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Wine industry tough yet confident

The South African wine industry expects 2020 to be a difficult year, but remains hopeful that it will be able to build on some of the momentum gained in 2019 to overcome major challenges.

Presenters at the 15th Nedbank Vinpro Information Day held in Cape Town last week were upfront about the stark realities facing the industry, while advising on the way forward. Close to 850 wine-industry professionals attended the event, which was sponsored by Nedbank for the 14th consecutive year, with Old Mutual Insure as co-sponsor.

“There was a renewed energy in the South African wine industry in 2019 following a long downward cycle,” says Vinpro chairperson Anton Smuts. Two consecutive smaller crops, due to the drought, led to upward wine price adjustments filtering down to the farm gate, and producers are reinvesting.

Smuts called on wine grape producers and wineries to keep this momentum, but warned against pushing price without adding value.

“Challenges will remain in 2020, including tough market conditions, policy uncertainty, threats of expropriation of land without compensation and unfavourable climatic conditions. However, we can overcome it by continuously adjusting our strategic learning and by working together.”

Industry reinvesting

“As the second largest agricultural exporter in South Africa, the wine industry is one of the few industries worthy of investment at the moment, characterised by great-quality products and repositioning taking place,” says Vinpro Managing Director Rico Basson.

The drought had a significant impact on wine production, which decreased by 90 million litres annually in 2018 and 2019. Lower availability resulted in higher wine prices, which filtered down to more sustainable net farm income levels. In 2015, only 15% of producers were profitable compared to 28% in 2019. But some regions’ recovery will be slower.

Producers are also expected to continue last year’s surge of new plantings this year, with an estimated 4 000 ha to be planted in 2020. Most planted cultivars include chenin blanc, sauvignon blanc, Colombar, chardonnay and pinotage.

Basson challenged the industry to refine its models and strategy. “We must make wines less elastic, grow value, premiumise South African wine internationally, negotiate better international market access, consolidate the supply-chain for scale, and improve efficiency and route to market.”

He also challenged the industry to sell 13% more wine (roughly 100 million litres) in 2020, compared to 2019, without importing any wine while still retaining value. “It’s a huge challenge, but I believe we can do it through specific interventions globally and locally, while using the current boost in wine tourism to our advantage,” Basson said.

“It is noteworthy that South Africa was able to secure an agreement with the UK, one of our biggest export destinations, which will allow us to export 70 million litres duty free post-Brexit. This, while maintaining our current duty-free rate of up to 110 million litres exported to the EU.”

Make wine lekker

There’s a huge untapped market of South Africans who have the disposable income and thirst for something new and exciting to drink – make sure they have your wine in their glass. This was the message from Brandon de Kock of consumer insights agency Whyfive.

“This is a really exciting group to target,” says Brandon.

“Market to an attitude rather than an age group. Think of design, packaging and marketing messages that will appeal to any age,” Brandon says.

New consumers are also looking for something out of the ordinary. “Don’t underestimate the importance of food and wine experiences to draw in newcomers to the category,” says Brandon. “Once you get them to drink any wine, you will get them to experiment more.”

“Ramareality” hits SA economy

Nedbank economist Isaac Matshego laid out the daunting task of fixing the South African economy, characterised by a shift from “Ramaphoria” to “Ramareality”. South Africa has been stuck in a rut of less than 2% economic growth for the past 72 months – the longest downturn since 1994.

The next upturn is unlikely to come from consumers, Matshego says. Consumer income and spending is constrained by high debt, while the expanded unemployment rate (which includes people not looking for work) is currently almost 38%.

Low business confidence means the private sector probably won’t commit the investment necessary for economic growth. “We need to accelerate growth measures with the right policies to encourage new investment in South Africa,” Matshego says. “It’s imperative that Eskom is stabilised.”

He expressed confidence in the current executive and remains hopeful a stable government is able to strengthen the economy and stimulate growth.

Masterplan for agriculture underway

On a positive note, government has embarked on a Masterplan initiative, through which government, business and labour will work together to establish a conducive environment for investment and inclusive economic growth in the agricultural and agro-processing sector. Dr John Purchase, CEO of Agbiz, says agriculture is participating in the process, the overarching Masterplan due to be finalised by the end of September 2020.

Trade agreements will be imperative for growth going forward. Nearly half of South Africa’s agricultural exports (in value) are destined for Africa, followed by Europe and Asia. Agreements such as AfCTA (the African Continental Free Trade Agreement), and a preferential trade agreement with the UK post-Brexit will bode well for these two major export markets. A lot of work still needs to be done to secure preferential trade agreements in Asia, a market which holds big potential.

“This will be a tough year, but I believe that things will look up in 2021,” Purchase says. “We’re putting all the building blocks in place, supported by government’s willingness to collaborate.”

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