Department of Agricultural Economics

Permanent URI for this community

https://scholar.sun.ac.za/handle/10019.1/25

Browse

Browsing Department of Agricultural Economics by Author "Barr, Alison"

Now showing 1 - 1 of 1
  • Thumbnail Image
    Item
    An analysis of the factors impacting the competitive performance of the South African wine industry value chain
    (Stellenbosch : Stellenbosch University, 2019-04) Barr, Alison; Van Rooyen, C. J.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Agricultural Economics.
    ENGLISH SUMMARY : The purpose of this study was to analyse the competitive performance of the South African wine industry and to compare the findings with the results obtained from similar previous studies in 2006 and 2011. The study followed the comprehensive Vollrath-Porter approach, following a five-step analytical method. Due to the sustained export orientation of the South African wine industry, the trade-based relative trade advantage (RTA) measure (Vollrath) and industry opinions through Porter’s competitive diamond were used to measure competitive performance. This study defined competitiveness as “the ability of the South African wine industry to sustain or grow business through trade for South African wine amidst a changing agricultural, political, social, environmental, governance, and production landscape and an unpredictable exchange rate, while consistently earning at least the opportunity cost of resources employed.” The annual competitive performance of the South African wine industry was calculated using the RTA formula and the International Trade Centre (ITC) and Food and Agriculture Organisation (FAO) datasets. The competitive performance of the industry from 2001 could be divided into two clear phases: Phase 1: Fluctuating and increasing competitive performances (2001-2009); and Phase 2: Fluctuating and decreasing competitive performances (2010-2017) Despite being in a state of declining competitive performance, the South African wine industry remains competitive across the entire global arena. The average RTA for 2001-2017 was 5.83, with a peak of 7.15 in 2009 and a lowest point of 3.75 in 2012. Industry insight and opinions into key influencing factors were collected through a two-stage Delphi process. In stage one, a Wine Executive Survey (WES) involved rating 121 factors as either enhancing or constraining competitive performance, rated on a Likert scale with 1 (constraining) and 5 (enhancing). The purpose of the WES was to establish an opinion benchmark for comparison with the empirical RTA measurement; and also to compare the current situation with the 2005 and 2008 WES results. The 2018 WES results – when analysed at value chain cluster level – revealed a high level of alignment between the clusters, which indicated a well-informed value chain. The survey also obtained opinions from different points in the wine industry value chain, from two clusters viz. agribusiness (including wine grape producers and agri-support services); and wine business (including cellars, intermediaries and wine trade). The baseline results from the Wine Executive Surveys in 2005 and 2008 showed that the competitive space decreased substantially from 2005 to 2008. However, the results from the 2018 WES reveal that this competitive space has expanded again, recovering almost to its position in 2005. The 121 rated factors were grouped into the Porter Competitive Diamond – a six-determinant model which included ‘production factors’, ‘demand factors’, ‘firm structure, strategy and rivalry’, ‘related and supporting industries’, ‘government factors’ and ‘chance factors’. The ‘firm strategy, structure and rivalry’ determinant received the highest overall determinant rating of 3.53/5 or 70.6% as most enhancing while ‘government factors’ received the lowest average rating of 2.19/5 or 43.8% as most constraining. These results were confirmed in a priority rating of the six determinants during the focus group session of the second phase Delphi. The most enhancing factors across all Porter determinants were ‘the competitiveness drive of the South African product market’ – rated at 4.59/5 or 91.8% ̶ followed by the ‘importance of well-developed infrastructure’ (4.52/5 or 90.4%) while the two most constraining factors were ‘government consultation and interactions’ (1.17/5 or 23.4%) and ‘government financial support’ (1.24/5 or 24.8%). From an assessment across the value chain, bulk wine is the most competitive category, followed by bottled wine. The least competitive category was ‘spirits obtained by distilling grape wine or grape marc’, which was rated as uncompetitive. The prevalence of a socio-economic theme was observed in some of the most constraining factors across all the Porter determinants. This resulted in a proposal that the Porter Competitive Diamond be expanded to accommodate a seventh ‘socio-economic’ determinant in order to highlight the impact of socio-economic/political transformation factors on the competitive space in the emerging South African environment. This new determinant, grouped from socio economic/political factors identified in the study, highlighted the overall constraining impact of these factors on competitive performance. The most enhancing factor was ‘obtaining unskilled labour’ and the most constraining was ‘crime perceptions’. The addition of such a new determinant to the Porter Competitive Diamond needs to be explored further but mirrors Michael Porter’s own view that economic objectives need to complement social objectives in a developing country environment (2007). Other aspects that need to be considered through future research include a refined process for identifying relevant factors, as well as linking these factors with the progress reported in existing socio-economic/political transformation interventions. This will improve the application of the Porter-Vollrath approach to improve the analysis of competitiveness in the South African agri-food business environment. The results from this study were drafted into a set of strategic findings and recommendations that propose to address the most prevalent and achievable constraining influences on competitive performance. A key area for consideration by the industry is the negative association with government-related factors. The crux of the recommended approach is to re-engage with government in a collaborative approach to transformation while protecting the impact of factors that enhance competitive performance. Important key strategic areas for enhancing competitive performance include access to water, short-term finance solutions and a branded bulk wine packaging format.