Introduction
Between 1924 and 1997, the South African wine industry was subject to detailed statutory regulation. The Koöperatieve Wijnbouwers Vereniging van Zuid-Afrika (KWV)1 set the (minimum) prices for both distilling wine and ‘good wine’, set quotas on production, and removed the ‘surplus’. Production was characterised by high yields, volume over quality, and a strong bias towards the production of brandy and other spirits and fortified wines.
The KWV also had a quasi-export monopoly. This meant that the industry's exports were known for low-priced ‘South African sherry’ and ‘KWV brandy’. Although individual wine cellars and labels won medals at international wine expos, wine from the Cape passed as a characterless product and hardly featured on overseas shelves.
These comfortable arrangements fell apart step by step from the early 1990s onwards. There were several reasons behind deregulation – ranging from resistance by estate cellars and ‘producing wholesalers’ to pre-emptive moves to avoid regulation by a future black, post-apartheid government.
Although not all wine farmers willingly embraced deregulation, most were won over by the arguments and started to prepare themselves for the new market-driven ‘environment’. Wine farmers and cellars were won over not only because the whole system had become untenable, but also because the new situation, and specifically export markets, held out the promise of new opportunities.
However, after the first forays into overseas markets, most cellars soon realised that competition was stiff and that they had to improve their product if they wanted to stand any chance of selling their wine outside a limited and stagnant domestic market. As a result, estates, private cellars and co-operatives alike embarked on a thorough process of modernisation and ‘upgrading’ (Ponte and Ewert 2009).
Although this process has been uneven, we argue that on balance, there have been more gains than losses. Almost all growth, including employment, has come from exports which now stand at almost 50% of total production. None of this would have happened if growers and cellars had not been free to learn, experiment and innovate.
A better product, increased sales and revenue were only possible, because in a world without subsidies or protection, growers and cellars alike were forced to rely on their own resources. It is perhaps for this reason that the South African wine industry has been more successful than certain parts of the ‘old’ wine world (e.g. Languedoc-Roussillon), where access to international markets has never been an obstacle, but where the reliance on the regulation regime continues to act as a brake on renewal and competitiveness (Touzard and Draperi 2003).
From regulation to market
Given its domestic orientation and isolation for the most part of the twentieth century, South Africa is seen as a new player in international wine markets. However, calling it a ‘New World’ wine country is not entirely correct, because the first vineyards were planted in the Cape peninsula by Dutch settlers as early as 1655 and became the most important industry in the colony during the rule of the United Dutch East India Company. Between 1815 and 1825, supported by favourable British import tariffs and until his death some help from Napoleon on St Helena, wine was three-quarters of the exports from the colony (Van Zyl 1975, pp. 123, 162). However, by the end of the century exports had almost collapsed. The 1860 trade agreement between the UK and France made French wines cheaper to import. Adding to the malaise was the spread of phylloxera in the late nineteenth century which destroyed most of the Cape vineyards. Cape wines were certainly not able to compete in Britain on quality.
The KWV was set up in 1917–18 with the aim of buying up the entire crop to protect the price. In 1924, the government granted the KWV its first statutory powers to regulate the industry by setting a minimum price and taking up the right and obligation to dispose of the unsold surplus outside Southern Africa. In 1940, it set the minimum price for good wine and in 1960 set up the system of production quotas. (Vink et al. 2004, p. 229). In the 1970s, the KWV took over the effective regulation of plant propagation, and of the import of vines clones, thereby regulating the choice of varietals, notoriously the attempt to exclude the import of Chardonnay in the 1980s (Klopper 1986).
The power to regulate was won only after repeated struggles and petitions by wine farmers, first to the Cape colonial government and later to central government after Union in 1910. The first producer co-operatives were formed between 1906 and 1909, with the encouragement of the Cape colonial government. The next, and most rapid expansion was between 1939 and 1949 when 27 new co-operative cellars were established. By 1994, there were 69 in place (Botha 1966, pp. 77–78, Table 25, SAWIS 1997). The Co-operative Cellars Committee (KWK) shared members and office-holders and aligned itself with the KWV, which claimed to speak for the ‘wine industry’ (at the producer level).
The powers wielded by the KWV until the mid 1990s were not acquired in one fell swoop in 1924, but rather in an incremental fashion over decades. After 1948, when the National Party (NP) came to power, government adopted a more generous and supportive stance towards the Cape wine farmers. Amongst others it provided for cheaper loans through the Land Bank, financial support for worker housing and the establishment of farm prisons (Goussard 2000). The KWV, and the co-operative cellars, aligned themselves with and became clients to the dominant NP. As part of the ‘Cape-Nationalist wine complex’, government patronage and support was exchanged for votes.
The regulation period was characterised by a focus on high yields and volume over quality, and an overall preference for the production of brandy and fortified wine. It was only in the 1950s that fortified wines were overtaken by (cheap) unfortified wines. However, most of the wine produced at the Cape was ‘low price’ wine, produced by Stellenbosch Farmers Winery, for consumption by farm workers and the rural and urban poor.
Ritzema de la Bat, the General Manager of the KWV, described the ‘bedrock’ of the control system as the statutory minimum price for ‘good wine’, the disposal of the ‘surplus’ wine grapes for distilling wine through the KWV, and the statutory enforcement of planting quotas. ‘Without it there would be chaos’ (Williams and Vink 2002, p. 707).
Throughout the twentieth century, production increased right until the advent of the new ‘quality era’ in the early 1990s (Williams 2005).2 Exports, on the other hand, which had made up 6% of production in 1961, fell to an all-time low in the late 1980s (Vink et al. 2004, p. 236). In 1989, on the brink of Mandela's release from prison, they represented only 0.6% of total output (Anderson 2004). ‘Good wines’, for their part, formed only a small proportion of total exports. In the 1980s sanctions and international opprobrium blocked whatever little export there was, and, combined with the regime of statutory regulation, insulated most producers from the demands of international markets.
Most of the approximately 4600 growers (SAWIS 1997) had a vested interest in regulation. The arrangement not only guaranteed a minimum price for their wine, but also provided subsidised bank loans and a generous tax regime. In addition, political control saw to it that cheap, subservient labour was in ready supply. In exchange, from 1948 most wine farmers gave their vote to the Cape National Party.
However, the system also had its critics – something that had been gathering momentum since the 1970s. For one, the ‘estate’ cellar sector had become ever harsher in its critique of the control which the KWV bureaucracy exercised over the industry, putting a break on innovation and modernisation, and some farmers defied the quotas on new planting. The producing wholesalers who dominated the domestic market and were unwilling to put up with KWV's control of price-setting, which they thought discriminated against them in favour of co-operative wineries. Equally important, some figures in the industry saw privatisation as a pre-emptive step to avoid regulation by a future black, post-apartheid government, the latter being only a question of time once Mandela had been released and constitutional negotiations got underway.
The KWV had no choice but to ‘suspend’ production quotas in 1992 when some private cellars defied its control on new planting. The minimum price could not be sustained and was abolished in 1995, which made the ‘surplus pool’ redundant even before the conversion of the KWV into a company in 1997.
In 1995, a new chairman and managing director were brought in to oversee KWV's reinvention of itself as ‘free enterprise and market oriented’ (cited in Williams 2002). Part of the strategic considerations of the part of the wine lobby was to take with them the assets the KWV had accumulated over decades – something which was only prevented when Derek Hanekom, the new ANC minister of agriculture, stepped in, and after bitter recriminations the KWV reached a compromise and settled out of court (Vink et al. 2004, pp. 238–239, Ponte and Ewert 2007, p. 7). At the same time that the first steps towards deregulation were taken (1992), sanctions were lifted and the world opened up to new opportunities.3
After an initial wait-and-see attitude, closely watching the outcome of the election, most cellars and the growers started to invest and embark on a process of innovation and ‘upgrading’ – especially in the vineyard and the cellar (less so in the area of marketing). In more than one sense, the years 1994 to 1996 mark the watershed between the ‘old’ and the ‘new’ South African wine industry. As we try to show below, this is borne out by most wine industry statistics.
A veritable renaissance of the industry soon followed – a process that continued until the mid 2000s. By 2005, with the rand strengthening and the start of a red wine ‘glut’ in the global market, the prospects of the industry worsened for the first time since the mid 1990s.4 In 2006, the industry witnessed decreasing exports, some bankruptcies, and a general decrease in profitability and competitiveness.5 However, it soon recovered and by the end of the decade the industry was exporting almost half of total production. Although most South African exports sell in the ‘basic’ or ‘standard’ price segment, new markets are opening up and exports are being sustained. What growers and cellars have done to get to this position, is discussed in the next section.
Responses to deregulation and exposure to markets
Simply put, what South African producers have done is to improve their product and processes – mainly in the vineyard and the cellar, and to some extent in the area of marketing.
In these efforts the private cellars have generally been more energetic, enterprising and successful than the co-operatives – not only because they have always been more entrepreneurial in their outlook, but also because they are free in their decision making and have fewer capital constraints. Unlike the private cellars, the managers of co-operatives have to strike a balance between the diverging interests of their membership, the size of which may vary from 10 to over 250 farmers. In addition co-operatives and their members tend to be heavily indebted, which severely constrains the pace at which they can change (PriceWaterhouseCoopers 2011, p. 15).
Changes in the vineyard: from mass production to ‘precision viticulture’
No longer subject to planting quotas, South African wine growers started to establish new vineyards, uproot existing varieties and plant new ones, especially red and noble cultivars which were said to be in demand on overseas markets. The result was an expansion of the total cultivation area of some 84,000 ha in 1995 to almost 100,000 ha in 2005 (Figure 1), 101,325 ha in 2008, declining slightly to 101,016 ha in 2010 (Table 1).
| 1997 | 2002 | 2004 | 2006 | 2008 | 2010 | |
|---|---|---|---|---|---|---|
| Cellars | ||||||
| Producer cellars (number) | 69 | 66 | 66 | 65 | 58 | 54 |
| Private cellars (number) | 218 | 349 | 477 | 494 | 504 | 493 |
| Producing wholesalers (number) | 8 | 13 | 18 | 17 | 23 | 26 |
| Total wineries (number) | 295 | 428 | 561 | 576 | 585 | 573 |
| Cellars that crush 1–100 t of grapes (number) | 77 | 171 | 272 | 280 | 267 | 265 |
| Cellars that crush 101–500 t of grapes (number) | 76 | 111 | 114 | 137 | 150 | 151 |
| Cellars that crush 500–1000 t of grapes (number) | 32 | 38 | 56 | 41 | 50 | 45 |
| Cellars that crush 1000–5000 t of grapes (number) | 52 | 56 | 60 | 63 | 63 | 57 |
| Cellars that crush 5000–10,000 t of grapes (number) | 19 | 24 | 21 | 20 | 15 | 20 |
| Cellars that crush >10,000 t of grapes (number) | 39 | 28 | 38 | 35 | 40 | 35 |
| % of cellars that crush <100 t per annum | 26 | 40 | 49 | 49 | 46 | 46 |
| Vines | ||||||
| Total vine area (ha) | 87,301 | 96,233 | 100,207 | 102,146 | 101,325 | 101,016 |
| Vines 4 years and older (ha) | 76,025 | 79,073 | 85,331 | 89,426 | 92,504 | 93,198 |
| Vines younger than 4 years (ha) | 11,276 | 17,160 | 14,876 | 12,720 | 8,822 | 7,818 |
| Vines < 4 years as % of total | 12.92 | 17.83 | 14.85 | 12.45 | 9.5 | 7.7 |
| Wine | ||||||
| Total production (million litres) | 881 | 834 | 1,016 | 1,013 | 1,089 | 985 |
| Wine production (million litres) | 547 | 567 | 697 | 710 | 763 | 781 |
| Good wine as % of total wine | 62.09 | 67.99 | 68.60 | 70.09 | 70.06 | 79.3 |
| Domestic sales (million litres) | 402 | 388 | 351 | 345 | 356 | 346 |
| Exports (million litres) | 46 | 218 | 268 | 272 | 412 | 379 |
| Proportion of total (%) | 12.60 | 26.14 | 26.38 | 26.85 | 53.9 | 48.5 |
| Income from wine as % of total | 67.74 | 76.30 | 71.52 | 72.16 | 75.57 | 80.1 |
| Source: SAWIS (various). |
The expansion of vineyards and the replacement of existing varieties with new ones were in direct response to perceived opportunities in, and price signals emanating from, overseas markets. Farmers and co-operatives could no longer deliver wine for a minimum price to the KWV ‘surplus pool’. Given that the domestic market, from very cheap to the most prestigious, for ‘natural wine’ was small (per capita consumption in 1993 was 7.29 litres6) and stagnant (Table 2), overseas markets were the only possible outlet for increased production. As it is the timing was opportune, because when South Africa re-entered the global market in the mid 1990s, it caught the gathering wave of increased international trade in wine, especially from the New World (Anderson 2004, pp. 14–55).
| Year | Natural wine | Sparkling wine | Fortified wine | Total |
|---|---|---|---|---|
| 1986 | 8.11 | 0.20 | 1.45 | 9.76 |
| 1987 | 7.88 | 0.20 | 1.42 | 9.50 |
| 1988 | 7.69 | 0.23 | 1.37 | 9.29 |
| 1989 | 7.47 | 0.25 | 1.37 | 9.09 |
| 1990 | 7.47 | 0.26 | 1.30 | 9.03 |
| 1991 | 7.65 | 0.25 | 1.18 | 9.08 |
| 1992 | 7.46 | 0.21 | 1.24 | 8.91 |
| 1993 | 7.29 | 0.21 | 0.87 | 8.37 |
| 1994 | 7.70 | 0.18 | 0.83 | 8.71 |
| 1995 | 8.03 | 0.19 | 0.85 | 9.07 |
| 1996 | 8.29 | 0.19 | 0.87 | 9.35 |
| 1997 | 8.65 | 0.19 | 0.91 | 9.75 |
| 1998 | 8.17 | 0.20 | 0.79 | 9.16 |
| 1999 | 8.24 | 0.23 | 0.72 | 9.19 |
| 2000 | 8.21 | 0.13 | 0.66 | 9.00 |
| 2001 | 8.20 | 0.15 | 0.66 | 9.01 |
| 2002 | 8.04 | 0.17 | 0.70 | 8.91 |
| 2003 | 7.00 | 0.17 | 0.75 | 7.92 |
| 2004 | 6.73 | 0.18 | 0.68 | 7.59 |
| 2005 | 6.40 | 0.18 | 0.68 | 7.26 |
| 2006 | 6.31 | 0.19 | 0.71 | 7.21 |
| 2007* | 6.53 | 0.21 | 0.71 | 7.45 |
| 2008* | 6.43 | 0.21 | 0.69 | 7.33 |
| 2009* | 6.04 | 0.17 | 0.68 | 6.89 |
| 2010* | 6.18 | 0.18 | 0.67 | 7.03 |
| Note: *Estimate. Source: SAWIS (pers. comm., Debbie Wait, 14 February 2012). |
When producers started to explore overseas markets, they discovered not only that wine drinkers – new and old – had developed a taste for wines from the New World, but also that there was a decided preference for red and so-called noble cultivars.7 All things being equal, wines made from these varieties were fetching the better prices.
Although Chenin Blanc remains the most planted variety, farmers have increased their plantings of red and noble cultivars significantly in the post-regulation era (Figure 2). For instance, red varieties as a percentage of total plantings increased from approximately 15% in the early 1990s to almost 44% in 2009 (SAWIS 2010). In 1991 only 13.8% of all vineyards were under noble cultivars; by 2002 this had increased to 40.5%, and 53% by 2007 (SAWIS 2007) – quite a dramatic change if one keeps in mind that as recently as the late 1980s it was illegal to plant Chardonnay vines. In a famous case which almost ended up in court, the first cuttings were smuggled into the country (Klopper 1986).
Although most cellars responded to these market signals, private cellars planted proportionally more red and noble grapes than the co-operatives (or ‘producer cellars’) (Vink et al. 2004, p. 241). For instance, in 2005 private cellars only pressed 9.9% of all white varieties, but 32.4% of the total Sauvignon Blanc crop (Ponte and Ewert 2007, p. 15). As a result they are better positioned in the market. However, the quantitative expansion of vineyards and the planting of new cultivars has only been one response to the new market environment. Over the last decade and a half there has also been a noticeable shift towards quality and eco-friendly production in the vineyard.
Although there was (and still is) a sizable global market for basic or standard price wine, South African producers became aware that the kind of cheap good wine they had been producing in the regulation era stood little chance of selling in international markets. Even to be able to compete in the basic market, they had to improve the intrinsic quality of their wine and comply with a number of certifications. In some cases these included labour standards (e.g. the Ethical Trading Initiative/ETI base code). In addition the ‘quality bar’ was being raised all the time. What was good enough to pass as basic wine at one point in time no longer did so a few years on. To move into the medium-range quality, and raise the reputation as well as the price of South African wines was more difficult still, not to say the top or icon categories. What mattered here was not only better intrinsic quality, but additional quality markers like origin, eco-friendly production or exceptional terroir (Ponte 2009).
As a result of market trends and demands emanating from wholesalers and retailers, growers and cellars started to adopt a series of quality measures in order to improve their product. At a general level, producers became more terroir oriented, planting the ‘right’ variety at the right site (i.e. the ‘right’ soil, climate and slope). In addition, vineyard practices became more ‘scientific’ and conscientious – from soil preparation, trellising, and irrigation to so-called canopy management and yield control. As a set of practices precision viticulture became increasingly diffused throughout the industry in 1990s and 2000s, with concomitant implications for worker and management skills, as we shall see below.
In order to create an incentive for growers and to improve the overall quality of their grapes, co-operatives introduced the practice of ‘block grading’, going hand-in-hand with a new differentiated payment system. In the immediate period leading up to the harvest a team consisting of the viticulturist, the winemaker and one or two other members of the co-op management would grade the grapes in the vineyard (e.g. Class A, B or C Cabernet Sauvignon), and, subject to a final check at delivery, the grower would be paid accordingly. What mattered now was not volume, but the quality of the grapes.8
In the cellar, different classes of grapes would be vinified in separate tanks. Working closely with producing wholesalers or retailers, specific vineyard blocks and specific tanks would be earmarked for specific labels, varying in quality.
Responding to the increasing environmental awareness of (mainly) European consumers, the industry has tried to gain a market advantage by introducing two environmental standards over the last 12 years or so. One is the Integrated Production of Wine (IPW) and the other the Biodiversity in Wine Initiative (BWI). The former is mainly aimed at the limited and controlled use of pesticides and the latter at the preservation of the indigenous flora and fauna (i.e. fynbos) left in the Cape winelands. Producers who endorse and implement these standards can use the ‘Integrity and Sustainability’ seal and the BWI sticker on their bottles. Although these standards are voluntary seal and not without flaws, they enjoy broad-based support and have helped to create the new ‘green’ image of South African wine overseas (Vink 2011).
While there is still considerable room for improvement in South African vineyards, a few years ago a wide-ranging empirical study found that ‘viticulture and winemaking operations have improved dramatically’, resulting ‘in a true “revolution” in wine quality in the last 10–15 years’ (Ponte and Ewert 2007, pp. 2, 17).
Changes in the cellar: introducing differentiated quality production
Perhaps the most noticeable change at this level is the restructuring of the cellar sector, and more specifically the dramatic increase in the number of private cellars, from 218 in 1997 to 493 in 2010 (see Table 1). In the same period we see an increase in the number of producing wholesalers from 8 to 26. Producer cellars on the other hand, declined from 69 in 1997 to 54 in 2010.
The reduction in the number of co-operatives is mainly due to mergers and the conversion to companies. So far, the number of bankruptcies has been few and far between. On the other hand more than a 1000 growers have exited the industry (from some 4646 in 1997 to 3596 in 2010, SAWIS 1997, 2010).9
Mergers and conversions point to a range of different routes that co-operatives have explored since deregulation. However, most have chosen to remain in a medium- to long-term contractual relationship with producing wholesalers, and supermarkets, both local and overseas. Most of their wine is sold in bulk only to be bottled for their clients' private labels. Less than half of the co-operatives do their own marketing. While it has lessened their dependence on the local wholesalers, their bargaining position vis-à-vis the powerful European retailers is not particularly strong, mainly because of the ‘basic’ quality of their wine, for which there is an oversupply in the world market (Anderson 2004, pp. 14–55).
Generally speaking, the private cellars are in a more favourable position. More market oriented in their thinking from the outset, they have managed the transition much better. Insofar as higher quality wines from South Africa have proliferated and established themselves in overseas markets, they originate almost without exception in the private cellar sector, located mostly in the Stellenbosch, Paarl and Constantia regions. In this case origin, exceptional terroir, or the reputation of the winemaker have translated into top quality, gaining accolades from wine magazines and the prizes that go with it.
Both private cellars and co-operatives have modernised their winemaking technology and upgraded their winemaking processes. New presses, filters, maturation tanks and so forth were introduced in order to make better, cleaner wines, especially reds.10 At the co-operatives the number of tanks was increased many times in order to separate quality classes and vinify in different batches. Other improvements include better wine styles, more scientific winemaking, new technologies, such as micro-oxygenation and reductive handling (Ponte and Ewert 2009).
In response to requirements set by overseas clients (i.e. supermarkets), food safety and other standards such as Hazard Analysis and Critical Control Points (HACCP), British Retail Consortium and various ISO certifications have become diffused throughout the industry. Although experienced as a nuisance and source of irritation at first, they are now routine. On the whole, over the last 17 years the South African wine industry has succeeded in building and consolidating a quality assurance infrastructure which guarantees that certain minimum quality standards are adhered to (Ponte and Ewert 2009).
At the organisational level co-operatives have undergone a process of specialisation. The roles of winemaker and manager have become separated. Viticulturists have been appointed to act as the link between the winemaker and growers. The board has been professionalised with members being tasked with different functions (e.g. liaison with overseas retailers) and outside experts being appointed in a consulting capacity. In a minority of cases, cellars have appointed marketing managers or bought the services of marketing specialists on a part-time basis.
Upgrading in the vineyard and changes at the technological and organisational level have enabled most co-operatives to improve intrinsic quality and to produce good, clean wines with a stronger varietal character than ever before, most of which they are able to sell in the domestic market (89% of total production). Amongst the co-operatives that have been more successful in responding to external markets, volume (e.g. Boland cellar and former Vredendal cellar, now Westcorp) and consistent quality have been important.
However, the transformation has come at a price. New technology and specialist appointments are expensive. As a result, most co-operatives have considerable liabilities (PriceWaterhouseCoopers 2011, p. 15). In addition, many of the improvements that have been made are now taken for granted by clients and no longer represent a marketing ‘edge’. Given the classical constraints on co-operatives, further improvements will be difficult to make.
Markets: can exports be sustained?
Has all the upgrading and improvement translated into commercial success? If one looks at exports alone the answer is clear: the increase from some 20 million litres in the early 1990s to just under 500 million litres in 2010 speaks for itself (Table 3). With domestic consumption lower than in the early 1990s and falling (to 6.18 litres per capita in 2010: see Table 2), almost all the new growth and revenue has come from exports.
| Year | Natural wine | Fortified wine | Sparkling wine | Total litres | Export as % of wine production |
|---|---|---|---|---|---|
| 1991 | 21,779,607 | 993,321 | 317,124 | 23,090,052 | 5.8 |
| 1992 | 20,719,619 | 900,692 | 375,471 | 21,995,782 | 5.2 |
| 1993 | 23,249,930 | 772,278 | 574,749 | 24,596,957 | 6.2 |
| 1994 | 48,446,024 | 1,284,187 | 961,597 | 50,691,808 | 12.0 |
| 1995 | 71,207,264 | 793,035 | 806,708 | 72,807,007 | 14.6 |
| 1996 | - | - | - | 99,900,000 | 17.3 |
| 1997 | 108,489,119 | 1,265,310 | 805,064 | 110,559,493 | 20.2 |
| 1998 | 116,766,480 | 1,116,781 | 524,687 | 118,407,948 | 21.8 |
| 1999 | 127,636,278 | 695,380 | 809,625 | 129,141,283 | 21.7 |
| 2000 | 139,800,203 | 471,538 | 685,248 | 140,956,989 | 26.1 |
| 2001 | 175,986,098 | 548,397 | 779,312 | 177,313,807 | 33.4 |
| 2002 | 215,759,308 | 523,169 | 1,401,483 | 217,683,960 | 38.4 |
| 2003 | 237,212,282 | 530,699 | 1,630,481 | 239,373,462 | 33.6 |
| 2004 | 265,761,884 | 413,393 | 1,552,885 | 267,728,162 | 38.4 |
| 2005 | 279,870,505 | 406,982 | 1,537,164 | 281,814,651 | 44.8 |
| 2006 | 269,166,506 | 486,547 | 2,018,235 | 271,671,288 | 38.3 |
| 2007 | 309,354,585 | 405,696 | 2,779,364 | 312,539,645 | 42.8 |
| 2008 | 407,319,613 | 423,207 | 3,952,009 | 411,694,829 | 53.9 |
| 2009 | 389,141,149 | 282,636 | 6,206,991 | 395,630,776 | 49.1 |
| Source: SAWIS (2006, Table 8.1, 2010, Table 8.1). |
However unit prices have increased only slightly. No statistics are available on unit export prices of wine from South Africa,11 but some indications can be drawn from average retail price changes in South Africa's main export market, the UK. Here, South African wine has not yet been able to break the £5 barrier (on average) in the retail market, above which margins are generally healthier.12 Taxation is paid per volume so that the cheaper the wine the greater the proportion of tax paid on it. This is bad for the producer. In addition, exchange rates are critical in determining margins in a buyer's market, where prices for producers are inelastic.
Another useful indicator is South African average prices for bulk wine. In this regard the average price per litre for all varieties increased from 212 cents in 2000 to 338 cents in 2006 (Ponte and Ewert 2009). The second half of the last decade saw an increase in bulk exports, mainly as a response to price contraction. Packaged exports suffered as a result, something that could potentially be detrimental to the image of South African wine in overseas markets.
Although very few co-operatives have gone bankrupt and exited the industry, most of the remaining 54 are heavily indebted (PriceWaterhouseCoopers 2011, p. 15). A large part of the debt was incurred in the wake of technological upgrading and organisational change.13 Each member of the co-operative shares in the debt, depending on the size of the producer's delivery right. In addition, many growers have accumulated personal debt as a result of investing in new vineyards. This does not leave much room for manoeuvre, even if the market signals are read correctly.
Even 19 years into the post-regulation era, marketing remains perhaps the weakest aspect of the South African wine industry. Although a market orientation is now dominant, too many growers and cellars are still considered to be supply or production driven. Marketing is seen as the main way forward by strategy analysts, both at the industry and individual company levels (Loubser 2001, Rabobank 2004, Wood and Kaplan 2005). It is generally agreed that South Africa needs to build strong brands for mid-range quality wines sold for more than €8/£6 (i.e. the segment that is growing fastest and where margins are healthier) if it wants to attract sizable foreign investment (Rabobank 2004).
As it is, the most successful brands of South African wine in the UK (e.g. FirstCape, Westcorp/Namaqua) are now owned or co-owned by UK companies that import their stock from South Africa, while with a few exceptions the market share of traditional South African-owned brands has remained fairly stagnant. Co-owned or not, without co-operatives these brands would not feature on supermarket shelves. However, exports only represent 11% of total production by co-ops, and with declining domestic consumption, finding new markets remains a major challenge (PriceWaterhouseCoopers 2011).
In this regard, analysts also agree that South African producers should pay less attention to the very competitive UK and Continental markets, and focus more on the North American, Asian, emerging country and African markets, where significant headway has been made the last number of years (PriceWaterhouseCoopers 2011).
Although some assistance is available from the Industrial Development Corporation for initial market explorations, the post-1994 government has generally adopted a non-supportive attitude towards the industry – despite repeated pleas to the contrary (see the 2003 Wine Industry Plan, for instance). If anything, it has intervened on the side of labour, the environment and black empowerment. As a result, for most producers it is a matter of swim or sink – a situation very different from that of most growers and cellars in the EU, for instance.
Labour, skills and employment: a deepening divide
The democratic transition in South Africa coincided with deregulation and the opening of international markets. When it came, it presented wine farmers and cellars with three brand-new challenges regarding ‘their’ workers: first, workers now had the vote and basic labour rights,14 which meant that employers could no longer treat their workers at will; second, labour would probably become more expensive, if only because of the curtailment of working hours, paid sick leave and holiday pay; third, they realised that in order to produce better wine and compete in international markets, they had to upgrade or renew not only their own skills, but also those of their workers.
Under apartheid, farmers could treat their workers in a despotic fashion, unilaterally setting working hours and pay, employing and dismissing at will and even meting out punishment – all part of the paternalist culture that characterised Cape wine farms until recently (Ewert and Hamman 1999, Ewert and du Toit 2005).
The extension of the Basic Conditions of Employment Act to agriculture in 1993 was followed by a plethora of labour legislation over the next 10 years, including the Labour Relations Act (1995), the Occupational Health and Safety Act (1993), the Extension of Security of Tenure (ESTA) Act (1997) and the Minimum Wage Determination in 2003. Even if compliance leaves much to be desired, it set limits to the power of the farmer for the first time.
Making the shift from ‘master’ to ‘employer’ was not the only rethink required from Cape wine farmers. They now also had to train their workers differently and equip them with new skills. If they did not know it, they soon learned that they could no longer produce wine in the same time-honoured, mass-production fashion. Most co-ops tried to assist their members by drawing up so-called vineyard guidelines.
Before the quality era, all work routines were geared towards the production of maximum yield. Pruning was rather crude, irrigation wasteful and canopy management did not exist. This all started to change when producers entered the new market-driven environment and were exposed to international competition and clients. It did not take long for cellars to realise that they had to produce better-quality wines at competitive prices. They also had to manage their farms and cellars better and cut costs where possible. With most input costs fixed, labour became the obvious target. Next to chemicals and finance charges, it remains the biggest cost item on the average co-op farm (PriceWaterhouseCoopers 2011). These cost pressures, together with tenure legislation, have resulted in the thorough restructuring of the industry's labour force, through downsizing, casualisation, and contractualisation.
In the first years after the ‘triple transition’ (i.e. deregulation, internationalisation and democratisation), farm employment seemed to be on the rise. For instance, a survey of 104 wine farms in 1997 revealed a 5% rise in permanent employment, reflecting the expansion and new planting of vineyards which had started in all earnest in 1995 (Ewert et al. 1998). However, four years later a survey of 77 farms in six districts of the Western Cape suggested an uneven but noticeable trend away from permanent farm employment. These trends were more pronounced on deciduous fruit farms, but they were still present on wine farms. Although there was an increased trend towards mechanical harvesting (Ewert et al. 1998), for the most part jobs were not being replaced by machines, but by casual labour, with strong shifts towards the use of labour contractors and casual workers, and a distinct trend towards the use of women workers (du Toit and Ally 2003). Although a subsequent study in one table grape region of the Western Cape (Conradie 2007) has questioned the trend towards casualisation, it may be a matter of geography. Casualisation is likely to be more common near Stellenbosch, Paarl and Cape Town, with unemployed African workers being more available (Ewert and Hamman 1996). That may explain the significant increase of labour contractors over the last 15 years or so.
In conjunction there seems to be an unwritten consensus in the industry and amongst analysts that downsizing has occurred on most farms in the wake of farmers becoming more ‘rational’ and businesslike. To some extent this trend is confirmed by studies done by Conningarth Economists (2000, 2004) who reported a decrease from 68,266 direct and indirect jobs in primary production in 2000 to 61,603 in 2003.
Still, in the absence of a reliable data series covering the last 15 years, it is not possible to give a conclusive answer to the question of whether the number of people employed on farms – both permanent and casual – has increased or not in the ‘new’ era of the South African wine industry. The best statistics available are data that relates to employment along the whole wine value chain, not only for primary agriculture. At this level of analysis, according to Conningarth Economists (2000, 2009), the number of (direct and indirect) jobs increased from 208,298 in 2000 to 275,606 in 2008 – mainly due to a doubling of exports in that period. Thus, while rationalisation at the farm level may have resulted in fewer permanent jobs, value adding along the chain may have increased overall employment.
Those farm workers who have kept their jobs belong to the ‘winners’ in the post-regulation era of the industry. They have not only retained their jobs and their housing, but have also become the beneficiaries of better training.
The production of better quality wine requires the implementation of different technical measures in the vineyard, such as cultivar-terroir adaptation, vigour and yield control, and environment-friendly production. What is required first and foremost from workers is precision and discretionary judgement. For instance, if pruning is done in the ‘right’ way (i.e. in order to produce the desired yield), substantial labour savings can be had further down the line, at the stage of de-suckering and other instances of canopy management. It also promotes efficiency if a worker can use his/her discretion when encountering an abnormal situation in the vineyard, instead of waiting for the instructions of the manager (Ewert 2007).
Over the last 15 years or so the skills of workers have been upgraded or renewed on most farms. In the case of farms belonging to a co-operative cellar, training is mostly done on the job by the manager or grower himself. Private cellars on the other hand tend to outsource training to private training providers (Brown-Lhutango 2007). The latter is the better option, as the quality of training provided by the grower depends on the degree to which he himself has kept pace with the latest developments. This is not necessarily the case, because most wine farmers in the Western Cape practise mixed farming, and in the total scheme of things top quality wine grapes are not necessarily their first priority. Extension research by Vinpro shows that hardly any of the best farmers (in the financial sense) aim at top quality as a matter of strategy (Ponte and Ewert 2009).
Nevertheless, the workers who have managed to hold on to permanent employment are the recipients of better training and improved skills, but also higher pay, housing and other benefits (e.g. subsidised medical care) that set them apart from the casual and contract workers who often live in rural, peri-urban or metropolitan shanty towns and are forced to cobble together a livelihood from a variety of part-time jobs.
Black economic empowerment (BEE)
In the most favourable of situations workers have also become shareholders in farm-based equity schemes. Some of these date back to the 1990s, long before the launch of the Broad-Based Black Economic Empowerment Act 2003 or Black Economic Empowerment within the Agricultural Sector (AgriBEE) 2004, not to say the Wine Industry Transformation Charter (SAWIC 2007), adopted in 2007 (Williams 2007, p. 1). The few estates and firms that pioneered different equity shares schemes or opportunities for workers to use estate cellars and marketing contacts to produce wine took advantage of the government's land grants (e.g. Fair Valley, Freedom Road, Sonop, Thandi).
However, ‘empowerment’ in the sense of land ownership is still far off the mark the industry set for itself (i.e. 30% of land by 2014). In 2006, less than 1% of land under wine grapes was under black ownership, management or control (Viall et al. 2011, pp. 220–222). The reason for this is not difficult to see. Essentially the high investment costs of wine production make it difficult to transfer land directly to farm workers. Transfers of land to communities of ‘new farmers’ have proved disappointing. In any event, grape growing and even wine manufacturing are not very profitable; the returns are highest in marketing and branding, especially if favourable arrangements can be made with supermarkets and other distributors, local and foreign (Williams 2007, p. 6).
Perhaps that is the reason why some analysts have rejected the ‘market-driven’ model of land reform as inappropriate for the wine industry and have called for the nationalisation of land as the road forward (Viall et al. 2011, p. 221). For others, empowerment means a shift away from land ownership towards the downstream end of the value chain. For instance, in the Wine Industry Transformation Charter, the purpose of BEE in the wine industry is defined as ‘the creation of an entrepreneurial class amongst historically disadvantaged South Africans’ and ‘by implication, empowerment and transformation programmes in the wine industry must, therefore, be market based and business driven’. This has prompted some critics to remark that BEE in the wine industry has been used to ‘displace the transformation agenda away from addressing the conditions faced by workers, and to an ameliorism that allows a small cohort of black entrepreneurs to become the preferred beneficiaries of “transformation” in the wine industry’ (Viall et al. 2011, p. 222).
To date that seems to be the case. Eight years after AgriBEE and five years after the Transformation Charter, the industry is still almost completely white in terms of ownership and control. KWV engaged in an elaborate circulation of the funds of the South African Wine Industry Trust to enable black beneficiaries and their own employees to acquire shares in the privatised KWV (Williams 2007). Some black businessmen have acquired wine estates and some ‘black empowered’ labels have emerged, but all in all they involve a small number of people (Ponte and Ewert 2007, pp. 7–9). Even so, together with the competitive private cellars and ‘empowered’ permanent workers, these count amongst the ‘winners’ in the post-regulation era of the South African wine industry.
Conclusion
Deregulation and exposure to international markets unleashed a minor revolution in the South African wine industry over the last two decades or so. Since the mid 1990s the industry has seen major upgrading or improvements at both the vineyard and cellar level. Vertical learning along international value chains and horizontal learning in the local wine cluster have resulted in improved quality, better logistics and the penetration of key wine markets, mainly in the UK and Europe, but increasingly also in North America, Africa and Asia. Approximately half of total production now goes to exports. Wine products now make a substantial contribution to South Africa's exports as well as to its tax revenues. Demand-driven wine styles, volume and consistency have allowed the industry to grow in the ‘basic’ quality segment of the industry, while the proliferation of higher quality wines has opened new niches.
However, it has not been an easy path and the current situation is more complex than the export figures suggest. Improvements have gone hand in hand with demands for a higher volume of basic quality wines, increasing bulk delivery, shorter lead times, flexibility in delivering to buyer specifications, the provision of expensive promotional support, narrow margins and vulnerability to changes in exchange rates. The package of specifications that are expected to be delivered ‘as a given’ has become increasingly demanding and sophisticated. While this has stimulated further upgrading, its rewards have been limited and some types of risk have increased. The margins for improvement have now narrowed in many areas.
While very few co-operative cellars have gone out of business, more than a thousand growers left the industry between the mid 1990s and 2010. Available, but less than perfect, labour market information would also suggest that there has been a downsizing of the core, permanent labour force, and a concomitant increase in the use of casual labour at the farm level. For these workers, life has become more risky and less secure. However, when one looks at the whole wine value chain, and not just primary production, there seems to have been a significant increase in employment.
The net increase in employment and revenue would not have happened if growers and cellars had not been free to plant, upgrade and compete in international markets. Given the long-term trend towards declining domestic consumption, there is no doubt that the detrimental impact on jobs, income and livelihoods would have been severe if the South African wine industry had not rid itself of regulation.