It is said that two things in life are certain. Death and taxes. Unfortunately, so is the continuing trend of increases in the cost of living. The price of wine cannot be left behind when having this discussion. We, at Vrede and Lust would like to believe that wine is an essential portion of “living” and it would accordingly follow that the price of wine would necessarily have to increase continuously. As much as we would want to keep producing quality wines at the same price, the factors as discussed below makes this impossible.
In the most recent edition of PWC’s “The South African wine industry Insights Survey, the following statements were made: “Wine businesses are anxious when looking to the future. On both the local and global front, it is becoming increasingly difficult to gauge consumer trends and budget for rising costs. Never before has the local wine industry had to contemplate so many aspects in determining its direction and growth strategies. Volatile exchange rates, increasing input costs, as well as the recent labour-related difficulties experienced in the Western Cape are only some of the daily challenges faced.”
There are so many factors that we consider when buying a bottle of wine: familiarity, origin, green/organic, ethics and social responsibility, label, packaging, usage, occasion and not least of all price. We consider all this data in a split second for something that is as much a necessity in modern times as bread or milk. When last did you think about the weakening rand when buying a loaf of bread?
Best to tackle the proverbial cow…price. What can we expect during the rest of this year? Perhaps it’s best to first consider some of the factors that contribute to the cost of the product.
The National Energy regulator may allow a price increase in electricity in the near future, following labour unrest and wage negotiations in the construction of the Limpopo-based coal-fired energy stations. This is bad news for all cellars with no solar power infra-structure – at least we can rest assured in this instance.
The rand has weakened considerably compared to other major currencies. The price of a new barrel has increased from R 10 300/barrel* in 2012 to R 11 320/barrel* in 2014, and that is just one of the components in the cellar production and maturation of wine that increased quite drastically due to the weak rand.
Diesel and petrol price increases
Since 2011, the price of both diesel and petrol has increased by about R4.00 per liter. The petrol price as at 6 April 2011 was R9.66/liter (95 unleaded at the coast). The petrol price as at 2 April 2014 is R13.98/liter (95 unleaded at the coast). The diesel price as at 6 April 2011 was R9.33/liter (new diesel at the coast). The diesel price as at 2 April 2014 is R13.05/liter (new diesel at the coast). Fuel increases impacts the entire economy in that a domino effect is created with price increases in any commodity that needs to be transported. The wine industry is certainly not immune to these fuel related increases and increases in the price of wine can be expected as long as the price of fuel keeps increasing.
Labour unrest and wage negotiations in the Western Cape
This could perhaps be the largest single contributing factor to price increases in the near future for the nearly 88% of cellars adhering to minimum rates of pay as prescribed by the Department of Labour. However, for the remaining 12% of cellars, Vrede and Lust amongst them, who has paid labourers above this minimum prescription, it has luckily not had such a big impact. We do however offer a yearly increase of 8% to all our workers and this is still a major annual increase to take into consideration when determining the price of product.
It is not all “doom-and-gloom” though. All indications are that this year’s crop will be the third biggest in recorded history. The exchange rate has enabled those cellars that have penetrated the emerging wine-drinking markets to maintain and in some cases even grow their market share. In terms of fair labour practises – South Africa has the highest number of Fairtrade-accredited wineries worldwide, with 65% of Fairtrade wines sold globally coming from our country. The local wine industry has also received praise from high-profile industry critics.
The long and the short of it – wine producers – as with all other consumer goods has no choice but to impose very necessary increases from time to time….which is all the more reason to have another glass of wine.