Agri-Africa Consultants 38 Rhodes Ave (South) Stellenbosch

3.5Constraints facing the industry

3.5.1Infrastructure, supply chain and logistics:

The industry recently participated in comprehensive “supply chain and logistics” analysis through the CSIR and the Agro Logistics project of the National Department of Agriculture. The major challenges were listed as: currency fluctuations; back logs with certification and inconsistencies in the wine supply channel (which influences quality negatively); and effective traceability systems, which although progressing, need upgrading to confirm to the latest EU standards (refer to Figure 13).

Some of the major bottlenecks identified were in laboratory testing and certification capacities. These impact negatively on quality and consistency and the timeous issue of certificates. The contracting out of such services from the government laboratory to accredited private facilities is in a pilot phase.
The relative higher cost of packaging materials (glass bottles in particular) and the inability of the local industry to produce new bottles/packaging designs quickly and economically is of further concern. Global volume-driven economics are expected to have an influence on the matter, which could encourage the future bulk exportation of wine.
Port/harbour inefficiencies are also being experienced. Operational matters, such as congestion, transportation coordination, delays caused by SARS inspectors and a lack of information sharing with, for example the export fruit industry, were identified as constraints. Limited shipping options also contribute to “inflated rates” and rail costs and services are generally viewed to be poor and not effective.


Figure 13: Infrastructure and supply chain logistics

4COMPETITIVENESS OF THE SOUTH AFRICAN WINE INDUSTRY

4.1Measuring performance

Competitiveness performance is a dynamic and involved process rather than an absolute state of affairs and can therefore only be assessed in a relative sense and over time. The growth produced by competitive activities should thus be sustained rather than short-lived. Short-term efforts such as opportunistic “price wars and cost cutting” seldom sustain a competitive position. Long-term or sustained performances are therefore relevant in defining and analysing competitiveness as quoted below:

“(Wine) industries and firms are competitive when they are able to deliver products at qualities and prices that are as good or better than their competitors; and they are able to attract sufficient sources of capital, land, labour, technology and management from other competing economic activities”. In short, “to be competitive in today’s world is to continue to trade your wine products successfully” (Esterhuizen & Van Rooyen, 2007).”
The long-term competitiveness index and the trends in competitiveness for the wine industry in South Africa as measured by the Relative Revealed Trade Advantage (RTA)¹⁶ index is shown in Table 6. In Figure 14 the trend is illustrated. From Table 6 and Figure 14 it is clear that South Africa’s wines are increasingly internationally competitive with a sustainable and positive trend over recent years. The wine industry in South Africa shows positive trends in competitiveness in the long run and it should not lose its competitiveness status in the near future if its dynamic ability to continue to trade is sustained.

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

Product	RTA 2003	RTA 2002	RTA 2001	RTA 2000	Trends 1961-03	Trends 1980-03	Trends 1993-03	Trends 1998-03
Wine	4.93	4.28	3.76	4.02	+	+	+	+

Source: Own calculation based on data from FAOSTAT 2005

Notes: Competitive (RTA > 1), marginal competitive (1 > RTA > -1), not competitive (RTA < -1); ‘+’ Positive trend; ‘-‘ negative trend.

It is interesting to note that the economic deregulation of the South African wine industry which coincided with the introduction of South Africa’s first democratic government in mid nineties (1994-1997) provided the basis for an increase in its competitiveness status. This was preceded by the period of economic sanctions – seventies, eighties and nineties – resulting in low competitiveness performance. Some analysts refer to this as the “Madiba Magic” period with international markets opening up for the wines of the “rainbow” country. The situation, however, is clearly more complex. Factors such as improved market knowledge, replanting of improved (mainly red) grape varieties and virus free plant materials, technological innovation such as changes in wine styles to accommodate changing consumer preferences, were all required to sustain performance. The impact of exchange rate changes is also clearly illustrated in Figure 14 – from 1993 onwards.

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

in South Africa (1961 – 2003)