While the wine and brandy industry is still reeling from the impacts of Covid-19, and a few challenges are poised to persist into the future, industry body South Africa Wine (SA Wine) says the tide is indeed turning and conditions are slowly looking up.

SA Wine CEO Rico Basson says the local wine and brandy industry now needs to unlock greater value for the industry with the right product, including by identifying long-term business partners, attracting investment, prioritising improved bottled and bulk wine prices and building further on premiumisation.

His comments follow a presentation by non-profit research organisation Bureau for Food and Agricultural Policy (BFAP) on its outlook for the sector over 2023 to 2032, which finds that many challenges have hampered wine sales over the past year.

These challenges, on a global level, include high inflation, the energy crisis as a result of the Ukraine war, and persistent supply chain disruption, coupled with local factors of loadshedding, high input costs, limited government support and inefficient logistics.

Moreover, consumer demand has been dampened by the need to spend cautiously in the high-cost macroeconomic environment.

BFAP reports the area under wine grapes fell below 90 000 ha in 2022 for the first time since 1998, owing to a cycle of well-below-average return on investment for producers. The organisation finds that 49% of wine grape producers are making low profit or are breaking even, while 39% are lossmaking.

However, BFAP expects the area decline of wine grapes to bottom out by 2025, as prices rise in response to reduced volumes in the market.

Notably, stock levels have reduced substantially to an acceptable level as of 2022, following a sharp increase in inventories in 2020 and 2021, owing to the lack of trade during Covid-19 alcohol bans and disruptions.

Amid the ongoing attempts to clear stocks and rebalance the market, a far higher than ideal portion of wine was exported in bulk format in 2022, BFAP states.

Domestic consumption has since been recovering to levels similar to 2017, but the market remains constrained from a value perspective, since consumers are under pressure to manage their spending.

BFAP expects wine sales to remain largely dominated by low- and entry-level priced wines, with only some movement towards higher-value categories.

Moreover, industry body Wines of South Africa (WoSA) CEO Siobhan Thompson says the industry has been focused on driving premiumisation of South African wine, and ensuring it becomes recognised globally as premium quality, exciting and distinctive.

WoSA serves to promote the exports of all South African wine in key international markets and represents all South African producers of wine who export their products. In turn, SA Wine was established early in 2023 to represent the interests of both producers and trade, as well as consolidate some of the various wine industry bodies.

While premium-priced wine made up 17% of the wine categorised in 2022, it is projected that this proportion will rise to 20% of domestic consumption by 2032.

Given the higher projected prices owing to a possible production volume decline, Thompson urges the industry to strongly focus on extracting higher returns per unit of sales.

BFAP commodity markets director Dr Tracy Davids agrees, saying that a higher price forecast should urge the industry to unlock more value by investing in new vineyards. “As stock levels are projected to drop below historic longer-term averages, the increase in nominal prices, together with the increase in farm-level risks in some of the fruit industries, could instigate a selective swing back towards wine grapes.”

However, she adds that the same exchange rate movements that favoured wine export returns in 2021 and 2022 also exacerbate increases in input costs in grape production, and therefore the industry has continued uprooting more vineyards that it established in 2022.

Davids, Basson and Thompson agree that the industry is looking up, but continued effort will be necessary to ensure the sustainability of the industry.

“Unless farm gate returns improve, wine grape producers who are not vertically integrated into the value chain will continue to either uproot without replacement, replace aging vineyards with higher-yielding cultivars or investigate opportunities to vertically integrate beyond the farm gate,” she explains.