New bill leaves industry with a three-tier hangover
The Liquor Bill, increased competition from imports and higher excise duty have put a damper on the wine and spirits industry, writes MARCIA KLEIN
This week, the Department of Trade and Industry told Parliament it would go ahead with the controversial Liquor Bill, which will affect a number of major industry players who are vertically integrated. The major objection to the new Bill is its introduction of a three-tier system which does not allow vertical integration between producers, wholesalers and retailers. Many liquor companies are involved in two or more of these activities, and say they will find it difficult to separate them.
Alistair Ruiters, the department's chief director responsible for the Bill, told parliament it would go ahead, but did not indicate how flexible the Bill would be with regard to this three-tier system.
KWV chairman Lourens Jonker said at the company's AGM this week the Competition Board investigation was still pending, but agreement had been reached with the board that no submission would be made until the new Liquor Act had been published.
"Considering that the new Act will possibly determine guidelines and prescriptions regarding competition, the investigation will be meaningful only after it has been passed."
Jonker said 1997 was dominated by negotiations with the Department of Agriculture, which resulted in the September decision to transform from a co-operative to a company, a move which was achieved in December. The negotiations also led to agreement on a Wine Industry Trust, which would be concerned with future regulation of the industry.
The industry experienced shortages during the year, and on a few occasions it was necessary to import spirits. "When focusing on the domestic situation, we have a market requirement of approximately 30-million litres. The local wine industry supplies slightly less than half the market requirement. A relatively bad crop in the most important supply districts added further pressure in 1997."
He said there was tough competition, and KWV had to fight against decreasing prices, particularly from Argentinian products. He said 1998 production and transferred stocks from 1997 had been sold out.
It is expected the 1998 wine crop of 914-million litres will be about 9.3% smaller than the 1997 crop.
"Another very interesting trend is the increase in volume of certified wine."
Currently 123-million litres of wine are certified, compared with 89-million in 1995 and 36-million in 1990. Expressed another way, last year 22% of the total good-wine production was certified, against 18% in 1995 and 10% in 1990. This means the Wine of Origin system adds a lot of value.
Commenting on excise increases in the latest budget, Jonker said the budget did not reflect the points of view of the KWV delegation which met the Department of Finance in January.
The latest increases were expected to bring government's income from excise and VAT on wine grapes to over R2-billion, while wine producers' total income will amount to about R1.45-billion.
Jonker said the increases will slow down growth in the industry, which employs 215 000 people. It may hamper its ability to finance empowerment projects and have a negative effect on government income and wine product sales.
He said it was "incomprehensible that this natural agricultural product, with proven health benefits enjoyed with moderate consumption, is targeted year after year for higher excise duty, which may seriously harm the economic position of the wine producer". Since 1992, excise on natural wine has increased 259%.