The wine industry is on a recovery path, but lower wine grape harvest and the excise tax will continue to weigh on the sector, says the economist. Photo: File
National Treasury must review the excise tax burdens for wine, Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said yesterday.
This as Finance Minister Enoch Godongwana is set to table his national budget next month.
"The wine industry is on a recovery path, but lower wine grape harvest and the excise tax will continue to weigh on the sector. Thus, the National Treasury must review the excise tax to ease the pressure in this critical and labour-intensive industry. The picture of maize production remains positive and supportive of staple food availability and the livestock and poultry sector," Sihlobo said.
South Africa’s wine grapes for this year are projected to be lower than last year’s harvest because of unfavourable weather conditions earlier in the season.
While the South African Wine Industry Statistics will release its production estimates later in February, it has already indicated the prospects of lower yields.
Sihlobo said: "This means the wine production could also be lower than 2022 levels, with preliminary estimates pointing at an output of around 800 million litres. This will add pressure to an industry still recovering from the slump through the worst of the Covid-19 pandemic, where the ban on sales at various intervals had a severe negative financial impact.
“Importantly, this industry is labour-intensive. Therefore, any additional financial strain in an already low-profit environment could negatively influence employment conditions, particularly seasonal labour. One effective response measure to assist the wine industry, especially through this tough year, would be for the National Treasury to review the excise tax burdens for wine. These are currently at 11% and this is well above the other emerging markets’ duties on wine producers," he said.
Sihlobo added that the agricultural sector and the entire food, fibre and beverages value chain, was on shaky ground because of its dependence on a consistent energy supply. The government's interventions to ease this burden were crucial as it posed serious food security risks.
In the maize sub-sector, the near-term outlook was somewhat better. The season started with excessive rains,which slowed some regions' planting by roughly a month, which proved beneficial when the country was confronted by the heatwave in the past two weeks as the soil moisture was reasonably high and cushioned the crop. This was the case for roughly 80% of rainfed regions of maize.
"As such, the preliminary production estimates from organisations such as the United States Department of Agriculture (USDA) paint a positive picture, forecasting South Africa's 2022/23 maize crop at 15.6 million tonnes, down only 3% from the previous season. Importantly, this includes commercial and non-commercial maize. In the 2022/23 maize production estimate of 15.6 million tonnes, the non-commercial estimate is 600 000 tonnes (down from 667 000 tonnes in the previous season). The minor decline in harvest reflects reduced area plantings and slightly lower yields," he said.
However, South Africa was still early in the season and these estimates could change, Sihlobo said.
The Crop Estimates Committee (CEC) held a “somewhat cautious view” of estimating the area plantings for commercial maize to be 2.5 million hectares, which was down by 4% from the area estimate of the USDA for commercial maize. These were tentative figures.The CEC would release its revised area planting and the first production estimates on 28 February 2023.
Sihlobo said if the area planted remained unchanged at 2.5 million hectares, with an average yield of 5.6 tonnes per hectare (lower than the USDA's yield estimate of 5.7), then the 2022/23 commercial maize crop could be around 14.0 million tonnes. This harvest would be well above the annual consumption of around 11.8 million tonnes and keep South Africa's status as a net exporter of maize.
Agbiz said such a harvest could still contribute towards softening maize prices from levels seen in the previous years.
"The critical drivers of maize prices in the past season were global, such as drought in South America, rising demand in China, and the Russia-Ukraine war. With the global grain prices having softened in the past few months, that trend will likely filter into the South African market, even if this is to a more limited extent than what we see in the world market. Both white and yellow spot maize prices and the July contract months are below R5000 per tonne.
“These price levels benefit consumers and the poultry and livestock industries which have faced higher feed costs over the past few years. These two industries face unique challenges from load-shedding and its associated costs; thus, any minor relief in feed prices would be a welcome development," Sihlobo said.
BUSINESS REPORT