism about the forthcoming harvest has been expressed, a larger harvest leading to better profit. Wine production is expected to grow by 7% this year, to 1,1 billion gross litres. Bulk wine exports grew by 26% and bottled wine exports dropped by 9%. Exports increased by 7%, and domestic sales by 4% in the past year. Wine farmers are surviving the downward profitability trend by diversifying into other forms of farming, and by adding wine tourism attractions to their farms.

Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com Twitter: @WhaleCottage

The Weekend Argus this past weekend screamed in its front page story:”Cape Wine farms fight to survive”, telling the sad story of how hard wine farms have been hit by the state of the economy, the poor exchange rate, and the rising costs in running the businesses. The article quotes Jan Booysen of Winetech in saying that it is the worst year in the ’40 years since I’ve been in the industry‘.

Reflective of the impact of the tough economic times is that more than 100 wine farms are for sale in the Stellenbosch region alone, with price tags ranging from R4 – R200 million, reportedly with few buyers. Prestigious and long-established wine farms such as Simonsig, Kanonkop, and Delheim are reported to be in a ‘serious predicament‘, according to VinPro, an organisation representing 4000 wine producers. Added to the average loss of R6000 per hectare, wine exports have dropped by 25 % this year alone, but also every year in the past four years, this year being the largest drop. The strong Rand and the economic crunch in Germany and the UK have led to lower prices achieved for South African wines overseas. Domestic wine sales have increased by 3 %, but this is not enough to counter the export losses.

At a Vinpro meeting last week Francois Malan of Simonsig expressed the concern about the potential impact of Walmart’s take-over of Massmart, and the potential dumping of cheap overseas wines onto the local market. A survey has shown that wine farmers have made R36000 income per hectare this year, but the costs run at an average of R37000 per hectare. To stay in business, the wine farms need to generate an income of R50000 per hectare. Farms smaller than 60 hectares appear to be in greatest trouble.

POSTSCRIPT 15/11: The Weekend Argus published two reactions to its original article of a week prior. VinPro Executive Director Jos le Roux sent a Letter to the Editor, denying that Delheim, Simonsig and Kanonkop were named at a meeting as wine estates that were in trouble. He did however acknowledge that many wine farmers are under ‘severe financial pressure’. An article reported on a request of a government subsidy for ‘primary wine producers‘, due to the financial crisis, and specifically the cost of housing farm workers, suggests Francois Malan, one of the Simonsig owners. The report states that the wine industry provides 275000 jobs and generates R15 billion per annum to the Western Cape economy.

Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com Twitter: @WhaleCottage