LABOUR COST WOES
Harvest of wine grapes shrivels
Wine producers and cellars will find it difficult to absorb cost increases, says VinPro
A smaller 2016 wine grape harvest and the ever-increasing production and labour costs have added to wine grape producers’ woes.
Producers have also bemoaned the increase in excise duties on wine and brandy announced by former finance minister Pravin Gordhan in his budget speech in February, as the sector continues to struggle to make significant profits.
Excise increases of 8.8% on wine and sparkling wine and 8.5% on spirits were announced in the budget.
According to wine producer body VinPro, 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 average wine producer’s profit margin has been under pressure for the past 10 years
VinPro says the average wine producer’s profit margin has been under pressure for the past 10 years. Record harvests from 2012 to 2014 gave total income a boost. Income weakened in 2015 and 2016 due to smaller harvests and grape prices not keeping up with inflation.
According to the 2016 VinPro Production Plan Survey due for release in April, South African wine grape producers received an average net income of R6,702 per hectare, which is 10% lower than in 2015.
The annual survey consists of a cost analysis at farm level, with voluntary participation from 235 primary producers from nine wine regions in 2016.
"The 2016 production year will be remembered by many producers as a year of challenges and exceptions," said Andries van Zyl, VinPro’s senior agricultural economist.
It remained a balancing act for producers to absorb cost hikes with a stagnating or declining income, said Van Zyl.
In the past nine years, the cost of producing wine grapes had increased 6%-10% annually. Production cost increased 7% in 2016 to R44,390 per hectare. Labour had increased the most of all cost items, Van Zyl said.