BD Exports 28.02.2014

South African wine exports are booming – and it has nothing to do with the fragility of the Rand. Overseas buyers shop at fixed price points – determined largely by what they believe consumers will be prepared to pay. Many of these were set at the time that Cape wine made its way back into international markets. However, since the second half of the 1990s, the average quality of what comes from our vineyards has improved immeasurably. Sadly for growers, hard currency prices have not increased proportionately. In fact, their recovery as a percentage of the selling price of a bottle has actually declined. Supermarket buyers – especially in the UK – generally don’t budge on price points. When excise, VAT and handling costs increase they expect the suppliers to carry the cost. Of course, producers who have other customers and other markets move on. For many now the UK – and especially its big chains – is a client of last resort.

When the Rand was at R10-50 to the Pound, most of these exports recovered little more than their production cost. Now that the rate is over R18-00, they’re earning real money. The exchange rate does nothing except make the business more or less interesting for the suppliers. What drives the volumes is the quality of what is on offer – and it is its sheer value-for-money that has persuaded consumers in our major markets to shift their allegiance to Cape wine at the expense of other exporting countries.

The figures are little short of extraordinary: in the early 1990s (straight after Mandela’s release) exports totalled 20m litres and represented about 2% of national production. Ten years later they had risen to 177m litres, or almost 20% of the harvest. In 2011 they had reached 357m litres. A year later a further 60m litres was added to the total. Last year total exports reached 525m litres, a 26% increase on the 2012 figures – well over half of the country’s wine production. This trend has continued into January 2014, with just under 40m litres in what is traditionally a quiet month.

However, as Trade and Industries’ Minister Rob Davies pointed out in 2012 to his British counterpart, the fact that much of this increase comes from bulk shipments is not good news for Western Cape employment. A war of words at the time between the DTI and the UK suggested that control of the situation resided in the hands of the authorities. Lionel October, Davies’ Director-General claimed that the preference for bulk rather than bottled wine exports was “a new form of protectionism under the banner of reducing the carbon footprint.”

The sad reality is that consumers only care to have their premium wines bottled in the country of origin. There is a massive saving in shipping costs (and plenty of carbon footprint bonus points to be earned) by bottling wine in or near the markets in which it is sold. As long as our packaging costs are higher than those in Europe, and there is a significant saving in shipping expenses, importers are bound to choose bulk over bottled purchases. Only when their customers demand that the wines are bottled in the country of origin will they give ground. Everyday drinking wines don’t qualify for this kind of treatment.

This is the dilemma facing producers. They’re getting the volumes precisely because their wine quality is dramatically better than the prices which importers are prepared to pay. With the exchange rate at over R18, there’s good money to be made. If they want to lift the price point, and with it the image of Cape wine, they should refuse to sell at the levels established in the 1990s. But it’s hard to turn away the business – especially when the local market is flatter than a grape-skin at the bottom of the press.

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