Higher excise duties another blow to embattled wine farmers
Producer body says the industry will find it difficult to absorb the increase in excise duties on wine and brandy announced in the 2017-18 budget
Wine producers say the increase in excise duties on wine and brandy announced by Finance Minister Pravin Gordhan in his budget speech on Wednesday is a heavy blow for the sector as it continues to struggle to make significant profits.
Gordhan announced in his budget speech in Parliament excise increases of 8.8% on wine and sparkling wine, and 8.5% on spirits.
Since the implementation of the current excise regime in 2002, tax rates on most alcoholic beverages have consistently increased above inflation annually, according to the Treasury’s budget review document.
Rico Basson, MD of wine producer body VinPro, said: "In a depressed economy where wine retail price increases are below inflation, wine producers and cellars will find it difficult to absorb these increases.
"The South African wine industry understands government’s economic challenges, however, the above-inflation hikes in wine and brandy excise will be challenging for producers and cellars to absorb."
Basson said only a third of grape producers are currently operating at financially sustainable levels and return on investment has dropped below 2%.
The average net farming income was about R45,000/ha compared with the R70,000/ha required in order to be financially sustainable.
The industry comprises 97,000ha under wine grapes and employs close to 300,000 people in total.
"Investment, policy certainty and direct support with regards to agriculture-related aspects such as housing, water, land and market access will be critical to take the industry forward," said Basson.
The industry remains concerned about the extent of illicit trade and the socioeconomic impact of alcohol abuse, and called on government for a responsible policy framework with joint, direct interventions.
Agri SA president Johannes Möller said that given the fact that the sector faced serious cost pressures because of the recent and still prevailing drought, especially in the Western Cape, the increased excise duties on alcohol might have an adverse effect on the wine industry and could lead to job losses.