Overview of South Africa’s wine opportunities under the EU-SADC Economic Partnership Agreement
South African wine production and trade with the European Union
The International Organisation of Vine and Wine (June 2017) ranks South Africa seventh among the largest wine-producing countries in the world, with the country currently producing 4% (1.05 billion litres) of the global wine production (26.7 billion litres). According to the International Trade Centre (2016), South Africa exported to the world 490 124 tons of wine of fresh grapes, including fortified wines, and grape must whose fermentation has been arrested by the addition of alcohol but excluding sparkling water: 304 660 tons in containers more than 2 litres (bulk) and 185 464 tons in containers of 2 litres or less (bottled). Of the exported wine, 312 590 tons (67%) went to the European Union: 217 019 tons bulk and 95 571 tons bottled.
South African wine has enjoyed preferential market access in the EU market since the conclusion of the Trade, Development and Cooperation Agreement (TDCA) between the EU and South Africa in 2000. Under the TDCA, the annual (2016) tariff-rate quota (TRQ) for South African wine to enter the EU duty free was 50 million litres. However, this market access is significantly enhanced under the Economic Partnership Agreement (EU-SADC EPA) signed between the EU and South Africa, together with Botswana, Lesotho, Namibia, Swaziland (BLNS) and Mozambique on 10 June 2016. The Agreement has been applied provisionally between the Southern African Customs Union member states (South Africa and BLNS) and the EU since 10 October 2016, and new agriculture market access provisions came into force on 1 November 2016.
Under the EU-SADC EPA, 110 million litres – 77 million litres bottled and 33 million litres bulk – of South African wine is permitted to enter the EU market duty-free in the first year of implementation. Sparkling wine and wine with alcohol by volume exceeding 18% or less than 13% other than white and other than bottled are excluded from this duty-free quota but shall continue to enter the EU duty free. After the first year of implementation, the duty-free quota will increase annually by 1 059 000 litres: 741 300 litres bottled and 317 700 litres bulk (see paragraph 12.o of the Annex 1 to the EU-SADC EPA). It is important to note that the out-of-quota wine exports to the EU will be subject to the most-favoured nation (MFN) rate.
The wine quota has been applicable since 1 November 2016 and is administered by the South African Department of Agriculture, Forestry and Fisheries (DAFF) through issuing annual permits to exporters. The permit is allocated on preferential market access permit allocation system which takes into account several variables: broad-based black economic-empowerment status of applicants, which must be corroborated by an accredited verifications agency; the market share of applicants, derived from historical data for the past three years; the quota applied for; the number of applicants; and the total quota available for wine.
Wine exporters are required to comply with the sanitary, phytosanitary and other technical, legal and non-legal requirements stipulated by the EU and with the rules of origin under the EU-SADC EPA. More importantly, wine exported to the EU needs to conform to winemaking (oenological) practices approved by South African rules and accepted by the EU. It is also required to meet labelling, documentation and certification requirements stipulated in Protocol 3 to the EU-SADC EPA.
South Africa exports more bulk than bottled wine to the EU (and the world at large). The export of bulk wine is largely motivated by importers needing to cut packaging and transport costs – it is cheaper to export/transport bulk wine than bottled one. However, the SA government has always contested the export of bulk wine and bottling it in Europe concerned about loss of profits, jobs and control of the production process or South Africa, among other things. On the other side, the EU wholesalers have supported the importation of bulk wine since they will able to squeeze pricing from exporters. For instance, most of the UK firms (e.g. Asda) have increased their sourcing of bulk wine from South Africa in recent years. Thus, the demand for South African bottled wine decreased resulting in closures and retrenchments within the wine packaging industry, notably in Stellenbosch and Rostberg. In addition, the UK’s Waste and Resource Action Programme supports the importation of bulk wine for environmental benefits, cost savings and logistical efficiencies.
Be that as it may, the EU-SADC EPA has increased the duty-free quota for bottled wine and this means that the South African wine industry needs to enhance its packaging capacity in order to reap full benefits available for packaged wine under the Agreement. In addition, bottling wine locally will create more jobs, benefit the exporters and the packaging industry.
Brexit implications for South African wine
The United Kingdom (UK) is the top individual export destination for South African wine in the EU, accounting for 33% of South Africa’s annual wine exports to the EU. In 2016, the UK accounted for 105 million litres of the South African wine exports to the EU: 33% bottled and 67% bulk (ITC, 2016). South African wine is currently exported to the EU under the EU-SADC EPA and it will continue to be exported to the UK under this dispensation until the UK finally leaves the EU (Brexit). Thus, after Brexit, South African wine will no longer have access to the UK market through the EU-SADC EPA; but the duty-free quota under the EU-SADC EPA remains and will be shared among the remaining EU members.
Currently, South Africa and the UK (outside the EU) do not have a free trade agreement. After Brexit, South Africa will need to negotiate a new trade agreement with the UK giving free or preferential market access to its wine. Without such an agreement, South African wine would have to be exported under the World Trade Organisation (WTO) rules – which means they will be subjected to the MFN rate.
There is, however, a likelihood that the UK would be interested in signing a trade deal with South Africa under which wine (among other products) will have preferential market access considering the UK wholesalers/retailers’ interest in South African (particularly bulk) wine, along with the historical and close trade ties between the two countries. Such a preferential trading arrangement (perhaps EU-SADC EPA equivalent or plus) would clearly benefit the South African wine industry/exports.
It must be noted that the UK market for wine (without a preferential trade arrangement) is quite complex. For instance, duties and taxes for wine imported into the UK are quite high, increasing each year by inflation or retail price index (RPI). As recently as March 2017, the duty on wine (and beer, ciders, spirits) increased by 3.7%. In addition, the UK retailers are tough to negotiate with and ‘sales are predominantly focused on the retail discount culture and brand loyalty is very hard to achieve’.
 According to the Business Dictionary, RPI is an ‘official measure of the general level of inflation as reflected in the retail price of a basket of goods and services such as energy, food, gasoline (petrol), housing, household goods, traveling fare, etc. RPI is commonly computed on monthly basis, but an annual rate is also published which serves as a yardstick for adjusting inflation-indexed salaries and wages, tax allowances, and pensions’.
 E Douglas. UK Budget 2017: Wine duty rise means ‘triple whammy’ price increases – trade. Decanter, 8 March 2017. Available at http://www.decanter.com/wine-news/uk-budget-2017-wine-duty-to-rise-by-inflation-356957/#slhC7dwpRKtQi7Cu.99
 K Anderson and G Wittwer. 2017. Will Brexit harm UK and global wine markets? UK Trade Policy Observatory Briefing Paper 9. Available at https://blogs.sussex.ac.uk/uktpo/2017/05/30/will-brexit-harm-uk-and-global-wine-markets/