With a lower grape harvest and the profits of the wine sector souring, sector players urge Finance Minister Enoch Godongwana to not subject the industry to an increase in excise duties.
Rico Basson, managing director of Vinpro, said on Wednesday: “The wine industry would like to highlight the need that considerations for the 2023 excise taxation on wine, sparkling wine and brandy, should be less or, at maximum, equal to inflation for 2023. This combined with other interventions as agreed in the Agriculture and Agro-Processing Master Plan (AAMP) will enable the wine category to continue playing this vital role in our society.”
On Tuesday, Ivan Meyer, the Western Cape Provincial Minister of Agriculture, said he had written to the Agriculture, Land Reform and Rural Development Minister Thoko Didiza, requesting her assistance in ensuring that an unfair increase in excise duties did not negatively impact the wine industry.
“I did so in anticipation of next week’s Budget Address by the Minister of Finance, Enoch Godongwana,” he said.
“I aim to prevent developments in the excise regime, which will be detrimental to the South African wine industry.”
The Budget will be announced on Wednesday.
Meyer’s plea comes as the industry is in a financial squeeze, facing a series of challenges.
Vinpro’s Basson gave a snapshot of how the industry was faring.
He said the South African wine industry had a core strategy to shape a sustainable future. Its four strategic focus areas would enable the desired future state outcome for the wine industry and include a transformed and responsible value chain, an established and enviable position in the global market, a loyal and growing local market and sustainability at everything it did.
But he said the South African wine industry was often hamstrung by political ideologies that are not outcome-based, have limited accountability, and no sense of urgency. “This at a time when our global competitors are far more aggressive in their execution. It is time for decisions and actions.”
Basson said the required interventions the wine industry needed from the government had already been agreed to and set out in the AAMP and across five key pillars:
– Resolving policy ambiguities and creating an investment-friendly environment.
– Creating enabling physical infrastructure, providing comprehensive farmer assistance; development finance, R&D and extension services.
– Facilitating market expansion, improving market access, and promoting trade.
– Improving food security, increasing production and employment and decency and inclusivity.
He said with a smaller harvest projected for 2023 due to unfavourable weather conditions earlier in the season and electricity disruptions, lower yields would mean lower wine production, adding more financial pressure to an already strained industry still in recovery.
“This sector will further be negatively impacted by the most recent energy crisis and the ongoing lagged supply side shocks from the Ukraine crisis, resulting in stock outages and double-digit input cost inflation.
“Importantly, this industry is labour-intensive. Therefore, any additional financial strain on an already low-profit environment could negatively influence employment conditions, particularly seasonal labour,” he said.
The wine industry was currently in a regrowth stage and for the industry to recover fully from the previous drought, pandemic and current economic climate, the government needed to urgently fix and reinvest in infrastructure, enable the private sector to help resolve the energy crisis, clamp down on corruption and illicit trade, and enable market access for SA Wine to enable global competitiveness, Basson said.
CHALLENGES
Meyer also highlighted the challenges the sector faced.
During the initial stages of the Covid-19 lockdown, the South African wine industry was the only major wine-exporting country banning the export of wine.
The result was that market share was handed on a platter to some of our competitors, he said.
“The South African wine industry has just emerged from one of the most severe droughts in its history, and in some areas (for example, the Olifants River Valley), farmers had to make do with only 16% of their usual quota of irrigation water during the 2017/18 season,” he said.
Over the past few years, the wine industry had also experienced a sharp decline in profitability.
Official statistics indicate that 80% of wine farmers had a Net Farm Income (NFI) of less than R30 000 per hectare per year during 2018 – the minimum threshold of long-term sustainability in the industry.
In addition, the current paucity of electricity supply did not bode well for the wine industry, Meyer said, adding that South Africa was currently in the middle of the wine grape harvesting season, which required continuous electricity supply for destemming, pressing of grapes and cooling of the juice.
“It is a matter of significant concern that the combined effect of the above will jeopardise the domestic and international competitiveness of the wine industry,” Meyer said.
He explained that the agricultural sector was a vital ingredient of the Western Cape economy. In 2021 the value of Western Cape agricultural exports amounted to R51.8 billion.
The department estimated that 45 610 people work in the primary production side of the industry and that it supported the livelihoods of 228 053 people.
Meyer said: “ Therefore, an exorbitant increase in excise taxes may very well be the straw that breaks the camel’s back and lead many wine farms to ruins. Furthermore, careful consideration must be given to the competitiveness of labour-intensive industries such as wine compared to highly mechanised operations in the beer industry.
“Ameliorating the possible negative impact of changes in excise duties on the wine industry is in the best interest of the Western Cape economy and the growth of jobs in the wine sector,” he said.
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