The financial implications of diversifying wine grape production to include citrus in the Robertson area, Western Cape, South Africa

Bezuidenhout, Blanche Chenay (2020-03)

Thesis (MCom)--Stellenbosch University, 2020.

Thesis

ENGLISH ABSTRACT: In the past years diversification became very popular as it was successfully applied to overcome many challenges faced by farmers. Diversification is defined as the change in traditional norms and strategies towards the success of a farming operation. South Africa’s wine grape industry is important to the country’s economy. In recent years this industry have faced a number of challenges, which compelled them to generate additional alternative income. Four trends were identified which contributed to these challenges. The four trends are the reduction in the area under wine grape vineyards, increase of additional alternative crops, stagnated average wine grape prices and the impact of the drought that occurred in the Western Cape from 2015 – 2017. Consequently, wine grape farmers in the Robertson area diversified to include citrus. A number of uncertainties occurred in terms of the financial viability of this diversification process. Therefore, the research objective of this research study was to evaluate the financial implications associated with the outcomes of the diversification process by wine grape farmers in the Robertson area. Three multi-period whole-farm budget models within a systems thinking approach was developed. A systems thinking approach is ideal as it accommodates the complexity of a farm systems and the development of the knowledge of a farmer to make more informed decisions. Simulation modelling accounts for interrelated interactivity of components. Whole-farm budget models are essential simulation models as it accommodates a large number of variables, consists of interrelated interactivity, are understandable by participants, is user-friendly and easily adaptable. The financial results obtained, was remarkable. The financial results presented that the worth of the farm increased, as the Net Present Value (NPV) was negative in Model 1, and positive in Model 3. There is also no significant changes that occur in the use of infrastructure, as the capital investment required did not increased substantially. These results was based on the assumption a replacement ratio of 1:1. This means that for every hectare of wine grape removed, mainly due to age, one hectare of citrus was replaced. However, this assumption was not a representation of the reality. There were two factors which was important in citrus production. The first factor was the water requirement (m3 per year) for citrus which was significantly higher, compared to the water requirement (m3 per year) for wine grapes. Secondly, farms are affected during the irrigation season from citrus by the Brandvlei dam scheme, as the farmers do not have access to water for the full time period, due to maintenance of the dam. Considering these two factors, two scenarios were developed to accommodate the factors where the replacement ratio was adjusted to 1:0.8 and 1:0.7, respectively. However, the impact on the financial performance remained closed to the original results obtained. Therefore, wine grape farmers are advised to consider diversifying with citrus.

AFRIKAANSE OPSOMMING: In vorige jare was diversifikasie alreeds baie gewild, aangesien dit suksesvol toegepas was om vele uitdagings wat boere in die gesig staar, te oorkom. Diversifikasie word gedefinieer as die verandering in tradisionele norme en strategieë om suksesvol te boer. Suid-Afrika se wyndruifbedryf is belangrik vir die land se ekonomie. Gedurende huidige jare, het hierdie bedryf 'n aantal uitdagings te staan gekom wat daartoe gelei het dat hulle addisionele alternatiewe inkomste moet genereer. Vier neigings is geïdentifiseer wat tot hierdie uitdagings bygedra het. Die vier neigings is die vermindering in die gebied onder wyndruifwingerde, toename in bykomende alternatiewe gewasse, gestagneerde gemiddelde wyndruifpryse en die impak van die droogte wat in die Wes-Kaap voorgekom het vanaf 2015 - 2017. Gevolglik het wyndruifboere in die Robertson gebied gediversifiseer om sitrus in te sluit. 'n Aantal onsekerhede het voorgekom rakende die finansiële lewensvatbaarheid van hierdie diversifiseringsproses. Daarom was die navorsingsdoel van hierdie navorsingstudie om die finansiële implikasies wat verband hou met die uitkomste van die diversifiseringsproses deur wyndruifboere in die Robertson-omgewing te evalueer. Drie meerjarige begroting modelle vir die hele boerdery binne 'n stelseldenkingsbenadering was ontwikkel. 'n Stelseldenkingsbenadering is ideaal, aangesien dit die kompleksiteit van 'n plaasstelsel akkommodeer en die kennis van 'n boer verhoog om meer ingeligte besluite te neem. Simulasiemodellering is verantwoordelik vir interverwante interaktiwiteit van komponente. Begrotingsmodelle vir heelboerderye is noodsaaklike simulasiemodelle, aangesien dit 'n groot aantal veranderlikes bevat, bestaan uit interafhanklike interaktiwiteit, is maklik verstaanbaar deur deelnemers, is gebruikersvriendelik en maklik aanpasbaar. Die finansiële resultate was merkwaardig. Die finansiële resultate toon dat die waarde van die boerdery toegeneem het, aangesien die Netto Huidige Waarde (NHW) negatief was in Model 1 en positief in Model 3. Daar is ook geen noemenswaardige veranderinge in die gebruik van infrastruktuur nie, aangesien die nodige kapitaalinvestering nie aansienlik toegeneem het nie. Hierdie resultate was gebaseer op die aanname van 'n vervangingsverhouding, 1:1. Dit beteken dat elke hektaar wyndruif wat verwyder was, hoofsaaklik weens ouderdom, een hektaar sitrus vervang was. Hierdie aanname was egter nie 'n voorstelling van die werklikheid nie. Daar was twee faktore wat 'n groot rol speel in sitrusproduksie. Die eerste faktor was die waterbehoefte (m3 per jaar) vir sitrus wat aansienlik hoër was, in vergelyking met die waterbehoefte (m3 per jaar) vir wyndruiwe. Tweedens voorsien die Brandvlei dam skema nie water vir die volle tydperk in die besproeiingseisoen vir sitrus nie, weens instandhouding van die dam. Met inagneming van hierdie twee faktore, is twee scenario's ontwikkel om die faktore te akkommodeer waar die vervangingsverhouding onderskeidelik op 1: 0.8 en 1: 0.7 aangepas was. Die impak op die finansiële prestasie was ongeveer dieselfde as die oorspronlike resulte verkry. Daarom word wyndruifboere aangeraai om dit te oorweeg om met sitrus te diversifiseer.

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