The South African Rand is trading at its strongest levels in two and a half years in reaction to the news that Jacob Zuma has finally relinquished his position as state president.
To the export industry this is collateral damage to the long-awaited positive political developments, particularly with regards to the Rand-US Dollar exchange rate, around R11.70 to the Dollar this morning.
“The income on grape exports will be dramatically affected, particularly in dollar markets like the Far East, Middle East and Canada,” says a grape trader who asked not to be named. “We’ve seen a 15 to 20% strengthening since the election of Cyril Ramaphosa as ANC president. The challenges for us this year are the exchange rate and the shipping delays.”
White grapes from the Hex River are still on their way to Europe, where volumes are starting to be supplemented by Indian grapes. From next week traders expect to start feeling the competition from India which was quick out of the starting blocks this season. “South Africa will have a less dominant position on the European market, but clients saw it coming,” the trader continues. “The next four weeks will be critical, particularly for Western Cape grape growers who started in January. The coming month will show whether the market remains stable. There was some increase in prices over the past three weeks, but we’ll have to see how the market reacts to the increased volumes and at which levels prices stabilise.”
Prices for white grapes are currently higher than for red and black, which isn’t always the case, at around €1 or €1.50 per carton more, according to market reports. It reflects the limited supply of white grapes; red and black are more readily available. However, sales in Europe aren’t particularly brisk, which is of concern to South African traders who worry that supermarkets might start running promotions which will push down price points. The silver lining to the shipping delays was that it created the space for delivered product to move before the next arrivals, but it brings delayed volumes closer to the arrival of grapes from India and Chile.
Season's challenges: shipping delays and the exchange rate
Delivery to the Canadian market was complicated this year by not only shipping delays in Cape Town Harbour, whence only one line per week goes to Canada, but on the North American side by closure of the New York Harbour due to a snow storm. The delays ate into the shelf life of grapes, compounded by competition from Chile whose exchange rate is more favourable to the US Dollar than the South African Rand.
In the Far East, South African grapes experience competition from Australian grapes which are highly regarded and, again, the South African Rand is less competitive than the Australian Dollar in a dollar market. Traders say competition is stiffer than during the past three years, but in the run-up to the Chinese New Year which starts tomorrow there was good demand. After a hiatus of ten days after Chinese New Year, the second half of the marketing season to China commences, and then it is expected that South Africa will experience more opposition from Australian grapes.
It wasn’t always easy to get grapes to China in time for the Chinese New Year due to shipping delays. One exporter tells of a ship meant to sail on 21 January that could only take to the water on 2 February.
Feedback from the Middle East indicates good demand and normal trading levels.
Wind conditions on the Cape Town foreshore have improved, but it takes a while for the harbour authorities to regain schedule integrity.
Those in the grape industry emphasise that, even with a decrease in volumes, there’s no question of not being able to fulfil programme commitments. Tonnage per hectare has been affected by smaller bunch weights, but the newest SATI estimate is between 56.2 million and 59.3 million 4.5kg cartons which still compares favourably with the industry’s five year average, despite the drought.
The South African grape season will probably end earlier, about ten or fourteen days sooner. The South African Table Grape Industry reported ten days ago: “Close to normal export volumes will continue for at least the next four weeks. However, a shorter tail-end of the harvest is expected due to the cut in water allocations and possible further effect of the ongoing drought.”