Recession Hangover for Wine Industry

Article excerpt

BYLINE: Sibusiso Nkomo

The wine industry has gone sour.

Many wine farmers have been struggling to survive for the past five years in the face of rising input costs and dwindling profit levels, as the strong rand has dampened foreign demand and pressure on sales has depressed wine prices.

And the industry is faced with a major headache as it is sitting on a huge - and growing - wine lake.

Gert van Wyk, chief economist of Vinpro, the Cape wine producers' body, said the past few years had seen the longest decline in the wine industry's recent history and that the industry was under serious strain.

"Over the past five years, producer income has been consistently lower than the target income," Van Wyk said.

The amount of land under vines was also getting smaller and many farmers had left the land, he said.

South Africa's wine industry contributed about R50 billion to the economy last year, according to Conninggarth Economists, a research firm. About 275 600 people were employed directly and indirectly by the wine industry in 2008, according to South African Wine Industry Information and Systems (Sawis).

The number of wine farmers had dropped from more than 4 000 in 1990 to less than |3 700.

The PricewaterhouseCoopers' (PwC) South African Wine Industry Insights Survey 2010 found that average wine prices of producer cellars had increased by 19 percent over three years from 2007, but the cost increase over the period had been almost double the increase in income.

The PwC report suggested that further pressure on costs per ton should be expected, as smaller crops had been reported annually since 2008.

The 2009 harvest was the first since 2004 in which income per hectare exceeded the production costs per hectare, according to the report.

Meanwhile, Su Birch, chief executive of Wines of South Africa (Wosa), the marketing export industry body, said most of the industry was having a tough time - like all South African exporters.

Birch said globally, there was too much wine. In the recession, consumers were trading down and this meant pressure for supermarkets to reduce prices.

"The result is that all profit margins have effectively been stripped out of the business. …