So said Professor Nick Vink, emeritus professor in Stellenbosch University’s agricultural economics department.
According to Vink, in the past five years wine production has dropped from 1,200 million litres to 1,100 million litres, and grape production from 1.5 million tonnes in 2014 to 1.4 million tons.
The number of wine cellars went from 566 to 505 during this time, he said.
“And the 2020 figures still need to come in,” Vink pointed out.
About 15 years ago, South Africa’s vineyards stood at 105,000 hectares; these had dropped to 92,000 hectares by 2019, according to Maryna Calow, spokesperson for Wines of South Africa (Wosa).
There were a number of factors that have contributed to the shrinking industry, said Wanda Augustyn, spokesperson for VinPro.
These were:
Economies of scale;
Prices;
Higher than inflation input costs;
Negative growth in real prices for wine grapes over the past decade;
Low profit, which deterred investment to replace vineyards;
Sustainability of primary wine producers, who have been under severe pressure for many years;
The lack of profitability of the sector;
Drought and limited water;
Old age of vineyards and resultant low yields; and
Consolidation of farming units to ensure economies of scale.
The laundry list of reasons for this decline is long but it all comes as part of a global trend that has posted a loss of 2.5 million hectares of vineyards over 20 years.
Evidently, people were not drinking as much wine as they once did, said Vink, adding that this was particularly true in the case of South Africa.
“We are a beer-drinking country,” he said. “If people are not consuming there is no sense in producing.”
READ MORE Consumption
In 1996, consumption per capita was about nine litres per person per year. “That stands at about 6.5 litres now,” Vink said.
This decline comes after a period of rapid growth, with the political transition, new access into export markets and a quality revolution in South Africa.
Yet, even when things were going relatively well for the local industry, the after-inflation price of wine grapes in South Africa declined, Vink pointed out.
The price in real terms for a ton of grapes was R3,500 and hadn’t changed since the early 2010s, Vink said.
“If you are a grape farmer, you can imagine what has happened to the price of your tractor, chemicals, fuel, labour – all of those things have gone up.”
Calow said the harsh reality showed in the decline of primary producers, from 3,500 to 2,700 in the past 10 to 15 years.
Being uprooted
Augustyn noted wine’s lack of competitiveness relative to fruit, which had resulted in diversification to other agricultural enterprises such as citrus and blueberries, which were more profitable.
“Vineyards are being uprooted in favour of apples, pears, citrons, nuts – those kinds of things that are more lucrative for farmers,” Calow agreed. “Wine hasn’t been lucrative for some time.”
“[The industry] is going backwards and the main reason for that is financial sustainability. We don’t have any government support,” she said.
At the same time, however, there are those making good business in the industry.
“For some who sell wine at more than R100 a bottle, [business] is bigger than what it was five years ago – those are the ones that employ the most people, that bring in the most tourists, who have the biggest economic impact,” Vink said.
Indeed, the economic situation for various players in the industry was diverse, said Florian Bauer, professor in wine biotechnology at Stellenbosch University and the South African Research Chair in integrated wine science.
“Some are doing really well, some have had their best year yet. Others are not,” he said.
What works?
According to Vink, no one makes a killing out of farming a commodity alone.
“Once you take those grapes and turn them into wine, and you can turn that into a tourist destination, all sorts of things – then you can make money, and especially if you can sell the wine at higher and higher and higher prices,” said Vink.
The only way that you can stay ahead is by using the best technology.
“The [grape farmers] who make money have access to the best technology,” said Vink. According to Augustyn, wine producers have “adapted and now manage to combine a smaller area under vines with higher yields of better quality” so that they are “more cost-effective and productive” and are combining this “with the latest technology, virus-free plant material and a demand-led production approach”.
Reputation
Part of the problem is that South Africa has a reputation as a relatively cheap producing country, Bauer said.
This comes from the lifting of sanctions in the mid-1990s, when South Africa exported high volumes of cheap wine.
“When you have a bad reputation, it is hard to lift your price point because consumers are used to seeing your wine in a certain range,” Bauer said. “These factors combined lead to a situation where it is difficult to make money.”
Be that as it may, the core of the wine industry would remain healthy, he said.
Augustyn said that the industry has been making a continuing shift towards being more market- and value-driven, as opposed to the volume-based focus of the past.
“Now is also the time for adaptation, better management practices and changing of business models for the better,” she said.
