South Africa Wine Industry Labor Costs a Growing Risk, PwC Says

The biggest risk to South Africa’s wine industry is increasing power and labor costs in the wake of strikes this year that boosted minimum wages, PricewaterhouseCoopers LLP’s local unit said.

“Given recent labor-related issues experienced in the agri-sector, as well as persistent increases in energy costs, it is not surprising to see labor and electricity as the expenses that executives are most concerned about over the next 12 to 36 months,” the Johannesburg-based unit of PricewaterhouseCoopers said in a report released today.

In February, South Africa’s government agreed to a 52 percent increase in the minimum wage for farmworkers following violent pay strikes in the Western Cape province, the country’s main wine-production region. The stoppages claimed three lives and interrupted harvests. Power prices have climbed by an average of 25 percent in each of the past six years to help the electricity utility finance its spending. This year, the rand has slumped 14 percent against the dollar, the worst performing of 16 major currencies tracked by Bloomberg.

While the “relative weakness of the rand certainly offers growth opportunities for wine exporters,” it has driven up input costs for those importing equipment, PwC said. “Despite the recent economic uncertainty, an increase in national crop size and higher yield per ton has kept cellar costs per ton under control and has resulted in higher net revenues per ton.”

Sales at the average cellar rose 19 percent to a record 66.1 million rand ($7 million) for the 2012 harvest, according to the report. The average profit climbed to 812,667 rand from a loss of 13,910 rand for the 2011 harvest.

South Africa was the world’s eighth-largest wine producer in 2012, accounting for 4 percent of global output, according to South African Wine Industry Information & Systems. The country mainly grows white wine grapes, including chenin, chardonnay and sauvignon blanc, while its red varieties include pinotage, which is indigenous to South Africa.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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