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These estimates indicate that there will be too much red wine for the market within the next year and far too much by 2005. With demand being stimulated by health advantages, more red wine was planted all over the world, but it seems as though supply is beginning to intersect the demand curve as the new vineyards start bearing. Consumer levels have increased by 8% from 1994 to 1999, but apparently this is not nearly sufficient. Information published earlier this year by the French industry indicates a global wine surplus of more than 10 000 million litres by the year 2005. By that time it will make up a third of the world production.
The Rabobank reckons that the global surplus will affect producers in each region, as well as several of the world's favourite grape varieties.
In South Africa almost 300 million litres of red wine will be made by 2005, while the demand will only be about 118 million litres. This is based on the last few years' volumes of certification and on the view of a forecast committee regarding future market trends.
Yvette van der Merwe of SAWIS writes in the latest information circular that - as with any global problem - the danger now exists that nobody feels able to do something about the matter and consequently nobody does anything. She suggests that the problem be tackled by planning further ahead than the short term and also points out that there has never been a surplus quality wine.
In reaction, KWV chairman Lourens Jonker noted that the figures were not a projection, but merely a supposition, and that the foreign demand for red wine would keep increasing. But he added that strong competition could be expected from the other countries who also planted a lot of red.
An agricultural economist, a banker and the managing director of a large producer group point out that there is another hitch of which producers should take note before worrying too much about a future surplus. Where will the required production capacity come from to handle all the red grapes for the projected 200 million litres?
The managing director of Stellenbosch Vineyards, Hermann Böhmer, says it is possible to draw up a collective plan to market larger volumes of red wine overseas, but he has a problem with figures based on the assumption that it will be at all possible to produce such volumes.
"I have the feeling that this aspect has not received any attention. We are facing an urgent challenge to shift investment from the vineyard to processing facilities."
Provided of course there is something to invest. Johan Truter of VinPro explains that producer groups, such as co-operatives, have to finance expanded handling facilities for red wine mainly from their income out of white wines at a time when white wine prices are trending down and it looks, moreover, as if the "overheated" red wine prices will also have to be adjusted downward. He therefore warns against farming budgets based on the premise that red wine prices will increase at the same rate as in recent years. Producers will simply have to accept that they will get less for their red wine; just as with the prices for white wine, 43 % of which traded for less than R1,25 in 2000, compared to the 1 per cent that sold for less than that price in 1989. Or they will have to spend, for example, R3 of each R8 earned for a litre of red wine, on marketing.
Böhmer also reckons "you do not have to be a rocket scientist to figure out that future graphs (for annual price adjustments) will trend downwards."
John Barnardt of Nedbank, who will act as chairman of a financing forum for the wine industry, agrees that there is "considerable pressure" on co-ops who were traditionally heavily dependent on white wines for cash flow and now have to change over to red varieties for which, in some cases, they have to wait as long as 36 months. This can rob them of their credit-worthiness when they have to approach banks to install red wine equipment.
"In many cases members of that co-op have already borrowed money on an individual basis to finance red wine plantings and now those members have to borrow money again as a group to process the red grapes. Banks will not readily lend money if reserves are not sufficient and they will also want to see a marketing plan in place. Likewise prospective investors, for example a South African company or someone from abroad, will require access to a co-op's financial records, but unfortunately co-operative accounting makes it difficult for outsiders to arrive at logical conclusions, so they remain sceptical."
Even so he reckons that eventually there will be sufficient funding to pull off the challenge. "The wine sector is ripe for serious investment; we simply have to get the quality and financial discipline right. Moreover, the emphasis should shift from production to marketing."
Truter is also of the opinion that the time is ripe for marketing associations and blending of wines over regional borders. By so doing, large brands of consistent quality and better sales will be negotiated.
Wines of South Africa, who handle the generic marketing of the wine industry, are optimistic about affairs. Su Birch of this organisation quotes figures from Euromonitor predicting that until 2004, the annual increase in red wine consumption will be 18 per cent and the value increase 25 per cent. "It is true that the competition is building up with the large plantings, especially in Australia, but thank heavens, in future we shall be able to fight back with a proper portfolio."
She quotes the well-known wine writer Jancis Robinson who recently spoke her mind in an article "Australia at the Crossroads", criticising the style of wine with which large Australian companies are nowadays competing in the high price categories. She says the wines, Shiraz or Cabernet, are not only high in price, but also in alcohol, extracts, oak, tannins and acid (the latter two often being chemical additions).
The Australian Wine and Brandy Association estimates that the production of 701 million litres in 2000 should increase to approximately 1,2 billion litres in 2010. But Australia has already started sliding against the French and despite its excellent export record, stiff opposition can be expected from the Chileans and South Africans.
According to Birch, there should not be any reason why South African producers cannot come up with better export figures than those forecast by SAWIS. "If we take proper care of our vineyards and make the wine meticulously and with flair, and then market it with passion and common sense, we shall look back in 2005 and wonder what all the fuss was about."
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