SA: Wine industry must reassess value position
South Africa needs to fundamentally readdress its position in the wine market, according to an industry report commissioned by Wines of South Africa. The report, entitled The South Africa Cost Competitiveness Study was carried out by wine consultant James Herrick.
According to Herrick, South Africa is wrong to have set itself up as a good-value rival to Australia since the country's agricultural structure cannot support such positioning. Where Australia has vast areas of flat, irrigated desert, allowing for enormous economies of scale, South Africa's industry is far more fragmented and, therefore, more expensive.
"There are places where we could be cost competitive [at that level] and there are whole areas where we can't be," said Herrick. "If we've only got 100,000 hectares, we won't beat the world on market share, so how smart is it to be a low-cost producer? If you set up an industry to compete on price, you'd better have the industry for it."
According to the report, no more than 30% of the South African industry is set up for broad acre (high production, low cost) farming, and with no government subsidies available (unlike in the EU), for many producers the economics of making cheap wine simply make no sense.
"The big question that this report asks is 'Can we sustain it?'" says Herrick. "Consolidation of the industry is essentially a cosmetic solution. We keep coming back to the same problem of farming: what are we growing the grapes for?"
Wines of South Africa's global push for the coming 12 months will focus on trying to trade consumers up through the price points by focusing on the Cape's natural diversity.
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