Wine grape producers are struggling to make a profit

Wine grape producers remain under severe financial pressure with more than a third of producers making a loss.

The industry now has about 25% fewer producers than a decade ago, according to wine producers body VinPro. It says the only way to ensure sustainability is for farmers to increase prices they receive for wine.

Wine is one of SA’s largest agricultural exports, with nearly 100,000ha of vineyards, mostly in the Western Cape, accounting for 4% of world production. The industry contributes R36bn to GDP and employs nearly 290,000 people.

Speaking at the Nedbank Vinpro information day in Cape Town last week, Vinpro chair Anton Smuts said some producers are selling wine in bulk for less than R4.50/litre to wholesalers locally and R5.50/litre overseas.

“Nearly half of the packaged wine sold locally trades at less than R30/litre, compared to local bottled water which sells at R6.00/litre and imported water at up to R35/litre. We cannot possibly remain sustainable at these pricepoints,” said Smuts.

He said these low prices have filtered down to farm level as well, where wine grape producers have been under severe financial pressure over the past decade.

However, low wine stock levels will provide the opportunity for the industry to raise the bar in terms of pricing. “We have already seen an increase of 35% to 50% in the prices of bulk wine over the past two years, and 10% in packaged wine. Let’s build on this momentum to ensure a sustainable environment for investment,” said Smuts.

Christo Conradie, Vinpro wine cellar manager, said production costs have risen by 7.4% annually over the last 10 years, and with wine prices remaining stagnant until recently, more than 80% of  SA wine producers are farming below a sustainable net farm income of R30,000/ha.

Vinpro previously stated that many wine-grape farmers were either leaving the industry, uprooting vines for more profitable crops or not replacing vineyards. The Bureau for Economic Research and the Bureau for Food and Agricultural Policy predict that at 85,000ha, the area under wine grapes will be about 10% smaller by 2022.

Meanwhile the 2019  SA wine grape harvest is expected to be only slightly larger than 2018's crop, according to  industry body, the SA Wine Industry Information and Systems.  Vineyards are still recovering from a three-year drought, bad weather during fruit set in October and a continued decline in wine grape vineyards.

The 2018 harvest amounted to 1,238,000 tons, 14% smaller than the previous year, mainly due to the drought.

“The main reasons for the smaller crop in 2019 are the poor set of wine grape bunches that are being observed throughout the Western Cape due to wet, cold conditions and wind experienced in October last year,” said Francois Viljoen, Vinpro consultation services manager.

He said that total annual uprootings are exceeding what producers plant every year — the trend since 2007 — “and we are still losing a significant number of hectares per year to other more profitable crops such as citrus, plums, apples and blueberries. However, plantings started picking up again in 2018”.

phakathib@businesslive.co.za