Michael Fridjhon: Can the SA wine industry afford NOT to pay the minimum wage?

The new minimum wage, with VinPro’s immediate (and dare I say knee-jerk) response lamenting its applicability to the wine industry, is a big deal. We know and understand that an important – but ever-diminishing segment – of the grower side of the industry is against the wall. We have been losing growers at a rate of a couple every week, every week of the year, since the 1990s. In a quarter of a century the number of grape growers supplying crush cellars has pretty much halved. People are not bailing because they’re making money – they are exiting the industry because they cannot make ends meet. If you were Rico Basson (CEO of VinPro) trying to keep growers in the business, wouldn’t you say to the government – please no further statutory burdens?

And yet – are we supposed to run the industry at the expense of human misery, and on the basis that the bottom 20% must be kept in the game? And why is this segment so threatened? Why is their plight what it is – have we not moved forward from an era when grape farms were kept in business because the government of the day maintained them at the expense of their workers, the consumers, and the health and safety of society?

Some of this is about the structure of the industry. At the very bottom of the pyramid are the fruit producers – who have to hawk their crop to processors or wholesalers while the grapes are ripening on the vines, and before the fruit turns to raisins before their eyes. They have always been the most important – and most vulnerable – link in the chain: no fruit – no wine. But the real gate-keepers are the folk who buy their grapes at the lowest possible price and on-sell it to wholesalers, brand owners, retailers, all of whom take vastly more margin than the growers obtain.

In the finer wine producing regions (a whole separate conversation) where you cannot really bump up the crop by pouring water into the soil, eight tons per hectare is a decent yield. You cannot farm and harvest these grapes for much less than R60k per hectare – so even without a profit and a bit of money to reinvest in your vineyards, you need to be earning R8k per ton. Sadly, very few are in this happy position.

The market however is driven by the high volume irrigation areas, where 30-50 tons per hectare is possible, and R2k per ton makes for nice income because the grapes are harvested mechanically and employment per hectare is significantly lower than in the prestige regions. The big producing wholesalers set this as the floor price. So unless you’re a grower in a desirable appellation such as Stellenbosch (where they may pay R8k but not much more) you have to fit in or take a hike.

So in fact, one way or another, you’re stuffed. If you follow the Twitter feeds on the discussion there are some people who are living in a dream world: yes – if a grower owns his route to market he can make a living producing wine which retails for under R100 per bottle and still recover more than R10k per ton from his own vineyards. His wine cost (vinified) is R25 per litre before tax so he can send out a bottle – dry goods included – for R50-60 per bottle including VAT. But he can only take his full margin once – either as a grower, or as a producer or as a retailer, and for that he needs to own a real brand. The moment he operates as a grower alone he is at the mercy of the processor/retailer. In case anyone is in any doubt – the loss of 2000 growers in 25 years tells a story that all the PR bullshit in the world cannot conceal.

So the real culprits – unwitting though they are – are the consumers – who have come to expect good wine for a fraction of what it costs to produce. And the fact that it can be done conceals the true cost of doing it. As long as we are happy to drink wine made from grapes grown in the high volume irrigation regions, harvested mechanically, marketed and sold as if it were cider or beer, it’s game on. This is not true of the top end producers or if you own the space from vineyard to wine consumer. But only 10% of the Cape wine industry enjoys this luxury. It’s the middle and bottom of the market that is threatened. When the screw turns it’s the most important component – the fruit source – which is in the weakest position.

So, notwithstanding the optics, Rico Basson thinks he has no alternative but to lament the increase in the national minimum wage, when he might instead consider fighting for a regionally based minimum grape price – a concept which has as little chance of flying. Minimum wages and minimum grape prices are inimical to the workings of the free market. BUT (and this is hard for me to concede because I have always opposed the principle of a minimum price) – if there were to be a minimum grape price in the premium regions there would be no basis for opposing the national minimum wage. And it has to be conceded that if the growers in these appellations had done a decent job of making consumers believe that origin IS important, the problem would never have arisen.

Is this a pretty picture? Not at all – it’s where we were 30 years ago. We’ve made no progress – we’ve just lost growers, and we’ve rewarded the most industrial producers. It’s only the fringe – the original geeks (Sadie, Alheit etc) – who have saved a select number of historic vineyards and kept the faith, where almost everyone else has followed the easy route to vinous perdition.

• 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.