Constantia, Cape Town
3 May 2007
The South African Wine Industry: challenges and opportunities
Professor Asmal, Chairperson of the South African (SA) Wine Council
Ms Thandi Ndlovu, Chairperson of the SA Wine Industry Trust
There have been enormous changes in the wine industry over the past decade,
influenced in no small measure by agricultural marketing reforms, opening up of
export opportunities and restructuring of the role of the KWV from about 1997
onwards. Red wines have increased from 15 to 40 percent of the total signalling
the steady march forward of civilisation; exports have climbed from 12 percent
of production in 1994 to 45 percent. The relentless trajectory of
globalisation; production costs have increased from something like R6 500 a
hectare to over R20 000; production revenue has increased to something like R3
billion a year and I understand that profitability remains a fondly-imagined
distant possibility.
But I think we all know that the transformation we have seen over the past
ten years has been just the preparatory phase for the challenges and
opportunities of the decade ahead. So you will surely agree with me that the
establishment of the South African Wine Council last year, the formation of the
Industry Trust and associated initiatives in marketing, research and industry
development represent most welcome and timely interventions.
I am honoured to have been invited to join you at this inaugural Freedom Day
lecture. Let me begin by expressing appreciation for the wisdom and foresight
of those who did the groundwork in bringing the industry together in these new
institutions. Professor Asmal has shared with me his address at the Vinpro
Information meeting in January this year and instructive papers by several
participants. Clearly your debate on challenges and opportunities is already
well under way and before long you will all, together with old Father William,
be standing on your heads.
This is all for the good, because it helps to look at things upside down
from time to time. Of course I can't do your strategic planning for you, but
perhaps I can propose a few wrong-sides up perspectives. The January meeting
correctly indicated the two great challenges before us: market development and
broad-based empowerment.
Let's start with growing the market. I understand that you have identified
the United States (US) as a key target market for the period ahead, and quite
rightly, because US sales are hardly above 3 percent of South African wine
exports at present. But the great project of reconstructing American
consumption habits should not be under-estimated. When a nation has developed a
long historical preference for fast-moving industrial beverages, it is hard to
advance the cause of the noble contemplative arts.
I can probably only tell you what you know already about the export
marketing challenge that lies ahead: there is over-production of wine
worldwide, China is planting 100 000 hectares of vine a year, our industry is
fragmented and production quality cannot entirely be managed or predicted, with
some 600 or so estates and labels it is hard to co-ordinate and consolidate
South Africa's marketing efforts internationally.
But in marketing especially, the upside-down view is the right perspective
on the problem. From the global consumers' perspective, South African wines are
just beginning to come into view. If we can succeed in expanding that view,
then the global wine lake recedes into insignificance. And so we need to ask
what it is that keeps our wines in view, in mind, on menus, on order lists, on
investment portfolios.
Wines of South Africa have got off to a great start as a collective
marketing initiative, and its work in packaging and positioning our brands
internationally is clearly central to the market development challenge. This is
not just an advertising account, it is the much more difficult and
organisationally demanding project of constructing a partnership across some 60
cooperatives and 500 private cellars, and of collectively branding up to 4 500
distinct products.
Expanding the visibility of South African wines in the view of the consumer
is about penetrating the fog of confusion that accompanies information overload
in the global product market. Selling South African wines requires a clear and
consistent message and clarity of message requires an industry that works
together and combines its resources effectively.
What should be the content and strategic focus of our marketing efforts?
Those are questions I can't answer and they need detailed and careful review. I
can't even help very much on how you should consolidate financial resources for
an expanded marketing strategy, except to say that it can be done and it is a
lot better that it should be done by the industry acting collectively than by
government department acting on your behalf.
But I can say this, because the broad principles of growing an industry are
not dissimilar to the challenges we face in growing the wider South African
economy. You have to take a long term view, you have to think 10, 20, 30 ahead;
you have to let the numbers and the analysis speak and be wary of pat answers
and sweeping judgments; you have to listen to the experts and let the debate
unfold even if it leads in uncomfortable directions; you have to confront
barriers and difficulties boldly and forthrightly.
There are also several pressing challenges, globally and domestically, that
your industry unavoidably shares with other sectors and indeed with wider
humanity. Environmental considerations are already recognised in your Council's
agenda and have come to the fore in various projects, on individual estates or
jointly.
Effective and responsible management of water is an issue that I know
Professor Asmal will keep under close scrutiny. Habitat conservation and the
appropriate balance between adaptation and preservation of the landscape that
is under your trusteeship may appear in the short-term to be complicating and
cost-raising factors. But these are also central aspects of long-term
sustainability and they bring at least some opportunities for diversification
that holds commercial potential.
Research and technology improvements are important elements in long-run
industry development and in this respect as in the environmental arena, I am
mindful that there is scope for better co-operation between industry and
government. We have considerable strengths on which to build good research
facilities and excellent university resources, sound environmental legislation,
for example.
I am advised that in the SA Wine and Brandy Company's 2006 submission to the
Ministerial Review Committee on Agricultural Marketing, several recommendations
were made for improvements in research co-operation, in combating crime and
fraudulent activities, addressing congestion or delays in the ports and
speeding up international negotiations that affect market development, amongst
other matters. Ongoing and better focused dialogue between industry and
government is the key to making progress in these areas.
I understand that the industry submission also proposes that the excise
duties on wine are excessive. This is a view that enjoys my sympathy and I will
pass on the concern to my officials. But I need to caution that on these
matters industry objections and Ministerial sympathy are not always sufficient
to counter the weighty advice that the Treasury musters each year when it comes
to constructing the annual budget.
Tax is just part of the larger framework of control over the use of
alcoholic beverages, but it is a reminder that we still have some way to go in
addressing issues of social responsibility in this industry. We should think of
this as part of both the empowerment and social transformation agenda and of
market development in its more inclusive long-term sense. I have in mind both
the general contribution of the wine industry to promoting responsible drinking
and to the more specific challenge of addressing alcohol abuse on farms and its
various effects, which include the continued high incidence in the Western Cape
of foetal alcohol syndrome. I believe the industry needs to act more decisively
in this area and should not shrink from doing so publicly, in partnership with
other role-players.
But the positive sides of empowerment and social investment also need more
visible expression and public discussion. Housing, access to education and
healthcare, deliberate interventions focused on the quality of schooling,
training and business partnerships, co-ownership and joint ventures with new
entrants to the wine industry are all contributing to building a South African
future in which growth and opportunities are shared. Progress in these
activities needs to be accelerated.
Although individual efforts on farms and in factories and local communities
will always play a prominent role in the progress of working conditions and
social advancement, collective undertakings also have their place. I am mindful
that government for its part has concentrated efforts over the past decade on
policy and programmes of general application. Indeed in several respects we
were constitutionally bound to take this route.
But in the decade ahead, we need to recognise also that social progress will
depend increasingly on adapting development programmes to the particular
circumstances of different industries and communities and groups. In the
challenge of building a broad-based social security system that contributes to
improved unemployment insurance, survivor benefits and retirement savings for
working people, for example, we are going to have to confront the particular
difficulties of accommodating seasonal and irregularly employed farm
workers.
In the challenge of creating job opportunities for rising numbers of young
work seekers we clearly have to do much better at adapting training and further
education programmes to both the sectoral and industrial skills shortages that
are emerging and the shortcomings of the school system at present. In the
challenge of building welfare services that meet peopleâs practical social
needs we have to adapt to the impact of HIV and Aids on families and
communities, but also to the particular kinds of social fragmentation or
dysfunctionality that characterise Western Cape farms or townships.
In the challenge of building industries that can grow and compete
successfully on the global market, we have to locate the particular
technological shortcomings that may be holding back progress or the logistical
bottlenecks that interfere with more streamlined market access or the special
skills requirements that need to be met through a new training or education
programme.
In the challenge of constructing a public administration that adapts to
modern requirements we have to invest in Information Technology (IT) systems
that actually work and municipal planning processes that keep pace with
residential and commercial and industrial development opportunities.
And in the challenge of managing a faster growing economy, we have to find
the right ways of ensuring that marginalised people are not left further behind
and that the benefits of growth reach those without skills or education, reach
rural villages and congested townships; that constructing universal access to
the internet does not come at the expense of universal access to
sanitation.
The challenge before us is no less than this: to give considered intelligent
practical effect to both market development and empowerment across an
increasingly broad array of social and economic opportunities. That is what
growth brings: more opportunities; greater challenges. Building a future in
which freedom is fully enjoyed by all remains a formidable challenge for us
all. But with the right institutions in place and with the kind of leadership
that can bring together those who need to work together, I know that the wine
industry can play its part and more.
Thank you.
Issued by: National Treasury
3 May 2007
