Markets and Economic Research
Centre
Input Cost Monitoring
Cost of Wine Grape Production and
Producer Profitibility – 2013
May 2014
By:
Supported by:
Table of Contents:
Page
1.
Introduction and Survey
1
2.
Trends in the South African Wine Value Chain
1
3.
The Cost of Wine Grape Production
3
4.
Production Structure
9
5.
Top Performers
12
6.
Summary
16
Disclaimer
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about the accuracy, completeness, or adequacy of the contents of this document and expressly
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INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
1. Introduction and Survey
The agricultural economics division of VinPro conducted financial analyses in all nine wine districts in 2013 to
investigate both the production cost of growing wine grapes and the financial welfare of wine grape producers.
The project is supported by Winetech, the National Agricultural Marketing Council (NAMC), Standard Bank, Absa,
Land Bank, First National Bank (FNB), Nedbank and Capital Harvest.
Altogether 237 farming units from all nine wine districts participated in the 2013 Production Plan Survey, and in
the course of the survey 529 producers and role players in the industry attended 45 presentation sessions, where
economic indicators and other relevant information were conveyed to participants. In 2013 the sample consisted
of 21 734 ha (22% of the total South African surface planted to grapevines in 2012), producing 358 838 tons (24%
of the total South African crop in 2013). White wine grapes represented 66%, red wine grapes 34% and 58% of
these tons were harvested mechanically. The sample consisted predominantly of producers with good to aboveaverage managerial capability.
The Malmesbury district is evaluated separately and does not form part of the industry average figures, owing to
the fact that the study group cultivates a large component of dryland vineyards, which require an alternative
production, cost and capital structure. Evaluations are not cultivar and/or block specific – wine grapes (bearing and
non-bearing) are evaluated thoroughly. Most of the farming enterprises evaluated, differ in respect of farm size,
cultivar composition and diversification into other industry enterprises in the respective regions. This report
represents industry average figures, calculated by determining the weighted average of all participants.
2.
Trends in the South African Wine Value Chain
A declining area planted to wine grapes notwithstanding, there still exists growth in South African production, and
2013 even saw a record production. The total wine grape harvest increased by more than 21% from 1 233 689
tons in 2003 to 1 490 635 tons in 2013 – even though the area planted has decreased by 476 ha to 100 093 ha,
excluding Sultanas, in recent years.
The South African wine industry currently consists of 3 440 primary wine producers – compared to 4 515 in 1999 –
most of whom deliver and market their grapes to 50 producing cellars (compared to 69 in 1999). These cellars
produce or receive 70% - 80% of the total wine grape harvest. Most of the wine produced by these cellars are sold
in bulk to one or more of 57 wholesalers and 43 exporters, who in turn are represented by a handful of large role
players and a large number of smaller role players. The balance of the total crop is processed by 505 private wine
cellars and 25 producing wholesalers.
The following table and graph illustrate, using 2004 as basis year, how producers’ financial situation has
deteriorated over the past few years and in the effect on the rest of the value chain – inter alia due to limited
bargaining power.
1
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Table 1: Trends in the SA Wine Value Chain since 2004
Per 750 ml @ 10% alc/vol
for Total Wine
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Change
(R/750ml)
2004-2013
%
Change
20042013
%
Change
average
per year
Average RSP - Total Wine
R 10.10
R 11.31
R 12.05
R 12.32
R 12.88
R 13.82
R 16.07
R 17.30
R 18.61
R 20.03
R 9.92
98%
10%
Average RSP - Brandy
R 50.78
R 55.95
R 59.43
R 66.03
R 71.31
R 79.35
R 83.60
R 90.17
R 99.68
R 106.95
R 56.18
111%
11%
R 0.88
R 1.06
R 1.19
R 1.29
R 1.37
R 1.49
R 1.61
R 1.74
R 1.88
R 2.03
R 1.15
131%
13%
R 14.48
R 16.17
R 17.81
R 19.67
R 21.84
R 25.05
R 27.28
R 30.00
R 36.00
R 39.60
R 25.13
174%
17%
R 2.66
R 2.54
R 2.54
R 2.51
R 2.56
R 2.88
R 3.10
R 3.19
R 3.28
R 3.48
R 0.82
31%
3%
R 1.56
R 1.49
R 1.46
R 1.54
R 1.63
R 2.06
R 1.94
R 2.07
R 2.12
R 2.22
R 0.66
42%
4%
R 4.43
R 3.85
R 3.35
R 3.18
R 3.40
R 4.20
R 4.23
R 4.07
R 4.21
R 4.33
-R 0.10
-2%
0%
R 1.55
R 1.60
R 1.49
R 1.52
R 1.55
R 1.83
R 2.08
R 2.17
R 2.05
R 2.19
R 0.64
41%
4%
R 0.52
R 0.69
R 0.62
R 0.74
R 0.78
R 0.87
R 1.04
R 1.03
R 1.13
R 1.29
R 0.76
146%
15%
Excise - Wine
Excise - Brandy
Ave Bulk Wine price - All
varieties
Ave Producer Cellars Grape
price - All Varieties
Ave Non Producer Cellars
Grape price - All Varieties
Total Annual Production cost
- VinPro
Total Annual Producer Cellar
cost - Bulk Wine - PWC
Net Farming Income
R 1.00
R 0.45
R 0.40
R 0.37
R 0.39
R 0.43
R 0.27
R 0.38
R 0.54
R 0.52
-R 0.48
-48%
Note: Ave Bulk Wine price for 2013 = Jan - Oct 2012 and 2013 Ave Producer Cellar Grape prices are preliminary - 2013 Ave Producer Cellar Grape price is estimated. Source: SAWIS
Note: 2013 Annual Producer Cellar cost for Bulk Wine - Estimated.
Source: PriceWaterhouseCoopers
Source: Vinpro, 2014
2
-5%
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Figure 1: Trends in the South African wine value chain since 2004 – index, taking into account CPI
(Consumer Price Index).
Source: Vinpro, 2014
The following conclusions may be reached:



The average retail price of wine, excise and cellar costs have increased by more than inflation during this
10-year period.
Average bulk wine prices and producer cellar grape prices remain under pressure, did not keep up with
inflation and in the case of non-producer cellar grape prices, were at negative growth levels from time to
time.
Production cost at farm level increased more in line with inflation, with one of the highest cost increases over
the last 10 years being the 2013 harvest. It is expected that increases for the coming production year will top
inflation.
Primary wine grape producers have little bargaining power to negotiate in terms of farm gate prices. Although costs
have increased year–on-year, which have kept profit margins at unsustainable levels due to stagnant grape prices,
some top producers still manage production adjustments to keep resources in line with the final wine objective.
With poor crops in Europe and a favourable exchange rate, wine exports have increased dramatically over the short
term, with the result that more cellars have a positive cash flow, enabling them to catch up on overdue capital
improvements. The question nevertheless remains whether this will filter through to the producer in the coming
season. If not, increased production will still be the only option for many producers to keep head above water. Cost
savings remain crucial, but in many instances the top producer will be the one who ensures that the vineyard
receives the input it requires to ripen a profitable crop.
3. The Cost of Wine Grape Production
Annual total production cost – excluding tax, interest and entrepreneurial remuneration – consists of two
components: cash expenditure and provision for renewal. The industry average total production cost has
increased by 10% since 2012, to R 35 739/ha in 2013.
3
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
R 40 000
35739
R 35 000
28585
R 30 000
R / ha
32440
26580
R 25 000
R 20 000
30583
19000
22125
20643 21332
23578
R 15 000
R 10 000
R 5 000
R 0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Figure 2: Total annual production cost – industry average.
Source: Vinpro, 2014
45000
40000
9135
35000
9160
9079
9118
25000
10798
8771
8729
9080
8030
6961
20000
23938
25467
Worcester
Breedekloof
10000
25858
23192
23210
Paarl
33251
15000
Klein Karoo
R / ha
30000
26783
27801
26659
18336
5000
Malmesbury
Orange River
Olifants River
Provision for renewal
Industry Average
Cash Expenditure
Stellenbosch
Robertson
0
Figure 3: Total annual production cost per district – 2013 production year.
Source: Vinpro, 2014
Cash expenditure
Cash expenditure is categorised as direct cost, labour, mechanisation, fixed improvements and general
expenditure. Total cash expenditure shows a 12% increase since 2012, to R 26 659/ha in the 2013 production
year.
4
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
R 30 000
26659
R 25 000
22443
19039
R / ha
R 20 000
R 15 000
15599
16017
16702
14221
15010
2004
2005
2006
2007
2008
23834
20648
R 10 000
R 5 000
R 0
2009
2010
2011
2012
2013
Figure 4: Annual cash expenditure – industry average.
Source: Vinpro, 2014
The increase is largely ascribed to the record harvest in 2013, as well as exceptionally high increases in the cost
of electricity, wages and fuel. Most of the other cost components increased more or less in line with inflation.
The following four graphs illustrate the movement of approximately 80% of the annual cash expenditure over the
past 10 years.
R 2 000
1758
R 1 800
1257
1251
1176
R / ha
R 1 200
1570
1257
1327
1382
1172
1012
R 800
875
679
686
756
R 400
R 200
1831
1144
R 1 000
R 600
1639
1506
R 1 600
R 1 400
1839
1655
346
420
344
370
2006
2007
549
544
592
548
589
2009
2010
2011
2012
2013
424
R 0
2004
2005
Fertiliser
2008
Pest & Disease control
Weed control
Figure 5: Movement of direct cost – industry average.
Source: Vinpro, 2014
5
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
R 7 000
R 6 000
R / ha
R 5 000
3962
4185
4006
4219
4920
4459
4097
6076
5616
5272
R 4 000
R 3 000
R 2 000
1388
1556
1547
1589
1719
2004
2005
2006
2007
2008
2137
2132
2246
2325
2009
2010
2011
2012
2755
R 1 000
R 0
Permanent labour
2013
Seasonal & contract workers
Figure 6: Movement of labour cost – industry average.
Source: Vinpro, 2014
R 2 800
2243
R 2 450
R / ha
R 1 750
1449
1505
1468
1517
2040
1639
1464
R 1 050
859
921
2004
2005
1106
2358
1586
R 1 400
R 700
1983
1842
R 2 100
2352
2136
1533
1726
1252
R 350
R 0
2006
2007
2008
2009
2010
Repairs, parts & maintenance
2011
2012
2013
Fuel
R / ha
Figure 7: Movement of mechanization cost – industry average.
Source: Vinpro, 2014
R 2 500
R 2 250
R 2 000
R 1 750
R 1 500
R 1 250
R 1 000
R 750
R 500
R 250
R 0
2 063
2 287
1 768
1 339
861
1 019
1 043
1 119
688
1 072
1 254
846
931
971
2011
2012
2013
831
605
627
647
655
652
681
720
2004
2005
2006
2007
2008
2009
2010
Electricity
Water cost
1 421
1 176
Administration
Figure 8: Movement of general cost – industry average.
Source: Vinpro, 2014
6
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Percentage composition
The composition of cash expenditure has remained largely unchanged since 2004, with labour still representing
the biggest component, namely 40% in the 2013 production year. The trend nevertheless shows that the
component spent on labour compared to total production cost is decreasing, despite wage adjustments during the
period. This may be ascribed to improved productivity, as well as increasing mechanisation. Mechanisation, direct
cost, general expenditure and fixed improvements represent 20%, 17%, 19% and 4% respectively, of cash
expenditure.
17%
4%
16%
4%
15%
4%
16%
4%
18%
3%
19%
19%
3%
3%
19%
20%
21%
21%
20%
21%
20%
20%
44%
44%
43%
42%
42%
41%
41%
40%
40%
17%
16%
15%
15%
17%
18%
19%
18%
17%
17%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
15%
4%
16%
5%
17%
19%
19%
44%
Direct Cost
5%
Labour
Mechanisation
Fixed Improvements
General Expenditure
Figure 9: Percentage composition of annual cash expenditure – industry average.
Source: Vinpro, 2014
Provision for renewal
During the production process, required machinery and implement are utilised together with other annual
purchsed goods. Consequently, tractors, machinery and other means of production are ‘consumed’ in due course.
Even vineyards and buildings deteriorate and have to be replaced. The ‘deterioration’ and ’consumption’” of such
items form part of the costs of the production process.
Taking into account that the purchase value of an item has to be recovered during its lifetime, as well as the
fluctuations of inflation, sufficient provision has to be made. By using the principle ‘provision for replacement’, a
bigger amount will be recovered than in the case of ‘depreciation’. This addresses the problem of rectilinear
depreciation to a certain extent and ensures that the running concern is maintained.
When calculating the ‘provision for replacement’, items are written off against replacement value over different
terms, for e.g.:
Buildings
Vineyards
Loose assets / means of production
60 years
20 years
7 - 15 years
7
184456
194854
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
R 225 000
R 200 000
R 175 000
R 25 000
32886
33905
R 50 000
20321
49925
52789
R 75 000
26880
R 100 000
101935
101645
108160
R 125 000
54734
R / ha
R 150 000
R 0
Vineyards
Fixed improvements
(buildings)
Loose assets (production Total (land excluded)
means)
Figure 10: Replacement value of capital structure – industry average.
Source: Vinpro, 2014
Total provision for replacement amounted to R 9 080/ha in the 2013 production year – a 5% increase since 2012.
R 10 000
R 9 000
7541
R 8 000
R 6 000
R / ha
8140
2010
2011
9080
6876
R 7 000
R 5 000
7937
8606
5633
5733
2005
2006
6108
4779
R 4 000
R 3 000
R 2 000
R 1 000
R 0
2004
2007
2008
2009
2012
2013
Figure 11: Annual provision for replacement – industry average.
Source: Vinpro, 2014
4. Production Structure
The average farm size for the study groups currently amounts to 87 ha planted to wine grapes (other enterprises
are not taken into account). The average production – including bearing and non-bearing vineyards – amounted to
17.50 tons/ha in the 2013 production year.
The influence of increased production on the breakeven price of total production cost in rand per ton is significant.
Total production cost per hectare, which increased by 10% from 2012, caused breakeven to increase in terms of
rand per ton from R1 910/ton to R2 042/ton in 2013. In other words, the first R2 042 received by the producer for
a ton of grapes during the 2013 harvest, should be allocated to total production cost – no entrepreneurial
remuneration, interest or tax has been taken into account. This increase is mainly due to the inflation-topping
increase of production cost throughout the entire industry. Note that in certain districts a smaller increase in
8
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
production cost was realised. This, combined with the record crop in 2013, had a positive impact on certain
producers’ breakeven price.
R 2 500
R 2 042
R 1 941 R 2 028 R 1 910
R 1 709
17.50
16.98
15.08
15.55
16.31
2005
15.58
2004
R 2 000
R 1 500
14.73
5
13.79
10
15.34
R 1 449 R 1 497 R 1 391 R 1 420 R 1 446
13.11
Ton / Ha
15
R 1 000
R / Ton
20
R 500
0
R 0
2006
2007
2008
2009
Production (ton/ha)
2010
2011
2012
2013
Production cost in R / ton
Figure 12: Influence of production on breakeven of total production cost– industry average.
Source: Vinpro, 2014
Malmesbury 8.10
R / Ton
31.13
Orange River
Olifants River
7.76
Break-even (R/ton)
Industry Average 17.5
Production (ton/ha)
Stellenbosch
Paarl 11.95
Klein Karoo 20.45
Robertson 18.18
Breedekloof 20.40
0
Worcester 19.54
Ton / Ha
28.61
Average production yields differ significantly among the respective districts, while the total production cost in rand
per hectare does not differ significantly. As a result of such differences in production, there are big differences in
breakeven price with regard to total production cost per ton in the respective districts.
35
R 6 000
R 5 462
30
R 5 000
25
R 3 123 R 4 000
20
R 2 614
R 3 000
15 R 1 694 R 1 693 R 1 924
R
2
042
R 1 563
R 2 000
R 1 314 R 1 173
10
R 1 000
5
R 0
Figure 13: Production and breakeven per district (2013 harvest).
Source: Vinpro, 2014
The average age composition of participants’ vineyards have deteriorated considerably since 2004 – a clear
indication that producers have neglected capital maintenance due to low profit margins. More than 14% of the
surface planted to grapevines are older than 20 years and 12% of the grapevines in the sample are three years
old and younger. Some districts nevertheless display a healthy age composition and grapevines are meticulously
replaced, resulting in an increase in total surface planted to grapevines.
9
Percentage Decomposition
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
4%
8%
11%
11%
12%
13%
14%
13%
15%
14%
20%
15%
14%
14%
14%
13%
13%
14%
15%
16%
32%
35%
37%
39%
42%
42%
41%
41%
24%
22%
21%
19%
17%
17%
30%
27%
31%
27%
28%
25%
19%
18%
16%
15%
13%
12%
11%
11%
12%
12%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
under 3 years (%)
4-7 years (%)
8-15 years (%)
16-20 years (%)
Older than 20 years (%)
Figure 14: Age composition – industry average.
Source: Vinpro, 2014
10
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Table 2: Production Cost of Grapevines per District
PRODUCTION COST FOR WINE GRAPES (2013)
Stellenbosch
COST ITEMS AS RAND PER HECTARE (Irrigation)
COST STRUCTURE
DIRECT COST
SEED
FERTILIZER
ORGANIC MATERIAL
PESTICIDE CONTROL
HERBICIDE CONTROL
REPAIR & BINDING MATERIAL
Subtotal
LABOUR
SUPERVISION
PERMANENT LABOUR
SEASONAL LABOUR & CONTRACT WORK
Paarl
Robertson
Breedekloof
Olifants river
Worcester
Orange river
Klein Karoo
Industry average
RAND PER HA
204.54
768.03
47.52
2206.33
624.94
586.27
4437.63
95.32
932.17
192.26
1614.84
559.34
348.16
3742.09
56.88
2004.83
204.59
2056.51
650.91
324.55
5298.27
131.46
1320.59
903.57
2028.34
713.58
429.96
5527.50
16.43
2122.38
560.41
1769.34
403.92
266.76
5139.24
82.28
1907.98
164.03
1758.25
677.06
607.85
5197.45
8.48
1326.83
224.48
746.99
457.78
179.44
2944.00
424.57
1129.57
250.00
1346.91
248.15
423.30
3822.50
109.74
1405.15
315.60
1839.42
588.63
411.44
4669.98
3675.84
7979.39
1109.88
6090.07
1616.23
5023.40
1903.46
5983.41
1134.92
4910.96
1073.46
6055.62
1124.61
5924.46
1272.93
5125.45
1808.42
6075.66
5110.48
2882.62
2245.90
1287.35
1516.96
1005.63
6225.47
1308.96
2754.58
Subtotal
MECHANISATION
FUEL
REPAIR, PARTS & MAINTENANCE
LISENCES AND INSURANCE
TRANSPORT HIRED
Subtotal
FIXED IMPROVEMENTS
REPAIR AND MAINTENANCE
INSURANCE
Subtotal
GENERAL EXPENDITURES
ELECTRICITY
WATER COSTS
LAND-, PROPERTY- & MUN TAXES
ADMINISTRATION
Subtotal
16765.71
10082.57
8885.53
9174.22
7562.84
8134.71
13274.54
7707.34
10638.66
2383.38
2704.61
471.09
140.52
5699.60
2157.89
1651.58
374.36
533.52
4717.35
1934.46
2902.18
482.53
188.78
5507.95
2415.75
2123.27
471.91
220.62
5231.55
2658.66
2592.44
734.87
501.65
6487.62
2268.29
1919.10
483.55
133.55
4804.49
3377.33
2115.14
708.76
407.88
6609.11
2765.56
3455.82
364.56
251.16
6837.10
2358.06
2351.84
497.17
294.13
5501.20
780.59
200.45
981.04
537.00
159.33
696.33
549.13
166.86
715.99
911.39
272.87
1184.26
526.87
711.01
1237.88
678.88
253.74
932.62
399.97
483.93
883.90
150.20
189.27
339.47
634.65
278.46
913.12
1854.58
790.75
452.44
2269.35
5367.12
1896.43
574.20
191.17
1309.54
3971.34
3024.47
983.75
179.30
1262.75
5450.27
2689.36
211.35
224.78
1223.58
4349.07
2818.11
2050.27
287.02
1199.57
6354.97
2136.78
1450.09
176.65
1105.14
4868.66
1383.82
1287.69
287.66
1130.73
4089.90
1490.01
1837.95
125.44
1032.23
4485.63
2286.85
971.05
257.26
1420.52
4935.68
TOTAL CASH EXPENDITURES
33251.10
23209.68
25858.01
25466.60
26782.55
23937.93
27801.45
23192.04
26658.64
9135.10
5346.93
1149.12
8030.39
5442.38
634.12
9117.64
5486.89
904.88
9079.06
5491.31
884.28
10797.91
5076.67
1040.29
9160.01
5634.95
837.50
8729.25
5313.49
563.59
8770.81
5432.09
646.35
9080.03
5408.00
879.81
PROVISION FOR RENEWAL
VINEYARDS
FIXED IMPROVEMENTS
LOOSE ASSETS or PRODUCTION MEANS
TOTAL EXPENDITURES
AVERAGE AREA PLANTED (HA)
AREA IRRIGATED (%)
2639.05
1953.89
2725.87
2703.47
4680.95
2687.56
2852.17
2692.37
2792.23
42386.20
31240.07
34975.65
34545.66
37580.46
33097.94
36530.70
31962.85
35738.68
99
91%
92
90%
103
100%
109
100%
58
100%
85
99%
16
100%
43
100%
87
96%
AVERAGE AGE COMPOSITION (%)
3 YEARS & YOUNGER
8.97
10.14
18.42
14.52
9.88
15.20
7.36
14.46
12.42
BETWEEN 4 & 7 YEARS
13.85
13.03
19.40
14.02
16.80
19.36
29.71
16.42
16.52
BETWEEN 8 & 15 YEARS
43.52
51.12
33.24
39.33
37.91
33.65
42.65
47.98
41.03
BETWEEN 16 & 20 YEARS
16.05
15.22
15.18
17.84
19.26
15.21
10.82
14.15
15.95
OLDER THAN 20 YEARS
17.61
10.50
13.76
14.28
16.14
16.58
9.47
6.99
14.08
7.76
11.95
18.18
20.40
28.61
19.54
31.13
20.45
17.50
CASH EXPENDITURES (RAND PER TON)
4285
1942
1422
1248
936
1225
893
1134
1523
TOTAL EXPENDITURES (RAND PER TON)
5462
2614
1924
1693
1314
1694
1173
1563
2042
AVERAGE YIELD (TON PER HA)
Source: Vinpro, 2014
11
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Profitability
The profitability, or net farming income (NFI), is calculated as total income (R/ton * ton/ha) minus total production
cost. The latter consists of cash expenditure and provision for renewal, but excludes entrepreneurial
remuneration, interest obligations and tax.
Total income is based on the proven or anticipated income of a specific crop and no time value of money is taken
into account. This enables a more accurate calculation of the impact of a bigger or lighter crop, while in fact
producers receive their income at different stages, which makes it impossible to take time value into account.
Remember that cost is also incurred in the course of time.
Although the total income per hectare – which is calculated by price and production – has shown slight increases
since 2005, cost increases have caused the NFI to decrease dramatically between 2004 and 2013. While the
average total income in the 2013 production year amounted to R 44 171/ha – almost 8% more than in 2012 –NFI
decreased by 2% to R 8 432/ha. As a guideline for economically sustainable production, the average income and
NFI for the 2013 production year should in fact have realised R 55 739/ha and R20 000/ha respectively.
Table 3: Industry Average Statement of Income and Expenditure
INCOME & EXPENDITURE
STATEMENT
Average price per ton (Rand)
Average yield per hectare
(tons)
2004
2005
2006
2007
2008
2009
2010
2011
2011
2013
2383
1916
1763
1766
1807
2113
2192
2383
2416
2524
13
14
15
16
16
16
15
15
17
18
31236
26424
27043
27513
29479
32857
32281
35943
41023
44171
Direct costs (R/ha)
2459
2426
2391
2482
2855
3463
3920
3992
4150
4670
Labour (R/ha)
6317
6590
6878
6949
6956
7905
8477
9111
9630
10639
Mechanisation (R/ha)
2667
2852
3004
3219
3533
4022
4142
4633
4868
5501
Other overheads (R/ha)
ANNUAL CASH
EXPENDITURES
2778
3142
3326
3367
3357
3649
4108
4706
5186
5849
14221
15010
15599
16017
16702
19039
20648
22443
23834
26659
17015
11414
11444
11496
12777
13818
11633
13500
17189
17512
4779
5633
5733
6108
6876
7541
7937
8140
8606
9080
12236
5781
5711
5388
5901
6277
3696
5360
8583
8432
TOTAL INCOME (R/ha)
GROSS MARGIN (R/ha)
Provision for replacement
(R/ha)
NET FARMING INCOME
(R/ha)
Source: Vinpro, 2014
Over the past 10 years average income has consistently been below target income guidelines. Producers still find
themselves in a cost price squeeze and in some instances in recent years income has been lower than the cost of
producing grapes. Many producers are obliged to take replacement of vineyards and capital out of their cash flow
and are consequently farming on gross margin and not NFI.
5. Top performers
During the 2013 vintage the top 50 wine producers in the industry – excluding Malmesbury – realised a gross
income (GI) and net farming income (NFI) of R 59 797/ha (industry average R 44 171/ha) and R 25 482/ha
(industry average R 8 432/ha) respectively. For the fourth consecutive year this is in line with and even better than
the VinPro guideline for economic sustainability of R 55 739/ha GI and R 20 000/ha NFI on average.
12
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Table 4: Statement of Income and Expenditure of the Top Achievers
INCOME & EXPENDITURE STATEMENT
2010
Average price per ton (Rand)
2011
2012
2013
2056
2348
2475
2724
22
20
22
22
44601
47225
55235
59797
Direct costs (R/ha)
4039
4140
4530
5063
Labour (R/ha)
7265
7412
7937
8751
Mechanisation (R/ha)
4193
4341
4543
5369
Other overheads (R/ha)
3876
4643
5044
5623
ANNUAL CASH EXPENDITURES
19373
20536
22054
24806
GROSS MARGIN (R/ha)
25228
26688
33181
34991
Provision for replacement (R/ha)
8269
8324
8815
9509
NET FARMING INCOME (R/ha)
16959
18364
24366
25483
Average yield per hectare (tons)
TOTAL INCOME (R/ha)
Source: Vinpro, 2014
2010
2011
2012
Olifants River
Robertson
Orange River
Paarl
Stellenbosch
Worcester
Breedekloof
40%
35%
30%
25%
20%
15%
10%
5%
0%
Klein Karoo
Percentage Decomposition
From 2010 to 2013, the average farm size of the top 50 producers amounted to 61 ha, 72 ha, 84 ha and 74 ha
planted to wine grapes – compared to the industry average of 79 ha, 84 ha, 86 ha and 87 ha.
The top achievers are spread across all nine wine districts, but the majority are situated in the higher production
areas.
2013
Figure 15: Distribution of top achievers in the respective districts.
Source: Vinpro, 2014.
As in 2012, the remarkable improvement in NFI by top achievers can be ascribed to considerably higher
production of 21.95 tons/ha, compared to the industry average of 17.50 ton/ha – a 25% increase. The average
price of R 2 724/ton realised by top achievers, is 8% higher than the industry average of R 2 524/ton.
Top producers’ annual cash expenditure (R 24 806/ha) is at least 7% lower than that of the industry
(R 26 659/ha), while the provision for replacement of this group at R 9 509/ha is about 2% higher than the
industry average of R 9 080/ha. Total production cost of the top 50 producers amounts to R 34 314/ha, 4% lower
than the industry average of R 35 739/ha.
13
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Table 5: Production Cost Comparison between Top Achievers and Industry Average
Top 50
2010
Industry
2010
Top 50
2011
Industry
2011
Top 50
2012
Industry
2012
Top 50
2013
Industry
2013
4039
3921
4140
3992
4530
4150
5063
4670
41
77
65
97
84
107
109
110
1166
1017
1155
1061
1393
1221
1327
1405
289
233
346
225
417
242
569
316
1737
1758
1661
1655
1661
1639
1963
1839
550
544
541
592
552
548
594
589
257
292
373
362
422
393
501
411
LABOUR
7265
8477
7412
9111
7937
9630
8751
10639
SUPERVISION
1244
1425
1140
1593
1568
1689
1648
1808
4690
4920
4728
5272
5092
5616
5668
6076
1331
2132
1544
2246
1278
2325
1435
2755
MECHANISATION
4193
4142
4341
4633
4543
4868
5369
5501
FUEL
1553
1533
1599
1726
1820
2040
2350
2358
1936
1983
1976
2243
2059
2136
2208
2352
456
419
507
422
464
460
522
497
248
207
260
242
199
232
289
294
602
741
517
707
715
720
953
913
392
540
296
486
488
490
721
635
DIRECT COST
SEED
FERTILIZER
ORGANIC
MATERIAL
PESTICIDE
CONTROL
HERBICIDE
CONTROL
REPAIR &
BINDING
MATERIAL
PERMANENT
LABOUR
SEASONAL
LABOUR &
CONTRACT
WORK
REPAIR, PARTS &
MAINTENANCE
LISENCES AND
INSURANCE
TRANSPORT
HIRED
FIXED
IMPROVEMENTS
REPAIR AND
MAINTENANCE
INSURANCE
210
201
221
221
227
230
231
278
GENERAL
EXPENDITURES
3273
3367
4125
3999
4328
4466
4670
4936
ELECTRICITY
1312
1339
1777
1768
2269
2063
2245
2287
WATER COSTS
790
720
1060
846
861
931
963
971
LAND-,
PROPERTY- &
MUN TAXES
175
177
223
209
172
218
222
257
ADMINISTRATION
997
1131
1066
1176
1026
1254
1241
1421
TOTALE CASH
EXPENDITURES
19373
20648
20537
22443
22054
23834
24806
26659
PROVISION FOR
RENEWAL
8269
7937
8324
8140
8815
8606
9509
9080
VINEYARDS
4304
4263
4714
4725
5143
5082
5509
5408
752
730
774
791
910
832
936
880
3213
2944
2835
2623
2761
2691
3063
2792
FIXED
IMPROVEMENTS
LOOSE ASSETS
or PRODUCTION
MEANS
14
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Top 50
2010
TOTAL
PRODUCTION
COST
Industry
2010
27641
Top 50
2011
28585
Industry
2011
28860
Top 50
2012
30582
Industry
2012
30869
Top 50
2013
Industry
2013
34315
35739
32439
Source: Vinpro, 2014
The percentage composition of top achievers’ cash expenditure does not differ markedly from the industry
average. Over the past four years, the top 50 producers spent more on direct costs than the industry – mainly
due to higher expenditure on fertiliser and pest and disease control. The mechanisation component is bigger for
the top achievers and total labour spend is lower among this group than the industry average.
Percentage Decomposition
100%
90%
17%
16%
80%
3%
4%
22%
20%
38%
70%
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%
21%
19%
20%
18%
21%
17%
20%
18%
Top 50 2010
Industry
2010
TOP 50 2011
Industry
2011
TOP 50 2012
Industry
2012
TOP 50 2013
Industry
2013
60%
50%
40%
30%
20%
10%
0%
Direct cost
Labour
Mechanisation
Fixed improvements
General
Figure 16: Percentage composition of annual cash expenditure – top achievers compared to industry
average.
Source: Vinpro, 2014
In the light of the above, it looks like the top achievers have mechanised to a greater extent, while labour has
either been reduced, or it is being applied more productively. Other cost components do not show big differences.
Although the cost structure of top achievers differs from the industry average in respect of composition and actual
rand value, it was income per hectare – driven mainly by production and average payout – that resulted in the
considerable improvement in NFI for the fourth consecutive year.
The age composition of vineyards has not changed intrinsically from 2010 to 2013. Both groups have an
acceptable age composition (see Figure 17 below).
15
INPUT COST MONITOR: Cost of wine grape production and producer profitibility – 2013
May 2014
Percentage Decomposition
100%
10%
90%
14%
11%
13%
12%
15%
12%
14%
13%
13%
14%
17%
15%
16%
16%
42%
43%
42%
38%
41%
40%
41%
23%
21%
21%
19%
21%
17%
18%
17%
12%
11%
12%
11%
12%
12%
14%
12%
Top 50
2010
Industry
2010
Top 50
2011
Industry
2011
Top 50
2012
Industry
2012
Top 50
2013
Industry
2013
13%
80%
70%
60%
43%
50%
40%
30%
20%
10%
0%
Younger than 3 years
3 to 7 years
8 to 15 years
16 to 20 years
Older than 20 years
Figure 17: Age composition – top achievers compared to industry average.
Source: Vinpro, 2014
6. Summary
Although the income from wine grape cultivation has shown slight increases since 2005 – driven by price and
average yield – large cost increases over the period to 2013 have caused the average net farming income (NFI) of
primary producers to decrease substantially. An increase of 10% in production cost in 2013 was largely driven by a
record crop, as well as above inflation increases in the cost of electricity, wages and fuel. Producers still find
themselves in a cost price squeeze with unsustainable income levels. Producers are urged to manage unprofitable
blocks effectively to ensure that profitable blocks do not subsidise unprofitable blocks, and not to pursue total
turnover at the expense of NFI. Although the latest findings (2013 harvest) indicate that the average primary wine
producer still finds himself in a cost price squeeze, some producers and production areas nevertheless manage
sustainable production. These are producers who make record crops possible, ageing grapevines and a shrinking
vineyard surface notwithstanding.
16