Western Cape Business News

Send  Share  RSS  Twitter  16 Feb 2010

FOOD & BEVERAGES: The Swing Is To Red Wines


Recent Western Cape Business News

FOR the most part of the first decade of the second millennium, the wine industry in South Africa experienced a significant swing towards red wine production - moving from 18% of planting in 1996 to 44% in 2008. This gave rise to a surplus production position putting downward pressure on producers’ prices, SAWIS reports.

Given that the local demand for wine, red wine in particular, did not match the increased supply, the local industry was forced to enter the export market in a much more aggressive way than ever before.

No wonder then that export, as percentage of local production increased from 21% in 1999 to 54% in 2008. Despite fluctuations in the Rand exchange rates over this period, the general trend was downwards, helping to maintain export profitability.

The inflationary conditions coupled with pressure on disposable income have resulted in consumers trading down.

These obviously became much more price conscious. The South African wine consumer in general is regarded as more price conscious and less likely to venture into the higher priced products. In 2008 the demand for white wine has weakened whilst red wine sales showed a moderate increase.

However, as far as red wine is concerned, the supply/demand position has since moved into equilibrium.

The total turnover of the wine alcohol industry in 2008 amounted to R19 164 million. Of this amount R6 272 million was exported directly. Imports amounted to R237 million or about 2% of domestic sales. In actual fact, primary agriculture output valued at R3 320 million was beneficiated and added in value downstream to the value of R19 164 million, i.e. about five times the initial value of the raw materials.

Another R4 263 million was generated indirectly through wine tourism.

Compared with the 2003 SAWIS study, it is evident that the wine industry as a whole did somewhat better over the 2003 – 2008 period. Total turnover grew by 79%.

This growth can be attributed mainly to the excellent export performance (close to doubling in current rand value terms since 2003).

The growth in value of domestic sales in nominal terms, over the period 2003 – 2008 amounted to only 45%.

These figures also indicate the much slower growth in primary producers’ income but an escalating tax haul by government.

The industry has been under ever increasing inflationary pressures on the production side that ultimately had to be given through to the consumers.

However, the primary producers were in a more disadvantaged position to recoup all these cost rises, SAWIS concludes.

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