A wine and whisky trade war averted

Moneyweb had this to say about something that could have had a disastrous effect on the SA wine trade:

CAPE TOWN – South Africa and the UK have kissed and made up before a verbal tit for tat escalated into a genuine trade war over the vexed issue of SA’s growing bulk wine exports to the UK.

“This is a fraught issue and I do understand why this matter is so critical in SA,” the UK’s secretary of state for business, innovation and skills, Dr Vince Cable said in a parliamentary address to media on Thursday. He is visiting SA as part of a trade delegation whose objective it is to increase trade between the UK and South Africa. The delegation is hosted by SA’s Department of Trade & Industry.

“We have investigated this and understand the commercial imperatives, but we need to engage with our supermarkets to ensure that they understand the implications of those commercial decisions,” he said.

The UK is this country’s single biggest export market for wine, but the recession, excessively price sensitive consumers and powerful UK retailers have turned SA’s bulk wine producers into price takers rather than price makers.

Slowly but surely the quantity of wine exported in bulk has increased. In 2008, 45% of SA wine was exported in giant containers, against 55% that was packaged, bottled and labelled locally before shipping. But by the start of this year the situation was reversed, with 56% of wine exported in bulk. In the first six months of this year bulk exports rose by 31% while exports of bottled wine fell by 9%.

The result was the loss of about 700 jobs across the wine bottling and packaging industry. In the middle of this year the department of trade and industry intervened to try to arrest the decline.

In August, Stephen Hanival, chief director of agro-processing at the dti weighed in on the debate when he told parliament that one of the measures being considered was the bulk importation of whisky from the UK. By bottling it locally, he said, “we can at least attempt to prevent some of the job losses that we’ve seen up to now spreading to other parts of the economy.”

However extensive discussions on the subject have since taken place between the UK and SA. “We have examined the factors that underlie this trend,” said Minister Davies, “and recognise that commercial decisions are part of this.”

The reality is that the trend towards bulk wine is not unique to SA and most New World countries now export around 50% of their wine in bulk, compared to 20%, according to a Rabobank report. If SA tried to buck the trend it would almost certainly lose orders to other wine-producing regions, such as Chile and Australia.

What is upsetting the South Africans however is the sense that this trend is also been driven by UK protectionism thinly disguised as environmental awareness and responsibility.

About five years ago the Waste & Resource Action Programme (Wrap), an NGO funded by the UK government began to encourage the importation of bulk wine into the UK. Its objective is to reduce the transport emissions associated with New World wine imports and support the manufacture of recycled green bottles in the UK.

“We don’t want restraints of this sort in the name of the environment,” says Davies. “We are developing many of our own environmentally friendly practices in the wine industry. We cannot be penalised because we are a long distance supplier on the basis of unsubstantiated claims.”

The UK Secretary of State was right behind him on this. “The behaviour of certain environmental NGOs is not acceptable. Wrap does not speak for the British government on this matter,” Cable said. “It would be wrong to incorporate these types of environmental concerns into our trade policy. It is socially irresponsible.”

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