Due to the strengthening of the South African Rand, Cape wineries are expected to find it prohibitively difficult to operate in the £3 equivalent category in the UK and European markets.
Over the past year the currency has regained most of the ground it lost to British Sterling, the Euro and the Dollar. This has put incredible pressure on margins at all levels, but particularly at the lower end of the spectrum.
In December 2001, the South African currency crumbled under pressure from foreign currencies, foreign markets and trading chaos on the local stock exchange. This saw the bottom fall out of the Rand, which went from about R11 to £1 to almost R20 to £1.
The Rand is today sitting at R12.50, as talk of war in Iraq, as well as South Africa’s sound fiscal policies help the Rand recover.
This closed the exporting window of opportunity. The high quality constraints placed on exporters by the South African Wine and Spirit Board, which provides export approval, as well as increased operating and shipping costs have made it exorbitantly expensive to sell into the lower end of the UK and European markets.
Wines of South Africa CEO, Su Birch, said it was expected that marginal players in the field might be forced out and that consolidation could take place. She said it was imperative that Cape wines traded up and this could be the incentive to do so.
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