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The devastating effect of lockdowns on SA’s wine industry

19 weeks of lockdown knocked R3bn off retail sales and R3.7bn off wine tourism.
An estimated 27 000 job losses are said to be directly related to constricted production. Image: Supplied

Wine is one of the great SA export successes of the last two decades. No respectable winery or retail store anywhere in the world is without a decent selection of South African wines, but the Covid lockdowns of the last 15 months have been devastating for wine producers.

The wine industry was effectively shut down for 19 weeks since lockdowns were first introduced in March 2020. Vinpro, which represents more than 2 600 SA wine producers, estimates that the lockdowns robbed retailers of R3 billion in revenue, and deducted another R3.7 billion from expected revenues from wine tourism.

Some in the industry put the total loss in revenue as high as R8.5 billion.

Initial predictions were that 60 to 80 wineries would go bust by mid-2022. At least 10 have gone out of business so far, paving the way for a spate of takeovers and mergers. Estimated job losses directly related to constricted production in the wine industry is put at 27 000, according to Vinpro.

The South African Liquor Brand Owners Association (Salba) says the lockdowns cost the alcohol industry R36.3 billion in sales revenue, R8.7 billion in lost excise revenue and R29.3 billion in lost tax revenue as a result of the previous three alcohol bans.

President Cyril Ramaphosa this week announced a move to Alert Level 3, with alcohol sales permitted from 10am to 6pm Monday to Thursday.

On-site sale of alcohol, such as at restaurants, is permitted up to 9pm.

The disruptions caused by lockdowns go deeper than this, as export markets are under pressure from overseas competitors, and illicit alcohol producers have captured an estimated 22% of the local market.

According to a recent study by Euromonitor, SA’s illicit alcohol trade has grown from 15% to 22% since 2017.

Export threats

Carolyn Martin, co-owner and marketing director of Creation Wine Estate, says this situation would repeat should exports be disrupted by new government regulations, as buyers would find more reliable supply chains. Export markets are under pressure as overseas buyers switch to more reliable supply chains in South America, Europe and the US.

Exports account for roughly 50% of all wines produced locally, and the full shut-down of wine production and exports for five weeks in 2020 meant the loss of overseas retail listings, not to mention severe reputational harm.

Says Martin: “Our traditional markets in the UK and Europe, especially the Netherlands, have seen premium side growth in independent and specialist wine outlets. There has been an upswing in Belgium and Denmark. In Russia, there is growth on the high end. China is also showing uplift, getting more top-tier listings due to Australia falling out of the market, but only on the premium side.”

SA lost out in the lower-tier markets as buyers switched to overseas competitors who could supply on time and in the correct volume. “We were unable to do this during the five-week lockdown and once we opened up again, the issues in the Cape Town Port slowed exports down considerably.

“All in all, we could have been out of stock in some stores for up to 11 weeks last year,” says Martin.

SA wines are performing better in the premium export markets, where consistency of quality is a crucial factor. Sales in this market segment are expected to pick up later in the year.

Read: R1m for 1% of a wine farm

“There has been huge impact on grape growers due to the buying power of producers, and that has a knock-on effect of no income, which means they will diversify, pull out vineyards and start looking at more profitable crops.”

Though the industry is resilient, it will take years to fully recover, says Martin. “It is projected that the industry will in all likelihood be smaller in terms of volume of product and the number of players, but with a focused approach to reposition and continued focus on value growth will be able to improve sustainability. This will require a collective approach by all.”

Opportunities abound

For the SA wine industry to grow, stronger government support is needed to remove trade barriers and negotiate better access. Trade deals however take time and are based on a basket of goods rather than single items.

Africa presents a great expansion opportunity, but competitors are beating us to the punch: there are more French wines in Nigeria than South African.

Martin says if we could address tariff and non-tariff barriers and improve access to Africa, the resultant increase in exports would create 19 000 jobs over the next five years. This requires a major upgrade at Cape Town Harbour, where capacity is hobbled by a shortage of equipment, and obsolete machinery that has reduced harbour capacity to 25%. This makes it more difficult to service overseas markets, says Martin.

Wine producers are wondering out loud why SA does not have a trade deal with Brics co-member China that would open up this huge market for SA wins.

Chile managed to get a deal done with China within six months.

Exports to the UK and Europe were given a boost by the extension of the 2021 SA-UK trade deal, allowing 71 million litres of duty-free wine to the UK and 115 million litres (duty-free) to Europe – which is 70 million litres more than the previous year.

Read: Alcohol bans force SA wineries to rethink trade plans

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Maybe officially it was so negative, but I have heard that some of these wine farms loved the lockdown and did very well out of the illegal sales.

Yes, and every business interset group selling their story harder.

Anybody putting ANY claims against the real culprits of this disaster? EcoHealth-Alliance, Peter Daszak and the Wuhan team?

The ANC Corrupt Command Council got the response very wrong, locking down too hard too soon and then going after alcohol and cigarettes, while illegal importers and full taxis (all not paying tax) ran amok.

All we have done is reduce our tax income and boosted the illegal sector.

Ironically ever upmarket estate had their own bootleggers and suppliers.

The SA taxi, superduper covid spreader.

Would not surprise me at all if a few of these wine farms get snapped up by a cadre with brown envelope money.

The headline should have rather been
“The devastating effect of political stupidity on all of SA’s industries.”

After 25 years of democracy and a world renowned constitution we have all realised that the more politicians only ever do something because they will gain something personally from it.

Rather than vote for a political party South Africans should vote for a person in their neighbourhood who they believe understand their difficulties and deliver on the promises they make.

I think that was the point. The destruction was by design.

“Cape Town Harbour, where capacity is hobbled by a shortage of equipment, and obsolete machinery that has reduced harbour capacity to 25%” (bless you Transnet) – the Cape of Good Hope, one of the most strategic assets in the entire wold and look at its harbour? Go across to Simonstown and view our ENTIRE navy. How? It is literally always at dock, plus the 3 fishery patrol vessels. Maybe the odd foray into False Bay. Seems nomadic herdsmen aren’t so good at this whole seafaring thing …

One man, one vote. One navy, one boat

One king, one goat

”One man, one vote, Once”!

Ian Smif; good old Smitty, a war hero, principaled man, humble to the end, stayed middle class. Unlike our mob.

The ”Champagne Socialists” will try and soften the blow with their ”restitution of assets without compensation” – they might leave a ”Thank You” card!

If the wine industry is struggling, why do local retail prices remain so high? I understand that established brands can’t drop their prices, but why not re-brand under a different label and sell the same wine much cheaper??

By international standards, SA wine is very cheap, too cheap to be economically sustainable, which is why only 20-30% of the industry makes enough profit to reinvest in capital and development. The industry needs higher prices not lower prices to survive.

It would not surprise me at all seeing new wine farmers coming from parliament.

I sometimes suspect they help kill an industry in order to get cheap deals.

I suspect the same for certain upmarket suburbs when they get consistent “power failures”.

End of comments.

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