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VinPro(SA) Bulletin
August 2002
Increased sales cause further reduction in stock levels
Healthy growth in purchases and a year that will be concluded with an ongoing reduction in stock levels, are being projected for 2002 by the Industry Forecast Committee.
Healthy growth is expected in the production of rebate wine, juice and distilling wine, all of which are being produced in accordance with market requirements. Rebate purchases in particular are expected to increase sharply. The surplus rebate stocks which accumulated and reached a peak in 1999, seem to have been almost removed from the system and the trade is busy, once again, to increase purchases to normal levels. Historically the average rebate wine purchases amount to approximately 85 million litres and purchases can therefore be expected to reach this level again in the next few years.
If one presumes that the market's need for rebate, juice and distilling wine will be met, the implication is that the balance of the crop (534 million litres) will be available for the production of drinking wine. The predicted market requirement for drinking wine for 2002 is considerably more than 534 million litres, however, which means that the industry's stock levels of drinking wine will have to be tapped even further to supply in the demand.
The industry's good wine supply is projected to decrease by approximately 72 million litres to approximately 183 million litres by the end of 2002. Although this is still considerably higher than the previous lowest stock level of approximately 109 million litres in 1986, one must accept that the industry stock level will have to increase in line with the increased percentage of the total crop represented by good wine. As a consequence of the higher percentage of red wine in the industry's composition, stock levels should increase due to the maturation period of red wine.
However, should the 2003 crop size be below average (which was the case the previous two seasons), and should the projected increases in sales be realised throughout the industry's product portfolio in accordance with current projections, 2003 will see a further reduction in industry stocks to levels that will be unhealthy for the industry.
PRODUCTION AND STOCK LEVELS

Wine produced 2001 2002 Trend

Good wine 535.4 534.3 99.8%

Rebate 8.1 25.4 313.4%

Juice and concentrate for non-alc. purposes 99.5 107.5 108.0%

Distilling wine 99.7 140.8 141.2

TOTAL 742.7 808.0 108.8%

Stock levels 2001 2002 Trend

Beginning stock 290.5 254.4 87.6%

End stock 254.4 182.7 71.8

Previous highest stock (Dec 1999) 315.5

Previous lowest stock (Dec 1986) 108.8

American cars tanking up with European surplus wine
Ever wondered what happened to the huge surplusses of white wine produced annually in Europe? The answer lies to the west of the large UK supermarkets - unsold white table wine finds its way to the large petrol tanks of American cars.
American cars have an increasing thirst for alcohol. For a cleaner burn, ethanol or grain alcohol is added to petrol at refineries to comply with federal and government laws. In 2001 American cars used approximately 7,7 billion litres of ethanol.
The surplus European wine is sold periodically at wine alcohol auctions. These auctions were suspended in October last year, pending an investigation by the European Commission into possible manipulation of the auctions and price fixing by a cartel of influential buyers.
Estimates show the European tax payer to be paying $1 for each litre of surplus wine that is produced, to be sold in turn for as little as 10 USA cents on these auctions. This means European consumers are not only paying for wine they do not want to drink, they are also subsidising the sale thereof to American agricultural businesses.
(Source: Winebusiness)

Prices of bulk white wine recover
After a sharp decrease in the price at which wine producers have been selling their bulk white wine since 1999, this trend was reversed in 2001 and early in 2002 indications were that prices were again reaching levels of four years ago.
Prices decreased sharply to an average level of R1,32 in 2000 and many cellars sold their wines for as little as 50 cents per litre, which is far below economic levels.
The average selling price of R1,67 for the period from January 2002 to April 2002 is equivalent to the average price fetched four years ago. Obviously the pressure on the profitability of these wines over the past two years has been enormous, with many producers marketing their wines at a loss.

The total volume of this wine sold in 2001 amounted to 271 million litres, and at an average selling price of R1,41 it implies an industry income of approximately R383 million, which represents about 30% of the total producer income of the wine industry. The financial implications of price changes in this market segment for the wine industry and the survival of producers speak for themselves.
The latest information released by SAWIS shows that in April 2002 the average selling price of bulk white wine amounted to R1,84, compared to R1,39 in April 2001. Producers now have the opportunity (given the expected reduction in stock levels in the industry) to realise prices for these wines that are not only economically viable, but that will represent a healthy profit margin.

Export growth still strong
South African wine exports showed a very healthy growth of 30% in 2001, with exports amounting to almost 183 million litres. As recently as four years ago, SA exports only amounted to 118 million litres.
This is a truly outstanding achievement, since the average growth over the past four years amounted to about 9% only and with the increase taking place annually from a growing basis.

Approximately half the growth came from the UK market, South Africa's biggest export destination. Volumes also showed healthy growth in the Netherlands, Germany and Australasia. Another positive is the fact that 60% of the growth occurred as a result of increased exports of bottled wine.
The Industry Forecast Committee predicts furthermore that exports will increase by 15% and 10% respectively in 2002 and 2003.

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