| By Gavin Chait,
on 20 June 2007
|
 But can you walk on it? "Is the wine industry in crisis?" he asks, mock seriously. But it is serious. Only a few days ago a shadowy group of French wine-producers declared on French state television that they were preparing for a violent showdown with their government unless they were offered a guaranteed minimum subsidy. EU subsidies are already so vast that they have contributed significantly to the current global wine glut.
As any economist would tell you: subsidies attract more producers into a market than the market can sustain; they go on to produce more goods than their market can buy. These goods are then exported to other markets at below cost and have the knock-on effect of displacing others from their markets. Soon you have a glut of unsold goods and all players find it impossible to survive. South Africa offers its farmers only limited protection, as any good market-led government should. So much for the way that the French are hurting our farmers. What are we doing to ourselves? There are two parts to the South African wine industry: local sales and foreign exports. Local is intolerably controlled by the South African government. "The government doesn't give diddly-squat about the wine industry," says an impassioned wine writer. More succinctly, misdirected legislation reinforces the monopolies of the big manufacturers (Distel, KWV and SABMiller) allowing them to control the market. This reduces the ability of smaller wine-makers to co-ordinate their efforts and come up with innovative marketing. Discussions about what to do about this has been going round for 25 years, with plenty of concrete suggestions. However, this would require that the big manufacturers agree to give up some power. And they don't. This has a knock-on effect into the international market. "What do the Australians do that we do differently?" asks Bullard. Graham Knox, winemaker and owner of Stormhoek, came up with the most comprehensive response. "South Africa produces a vast amount of wine under the co-op system. This leads to decision-making by farmers rather than by marketers and so they are driven by the ethos of price only. Other countries are better constituted to adopt a price strategy; they have long flat vineyards that allow machine harvesting. South Africa has steep slopes and can only farm in short runs and patches," says Knox. The type of land means that we have the best possible situation to produce high-quality wines. Instead, through force of habit and political legacies, we attempt to sell bulk wine as cheaply as possible. These wines are blended, adulterated, and bottled with unique labels; the end result is cheap table plonk. "We have the assets that can allow better quality wine," laments Knox. The impact for international sales is that foreign markets just don't think of South Africa as a high-quality producer. Put it in other terms: you know that China is a low-cost bulk producer of cheap items. How would you feel if China attempted to market themselves now as a high-quality producer? Would you install a Chinese pacemaker in your chest? "We have an image problem," states Knox. This means that boutique producers in South Africa don't get taken seriously when they attempt to sell overseas. What do the Australians do differently? They market as a collective and work together to build up the image of Australian wine. The French aren't overly worried about South African wine but they're certainly nervous of the Californians, Chileans and Australians. One panellist declared, "We can't walk on water, so why not try wine?" The lessons from these are numerous. About not allowing dominant market players to prevent new companies from operating efficiently. Of not becoming wed to subsidies or traditional business strategies which have been displaced by innovations and changing consumer tastes. |
