The move to Adjusted Alert Level 3 will provide a welcome boost to the Western Cape’s wine industry. This sector is a major employer in the Western Cape and has been under immense pressure.
Entitled, Economic Impact of Government Restrictions on Domestic and International Trade of Alcohol, Optimal Agricultural Business Systems (OABS) did the research, and the Bureau for Food and Agricultural Policy (BFAP) did the modelling.
Some of the main results from the Report can be summarised as follows:
- The smaller players in the industry (smaller producers, micro cellars, and craft breweries) were hardest hit by the trade ban. Bigger, particularly foreign-based multinationals, were the least affected.
- 30% of craft breweries have already closed their doors, and 90% of the balance are at risk.
- Compared with the 2019/20 harvest, wine prices received in the 2020/21 harvest is down 18%, leading to a decline of 77% in the net profit of wine farms. The implication is that the average net profit is R33 160 per hectare below the level of long-term sustainability.
- At the farm level, gross margins declined by more than 50% to as low as R3 500 per hectare during 2020. This leaves minimal scope for overheads, depreciation, interest, taxes, etc.
- The current round of restrictions will cut R3,5 billion from the Gross Value of Production by 2027.
- The lower prices will further reduce producer margins during 2021. As a result, indications are that gross margins will decline by close to 70% from the baseline and that the average gross margin per hectare will be as low as R2 000 per hectare.
- An estimated 165 000 jobs were already lost. If the ban is to continue, these job losses will only increase.
- Investments valued at R6 billion were suspended, the GDP loss amounted to R51,9 billion and R29,3 billion was lost in tax revenue.
- Middle- and upper-income consumers started to stockpile alcohol while lower-income consumers started to consume lower quality alcoholic products (not necessarily more).
- The illicit trade in alcohol increased to 22% in terms of volume terms and 12% in value. This indicates that consumers are being driven to the unregulated “cheap and nasty” stuff with associated long-term health damage. Experience has shown that once lost; it is challenging to recover market share from the illicit economy.
- Domestic wine consumption declined by 15% and exports by 11% below the baseline level, with the result that wine stocks at the end of the year increased by 22%. It is expected that this increase in inventories will have a carry-through effect until 2027, with associated pressure on the price of domestic products downwards.
The above figures reflect the national impact of the blanket ban on liquor sales. It is worth noting that 95% of the wine industry is located in the Western Cape, and so it was extremely devastating for our provincial economy.
The relaxation of restrictions means that the industry can now rebuild a crucial sector in the Western Cape and save jobs.
I, however, want to urge residents to please drink responsibly and not to drink and drive. The Western Cape’s health platform is still under pressure. So we need to do everything possible to safeguard it by changing our behaviour regarding alcohol and ensuring we do not get infected or spread, COVID-19.
For a copy of the Report, click on https://www.elsenburg.com/content/report-economic-impact-government-regulations
Spokesperson for Minister Ivan Meyer
Tel: 079 990 4231