Bloomberg News

South African Wine Exports Setting Records on U.S., China Demand

May 13, 2013

South African Wine Exports Setting Records on U.S., China Demand

Vineyards grow close to Wolesley, a small rural town about 120Km North of Cape Town.Photographer: Rodger Bosch/AFP/Getty Images

South African wine exports are poised to beat their 2012 record this year following high yields and on demand for premium vintages from North America and Asia, industry executives and growers said.

Wine exports rose to 469 million liters (124 million U.S. gallons) in the year ending April 30, up 25 percent from the previous 12 months and more than triple the total shipped in 2000, data from the Wines of South Africa trade body, or WOSA, show. Bulk shipments rose 53 percent while those of bottled and packaged wines fell 5 percent, as large producers bottled more in export markets.

Although wine has been grown in South Africa since Dutch settlers arrived in the 17th century, the country was cut off from trade during the apartheid era of racial discrimination, which ended in 1994 with the first all-race elections. Two decades on, exporters are seeking to consolidate in established markets such as the U.K. and Germany while boosting sales in Asia and Africa.

“If you think about South Africa’s history, we’ve been making wine for 350 years but it’s only really since 1994 that we’ve actively pursued the export market, that we’ve been welcome and accepted,” Johan Erasmus, general manager of the Glen Carlou winery in the Paarl Valley north east of Cape Town, said at a London tasting in March. “We are much more in touch with consumers worldwide.”

A wet winter meant plenty of underground water, helping to boost yields in 2013, according to Su Birch, Chief Executive Officer at WOSA. Yields at the 2012 harvest rose to 14.13 metric tons per hectare (2.471 acres), the highest for at least six years, and probably climbed to about 14.90 tons this year, according to estimates based on preliminary data from WOSA.

Export Outlook

WOSA’s September forecast was for wine exports this year of between 430 million and 440 million liters, after a record 409 million in 2012. A combination of high yields, more marketing in the U.S. and elsewhere and global demand for bulk wine means that’s already looking too low. “It depends what the rand does,” Birch said by phone from Stellenbosch last month, predicting full-year exports of about 460 million liters.

The currency is near a four-year low against the dollar, helping exporters. It has weakened 7.1 percent this year, the most among 245 major emerging-market currencies tracked by Bloomberg. Leading export brands include First Cape, Kumala and Distell Group Ltd. (DST)’s Fleur du Cap.

Premium Market

Still, costs in South Africa are rising. The government boosted the minimum wage for farmworkers by 52 percent to 105 rand ($11.51) a day from March 1 after strikes in wine-growing areas in the Western Cape province began in November and turned violent, prompting the police to respond with tear gas, stun grenades and water cannons. Some vineyards were torched.

In the premium market, defined by WOSA as wines above $10 a bottle, a shift by growers to more Cabernet Sauvignon, Shiraz and other international grapes following the end of apartheid and to proportionately less Chenin Blanc, a French varietal popular in South Africa, has helped boost brand appeal.

The proportion of vineyards planted with Cabernet Sauvignon, a classic Bordeaux grape, tripled to 12 percent in 2011, the latest year for which figures were available, from 4 percent in 1990, according to WOSA.

Sauvignon Blanc climbed to 10 percent from 4 percent while Shiraz, also known as Syrah and associated with France’s Rhone Valley, rose to 10 percent from 1 percent and Merlot jumped to 6 percent, also from 1 percent. Pinotage, a hybrid between pinot noir and cinsaut developed locally, has also increased its plantings, although outpaced by Shiraz and Chardonnay.

Producers growing international grapes include Glen Carlou, a 28-year-old winery owned by Swiss-based Hess Family Estates, whose range includes Pinot Noir, Shiraz and Cabernet Sauvignon.

Bordeaux Varietals

Oldenburg Vineyards in Stellenbosch grows Bordeaux varietals Cabernet Sauvignon, Cabernet Franc and Merlot as well as Syrah, Chardonnay and Chenin Blanc.

“It’s not so much a yield game, it’s more a quality game,” said Oldenburg’s owner Adrian Vanderspuy while visiting London in March. “We aim to be at the premium end.”

Even as Europe remains South Africa’s biggest export destination, with between 60 percent and 70 percent of sales, Vanderspuy said the market on both sides of the Atlantic is changing amid demand for higher-quality wines.

“We’re not necessarily going for the supermarkets” in the U.S., Vanderspuy said. “The whole category of South Africa is growing. Our first shipment of wine has just gone to Shanghai.”

Shelf Space

The U.K. took the biggest share of South Africa’s wine exports last year with 22 percent and Germany was second with 19 percent, according to WOSA. While shipments of South African bottled wine to the U.K. and the U.S. fell in the five years to 2011, they rose sixfold to 4.28 million bottles in China and almost tripled to 3.44 million in Nigeria.

With exports rising, South Africa is still battling for shelf space. Its share of wines imported into the U.S. was 1.2 percent last year, down from about 8 percent in the 1990s, according to the San Francisco-based Wine Institute and George Monyemangene, South Africa’s consul-general in New York.

In August Wal-Mart, the world’s largest retailer, started selling South African wines in the U.S. after spending $1.8 billion in 2011 buying 51 percent of Johannesburg-based Massmart Holdings Ltd. (MSM), Africa’s biggest food and goods wholesaler.

Not all wineries plant just classic French grapes, even if they are aiming for foreign markets. At Da Capo Vineyards in Stellenbosch, founded by Milan-born Alberto Bottega in 1998, his son Roberto said Italian varieties Nebbiolo, San Giovese and Barbera grow alongside Cabernet Sauvignon and Merlot.

“South Africa is in a unique position,” Bottega, who promotes his father’s estate, said at a London tasting. “Our wines are somewhere between the old world and the new.”

To contact the reporter on this story: Guy Collins in London at guycollins@bloomberg.net

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net


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