Region InFocus
South Africa
By Richard Siddle
The South African wine industry has made huge strides forward since the advent of democracy in 1994, with exports between 2005 and 2015 more than doubling. Even between 2011 and 2015 when that rate of growth had inevitably slowed, exports still increased by over 10%.
But despite growing recognition that the country is currently one of the world’s most exciting wine producing countries, it is still struggling to shake off its cheap and cheerful image, which some believe is holding the industry back.
The impact of the industry’s seeming inability to raise its status and the average price point of local wines has led to some winemakers being forced to increase their yields, thus reducing quality and placing an untenable strain on precious water supplies, according to Jonathan Steyn, a lecturer in wine business at the UCT Graduate School of Business. The alternative, he argues is that they go down the route of hiking up their prices to cover rising production costs to the detriment of building their brands, reputations and regional identities.
And another hurdle hampering growth in the South African wine sector is that it does not benefit from the same free trade deals that many of its New World rivals have secured. Chile, for example, is a case in point, a producer that has been at the vanguard of securing favourable access to key export markets.
And in Australia, wine producers will likely be able to enjoy nearly zero import tariffs to Chinese markets, something South Africa does not have despite being a member of the Brics group, putting the country at a serious disadvantage when it comes to competing on the world’s stage.
China does not, as yet, have any preferential trade agreements with African countries. But that’s not to say that opportunities don’t exist for both bilateral and mulilateral trade negotiations between South Africa and many other African countries.
“There is enormous untapped potential for SA to exploit its advantage in proximity and connection to other African markets, which have been earmarked as key for future growth, said Distell corporate strategy analyst Tina Swigelaar.
And even in markets where South Africa has always been a dominant force, such as the UK, which accounts for around a quarter of total South African exports with a value of nearly $130m, it is slowly losing ground to some of its rivals, with exports to the UK tumbling by 8.5% last year. Meanwhile, latest data from IRI show that Chile has leap-frogged South Africa to take its place in the top five countries of origin by value in the UK off trade.
Of course, the industry would not be so dependent on exports if local demand were stronger, but despite a recent spike in consumption, the outlook still seems fairly bleak, with wine consumption still low compared to beer and other alcoholic drinks.
Current per capita consumption is only around 6l per head, and to address this an industry wide strategy spearheaded by key industry organizations including VinPro and Wines of South Africa has been developed to increase consumption to 9l per head by 2025 to help the industry to sustain itself and make it less reliant on the export market.
The strategy is based on the belief that strengthening South African wine brands in their domestic market can only benefit their export success as well.
And with a rapidly growing middle class with more disposable income to spend on little luxuries, South African wineries ignore the home market at their peril.
In an article in Business Day magazine, South African wine guru Michael Fridjhon observed that South African bottled wine sales are 20% larger than the combined sales to international markets, while the Gauteng market (a province in South Africa) is three times larger than the country’s largest export market, the UK. In addition, the KwaZulu-Natal market is the same size as the US market, and more South African bottled wine is sold in Bloemfontein than in Sweden and Belgium combined.
While this clearly doesn’t mean pulling out of hard fought over export markets anytime soon, the potential in Africa is obvious compared with established Western markets, which are highly competitive.
Anther reason for the trade to focus on growing the domestic market is that it provides an opportunity to build sustainable, premium and super premium brands rather than exporting large volume at knock-down entry-level prices.
This would also allow South Africa to build a sustainable wine business without being subject to the volatility of exchange rates or competing with zero inflation in most international markets.
How successful this strategy will prove remains to be seen, but anything that can reduce South Africa’s reliance on the vagaries of the export market might well be for the good. One only needs look at the flourishing love affair that has developed between Chinese consumers and wine to see that it is possible to grow a relatively underdeveloped domestic market exponentially.
Here we take a look at some of the headline statistics regarding South African wine.
- South Africa is the 8th biggest wine producer in the world, and produces around 4.1% of the world’s wine. Italy holds the number one spot, accounting for just over 19% of the total.
- Around 3,232 farmers cultivate around 95,775 hectares of land under vines, with some 300,000 people employed both directly and indirectly in the wine industry.
- White wine constitutes over 55% of total plantings, with Chenin Blanc accounting for 18.5% of the total.
- Red wine varieties account for nearly 45% of the national vineyard, and the most widely planted red grape varietal is Cabernet Sauvignon, which accounts for 11% of the total.
- Shiraz makes up 10.4%, Merlot 5.8% and Pintotage, which is indigenous to South Africa, represents 7.4%.
- The 2017 wine grape crop is larger than anticipated, at 1,425,283 tonnes, according to the South African Wine Industry Information and Systems (Sawis) at the end of April 2017, a 1.4% increase on 2016.
- This compares to 1,154 m litres in 2015 and 1,089m litres in 2016.
- The UK is South Africa’s biggest export market, accounting for 26% of all exports in 2015 (including bulk wine). Germany is the second, comprising 19% of all exports, while the Netherlands comes in third place, representing 5%.
- A new Wine of Origin District, Cape Town, has just been approved by the South African Wine and Spirit Board.
- Domestic wine consumption per head is low at only around 6l per annum.
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