Michael Fridjhon: Grape growers are under-paid and it’s not good for anybody

Not very long ago one of the Cape’s more successful craft winemakers was driving between Stellenbosch and Somerset West. As he looked up towards the Helderberg – to where there was a vineyard from which he regularly purchased fruit – he noticed a surprising amount of activity: diggers and graders clearing vegetation, deep-ploughing and preparing the soil. Unbelievably, this was all happening on the actual site from which he had previously acquired grapes which were essential components for one of his best-known wines. This was how he discovered that the land had been sold and the new owner was already engaged in a replanting programme.

At one level, this is a good news story: instead of waiting until the yields were too low or the fruit too compromised for the land to be sustainable, the grower had sold to an investor ready to coax the best possible fruit from what was clearly an excellent site. No one likes to see an old vineyard grubbed up, but given the average virus condition of red wine vineyards on the Helderberg, the odds are that the days of that particular block were numbered. Investment with proper virus management protocols is exactly what will keep Stellenbosch properties from becoming housing estates.

At another level of course this is very bad news for landless winemakers, skilled craftsmen who have opened what 25 years ago were non-existent niches in the supply chain and created an interest in – and demand for – boutique/garagiste Cape wines. Their business model depends on under-capitalised growers selling fruit cheaply enough for the winemaking side of the equation to be profitable.

Here the numbers are important – and hardly anyone discusses the implications of the extractive arithmetic. Depending on where you farm, the topography, and any number of peripheral factors, it costs between R60K and R110K to farm a hectare of vines in a premium wine producing region. If the yield is between 6 and 8 tons per hectare (which is the best you could expect from mature red vines) you are clearly going to need to sell your grapes for at least R13K per ton just to break even on cashflow. The VinPro stats show that the vast majority of growers don’t get over the line.

The problem is seen as a grower issue – but that’s because VinPro operates primarily as a grower organisation. But bad economics is a two-way street: if someone is selling below cost because he has no choice, then someone is buying a bargain, because he does. If the law prohibited a transaction below a certain threshold, the buyer would have to up his price. If by doing so, his finished product became too expensive to sell, then instead of the grower going out of business, the fruit processor would go insolvent.

The question boils down to marginal costs, and their impact on the retail price of the wine. At R13K for a ton of grapes, the processor is buying his raw material (before processing cost) for R20 per litre – or R15 per bottle. So at R20K per ton (in other words, a 50% premium on the previous price), the juice cost per bottle hits R22-50. This extra R7-50 is largely irrelevant to the final price paid per bottle. Garagiste/boutique wines typically sell for over R150 per bottle from the producer – and often for a great deal more.

So paying the farmer as little as possible looks like good business in the short term, but is a potentially fatal strategy over time. You can’t stop a grower who wants to exit the business from taking a fat cash offer for his land, but if you keep him well above his true break-even point, you have a better chance of an evergreen agreement.

As consumers, we love the excitement which comes with small-batch wine, produced by artisanal craftsmen, from sites which contribute a real sense of place to the final product. We assume that the relations along the food chain are managed ethically – willing buyer, willing seller.

The most exciting and dynamic component of the Cape wine industry – for the past 20 years at least – has been this segment where talented (but landless) entrepreneurial winemakers source fruit from vineyards with a true stamp of terroir to them. If overnight the vineyards upon which at least 20% of our high-profile wines are sourced were to vanish, we – consumers, critics, Brand SA – would be the poorer for it.

We do very little to demand transparency from this vitally important segment of the nation’s wine business – starting with what is paid for the fruit, and for the labour which brings it from vineyard to cellar. It’s time we arranged a health check for the golden egg-laying goose we’ve taken for granted for far too long.

Read Anthony Hamilton Russell of Hamilton Russell on how to save old vineyards here.

• 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 Trophy Wine Show.