Impact of reintroducing alcohol ban on the wine industry

Last night President Cyril Ramaphosa addressed the nation. He voiced his concerns about the increasing number of COVID-19 cases and announced the reintroduction of an alcohol sales and transport ban, amongst other measures.

This is a necessary measure as hospital beds fill up with CoVID-19 patients and ICUs in both the private and public sector struggle to cope. We as South Africans have also demonstrated our problems with alcohol fueled violence, with ICUs being burdened since the Alcohol van was lifted at the end of May.

While the need for the ban is acknowledged the impact on the economy can’t be denied.

It is a relief that wine exports aren’t directly impacted by the ban. While exports make up just over half of production volume, it was responsible for 36% of value in 2018. While some of this value can be preserved, Cape Town’s port has been operating at reduced capacity to adhere to COVID-19 related regulations. There is a backlog of shipments with the port operating at an estimated 50% of capacity. The silver lining may be that the devaluation of the rand may increase profits for this market.

The local market however, will be more impacted with at least three months of lost sales and the loss of the Restuarant market. The local market made up 74% of the market value with about half the volume. This shows the relatively higher value of the South African market and the greater impact of loss of sales. This probably also refers to higher end wines which are more labour intensive due to practices like harvesting by hand and hand hand riddling.

The alcohol ban is therefore likely to have a devastating effect on the wine industry. The profit margin from wine sales is estimated at 2% for the industry in recent years. This will be severely impacted by the drop in sales that will result from the ban. As wine farms struggle to remain profitable they are likely to introduce cost cutting measure, including job cuts.

Farm workers will probably be most impacted. These workers are predominantly concentrated in the Western Cape. Similar to the wine industry the fruit growing sector in the Western Cape is also impacted by port capacity. Farming communities are likely to be disrupted, in the DA run Western Cape, ahead of local elections in 2021.

As profit margins in the wine industry have been eroded, wine tourism has grown to support the industry. Given the impact of COVID-19 regulations on the tourism sector, the impact will be even more devastating.

The impacts of COVID-19 restrictions, especially the alcohol sales bans, will have far reaching impacts on wine farming communities. Measures to revive the industry have not been proposed by government and will likely come from the private sector. Hopefully this will be supported by the weak rand and export demand.