To dump or not to dump? Tough choice for wine industry

The wine industry is bleeding jobs and many cellars are still full of unsold stock due to the Covid-19 bans on alcohol sales. With the new harvest season starting, wineries are facing some unattractive options. Dumping millions of litres of wine is the last resort, say industry insiders

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While the ban on alcohol sales persists wine producers and growers are scrambling to avoid the possibility of dumping 250 million litres of uncontracted wine to make room for the new harvest.

Wine industry body Vinpro issued an ultimatum to Government yesterday (27 January) to lift the ban by 5 February or brace themselves for a court battle. The indefinite ban, the third since the start of the Covid-19 lockdowns last year, is threatening 27 000 jobs in the industry, Vinpro managing director Rico Basson says.

Producers and wineries are at an impasse faced with the decision to either dump wine or leave vines to rot, suggest senior winemaker at Robertson Wineries, Francois Weich.

Wine is the third biggest export product of the Western Cape economy and contributes 6,5% to the value of exports from the Province.

Senior winemaker at Robertson Wineries, Francois Weich. Photo: Robertson Winery

“Some people won’t be able to take in all the grapes from the vines this season,” says Weich.

“Mostly small-scale producers you find in the Stellenbosch areas have been affected and impacted severely by the ban on alcohol sale. These are producers whose businesses are dependent on the restaurant industry and from the farm grounds itself.”

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Wine grapes represent 50,3% of 181 233 hectares of fruit produced in the province and have a replacement value over R 30 million.

To dump or not to dump?

Dumping stock of 250 million to make room for the new harvest is a last resort for wine producers, says Vinpro spokesperson, Wanda Augustyn.

Wanda Augustyn, media and communications manager at Vinpro
Wanda Augustyn, media and communications manager at Vinpro. Photo: Supplied

“Slower-moving stock, cash-flow challenges, additional bridging finance that comes at a cost and asking additional collateral will all put a huge amount of strain on the sustainability of the wine industry.

“Solutions would be to increase our exports or deliver grapes for grape concentrate which is not ideal due to lower prices. Producers will have to make tough decisions in the vineyards with cellar capacity filled to the max,” she suggests.

“Dumping stock would be the last option for any wine farmer or cellar. Larger cellars are making plans to rent additional capacity, allocate a portion to grape juice concentrate and lowering prices; not an ideal option, but a balanced approach,” Augustyn adds.

Larger producers of wine like Robertson Winery and Boland Cellars currently have contingency plans in place to weather the crisis.

Boland Cellars have been able to utilise a reasonable amount of uncontracted stock despite the local ban on alcohol sales explains, chief executive officer, Heini Smit.

“Most of the finished products were destined for export purposes. We still provide approximately 3 million litres additional stock to carry over to next year compared to other years, but we have contracted sufficient storage capacity. This enables us to continue with a normal 2021 harvest.”

Stellenbosch Hills winemaker, James Osche. Photo: Stellenbosch Hills

Meanwhile smaller producers say that it is a “shell game” dealing with excess wine stock.

“We are moving it (stock) around a bit just to get it out of critical areas where we normally take in (the new harvest), but it’s going to be some juggling on our part and definitely interesting going forward,” says Stellenbosch Hills winemaker, James Osche.

Osche adds that Stellenbosch Hills has not taken the decision to dump stocks.

“We were fortunate enough to have one or two export orders that came through, most of our bulk wine was already contracted before the harvest started.

He says they anticipated the wine glut caused by the sales bans in 2020 and prepared for it. They advised their grape farmers to take the opportunity to pull out any underperforming or old vineyards.

The general manager of Bartinney wines, Brian Cluver, says that wines in the cellar have been sold out before the harvest.

“We are a much smaller producer and can manage. We have more of a direct-to-consumer business model. We have been able to still sell wine online but only deliver afterwards.”

A major adjustment has been the halting of revenue in their business with restaurants, wine bars and their own tasting room.

“We have obviously lost the revenue that channel would normally deliver. It’s been devastating to the industry, but we are managing it easier because we are a smaller business,” says Cluver.

Open, Sesame?

With the number of Covid-19 cases declining, the South African Liquor Brandowners’ association (Salba) has urged government to be transparent about its justification over the continued ban on the sale of alcohol.

Sibani Mngadi, chairman of the South African Liquor Brandowners Association (SALBA). Photo: Twitter
Sibani Mngadi, chairman of the South African Liquor Brandowners Association. Photo: Twitter

“Government justified the current alcohol ban based on the projected rise in new Covid-19 cases. With the current downward trend in the number of new cases and a recovery rate of 87,6%, Government must explain why the current alcohol ban continues with no end date in sight,” says Salba chairperson Sibani Mngadi.

“No Government ministry is taking responsibility to explain to the public and the industry what justifies the continued ban, and what would be the basis and timeline for a review of this ban. This lack of transparency and accountability from Government is forcing major companies in the sector into further cost-cutting measures, which means more job losses,” says Mngadi.

Meanwhile in a bid to save bleeding jobs in the alcohol industry the Western Cape department of agriculture has argued that the decline is a clear indication that restrictions should be relaxed to aid the nearly decimated industry.

The Department estimates that 45 610 people work in the industry’s primary production side and supports the livelihoods of 228 053 people.

Wine sales should be allowed in line with the “differentiated approach” envisaged in Ramaphosa’s 14 December 2020 address, Western Cape minister of agriculture, Dr Ivan Meyer, says.

“We cannot be putting even more pressure on this battling sector. We must be doing everything possible to help them grow and employ more people,” says Meyer in a news release.

“Our research also shows that the first two weeks of the ban cost the Western Cape R1 billion. This has impacted 1893 direct jobs in the retail sector and 905 induced and indirect jobs across the value chain resulting in 2798 jobs being compromised.

Dr Ivan Meyer, the Western Cape minister of agriculture. Photo: Supplied
Dr Ivan Meyer, the Western Cape minister of agriculture. Photo: Supplied

“If the ban continues for the full month, which it now seems likely to do, it will end up costing the economy R2 billion, impacting 5 596 jobs in our province,” Meyer adds.

Job losses have impacted the entire industry.

According to Salba, Heineken reduced its staff by 7%, and South African Breweries suspended the contracts of 550 workers while Distell reduced its contract staff by 220 this week.

The industry has requested a deferment of excise liabilities to which Government has not formally responded.

“Alcohol excise tax contribution to the government has declined by more than 28% from R47 billion in 2019/20 to R34 billion in 2020/21. This R13 billion loss in alcohol tax revenue could have easily compensated for the investment needed in the procurement of vaccines and other measures needed to curb the impact of Covid-19 on our society,” says Mngadi.

Mngadi says the only beneficiaries of the current ban are illicit alcohol smugglers charging consumers exorbitant prices, robbing both the industry and Government of much-needed sales and tax revenue.

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