A Model and Tool for Table
Grapes Profitability and
Financial Sustainability
Analyses
SATI
August 2019
BFAP Group’s analytical approach Integration & presentation
Farm Level Economics
Consumer Economics
Rural Development
Value Chain Analytics
Commodity Markets and
Foresight
Data Science
Land Use and
Natural Resources
Performance: Agricultural GDP
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
0
10
20
30
40
50
60
20002002
20042006
20082010
20122014
20162018
20202022
20242026
2028
R bi
llion
(Rea
l 200
0)
% change real Ag GDP Real agricultural GDP Bending the curve
Growth Periods:• International factors:
- New level for international prices – Biofuel & China Economy
- Consecutive droughts in USA & low stocks
• Domestically: - Sustained investment & export
driven expansion
Weak periods:• Global recession• Domestic weather & animal disease
impacts
Going forward:• Short term global support?• Business as usual vs. accelerated
growth
Subsector Performance5 year average share Subsector Performance: Gross Production Value
Maize
Sugar cane
Wheat
Soybeans
Other Field Crops
Poultry
CattleMilk
Other Animal Products
Deciduous Fruit
Citrus fruit
Vegetables
Other Horticulture
0
50
100
150
200
250
300
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
Inde
x (2
000
= 10
0)Field Crops Animal Products Horticulture Agriculture
Agriculture’s contribution to trade balance
Source: World Bank, 2019
-140
-120
-100
-80
-60
-40
-20
0
20
40
60
80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Billi
on R
ands
Agri & Food Products Other Products
High-growth industries are on trackGross Value of Agricultural Production: 2014-2018
Source: DAFF, 2019
5-year growth10,33%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
18%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Cotton
Nuts
Dried fr
uit
Citrus fr
uitBarl
ey
Cattle and ca
lves slaughtered
Wool
Table
Grapes
Sheep an
d goats
slaugh
tered
Pigs sla
ughtered
Fowls s
laugh
teredMilk
Eggs
Soya
-beans
Deciduous a
nd other fruit
Potatoes
Subtro
pical fr
uit
Suga
r cane
Viticultu
reWheat
Sunflo
wer seed
Canola
Maize
Grain so
rghum
Average growth in Gross Value of Production: 5 year Average share in total agricultural Gross Value of Production
Oranges24%
Table Grapes15%
Apples14%
Lemons & Limes8%
Naartjies8%
Pears… Grapefruit5%
Bananas5% Peaches
3%
Blue Berries3%
Avos3%
Plums3%
Mangoes
ApricotsStrawberriesCherries
QuincesOther
2%
0%10%20%30%40%50%60%
0,002,004,006,008,00
10,0012,00
Oranges
Table Grapes
Apples
Lemons &
Limes
Naartj
iesPears
Grapefruit
Banan
as
Peaches
Blue Berries
Avos
Plums
Mangoes
Apricots
Strawberri
es
Cherries
Quinces
Mill
ions
Gross Production Value Avg annual growth (5 yrs)
Fruit: Performance across industriesGross Value of Agricultural Production
Fruit demand overviewExports still primary driver of expansion
0
200
400
600
Avg 2016-2018
2028 Avg 2016-2018
2028 Avg 2016-2018
2028 Avg 2016-2018
2028 Avg 2016-2018
2028
Pears Table Grapes Peaches & Nectarines Plums Apricots
Thou
sand
tonn
es
Exports Processed & Dried Local Fresh Markets
+3%
+10%
-6%
+11%
-11%
• Competition for natural resources
• Competition from South America
SA’s performance in global export marketsCapturing a growing share of global market
7%
8%
10%
6%
6%7%
4%
5%
6%
0%
2%
4%
6%
8%
10%
12%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Citrus Grapes Pomefruit
2005
20102018
Outlook for table grapesØ Planted area is projected to
expand by 7%, resulting in a production expansion of 10% over the period
ØSlower expansion due toØWater, land, margins
Ø9% increase projected in export volumes over the period of outlook
Ø Increasing competition for market share from southern hemisphere competitors (Chile and Peru)
ØDomestic demand is projected to increase by 14% (small base) by 2028
0
50
100
150
200
250
300
350
400
-
5
10
15
20
25
20112013
20152017
20192021
20232025
2027
Thou
sand
tonn
es
Area
: Tho
usan
d he
ctar
es
Years
Total production (rhs) Table grape hectares Exports (rhs)
Table grape age distribution change over time
Ø0-3: Non-bearing increased substantially and then plateaued
Ø4-9: Knock-on effect from dramatic change in non-bearing
Ø10-15: Decline possibly due to changes in consumer preferences – earlier replacement
Ø16+: expansion in new establishments and earlier than expected lifting of 10-15 year old vines led to increasing volume of older, productive vines.
195% 42% -22% 29%
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
0-3 4-9 10-15 16+
Hect
ares
per
age
cat
egor
y
Age distribution category (years)
2012 2013* 2014 2015 2016 2017 2018 2012-2018 change
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Rand
per
tonn
e
Local price on fresh produce markets Net export realisation price Dried price
Real Table Grape Prices
Table grapes local versus exports
ØReal (inflation adjusted) prices lower over outlook
Ø3% growth in realprices on domestic fresh markets up until 2028
ØNominal value of exports is projected to increase by 58% in 10 years to approach the R9.6bn mark
ØValue of the local market expected to expand by 95% to surpass R550m by 2028
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
0
2 000
4 000
6 000
8 000
10 000
12 000
20112013
20152017
20192021
20232025
2027
Pric
e (R
/ton
)
Nom
inal
Mar
ket V
alue
(R m
illio
n)
Local Nominal Value (lhs) Export Nominal Value (lhs)
Real net export realisation price (rhs) Real local price (rhs)
High reliance on EU & UK, fast growth in Asia
Fruit type Share of production exported (%)
EU & UK CombinedShare of exports (%)
Oranges 74% 40%Soft Citrus 68% 54%Grapefruit 67% 43%Lemons & Limes 67% 38%Table grapes 88% 76%Plums 77% 74%
Blueberries 71% 95%Avocado 53% 95%Nectarines 34% 80%
Table grapes exports
ØShift away from traditional markets such as the EU with additional cartons
ØShift towards UAE, Saudi Arabia, Hong Kong, China, Malaysia, Thailand, Russia, USA and Canada
ØAccess to new lucrative markets will have to be expanded
ØPosition in existing market space not to be compromised by access to new markets
0
10
20
30
40
50
60
70
20112012
20132014
20152016
20172018
20192020
20212022
20232024
20252026
20272028
Mill
ion
Expo
rt c
arto
ns (4
.5kg
equ
ival
ent)
EU/Russia Middle East Far East North America Other
Perspectives on export pricesAverage export price vs. Unit value of trade (SARS)
0
5000
10000
15000
20000
25000
30000
35000
2009/2010
2010/2011
2011/2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019 YTD*
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
Rand
per
tonn
e
Export Relaisation Price Unit Value of Trade - Rand
Orange River FinSim prototypeØThe BFAP farm-level FinSim model for table grapes is based on:
Ø 56 ha under table grapes productionØ Establishment cost were calculated at R 423 720 per hectare (netting
cheaper than in WC and drainage not standard)Ø Production cost per hectare amounts to R 388 226 per hectare (including
packaging material and allocation of overheads to production hectares) Ø Fixed assets and moveable assets were allocated accordingly to the
production unit’s requirements to service the investment, along with its operational activities
ORANGE RIVER PROTOTYPE FARM
TABLE GRAPE VARIETY HA %Prime 14 26%Sweet Globe 9 17%Early Sweet 5 9%Flame 7,5 14%Thompson Seedless 7,5 14%Allison 5 9%Midnight 5 9%TOTAL 56 100%
Ø Normalised establishment distribution
Ø 20 year production life cycle
Ø Variety distribution vary between different farmsLABOUR
38%
FERTILIZER6%
FUEL & ELECTRICITY7%
CHEMICALS5%
PACKAGING & MARKETING38%
REPAIRS & DIVERSE3%
MANAGEMENT3%
Breakdown of production costs/ha
Orange River prototype: Net Farm Income/ha
Ø On current cultivars and current pricesØ Peru supply to European markets will continue to create price problems for early table grapes, but the
expectation is that producer will reorganise themselves within different export markets Ø Based on August 2019 sector model projectionsØ As netting becomes more and more the standard, the establishment costs increase substantially
-
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
R/ha
Nominal Net Farm Income: R/ha
Hex River prototype FinSimØThe BFAP farm-level FinSim model for table grapes is based on:
Ø 42 ha under table grapes productionØ Establishment cost were calculated at R 612 015 per hectare (including
nets and drainage)Ø Production cost per hectare amounts to R 384 467 per hectare (including
packaging material and allocation of overheads to production hectares)Ø Fixed assets and moveable assets were allocated accordingly to the
production unit’s requirements to service the investment, along with its operational activities
HEX RIVER PROTOTYPE FARM
TABLE GRAPE VARIETY HA %Barlinka 1,2 3%Autumn Crisp 1,5 4%Red Globe 3,5 8%Crimson 18 43%Thompson Seedless 5,5 13%Sable 6 14%Sweet Celebration 6,3 15%TOTAL 42 100%
Ø Normalised establishment distribution
Ø 20 year production life cycle
Ø Variety distribution vary between different farms LABOUR45%
FERTILIZER6%
FUEL & ELECTRICITY8%
CHEMICALS6%
PACKAGING & MARKETING28%
REPAIRS & DIVERSE3%
MANAGEMENT4%
Breakdown of production costs/ha
Hex River prototype: Net Farm Income/ha
Ø On current cultivars and current pricesØ Crimson the steadfast money maker for this areaØ Based on August 2019 sector model projectionsØ As netting becomes more and more the standard, the establishment costs increase substantially
-
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
R/ha
Nominal Net Farm Income: R/ha
Berg River FinSim prototype
ØThe BFAP farm-level FinSim model for table grapes is based on:Ø 45 ha under table grapes productionØ Establishment cost were calculated at R 518 271 per hectare (netting and
drainage not standard)Ø Production cost per hectare amounts to R 374 734 per hectare (including
packaging material and allocation of overheads to production hectares) Ø Fixed assets and moveable assets were allocated accordingly to the
production unit’s requirements to service the investment, along with its operational activities
BERG RIVER PROTOTYPE FARM
TABLE GRAPE VARIETY HA %Crimson Seedless 13,5 30%Thompson Seedless 6 13%Autumn Crisp 7,2 16%Adora 6,2 14%Scarlotta 4,2 9%Sable 4,9 11%Midnight 3 7%TOTAL 45 100%
Ø Normalised establishment distribution
Ø 20 year production life cycle
Ø Variety distribution vary between different farms
LABOUR42%
FERTILIZER6%
FUEL & ELECTRICITY8%
CHEMICALS6%
PACKAGING & MARKETING31%
REPAIRS & DIVERSE3%
MANAGEMENT4%
Breakdown of production costs/ha
Berg River prototype: Net Farm Income/ha
Ø On current cultivars and current pricesØ Slightly higher labour cost per hectare and more variation in productive land than Hex negatively impacts NFIØ Based on August 2019 sector model projectionsØ As netting become more and more the standard, the cost in establishment increase substantially
0
20 000
40 000
60 000
80 000
100 000
120 000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
R/ha
Nominal Net Farm Income: R/ha
Table grape scenarios
August 2019
Impact of Exchange Rate: Nominal Prices
R0
R20
R40
R60
R80
R100
R120
€ 0
€ 2
€ 4
€ 6
€ 8
€ 10
€ 12
2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019YTD*
Value/carton - Euro (lhs) Value/carton - Rand (rhs)
Exchange rate scenario: Export Prices
-1,0%
1,0%
3,0%
5,0%
7,0%
9,0%
11,0%
13,0%
15,0%
0
5000
10000
15000
20000
25000
30000
35000
40000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Rand
per
tonn
e
% change - Baseline vs. Scenario (Right Axis) Baseline Exchange Rate Depreciation
• Baseline Exchange Rate 2019: R14.24 (annual avg.)
• Scenario Exchange Rate in 2019: R15.50 (annual avg.)
• Depreciation Scenario vs. Baseline of 8.8% - retained for entire outlook
Scenario results at farm-level
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
-
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
180 000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
% c
hang
e in
NFI
NFI
R/h
a
Orange River NFI R/ha.
% change Orange River Orange River Scenario
Scenario results at farm-level
0%
20%
40%
60%
80%
100%
120%
140%
-
50 000
100 000
150 000
200 000
250 000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
% c
hang
e in
NFI
NFI
R/h
a
Hex River NFI R/ha.
% change Hex River Hex River Scenario
Scenario results at farm-level
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
-
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
180 000
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
% c
hang
e in
NFI
NFI
R/h
a
Berg River NFI R/ha.
% change Berg River Berg River Scenario
Scenario results at Orange River farm-levelThe what: farm level testing of quality orientated productionThe why: with packaging and labour being major cost drivers, how can we restructure ourselves to use less of it without negatively impacting NFI/ha. The how: what will the testing change from the baseline
• Reduced overall quantity per hectare: 7% reduction• Reduced overall labour per hectare: 7% reduction• Higher pack-outs at packhouse level: 3% increase in exports and 3% less cellar/raisons• Higher price per carton in export market: 3% increase in export price for higher
quality/less claimsThe effect on NFI/ha over the outlook period Orange: R4700/ha increase with 3.95% less cartons exported per annumBerg: R5100/ha increase with 3.87% less cartons exported per annumHex: R5800/ha increase with 3.64% less cartons exported per annum
Scenario results at Orange River farm-level
• In low profit years, the % change in NFI is higher
• Almost always at least giving you an additional return equivalent to the bank savings interest rate
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
-
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
100 000
2020 2021 2022 2023 2024 2025 2026 2027 2028
% c
hang
e in
NFI
/ha
NFI
R/h
a
Orange River: Quality at reduced quantity scenario – NFI/ha
R/ha R/ha Scenario % Increase in NFI/ha
Scenario results at Berg River farm-level• In low profit
years, the % change in NFI is higher
• Almost always at least giving you an additional return equivalent to the bank savings interest rate
• Slightly smaller impact than Orange River in percentage terms, because of smaller transport component in cost structure
0%
1%
2%
3%
4%
5%
6%
7%
8%
-
20 000
40 000
60 000
80 000
100 000
120 000
2020 2021 2022 2023 2024 2025 2026 2027 2028
% c
hang
e in
NFI
/ha
NFI
R/h
a
Berg River: Quality at reduced quantity scenario – NFI/ha
R/ha R/ha Scenario % change in NFI/ha
Scenario results at Hex River farm-level
• In low profit years, the % change in NFI is higher
• Almost always at least giving you an additional return equivalent to the bank savings interest rate
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
20000
40000
60000
80000
100000
120000
140000
160000
2020 2021 2022 2023 2024 2025 2026 2027 2028
% c
hang
e in
NFI
/ha
NFI
R/h
a
Hex River: Quality at reduced quantity scenario – NFI/ha
R/ha R/ha Scenario % change in NFI/ha
Application of BFAP including Table Grapes
• 2011 - National Development Plan 2030• 2012 - De Doorns (Minimum wage)• 2013 - Thailand (Market access closure) • 2016 - Phakisa• 2017 - Agricultural Workstream • 2018 - Land Reform – expropriation without
compensation
NDP matrix
Non-labour intensive<0.01 labour / ha
Labour Intensive>1.3 labour /ha
High growth potential
Low growth potential
Soya beansCanola
Forestry
Groundnuts,Sugar cane
CottonYellow maizeBarley
ApplesPears
WineLucerne, Oats, Hay
Tobacco
PeachesApricots
SunflowerWhite maize Wheat Sorghum
Nectarines
Table Grapes Raisins
Citrus
MacadamiasAvocados
Bananas
Vegetables
Poultry Sheep
CattleEggs
Dairy Pigs
Pecan Nuts
12
34
Wool
Our vision: NDP’s score sheet
NDP Target Indicator
Land reform No
Jobs & growth:High-value & field crops, livestock
Yes
Jobs & growth:Under-utilised land, homelands etc.
No
Jobs & growthAgro –processing
Yes?Irrigation expansion of 142 000 ha NOT 500 000 ha
Employment in agricultureStill a significant gap to NDP target
0
500
1 000
1 500
2 000
2 50020
08 Q
2
2009
Q2
2010
Q2
2011
Q2
2012
Q2
2013
Q2
2014
Q2
2015
Q2
2016
Q2
2017
Q2
2018
Q2
2019
Q2
NDP
2030
Thou
sand
Jobs
Agri Processing Workers Agriculture, Forestry & Fisheries - Adjusted
Agriculture, Forestry & Fisheries (StatsSA)
Total 20081.58 million Total 2012
1.36 millionTotal 2019
1.46 million
Total 20302 million
Source: Stats SA, 2019
Application of BFAP system – agri workstream (2016)
Hectare Expansion
TotalApples
TableGrapes
WhiteWine Citrus Avocados
Macademias Pecans
WAS savings 3,000 9,000 3,000 4,700 7,300 27,000
Brandvlei 1,000 500 2,000 3,500
ClanWilliam 1,000 500 2,500 4,000
Total expansion 3,000 2,000 1,000 13,500 3,000 4,700 7,300 34,500
Irrigation efficiency (WC)
291%
2%
43%
- 500 1 000 1 500 2 000 2 500
Shadenetting
Tunnels
Shadenetting
Tunnels
Orc
hard
Vege
tabl
e
Orchard VegetableShadenetting Tunnels Shadenetting Tunnels
2013 559 261 1302017 2 185 153,26 267 186
% change from 2013 to 2017 indicated
Source: WCDoA 2013 & 2017 Flyover data
Application of BFAP system Land Reform (May 2018)
Ø Decrease of 34.72% with Low Road (non-transparent land reform policies)
Ø Economic and political uncertainty
Ø Business and industry confidence
One size does NOT fit all!Net revenue per hectare (National 5-year averages)
-
20,0
40,0
60,0
80,0
100,0
120,0
140,0
160,0
180,0
-
100,0
200,0
300,0
400,0
500,0
600,0
700,0
800,0
900,0
Extensive livestock Grains&Oilseeds(Dryland)
Grains&Oilseeds(irrigation)
Vegetables(Tomatoes etc.)
Orchards (Orangesetc.)
Gro
ss M
argi
n R'
000/
ha
CAPE
X &
OPE
X; R
'000
/ha
CAPEX OPEX Gross Margins
Farm size
• Overview of complex nature of land reform & clear description of failures, corruption, lack of clear plan etc. over past 2 decades
• Mixed tenure model: a continuum of rights from freehold and communal as well as multilevel ownership arrangements……. the report acknowledges the importance of property rights.
• Various tenure systems, description of beneficiaries (acknowledging categories ranging from household, small scale to large-scale farmers) and the variety of demand for land, urban land reform etc.
• Acknowledgement of lack of accurate data and the desperate need for a comprehensive land audit.
• Proactive and targeted commodity and area-based approaches with production capacity informed by agro ecological and land use analysis and the establishment of a land reform fund.
• Challenges with EWC, Land Ceilings and lack of clear strategy on under-utilised resources
Land panel report
Our future: NDP Performance (2012-2019)
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Jobs
(ind
ex: 1
to 1
0)
Growth (index: 1 to 10)
Land reform & under-utilised land
Smallholdersubsistence producer
Secondary jobs -formal value chains
Non-labour intensive commercial crops & livestock
Emerging producers
Secondary jobs -informal value chains
High-value labour-intensive export
?
Land value contrast: R1000 / ha vs. R1 mil / ha