Diversification beats poor wine grape prices – Part 1

Wine grape prices have remained unchanged for the past decade, and producers in the Olifants River Valley have started to investigate alternative avenues for generating income. Local farmer, Willem van Zyl, explains these to Glenneis Kriel in a two-part series.

Conventionally produced wine grapes in the Olifants River Valley region fetch about R1 700/t, while Willem receives approximately R4 000/t for his organic red grape varieties. Photo: Glenneis Kriel

Net income generated from wine grape production in the Olifants River Valley region has deteriorated significantly over the past 12 years.

According to Willem van Zyl, a third- generation farmer in the region, farm gate prices have virtually stagnated, whereas the cost of inputs, such as labour, fuel, electricity and fertiliser, have more than doubled.

“Five to six years ago, farmers did not pay that much attention to their energy and labour costs. These days, you have to count every cent to survive,” he says.

This situation has resulted in a number of wine cellars in the region falling on hard times.

According to Willem, they were unable to meet their financial obligations to producers in full in December, with some monies still outstanding at the time of going to print. This payment shortfall has had a knock-on effect on suppliers’ cash flow.

“There are farmers who have stopped fertilising and irrigating some of their vineyards. Since there’s no indication that market conditions will improve soon, these farmers feel that the cost of production is no longer justifiable,” he says.

Thanks to the good quality of the soil in the region, yields are high: an average of 25/t/ ha, with some farmers achieving up to 35t/ ha, depending on the cultivar. Unfortunately, high yields do not make up for the poor prices received, explains Willem.

Statistics from VinPro indicate that average income in the region ranges between R32 000/ ha and R50 000/ha for red grape varieties, and between R32 000/ ha and R37 000/ ha for white varieties.

The exception is Sauvignon Blanc, which generates up to R60 000/ ha depending on the quality. However, this cultivar is not suitable for production everywhere in the region.

Production costs average about R35 000/ ha, but this does not take re-establishment costs into account.

“A vineyard has to be replaced every 25 years, otherwise yields become too low to justify the vineyard’s economic existence. It costs around R225 000/ha to replace a vineyard. When you add this into the calculation, the average cost of production skyrockets to R46 000/ha.

On average, farmers are making R1 700/t for wine grapes, but need to make R2 400/t to break even.”

Organic production

To cope with this situation, Willem has diversified production and now caters for the organic market by delivering grapes to Stellar Winery, an organic wine cellar.

“We simply went cold turkey by withdrawing all synthetic fertilisers and pesticides in the vineyards we wanted to convert. Conversion takes up to four years, but we’ve also established vineyards from organic [rootstock] that received organic [certification] in the first year it was planted,” Willem recalls.

The switch to organic has created a far larger administrative burden for the business. The organic wine grapes on his farm are certified by the Ecocert and Fair for Life international organic certification organisations.

Record-keeping is far stricter for this accreditation than for the conventional market, as the target consumers are more concerned about the environmental and ethical footprint of the wine.

“You need to justify everything that was done in a specific vineyard, from the volume of water irrigated to the number of times a tractor was used and the volume of diesel used,” Willem explains.

Production volumes in these vineyards are slightly lower at 23t/ha, than the average 25/t/ha produced by Willem’s conventional vineyards. This reduction is not due to the organic production methods, but the fact that the vines are pruned to yield fewer berries.

“The wines are aimed at a higher-end market than our conventional wines. While organic and ethical trade certification is helping us unlock and maintain new markets, wine quality remains the key to success.”

According to Willem, pesticides for organic production have improved greatly over the past few years – so much so, in fact, that he uses some of them, such as Karalex for botrytis and Bioneem for mealy bugs, on his traditional vineyards.

Labour and the minimum wage

The biggest drawback of organic vineyards, Willem stresses, is that they are far more labour-intensive than conventional ones. In this regard, the higher minimum wage will have a highly negative impact on employment in the wine industry.

“Farmers simply cannot afford to keep that many labourers anymore,” he says. “People often think that organic production simply means a farmer sits back and lets nature do the work.

This is so far from the truth. Besides the additional pruning required by these vines, weeds also have to be removed by hand or mechanically, because herbicide use isn’t permitted.

We’ve developed a mower to cut the weeds, but you can’t use this on young vines. In effect, the vineyards are almost three times more labour-intensive than [conventional ones].

“All the effort is more than worth it, though, as the profit from the organic vineyards is 25% to 35% higher than from the conventional vineyards.

“Where our average income for traditional wine grape varieties is approximately R1 700/t, income from the organic wine grapes is around R4 000/t for Sauvignon Blanc and our red varieties. The income from other white varieties is about R1 900/t, compared with R1 400/t for conventionally produced white varieties.”

At present, Willem has 140ha planted to vineyards, of which 35ha are organically certified.

Pecan nuts

Willem considered various other ways to increase his income.

“Some producers grow tomatoes or vegetables in their vineyards. I tried this a couple

of times, but didn’t like the results. It’s definitely a way to boost your income when cash flow is under pressure, but it set the vineyards back where I tried it.”

He also investigated citrus, as well as dried grape production for the raisin market, but found these too labour-intensive.

Finally, he got the idea of growing pecan nuts from friends who farm these nuts near Hartswater.

“We used to compare farming incomes, the way farmers do, and I realised that pecan nuts were much more lucrative and required much less labour than wine grapes,” he recalls.

Over the past year, he has started replacing vineyards with pecan nut trees, and 7,5ha are currently planted to this crop. He plans to replace another 5ha to 7ha each year until he has a more balanced portfolio of crops.

“I’ll never be able to get rid of all my vineyards, because I have quotas at wine cellars that I’m obliged to meet,” he says.

The closely spaced pecan trees are pruned to remain small – no taller than 8m to 9m and no wider than 5m. The nuts are harvested with a mechanical shaker and collected in nets underneath the trees.

The cost of a mechanical shaker is approximately R40 000, whereas the cost of a grape harvesting machine ranges from R3 million to R5 million, according to Willem.

Establishment costs are also much lower, as the trees require no trellises and fewer dripper lines than are used in vineyards. Conservatively estimated, establishment costs are about 30% lower than for wine grapes, depending on the variety, he says.

Willem is currently planting pecan nut trees in every fourth row of vineyards that need to be replaced. Inter-row spacing is 10m and intra-row spacing 5m.

This practice allows him to generate an income from the vineyards while the pecan nut trees are growing into commercial production.

The vineyards are removed when the trees are two years old. The trees reach their full commercial potential when they are seven years old, at which stage they produce about 5t/ha. This should generate a profit of at least R300 000/ha, according to Willem.