Opinionista Michael Fridjhon 31 January 2014

Managing the wine industry: things are better without the bureaucrats

It's hardly surprising – given that this is an election year – that the airwaves are already contaminated by the patently incredible claims made by the various parties battling to get votes out of an increasingly apathetic electorate. It is in the flawed nature of democracy that politicians can pretty much promise anything: the collective memory of voters is a little shorter than the lifespan of a fruit fly.

The latest of these outrageous statements came from Cyril Ramaphosa, reiterating the ‘natural right and authority’ of the ANC to continue in power. He went further, pointing out that only the ANC had the experience in service delivery. In the week following the killing by police of Mothotlung residents protesting the absence of any water (clean or otherwise), this claim should make the 2014 shortlist for the most brazen insult to the intelligence of the country’s voters.

It did, however, provoke some reflection about the value of experience in management – whether of a country, or of an industry. On the surface, the logic is unassailable: the people who have been running a business or a country for some time should know more about what is required than any newcomer. On the (admittedly dangerous) assumption that they are not corrupt, or have not been corrupted by a prolonged period in power, why should they not be the best candidates to carry on with the job?

The reality, as we know, is often different: corporates who take over long-established family business (where, in theory at any rate, crookery and skulduggery are not the order of the day) often produce vastly improved results. This does not simply mean that they milk the assets more relentlessly. Often their success reflects the value of new vision and a refreshed enthusiasm for the task. If the audience to which Mr Ramaphosa addressed his platitudes reflected even briefly on his assumptions (and felt charitable enough to discount the evidence of the ANC’s shortcomings when it comes to service delivery), they might consider the merits of a change in management.

The Cape wine industry went through exactly this kind of transition some fifteen years ago when the KWV converted from a cooperative to a company. For the better part of the 20th century it had been the body directing the affairs of the country’s wine producers. Its statutory authority was far reaching, extending to the management of vine importation and the distribution of planting material, determination of where, and to what extent, vines could be planted and wine made, minimum pricing, contracts of sale between producers and wholesalers/distributors, and control over the export environment.

It also operated a vast infrastructure dedicated to the provision of expertise to the industry. It was the KWV’s officers who brought extension services to the country’s grape farmers, who assembled the statistical data covering grape and wine production, who recorded and tracked every detail of the grape harvest so that the claims certified by the Wine of Origin scheme could be verified. As the buyer of last resort for the country’s wine farmers, the KWV also managed a chain of distilleries and carried the aged pot-distilled spirits which were an essential component for the country’s brandy industry. In short, the KWV had become so interwoven into the fabric of the Cape wine industry that it seemed impossible to visualise how the country’s grape farmers and wine producers could function without it.

I was a member of the Minister’s team which negotiated the sunset clauses of the KWV’s exit. Given that the government had opposed the KWV’s conversion from cooperative to company on the very grounds that the abdication of its statutory powers would leave a regulatory void, the climate of discussion was, on occasion, reminiscent of the atmosphere in the Hall of Mirrors at Versailles in 1919. Since the Minister had also extracted from the KWV a substantial commitment (R369m, to be precise) to maintain some of these entities, to facilitate exports and to invest in development and community upliftment, the Versailles analogy is not far off the mark. From the KWV’s perspective, the payment was little different from a form of war reparations.

For a short time, all of this worked reasonably well. Then Thabo Mbeki succeeded Nelson Mandela as president and replaced Derek Hanekom with Thoko Didiza as Minister of Agriculture. She understood nothing about the wine industry, but was keen to undermine anything that had been achieved by her predecessor. In remarkably little time she oversaw the dissipation of the entire trust fund that had been intended to ensure there were programmes and infrastructure in place to fill the void left by the termination of the KWV’s statutory authority. For her coup de grace she authorised the use of most of what was left of the money for the purchase of a 25% stake in KWV in a cosy empowerment deal.

So it came about that what had probably been the most regulated industry in the country was now left to manage itself without any input – and certainly without any funding – from government. The result has been something of an eye-opener – and a vindication for those who believe that as a nation we could do with less red tape. The essential control functions are still being managed. The Wine and Spirit board still has access to whatever information is required for wine certification and export approvals. The costs and salaries of those who have to manage this, who assemble industry statistics, who provide infrastructural support for exports, are largely covered by user-pay charges and levies.

Government milks the industry on a grotesque scale and puts precious little back – and yet, in the end, very little turns on it. Exports for 2013 broke all previous records – 525m litres, significantly more than half of our production and 26% up on the previous record (which was in 2012). Incidentally, this had nothing to do with the weakening Rand, since importers use on-shelf selling prices to determine what they will pay suppliers.

The industry is now even pre-empting issues which carry reputational risk. Following the Human Rights Watch report in 2011 (which revealed that government had been as neglectful in failing to police abuses as the farmers implicated in the report) the Wine Industry Ethical Trading Association (WIETA) has tightened regulations and is going to include verification of labour conditions within the wider certification environment.

The past decade has shown that the absence of a statutory authority has not hindered the wine industry: on the contrary, it is better, fitter and more able to manage its trading environment without the intervention of bureaucrats. It is obviously not useful to generalise from an example of one. Based on this example, however, it’s easy to make out a case for not relying on claims of experience – especially if they have been made by state institutions. The anarchism of minimal government has always appealed to me, just as the idea of its own big bureaucracy comforts the ANC. The year 2014 may not be the year when the voters work out the inverse relationship between the number of state employees and service delivery, but when they are ready to consider the possibility, the wine industry will serve as a riveting case study. DM



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