VINOUS: Picturesque, healthy-looking wine farms in the Western Cape hide the reality that many of their owners are  battling to stay afloat
VINOUS: Picturesque, healthy-looking wine farms in the Western Cape hide the reality that many of their owners are battling to stay afloat

WINE farmers are struggling as high costs have slashed profits. Over the past seven years, total production costs have increased by 61% to R30582 a hectare, largely due to increases in the prices of fuel, electricity and water.

Net farming income fell from R1 per 750ml of wine in 2004 to 38c in 2011, according to a VinPro and Winetech report.

Yet this has not stopped people from wanting to own wine farms.

FNB CEO Michael Jordaan owns Bartinney.

Two of FirstRand's co-founders, GT Ferreira and Paul Harris, have farms in the Stellenbosch region - Tokara and Audacia.

Shoprite chairman Christo Wiese owns Lourensford and earlier this year sold Lanzerac to a foreign buyer, saying he was scaling down his farming to devote more time to his retail and other business interests.

Shoprite CEO Whitey Basson owns Klein DasBosch. The Rupert family owns L'Ormarins and La Motte Wine Estates. Babylonstoren is owned by Naspers CEO Koos Bekker and his wife, Karen Roos.

A report published in June said the wine industry has been under severe financial pressure for more than seven years and the wine grape supply is under threat.

Things might improve with this year's harvest, said Gert van Wyk, agricultural economist at Vinpro.

"How well farmers do depends largely on how big the harvest is, and on whether the wine can be sold.

"At higher production yields there is more profit to be made at lower price levels.

"Global oversupply of wine is easing and stock levels are more in balance with demand," which should have a positive effect on prices, he said.

A further decline in global wine stocks is expected, with more wine shifting to the distilling industry for the production of spirits.

The grape and wine crop harvest is forecast to increase by 7.1% this year to nearly 1.4million tons, while wine production is expected to grow by nearly 7% to 1.1billion gross litres, according to the latest estimates of the South African Wine Industry and Information Systems (SAWIS).

In the year until end-August, bulk wine exports jumped 26% and bottled wine exports decreased by 9.2%, SAWIS statistics show.

Overall, exports increased 7.4%. Domestic sales increased 4.3% in the year to end-July.

There are 3596 primary wine producers in the SA wine industry, down from 4515 in 1999, most of which sell their grapes to 54 producer cellars - compared with 69 in 1999.

Wine producers are surviving by diversifying into other farming activities and tourism, but at a long-term cost to the industry.

Farmers are not replacing vines as much as they need to.

Last year, only 2417ha of vine replacements and new plantings were realised, nearly 60% less than in 2004.

Over the past year, global vineyard surface has decreased, according to SAWIS.

Key wine-producing countries France, Italy and Spain decreased vineyard surface, while Portugal and Hungary managed to increase it, SAWIS said.

Farmers in some wine districts, notably Paarl, Stellenbosch and Malmesbury, have faced lower production yields than farmers in areas under irrigation, a VinPro report on costs noted.

The study showed Stellenbosch farmers face by far the highest expenses per hectare in the local industry, about 20% above the average.

*This article was first published in Sunday Times: Business Times