SA helps meet world's thirst for wine

Image courtesy of Carlos Porto / FreeDigitalPhotos.net

You don't have to look too far to find the reason: the rand's 19% fall against the dollar meant that it had suddenly become much cheaper for overseas buyers in the US, China and Russia to buy top-notch South African wine. Exports to the US alone grew 37% last year.

But it also taps into a growing global demand for wine, which is now being touted as a fashionable sign of sophistication among the increasingly affluent groups in non-Western markets, such as China, elsewhere in Asia and Russia.

Strip out the dollar impact, however, and you'll still see strong demand for wine - partly because of a global shortage as vineyards struggled to keep up with rising demand. In 2012, in fact, the wine industry saw its biggest shortfall in more than 40 years as demand for wine outstripped supply by 300-million cases, about a tenth of total wine consumption worldwide.

This seems to be a huge opportunity for investors in wine companies. And if you don't have the cash to snap up your own wine farm - like Christo Wiese, GT Ferreira, or Whitey Basson - it doesn't matter: you can still buy shares in wine companies like Distell or Capevin Holdings.

Distell had a storming 2013, with its share price climbing 58% as investors clearly got the message from the bottle. The company sells wine from estates such as Nederburg, Neethlingshof, JC Le Roux and Durbanville Hills.

Capevin might be the better way to invest in wine because its sole asset is Distell, and its shares are marginally cheaper than Distell's, trading on a PE of 25 to Distell's 30.

Research by Morgan Stanley illustrates the soaring demand for wine. A decade ago, the entire industry produced 600million cases. Then, a global oversupply from 2004 to 2006 had many vineyards shutting their gates amid the downturn - though some of them might not have been functional anyway.

Siobhan Thompson, CEO of Wines of South Africa, says that the predominant theme now is not so much a wine shortage as a shift in the countries from which people are buying.

"There's been an equalling of supply and demand. Before, there was a huge amount of supply; the difference is the movement of wine across continents," she says.

Thompson says the rise in exports was due to South Africa's harvest last year that enabled it to fill the gap created by the poor European harvest, apart from entering new markets.

The news about South African wines, along with better distribution, is all good news, considering that the US is the biggest market for wine.

Sales to the UK, which accounts for about a fifth of South Africa's exports, climbed 21%, while Germany took 24% more from this country. Exports to Russia increased 18%.

In this sense, the rand's ill fortune was good news for South Africa, even if ''old world" wine producers in Europe - France, Italy and Spain - still dominate wine production, pumping out 1.5-billion cases in 2012, according to The Telegraph.

But the omens aren't great for the European business. Production fell 9.5% from 2011 to 2012. France's production plummeted 18%. Nonetheless, France is still top of the tree when it comes to wine production globally, but the gap is narrowing.

To fill the gap, South Africa, China, Australia and Chile are pumping out more.

Unlikely as it seems, China produces about 150-million cases a year - up from about zero in the mid-1990s.

Historically, the French have made and drunk the most wine. The US is a close second, says The Telegraph.

Alcohol is a huge industry across the spectrum, from wine to spirits.

One of the biggest deals in the liquor industry was announced this week. Suntory of Japan said that it would take over Beam Inc for $13.6-billion, transforming it into the third-largest distiller globally.

Beam has some of Bourbon whiskey's most iconic brands such as Jim Beam and Maker's Mark. The deal puts Suntory behind Diageo of the UK and France's Pernod Ricard by sales in spirits.

Source: Business Times