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Winegrowing in South Africa : Investment opportunities

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Winegrowing in South Africa : Investment opportunities

The unique taste of South African wine, its quality, and its low alcohol content explain its popularity among consumers and its strong presence in the global market. Flexible customs duties and entry tariff barriers further complement this.

Analysis of the wine market

In 2020, the international wine market was estimated at 340 billion USD, and this figure is expected to increase to 457 billion USD by 2028, with an average annual growth rate of 4.30 %. Unfortunately, the market was disrupted by the COVID-19 pandemic, as alcohol consumption was restricted during this period. Due to the pandemic, losses in the sector were estimated at 6.79 %, but there are hopes that the industry will gradually recover post-crisis.

Currently, Italy, France, Spain, the United States, Australia, Chile, Argentina, South Africa, and Germany dominate the wine market. Italy topped the list, producing 50 million hectoliters, equivalent to 1994 Olympic swimming pools, making it the world’s largest wine exporter. France came second, producing 45.6 million hectoliters, followed by Spain with 35.8 million hectoliters. These three countries alone represent half of the world’s wine production.

Next in line were the United States, Chile, and Argentina. South Africa was the only African country to make the list, ranking eighth, China 12th, and Japan 23rd in the Asian continent.

Historical context of the wine industry in South Africa

The history of South Africa’s wine industry dates back to the 17th century when Dutch settlers first cultivated it in the Cape region. Afterwards, French expertise refined wine production towards the late 17th century.

By the early 19th century, South African wines were in high demand in Europe. Wine production underwent several fluctuations, and it was in the 1990s that the South African wine brand gained global recognition.

Some of the top South African wine brands include:

  • Raats bush vine chenin blanc: 13.99 GBP
  • Journey’s End method cap classique: 22.50 GBP
  • De Wetshof Estate bon vallon ‘sur lie’ chardonnay: 15.50 GBP
  • Billy Bosch Paarl cabernet sauvignon: 10.99 GBP
  • Tesco Finest South African chenin blanc: 7.50 GBP
  • Mount Rozier reserve frog chorus Fairtrade rosé: 6.50 GBP
  • Adnams South African Stellenbosch chenin blanc: 13.99 GBP
  • Boschkloof syrah: 15.99 GBP
  • Rustenberg wild ferment unwooded chardonnay: 12.00 GBP
  • Bouchard Finlayson galpin peak pinot noir: 31.45 GBP
  • M&S Classics South African pinotage: 8.00 GBP

Challenges and issues

Despite being among the most consumed wines globally, recent figures for 2022 show a 5 % decrease in South African wine exports, estimated at 577 million USD. In 2022, most wine exports went to the United Kingdom (2.4 billion ZAR), followed by Germany and China.

One major challenge for producers in the wine sector is the significant increase in input costs while prices remain unchanged or low. In recent years, input costs for producers have increased by an average of 7 %, primarily due to sharp rises in energy prices, chemicals, and fertilizers on a global scale.

Climate change resulting from prolonged droughts also heavily impacts South Africa’s wine sector. Low rainfall and reduced water reserves have weakened the raisin harvest, affecting agricultural progress in Africa in general.

Another challenge in the sector is the price. Even though South African wine prices are affordable, at around 50 rands per bottle, this explains the low profitability of the market. Engaging with consumers who enjoy alcohol has the potential to significantly increase the value of South African wine, rising from 50 rands to 90 rands. By doing so, the competitiveness of South African wine would logically soar, resulting in numerous benefits.

Although grape harvests in 2022 were 5.5 % lower than in 2021, production remains significantly higher than the average of recent years (1.34 million tons). The decline in the 2022 harvest was primarily due to a decrease in vineyard land area without significantly impacting production quality. Also, eco-tourism is expected to revitalize the wine industry as economic activities recover after COVID-19.

Interestingly, premium wine has grown faster than other categories. In 2022, the premium category witnessed a remarkable growth of 54.1 % when compared to the superior Australian wine, which, in contrast, only achieved a modest production increase of 23.7 % from the previous year. Furthermore, the government has reduced barriers to boost eco-tourism, significantly assisting the sector. Therefore, in order to maximize productivity, South Africa should focus on premium wines.

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