The year of the pandemic tipped the Cape wine industry into the crisis it had been skirting for several years.
The ban on domestic wine sales wiped out 40% of the trading year. A complete prohibition on exports during lockdown level 5 cost about 80 million litres of sales. Restrictions affecting the hospitality sector caused restaurants to be unable to trade; the number of foreign visitors slowed to a trickle. By mid-2020 the volume of uncontracted bulk inventory in the industry added up to almost 300 million litres.
There are two separate components to this surplus: fruit and fluid. The Cape wine industry comprises about 2,700 grape growers, about 540 wineries and just more than 120 bulk wine buyers. The ratio of growers to crush facilities is about five to one: about 80% of those who produce grapes are entirely dependent on those who transform them into wine. Crush cellars can only accept fruit if the bulk buyers have been purchasing wine. To the extent that unsold inventory from 2020 is still sitting in their tanks, there is a real limitation to the percentage of the 2021 harvest they can process.
The industry must premiumise: in a race to the bottom, the lowest-cost production areas will usurp demand and accelerate the demise of the regions that serve as magnets for international tourism.
The number of growers has been shrinking for many years. There were almost 5,000 of them in 1990, when the industry was managed by the KWV and grape prices were guaranteed. The loss of more than 2,000 of their number cannot be blamed on the lockdowns. Nor can prohibition alone explain the full extent of the uncontracted stock.
Exports peaked in 2013 at 525 million litres. As recently as 2017 they were still a solid 448 million. However, in 2019 — a year before the word “Covid” had even entered our vocabulary — exports had dropped to 319 million litres. 2020 wasn’t the year to reverse this volume loss. In fact, remarkably, final numbers for last year were much the same as 2019. Under the circumstances this should count as an achievement. It’s just possible that without the restrictions the industry might have shipped about 400 million litres.
But this is still a far cry from the 525 million of 2013. To make matters worse, yields have been increasing. Until 20 years ago a big crop for the country was about a million tons. But in the past decade the average has been more than 1.3 million tons — despite less area under vine and a precipitate decline in the number of growers. This has been achieved partly by a northerly migration of industrialised fruit producers profiting from the higher yields and lower farming costs achievable in the irrigation lands of the interior.
Strategic withdrawal
The domestic market is not absorbing this surplus: on the contrary, for the past few years it has been shrinking at a rate of 5-10% annually. In 2017 the local market bought 435 million litres and exports ticked over at 448 million litres, a good balancing act with a crop of 918 million litres. Now, with the drought over, the brandy market in decline, exports shrinking and the local market under pressure, a real surplus was inevitable — even without the lockdowns.
Last year Distell, the country’s largest wine and spirits producer, signalled a strategic withdrawal from the fine wine industry, narrowing its focus to its high-volume brands and streamlining its deluxe wine operations. Commodity wine is more easily managed, and the raw material for its production can come from the regions where yields have been increasing. The areas where the growers are most under pressure are around Cape Town itself.
Is DGB — the next biggest company in terms of size of operations — likely to take up the mantle of industry leadership? Since its acquisition of Boschendal more than a decade ago DGB has shifted its focus closer to the apex of the pyramid. It now owns four production cellars — Boschendal, Bellingham, Franschhoek and Fryers Cove — as well as a blending cellar in Wellington.
The company’s model involves a combination of own sites and sourcing grapes from contracted vineyards managed by its own viticulturists. In pursuit of cool climate fruit it owns an estate in Elgin, and is now funding a development in a new high-altitude wine region, the Koo plateau. In October 2020 it also acquired the Fryers Cove vineyards, a mere 500m from the cold Atlantic.
It maintains contracts with 59 farms, covering more than 400 vineyard blocks. Increasingly its production strategies reflect the technical expectations of the high-end international trade: natural ferments, clay amphorae, whole bunch fermentations, vegan and organically certified products, low total sulphites. It exports to more than 80 countries, with sales teams resident in 10 of them.
But the real question is — will this make a difference? A dedicated quality producer with the muscle and commitment to make fine wine in meaningful quantities is an important beacon for the beleaguered industry. However, it cannot single-handedly arrest the decline of the premium wine regions. Between 2009 and 2019 Stellenbosch and Paarl each shed more than 10% of their total plantings. In 2019 Stellenbosch replanted 66ha of cabernet vineyard and uprooted 97.
Salvation can only come from a number of successful simultaneous initiatives. The industry must premiumise: in a race to the bottom, the lowest-cost production areas will usurp demand and accelerate the demise of the regions that serve as magnets for international tourism. It also needs to persuade local wine drinkers who can afford to support producers in these showcase appellations to step up and do so. If they don’t they will get the plonk they deserve.
The department of trade, industry and competition should fast-track trade agreements with wine-consuming nations. Before last November’s meltdown between Beijing and Canberra the Australian wine exports to China trebled — off an already large base — in less than five years, thanks to the free-trade agreement. Instead of prescribing what clothes we can buy during lockdown, the department should be negotiating for SA to replace Australia as China’s most favoured wine supplier.
The state, which so far has done nothing to assist an industry that plays a role in foreign income generation, should support those parts of the industry that earn hard currency, namely high-end exports and well-heeled tourists. This doesn’t mean the type of subsidies it hands out so generously to the steel industry and poultry producers. Performance-based tax breaks for sustainable reinvestment in properties that are part of the major wine routes would make a good start.
• Fridjhon is an international wine judge and writer.
