Why South Africa is struggling to make ends meet
The wine industry is evolving fast and competition is ruthless. One country particularly meddling the storm is South-Africa.
South Africa: known for its crisp white wines and beautiful wineries. Viticulture is historically engrained, dating back from as early as 1652. With ups & downs throughout the ages, SA has secured a permanent position on the international playing field.
But the South African wine industry is struggling. Only 1 in 5 producers are making a profit. About half is operating around break-even. With an industry average ROI under 2% (!), it is evident that this market is struggling to make ends meet.
Rising overall production costs increase the break-even point for SA farmers. Whilst farmers have been able to mitigate this increase by upping the yields, the ageing vineyards show signs of stagnation.
Years of minuscule, or even non-existent, margins leave no room for vineyard renewal. Hence the general state of the vineyards is becoming more and more outdated. The result: decreasing yields, which adds again to the increasing break-even point. A vicious cycle that is very difficult to put to a halt.
These issues have resulted in a decrease in number of farmers by 25% over the past years. Unforeseen challenges such as extreme drought (2018) prove to put numerous farmers over the edge of bankruptcy. With data regarding the corona crisis of 2020 (don’t forget SA has been one of the only countries in the world that has imposed full prohibition as a mitigating measure) still due, it remains to be seen how they will survive this – yet another – crisis.
Governmental efforts to mitigate the impact include;
- Industry consolidation
- Push for wine tourism
- Business model restructuring