A Technical Guide for Wine Producers

RECENT ARTICLES   |   WYNBOER HOME VinPro(SA) Bulletin February 2002 Ensure that you make a profit on your wine The cost of producing a litre of good wine is critical to determine whether a wine producer is making a profit or not. The cost per litre may differ drastically from cellar to cellar, seeing that each cellar has its own unique cost structure. The calculation below merely represents a guideline to determine breakeven cost for the production of 1 litre of good wine and is based on the average cellar cost of co-operative cellars. The cost is calculated at four different yield levels per hectare, namely 10 tons, 15 tons, 20 tons and 25 tons. Calculation of breakeven prices at farm level: For the calculation of production cost per hectare, the average production cost for the industry was used. Production cost excludes interest on outside capital, provision for replacement and entrepreneurial wages. Given the above suppositions, the breakeven price amounts respectively to R993 per ton at a yield of 10 tons per hectare and R397 per ton at a yield of 25 tons per hectare. Converted to rand per litre at a recovery of 773 litres per ton, the breakeven price per litre amounts to R1,28 and 51 cents at yields of 10 tons and 25 tons per hectare respectively. Farm production cost per litre per product category Good wine @ 10 tons/ha Good wine @ 15 tons/ha Good wine @ 20 tons/ha Good wine @ 25 tons/ha Production cost (R per hectare) 9933 9933 9933 9933 Recovery (litres/ton) 773 773 773 773 Cost: Rand/ton 993 662 497 397 Rand/litre 1.28 0.86 0.64 0.51 Calculation of breakeven prices at cellar level: Cellar cost excludes interest and depreciation. At a recovery of 773 litres per ton the average cellar cost (adjusted for 2002) amounts to 93 cents per litre of wine produced. The total farm plus cellar costs (excluding interest and depreciation) therefore amount to R1,79 at a yield of 15 tons per hectare and R1,44 at a yield of 25 tons per hectare respectively. It is therefore clear that at a yield of 15 tons per hectare, the accumulated cost, until the wine is produced, amounts to R1,79. According to this scenario, and supposing the wine is sold at R1,79, the cellar and the farmer only break even and no profit is generated. The question to be asked by each cellar and farmer is whether he/she knows what the calculation for his/her individual situation and cellar looks like. A producer might be selling wine under the impression that he/she is making money, while in actual fact he/she is not showing any profit. In the light of the above it is a matter of concern that in 2001 the average bulk price for white wine was R1,39 and that 40% of all bulk wine sold for less than R1,25 per litre. Farmers and cellars should realise that the responsibility to prevent wine from being sold at uneconomic price levels, which has a negative effect on the total price structure, is seated with both parties. It is in the interest of both producers and cellars to ascertain what the breakeven cost amounts to, both on farm and cellar level. Contact Johan Truter, (021) 807-3043, or Paiter Botha, (021) 807-3302, should you require further information about how to determine breakeven points. Total production cost per litre per product category Good wine @ 10 tons/ha Good wine @ 15 tons/ha Good wine @ 20 tons/ha Good wine @ 25 tons/ha Farm cost 1.28 0.86 0.64 0.51 Average co-operative cellar cost 0.93 0.93 0.93 0.93 TOTAL 2.21 1.79 1.57 1.44 Per capita wine consumption increases among new wine consumers only Decreases in the wine consumption of wine producing countries is the order of the day throughout the world. A reverse trend is noticeable, however, in countries that were traditionally beer or spirits consumers. The British, the Danes and the Dutch who were traditionally beer consumers, are currently drinking more wine than ever before. The British, Dutch, Irish and Belgians consume an average of 7,6 litres of absolute alcohol per capita. Of this total amount of alcohol, 27% derives from wine, compared to just 8% in 1965. About 58% of the total consumption is currently represented by beer, compared to 75% in 1965, while 16% is represented by spirits, compared to 18% in 1965. The contribution of wine to the total Chinese and Japannese alcohol consumption increased from 0,6% in 1980 to 1,2% at present.

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