Wine prices to rise at slower rate than input costs

Wine prices have been rising lately,but wine farmers remain under pressure due to rapidly increasing input costs.

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The recent PricewaterhouseCoopers (PwC) South African Wine Industry Insights Survey 2010 found that although producer cellars’ average wine prices rose by 19% over three years, the rise in costs were almost double the rise in income during this period. Further pressure on costs per ton can be expected, as smaller crops were reported annually since 2008 and cellars can’t seem to pass on the full effect of these cost increases to consumers, the report stated.

“Many wine businesses are at a strategic crossroad, and in going forward they’ll be forced to take a long-term view on how this narrowing margin will be effectively managed to ensure sustainability for all stakeholders in the wine value chain,” said Frans Weilbach, wine industry specialist partner at PwC.“A positive finding was that the 2009 harvest was the first since 2004 where the average revenue per hectare exceeded the average primary production costs per hectare, for both red and white cultivars,” said Weilbach.

Red and white wine prices should increase further over the next nine to ten years, according to the Bureau for Food and Agricultural Policy (BFAP’s) Baseline 2010 report by Pretoria University, under Dr Ferdinand Meyer’s leadership. The report projected that wine-price recovery, especially in 2010 and 2011, would be driven by depleting stock levels.

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“The supply shortfall in 2010, due to a grape crop that should be 10% smaller than in 2009, will cause a significant decline in wine stocks. Total wine stocks should fall from 362 million litres in 2009 to 317 million litres in 2010,” read the BFAP report.

The BFAP report also stated the average price of red wine sold in bulk rose to R4,59/â„“ in 2009, representing a 19% year-on-year rise in nominal terms or an 8% real increase. Another 11% real increase was projected for 2011. The average annual price increase for red wine over the next five years should be 6%, but from then on until 2019, the rate of increase should fall to an annual average of 3,15%.

The average price of white wine sold in bulk was projected at R3,86/â„“ for 2010 – a 12% nominal and 4% real increase from the 2009 price of R3,45/â„“. “White wine prices should set on an increasing trend in real terms over 2010 to 2019, but at a lower rate compared to red wine prices,” read the report.