In the mid-1980s, in the midst of the international sanctions campaign targeting South Africa’s apartheid regime, the KWV (at the time South Africa’s wine regulator) became one of the biggest bulk traders of wine in the world. This was the inevitable consequence of the political situation, and the organisation’s statutory function as the buyer of last resort for the country’s wine farmers. With a domestic market which only absorbed about 30% of the country’s wine production, and a finite limit to how much could be set aside for distillation and for fruit juice concentrate, sanctions-busting became a commercial necessity.
The scale of the operation was impressive: railway carriages transported hundreds of millions of litres from the KWV’s cellars in Paarl to the harbour of Cape Town, where the wine was emptied into huge tanker ships and sent to European ports. There the wines were transformed through the connivance of corrupt officials into produce of Central European origin. With a less politically offensive identity, the bulk could easily be bottled and disposed of in the self-same supermarkets that dared not risk selling Cape wine.
Sanctions eased shortly after Mandela’s release from prison. In 1992 South Africa’s wine exports – now pretty much all official – totalled little more than 20m L, or around 2% of the total crop. After Mandela became president of South Africa in 1994, demand seemed insatiable. Within a decade exports had grown tenfold, with a hitherto unknown start-up label called Kumala becoming the biggest South African wine brand in the UK. Created by Western Wines to meet the pricing and trading expectations of the UK supermarkets, produced and bottled largely by sub-contractors in South Africa, Kumala provided the supply certainty and product continuity absent from the offerings of the brokers trawling the Cape winelands for a quick buck.
With the rand relatively weak, and South Africa an easy sell, everyone was happy. Producers earned more rands for exports than for domestic sales, and European supermarkets could pack their shelves with ever-improving Cape wines at very attractive hard currency price points. As long as the rand continued to weaken, and red wine availability increased, everyone was satisfied. Then, in 2002, the rand started to strengthen. Producers (whose input cost increases were significantly higher than the European inflation rate) needed to earn more, but had become price-point prisoners.
In 2004, Western Wines – which by then was selling 30% of all Cape wine in the UK – was acquired by Canadian-based Vincor. With more astute competition and the supermarkets increasingly concerned about their carbon footprint, a shift to bulk wine exports became inevitable. At first, no one seemed overly concerned about the trend, and for several years it occupied a largely unspoken slot within the statistics.
By the middle of 2012, the elephant in the room was simply too big to ignore. The 2011 packaged wine exports had dropped to 184m L from 229m L the previous year, while bulk had increased from 148m L to 172m L. Halfway through 2012, it was abundantly clear that this trend was racing ahead. (In fact, by the end of that year the bulk component had grown from 172m L to 248m L). Jobs were on the line, and the ANC government, which usually disregards most of what happens in the wine industry (the Cape is the only province in South Africa in which the ANC does not have a majority) was obliged to pay attention.
By the European autumn – as Christmas orders were flowing in – a mini trade war was developing. South Africa’s Trade & Industries minister Rob Davies went on record to say that 700 jobs in the packaging industry had been lost and further 1,300 were at risk. Lionel October, the director-general in his department, described Tesco’s stated preference for bulk on ecological grounds as “a new form of protectionism under the banner of reducing the carbon footprint”.
The cabinet discussed retaliatory measures, which included a threat that South Africa would require Scotch Whisky to supplied in bulk only; South Africa imports over 30m L of whisky, primarily from Scotland, and mainly in bottle. It took a meeting between Britain’s business secretary Vince Cable and Rob Davies to defuse the situation.
Unsurprisingly, bulk sales have continued to grow. The 12-month figures to December 2013 reveal a year-on-year increments of 37%. While bottled wine sales are also increasing (admittedly by a more modest 8%), it is clear that most of 2013 total export growth of 26% has come from bulk.
For the moment, at least, there’s been no renewal of the earlier hostilities. It’s clear that the threat to the Scotch whisky industry is void of any substance. It may have dawned on the South African authorities that the reason consumers pay a premium to have their whisky bottled in Scotland is that they care about the guarantee which comes with bottling at origin. They couldn’t seriously believe that the wine that has been driving South Africa’s burgeoning exports has the brand strength to warrant a similar investment. It would take a serious marketing campaign over many years, which the industry alone cannot afford, to persuade international wine consumers that the appellation ‘Cape Wine’ is significant enough to require Cape bottling.