PHOTO: THYS LOMBARD.
2014 RECORD CROP
VINPRO PRODUCTION PLAN SURVEY (PART 1)
The impact on
primary wine grape
producers’ financial
sustainability
Primary wine grape producers aligned inputs with wine style objective
production practices in order to limit cost increases and apply precision
production techniques, thereby realising a record crop for 2014, despite a
decreasing surface planted to grapevines. Such were the findings of the
VinPro Production Plan Survey, a comprehensive financial survey
conducted in the wine industry for the eleventh consecutive year in 2014.
By Pieter van Niekerk & Andries van Zyl
I
ncome generated still does not comply with
sustainable target guidelines, but it is nevertheless
heartening to observe how certain producers in
each of the nine wine districts manage to exceed
these guidelines year after year and realise excellent
returns, taking into account the risk incurred in the
course of the season. Part 1 of the report provides
an overview of the most important findings over the past
10 years, with the emphasis on the 2014 production year,
followed by the practices of top achievers in Part 2.
INTRODUCTION
VinPro Agricultural Economic Services conducted
comprehensive analyses in all nine wine districts with the
support of Winetech, the National Agricultural Marketing
Council (NAMC), Standard Bank, Absa, Land Bank, FNB,
Nedbank and Capital Harvest. The primary objective is still
to determine the production structure, cost structure and
profitability per district, so as to determine the financial
wellbeing of the producers.
% Mechanically Harvested (2009 - 2014)
Total Production Cost
100%
45,000
38,674
40,000
35,739
35,000
30,000
67%
59%
60%
45%
25,000
20,000
20,643
21,332
22,125
5,633
5,733
6,108
23,578
7,541
28,585
8,139
7,937
2007
2008
2009
2010
23,812
2006
9,439
9,080
8,605
22,442
2005
20,648
5,000
20%
19,039
10,000
30%
16,702
15,000
40%
32,417
6,876
16,017
48%
50%
26,580
15,599
70%
Rand / ha
74%
70%
30,581
2011
2012
29,235
79%
26,659
86%
80%
15,010
90%
0
13%
10%
10%
Cash Expenditure
Provision for Renewal
2013
2014
Total Production Cost
0%
Olifants River Worcester
Robertson
Klein Karoo Breedekloof
Paarl
Malmesbury Orange River Stellenbosch
Industry
FIGURE 2. Total production cost – industry average.
FIGURE 1. Tons per district mechanically harvested.
8,000
2,500
2,230
6,828
7,000
2,000
1,655
1,639
1,251
1,176
1,144
1,981
1,382
1,327
1,172
1,000
1,012
500
756
686
420
370
2006
2007
4,219
4,185
4,006
4,097
5,272
4,000
3,134
2,755
2,137
788
549
544
592
548
589
2009
2010
2011
2012
2013
424
5,616
4,459
3,000
875
344
4,920
5,000
1,570
1,257
6,000
1,831
Rand / ha
Rand / ha
1,506
1,500
6,076
1,839
1,758
2,000
1,556
1,547
1,589
2005
2006
2007
2,132
2,246
2,325
2010
2011
2012
1,719
1,000
0
2005
2008
Fertiliser
Pesticide Control
2014
0
Herbicide Control
2008
2009
Permanent Labour
FIGURE 3. Movement of direct cost – industry average.
2,500
2,594
2,243
2,136
1,983
2,000
1,842
1,505
1,468
1,500
1,517
2,613
2,000
2,040
1,726
1,639
1,533
1,464
1,252
1,000
1,500
1,339
1,019
1,043
627
647
655
2005
2006
2007
1,000
861
500
1,119
1,176
1,072
1,106
846
921
500
1,421
1,427
652
681
720
931
971
926
2009
2010
2012
2013
2014
1,254
0
0
2005
2006
2007
2008
2009
2010
2011
Repair, Parts & Maintenance (Moveable Assets)
2012
2013
2014
17%
16%
15%
16%
18%
19%
Water Cost
2011
Administration
FIGURE 6. Movement of general expenditure – industry average.
Area Under Vines per Participant
Composition of Annual Cash Expenditure
17%
2008
Electricity
Fuel
FIGURE 5. Movement of mechanisation cost – industry average.
16%
2,302
1,768
2,358
1,586
2,287
2,063
Rand / ha
Rand / ha
2,352
2014
FIGURE 4. Movement of labour cost – industry average.
3,000
2,500
2013
Seasonal Labour
19%
17%
5%
5%
4%
4%
4%
4%
3%
3%
3%
3%
19%
19%
20%
21%
21%
20%
21%
20%
21%
20%
44%
44%
43%
42%
42%
41%
41%
40%
40%
41%
73
75
76
77
2006
2007
2008
79
79
2009
2010
84
86
87
2011
2012
2013
92
Ha
16%
15%
15%
17%
18%
19%
18%
17%
18%
18%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Direct Cost
Fixed Improvements
Labour
General Expenditure
Mechanisation
FIGURE 7. Percentage composition of annual cash expenditure –
industry average.
2005
FIGURE 8. Hectares planted to grapevines per participant
(bearing and non-bearing hectares) – industry average.
2014
Altogether 236 farming units from nine wine districts
participated in the 2014 Production Plan Survey. In 2014
the sample consisted of 22 117 ha (22% of the total South
African surface planted to grapevines in 2013), which
produced 352 209 tons (24% of the total South African
crop in 2014). This consisted of 63% white and 37% red
wine grapes, and 59% of the tons were mechanically
harvested.
increased mechanisation component, including an
increase in alternative practices such as mechanical
pruning. The record crop also contributed to the increase,
seeing that increased inputs are required to produce wine
grapes profitably for a specific wine style objective. The
cost component differs among the various areas due to
the level of mechanisation, although the total production
cost does not differ significantly from one area to the
next. Stringent cost management, with a balance between
wine style objective and input requirement for each block,
remains critical in cycles of sub-inflationary increases in
income.
The analysis applies to overall grapevine production
(bearing, as well as non-bearing hectares) and the cost
analysis makes no distinction between cultivars and
specific blocks. The greater majority of participants are
diversified and differ with regard to farm size. The report
represents industry average figures, calculated by
determining the weighted average of all participants.
The Malmesbury district is always evaluated separately
and does not form part of industry average figures, in
view of the fact that this study group cultivates a large
component of dryland vineyards, which require an
alternative production, cost and capital structure.
PROVISION FOR RENEWAL
Production cost is not only limited to cash expenditure;
capital items also have to be renewed in due course of
time so as to maintain the business as a running concern
and ensure a sustainable business model. Tractors, tools,
other means of production, vineyards and buildings
deteriorate and have to be renewed, therefore the
purchase value of the item has to be recovered over a
specific lifetime. By using the principle ‘provision for
renewal’, a larger amount is recovered than in the case of
‘depreciation’. To a certain extent this addresses the
problem of rectilinear depreciation in value.
THE COST OF WINE GRAPE
PRODUCTION
The annual cost incurred to prepare the 2014 crop
comprised cash expenditure and provision for
replacement, excluding all tax, interest and
entrepreneurial remuneration. Compared to 2013 the
industry average total production cost (excluding
Malmesbury) increased by 8% to R38 674/ha in 2014.
When calculating provision for renewal, items are written
off over different periods at renewal value:
Buildings60 years
Grapevines20 years
Moveable assets / means of production 7 - 15 years
CASH EXPENDITURE
Total provision for renewal amounted to R9 439/ha in the
2014 production year – a 4% increase from 2013.
Cash expenditure is specified as direct cost, labour,
mechanisation, fixed improvements and general
expenses. Total cash expenditure indicates a 10% increase
from 2013 to R29 235/ha in the 2014 production year.
PRODUCTION STRUCTURE
The average surface planted to wine grapes was 92 ha –
the other enterprises are not taken into account. Economy
of scale plays a significant role in the broader agriculture
and this trend is increasingly common, with many
producers aiming for scale benefits.
The increase is driven mainly by the increased minimum
wage – this being the first financial year when it was
applied in full – especially in the districts that rely more
heavily on seasonal labour. This contributed to the
TABLE 1. Yield per cultivar per district (2014 harvest).
Yield per cultivar
(ton / ha)
Klein Karoo
Robertson
Worcester
Breedekloof
Olifants
River
Orange
River
Paarl
Stellenbosch Malmesbury
CHENIN BLANC
22.34
19.47
22.68
21.68
34.43
34.74
15.73
9.08
COLOMBAR
30.08
21.78
22.68
24.79
36.55
31.80
22.19
13.27
7.89
SAUVIGNON BLANC
18.63
17.57
19.80
21.46
25.27
7.51
11.25
10.50
CHARDONNAY
17.89
14.56
16.18
14.62
17.00
14.53
11.04
8.30
9.17
MUSCAT D'ALEXANDRIE
15.61
18.15
16.23
22.34
20.86
29.76
20.29
2.92
SÉMILLON
22.63
22.62
24.97
21.96
22.92
14.80
VIOGNIER
19.63
15.59
17.10
14.80
9.44
8.12
23.71
14.95
21.04
19.24
26.06
21.17
16.87
12.38
17.33
Yield per cultivar
(ton / ha)
Klein Karoo
Robertson
Worcester
Breedekloof
Olifants
River
Orange
River
Paarl
CABERNET SAUVIGNON
12.69
13.38
14.92
12.92
13.71
17.32
9.20
7.73
SHIRAZ
11.15
12.26
15.43
15.49
14.75
22.91
11.77
10.61
8.49
PINOTAGE
14.48
15.47
15.27
12.40
20.19
10.55
8.52
10.26
MERLOT
15.54
13.23
15.03
16.46
14.90
14.97
13.08
11.47
11.58
RUBY CABERNET
11.45
15.22
27.69
12.87
6.98
OTHER WHITE
17.17
15.35
19.46
CINSAUT
15.85
22.02
22.70
PINOT NOIR
17.94
8.39
24.16
7.20
OTHER RED
17.91
16.36
11.98
13.63
26.10
11.17
15.09
Stellenbosch Malmesbury
8.32
15.15
7.41
13.24
8.34
10.34
9.22
13.55
11.12
11.50
The average production for bearing and non-bearing
grapevines for the 2014 production year was 17.69 ton/ha.
Over the past 10 years it has been an obvious trend that
producers attempt to increase average yields to counter
the effect of rising costs, as well as to increase
profitability.
from 2013, caused the break-even in terms of rand per ton to
increase from R2 042/ton to R2 186/ton in 2014. In other
words: the first R2 186 for a ton of grapes received by the
producer during the 2014 harvest, should be applied for
total production cost – no entrepreneurial remuneration,
interest or tax has been taken into account yet.
CULTIVAR STRUCTURE
The average yields differ considerably among the districts,
as well as among the various cultivars, while the
production cost does not differ to the same extent. This
gives rise to large differences in break-even price in terms
of total production cost in the respective district and
among the various cultivars.
During the 2014 production year a cultivar analysis was
also conducted to indicate the production variance
between the most planted white and red cultivars.
BREAK-EVEN
PROFITABILITY
The impact of increased production is significant on the
break-even price of the total production cost in rand per ton.
Total production cost per hectare, which increased by 8%
The profitability, in other words net farming income (NFI),
is calculated as total income (R/ton x ton/ha) minus total
Ton / Ha
2,700
25
15.58
17.00
16.31
15.55
14.73
2,028
1,941
20
2,042
15.08
Ton / ha
15
1,700
1,497
1,420
1,391
1,446
1,200
10
700
2007
2008
2009
2010
2011
2012
2013
15.58
16.31
15.55
14.73
15.08
16.98
17.50
17.69
2007
2008
2009
2010
2011
2012
2013
2014
Yield (Ton / Ha)
200
Production Cost in R / Ton
FIGURE 10. Influence of production on break-even of total
production cost – industry average.
Age Distribution
4,500
4,000
25
2,740
2,663
20
2,239
1,912
1,896
2,186
1,796
1,453
10
3,000
2,500
Rand / Ton
3,500
8%
11%
11%
12%
13%
14%
13%
15%
14%
14%
14%
13%
13%
14%
37%
39%
42%
42%
31%
32%
35%
2,000
1,189
5
27%
0
Average Yield
14%
15%
15%
16%
18%
41%
41%
39%
16%
28%
25%
24%
22%
21%
19%
17%
17%
18%
16%
15%
13%
12%
11%
11%
12%
12%
12%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
500
0
15%
1,500
1,000
Break-even Rand per Ton
Under 3 years (%)
FIGURE 11. Production and break-even per district (2014 harvest).
4 - 7 years (%)
8 - 15 years (%)
NFI Distribution - 2014 Harvest
50,000
40,000
30,000
Target Income NFI: R 21
20,000
10,000
1
7
13
19
25
31
37
43
49
55
61
67
73
79
85
91
97
103
109
115
121
127
133
139
145
151
157
163
169
175
181
187
193
199
205
211
217
223
0
-10,000
-20,000
-30,000
-40,000
FIGURE 13. S curve.
16 - 20 years (%)
Older than 20 years (%)
FIGURE 12. Age composition – industry average.
60,000
Rand / ha
Ton / Ha
2006
5,000
4,649
30
15
2005
2014
FIGURE 9. Average yield (bearing and non-bearing hectares) –
industry average.
35
15.34
0
2006
13.79
5
2005
2,200
1,910
1,709
Ton / ha
13.79
17.69
17.51
Rand / Ton
15.34
2,186
TABLE 2. Production cost per district – 2014 harvest.
Industry average
Stellenbosch
COST STRUCTURE
Paarl
Robertson
Breedekloof
Olifants River
Worcester
RAND PER HA
DIRECT COST
Seed
126
32
64
106
15
115
Fertiliser
2 425
843
1 231
1 830
1 502
2 607
Organic Material
45
118
129
1 018
615
200
Pesticide Control
2 903
2 042
2 414
2 365
1 661
2 474
960
571
1 007
928
415
964
Herbicide Control
Repair & Binding Material
457
302
326
396
409
467
5 333
4 297
5 770
6 315
5 723
6 645
Supervision
3 435
1 182
2 208
2 012
1 881
1 143
Permanent Labour
9 470
6 485
5 385
6 530
5 788
7 000
Seasonal Labour & Contract Work
5 755
3 572
1 896
1 419
1 602
1 575
18 660
11 239
9 489
9 961
9 270
9 718
Fuel
2 504
2 396
2 393
2 510
3 387
2 737
Repair, Parts & Maintenance
3 126
1 630
3 190
2 433
2 902
2 620
521
451
418
486
790
531
Subtotal
LABOUR
Subtotal
MECHANISATION
Lisences & Insurance
Transport Hired
Subtotal
170
360
167
210
306
74
6 321
4 837
6 168
5 639
7 385
5 962
1 032
604
559
1 074
500
942
FIXED IMPROVEMENTS
Repair & Maintenance
Insurance
174
182
209
257
237
265
Subtotal
1 207
787
768
1 331
737
1 207
1 796
1 710
2 975
2 695
2 922
2 528
Water Costs
715
555
905
203
1 959
1 365
Land-, Property- & Municipal Taxes
383
218
146
238
272
199
Administration
2 223
1 566
972
1 101
1 539
1 067
Subtotal
5 116
4 048
4 998
4 237
6 691
5 159
36 637
25 207
27 193
27 481
29 806
28 691
PROVISION FOR RENEWAL
9 296
8 058
9 771
9 706
11 601
9 564
Vineyards
5 379
5 398
5 443
5 510
5 005
5 589
Fixed Improvements
1 148
666
936
998
1 061
903
Loose Assets Or Production Means
2 769
1 994
3 392
3 198
5 534
3 073
45 932
33 265
36 964
37 187
41 406
38 256
101
101
107
114
56
91
92%
95%
100%
100%
100%
99%
GENERAL EXPENDITURES
Electricity
TOTAL CASH EXPENDITURES
TOTAL EXPENDITURES
AVERAGE AREA PLANTED (HA)
AREA IRRIGATED (%)
AVERAGE AGE COMPOSITION (%)
3 Years & younger
7.83
10.74
13.80
15.40
11.24
15.41
Between 4 & 7 years
16.80
11.61
19.60
14.44
15.12
18.76
Between 8 & 15 years
38.58
50.08
33.56
36.53
37.24
35.14
Between 16 & 20 years
18.32
18.48
18.11
17.90
17.89
14.14
Older than 20 years
18.47
9.09
14.93
15.70
18.51
16.55
9.88
12.49
16.51
19.61
28.50
20.01
CASH EXPENDITURES (RAND PER TON)
3 708
2 018
1 647
1 401
1 046
1 434
TOTAL EXPENDITURES (RAND PER TON)
4 649
2 663
2 239
1 896
1 453
1 912
AVERAGE YIELD (TON PER HA)
Klein Karoo
Industry average
Malmesbury
56
81
75
154
1 187
1 538
1 591
1 245
150
310
315
41
652
1 678
2 230
1 857
583
360
788
493
322
398
383
94
2 950
4 365
5 382
3 883
2 092
1 359
2 039
848
6 496
6 089
6 828
4 163
8 283
1 524
3 134
3 593
16 871
8 973
12 001
8 604
2 898
2 471
2 613
2 021
1 988
2 470
2 594
1 485
695
379
523
350
227
218
222
932
5 809
5 537
5 952
4 788
427
677
763
424
408
140
222
108
836
817
985
531
1 613
1 463
2 302
721
1 430
1 843
926
646
534
159
259
99
1 206
930
1 427
664
4 783
4 395
4 914
2 130
31 249
24 086
29 235
19 936
8 056
9 354
9 439
7 109
5 300
5 432
5 388
4 593
463
661
912
600
2 293
3 261
3 140
1 916
39 305
33 440
38 674
27 045
19
48
92
162
100%
100%
98%
31%
4.16
16.53
11.77
9.49
24.57
14.90
16.32
10.09
41.54
43.70
39.38
59.07
17.05
17.86
17.69
16.13
12.68
7.28
14.85
5.22
33.06
18.62
17.69
9.87
945
1 294
1 652
2 020
1 189
1 796
2 186
2 740
PHOTO: THYS LOMBARD.
Orange River
TABLE 3. Industry average income and expenditure statement.
INCOME & EXPENDITURE STATEMENT
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Average price per ton (rand)
2 383
1 916
1 763
1 766
1 807
2 113
2 192
2 383
2 416
2 524
2 682
Average yield per hectare (tons)
13.11
13.79
15.34
15.58
16.31
15.55
14.73
15.08
16.98
17.50
17.69
31 236
26 424
27 043
27 513
29 479
32 857
32 281
35 943
41 023
44 171
47 456
Direct costs (R / ha)
2 459
2 426
2 391
2 482
2 855
3 463
3 920
3 992
4 150
4 670
5 382
Labour (R / ha)
6 317
6 590
6 878
6 949
6 956
7 905
8 477
9 111
9 630
10 639
12 001
Mechanisation (R / ha)
2 667
2 852
3 004
3 219
3 533
4 022
4 142
4 633
4 868
5 501
5 952
Other overheads (R / ha)
2 778
3 142
3 326
3 367
3 357
3 649
4 108
4 706
5 186
5 849
4 914
ANNUAL CASH EXPENDITURES
14 221
15 010
15 599
16 017
16 702
19 039
20 648
22 443
23 834
26 659
29 235
GROSS MARGIN ( R / ha)
17 015
11 414
11 444
11 496
12 777
13 818
11 633
13 500
17 189
17 512
18 221
TOTAL INCOME (R / ha)
minus
minus
Provision for replacement (R / ha)
4 779
5 633
5 733
6 108
6 876
7 541
7 937
8 140
8 606
9 080
9 439
NET FARMING INCOME ( R / ha)
12 236
5 781
5 711
5 388
5 901
6 277
3 696
5 360
8 583
8 432
8 781
production cost. The latter consists of cash expenditure
and provision for renewal, but excludes entrepreneurial
remuneration, interest obligations and tax. The total
income is calculated for a specific production year and
although the majority of producers realise their income at
different stages, no time value of money is taken into
account.
It is positive to see how total income per hectare
increased over the period under review, but aboveinflation cost increases exercised pressure on the NFI.
For the 2014 production year the average total income
amounted to R47 456/ha – almost 7% more than in 2013 –
whereas the NFI increased by only 4% to R8 781/ha.
As a guideline for economically sustainable production,
the average income and NFI for the 2014 production year
should in fact have realised R59 874 and R21 200 per
hectare respectively.
The average income hampers producers to implement
sufficient capital renewal, consequently production occurs
on gross margin and not NFI – with the result that
producers are still under financial pressure which
suppresses long term financial sustainability.
SUMMARY
As a result of the record production, the income from wine grape cultivation has increased – but cost increases, driven
especially by the increased minimum wage, has kept NFI below sustainable levels. This has been the cause of increasing
mechanisation in the national grapevine plantings with the emphasis on labour productivity, as well as alignment of
production practices with the eventual wine style objective. Producers are encouraged to apply stringent cost
management and weigh up the benefits of certain vineyard practices and input against the final yield and payments for
the season.
For more information contact Pieter van Niekerk at [email protected] and Andries van Zyl at [email protected].
VINPRO PRODUCTION PLAN SURVEY 2014 (PART 2)
PHOTO: THYS LOMBARD.
FINANCIAL INDICATORS
of TOP performing
wine grape producers
Primary wine grape producers align inputs with wine objective driven production practices to curb
cost increases and apply precision production. By so doing a record crop was achieved in 2014, despite
an ongoing decrease in the surface planted to grapevines. By Pieter van Niekerk & Andries van Zyl
W
ine farmers’ income do not comply with
sustainable target guidelines yet, but it
is nevertheless heartening to note how
certain producers in each of the nine
wine districts manage annually to do
better than these guidelines and realise
excellent returns, in view of the risks
taken during the season. Part 1 of the VinPro Production
Plan Survey showcased the most important findings of
the past 10 years, the emphasis being on the 2014
production year. The practices of top achievers are
explained in Part 2.
INTRODUCTION
VinPro Agricultural Economic Services, with the support of
Winetech, the National Agricultural Marketing Council
(NAMC), Standard Bank, Absa, Land Bank, FNB, Nedbank
and Capital Harvest, conducted financial analyses in all
nine wine districts in 2014. The primary objective is to
ascertain the production structure, cost structure and
profitability per district, in order to determine the
financial prosperity of the producers.
Altogether 236 farming units from nine wine districts
participated in the 2014 Production Plan Survey. In 2014
the sample consisted of 22 117 ha (22% of the total South
African surface planted to wine grapes in 2013), who
produced 352 209 tons (24% of the total South African
crop in 2014). Of these 63% and 37% were white and red
wine grapes respectively, and 59% of the tons were
harvested mechanically.
Distribution of Top Performers
40%
35%
30%
25%
20%
15%
10%
5%
0%
Klein Karoo
Breedekloof
Worcester
Stellenbosch
2010
2011
2012
Paarl
2013
Orange River
Robertson
Olifants River
2014
FIGURE 14. Distribution of top achievers in the respective districts.
Composition of Annual Cash Expenditures
100%
90%
17%
16%
80%
3%
4%
70%
22%
20%
38%
21%
20%
18%
20%
19%
19%
19%
3%
3%
3%
3%
4%
3%
21%
21%
21%
20%
22%
21%
41%
36%
41%
36%
40%
35%
40%
19%
20%
18%
21%
17%
20%
18%
16%
17%
4%
3%
21%
20%
37%
41%
22%
18%
60%
50%
40%
30%
20%
10%
0%
Top 50 2010
Industry 2010 TOP 50 2011 Industry 2011 TOP 50 2012 Industry 2012 TOP 50 2013 Industry 2013 TOP 50 2014 Industry 2014
Direct cost
Labour
Mechanisation
Fixed improvements
General
FIGURE 15. Percentage composition of annual cash expenditure – top achievers compared to industry average.
TABLE 4. Statement of income and expenditure of top achievers.
TOP 50 - INCOME & EXPENDITURE STATEMENT
2010
Average price per ton (Rand)
2011
2 056
Average yield per hectare (tons)
2012
2 348
2013
2 475
2014
2 724
2 934
21.69
20.11
22.31
21.95
20.41
44 601
47 225
55 235
59 797
59 870
Direct costs (R/ha)
4 039
4 140
4 530
5 063
6 080
Labour (R/ha)
7 265
7 412
7 937
8 751
10 216
Mechanisation (R/ha)
4 193
4 341
4 543
5 369
5 680
TOTAL INCOME (R/ha)
minus
Other overheads (R/ha)
3 876
4 643
5 044
5 623
5 359
ANNUAL CASH EXPENDITURES
19 373
20 536
22 054
24 806
27 334
GROSS MARGIN (R/ha)
25 228
26 688
33 181
34 991
32 536
8 269
8 324
8 815
9 509
9 503
16 959
18 364
24 366
25 483
23 033
minus
Provision for replacement (R/ha)
NET FARMING INCOME (R/ha)
TABLE 5. Production cost comparison between top achievers and industry average. PRODUCTION COST FOR WINE GRAPES - COST AS RAND PER HECTARE (2010 - 2014 HARVEST YEARS)
Top 50
2010
DIRECT COST
Seed
Fertiliser
4 039
Industry
2010
3 921
Top 50
2011
4 140
Industry
2011
3 992
Top 50
2012
4 530
Industry
2012
4 150
Top 50
2013
5 063
Industry
2013
4 670
Top 50
2014
6 080
Bedryf
2014
5 382
41
77
65
97
84
107
109
110
133
75
1 166
1 017
1 155
1 061
1 393
1 221
1 327
1 405
1 577
1 591
Organic material
289
233
346
225
417
242
569
316
779
315
Pesticide control
1 737
1 758
1 661
1 655
1 661
1 639
1 963
1 839
2 310
2 230
Herbicide control
550
544
541
592
552
548
594
589
812
788
Repair and binding material
257
292
373
362
422
393
501
411
469
383
LABOUR
7 265
8 477
7 412
9 111
7 937
9 630
8 751
10 639
10 216
12 001
Supervision
1 244
1 425
1 140
1 593
1 568
1 689
1 648
1 808
1 720
2 039
Permanent labour
4 690
4 920
4 728
5 272
5 092
5 616
5 668
6 076
6 590
6 828
Seasonal labour and contract work
1 331
2 132
1 544
2 246
1 278
2 325
1 435
2 755
1 906
3 134
MECHANISATION
4 193
4 142
4 341
4 633
4 543
4 868
5 369
5 501
5 680
5 952
Fuel
1 553
1 533
1 599
1 726
1 820
2 040
2 350
2 358
2 629
2 613
Repair, parts and maintenance
1 936
1 983
1 976
2 243
2 059
2 136
2 208
2 352
2 334
2 594
456
419
507
422
464
460
522
497
532
523
Licences and insurance
Transport hired
248
207
260
242
199
232
289
294
185
222
FIXED IMPROVEMENTS
602
741
517
707
715
720
953
913
1 095
985
Repair and maintenance
392
540
296
486
488
490
721
635
875
763
Insurance
210
201
221
221
227
230
231
278
220
222
GENERAL EXPENDITURES
3 273
3 367
4 125
3 999
4 328
4 466
4 670
4 936
4 263
4 914
Electricity
1 312
1 339
1 777
1 768
2 269
2 063
2 245
2 287
2 036
2 302
790
720
1 060
846
861
931
963
971
803
926
Water costs
Land, property & municipal taxes
175
177
223
209
172
218
222
257
224
259
Administration
997
1 131
1 066
1 176
1 026
1 254
1 241
1 421
1 201
1 427
19 373
20 648
20 537
22 443
22 054
23 834
24 806
26 659
27 334
29 235
PROVISION FOR RENEWAL
8 269
7 937
8 324
8 140
8 815
8 606
9 509
9 080
9 503
9 439
Vineyards
4 304
4 263
4 714
4 725
5 143
5 082
5 509
5 408
5 449
5 388
TOTAL CASH EXPENDITURES
Fixed improvements
Loose assets or production means
TOTAL PRODUCTION COST
752
730
774
791
910
832
936
880
888
912
3 213
2 944
2 835
2 623
2 761
2 691
3 063
2 792
3 166
3 140
27 641
28 585
28 860
30 582
30 869
32 439
34 315
35 739
36 837
38 674
Age Distribution
100%
10%
90%
14%
13%
80%
13%
11%
13%
13%
12%
14%
17%
42%
38%
12%
14%
15%
16%
16%
18%
41%
40%
41%
39%
15%
15%
12%
14%
70%
60%
43%
42%
50%
43%
41%
40%
30%
23%
18%
21%
21%
19%
21%
17%
18%
17%
16%
12%
11%
12%
11%
12%
12%
14%
12%
12%
15%
Top 50 2010
Industry 2010
Top 50 2011
Industry 2011
Top 50 2012
Bedryf 2012
Top 50 2013
Bedryf 2013
Top 50 2014
Bedryf 2014
20%
10%
0%
Younger than 3 years
3 to 7 years
8 to 15 years
16 to 20 years
Older than 20 years
FIGURE 16. Age composition – top achievers compared to the industry average.
TABLE 6. Statement of income and expenditure of the top third, industry average and bottom third.
INDUSTRY 2014 HARVEST
Production (ton/ha)
Top Third
Average
21.95
Bottom Third
17.69
13.14
Income (R/ton)
R 2 655
R 2 682
R 3 061
Income (R/ha)
R 58 265
R 47 457
R 40 224
Production cost (R/ha)
R 37 201
R 38 674
R 49 848
Net farming income (R/ha)
R 21 063
R 8 781
-R 9 624
7.13%
1.88%
-6.21%
Return on capital (ROC)
Cash expenditures (R/ha)
R 27 740
R 29 235
R 40 086
Provision for renewal (R/ha)
R 9 461
R 9 439
R 9 762
Total production cost (R/ha)
R 37 201
R 38 674
R 49 848
Note: This was calculated from the total sample and should not be confused with the top 50 producers according to NFI.
The analysis applies to the vineyard enterprise as a whole
(bearing and non-bearing hectares) and in terms of the
cost analysis, it does not distinguish between cultivars
and specific blocks. The greater majority of the
participants are diversified and differ in terms of farm size.
The report represents industry average figures, calculated
by determining the weighted average of all the
participants. The Malmesbury district is evaluated
separately throughout and does not form part of the
industry average figures, in view of the fact that this study
group cultivates a large component of dryland vineyards,
which require an alternative production, cost and capital
structure.
FINANCIAL RESULTS OF TOP
ACHIEVERS
During the 2014 production year the top 50 wine producers
in the industry realised a gross income (GI) and net farming
income (NFI) of R59 870/ha (industry average R47 456/ha)
and R23 033/ha (industry average R8 781/ha) respectively.
For the fifth consecutive year this is in line with the VinPro
guideline for economic sustainability of R59 874/ha GI and
R21 200/ha NFI on average. From 2010 - 2014 the average
farm size of the top 50 producers amounted to 61, 72, 84, 74
and 89 ha respectively planted to wine grapes – compared to
the industry average of 79, 84, 86, 87 and 92 ha.
It is heartening to note that the top achievers are
distributed across the industry and represent all nine wine
districts. The noteworthy improvement in NFI of top
producers can be ascribed, as in 2013, to considerably
higher productions of 20.41 ton/ha compared to the
industry average of 17.69 ton/ha – a 15% increase. The
average price of R2 934/ton realised by top achievers is
8% higher than the industry average of R2 682/ton.
Top producers’ annual cash expenditure (R27 334/ha) is at
least 7% lower than that of the industry (R29 235/ha),
while the provision for replacement of this group at R9
503/ha is about 1% higher than the industry average of R9
439/ha. Total production cost of the top 50 producers
amounts to R36 837/ha, 5% lower than the industry
average of R38 674/ha.
The composition of top achievers’ cash expenditure does
not differ intrinsically from the industry average. The top
50 producers spend more on direct costs, namely fertiliser
and pest and disease control and realise that the risk is
too large to try and save on direct inputs, which are linked
to the size and quality of the crop. Another trend that
persists is the extent of mechanisation in order to use
labour more productively. This is not only limited to
mechanical harvesting of wine grapes, because
mechanical pruning is increasingly popular. Even so, some
producers still focus their resources on conventional
TABLE 7. Trends in the South African wine value chain since 2004.
Per 750 ml @ 10% alc/vol for total wine
2004
2005
2006
2007
2008
2009
Average RSP - Total wine
R 10.10
R 11.31
R 12.05
R 12.32
R 12.88
R 13.82
Average RSP - Brandy
R 50.78
R 55.95
R 59.43
R 66.03
R 71.31
R 79.35
R 0.88
R 1.06
R 1.19
R 1.29
R 1.37
R 1.49
R 14.48
R 16.17
R 17.81
R 19.67
R 21.84
R 25.05
Ave bulk wine price - All varieties
R 2.66
R 2.54
R 2.54
R 2.51
R 2.56
R 2.88
Ave producer cellars grape price - All varieties
R 1.56
R 1.49
R 1.46
R 1.54
R 1.63
R 2.06
Ave non producer cellars grape price - All varieties
R 4.43
R 3.85
R 3.35
R 3.18
R 3.40
R 4.20
Total annual production cost - VinPro
R 1.55
R 1.60
R 1.49
R 1.52
R 1.55
R 1.83
Total annual producer cellar cost - Bulk wine - PWC
R 0.52
R 0.69
R 0.62
R 0.74
R 0.78
R 0.87
Net farming income
R 1.00
R 0.45
R 0.40
R 0.37
R 0.39
R 0.43
Excise - Wine
Excise - Brandy
Note: Average producer cellar grape prices are provisional – 2014; average producer cellar grape prices is an estimate (source:
SAWIS). 2014 Annual cellar cost for bulk wine is an estimate (source: PwC).
Index (2004 = 100)
350
300
250
200
%
150
100
50
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Average RSP - Total Wine
100
112
119
122
127
137
159
171
184
198
210
Average RSP - Brandy
100
110
117
130
140
156
165
178
196
211
227
Excise - Wine
100
121
135
147
156
169
183
198
214
231
245
Excise - Brandy
100
112
123
136
151
173
188
207
249
274
306
Ave Bulk Wine price - All varieties
100
96
96
95
96
108
117
120
124
131
137
Ave Producer Cellars Grape price - All Varieties
100
95
93
98
104
132
124
137
143
153
159
Ave Non Producer Cellars Grape price - All Varieties
100
87
76
72
77
95
96
92
95
98
114
Total Annual Production cost - VinPro
100
103
96
98
100
118
134
140
132
141
151
Total Annual Producer Cellar cost - Bulk Wine - PWC
100
131
119
140
148
166
199
196
216
220
242
Net Farming Income
100
45
40
37
39
43
27
38
54
52
53
CPI
100
103
108
115
127
134
138
143
149
154
161
FIGURE 17. Trends in the South African wine value chain since 2004 – taking into account the CPI (Consumer Price Index).
viticultural practices and achieve excellent levels of
success.
The difference in the cost structure of the top producers is
just one of the drivers that impact on profitability; the
improvement in profitability is ascribed to increased
productions with an even higher average payout.
Both the top producers and the industry average have an
acceptable age composition. It is mostly the top
producers who can afford to replace non-profitable
grapevines, as well as to diversify, if required, into other
more profitable enterprises of the agricultural industry.
TRENDS IN THE SOUTH AFRICAN
WINE VALUE CHAIN
Despite a shrinking surface planted to wine grapes, which
has seen a decrease of 413 ha to 99 680 ha over the past
year, a record crop of 1 520 096 tons was produced in
2014. The crop has increased by 30% from the 2005 crop
of 1 171 632 tons. Primary wine grape producers are still
leaving the industry and currently number 3 323,
compared to 4 360 in 2005. The 50 producer cellars handle
approximately 80% of the annual crop, the balance being
handled by the remaining 493 private wine cellars and 21
producing wholesalers.
With 2004 as basis year, Table 7 and Figure 17 illustrate
how the financial situation of role players in the wine
value chain has changed in recent years.
The following deductions can be made:
• The average increase in the retail price of wine, excise
duty and cellar cost still beats inflation over the 11-year
period.
Change (R/750 ml)
2004 - 2014
% Change
2004 - 2014
% Change
ave per year
2011
2012
2013
2014
R 16.07
R 17.30
R 18.61
R 20.03
R 21.21
R 11.11
110%
10%
R 83.60
R 90.17
R 99.68
R 106.95
R 115.01
R 64.24
127%
12%
R 1.61
R 1.74
R 1.88
R 2.03
R 2.15
R 1.28
145%
13%
R 27.28
R 30.00
R 36.00
R 39.60
R 44.35
R 29.88
206%
19%
R 3.10
R 3.19
R 3.28
R 3.48
R 3.64
R 0.98
37%
3%
R 1.94
R 2.15
R 2.23
R 2.39
R 2.48
R 0.92
59%
5%
R 4.23
R 4.07
R 4.21
R 4.33
R 5.06
R 0.63
14%
1%
R 2.08
R 2.17
R 2.05
R 2.19
R 2.34
R 0.79
51%
5%
R 1.04
R 1.03
R 1.13
R 1.15
R 1.27
R 0.74
142%
13%
R 0.27
R 0.38
R 0.54
R 0.52
R 0.53
-R 0.47
-47%
-4%
• Average bulk wine prices and producer cellar grape prices are
moving closer to and more in line with inflation.
• Non-producer cellar grape prices are still below inflation and
have even decreased at times.
• Production cost at farm level has increased more in line with
inflation, the increase in wages being a big driver in the increase.
Primary wine grape producers have limited vertical integration in
terms of the wine value chain, therefore they have limited
bargaining power, especially in periods of surplus wine stocks, and
they remain price takers. Increased production was a forceful driver
to increase profitability. Top producers also perform above average
with regard to grape prices and they manage costs carefully. It is
heartening to see that all nine districts are represented in the Top
50, namely by private grape producers who supply the trade,
primary producers at producer cellars and estates. World-wide
supply levels have changed dramatically since the shortages in 2012
and primary producers should be thoroughly aware of how this
impacts on their business and value chain, and adapt their strategy
accordingly to produce wine grapes sustainably.
SUMMARY
It is heartening to see that there are primary wine grape
producers in all nine wine districts who manage year after year
to fare even better than the VinPro prescribed sustainability
guidelines. This shows that production and resources are being
aligned with the wine objective and that costs are thoroughly
weighed up against the specific output. Economies of scale,
diversification, mechanisation and increased production are
obvious trends. The biggest factor is management and in many
instances it is the owner himself who determines the winning
recipe.
For more information contact Pieter van Niekerk at pieter@vinpro.
co.za and Andries van Zyl at [email protected].
PHOTO: THYS LOMBARD.
2010