Smaller boutique wine farms were finding it difficult to survive as the industry in South Africa enters an era of consolidation, making a few co-operative wine sellers larger, Absa Agribusiness head Ernst Janovsky said on Thursday (15 November).
Addressing a media briefing in the Western Cape, Janovsky said he expected that this consolidation phase would continue placing downward pressure on wine farm prices in Stellenbosch and Paarl.
Janovsky predicted that producer revenue per hectare would improve thanks to higher prices and production volumes. Also, the producer input costs remain well managed with a resulting small rise in net income per hectare for farms.
In the 1990s, due to deregulation of the wine industry small boutique wine producers emerged. This made wine making, to a large extent, an art with the emphasis on the wine maker. Given the technological advances in the past decade, even bulk wine makers are producing high-quality wines and this was affecting the small-scale producers.
Janovsky said that after reaching a low in 2009, international bulk wine prices increased. He said the bulk wine prices would continue to strengthen slowly and production volumes were likely to increase as world economic conditions improved.
He said world growth in demand and consumption of wine peaked in 2008 and declined substantially in 2009 because of the global recession. This, combined with major production expansions during the preceding years, led to a buildup of stock and a resulting decline in world wine prices.
He said slow consumption trends had bottomed out and consumption is expected to grow in the next two to three years with the development of new markets in Asia.
"World wine production is lower than world consumption with a resulting decline in world stocks. This may bring some relief to wine farmers as world prices are expected to go up in 2013," Janovsky added.
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