My recent column entitled, “South Africa: Fragile Flower of the Wine World” prompted an unusually high volume of reader response, and I’ve promised to post a few of the more interesting messages this week (with permission from the senders). In case you didn’t catch the original column, published here on WRO on September 30, that would be the place to start:
http://www.winereviewonline.com/Michael_Franz_on_South_Africa_Situation.cfm
Most of the mail I received sought to corroborate my observations and analysis, but two important responses took issue with the column. The first of those came from Su Birch, CEO of Wines of South Africa, which was published in the WRO Wine Blog on October 13. If you wish to view my exchange with her, just click on “More Wro Wine Blog” at the bottom of this entry and scroll down to the posting from Oct. 13.
The following message from Dave Jefferson also takes issue with my column. Mr. Jefferson describes his experience and background in connection with South Africa in the body of his message, so I will not recount these here.
A lightly edited version of Mr. Jefferson’s comments appears below, followed by my very brief response:
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Michael,
I was pleasantly surprised to receive Friday your recent treatise on South African wine from one of my partners in our vineyard development in the Western Cape. You may recall our meeting at the dinner at Groot Constantia where I recognized your name and indicated I had enjoyed some of your reviews on wine from time to time….
Returning to your article, I appreciated your insightful writing and sense of social responsibility. The open question which you first pose is will US consumers be sufficiently conscientious enough to buy more South African wine, in part to assist a place in peril? To date, they have not. So why not, especially since ‘we all know’ most US wine drinkers are do-good, kind hearted liberals.
I tender three possible reasons:
• The wine has not yet been sufficiently competitive.
• The US market presence of RSA wine is so small as to be marginalized/trivialized, and virtually unknown.
• The (out of contextual understanding) factual statement that the RSA wine industry is still 99% owned by Caucasians… and therefore implicitly immoral
• Of course, the usual, final multiple choice response, all of the above.
Before expanding upon the above, I would like to submit my qualifications for entering this discussion. Commencing in April 1994, the week before the General Elections, I made my first trip of 24 trips to the Western Cape (and elsewhere in South and East Africa). During 1997 I was the Pied Piper leading Beringer Wine Estates through the Cape on five more trips, negotiating two prospective wine deals before they left us all at the altar. (They probably made the correct corporate decision from an ROI standpoint, but some of us smiled when their subsequent plan to back up the boat to the wine co-ops in the South of France failed miserably.) In February 2000, I formed a company with a local VinPro consultant and with old Stanford fraternity brothers we purchased a mountain vineyard needing replanting and expansion. We are now 99% planted and probably will harvest 94% of our maximum expected crop levels next year; the quality is superb, equal to Stellenbosch but we are still ‘landowners,’ not yet ‘brandowners.’ The question of building a 50,000 case winery for about 50% of our ultimate production remains open. After a two year process, the final government permit may issue next month but capitalization and marketing will remain open issues for some time. The total vineyard investment, by the way, is about $3,000,000, mainly equity but some modest debt as well.
Clearly my partners and I have shouldered the inherent risk that South Africa could go the Zimbabwe route at some point in time, confiscating and wrecking everything a la Beirut. And still we trek on. Rest assured ‘country risk’ has always been at the top of the list of concerns and risk factors: in my partnership I have both left wing liberals and right wing conservatives, and from every one of them that invested (and everyone who chose not to invest), the first or second question has always been: ‘what do you think of the government?’ After 35 years in the grape growing business in CA, I can evaluate vineyards but I cannot evaluate governments. But judging by the last 14 peaceful years under the ANC and their recent disposing of President Mbeki, without bloody riots in the streets, perhaps their one party form of government is no worse that our wild two party democracy (now and in the future). Yet I am sure you are correct in asserting: ‘The specter of instability–or, in the worst case, “land reform”–is also inhibiting foreign direct investment in South Africa, and one sees far fewer foreign-owned or joint venture wine enterprises there than in Argentina.’
What I do know for sure, however, is that without a substantial and continuing investment in vineyards and wineries in RSA, wine at most relevant US price points (say $9.99 to $29.99) will not be sufficiently good to be deemed competitive. So somebody has to take the risk, and fortunately most of those ‘somebodies’ are South Africans, with an increasing number of vacationing Germans and the like from the UK/EU, and a sprinkling of ‘black diamonds,’ dabbling in the Cape as do many ‘rico Americanos’ in Napa. I agree with your overall assessment: ‘Potential excellence that hasn’t quite resulted in actual excellence’ but having attended every CapeWine show since 2002, the cellars of the Cape are making huge strides, based largely on capital investment, faith, and energy.
As to the squalor of the barrios (usually called ‘squatter camps’ in the RSA) surrounding the airport, that was also my first impression in 1994. However, on that trip there was also no electricity to the shacks and there still were steel guard towers on metal stilts on the perimeters. (Fortunately, that had changed by 1996 when I first returned.) Interestingly, there are squatter camps outside almost every town or city in South Africa, reportedly the result of an extensive ANC busing program that distributed the burden of the historically disadvantaged around the country in the early 1990’s. If your figure of 50 murders a day in RSA is correct, I question what percentage of those fatalities are in the Cape Flats? I understand most of the violence is in Gauteng (the Jo’berg province) where the continual in-migration of the desperately poor from some 11 Black nations to the north confronts those just marginally better off in other Bombay-like slums. A tragedy for all, but fomented by the far worse conditions of the ‘perpetually disadvantaged’ countries further north.
But let us return to the hope of the BEE (Black Economic Empowerment) initiative in South Africa. I understand that over 25% of all wineries presently have BEE programs in place and the percentage is anticipated to well exceed 50% within another 18 months or so. This really is imperative, because according to my very liberal-leaning local attorney, of all BEE owned farms and vineyards where the ‘previously disadvantaged’ have obtained control and ownership, 100% have become financial disasters. It is very clear that it will take generations for solely owned and managed Brown or Black companies to become self-sufficient. And this is despite foreign governments and NGOs also trying to assist: for example, the Netherlands government has an agency whose mission is to contribute to development by assisting companies to become more competitive, and to facilitate their market entry to the EU. The programme is open to: 1) black owned businesses, 2) wineries with BEE projects, and 3) wineries that have a significant social impact (e.g. are significant employers in an economically underdeveloped region) or have a strong social responsibility program. The Dutch run a free coaching program and come to the Western Cape to put it on.
In my opinion, a BEE initiative with a far higher probability of success would be for most of the larger of the 576 wineries to establish and subsidize wine marketing companies with Brown and Black participants that would travel to the EU/UK and North America to sell the country’s products. This requires, however, a careful selection of people of color, perhaps now in the food and beverage businesses, with significant wine knowledge and high English proficiency; unfortunately most of these young people do not presently live in the squatter camps or on farms, where education levels are low and where English is seldom spoken. Assuming they carry competitive RSA wines, when such sales cadres are trained and deployed, one would think that market penetration in the US and elsewhere will rise: the sales reps will clearly be Africans.
So given all the above, must I take issue at all with your recent article? Yes, on two key and closing points: first, I do not know the source of your contention ‘that the wine industry employs 100,000 members of “historically disadvantaged groups,” which is well over one-third of the 257,000 total employees.’ However, when the ‘historically disadvantaged’ are assumed to include the Browns (the most current and politically acceptable collective noun for the ‘Cape Coloureds’) as well as the Blacks, including some very hard working Sotho seasonal workers, I would be flabbergasted if the true figure is not well in excess of 200,000, well over 80%! (Note that there are, per page 52 the 2008 Platter Guide, only 4,185 grape growers, and 576 wineries, of which 49% crush fewer than 100 tons. So there are less than 5,000 White owners and winemakers. Throw in their families, office workers, flying winemakers and tasting room staff, and I don’t see how to get to 57,000 pale faces.) So if one third participation by people of color is a ‘promising factor,’ then would an 80% participation be a highly encouraging factor?
But much more importantly, the quote “…effective black involvement in the industry remains minuscule, with less than 1% of the land under wine grapes under black ownership, management or control” (not your language but your selection) is highly political and inherently misleading. (By the way, what percentage of the US wine industry is owned or controlled by our undocumented Hispanic farm workers?) If BEE participation is already over 25% of all wineries, and headed soon to exceed 50%, worker participation without meaningful (if any) investment is zooming upward. Naturally, nobody wants to speak about the 100% BEE failure rate in farming, due in parts to any assumed debt, inexperience management, and incompetent group decision making. We have just built a state of the art vineyard with almost all equity, and even with top quality grapes at nearly full production, and entrepreneurial management, we are barely breaking even. So even the 6th generation Boer farming families, with free land and a lifetime of experience, are not making much money from farming. Frankly, nobody save the government has the capital to improve the housing conditions of the Xhosas living in the Cape Flats, and they are building soccer stadiums for the 2010 World Cup.
Michael, I understand where your heart is as a political scientist and humanitarian, and, of course, you are a superb and insightful wine writer. I am also pleased you took the time to prepare the treatise; I just wish you had not bought into the Wine Industry Council’s propaganda as it does not fairly reflect what is going on. And the assertion that the Western Cape is a risky place to invest makes it that much harder for those who have the guts to invest on little more than faith alone, because it can become a self-fulfilling prophecy.
Thanks for taking the time to hear me out. I would be happy to discuss these and related issues with you anytime.
Dave Jefferson
President, Burdell Properties
2175 E. Francisco Blvd., Ste. A-3
San Rafael, CA 94901
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Michael Franz: The only point that I would make in response to Mr. Jefferson concerns his remark that my “assertion that the Western Cape is a risky place to invest makes it that much harder for those who have the guts to invest on little more than faith alone, because it can become a self-fulfilling prophecy.”
I find this comment rather surprising, since Mr. Jefferson notes that, for himself and his partners, ‘country risk’ has always been at the top of the list of concerns and risk factors.” My column simply publicizes a factor that he implicitly acknowledges. Whether or not publicizing this factor will inhibit investment cannot be my concern as a journalist. My responsibility is to report what I see, whether we’re addressing the barrios or investment risks, and to resist any temptation to look the other way when encountering a troubling reality.
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