Michael Fridjhon: Apocalypse now – SA wine in crisis
By Michael Fridjhon, 14 January 2021
The 2021 vintage looms while South Africa’s third prohibition in less than 10 months shuts off the supply of wines, spirits, beers and liqueurs to the entire (legal) market. With over 250 000 jobs in the wine industry and upwards of 800 000 in the hospitality sector now all under pressure, it’s not callous to question the rationality of the government’s response to the post-holiday season spike in infections. It’s hard to avoid the conclusion that the ANC is more concerned with driving an anti-alcohol agenda than applying a more sophisticated and segmented approach which would manage risk while sustaining economic activity.
It’s also safe to assume that if it’s willing to sacrifice the rank-and-file employees of the hospitality sector, then it’s not likely to consider the impact of the lockdown on vineyard owners. After the end of the last lockdown, the predictions suggested that there would be an unsold inventory of close to 300m litres of wine by the time we went into the 2021 harvest. Even if this figure is exaggerated, even if exports have siphoned up some of this bulk, even if this latest prohibition doesn’t add significantly to the overfull pipeline (all quite dangerous assumptions, but worth entertaining) we are looking at a catastrophe for many of the country’s 2 750 grape farmers.
It’s worth reviewing their predicament before the horror of 2020. In 2019 exports dropped by 24% compared with 2018; domestic wine sales were down 7%. In one year, from 2018 to 2019, 10% of their number abandoned grape growing. As recently as 2010 there were over 3 500 of them. However, while their numbers decline, the total size of the SA grape crop has remained pretty fixed (except for the worst of the drought years). In other words we are losing low-yielding vineyard and replacing it with grape growing on an industrial scale.
There are therefore a few issues at play. The one is whether the calamity of Covid-19 (and the way the pandemic has been managed) is the cause of the crisis; the other is whether or not – excluding the question of the impact in human terms – this is a good or bad thing. The first is easily answered: the surplus wine lying unsold in bulk storage as the vintage approaches is very much a victim of the lockdown, of six weeks of exports lost in March and April 2020, of a grievously wounded hospitality industry, of a massively depressed economy. For those who think that alcohol is the last item removed from household budgets in a recession this may come as a surprise; those of us who know better are aware that in depressed times consumers buy down, or don’t buy at all.
At the very bottom of the pricing pyramid is what is euphemistically known as “ale.” Made from the fermentation of yeast, sugar and water, sometimes flavoured, often not, this is the safest of the illegal concoctions which have flourished since the formal market was driven underground in the last three months of prohibition. For wine drinkers whose daily tipple pre-pandemic was supplied in papsakke, ale has been the most likely substitution.
When wineries sit with unsold inventory and see little prospect of a real turnaround in the next 12 months, they cut back on forward inventory. This means that they reduce the tonnage of grapes they buy for processing in 2021. Their current stocks have been paid for: to buy fruit from the 2021 vintage would have cashflow implications at a time when sales are depressed. Anybody with a high school economics credit (so not necessarily the people making the decisions driving the country’s business prospects) would know that less fruit will be purchased when the grape harvest begins. And since the growers need to pay for their farming costs (incurred since sometime in 2020) and their crop is worthless if it cannot be processed, the extent of the impending disaster is unimaginable.
We already know that the cheapest (but not the best) grapes come from high-yielding vineyards, most (though not all) from the riverine appellations far inland. This in turn means that the worst of the attrition of the current crisis will be felt by the growers of lower yielding (often older) vineyards of the so-called Coastal Region: Stellenbosch, Paarl, Swartland. So the impact will wreak a swathe of destruction exactly where our finest wines are produced and where the better-healed wine tourists visit – which pretty much answers the question of whether or not this is a good or bad thing for the wine industry.
- 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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