Business Maverick

Wine exports are now legal, or are they?

By Kim Maxwell 10 April 2020
Caption
‘Wine we see as a lifestyle product and yes, it is alcohol per definition, but originates and supports a large and significant primary agriculture sector,’ says Phillip Retief, CEO, Van Loveren Family Vineyards. Photo: Supplied

Marginal gains were achieved when wine exports were allowed this week, but for many in the industry, it’s a hollow win.

News went out on 7 April 2020 that a special dispensation had been granted to the South African wine industry to allow wine exports during the Covid-19 lockdown period. An industry financially strangled by legislation allowing no local alcohol sales heaved a small sigh of relief. 

But a task team of industry bodies from Wines of South Africa (WOSA), Vinpro (representing 2,500 producing cellars), and South African Liquor Brand Owners Association (SALBA), immediately set to work to unpack the practical implications for confused exporters. On 9 April, producers were thrown a temporary lifeline with detail about how bulk and bottled wine orders may be legally dispatched, including transporting of wine from cellar to port. But barriers still exist for many small and large wine producers trying to keep cash flow buoyant and salaries paid. 

To recap, a 7 April Government Gazette Amendment Regulations was issued by Minister of Transport Fikile Mbalula, relating to the Disaster Management Act of 2002, concerning sea cargo operations and freight operations. During lockdown, the transportation of wines at sea ports and airport ports of entry is now allowed. As agricultural cargo, wine may also now be transported to those same ports of entry. Finished packaged or bulk wine may be exported to its export destination.

WOSA spokesperson Maryna Calow sat in on industry task team sessions on 8 April, and provided this summary a day later: 

“It’s our interpretation of the Government Gazette of 7 April that cellars, firstly, may proceed with any wine export orders sitting in the harbour port. Secondly, they can export all finished wine (bottled, labelled and boxed), if it only involves transporting it from your winery or warehouse to the harbour port.”  

“Effective immediately, the above rulings also apply to bulk wine that needs to be pumped into a flexitank for shipping, that is awaiting export, for bottling in its country of destination.”

Calow says cellars adhering to government guidelines for employee safety and physical distancing was a key consideration. “There is limited human personal interaction from a safety perspective. It only takes one or two people to operate a forklift and load boxes of wine from a logistics point of view, so loading a truck with boxes of wine can be efficiently done,” she said.

“Of course, this means that any exporting winery transporting that wine to harbour ports will need their driver to carry relevant permits and certification for transport of wine during the lockdown (an exemption by government for the transport of wine from a warehouse or cellar to a harbour or airport).”

Collective interpretation

Where industry bodies were in agreement about how a specific point was perceived, it was collectively interpreted as such. The task team also interpreted what cellars may not do and the list is long. For instance, no permission is granted to start up bottling lines and wine production during the lockdown period, ruling out new export orders. No road or rail freight is allowed for cross-border transport. No service providers may print labels, provide bottles or capsule closures for wines. 

Van Loveren Vineyards CEO Phillip Retief sat in on the export task team, one of a few producers asked to offer operational guidance. “Although it varies from winery to winery, about 50% of SA wine is sold locally; 50% exported as a rule,” said Retief. “With wine sales not allowed in supermarkets or other channels during lockdown, the double whammy of exports being closed was something the industry didn’t expect at all.”

Many South African wine orders were cancelled within the first week of lockdown. “It was understandable but worrying to see the immediate pushback from the international trade when the South African industry said it couldn’t supply them,” said Retief. “Individual companies overseas had to plug those holes. And it happened overnight. There was no animosity, just the reality of how quickly a supply chain falls flat – they just found wine elsewhere. 

“That was our biggest concern as a task team: If you can’t give your customer internationally an assurance that you will be trading at some point, it’s a problem. And then, how quickly the loyalty dries up.”

Loading containers

In the Breedekloof, Du Toitskloof Wines MD Marius Louw, told Business Maverick: “We’ve got a window of opportunity to export right now, so I’m rushing to make sure my containers are shipped. We’re dealing with state departments and in the process of putting the paperwork together.” 

Du Toitskloof’s packaged bag-in-box wine and bottled wine order was in containers at port on 9 April 2020. The order was approved for shipping before lockdown, but administrative and logistical hold ups caused delays.

The finished wine orders are headed for Scandinavian markets. “We’re trying to get those orders out to comply with Scandinavian tender requirements. There’s a clause in the contract fine print that decides whether this tender opportunity will continue,” said Louw.

“They’re very strict: If you run out of stock, as a producer you stand a real chance of losing the tender. And it’s not only this shipment at stake, but the opportunity of supplying that market for the next nine or 12 or 18 months, depending on how long the tender runs.”

Louw said it’s hugely advantageous to have a green light to ship wine volumes nevertheless. “First of all, it means a lot of currency income. The exchange rate is at an all-time low against the Rand. A lot of our pricing is in euros or pounds. So obviously we get the benefit of that exchange rate, to put the wind in our back a little.”

It’s also about market consistency. “We’ve spent good time and money establishing those export countries and now they lock you down. They’re still allowed to import, but we’re not allowed to export. Countries such as Spain and Australia will take over that shelf space.”

26-order backlog

Stellenrust is one of the larger wineries in Stellenbosch. Since export channels opened on 8 April 2020, its backlog of export orders has been in full swing. 

“We’ve got 26 orders to process now; I loaded seven containers this morning,” head winemaker Tertius Boshoff told Business Maverick on 9 April. “We’ve got a few more for next week that we’re trying to get out. With Easter weekend, the port is not operating on Good Friday or Easter Monday.” 

“If I had to estimate, these first two weeks of lockdown have cost us about R2-million. In terms of lost income from export orders. And from paying our winery workers their salaries in full.”

Stellenrust intentionally didn’t involve cellar workers this week for safety reasons. Typically, three winemakers plus the farm’s owner hand-pack the containers.

The farm’s current orders are 2020 vintage wines, all processed and approved by the Department of Agriculture, before lockdown on 27 March 2020. “That is millions of Rand worth of income standing in our warehouse,” said Boshoff. “One wine order worth about R250,000 was cancelled during lockdown because it wouldn’t reach British shelves in time.” 

The irony for Stellenrust is that since exports of bottled and bulk wine have been allowed during lockdown, orders are streaming in from Europe. But unless wine can be legally bottled, assessed and certified, future orders will not be serviced.

Cash flow mechanism

Creation Wines is a medium-sized family-owned business in the Hermanus Hemel-en-Aarde Ridge valley, producing about 350,000 bottles a year. Co-owner Carolyn Martin waited all week to get the lockdown go-ahead. Creation’s bottled, labelled wine orders (with export certificates and documentation), were set to be shipped to Sweden, Switzerland and the UK. The orders were halted shortly before lockdown. 

“If we get these orders out now, it gives us operational cash flow as a business for a couple more months,” said Martin. “Nearly every wine business in the world has 30 days in terms of their cash flow. The wine businesses that have enough cash flow will be the ones that will survive.”

Van Loveren Vineyards is South Africa’s largest family-owned winery, situated in the Robertson Valley. Trading under the Van Loveren and Four Cousins brands, it has a 2-million cases annual production capacity.

“Since 27 March, Van Loveren has had a combination of cancellations, order returns, postponements and ‘wait and see’ approaches for some of our export orders,” said Retief. “We were at the dock waiting to ship an order to Uganda and Rwanda. Those orders are still at the docks. 

“We had stock returned from the Maldives, from their country’s tourism problems where they suddenly had no business. The Netherlands cancelled a promotion due to happen in May 2020, due to stock uncertainty.”

Retief said Van Loveren Vineyards would use Easter weekend to plan its current orders of bottled products. But it’s not plain sailing. “The lockdown export regulations specified airport or harbour port. So it’s a technical glitch, but Van Loveren is quite strong on transport via land to our export markets in Southern African countries. So we won’t be able to fill those orders.”

Commenting in a personal capacity, he contemplated the effect on the wider industry. South Africa exports an estimated 420 to 450 million litres a year. “The concern seems to be that with a lockdown extension, we’ll lobby that wine should be classified as an essential product, considering that it’s an agricultural product with an economic value chain attached,” said Retief. The industry employs 290,000 people, including seasonal workers. 

“Opening up certification and bottling of wine for the export market would be the next step, during lockdown.” 

In a 9 April 2020 Covid-19 industry statement, a question was posed about the effect a lockdown extension would have on exports beyond 17 April. It was jointly answered by WOSA, Vinpro and SALBA. “As things stand, we do not have a final answer, however, the export task team will continue deliberations with government in this regard. We will keep all members updated on developments.” BM

Gallery

BUSINESS MAVERICK

Monopoly-busting: The fall of exclusive lease agreements in South Africa’s retail industry

By Ray Mahlaka

"Charms strike the sight but merit wins the soul." ~ Alexander Pope