Michael Fridjhon: Stellenbosch Cabernet Sauvignon – not waving but drowning
By Michael Fridjhon, 28 June 2017
Before the 20 or so producers who participated in the Stellenbosch Cabernet jamboree in Johannesburg earlier this month do themselves an injury by prolonged mutual back-thumping, they would do well to ask themselves if the undoubtedly successful event was not too little, too late. Roughly 150 guests each paid almost R1000 to attend an evening at which there were masterclass presentations of some of the region’s best and rarest wines – some suitably well-aged – as well as an opportunity of sampling current release cabernets and the pre-release 2015s. It was exactly the kind of exercise that should have been done years ago, before Stellenbosch’s prominence as the best known SA wine appellation began to fade, and before cabernet itself began losing its status as the country’s pre-eminent noble variety.
Of course it would have been far worse to have done nothing – to have sat back and simply watched while other regions chipped away at its reputation, and consumers abandoned cabernet with its proven track record for whichever red wine fad was the latest gout du jour. Indeed, the Johannesburg Stellenbosch cabernet event was at least a good start. Ask the average Stellenbosch producer how much they’ve actually done as a region since American Express pulled out of its Wine Routes sponsorship, or whether they think a cosy little party once a year for a few hundred of Sanlam’s high net worth clients (and whoever else feels like forking out for the Summer Place party) constitutes an acceptable effort in the biggest market in the world for their wines, and they’ll start to wriggle like school kids whose dog just ate their homework.
It is nothing short of outrageous that they have allowed the 21st century wine market to pass them by, lapsing into the comfort zone of self-liquidating winemaker dinners and international flag-waving/flesh-squeezing missions instead of engaging in a concerted effort to protect their patrimony. Even if they now throw themselves into a carefully-thought-out programme to arrest the decline of their appellation, and the variety which helps to define its USP, the attrition will continue for years to come. More farms will become housing estates, more vineyards will fall into virused neglect, more self-defeating shortcuts will become a way of life.
Most of the producers have allowed their complacent sense of superiority to blind them to the reality of what has been happening. Now the decline is painfully evident they still have no idea of what has been lost or what it is going to take to reverse the damage. Partly this is because the wine industry typically discounts sunk costs and tries to make things work using available running expenses. Very few farmers provision a proper amortisation of vineyard and wine equipment costs, and all will cheerfully admit that nowhere in their calculations do they account for the real value of the land. They assume – and this may change more swiftly than they can imagine – that real estate price increases will grow ahead of inflation, so there’s no need to include land costs in their calculations.
However, if Stellenbosch ceases to be the heartland of the Cape wine industry, then its vineyards will cease to command the premiums which were paid for the land in happier times. In 2001 the average price paid for a ton of Cabernet – across the country (excluding by co-ops to members) – was R5 400. If you apply an annual compound inflation rate of 7% (which is higher than CPI but significantly lower than farming costs) growers would have to earn just under R16 000 for their cabernet grapes this year simply to be in the same place. This is a national average: Stellenbosch should command significantly more than this. The 2017 the average cabernet price was nowhere near that amount. In the ten year period from 1992 to 2001 the average cabernet price per tonne increased from R971 to R5 400, no doubt a factor in the massive increase in vineyard land prices in Stellenbosch over this period. If, since 2001, prices for Stellenbosch cabernet can’t even keep pace with inflation (by 2010 they had actually fallen to R4 000), the impact of this will be felt in land prices. Sure, there will still be the ultra-wealthy seeking a lifestyle estate purchase, but there were few enough of these in the past couple of years, even before Zuma worked his magic with the economy.
In 2015 there were roughly 3 300 hectares planted to cabernet in Stellenbosch yielding just under 19 000 tons. The real price erosion – the difference between what was earned and the amount which should have been paid if prices had simply tracked the rate of inflation – is likely to be at least R5 000 per ton. The declining status of Stellenbosch cabernet is costing the producers at least R95m per year, and growing with each vintage as prices erode further. But there is an even greater, though slightly less tangible cost – and that is the ongoing devaluation of their properties. Even in the world of wine, where there’s no rational connection between the income potential of a trophy estate and what it is sold for, buyers still factor the income a farm produces in calculating its ultimate selling price – if only to keep the losses small enough to make the purchase of the land seem attractive. If 3 300 hectares of Stellenbosch Cabernet are yielding 30% less income than they did a few years back, then land values will be down by several billion rand.
It should be evident that I care a great deal about the future of Stellenbosch. So should we all. In many ways the fate of the country’s fine wine industry rides on it. The new appellations, the new (to South Africa) varieties – these simply inject a little fashion and excitement into the business. But cabernet (and to a lesser extent chardonnay) provide the benchmarks, and Stellenbosch does both of them at a world class level. We can’t afford to stand by and do nothing in the presence of this decline. The region’s producers need to act – they must agree to voluntary levies for bulk and bottled wine and they must use the money to promote the area and what it produces. It will take several million rand annually and several years before the tide turns. Someone from Stellenbosch will have to assume leadership of the project, those who pay in will have to be ready to name and shame whoever tries to free-ride: we need a rare show of unity if Stellenbosch and Stellenbosch cabernet is to be restored to its rightful place in the national wine hierarchy.
- 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.
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