KWV faces crossroads as industry restructures
As a result of some of the most far-reaching changes in the South African wine industry, KWV is being forced to split its commercial and primary producer entities in order to adapt to the new realities in the country. Arnold Kirkby reports
Companies and power groupings in the Cape wine industry are re-aligning themselves and jostling for position in the newly formed generic body the South African Wine and Brandy Company (SAWBC), which was chartered in March this year.
The industry was in agreement that after five years of floundering without an official body to effectively represent all role players at all levels, the SAWBC - a provisional name given to the non-profit company - was vital. It was established in line with recommendations emanating from the industry's Vision 2020 strategies and is expected to begin operations towards the end of the year.
These developments herald the latest in a line of far reaching structural changes in the industry, beginning with the establishment of KWV in 1918, which was then given wide ranging legislative powers in 1924. These moves were followed by the creation of the triumvirate between KWV, SAB and Remgro with the restructuring of the liquor industry in 1979 and finally by KWV losing its legislative powers when converting to a company in 1997.
The SAWBC is expected to have four chambers, representing wholesale-merchants, labour, cellars and primary producers. There is jockeying in each chamber for the five seats to represent interest groups on the board, which is expected to be chaired by a non-industry representative.
It is against this background that KWV has launched a series of four producer-shareholder meetings as part of the consultative process, which could lead to splitting the two major components of KWV when it holds its AGM in October.
KWV chairman Lourens Jonker and his board have a tough task on their hands selling their proposal to split KWV. He recommended that the commercial entity fall under a new company, KWV Limited, to represent the present A share stakeholders.
The 'industry-political' wing would represent the interests of producer-members under a new name Wijngaard Co-operative, whose members are presently represented at industry level by KWV division VinPro.
KWV Limited will then focus its attention on profit building and representation through the wholesale-merchant chamber of the SAWBC and Wijngaard will do the same through the producer chamber.
Jonker proposed that KWV Limited finance Wijngaard's activities for a five-year period with a 'dowry' of R8 million a year, as well as 15% of its shares as a
"the single biggest risk factor in this exercise could result in a possible hostile take-over of KWV Limited"
He also cautioned that the single biggest risk factor in this exercise could result in a possible hostile take-over of KWV Limited.
Jonker faces stiff opposition from both sides of the spectrum. There are producer-members who feel too much is being given away and want KWV to retain a strong central control both at industry and commercial level, while others feel KWV is not going far enough with dispensing of its control mechanisms.
At a meeting in Stellenbosch last week, one of several KWV detractors, Pug Roux, an Olifants River farmer, who together with seven other wine farmer- businessmen quietly acquired more than 50 million KWV shares over a period of 18 months, said KWV was only half jumping over a ravine and not the whole way.
He argued that A share shareholders did not need the board to hold their hands and tell them what was good for them.
Roux declined to be drawn on the subject after the meeting, but other critics supported his views and said the proposals were ambiguous and there was no need for producers to be protected in KWV Limited, which did not provide a single service or function for the primary producer.
Another said the proposed control structures flew in the face of accepted and healthy corporate management principles and placed a serious damper on development and growth of KWV Limited as an international liquor company.
The proposed 'dowry' was also questioned in this regard because it would be an added burden to KWV, which had already forked out R70m to fund the South African Wine Industry Trust, as part of a R369m on agreement with the government in 1997. These payments worked on an inclining sliding scale and this year KWV's instalment was about R23m.
Magdel Plantema, who farms in Franschhoek, said she felt KWV was abandoning the very constituents who created and painstakingly built KWV.
She questioned why information had not been made available before hand so that shareholders could study it and offer informed questions.
"I'm for a progressive step forward - not for keeping people in business who don't deserve it - but it seems to me that KWV's actions to-date and proposed actions will result in the heritage, built up and paid for by producers, being given away and ending up in the hands of the few who can buy all the shares to hand.
"I don't believe KWV management is handling the assets built up by the farmers in the best interests of the latter and this will result in the destruction of the producer base. This is already happening and will have a negative long-term impact on the industry," she said.
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