Nov 16, 2012
Bulk wine shipments impacting on local wine industryBack
Agriculture|Engineering|Africa|Environment|Export|Packaging|Rabobank|Sustainable|transport|Africa|Asia|Germany|Russia|South Africa|United Kingdom|United States|USD|Agribusiness Financial Services|Food|Logistics|Packaging|Products|Services|Solutions|Transportation Perspective|Environmental|Jimmy Manyi|Rico Basson|Su Birch|South Africa
© Reuse this
As global trade flows have changed over the past two decades, supply chain logistics have had to evolve accordingly and developing the ability to ship wine in bulk has had increasing implications for the way in which the wine industry operates.
The significant rise in bulk wine shipments, as opposed to bottled wine shipments, was a result, to some extent, of how the world’s major wine import markets had evolved over the past decade, food and agribusiness financial services provider Rabobank stated in January.
In South Africa, bulk wine is quickly gaining market share of total South African wine exports, with bulk wine pricing and producer gross margins remain low, highlights the financial services provider.
Bulk Export Implications
The move from bottled to bulk wine exports have significantly impacted on the attribution of value along the supply chain. Instead of generating most of the revenue at the source of production, a larger share of the packaging value and wholesale margin is now captured in the destination market, he says.
This shift equates to more than $1-billion in yearly revenue being generated at the destination market rather than at the source of production, notes Rabobank.
However, in cases where bulk wine is exported from South Africa and packaged overseas, but sold as imported South African wine, the advantage is that the wine keeps its South African identity, says Basson.
Strategic decisions in terms of exporting bulk wine, such as setting up bottling plants in foreign countries, have been taken by South African wine producers. This is advantageous from an environmental and transportation perspective, as this can be financially profitable.
Nonprofit industry organisation Wines Of South Africa (Wosa) CEO Su Birch agrees, adding that the strategy to bottle wine in the destination country increases the competitiveness of exporters.
South Africa is located far from the main markets and expensive transport costs have a significant impact on the decision to export the wine, either bottled or in bulk, says Basson.
Basson notes that the local industry remains focused on exporting quality products and retaining the South African identity of its wines.
However, selling bulk wine at more affordable prices has often been a necessity for many producers, as wine has been in abundant supply globally between 2004 and 2010, driven first by a series of large global harvests that started in 2004 and then by declining consumption during the global recession that started in 2008.
For a brand owner in this situation, shipping wine in bulk reduces transportation, glass and bottling costs, import duties, working capital and even foreign exchange exposure, owing to the cost of packaging being conducted in the destination market currency, notes Rabobank.
Meanwhile, Basson says there have been several bulk export contracts at good profit margins for new developing wine markets, like Russia.
However, the negative effects of bulk wine exports are the job losses in the up-and downstream industries and its effect on the economy. This also results in lower foreign revenue earnings, as bulk exports have a lower total value than that of the packaged product.
The South African wine industry loses about 107 jobs for every ten-million litres of bulk rather than bottled wine exported, says Birch.
Basson states that this is a concern, as the wine industry is one of South African agriculture’s largest employers with 65 000 farm and cellar workers and an additional 205 000 jobs created through- out the value chain.
The sector’s ability to retain and fulfil its role of employment, however, will largely be driven by financial profitability and revenue growth through sales and a partnership with government through the creation of a friendlier regulatory environment.
“The trend to export in bulk, although continuing at a lower rate, will most likely continue into the future and will be part of the global export strategy of wine- producing countries.
“The local industry must ensure that it partners with government to ensure market development through free trade agreements, local capital expenditure programmes, a more friendly legislative environment, labour law, excise duties and tax,” says Basson.
Further, Wosa affirms government’s acknowledgement of the threat of bulk wine sales on the industry and welcomes its support and initiatives to assist the industry to be more competitive and profitable, adding more value and jobs.
To reduce the impact of bulk wine exports, Cabinet has decided to embark on numerous interventions.
Engineering News reported in August that former Cabinet spokesperson Jimmy Manyi said it planned to implement a five-year strategy to assist in placing the industry on a sustainable growth trajectory, a programme to reduce the environ- mental cost of producing wine in South Africa and a consumer awareness programme to improve consumers’ under- standing of the holistic environmental indicators.
Wosa says that, to stay cost competitive, bulk wine exports – which totalled 172.6-million litres in 2011 out of a total of 357.4-million litres exported – are a means to retain South African wine pro- ducers’ competitiveness and that the solution lies in continuing to diversify into new markets, such as in the rest of Africa, the US and especially in Asia, where the country can sell more premium wine.
Edited by: Chanel de Bruyn© Reuse this Comment Guidelines (150 word limit)
Creamer Media Senior Deputy Editor Online
Other Brewery and Winery News
Corrosion protection, epoxy flooring and waterproofing company Verni Speciality Construction Products, has provided a brewery in Botswana with a heavy duty flooring system to assist in maintaining hygenic conditions. The Supaflor PU HD 6 mm polyurethane screed, that...
Western Cape-based brewery Cape Brewing Company (CBC) has, with the help of renewable-energy company E3 Energy Group of Companies (E3), produced what it says is South Africa’s first commercially available green beer, using water heated by the sun. The beer-brewing...
Updated 3 hours ago Construction company Murray & Roberts (M&R) on Tuesday said board members Mahlape Sello and Royden Vice would be excluded from any discussion and documents relating to the investigation of the October collapse of a support structure of a pedestrian bridge being built...
Updated 3 hours ago The Nuclear Industry Association of South Africa (Niasa) is not sitting by idly while National Treasury and the Department of Energy mull over the various options for the country’s controversial 9 600 MW nuclear build programme. While Energy Minister Tina...
Updated 3 hours ago While a resurgence in manufacturing in Africa has been popularly touted as the silver bullet that will accelerate the continent’s economic growth prospects, The Economist management editor and columnist Adrian Wooldridge has suggested that Africa’s industrial...
Recent Research Reports
Water 2015: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2015 Report considers the aforementioned issues, not only in the South African context but also in the African and global context in terms of supply and demand, water stress and insecurity, and access to water and sanitation, besides others.
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
This Week's Magazine
The BMW Group will invest R6-billion at BMW Group South Africa’s (BMW SA’s) Rosslyn plant to produce the next-generation X3 sports-activity vehicle (SAV) for the local and export markets. Rosslyn will continue production of the current 3 Series through its lifecycle,...
The lack of consequences for poor performance and transgressions on the part of contractors remains a significant hurdle to tackling South Africa’s service delivery challenges, delegates heard at the Consulting Engineers South Africa Infrastructure Indaba, on...
City of Ekurhuleni executive mayor Mondli Gungubele earlier this month officially named the city’s bus rapid transit (BRT) system, Harambee.
About 58% of unstructured data stored by companies is dark data, which means that the value or regulatory importance of the data has not been determined. Subsequently, most of the stored data add costs, rather than increasing revenue or reduce regulatory risks, says...
Effective logistics, import/export and manufacturing consulting services require detailed industry knowledge and experience, but can add significant value to these industries by providing expert advice on various technical elements in their value chains, says...
Next ArticleCraft beer ecommerce website offers more