Vinpro's agricultural economists Gert van Wyk and Franco le Roux tracked the industry's production costs over the period 2004 to 2011. The study illustrated how the financial situation of producers had deteriorated over that time, and what had happened in the rest of the value chain.
The average retail price of wine, excise and cellar costs increased and even exceeded, in some instances, inflation for the period under review, they said.
However, the average price of bulk wines and producer cellar grape prices did not keep up with inflation, assuming negative levels in the case of non-producer cellar grape prices.
Production costs at farm level increased in line with inflation, despite drastic cutbacks in costs by producers.
Some producers cut costs to the bone because of cash flow problems, which could explain why the increase in production costs was less than expected.
As a guideline for economically sustainable production, Vinpro proposed that the average income and net farm income for the 2011 production year should have realised R47782 and R17200 per hectare respectively.
Over the past seven years the average income was consistently lower than the target income guidelines. "Producers are still in a cost-price squeeze and in some instances income has been less than the cost of grape production," the study found. The data suggested producers had "hardly any bargaining power".
As a result, the industry is becoming smaller, with bigger players buying out smaller ones. Van Wyk and Le Roux believe "a slightly smaller industry is likely to be a better industry".
Currently there are 3596 primary wine producers, compared to 4515 in 1999. Most of these deliver grapes to 54 producer cellars, compared to 69 in 1999.
Source: Business Day
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