* Over half of South African wine exports now in bulk
* Trend hits bottling jobs
* Some worried about industry's image
* South Africa is world's eighth largest wine producer
By Tosin Sulaiman
STELLENBOSCH, South Africa, March 26 At South
Africa's Rostberg and Co., green bottles filled with a ruby
liquid clink as they march along a conveyor belt, destined for
wine-lovers from Paris to Shanghai.
But if a trend toward bulk shipping continues, the music of
the Rostberg bottling plant may be about to stop.
Set in lush vineyards in Stellenbosch, one of South Africa's
most famous wine communities, Rostberg has been operating below
capacity for the past two years due to a shift to shipping wine
in 24,000-litre polypropylene "flexitanks".
The trend has spread through other "New World"
wine-producing countries like Chile, Argentina, Australia and
New Zealand, which all have distant markets and, in the latter
two cases at least, relatively strong currencies that are
forcing them to cut costs to stay competitive.
Bottlers in South Africa are frantic about the likely loss
of jobs. But another concern for some industry experts and
government officials is the potential impact on South Africa's
brand: when wine is bottled outside the country, winemakers lose
control of a key part of the production process.
These are big concerns for South Africa, where the wine
industry plays an outsized role in reshaping the country's image
after years under apartheid, which ended in 1994.
"Wine has a tremendously important role to play in the
development of Brand South Africa," said Anthony Budd, managing
director of Cape Town-based wine exporter Diverse Flavours.
"Wine is that much more romantic and seen as premium and coming
from a beautiful location."
The number of people working directly or indirectly in South
Africa's wine industry has risen to more than 275,000 people
from just under 160,000 in 2000, and now represents 1.5 percent
of the workforce in an economy dominated by natural resources.
The industry has made huge inroads as a producer of
high-quality wines since overseas markets opened up after
apartheid, said Michael Fridjhon, visiting professor of wine
business at the University of Cape Town's business school.
"In 1994, we were the darling of the world," he said.
"Everybody wanted to do something for the 'Rainbow Nation'...
Since then, we've been on a steep learning curve."
Exports have soared more than 700 percent to a record 409
million litres in 2012. Now the country's biggest agricultural
export earner, wine sets South Africa apart from other
sub-Saharan African countries known for exporting predominantly
Seventy percent of the 26 billion rand ($2.8 billion) it
contributes to the national economy is focused on the Western
Cape province, which boasts ideal conditions for wine-making
with its Mediterranean climate, mountain slopes and valleys, and
sea breezes from the Atlantic and Indian Oceans. The Western
Cape is also where the majority of bottlers are located.
Nearly half of all wine from South Africa, Australia, New
Zealand, Chile and Argentina is shipped in bulk, up from around
a fifth a decade before, according to a report published last
year by Dutch bank Rabobank entitled 'The Incredible Bulk. The
Rise in the Global Bulk Wine Trade'.
As recently as 2009, just over 61 percent of South African
wine exports were bottled domestically but that share dropped to
40 percent last year, according to industry export and promotion
group Wines of South Africa (WOSA).
Bulk exports overtook bottled shipments in Australia for the
first time in January 2011, industry group Wine Australia said.
Major Australian producers like Jacob's Creek are now bottling
in Britain, the world's largest wine import market.
Bevan Newton Johnson, managing director at First Cape, the
largest South African wine brand in Britain, said the company
mothballed its own bottling facility nearly two years ago,
laying off around 40 people.
"Our products were not profitable in the overseas markets,"
The South African government is concerned about the effect
on employment. Close to 1,000 jobs were lost due to the shift to
bulk as of the end of 2011, according to the Department of Trade
and Industry, and industry representatives said the trend
suggests that more cuts are coming.
In South Africa, where the unemployment rate has remained at
25 percent for years, that has a multiplier effect - the country
has one of the highest "dependency ratios" in the world at an
average of three non-working people supported by every worker,
according to a January 2013 report by the South African
Institute of Race Relations.
Two bottling plants in Stellenbosch have closed since 2010.
Consol Glass, South Africa's biggest glass manufacturer, is
preparing to cut production this year because of the sharp fall
in demand for wine bottles. Its wine sector business, which
accounts for a quarter of revenues, has declined by more than 20
percent over the last three years.
Rostberg, located on the Rust en Vrede wine estate which
produced the wine served at former President Nelson Mandela's
Nobel Peace Prize dinner, had to shut down one bottling line in
2010, and was forced to lay off 35 staff, half its workforce.
"The only way we can create more jobs is if we could bottle
our wine locally," said Leo Burger, Rostberg's managing
The government has threatened to retaliate against the UK,
the world's biggest market for imported wine, by importing bulk
whisky from Britain for bottling in South Africa.
"The big winners in this trend are the bottlers who operate
in the UK and the EU," said Stephen Hanival, director of
agro-processing at the Department of Trade and Industry. "Jobs
and capacity have been lost in developing countries like South
Bottlers and the wine industry are trying to counter the
growth in bulk exports by diversifying to China, Japan and other
parts of Africa, where the demand for premium wine is growing.
South Africa exported 5.5 million litres of packaged wine to
China in the year to February 2013, a 24 percent increase from
the previous year.
A big factor in the shift to bulk is the growing influence
Retailers in Europe have been able to squeeze pricing from
their suppliers to attract customers recovering from the
recession, said Stephen Rannekleiv, Rabobank's executive
director of food and agribusiness research.
Some have created competing private label wine brands using
foreign-sourced bulk wine.
Fraser Thompson, head of the IPL Wine subsidiary at Asda,
the British arm of U.S. retailer Walmart, said countries
like South Africa have had no choice but to shift to bulk to
stay competitive. Asda has increased its sourcing from South
Africa in recent years, partly thanks to UK bottling, he said.
"South Africa is competing on a global stage with every
other wine-producing nation," he said. "Without shipping in bulk
there's a danger that South Africa would lose considerable
export trade to the UK and across the world."
Around a third of the wine imported by Asda is now bottled
in the UK, where it set up its own bottling plant in December
2011 in Snetterton, Norfolk.
South African industry and government officials have
expressed concern about what happens to the wine after it leaves
the polypropylene tanks.
Hanival was particularly worried about the potential for
South African wine to be blended with a lower quality wine and
marketed as South African, which could have consequences for its
hard-won reputation for high quality at the right price.
"In the past the UK consumer saw South African wine as
moderate-to-low quality but at a very low price point," he said.
"These days South African wine is seen as of moderate-to-good
quality, still at a good price point ... I think we have managed
to lose that label of cheap and cheerful, relatively low-quality
A spokeswoman at Asda strongly denied any trans-national
blending took place at Asda. Tesco and Sainsbury's
, the two other big supermarket chains in Britain, did
not respond to requests for comment on this story.
Bottling in South Africa includes a trackable certification
seal, with various guarantees for the consumer, Rostberg said.
"Our wine certification system ensures the origin, cultivar
(grape variety) and vintage only up to the harbour when it is
exported in bulk, but no further," he said.
The reputational risk around the possibility of blending is
uncomfortably high, some in the industry say.
"Odds are that it will adversely affect the reputation (of
South African wine)," said Fridjhon. "Effectively what you're
doing is turning wine into a commodity."