As has become the norm over the past years, the Minister of Finance has once again seen it fit to increase excise duties on natural wines. As Minister for Agriculture in the Western Cape I am deeply concerned about the impact of this ongoing increase and the burden that Western Cape farmers are carrying without any direct benefit to the agricultural sector in the Western Cape.

During the 90's of the previous Century, the South African Agricultural Sector was faced with a combination of changes in the business environment that together resulted in major alterations to the face of the Sector.
These changes included:
a) Political transformation.
b) Marketing deregulation of the Sector with the changes of the Marketing Act (and the consequent abolition of Marketing Boards).
c) Trade liberalisation as a result of the Marrakech Agreement.
d) Exposure to globalisation and international competition.

In a number of cases individual role-players in the Sector was unable to discriminate between these different vectors, with the result that the consequences of the impact of one was often blamed on one of the other. For instance, the effect of trade liberalisation was often blamed on the political transformation. As a result the different industries had varying successes in coping with the changing environment.

However, one of the industries that categorical succeeded in adapting to this changing environment was the Wine Industry. The value of fortified, sparkling and natural wine exports in 2005 amounted to R3 810 million, with natural wine accounting for 97,7% (SARS, 2005). Wine exports as a percentage of domestic sales grew from 13,8% to 81,6% from 1994 to 2005, with the total quantity of wine exported increasing by 456% in the same period, from 50,7 million liters to 281,81 million liters, despite the strengthening of the Rand against most major currencies in the last couple of years. This positive trend in export growth has managed to offset the somewhat sluggish domestic sales, which have dropped by 5,5% from 365,4 million liters in 1994 to 345,1 million liters in 2005 (SAWIS, 2006).

It seems that the wine industry is considered to be ripe for the picking through the so-called "sin taxes". For instance, in 2004 the annual increase in the excise duties on natural wine was close to 30%. The result of this trend is that in 2005 producer income out of the Wine Industry was R2,62 billion, compared to the R2,55 billion that the Government earned out of it. So, we are currently close to the situation that Government gets a bigger share out of the wine industry than farmers themselves!

But who are the winners and losers from these taxes? In trying to answer these questions, the Provide Project (an agricultural economics analysis project funded by the nine Provincial as well as the National Departments of Agriculture and hosted in the Western Cape; analysed the impact of the increasing excise duties on the economy. The results from the work by Cecilia Punt and her team are available in Working Paper 2006:1.

Some of the main findings of the report are as described below (for the sake of simplicity the results discussed here are that of the effect of a 10% increase in the excise duties):
a) Loss of R107 million in the GDP.
b) Loss of R99 million in investments.
c) 7 489 jobs will be lost. The majority of these jobs will be in the Western Cape amongst Asian and Coloured semi- and unskilled workers.
d) Exports will decline by 2%
e) The consumer prices of potatoes and vegetables (0,1%) and deciduous fruit (0,14%) will increase.
f) Value added in the Agricultural Sector will decline by R65, 99 million, while value added in the non-agricultural sectors will decline by R969,98 million.
g) The change in real consumption expenditure of households will be the worst for Africans with secondary and lower education in the Western Cape, followed by Asians and Coloured with secondary and lower education in the Western Cape and Northern Cape respectively.
h) In these two Provinces (Western and Northern Cape), the real consumption expenditure of White households will be the least affected.

The function of using these type of economy-wide flex-price models is to isolate and evaluate the effect of certain changes in the economic environment. Evidently 7 489 people will not be out of work the day after the Minister of Finance announced an 10% increase in excise duties. However, this will be the effect over the longer term once the economy has again reached equilibrium. Furthermore, this direct effect is hidden by other changes. In other words, despite the negative impacts of the increasing excise duties over the last number of years, the Wine Industry were still a success. However, it could have been a much greater success without the negative impacts of increasing excise duties.

I will once again engage with my colleague Lynne Brown, in the Provincial Cabinet, to meet with the National Minister of Finance in an effort to address this unfair burden that Agriculture in the Western Cape has to carry without getting a just reward for this contribution.

Enquiries:
Alie van Jaarsveld
Spokesperson
Ministry of Agriculture: Western Cape
Tel: 021 483 4930
Fax: 021 483 3890
Cell: 084 604 6701
Email: avjaarsv@pgwc.gov.za