SA Wine Prices at Record Lows
Dec 01 2008
Retail Wrap >>

In real terms, South African wine lovers have never found wine "cheaper" than it is today. In the short term consumers may smile, but commentators warn that the heady potion, just like the wine producers' cash flow, could evaporate if current economic conditions in the industry persist much longer.

The reason for the low prices is an oversupply on global markets, which is filtering through to the South African marketplace as well. Wine Cellars SA chairperson Henk Bruwer says bulk producers not directly involved in offshore markets are consequently under pressure.

"Producers' finances have been in the red for the past five years. I am becoming increasingly concerned that the industry downturn has been too long." About 80% of all South African wine is supplied by bulk producers. Retailers are exerting tremendous pressure on them to sell their wine cheaply.

The country does not currently have a surplus and none is predicted for 2009. In the past surpluses led to low market prices - but, despite current market conditions, prices are not rising, says Bruwer. He believes there is no excuse for the low prices. The poor prices could force producers from the market.

According to Bruwer, the return on capital for farmers supplying bulk producers is currently between 4% and 5%, while the cost of capital is 15.5%. It costs, on average, some R40 000/ha to produce grapes. At present it is not uncommon for certain producers to show a loss of R10 000/ha, reports Weilbach.

Vines are being cut down more than they are being planted. A large number of producers do not have the R100 000-odd required to replace an old vineyard, and there is little government support for an industry that generates billions in excise duty and contributes to the balance of payments.

Adapted from Source: www.theretailer.co.za, 4 November 2008