Bulk wine exports: the elephant in the SA wine industry room
If you look closely at the picture above, you’ll see a prime example of the unity that is so sorely missing from the South African wine industry. It’s a tiny corner of the mammoth exhibition hall at the Cape Town International Convention Centre where Cape Wine 2012 is underway, and it is the place that has the most incredible buzz.
Beyond “Gran Wine Funk” on the back wall of the stand, there’s no branding, but if you look at the bottle back labels, you’ll see a sticker which says “Swartland Independent”, which in a way is a contradiction in terms, because what you experience here is the most incredible display of unity. Chatting to Penny Hughes who is pouring Nativo’s wines, a lovely white blend and an equally lovely red blend, it becomes clear why. “If David wasn’t here,” she says, gesturing at David Sadie standing behind the table, deep in discussion with somebody about one of his wines, “one of us would pour for him.” And that’s what sets this band of innovative clear thinking wine growers apart. They understand the need for presenting a united front to the marketplace, be it local or overseas.
Sitting chatting to Antonio Amorim, president of Amorim Cork in Portugal yesterday afternoon, I ask him for an opinion about what’s missing in our approach to market development. He pauses and reflects briefly: “You lack unity as an industry,” he says, “like the unity you’ll see in Australia and in New Zealand.” And this is coming from a man whose livelihood is dependent on winegrowers using his product to close their wines, talking about two countries who have embraced the enemy so to speak: screw-cap closures for so many of their wines.
I quiz him on that score. “Of course I’d like them to use cork instead of screw-cap, but that’s not my point. Take the Kiwi’s for example. They’re known for making great Sauvignon Blanc and they all insist that screw-cap is the right closure and they all do it. That’s unity, and I respect that, even if they aren’t using cork closures,” he says with a smile. And that’s the kind of unity that is so evident in this corner of the Cape Wine 2012 hall, with a constant stream of people walking up, engaging, tasting, talking, and doing business.
In September 2009 more or less (I’m open to correction on this date) Wines of South Africa (WOSA) CEO Su Birch launched the DNA Handbook of South African Wine, a significant initiative to build a unified brand identity for the South African wine industry. Australian wine consultant James Herrick was flown out to address the launch conference in Stellenbosch, and he made some very clear points. We cannot continue to be the cheap and cheerful bottle of wine on every British table; we must pursue the premium wine segment in our chosen overseas markets; we must relate compelling, believable and true stories about those premium class wines; and above all else, we need to present a united front to the world market.
The DNA Handbook of South African Wine was supposed to be the platform for that united front, which would enable the industry to walk in lockstep into the future with that united front. Whatever it cost to put it together was wasted, including the cost of the seminar and the cost of flying James Herrick out here to talk at the conference. Why? Because it was still born. If you Google DNA Handbook of South African Wine all you’ll come up with is a reference to an article I wrote in Bolander. It’s here if you want to read it.
Here’s a quote from James Herrick out of that story. “From the sheer logistics and cost exercise of meeting the world demand for wine, and with a lot of low cost producers in the world, there is a limit to the extent to which South Africa could continue to be efficient enough to meet that demand for low cost wine.
The countries that end up occupying that market for low cost wines will be the most efficient. South Africa – because of distance, because of its farms, because of its cost of money, and because of its geography and topography – will have a hard time competing.
For the SA wine industry to survive it would help if it could move its production slowly towards the more premium end, because that’s where the margin is, and that’s where the value for the consumer is.”
Herrick also spoke of the need to leverage the unique story that underpins South African wine, something which Antonio Amorim also feels is an essential part of the sustainability of our industry. “You need to be selling your wine where consumers pay for differentiation, for the story you tell them about South Africa, about everything that your wine represent,” says Amorim.
And Tuesday morning, we all sat in the opening seminar of Cape Wine 2012 and watched the elephant in the room which everybody conveniently ignored until Amorim pointed out that fully 57% of our current wine exports leave our shores in bulk.
“As long as you continue to allow a good portion of your industry to be driven by the likes of UK supermarket chains, you’ll have great difficulty building brand presence in the premium sector of the world wine market,” reckons Amorim, and he would be right. With increasing demand for our wine to be shipped overseas and bottled there under a label that does nothing to build Brand SA, what are the chances that we can stem the haemorrhaging?
I’m not suggesting that all bulk wine exports are an abomination. Those producers who ship in bulk and bottle overseas under their own label at least still promote Brand SA, and the likes of KWV come to mind in this regard. Granted we end up losing local jobs, but with what amounts to vertical integration, such exports end up with better profitability because it is so much cheaper to ship in bulk and bottle overseas, rather than to ship bottled wine.
If you take a look at the state of our national vineyard, and there’s a story here which does just that, you’ll see that it has been declining in size since 2006, and the way things are going that trend is set to continue.
Granted, it has been accompanied by an increase in yield per hectare, but that trend is limited by the law of diminishing returns. There will come a time when producers can no longer squeeze more grapes out of a hectare without impacting quality, and when that happens, the price they get will decline beyond the point at which it is economically viable to continue to farm the vineyard. If they’ve not been replacing the 5% of their vineyard which they should be replacing each year – and many producers cannot afford to do so because of the price per ton they’re getting – the vineyards will either lie fallow, or be replaced with another crop.
So when WOSA’s Su Birch says that in 20 years’ time, we’ll have a national vineyard 150 000ha in extent and we’ll be exporting premium quality wine all over the world, I must question where those figures come from.
We live in a water-scarce environment, and it’s getting worse. We’ll have less, not more water going forward. Just replacing what we’ve got with water-savvy clones is difficult enough as it is, never mind growing our national vineyard by 50%. If we’re lucky, we’ll end up with half that – 80 000 odd hectares – in twenty years’ time, the way things are going.
Chatting to Chris Mullineux, one of the Swartland Independent crew in that vibey corner of the hall, he points out that one of the conditions of membership is that you cannot ship more than 20% of your wine production in bulk. There are other criteria, like naturally produced wine, a varietal specification, an ageing regime specification, limitation on the use of new oak, viticulture guidelines, and bottling in specific shapes. It’s no AOC system, but it provides a set of guidelines that ensure that members of the group present a united front to the market, one that buyers and consumers can understand and tap into. And they’re not fighting with each other, cutting per ton prices to get the deal from the next guy.
Charles Banks of Terroir Capital spoke on Tuesday about his decision to buy Mulderbosch Vineyards in Stellenbosch. One of the reasons is that it was a cash-positive business producing wines that he knows will sell well into the US market – like the Steen op Hout Chenin, and the Chardonnay. If he thinks there’s a viable market for Stellenbosch wines in the US market, one which is notoriously difficult in which to establish a brand presence, then perhaps more local producers ought to take a leaf out of his book. And we’re not talking cheap and cheerful wines here. Rather, we’re talking wines that tap into the lower end of the premium segment, which is where we ought to be focussing our attention.
And as Antonio Amorim points out, we ought to be pushing for premium wine market share not only in the US, but in China, Russia and Brazil as well.
“Our vision is that South Africa will be recognised worldwide for producing premium quality distinctive wines in the world’s most biodiverse winelands, in an environmentally sensitive and ethically responsible manner,” is what Su Birch said way back when the DNA Handbook of South African wine was launched.
Three years later, how much closer are we to that dream?