South Africa’s embattled wine industry could lose an estimated R1.5bn worth of stock as it runs out of space to store excess wine.
The new harvest is starting amid the alcohol sales ban, threatening the financial viability of one of the biggest employers in the Western Cape. The liquor industry is suffering a third alcohol sales ban after 12 weeks of restrictions in 2020. President Cyril Ramaphosa announced the ban towards the end of December.
The ban is intended to reduce the number of trauma patients in hospitals so that health workers can better cope with the second wave of Covid-19 infections. There are 640-million litres of wine in tanks and barrels, about double what the industry normally keeps in storage.
Wanda Augustyn, spokesperson for industry body Vinpro, said it had the highest stock levels in its 360-year history with less than a week before the 2021 harvest commences. Wine is bottled on demand. Distell, the producer of Nederburg Wines and Durbanville Hill wines, estimates that the new harvest starting in a week or two could produce up to a billion litres of wine.
Distell global supply chain manager Johan van Zyl estimates that if the third ban is not lifted by mid-February, initially about 250-million litres of wine could go to waste, which he estimated to be worth R1.5bn.
Van Zyl, while acknowledging that the country faced a medical emergency, explained that if the ban results in a weaker harvest, it would not only be a short-term problem.
"I do think it’s going to cause medium- to long-term problems for marginal producers that will likely go out of business if they don’t get bridging finance and support. And that, of course, is not positive for the industry as a whole."
Vinpro has calculated the existing alcohol sales ban has added 45-million litres of wine to the excess stock.
Excess stock means wine farmers will struggle to sell grapes to producers.
‘Living’ product
Another difficulty facing the wine industry is that production cannot be stopped on demand as it works with a "living" product, with set processes that need to be followed, said Boyce Lloyd, CEO of Distell rival KWV.
Harvest time was also the most cash-intensive time of year, yet producers that could not sell alcohol were struggling to pay farmers who needed cash to employ labourers. Even though excess wine could be sold cheaply abroad or distilled into spirits, industry experts warned that any losses in this year’s harvest could be the death knell to parts of the industry already facing cash flow difficulties and high debt.
The wine industry, which employs 350,000 people directly and indirectly, is still reeling from drought in recent years and a loss of sales from lockdown bans in 2020. It has also lost a significant revenue stream as foreign tourists have stayed away from the Cape winelands since March.
Vinpro estimated in 2020 the possible closure of 60 to 80 wineries and job losses of 22,000 and "the current ban will add to this", said Augustyn.
"A significant number of our wineries are extremely small in terms of turnover and rely on direct sales from the farms to tourists," she explained. She said 75% of the 533 wineries have a turnover of less than R10m a year and their sustainability was at risk.
The SA liquor industry has asked the National Treasury to allow it to defer paying sales tax that is paid when alcohol is produced, to help with liquidity issues and financial difficulties. The Treasury is considering the request.
Van Zyl said the industry was quite fortunate that the wine harvest was about two weeks later than expected because of cooler-than-expected temperatures in December.
But the ban had affected production and planning.
"There is quite an intricate and involved planning cycle."
Lloyd described the sales ban as not knowing how long to keep one’s head under water.
"How on earth do you plan for the viability of your business when you don’t have an end date?"
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