SA wine prices set to fall as bulk producers race against time

Bulk wine producers in South Africa are in a race against time to fulfil their overseas contracts as well as to conclude next year’s trade agreements amid fluctuating exchange rates and a backlog on exports. 

This is largely due to delays caused by changes in the lockdown regulations relating to the wine grape harvest, wine processing, transport and exports during the coronavirus pandemic.

Thanks to favourable weather conditions, however, South Africa’s 2020 wine grape crop is estimated at 1 349 883 tonnes, according to the latest estimate of the South African Wine Industry Information & Systems – 8.2{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} larger than the 2019 harvest.

South Africa is the ninth biggest wine producer world-wide and produces about 3.3{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of the world’s wine.

About half of the country’s total annual wine production is exported – between 420 million and 450 million litres – earning over R9 billion worth of much needed foreign revenue for the county, according to Wines of South Africa (Wosa).

Furthermore, South African Wine Industry Statistics (SAWIS) indicate that the local wine industry annually provides over 290 000 jobs throughout its value chain.

Of course, this was before the ban on alcohol sales in the country due to coronavirus (Covid-19) containment restrictions.

Maryna Calow, communications manager of Wines of South Africa, which markets SA’s wine exports, estimated that the local wine industry was losing roughly R175 million each week that wine transports to harbour wine exports were banned during the lockdown before it was later allowed to continue.

Bulk wine producers represent approximately 85{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of the SA’s wine industry in terms of production and in exports, bulk wine surpasses bottled wine exports.

Johan Gerber, wine buyer at Origin Wines, which exports approximately 99{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of its products, mostly to Europe, says this time of the year is when the new vintage (2020) bulk wines are contracted with producer-wineries for local and export markets.

Yet, due to the impact of regulations relating to the pandemic – including the closures of restaurants and bars – producers are uncertain about the volumes they will require for their contracts, if any at all.

This puts bulk wine producers under immense pressure to try and secure their shelf space overseas, because they entered Level 4 lockdown behind schedule to begin with.

Furthermore, the surfeit of wine in cellars overseas has sparked concerns about the demand for imports.

The Times reports that vineyards in France, Spain, and Italy are fully stocked with unsold bottles as a result of various of Covid-19 related bans, and factors like import tariffs imposed by US President Donald Trump.

“The consequences of our export partners’ excess wine may leave not many prospects for South Africa,” says Gerber. “Even if we are looking at less demand for next year, we are still held accountable to deliver on current orders in due time. Failure to do so will have buyers simply turn to the next supplier.”

Price impact

In this case, SA producers would have to offer more competitive prices. In Gerber’s view, this will likely set SA producers back three to four years in terms of pricing structures.

“The issue at hand is a simple supply-and-demand equation. South Africa now has too much bulk wine (2019 and 2020 vintages) and is unable to sell it on the local front due to lockdown restrictions and regulations,” says Francois Bezuidenhout, winemaker at Leenders Wines and co-founder of local gin brand, Pimville Gin.

“Exports are now open under Level 4 regulations, but the backlog at ports will be a significant burden to get wines to international markets on time.”

Bulk wine exported from South Africa is bottled under various labels in Europe and it’s these exports that have helped build the South African brand in the international trade pool, in the view of Bezuidenhout.

Gerber agrees that it is bulk wine that drives sales abroad and the consistent growth of the local industry. In his view, the value of the wine industry for development in SA will not be appreciated until it is lost.

“The 2021 harvest is less than eight months away and our cellars are full to the brim with a backlog on orders, incapable of selling to the local market and many hurdles to get the wines across the border,” says Bezuidenhout. “Wine will become cheaper. A lot cheaper.”