The 2015 crop and the impact on primary wine grape producers’ financial sustainability

by | Apr 25, 2016 | Business and Marketing

VinPro Production Plan Survey 2015 (Part 1)

According to the latest VinPro Production Plan survey, production levels of primary wine grape producers remain high. In this issue of WineLand we look at Part 1 of the report which gives an overview of the most important findings over the past 10 years. In the May issue of WineLand we look at Part 2 of the report and the practices of the top achievers.

The findings of the VinPro Production Plan survey which was conducted in 2015 for the 12th consecutive year in the wine industry, show that in the wake of the 2014 record crop, primary wine grape producers have maintained high production levels and are trying to counter the pressure of cost inflation despite the ongoing decrease in surface planted to grapevines.

The income that was realised still does not comply with sustainable guidelines, but it is encouraging that despite the season’s risks, some producers in each of the nine wine districts manage to surpass these guidelines annually and realise excellent returns.


VinPro Agricultural Economic Services conducted comprehensive analyses in all nine wine districts in 2015, with the support of Winetech, the National Agricultural Marketing Council (NAMC), Standard Bank, Absa, Land Bank, FNB, Nedbank and Capital Harvest. The primary objective is still to determine the production structure, cost structure and profitability per district so as to determine the financial wellbeing of the producers.

Altogether 226 farming units from nine wine districts participated in the 2015 Production Plan survey. In 2015 the sample consisted of 22 545 ha (22% of the total South African area planted to grapevines in 2014), which produce 380 998 tons (26% of the total South African crop in 2015). The sample comprised 62% white and 38% red wine grapes and 59% of the tons were harvested mechanically.

FIGURE 1. Tons harvested mechanically per district. FIGURE 2. Total industry average production cost. FIGURE 3. Movement of direct cost – industry average. FIGURE 4. Movement of labour cost – industry average. FIGURE 5. Movement of mechanisation cost– industry average. FIGURE 6. Movement of general cost – industry average. FIGURE 7. Percentage composition of annual cash expenditure – industry average. FIGURE 8. Surface planted to grapes per participant (bearing and non-bearing hectares) – industry average. FIGURE 9. Average yield (bearing and non-bearing hectares) – industry average. TABLE 1. Yield per cultivar per district (2015 production year). TABLE 2. Production cost of wine grapes per district. FIGURE 10. Influence of production on break-even of total production cost – industry average. FIGURE 11. Production and break-even per district (2015 harvest). FIGURE 12. Age composition – industry average. FIGURE 13. S curve. TABLE 3. Industry average statement of income and expenditure.
VinPro Production Plan Survey 2015 (Part 1)


The analysis applies to overall grapevine production (bearing and non-bearing hectares) and the cost analysis makes no distinction between cultivars and specific blocks. The greater majority of participants are diversified and differ with regard to farm size. The report represents industry average figures, calculated by determining the weighted average of all the participants. The Malmesbury district is always evaluated separately and does not form part of the industry average figures because this study group cultivates a large percentage of dryland vineyards which require an alternative production, cost and capital structure.

The cost of wine grape production

The annual cost incurred to prepare the 2015 crop comprised cash expenditure and provision for replacement, and excluded tax, interest and entrepreneurial remuneration. The industry average total production cost (excluding Malmesbury) has increased by 8% since 2014 to R41 635/ha in 2015.

Cash expenditure

Cash expenditure is specified as direct cost, labour, mechanisation, fixed improvements and general expenses. Total cash expenditure indicates a 9% increase since 2014 to R31 944/ha in the 2015 production year.

This increase is driven mainly by labour which is exceedingly higher than the other cost elements. This contributed to the increased component of wine grapes which were harvested mechanically, as well as increasing mechanisation of practices such as pruning. High production for the fourth consecutive year also contributed to the increase due to the need for increased inputs, so that wine grapes could be produced profitably for a specific wine style objective. Depending on the amount of mechanisation, the cost composition differs in certain areas, but the total production cost does not differ notably from one area to the next. Stringent cost management, with a balance between wine style objective and input requirement for each block, remains critical in cycles of sub-inflationary increases in income. Agricultural cost inflation was nevertheless clearly higher than the average South African inflation.

Provision for renewal

Production cost is not restricted to cash expenditure, capital items also have to be replaced in due course so as to maintain the business as a running concern and ensure a sustainable business model. Tractors, tools, other means of production, vineyards and buildings deteriorate and have to be renewed, therefore the purchase value of the item has to be recovered over a specific lifetime. By using the principle “provision for renewal” a larger amount is recovered than in the case of depreciation. To a certain extent this addresses the problem of rectilinear depreciation.

When calculating provision for renewal, items are written off at renewal value over different periods:

Buildings: 60 years

Grapevines: 20 years

Moveable assets/means of production: 7 – 15 years

Total provision for renewal in the 2015 harvest year amounted to R9 691/ha – an increase of 3% since 2014.

Production structure

The average surface planted to grapevines was 97 ha – the other enterprises were not taken into account. Economies of scale play a considerable role in the broader agriculture and this trend is increasingly common, with many producers aiming for scale benefits.

The average production for bearing and non-bearing grapevines for the 2015 production year was 17.48 ton/ha. Over the past 10 years it has been an obvious trend that producers attempt to increase average yields in order to counter the effect of increasing costs, as well as to increase profitability.

Cultivar structure

During the 2014 harvest a cultivar analysis was also conducted to indicate the production variance between the most planted white and red cultivars. This was continued in 2015 and will assist producers with precision farming over the next few years and show how the cultivars in their business differ and can contribute to greater profitability.


The impact of increased production is significant on the break-even price of the total production cost in rand per ton. The total production cost per hectare, which has increased by 8% since 2014, caused the break-even in terms of rand per ton to increase from R2 186/ton to R2 382/ton in 2015. In other words: The first R2 382 for a ton of grapes received by the producer during the 2015 harvest, should be applied for total production cost. No entrepreneurial remuneration, interest or tax has been taken into account yet.

The average yields differ considerably among the districts, as well as among the various cultivars, while the production cost does not differ to the same extent. This gives rise to large differences in break-even price in terms of total production cost in the respective districts and among the various cultivars.

Due to financial pressure capital maintenance has been neglected in many districts. This is reflected in the decline of the average age composition of grapevines since 2006. It is nevertheless positive to see that certain districts apply replacement diligently and even expand in total plantings. More than 14% of the surface planted to grapevines is older than 20 years and 11% of the grapevines in the sample are three years old and younger. The general norm is that 15% of grapevines should be three years old and younger and the component older than 20 years should not be more than 15%.


The profitability, or net farming income (NFI), is calculated as total income (R/ton x ton/ha) minus total production cost. The latter consists of cash expenditure and provision for renewal, but excludes entrepreneurial remuneration, interest obligations and tax. The total income is calculated for a specific production year and although the majority of producers realise their income at different stages, no time value of money is taken into account.

It is positive to see how total income per hectare has increased over the past year, but above-inflation cost increases have exercised pressure on the NFI. For the 2015 production year the average total income amounted to R49 108/ha – just 3% more than in 2014 – whereas the NFI decreased to R7 473/ha. As a guideline for economically sustainable production, the average income and the NFI for the 2015 harvest year should in fact have realised R64 115 and R22 480/ha respectively.

The average income hampers producers in respect of implementing sufficient capital renewal, with the result that production occurs based on gross margin, not NFI. Consequently producers remain under financial pressure, which compromises long term financial sustainability.


The primary wine grape producer maintained high production in the 2015 season. Cost increases nevertheless kept the NFI below sustainable levels. This has been the cause of increasing mechanisation in the national grapevine plantings. There was also strong emphasis on labour productivity and alignment of production practices. Producers are encouraged to implement stringent cost management and to weigh up the benefits of certain vineyard practices and input against the final yield and payments for the season.

– For more information, email Andries van Zyl at and Funzani Sundani at

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