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Higher labour cost is cause of more expensive grapes

The price of wine grapes is forever increasing, therefore it is becoming more and more important to keep a strict tab on production costs at farm level. The accompanying table shows the average percentage contributed by various cost items in 1999, compared to the average total cash production expenses of wine farmers. It is clear that labour cost, with an average percentage of 46% for the industry, is the single biggest contributor to the high production costs that are being experienced. This figure ranges from 40% in certain districts, increasing to as much as 54% in other districts.

It is therefore clear that, when looking at a reduction in costs, this will have to be the first area in which adjustments will have to be made.

Direct costs, including weed and pest control and fertilisation, constituted approximately 17% of the expenses. An imprudent reduction of this percentage is not advisable, while the costs of mechanisation, fixed improvements and general expenses amounted to 18%, 5% and 14% respectively.

Cost item as % of total cash expenses

1999

Direct cost 17%

Labour cost 46%

Mechanisation cost 18%

Fixed improvements 5%

General expenses 14%

TOTAL 100%

At farm level production cost showed steep increases over the past 10 years, while the increase in total production cost for the wine industry was more than double compared to the inflation rate over the same period.

It is clear that since 1994 labour cost in particular has been increasing at a much steeper gradient than production cost. Since 1990 labour cost has increased by approximately 280%, compared to the 71% increase in inflation.

In times like these, when costs are increasing drastically, it is essential for farmers to derive maximum benefit from the flourishing wine industry, in order to compensate for these enormous increases in costs.

[Direct cost, Labour cost, Total Production Cost, Inflation]

UK remains SA's most important export market

Although South Africa is a very small player in world terms, with only 3% of the total world exports, South Africa still exports about 15% of its total crop, which carries a lot more weight in rand terms.

The United Kingdom remains South Africa's most important export country, with 42% of the country's exports going to the UK in 1999. Total exports to the UK increased by 15% in 1999. Of these, the bottled red wine category showed the biggest increase (26%), followed by an increase of 25% in the bottled white wine category.

The Netherlands, receiving 15% of our total wine exports, is still South Africa's second most important export country with regard to volume, followed by Scandinavia and Germany, constituting about 8% each.

The increase in exports to the Netherlands and Scandinavia amounted to 29% and 22% respectively in 1999, while total exports to Germany remained constant. It is significant, however, that red wine exports to Germany increased by 11%, while white wine exports decreased by 14%.

The biggest growth, albeit from a small base, occurred in exports to Switzerland, with an increase of 56% compared to 1998. Switzerland was followed by the African islands and the USA, with increases of 43% and 40% respectively.

With the competition in the international markets getting tougher by the day, it remains to be seen how South Africa will perform in the new millennium in a world market demanding market driven production of high quality innovative products to ensure survival.

- Information supplied by the SA Wine and Spirit Exporters' Association.

Wynboer is incorporated in WineLand, magazine of the SA wine producers.
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