When evaluating the economics of farming, specifically wine farming, the comparison to other industries and sectors presents a sobering picture. Over the past two decades, if you had invested your money in planting wine grapes, the return on investment (ROI) for those vineyards, now at the end (or nearing the end) of their productive life, would be approximately 8.3%.
In contrast, a similar investment in 20-year South African government bonds would have yielded a similar ROI with minimal risk and no physical labour. Moreover, investing in U.S. government bonds could have potentially doubled that ROI, while real estate investments in Cape Town would have delivered at least a 140% ROI.
As agricultural professionals, we are trained to analyse facts, variables, and risks when making decisions. Throughout my professional career, I have provided this analysis to producers. However, one quickly realises, as all consultants in the agricultural sector do, that producers often disregard this advice. This is primarily because we sometimes overlook that producers themselves are as crucial a variable as the climate or soil classification. Their needs and desires must be considered.
There is an emotional connection to land, particularly in agriculture, that does not exist with a factory in Stikland or even a family home in suburbia. Land becomes part of one's culture and identity, a concept that is difficult to explain to those who don't have the great privilege of owning agricultural land.
For a long time, studies and philosophical debates have analysed and raged about the primal connection we, as humans, have to the land we occupy.
Agrarian philosophy posits that a meaningful connection to the land is essential for individual and societal well-being. Martin Heidegger, a prominent existentialist philosopher, introduced the idea of "being-in-the-world". According to Heidegger, our identity and sense of meaning are deeply rooted in our engagement with the world around us. The land, in this sense, is not just a backdrop but a vital part of our existence and understanding of being. Our experience of the land is not merely a passive observation but an active, embodied interaction that shapes our sense of self and place.
Many times, I have asked producers why they continue cultivating wine grapes despite clear evidence of potential financial losses and long-term consequences for their farms. The response is often: "It is who I am" or "I am a wine farmer, and if I cannot farm with wine grapes, I would rather not farm at all."
This phenomenon is evident in the substantial hectares of vineyards in South Africa, which economically make little sense. When compared to other horticultural crops such as citrus or stone fruit, wine grapes yield some of the lowest returns on investment among the options available to producers who can diversify. Despite this, producers persist with wine grapes.
This emotional connection became personal recently when I was compelled to assume the roles of both producer and consultant for our family farm.
Despite the economic and managerial rationale for selling the farm, there remains a profound sense of loss and disconnection for a place that has provided stability and assurance for so long. One feels rudderless and vulnerable. To preserve that sense of home and belonging, you will resist all logical and inevitable outcomes.
I have been deeply entrenched in the wine industry for over a decade, and I can't imagine not being part of the wine industry in some capacity. Yet, a part of me will always remain on that dusty cattle ranch in the middle of nowhere in northwest South Africa.
We must recognise that this emotional connection has played a significant role in buoying our industry beyond what makes economic sense, but the resolve of our producers is dwindling. They can only endure so much. Even though the market has seen a resurgence post-COVID, this is offset by the long-term decline in wine consumption observed worldwide with continuous increases in input costs.
At current yearly replanting rates that have been roughly half of the removed hectares per year for the last decade, the number of wine vineyards is projected to decrease to around 50,000 hectares over the next decade and a half, only stabilising around 2040. (This worst-case scenario is assuming we don't see market forces push up prices for producers over the long term to incentivize more plantings).
The economics of wine farming present significant challenges when compared to other investment avenues. The emotional connection to land and the identity of being a wine farmer add a complex layer to the decision-making process.
While the financial returns from wine farming are comparatively low, the intrinsic value and cultural significance cannot be ignored. The sustainability of the wine industry depends on a balanced approach that incorporates both the economic realities and the emotional factors that drive producers.
By understanding and respecting these dynamics, we can develop strategies and policies that support the long-term viability of the wine farming sector, ensuring that it continues to thrive despite the economic challenges.