South African wine grape producers’ financial viability is looking up following a long downward cycle.
According to a research report released by the wine industry body Vinpro, the average South African wine grape producer earned a net farming income of R20617 per hectare last year, 37 percent higher than in 2018.
Although the average production costs, which include cash expenditure and provision for replacement, were 7percent higher than in 2018 at R51821/ha, the gross farming income increased by 14percent to R72439/ha.
Vinpro’s agricultural economist Pierre-André Rabie said: “The wine industry is cyclical and the wheel is turning; in some areas just faster than others. It is encouraging that higher prices have helped improve the profitability of the average producer and although there were really great achievers in most regions, we also saw producers across the industry who continue to experience financial pressure.”
A total of 260 wine grape producers participated in the 2019 survey, which represented close to 27percent of the total area under vines and 26percent of the country’s total wine grape production.
It found that 28percent survey participants made a profit last year, compared with only 15percent in 2015.
Rabie said the industry’s average return on investment also increased during this period from less than 1percent in 2015 to 4.83percent in last year’s harvest.
He noted producers in the majority of the regions received higher prices for their grapes, however, when taking real price inflation over time into consideration, producers would have to continue to receive good prices for some time before vineyard replacement could really commence.
“Total plantings will probably decrease by a further 5000ha to 7000ha before the area under vines starts stabilising.”
Rabie added an ageing area under vines and accompanying lower production levels could be a cause for concern for brand owners.
It was the first time in 16 years that vines younger than three years made up less than 10percent of the vines.
About 20 percent of participants’ vineyards were older than 20 years, a first since 2003.
“Improved farm gate prices definitely contributed to producers being able to maintain production in struggling vineyards, but some vineyards are just too old and we might see significant shortages in certain varieties over the next few years,” noted Rabie.
According to Vinpro’s second crop estimate for this year, a larger harvest was expected as sufficient water and a moderate ripening period had helped to improve yields, which were set to top last year’s 1.244million tons.’ -BusinessReport