Having a drink is as simple as deciding what to pour, but did you know that South Africa’s economy is affected by your choice of tipple?
The South African brandy industry has long played a role in the economy. Until the mid-1800s, it was one of the Cape Colony’s main exports. Today, around 90% of brandy is consumed within South Africa’s borders, but this product of the vine still has major economic relevance. ‘It takes about five litres of wine to produce one litre of brandy. As such, the South African brandy industry has a symbiotic relationship with the wine industry, increasing local manufacturing value and stimulating local job creation,’ said Distell’s director of Luxury Brands, Caroline Snyman.
HIGH PRODUCTION COSTS
The costs of producing a brandy to South Africa’s high standards is far higher than that of spirits produced from grains or sugarcane. ‘Grapes are a more expensive raw material compared to maize or sugarcane. South Africa’s legal requirements for the production of brandy are superior to most other brandy-producing countries. This gives the industry the ability to produce brandies of world-class quality,’ Snyman said.
The market demand for brandy also has a significant impact on the primary wine producers in South Africa. Recent research by the Bureau for Economic Research (BER) indicated that for every 1% increase in South African brandy sales volumes, the price of distilling wine to South Africa’s grape producers increases by 0,9%. ‘A growth recovery of the South African brandy industry will therefore positively influence the overall profitability of South African wine producers, who are significant local employers,’ Snyman said.
The economic value added multiplier for South African brandy has been estimated at 1,30, the government tax multiplier at 1,44 and the employment multiplier at 6,85. This means that for every R1 million increase in the demand for the product, value added in the economy will increase by R1,3 million, while government tax revenue from excise and VAT will increase by R1,44 million and 6,85 jobs will be gained. ‘The economic growth potential from a world-class local product such as South Africa’s brandies is substantial,’ according to Snyman.
Key factors influencing the market trend away from brandy include the reduction of import duties on spirits originating from the European Union as well as the removal of the lower excise tax differential which brandy had compared to other spirits consumed in South Africa. ‘In recent years, spirits originating from European countries have shown substantial growth, which has negatively impacted the local brandy industry. However, the local brandy industry is still strong, with many world-class competitors, distillers and loyal consumers.’
There is a growing awareness of the quality credentials of South Africa’s premium potstill brandies alongside a silverware cabinet of Best Worldwide Brandy trophies.
South Africa is the world’s seventh largest grape brandy producer and has won the prestigious International Wine and Spirits Challenge award for the world’s best brandy 15 times over the past 25 years. ‘This track record shows clearly that South Africa has unique competitive advantages to growing the exports of its premium brandies significantly, as well as premiumising the consumption of brandy in the local market,’ concludes Snyman.