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From exuberance to distress – South African wine farmers in the red despite consumption boom

From exuberance to distress – South African wine farmers in the red despite consumption boom
(Source: FTI Consulting)
Ray Mahlaka
By Ray Mahlaka
24 Oct 2024
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Sales have made a robust recovery since the Covid disaster, but soaring production costs have forced 40% of producers into losses.

There are two tales to tell about SA’s R57-billion wine industry. 

On one hand, consumption of wine in SA has recovered over the past two years, telling a story of robust growth and exuberance in the industry. 

Most of the consumption growth came after the end of Covid restrictions, which barred sales of wine and induced a drought across the country from 2020 to 2021. 

On the other hand, there is also a story of wine farms across SA still facing profitability problems despite the resurgence of wine sales and consumption.

FTI Consulting conducted a comprehensive study for the wine industry umbrella body, SA Wine, detailing the industry’s impact on the economy in 2022, with insights stretching back over the past decade. The study is the latest available and is widely relied on by the industry.

The FTI Consulting study provides an overview of the wine industry, which contributed R56.5-billion to SA’s economic activity in 2022 and supported 270,364 jobs. There are 89,384 hectares of vineyards in SA, most of which (97%) are in the Western Cape. The country is the eighth-largest wine producer, producing about 4% of the world’s wine.

The good news first 


The study notes that wine consumption declined between 2017 and 2019, but strict Covid restrictions from 2020 worsened the downward spiral. However, consumption levels have since rebounded, growing by an average compound annual growth rate of 20% to reach a record level of 453 million litres in 2022.

farmers wine struggle (Source: FTI Consulting)



The rebound in post-Covid wine consumption volumes was largely driven by strong sales growth in wines that cost less than R60. This category comprises about 83% of the country’s total wine consumption. 

FTI Consulting says it is unsurprising that this category is popular among consumers because the cost-of-living crisis has worsened since the Covid lockdowns, as seen in higher petrol, food and electricity prices, and elevated interest rates. To save a buck, more consumers are embracing cheaper wine categories. 

However, sales volumes for higher-priced wine (in the R100-R120 and R120-R150 per litre categories) are still in the doldrums.

The local wine industry has also evolved beyond wine-in-a-bottle. The wine industry has cheaper packaging options, including wine-in-a-can, bag-in-box, foil bags and tetra packs. The wine in this lower-cost packaging is cheaper. 

Now for the bad news


Many wine producers and farmers across SA are facing financial difficulties, with their operations unprofitable. 

The FTI Consulting report notes that almost 40% of wine farmers were loss-making in 2022. In 2018, this figure was 28%, meaning more wine farmers are now in financial distress. 

It is becoming more expensive for farmers to produce wine and keep their operations financially sustainable. Wine farmers’ average annual production costs increased by a staggering 15.3% in 2022, more than double the average compound annual growth rate in costs of 7.3% over the past decade. 

The FTI Consulting report attributes this to rapidly rising costs incurred by farmers, mainly on fertiliser, chemical sprays, mechanisation, electricity and labour.

FTI Consulting estimates that in 2022, only 12% of wine farmers were profitable (defined as earning enough income to cover farming costs and have money left over to fund wine operations), a big drop from 20% in 2018.

Extreme weather patterns have also affected farmers and their harvesting activity. Over the past decade, all of South Africa’s wine-producing regions have registered net declines in vineyard areas.

However, the most impact has been felt in areas that get little rainfall, including regions of the Northern Cape and the Klein Karoo.

There are some green shoots in the wine industry, especially when it comes to export activity.

Around the world, there is growing popularity of white wines like Cap Classique and Chenin Blanc, with the export of such wines rising by 4% in 2023, according to research from Standard Bank. The bank says countries such as China, Belgium, Zambia and Thailand are also increasing their purchases of South African wine. DM

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