Ahead of the start of the new harvest next month, South African wine producers are still stuck with a massive glut of unsold wine in the country.
The lengthy freeze on sales at home and ban on exporting during the first phase of lockdown, have left South African wine producers with surplus stock of 280-million to 300-million litres, says Daneel Rossouw, Nedbank’s divisional manager of agriculture in the southern part of South Africa.
To put this is in context, total wine sales in South Africa came to 288-million litres in the year to October.
Local sales in that period were 21% less than in the previous year, according to new data from industry body SA Wine Industry Information and Systems (Sawis), as reported by Netwerk24.
Demand for South African wines from overseas was also not enough to pick up the slack.
European demand is stable but definitely not growing like in the past to restore the balance in South Africa's stock levels, says Philip Retief, CEO of Van Loveren Vineyards. The continent now has its own large surplus after it had a bumper season of its own and Covid effectively cancelled its tourism season, hitting demand.
The glut of wine in the local market is already putting pressure on prices. Retief expects consumers will see wine getting only cheaper in the coming year. Boxed wine prices will see steep falls, and there should be a shift from other alcohol, particular from beer and spirits, towards wine as it becomes comparatively less expensive.
At these low prices, wine producers should be able to shift the 2020 surplus next year – but the big question is what will happen to the 2021 harvest, Retief says.
He expects that a larger portion of the white grape harvest will go to juice manufacturers, but at “unsustainable” prices, some 40% lower than what they could get for wine.
Some of the alcohol could also go towards industrial manufacturing, in particular to make hand sanitiser and other cleaning products – again at prices that will not save wine producers, he adds.
But while demand from Europe for SA wine may not help to mop up the local surplus, there is some hope pinned on China.
Last month, China slapped import tariffs of between 107% and 212% on Australian wines as part of a tense – and growing – trade war between the countries. Australia is the largest wine exporter to China, and local industry players believe that this will give SA wines a gap.
“With Australian wines now subject to provisional export tariffs in China, ripe opportunity exists for South African wines to grow beyond their 1% market share in this market,” says Rossouw. “There are also prospects in emerging markets in Africa and demand from retailers abroad, while the weak exchange rate makes our exports more appealing and increases profitability.
But these prospect will not save many wine producers, and industry organisation Vinpro estimates that 80 wineries and 350 growing groups could exit the industry in the next 18 months.
“Smaller wineries that rely on wine tourism for cellar door sales and income as wedding venues and accommodation have been hit hard by global travel bans, and an estimated 20 000 jobs are at risk,” Rossouw says.