A worker checks bottles of wine on a production line at the Nederburg Wine Estate in Paarl. Photo: Reuters
By Bhekani Zondo and Kayalethu Sotsha
Wine is one of the key strategic industries prioritised in the Agriculture and Agro-processing Master Plan to address economic growth, competitiveness, job creation and inclusivity. South Africa is among the top ten global wine producers and exporters.
According to South African Wine Industry Information and Systems (SAWIS), globally, the South African wine industry ranks sixth (accounting for 4.1%) in terms of wine exports and eighth (accounting for 3.9%) in terms of wine production volumes.
The domestic wine industry is vital to the economy because it contributes to the country’s gross domestic product (GDP), creates employment and generates foreign earnings. In 2022, the industry contributed R56 billion (0.9%) to the country’s GDP, with more than 270 000 people employed in the entire wine value chain (of which more than 85 000 are employed in farms and cellars).
Despite its importance to the country’s economy and development, the industry continues to face several challenges that compromise its competitiveness and sustainability, and discourage investments in the sector. Climate change, a reduction in the number of wine producers and cellars, illicit trade and rising excise duties are just a few examples.
In addition, the global Covid-19 pandemic had a significant impact on the wine industry, resulting in various prohibitions on the sale of alcoholic beverages.
Between 2012 and 2022, the number of South African wine producers decreased by 4.9% (approximately 4 787 producers), while wine cellars also decreased by 2.4% (523 cellars).
About 61% of South Africa’s wine is consumed domestically, with the remaining 39% destined for international markets. In value terms, the UK is currently South Africa’s largest wine export market, followed by Germany and the US, among others.
According to Trade Map, between 2013 and 2022, South Africa’s wine export volumes fell by 36%, despite an increase in value. In 2023, the volume of wine exports declined by 17% (306.3 million litres), while the value increased by 0.9% (R10bn). Local sales increased by 486.4 litres.
Although the South African wine industry is plagued by several challenges, it remains resilient in the global market due to its premium quality, which sets it apart from its competitors. This can be seen in the notable increases in value exported, which also signifies that global consumers are willing to pay more for South African wine.
The decline in the volume of exports is partly attributed to the reduction in the area under production of wine vineyards, the number of wine producers and the number of wine cellars, all of which have resulted in a significant decrease in wine production volumes. Further, chronic port operational challenges, notably shipping delays in the Port of Cape Town, have been cited to have contributed to the decline in South Africa’s wine exports.
Excise duties on wine and brandy have increased in recent years. The finance minister announced additional excise tax increases in the wine and brandy industries in February this year. Excise duties on wine increased by 7.17%, while increasing by 7.17% on sparkling wine and 6.67% on brandy.
According to the World Bank, despite the observed increases in excise duties, per capita consumption of alcohol by both women and men remained relatively stable between 2010 and 2019.
Further, global adverse climatic conditions, such as early frost, heavy rainfall and drought, have led to a significant decline in global vineyard productivity. Similarly, due to unfavourable weather conditions, South Africa’s wine vineyard area has decreased significantly.
Literature suggests that without sufficient climate change adaptation, crop failures are likely to persist. Climate change has a significant negative impact on agricultural productivity, as well as on comparative advantage and international trade.
The current challenges facing the industry require strong partnerships, collaboration and coordination between government and other key industry role players. Hence, the revival of the wine industry value chain round table is essential.
Value chain round tables serve as the platform for implementing value chain-specific commitments agreed upon during the Agriculture and Agro-processing Master Plan negotiations for driving growth, competitiveness, transformation and investment in the sector.
The establishment of industry-specific round tables with involvement from across the value chain is intended to strengthen the industry-labour-government partnership while minimising fragmented and uncoordinated engagements.
Topics dealt with in these round tables include food safety and quality, the environment, innovation, market access, transformation, fair labour practices, regulations and others, as informed by research and analysis.
For the wine industry, the revival of the wine industry value chain round table will be crucial for monitoring and addressing industry and policy developments that may impede the common growth and development goals envisaged in the Agriculture and Agro-processing Master Plan.
Bhekani Zondo is an agricultural economist and Kayalethu Sotsha is a senior economist – both seconded to the Agriculture and Agro-processing Master Plan project management unit at the National Agricultural Marketing Council.
BUSINESS REPORT