Michael Fridjhon: Why foreign investment in the winelands should be celebrated
By Michael Fridjhon, 30 May 2018
The first foreign investment in the Cape wine industry was made by the Vereenigde Landsche Ge-Oktroyeerde Oostindische Compagnie (VOC) shortly after Jan van Riebeeck established the Company’s settlement in 1652. There have been countless others since then, with both the volume and value of these projects and purchases gathering steam in the post 1994 era. In Constantia almost half of the wine-producing properties are in foreign hands. In Stellenbosch the percentage is smaller, but the numbers (and profile) are impressive: Neethlingshof, Waterkloof, Le Bonheur, L’Avenir, Ken Forrester, Glenelly, Stark-Conde, Delaire-Graff, Marianne, Morgenster, and Morgenhof, to name but a few: If you breeze over to Paarl, you can start with the KWV, and move on from there. It’s also probable that many of the apparently SA-owned properties are actually held by foreign-based entities: ownership is a matter of fiscal convenience, especially when the asset in question cannot be moved.
Very little of this would be newsworthy at the moment, but for the sale of Warwick and Uitkyk to a US-based business which has already indicated that its shopping spree in SA has only just begun (see here). There was a similar sense of unease when the late Hans Schreiber acquired Stellenzicht and Neethlingshof in the 1980s: a number of the country’s well-heeled property owners cried foul because someone with apparently deeper pockets had come onto their turf. Big fish in small ponds don’t like it when bigger fish from bigger ponds slip over the weir into their space.
It’s hard to see where they would have objective grounds for seeking protection. Firstly, the big landowning fish cannot have an insatiable appetite: not every parcel of land is going to be gobbled up. On the contrary, to the extent that the big buyer sets a new price point and takes stock out of the market, he’s doing all other landowners a favour. You may argue that would-be landowners are being prejudiced by this, that what was affordable six months ago has now been moved beyond their reach. However, if you wish to sustain that position, you are going to have to call for price controls across the board. Long before government is going to heed that appeal it’s going to impose these dysfunctional (from a market perspective) regulations where they matter most, which is essential foodstuffs. (Incidentally, history is replete with examples of how price controls lead to shortages because there is no longer an incentive for producers to produce.) If you always wanted a house in Clifton and the prices keep going up faster than your savings, you’re not alone, and no one (with any intelligence, at any rate) is going to do anything about it.
Secondly, well-heeled owners tend to invest in their properties, and these investments survive the tenure of the new owners. Delaire-Graff and Glenelly – to name but two – have spent multiples of their original land investment creating the showcase properties we know today. The previous owners didn’t have the loot, so these prized assets were left to languish, if not unloved, then certainly not properly cared for.
Thirdly most of these owners still have a foot in their home countries, and it’s usually part of their game-plan to share the joy of their foreign shopping expedition with their friends and associates wherever they’ve come from. This helps to promote the image of Cape wine in those countries and, more generally, in international markets. This effect is even more marked when the overseas buyers are already in the wine business: Bruno Prats and Hubert de Bouard at Klein Constantia, May-Eliane de Lencquesaing at Glenelly and Paul Boutinot at Waterkloof not only bring their expertise to South Africa, but they add their considerable brand value to Brand South Africa.
No doubt some of the twitchiness about foreign landowners will fade away after a while, as it has in the past. Only the most parochial people like to believe that they are not part of the wider world – or that they can keep the Barbarians (or the Romans) beyond the gates. Hans Schreiber once said to me – in response to the xenophobic mutterings in Stellenbosch – that whatever money he was investing in the vineyards would stay in the ground. Charles de Gaulle put it more succinctly, when asked to intervene to block the British acquisition of Chateau Latour “They can’t very well take the soil with them, can they?” he said.
- Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is founder of Winewizard.co.za and holds various positions including: Visiting Professor of Wine Business at the University of Cape Town; founder and director of WineX – the largest consumer wine show in the Southern Hemisphere and chairman of The Old Mutual Trophy Wine Show.