The wine industry is calling on government to exercise sound judgement when announcing excise duties during the National Budget Speech on February 23.

Wine industry organisation Vinpro says that, in what may be one of their most expensive production years yet, South African wine grape farmers' and wineries' average expenditure at farm level could increase by up to 15%, compared with the ten-year average annual increase of 6.7%, with certain input costs expected to double.

"While there is great variation between the respective business models and each farm or cellar has its own set of challenges, the reality remains that the 2022 wine grape crop will, on average, be much more expensive to produce than previous crops," it states.

Wineries may also have to absorb a further nearly 15% increase in glass prices, as well as a double-digit hike in other costs related to packaging such as paper, cardboard, plastic, labels and closures, while price increases for wine will most likely move sideways or remain below 5%, as the industry is still working on reducing the wine surplus.

“The wine sector contributes R55-billion a year to gross domestic product and provides employment to more than 265 000 people. Wine businesses form the backbone of the economy and communities in the Western and Northern Cape, with 80% of the 529 wine cellars being small, medium-sized and microenterprises, most of whom are currently under severe financial strain,” says Vinpro MD Rico Basson.

In 2020, government earned R6.1-billion from excise and value-added tax, compared with wine producers’ gross income of R5.8-billion.

“All of these factors place an extreme burden on wine grape producers and wineries’ cash flow and financial sustainability, which, in turn, affects their ability to reinvest and keep their people employed. In light of the serious financial position in which our industry finds itself, we now need stability, policy certainty and support.

“The reality is that the consumer won’t necessarily be affected by excise increases, as retailers often don’t implement the full increase in their retail selling price, which, in turn, means that wineries and wine grape producers would need to absorb the remainder of the cost hike along with the other increases they are already facing,” he says.

The industry has also seen that an increase in excise duties, which increased by 8% in 2021, fuels illicit trade, which is already 22% of the domestic liquor market, instead of acting as a deterrent for those who do not consume wine in a responsible way, Basson points out.

“The key to South Africa and the wine industry emerging from the precarious position it finds itself in lies in reinvestment and sustainable growth. Now is the time for conducive policy decisions that will create an enabling environment to achieve this growth,” he emphasises.

“The wine sector was disproportionately affected by the Covid-19 lockdowns and, because the wine industry already complies with the excise incidence rate, we have made a formal submission whereby we requested and emphasised the dire need for special dispensation for the wine sector, including only a marginal adjustment in excise duties,” Basson adds.

“While the industry is slowly but surely recovering from the significant impact that domestic alcohol and travel bans had on our revenue streams, producers are simultaneously confronted with an exponential increase in input costs,” he says.

Further, Vinpro and its industry partners work closely with various government departments and a range of other stakeholders to address the challenges at ports, glass shortages, illicit trade, harm reduction and, more recently, the suggested electricity and minimum wage increases.

Vinpro and its industry partners have emphasised the plight of the South African wine industry in discussions with the National Treasury since last year.