Agri-Africa Consultants 38 Rhodes Ave (South) Stellenbosch

FINAL DRAFT

Department of Agricultural Economics, Extension and Rural Development

Working paper 2008







Agri-Africa Consultants

38 Rhodes Ave (South)

Stellenbosch

7600

www.agri-africa.co.za







Table of Contents

1 INTRODUCTION 7

1.1 Background 7

1.2 Scope of Work 8

1.3 The industry at a glance 9

2 INSTITUTIONS AND STRUCTURES 10

2.1 The South African wine production structure 10

2.2 Government assistance 11

2.3 The legal environment 11

2.3.1 Regulatory measures 12

2.3.2 The Wine of Origin scheme 12

2.3.3 Legislation changes 13

2.4 Industry governance and representation 13

2.4.1 The South African Wine Industry Council and its business units 13

2.4.2 The Wine and Spirit Board 15

2.4.3 The South African Wine Industry Trust (SAWIT): 15

2.4.4 Other wine organisations and interest groups: 16

2.5 Environmental sustainability 16

2.6 Technology innovation, research and development 18

2.6.1 Funding cuts 18

2.7 Wine industry information and intelligence systems 21

2.8 Industry levies and funding 21

3 ECONOMIC BENCHMARKING 22

3.1 Overview 22

3.1.1 Profitability at the primary producer level: 22

3.1.2 Producer Cellars: 26

3.1.3 South Africa / Australia benchmarking comparison: 27

3.2 Investment growth and industry expansion 29

3.2.1 Investment: 29

3.3 Market and export development 34

3.4 Wine Tourism 35

3.4.1 Industry structure: 36

3.4.2 Current wine tourism activities by the industry: 36

3.4.3 Towards a wine tourism strategy: 37

3.4.4 The Winelands and the 2010 FIFA World Cup: 38

3.5 Constraints facing the industry 38

3.5.1 Infrastructure, supply chain and logistics: 38

4 COMPETITIVENESS OF THE SOUTH AFRICAN WINE INDUSTRY 40

4.1 Measuring performance 40

4.2 Global comparisons 41

4.3 The determinants of competitiveness 42

4.4 Analysis: constraints and opportunities 45

4.4.1 Factor conditions: 45

4.4.2 Market conditions: 45

4.4.3 Related and supporting industries: 45

4.4.4 Related and supporting industries: 46

4.4.5 Firm strategy, structure and rivalry: 46

4.4.6 Government support and policies: 46

4.4.7 Chance factors: 47

5 EMPLOYMENT PRACTICES 50

5.1 Status quo in respect of compliance 50

5.2 Casualisation of farm labour; its implications for farm workers/dwellers 50

5.3 Towards a ‘best practice’ scenario 51

5.4 Community social responsibility 51

5.5 Workforce and skills development 52

5.5.1 The role of SETAs to enhance the process: 52

6 AN OVERVIEW OF TRANSFORMATION AND BLACK ECONOMIC EMPOWERMENT 53

6.1 The Wine Industry Transformation Charter 53

6.2 BEE models in the wine industry 55

6.2.1 Overview: 55

6.3 Empowerment models reviewed: 58

6.3.1 Individual entrepreneurs: 59

6.3.2 Crop share: 60

6.3.3 Profit share: 61

6.3.4 Accrual of crop or profit share (time-assisted acquisition): 61

6.3.5 Contract farming and satellite schemes: 62

6.3.6 Employee equity schemes: 63

6.3.7 Joint venture schemes: 64

6.3.8 Co-operatives: 65

6.3.9 Community-based ventures: 66

6.3.10 Collective farms: 67

6.3.11 Housing: 67

6.3.12 Off farm business opportunities. 68

6.3.13 Service SMEs: 71

6.4 Tools and levers 71

6.4.1 Mentors: 72

6.4.2 Sweat Equity: 72

6.4.3 Warehousing of shares: 72

6.4.4 Regional differences: 72

6.4.5 Conclusion: 73

6.5 Perceptions of BEE 73

7 A MULTI-PRONGED APPROACH TO SUSTAINABLE GROWTH AND DEVELOPMENT 74

7.1 The role of the wine firms 75

7.2 What the wine industry believes government should do to support the wine industry 77

7.3 Industry level focus 80

7.4 Recommendations and lessons for other agri-processing industries 81

8 REFERENCES

List of Tables

Table 1 Structure of the South African wine industry 10

Table 2. Wine Industry research funds 20

Table 3. Financial statements for average primary grape producer (per hectare) 24

Table 4: South African versus Australian wine 28

Table 5 : Basic trends in the South African wine industry, 1997 – 2006 33

Table 6: The competitiveness index of the wine industry in South Africa: trends from 1961 to 2003 based on the Relative Revealed Trade Advantage (RTA) index 40

Table 7 : Determinants of competitiveness for the South African wine industry 44

Table 8: A list of “virtual” black wine businesses since 2001 69

Table 9: A SWOT analysis of “virtual” black wine businesses 70

List of figures

Figure 1: The organisational structure of The South African Wine Industry Council 15

Figure 2: Grape prices per tonne 24

Figure 3: Cost trends 25

Figure 4: Profitability indicators 25

Figure 5: Profitability ratios 26

Figure 6: Average producer cellar earnings before interest and tax (EBIT) and net profit after tax (NPAT) 27

Figure 7: Average producer cellar return on investment (ROI) and return on equity (ROE) 27

Figure 8: Australia / South Africa income statement comparison 29

Figure 9 : Australia / South Africa comparison of profitability ratios 29

Figure 10: Trends in producer income, 1997-2006 30

Figure 11: New wine cellars in South Africa, 1997 - 2006 31

Figure 12: The age composition of vines in South Africa, 1997-2006 32

Figure 13: Infrastructure and supply chain logistics 39

Figure 14: The Wine Competitiveness Ratio - trends in the competitiveness of the wine industry 41

Figure 15: Trends in the competitiveness of selected wine producing countries (1990-2003) 42

Figure 16: The evolution of land reform projects 58

ANNEXURES
1	Statistical overview of the South African Wine Industry
2	Wine Routes, Trusts and Associations
3	Baseline Study, 2004
4	Baseline Study, 2005
5	Assessment of Agricultural Land Reform Projects in the Western Cape
6	Rating system for land reform projects

WINE INDUSTRY BENCHMARKING¹