Lockdown level 3: SA wine prices set to drop

The covid-19 pandemic has seen the demand for South Africa’s wine across the world decrease significantly, say players in the local wine industry. 

The consumption of wines in restaurants across the world has decreased by about 30% as countries start emerging from coronavirus lockdowns. Bulk wine producers are trying their best to make sales, but many of them are forced to sell wines at discounted prices.  

The prices of Spanish wines have dropped to as little as R5.30 a litre, which is already 20% lower than what South African bulk producers were receiving last year, says Abrie Beeslaar, head winemaker of Kanonkop Wine Estates, a premium red wine producer in Stellenbosch in the Western Cape. 

Lower sales volumes, together with a potential cut on the selling price, will have an impact on the producers and their cash flow, which will lead to financial difficulties. This might be their reality for two or more seasons. 

According to Beeslaar this will have a disastrous impact on the wine export industry.  If the demand for wine from international markets is low, bulk wine exporters will make less money and they will pay their farmers less. This will trickle down all the way to root level and farm workers will also be paid less. 

Wine producers have also not been able sell their wine to the local market due to the ban of alcohol sales during the lockdown. Wine producers lose R300 million each week from not making sales. 

Christo Conradie, manager of wine cellars, agricultural economy and tourism at wine producers’ industry body Vinpro, tells Food For Mzansi that it is still “early days” to determine the impact of the alcohol ban on the local market. However, the next couple of months will determine the real outcome.  

Conradie says that nobody will sell wine at a loss, but margins might be squeezed. It all depends on each business model and will differ from winery to winery. 

Beeslaar says wine producers in areas with high production and high yields will probably still make some money. However, in areas where people have smaller yields there is a possibility that they will not make any money.  

He explains that wine farmers and wineries are more likely to become bankrupt. In the past 10 years Stellenbosch vineyard areas have shrunk by 17% and this is likely to increase. He also expects more farmers to change from grape farming to more profitable crops, like citrus or berries.    

Producers who export to international markets won’t feel the impact as harshly as local producers, he predicts. 

Beyers Truter, winemaker at Beyerskloof in Stellenbosch, explains that wine producers are not going to get the income that they really need to build the new market and their farms. This would be essential for the success of their businesses, because wine producers need to reinvest, replant and hire workers to expand their businesses.  

“We will probably have to sell [wine] under-priced or at a discounted price but not everybody [in the industry]. Which will have a negative impact on the market, on our workers,” he says.  

Truter says producers who focus on the local market are helpless in the face of the lockdown. They have no income and although they can still pay the wages of their employees, if the local ban on alcohol continues for too long, many farmers will be forced to put their farms on the market. 

 “We are trying to see how much the government will be willing to help the wine industry. But everyone is just tightening their belts and trying to limit the damage rather than having major strategies,” says Beeslaar. 

“What people are already doing is cutting down prices. You will see a lot of producers giving specials and discounts just to keep the cash flow going. I think that is going to be our biggest challenge. A lot of places have gone and cut prices. You will definitely see people interacting more with the market to try and see how we can get just the consumers involved in helping,” he says.