2014 and beyond

Tuesday, December 10th, 2013

2013 proved to be a particularly good year, including a record harvest and record exports with a cold, wet winter laying a solid foundation for 2014. Favourable exchange rates and low 2012 production in the EU helped drive a 42% increase in exports for the 12 months to October 2013. Despite low international stocks, cost cutting in depressed export markets meant 67% of exports shipped in bulk with total exports expected to reach 500 million litres.
For the first time, Systembolaget issued three tenders requiring WIETA accreditation, while 2014 promises to be an important year for ethical trading as increasing numbers of export clients seek ethical compliance. As world leaders in ethical production, the Cape is well positioned to take advantage of this trend.

Although there is a return to growth in bottled exports, adding more value locally will be one of the significant challenges in 2014, particularly if the exchange rate becomes unfavourable. A larger 2013 harvest in the northern hemisphere will enable these countries to supply more of their own demand, which may impact on exports to Russia, France, Italy and Spain, which account for 20% of total exports.

Long-term brand building will be crucial in new market development and sustaining profitable margins. New markets with growth potential include the USA, Canada, Africa and China, with fresh opportunities for market-driven rather than production-driven producers.

The Cape is approaching a 50:50 split in red and white varieties but by 2016, white varieties will be the larger plantings. Red wine available for marketing will amount to approximately 280.6 million litres in 2014 and 278.1 million litres in 2018, an overall decrease of 0.9%. Cinsaut and Pinotage will be the only red varieties to record growth. Robertson will overtake Paarl and Stellenbosch in terms of availability of red wine in 2016/17.

White wine available for marketing will decrease from approximately 650 million litres in 2014 to 600 million litres in 2018. All white varieties will show negative growth, with the least by Chenin Blanc and Sauvignon Blanc.

Conservative forecasts see wine exports increasing annually by an average rate of 3.7% from 2014 until 2018. Volume growth for the period will amount to 64.8 million litres, comprising 14.6 million litres packaged wine and 50.2 million litres bulk wine.

Locally, increases in excise will have a negative impact on the industry’s ability to compete with beer and spirits. The possible ban on alcohol advertising also poses a threat to the industry and will bring about considerable job losses throughout the value chain.

Producers also face a 15% increase in input costs for the 2014 harvest as a result of increases in minimum wages, electricity and fuel. Producers will need to focus on cost management, increased productivity and aligning production with the specific price point, with a strong focus on quality.

Sources: Sawis and Vinpro

 – Jonathan Snashall