The government must offer local wine producers tax relief if the country is to take advantage of favourable trade conditions.
This is the view of the MD of Heineken Beverages, Jordi Borrut, who told the South Africa Wine Summit in Cape Town on Thursday that excise duty is very high in this country compared to other markets, and along with inflation pressures on wine production, this presents a big challenge for the local market.
“If we compare taxation in other markets and South Africa, taxation here is very high compared to other markets where in some cases they even have zero excise. I believe there is a lot of work with stakeholders, but we need to protect the wine industry, starting with taxation.”
Heineken finalised its more than $2.56bn (R38bn) acquisition of local brewing company Distell and Namibia Breweries to create Heineken Beverages in 2023. Borrut said the company is eager to put its local non-beer brands to work in the local beverages market.
“Heineken is opening itself to things other than beer. This company in South Africa is the only one that has access to this portfolio of beverages. It’s a company that’s got 6,000 employees. We believe there is potential in Africa, and we think South Africa is a doorway into Africa.”
Heineken is opening itself to other things other than beer. This company in SASouth Africa is the only one that has access to this portfolio of beverages. It’s a company that’s got 6,000 employees. We believe there is potential in Africa, and we think that South Africa is a doorway into Africa
Wine producers in Europe recently had their worst wine harvest in 62 years due to unfavourable climate conditions and extreme events, and South Africa could be in a position to take advantage of the windfall. Production in Italy is down 23% while in Spain it is down 25.7%.
However, South African wine producers face challenges including production costs rising by double the compound annual growth rate in recent years. Loss-making among farmers rose to nearly 40% in 2022 and wine exports are shrinking in volumes and dollar terms, while excise duties increase.
According to Cliffe Dekker Hofmeyr tax and exchange director Petr Erasmus, the guideline excise tax burden for wine in terms of schedule 1 part 2A of the Customs and Excise Act is 11% of the weighted average retail price, and this has increased more than inflation in recent years.
Borrut said while the rigorous regulatory environment is a challenge, especially when finalising the Distell acquisition, Heineken is deeply committed to the local beverages market and wants to ramp up its activity in the wine and brandy business.
“We are super interested in the wine business and the brandy business. We’ve got more than 85 brands, although 26 brands represent 96% of our profits. We come to South Africa at a moment where there’s a lot of news and developments.
“I understand there are a lot of challenges, but we believe there is potential. It’s a country of great resilience and it is the door to Africa.”
Heineken Beverages’ wine brands include Drostdy Hof, Durbanville Hills, Nederburg, JC le Roux, Fleur du Cap and Inception. Its brandy products include Klipdrift, Richelieu and Viceroy.
Borrut said he enjoys brandy, and South Africa could restore this particular spirit’s prestige as a drink of choice globally.
“There are no tired brands, only tired brand managers. There are no tired categories, only people who have no imagination, no desire and no ability to try. The consumers were really open to trying.”
Nedbank Agriculture’s wine industry specialist Daneel Rossouw said while the reductions in European production presents an opportunity for local producers, South Africa’s wine production is also under pressure, with production volumes peaking in 2008.
“We’ve got an established market in the UK as well as in the rest of Europe. If you look at the EU as a whole plus the UK, it’s close to 60% of our market. That’s a very traditional market... If you look at the last [European] harvest, it was the lowest since 1961.
“But remember that over the last number of years, there was a declining trend in production anyway because competition is rife between wine and other alcohol products ... the South African market is very much the same.”
He said while South African stock levels are now at desirable levels, the biggest challenge to gaining market share was to sell more to compensate for the reality that local wines are in the low-price bracket in an already saturated global market.
“A lot more emphasis should then go to developing new markets. New countries. Yes, we’re trying China, we’re trying Russia, but it’s still very small, like 2% and 1% of our market overseas. The US also provides opportunities, but remember we do compete against ourselves.”
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