The report is packed with charts and graphs which show the growth and decline of the national vineyard over the past 11 years. And I say decline advisedly, because since 2006, when the extent of the national vineyard was 102 146ha, it has declined to 100 568ha in 2011. The kneejerk reaction may well be one of concern, but depending upon how things unfold in the short to medium term it may well be a good, rather than a bad thing.
According to agricultural economist Gert van Wyk of VinPro, "we should be replanting 5 000ha of vines annually if we expect to maintain our current national vineyard. This translates roughly into the entire national vineyard being replaced every 20 years. But in order to do so, growers need to be able to achieve an economically sustainable income per hectare of vineyards. “
“This will allow them to fund vineyard replacements, capital maintenance of loose assets and fixed improvements, interest and redemptions on borrowed capital (debts) and entrepreneur’s remuneration,” says van Wyk.
For some producers, this is just not feasible, which means that when a particular vineyard reaches the end of its economic life – it costs more to maintain it in any given year than it grosses in revenue – it will probably be pulled out and replaced with another agricultural product, or it could well be left to just lie fallow.
Broadly speaking, the economic viability of a vineyard is a function of yield (tons/ha) and price per ton. By way of example, to manage and maintain a typical vineyard in the industry may cost around R30 500 per hectare. If the average yield is six tons per hectare, the producer needs to realise at least R5 000 per ton just to break even, never mind debt amortisation, remuneration or profits.
If, on the other hand yield increases to 20 tons\ha, the picture is fundamentally different. The break even cost per ton drops to R1 500, making profit generation and funding of 5% annual vineyard replacement that much more feasible.
Such yields are of course not possible in many of our vineyards, but depending on how the vineyard is managed, it is possible to drive up the yield without adversely affecting quality. “Wise producers are paying a good deal of attention to vineyard management to better align production with price points which can be achieved. They’re paying attention to viticulture in the areas of trellising, irrigation, pruning, pest- and weed control, fertilising and cover crop for example. In effect,” says van Wyk, “production must in many instances compensate for pricing.”
Producers that have strong, established brands on the other hand, are better able to align lower yields with higher per ton prices, with concomitantly greater profitability.
He goes on to say that there are vineyards out there which are no longer economically viable, and that they will inevitably be uprooted. Will they all be replaced with new vineyards? “Maybe,” says van Wyk, “or maybe not, but if they aren’t it’s not necessarily a bad thing. A smaller industry could well be a healthier and a more profitable industry, particularly for producers.”
And that would be a very good thing indeed. In support of this view, van Wyk points out that the 2012 harvest, was only 30 000 tons short of the all-time record harvest of the 2008 vintage, off a smaller national vineyard. “Clearly producers are doing things right in difficult times.”
And if old vineyards are replaced, then it must be done intelligently, in such a way that production is aligned with anticipated future price points. “Soil type, clone, rootstock, trellising systems, irrigation systems must all be planned and designed to achieve the best possible yield at the best possible per ton cost, without compromising quality,” says van Wyk. “That way, it makes it easier to align production with achievable prices.”
This decline in vineyard area is not unique to South Africa. On the contrary, it is a trend worldwide, and if it is accompanied by an uptick in yield, then it can only be good for the industry long term, since it will result in that smaller, more profitable industry van Wyk alludes to.
The world’s total area under vines has declined from a high of 9.6 million hectares in 1963 to around 7.6 million hectares in 2009. In the same period, average yield per hectare has steadily increased from about 5 tons\ha to 9 tons\ha.
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The other contributing factors are vine density and improvements in plant material, both of which play a vital role in improving yield,” says van Wyk. “The bottom line is, while we might be planting and replacing less, what is being planted is improving yield. It’s actually not at all about hectares, but about becoming more productive, and therefore more profitable.”