Wine Business International

Vintage Reports

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October 9^th 2006

South Africa: Exports still rising

It is not often that a beleaguered wine industry gets the vintage it hoped for, but most of South Africa’s growers had every reason to be delighted with the bounty of 2006. The crop was slightly less than the average of the past four years...

... – 963m litres – 5% up on 2005, 5% down on 2004. Its quality was generally very good, with some exceptional wine being produced in the better-reputed regions. Stellenbosch for example, widely regarded as the source of most of the Cape’s best wines, enjoyed a long, cool and very even ripening season which brought slightly more wine into its tanks than at any time in the past decade.

Sales, however, are pretty flat. The domestic market has seen a little over a 1% decline over the past 12 months while exports are almost 2% up. Taken together the 12 month wine trend is 99.84. The industry statistics office has calculated a 15% reduction in the total wine stock at private and producer cellars as of the 31st of December 2005. With the last really patchy vintage four years ago in 2002, the Cape has arguably more good wine than ever before, and less pressure to sell it than 12 months ago. This however does not mean that a sense of euphoria prevails in the South African winelands. With the Rand off its 4 year high, but still substantially stronger than in the boom year of 2001, grape prices have fallen precipitously. Prices paid for premium reds by co-ops and producers to their members have dropped to less than half of the 1999 averages. Since over 60% of the country’s red wine vineyard is less than 10 years old, and many of the plantings were predicated on the prices ruling at the end of the 1990s, the grape growers find themselves in an appalling predicament. Current prices don’t even cover the annual farming costs, while rising bank rates have lifted the cost of servicing the debt on replanted vineyards. So far the banks have avoided widespread foreclosures – reasoning, it would appear, that their best security lies in keeping farms running as going concerns. For the wholesalers and exporters the situation is better now than it has been at any time since mid-2002. With low cost, high quality grapes lying as wine in their cellars and the Rand softer since the May 2006 emerging market ‘re-alignment,’ exports have again become viable. The biggest threat to this incipient recovery is the world wide tidal wave of cheap wine which threatens to engulf South Africa’s best export markets.

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