Michael Fridjhon: A scorecard for wine industry transformation
By Michael Fridjhon, 19 May 2021
The government’s deep distrust of the wine industry, often vehemently expressed by ministers during the various lockdowns, should serve as a clarion call to producers to ensure our house can withstand the kind of scrutiny reserved for the disliked and unloved. Despite the extraordinary efforts of the many wine industry players to mitigate the impact of the lockdown on unemployed workers and their families, it has become clear that the government does not see the wine farmers of the Western Cape as contributing to the economy, or to the livelihoods of several hundred thousand South Africans.
This should come as no surprise to any of us. As far as I can tell no one in government has even the faintest idea of what it is like to have to work for a living. This means that they can have no possible idea of the lived experience of those lucky enough to have a real job. It is precisely because of this that in its policy application the ANC disregards the contribution the wine industry makes to the economy, seeing it as an obstacle to its plans in the Western Cape, rather than as a contributor to the general good of the country.
In turn, this means that wine producers may have to re-assess what is important, moulding economic and social objectives to fit better with government priorities. This is not quite as cynical as it sounds. If you want people to listen to what you are saying it’s best to speak in a language they understand. This set me thinking about what the industry has been doing in matters of transformation. We keep hearing about the lamentable lack of progress in areas of ownership and management, in viticulture and in wine production. It seemed that it might be time to call up a scorecard if only to decide if it’s worth presenting. The alternative would be to resort to the age-old excuse of school children in the pre-email era: collect embarrassing school reports from the post box before parents return home and simply destroy them.
What has emerged is a pretty messy picture, of failed initiatives, or funds poorly spent, of money misdirected. But there is also another component to this: the real achievements of hard-working people trying to make a difference – and make a living – in an industry that is tougher than most people realise. The real attrition amongst those who are experienced and who have grown up in the industry should serve as a warning sign to newcomers hoping to survive: over 40% of the growers delivering fruit to the industry in 1994 have abandoned grape farming. Between 2016 and 2019 alone over 30 wineries ceased to operate – in other words, in the period ahead of the Covid-induced devastation.
Understanding what could have been better done has already been researched – so that a few years ago a completely new approach was adopted in the industry. Prior to that the portion of the levy funds designated for transformation was allocated to WoSA, WineTech and SAWIS and was reallocated back to empowerment schemes by the entities in question. Without the in-house skills and competences to assess and manage these projects much of this investment yielded only a limited return. Now a 20% portion (up from 10% previously) of the levy fund is allocated directly to empowerment and managed by entities such as the South African Wine Industry Transformation Unit (SAWITU).
Under Wendy Petersen, SAWITU assesses funding applications for black-owned brands and farms and allocates resources to enterprise development, market access, skills development, and mentorship programmes. Those who receive funding have to meet performance criteria, but they are also assisted to ensure that, over time, they grow to become sustainable. The first crop of beneficiaries is expected to see five of their number graduate from this process soon.
On the farming front, SAWITU has an active Service Level Agreement with Vinpro. Under this agreement Vinpro Enterprise Development (Phil Bowes), Technical Services (Conrad Schutte) and Wine Management Systems (Christo Spies) are actively involved in addressing technical assistance, mentorship and skills development to empower existing black owners and to facilitate entry into grape growing for workers trusts and beneficiaries of land restitution claims. There are now approximately 60 and 80 black growers (a number whose vagueness is a more a matter of how the beneficiaries are counted – as schemes or as individual owners within schemes – than an inability to do the counting).
So far, so not-so-good, using the metrics of numbers of successful entities, rather than visible transformation, and bearing in mind that around R200m of industry money has been spent getting here. However, this doesn’t include the extent to which employment equity quotas have been met – so it might be instructive by way of an example to look to Distell’s annual report. Here another picture emerges, in the sponsorship of the Small Business Development Academy, the Ranyaka Community Transformation, the ForGood volunteer programme and in the percentage of previously disadvantaged individuals in new appointments in the various levels of the business: in 2020, 56% of new senior appointments, 92% of middle management, 94% of junior staff.
At the same time, and to be even-handed, it would be useful to quantify the state’s achievement over the same period – after all, the fiscus has taken around R90bn from the industry in excise and taxes over the same 27 year period. That’s before you add the cost of the sheer incompetence which led to the minister losing/giving away the R400m SAWIT fund secured from the transformation of the KWV in the late 1990s. That money – half designated for advancing the industry’s business competitiveness, half for development and transformation – could have played a crucial role in making the metrics of transformation look better than they do. A large chunk of the money vanished into unsavoury arrangements entered into by the minister’s appointed chairman of the Trust. The balance was simply hijacked into an empowerment shareholding in the KWV which would never have been approved by any sentient human being.
There’s a particular relevance to this as the long-awaited EU compensation for the Port-Sherry Intellectual Property issue – around 15m Euros – is poised finally to reach the country more than 21 years after it was promised. Given recent revelations it would be naïve to exclude the possibility that government will want to place the funds where they are most accessible to light fingers, or in institutions whose administrative track record resembles the navigation skills of the captain of the Titanic.
Everyone – including the European Union’s Agricultural Commissioner – should be watching what happens to this money: correctly used, its interest income alone could help to double the amount the industry currently invests annually in transformation. Like the levy funds, it’s industry money in the first place. It could change lives in many communities, achieving real transformation objectives, training viticulturists who specialise in managing heritage vineyards, funding farming projects, building black-owned brands. It mustn’t be allowed to vanish into the swag bag of our failing state, or to fund fancy cars for well-placed cronies.
- Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is the 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.
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