US tariffs on European wines give South African exports a boost

South African wines are benefiting from the hefty tariffs currently being imposed by the Trump administration  on French, Spanish, German and British wine, with exports up by over 16% in the year ending December 2019.

"The tariffs have been the talk of the industry and there was a great deal of apprehension around the 100% tariff that was subsequently put off," said Bob Guinn, vice president of sales for Third Leaf Wines, owner of South Africa's Mulderbosch Vineyards and  the brand's US importer speaking to Meiningers.  "It seemed that most people were waiting to see where that hammer fell before committing to any real category strategy. What I have seen though is a general openness, especially by distributors, to ensure portfolio diversification."

According to the American Association of Wine Economists, South African imports increased 16.4% in the 12-month period ending November-December 2019, which includes the first 10 weeks of the tariff. That was the biggest increase for any country, including New Zealand's 15.7% increase. In fact, total wine imports to the US nosedived by nearly 14% during that period, and also fell more than 4% for countries not affected by the tariff.

"Since Mulderbosch is heavily dominated with white wines, I expect we will definitely see an increased lift come in the spring and summer months as the weather gets a bit more forgiving and more of the tariff price increases hit the market,” said  Guinn.

One of the reasons for the surge in South African exports other than the tariffs making European wines more expensive is increased awareness of the country's wines, according to Jim Clarke, the marketing manager for Wines of South Africa US."I think, maybe five years ago, you might be right and there was a perception that the wines weren't necessarily well made," he says. "But that has changed well before the tariff took effect."

Another reason for hope, added Clarke, is that European-focused importers have started introducing South African labels to their portfolios. And these importers are able to reach a retail and wholesale audience that might not have traditionally considered South African wines. But, if they're looking to replace French and Spanish wines, there are South African varieties that can fill the gap, he claimed, especially for Rhone- and Bordeaux-style blends.

In addition,  many importers are now working with more premium wines than in the past, focusing on the $15 to $20 range. This is to take advantage of premiumisation, as well as the awareness that South Africa can't compete in a price war with the largest US brands.

However, that inflexibility with pricing could prove a serious challenge for South Africa.  So far, said San Francisco-based Gerald Weisl of WeiMax Wine & Spirits, many French and Spanish producers have worked with their importers and distributors to limit price increases. That means $15 and $20 South African wines are still competing with similarly-priced European wines for shelf space, instead of undercutting them on price.

"As long as the European price increases remain modest," said Weisl, "there's just not that much room for South African wines to replace them."