It’s not the easiest time to be a winemaker. Inflation has increased production costs while decreasing consumer spending power, alcohol moderation is on the rise – particularly among younger consumers – there’s more competition from other premium drinks categories, and geopolitical relations and the Covid pandemic have complicated the global supply network. Once you’ve navigated all that, there’s just the small matter of climate change wreaking havoc with the conditions in many traditional grape-growing regions. It’s left many producers to thread an impossible needle between the demands of the market and the realities of modern-day viticulture and the result is that wine consumption is way down – according to the International Organisation of Vine & Wine (OIV), it’s at its lowest level since 1996.
South Africa should be a textbook candidate for so many of these issues. Traditionally, the region has developed a reputation for good value at lower price points where profits are already razor thin and, while water management is at front of mind even at the best of times, the past five years have been marked by devastating droughts.
But in the face of these challenges, the region isn’t performing too badly. According to Wines of South Africa, 2024 saw total exports rise by 4% with volumes remaining virtually unchanged, and that result – increasing value while maintaining volume – is all part of the plan.
“We talk a lot in South Africa about getting a better return on our wine to sustain our industry and find growth in a contracting market,” says Siobhan Thompson, chief executive of Wines of South Africa.
“Traditionally, South Africa has big representation in the multiple grocers and generally it's been at the lower end of the price ladder. Ten years ago, that’s where South Africa sat in the UK market. Then, if you took the value percentage of exports going to the UK, it was way below the volume percentage – our challenge was not to grow from 40 million litres to 50 million litres, it was to stay at 40 million litres and grow value.
“There are still lots of avenues to see growth, particularly in the UK. I know it is a tough environment, particularly with taxation, and there’s an expectation to lower your alcohol levels to meet lower brackets of taxation and give the consumer a similar price, but when they taste the wine is it going to deliver? So for us, the challenge is really getting wines that satisfy further up the ladder.
“We don't want to be at a £3 or £4 on the shelf but instead £7-£10 and another bottle at £20, those are the brackets where we can grow.”
When there’s less money in consumers’ pockets, the urge might be to engage in a race to the bottom, but with trends towards premiumisation, moderation and competition from other categories, there may not be much to find when you’re down there.
“There are certainly many challenges on the country and the wine industry, such as economic pressures on producers and a weak rand, also the energy crisis in South Africa, ports and other infrastructure problems,” says Andy Hoyle, drinks buyer, Kingsland Drinks.
“To overcome the challenges the country is facing, there is an increased specialisation and a greater focus on quality, from plant material to winemaking processes, and value being added across the entire chain. Producers are planting less but becoming more specialised in their varietal offering, informed by market trends and buying behaviour. There is also a greater interest in high-value wines and quality over quantity.”
The shift towards higher values isn’t an overnight change but rather one decades in the making. At the turn of the millennium a generation of young winemakers, like Eben Sadie and Tom Lubbe, saw the potential in the readily available old vines of the Swartland region, which at the time was considered something of a rural backwater, and began producing expressive, high-quality wines.
“It’s been driven by an innovative generation of winemakers – we used to call them the young guns but they’re all turning 50 now – but they brought an attitudinal and winemaking shift that began with the Swartland Revolution and now we’re seeing it across our various regions,” says Thompson.
“Our reputation is one of the things that we’ve been working very hard to change over the past 20 years. Sometimes, we’re not good at telling the right stories or telling people what we're doing, but I do feel we have developed a reputation for making world-class wines and that’s going to be important going forward. Everywhere I go around the world I hear people say that South African wines punch above their weight. We’ve got excellent quality at a really good price and that is a point of difference for South Africa.”
Trump firing line
The benefits of offering value for money are self-evident – we all love a bargain – but in a world of tariffs, inflation and duty hikes, it gives producers some financial wiggle room.
Recently, South Africa has found itself in the firing line of Donald Trump’s increasingly expansive approach to foreign policy. On 7 February, the commander in chief signed an Executive Order titled ‘Addressing egregious actions of the republic of South Africa’.
In it Trump promised to, among other threats, cut financial aid to the country in response to the South African government ratifying an act that would “enable the government of South Africa to seize ethnic minority Afrikaners’ agricultural property without compensation”. In addition the country taking “aggressive positions towards the United States and its allies” in regards to the conflict in Gaza.
Following the Executive Order, there has been speculation that the US will remove South Africa from the African Growth & Opportunity Act (AGOA), which provides eligible sub-Saharan African countries with duty free access to the US market.
“From last year's export figures to the US, AGOA would have given us a 20-million-rand (around £850,000 GBP, $1,100,000 US) advantage, which is not too bad but it’s not huge,” says Thompson.
“Currently, we’re about 1% of the wine going into the US, so we’re small but we have quite a high value share – the wine we send there is $15-$20 a bottle on average. So would removal from AGOA stop wine from being exported to the US? No. It may slow down the volumes and make that growth a little bit harder because instead of paying $15 for the bottle, it’ll be one or two dollars more.”
While there might not be immediate cause for panic, anything that slows growth in the world’s most valuable wine market is less than ideal. But while the US market continues to offer unpredictability, so does a far larger threat.
“The biggest issue we have, like most countries around the world, is the environment getting hotter,” said Thompson.
“We had a serious drought from 2015 to 2018 but, at the moment, our water supply is OK, we've had good winter rain, and our dams are at a healthy level. That said, water is still a scarce resource in South Africa, so farmers are still doing a lot of work on dry land cultivation and research into drought-tolerant varieties. We’ve also had flash floods. Thank goodness we didn't have one last year but we did the year before. One vineyard, Springfield Estate in Robertson, has had three years of its vineyards being washed away.”
Given its warm climate, South Africa is particularly at risk from increased temperatures. One potential solution could be the planting of heat and drought-resistant cultivars. Already, the region has become known for heat-resilient varieties like Cinsault and Chenin Blanc, but now growers are beginning to experiment with warm climate varieties such as Palomino Fino, Assyrtiko and Marselan.
“It's not like in three years’ time we’re going to see no more Cabernet Sauvignon and instead have Tempranillo,” says Thompson. “When we’re talking about different cultivars, the challenge is balancing what the consumer knows and wants. If you start having these weird and wonderful cultivars it can be difficult to convince people to drink them, so they invariably end up in a blend. But we are planting different things, you know, just talking to Kathy Jordan [co-owner of Jordan Wine Estate in Stellenbosch] a few months back about Assyrtiko that they're planting. So, we will start to see a change in the kind of wines we’re producing, it’ll start more niche and then there’ll be more and more coming through.”
South Africa has had an incredibly challenging few years, from droughts to Covid alcohol bans to global financial turmoil, but the ship has been steadied and with a new heading. The next few years will likely only see this reputation for quality at fair price develop and expand, but the region will remain vulnerable to factors outside of its control. How it continues the exhausting journey of navigating these challenges will be the real test.
