This week I was invited to a discussion on the importance of the recent EU free trade agreement for the SA wine industry. The discussion was broadcasted on South African television programme, Winslyn. (Watch it here)
Although a trade agreement between South Africa and the EU did exist, this new Economic Partnership Agreement is very important. Under this agreement, the Tariff Rate Quota of South African wine to be imported duty-free into the EU is set to more than double from the current 50 million litres to 110 million litres in the first year of implementation for bulk and bottled wine.
It also extends the existing market access to new products, like wine, fruit, ethanol, sugar and dairy products. Another addition is that South African geographical indications such as wine, Karoo meat and Rooibos tea are to be protected. This is also the first time the EU has signed a Free Trade Agreement (FTA) in which the EU gives up the right to use agricultural export subsidies. And according to Alan Winde, Minister of Economic Opportunities: “This is a significant step towards equalling the playing field for our farmers.” Read more.
Winde continues: “Through Project Khulisa, we identified growing our wine industry as a focus area. It is our goal to increase exports to strategic markets. Our objective is to double wine exports to key destinations by 2025. We are adamant to increase exports of our bottled wine. This is in line with Project Khulisa’s focus on the value-add through agri-processing. We are seeking to add up to 100 000 jobs to the agri-processing sector by 2019.”
I have always been surprised by the lack of trade agreements with our Brics partner, China (read more), but the fact is that 74% of South African wine is shipped to the EU and we should be very thankful for this new agreement!
When import tariffs go down, margins are better and we can afford to bottle in South Africa rather than shipping bulk wine for EU bottling. That ensures added value to the SA industry in the form of job opportunities and support for the local and regional economies.
What would be interesting is to see the effect Brexit will have on export volumes to the EU. Currently, of the 74% of SA wine exported to the EU, 22% goes to the UK. There is such a lot of uncertainty as to the effect of Brexit and although it might not be immediate, it will have an effect on us. The depreciation of the GBP has already had an influence on margins and if this continue, it might become increasingly difficult to sell South African wine profitably in the UK.
I was asked about the impact, if any, of such a trade agreement on the local wine market. Will it affect availability, for instance? I don’t think so. Only if the local wine consumption increases significantly. It should however be our focus to develop our local market, to increase awareness about wine and to encourage wine sales in a more expensive category. We need to sell more expensive wine. According to a recent Vinpro study, one third of the 3600 wine producers and farmers are operating at a loss. Read more.