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VinPro(SA) Bulletin
December 2001
Wine sales decline
Reserve stocks will have to be raided since the demand for wine this year has exceeded production. SAWIS estimates that by the end of 2001, stocks should have declined by 12% to slightly more than 226 million litres.
The total crop this year was the smallest in many years (19% less than the record crop of 1999), and the production of good wine was 2,5% less than in 2000, while real and projected sales indicate that good wine sales should increase by 7% in 2001. This will cause stock levels to drop even further, despite the big decreases in purchases of rebate wine, juice and concentrate, and distilling wine.
SAWIS is currently busy with a survey to determine what exactly the composition of these stocks entails. As a result of the maturation period of red wine, an increase in the optimum stock levels as a percentage of total production of good wine is to be expected, commensurate with the increase in the percentage of the total composition of the good wine crop represented by red wine.
View table
Stock levels vary depending on the varying production levels and sales of good wine.
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Turning point for high grape prices
Since 1996 there has been strong growth in the prices of premium wine grape cultivars in particular (except for delivery to co-operative cellars), but in 2001 the prices of most cultivars began to show a decreasing trend.
Of the so-called premium red cultivars, Shiraz as well as Pinotage prices began to decrease significantly, while the prices of Cabernet Sauvignon and Merlot remained at the same levels as in 2000. Pinot Noir is the only red cultivar that has been experiencing steady growth since 1996.
Sauvignon blanc and Chardonnay are the only two white cultivars to have experienced a slight increase in prices in 2001, while Chenin blanc and Colombar continued their downward price spiral. The price of Colombar in particular has been decreasing sharply since 1999 and is now even lower than in 1992.
This phenomenon of decreasing prices, even for premium red cultivar grapes, is not unique to South Africa. In actual fact, this trend is currently being experienced throughout the world.
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How to determine whether producing wine grape blocks are profitable enough
Determining which wine grape blocks contribute to the farm's overall profitability and which blocks reduce the farm's overall profitability, remains a critical question for producers who have to decide which blocks to replace.
Before reaching such a decision, a few questions must be answered:
- For which purpose is each specific block being cultivated?
- What are the grape specifications of the end product for which the block is being cultivated?
- What is the expected production per block?
- What is the production cost for the specific block?
- What is the expected price category of the end product?
- What is the period of payment of each "pool" for the purposes of determining interest implications? For example, if grapes are delivered at R1 000 per ton in March, different times of payment may have the following implications as far as effective prices paid for the grapes are concerned:
- Effective price, if the money is received in December, is R899/ton
- Effective price, if the money is received in March of the following year, is R865/ton
When a decision has to be reached about whether or not to phase out a specific block, the performance of the block should be considered over a minimum period of three years. Also to be taken into account is the future potential increased demand for wine from that specific block or cultivar.
When to phase out:
- Blocks which do not recover cash expenditure consistently should be phased out immediately.
- Blocks that do recover cash expenditure, but do not recover the total production cost (including provision for replacement) consistently, may be retained if there is uncultivated soil for expansion. If the replacement programme is not up to date, however, replacement of such a block is recommended.
An example of the breakeven point of a cultivar that pays out a block average of R1 000 (approximately R1,28/litre @ 7 80l/ton recovery) per ton: (Keep in mind that all grapes from the same block do not necessarily qualify for the same class, which will influence the average payment.)
Total cash expenditure (R/ha) 9 500
Provision for replacement 3 500
Total production cost 13 000
Breakeven production to recover cash expenditure:
Total cash expenditure
Price paid per ton
=9 500/1 000
=9,5 ton/ha
Breakeven point to recover total expenditure:
Total expenditure
Price paid per ton
=13 000/1 000
=13 ton/ha
Contact Johan Truter (021-807 3043) or Paiter Botha (021-807 3302) should further assistance be required to determine breakeven points.
Table
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An example of how to evaluate and combine the profitability of the various blocks on the farm to determine the profitability of the total wine grape division.
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