The life of a wine producer in South Africa has not been as easy recently as it was in the first decade of post-apartheid democracy. In the euphoria which followed the peaceful transition to ‘Rainbow Nation’ in 1994, spiralling demand suggested that the international trade had an unquenchable thirst for Cape wine. As the financial markets were less upbeat about an economy under the direction of the former revolutionaries, the
South African rand slipped precipitously from 1994 to 2002, boosting demand for wine. Producers banked an ever-increasing number of rands while supplying a seemingly endless demand.

But in the past five years the industry has lurched from one crisis to the next. The rand bottomed in 2002 and then strengthened solidly, only to lose at least 20% of its gains in the ‘emerging markets’ crisis of May 2006. Grape prices collapsed. Then exports, which had grown year on year since the arrival of the Mandela Government, unexpectedly eased in the second half of 2006. Growers, producers and exporters were suddenly all adrift in the same (seemingly) leaky tub.

Yet there have been few failures. It seems the banks, fearing for their security, have chosen to keep the sector alive rather than foreclose and risk a domino effect. The couple of bankruptcies have been limited to export agencies rather than farmers, even though it’s been estimated that more than half of the country’s
4000 growers have not recouped running costs in the past three years.

Now Bureau for Farm and Agricultural Policy (BFAP) projections suggest the worst may be over. The rand appears to have stabilised at around R14 to the pound (£), which is a far cry from the R10-70 rate of 2005, but still above the R19-20 of 2002. A significant percentage of exports, totalling 81m litres annually, are shipped
to Britain and sold at a Sterling-based price. This has pushed rand income on these trades up over 30%. Demand has also picked up, and brokers and export agents are suddenly inclined to be more adventurous. The BFAP argues that downward pressure on fruit and bulk wine prices is a matter of history.

The BFAP’s projections show solid but unspectacular export growth, marginal domestic market volume increases and wine price inflation of between 5-10%. These are all indices which reverse the trend of the past few years. Hard upon the release of this data comes the wine industry’s annual statistical booklet, current to the end of 2006. It corroborates several of these trends, to the extent that they were discernible in last year's figures, but obviously makes no predictions about the future. For example, the figures for total South African wine consumption show a reversal in the downward trend which began in 2001 (390m litres) and seems to have bottomed in 2005 (345m litres).

On the export front, the dramatic dip of 2006 dominates the tables. In 2006, sales in the UK were 84% of 2005. The third biggest market, the Netherlands, was at 78%. However number two Germany at 116% and number four Sweden at 115% offer grounds for optimism. Except for the UK, the Netherlands and Canada, all of the other top ten markets are up, with the ninth biggest market, France, 57% higher than in 2005. Wines of South Africa CEO Su Birch says that the softening demand at the end of 2006 was something of an aberration. She is upbeat about how the 2007 figures recorded so far will spell a healthier outcome by year end.

While it’s too soon for this to translate into higher grape prices, it does seem that 2006 saw the worst of the price attrition. If the BFAP’s forward estimates prove right, Cabernet will pick up most of what it lost during 2007, Merlot and Chardonnay will rise and only Sauvignon Blanc will decline. Over five years, Cabernet will more than double, Merlot will go from 2005’s R1693 ($234/€171)  per ton to R3861 in 2011, Chardonnay will
increase 50% and Sauvignon Blanc around 20%. The majority of grape farmers can stop worrying about whether they’ll survive.

A key assumption underlying the projections is further decline in the rand’s value. When the currency rode out the recent dollar weakness, it did seem as if the Bureau had exaggerated the news of the rand’s demise.
Still, if the trend since May 2006 is anything to go by, the industry might happily resume its addiction to a weak currency and recoup some of the losses of the past few years.