The government-imposed alcohol ban impacted not only those that directly manufacture, distribute, sell and consume alcoholic beverages but also suppliers to this industry.
The cascading effect of alcohol prohibition includes the loss of excise tax revenue to SARS but also to manufacturers, winemakers and craft brewers. The impacts are many-layered.
People make the industry
Recent articles published on Fin24 confirm that the alcohol industry employs upward of 415 000 people.
This number includes those that harvest crops, trash collectors and recyclers to plant and process engineers. No production means no waste-product treatment and no by- products such as spent grain, sold as animal food; and spent yeast, used in the production of products such as Marmite.
New product development, launches, consumer research and NPD have been severely curtailed by the ban on alcoholic beverages.
What happens to local materials?
Grapes and hops are in the process of being harvested right now for wine and beer production, but what of last year’s leftover harvests? Farmers plan for local and export markets and purchase farming necessities against the sale of these harvests. Spend is proportional to calculated yield so when there is an excess of product, prices tumble, resulting in loss of livelihood, product and materials.
The wine industry has a surplus of 289 million litres due to last year’sl ockdown ban and the excise tax paid on last year’s wine production was R4.39 per litre which amounts to R1.27bn.
This wine currently occupies storage space, which leads winemakers to ask the impossibly tough question: What to do with this year’s harvest? They will most likely have to destroy last year’s product or try to rework it into hand sanitiser or grape spirit – at a massive loss.
It’s that or frantically find an offshore buyer, which means South Africans could start to lose some of the world’s best wines to the export market.
With reduced beer sales comes reduced hops and barley requirements. This means that there will be a massive surplus in 2021 in which prices may plummet as competition to sell increases. An off-spin of this surplus is to avoid product destruction.
Farmers or brewers may rent storage space, which is not purpose-built for these raw materials which could lead to unwanted consequences such as cross-contamination with non-food-grade products as well as contaminant pests and microbes.
Glass and crown manufacturers must leave their furnaces running as a stop means the end of the life of that furnace.
It takes 12 days to reach the target temperature and if allowed to cool, the furnace becomes damaged. It is reported that Consol Glass furnaces stay on at a cost of R8m per day. Also left out in the cold are label and label glue suppliers, designers and manufacturers.
Water treatment suppliers
Different products have different water specifications and the management of water and downstream effluent is often outsourced. Manufacturing plants that produce calcium chloride and calcium sulphate, as well as UVC lamps and water pumps, have been severely impacted.
The same holds for detergent manufacturers. Manufacturing plants are cleanest when they are run continuously. Bacteria and contaminant yeast will have a chance to get a foothold in breweries that are shut. For detergent suppliers, the shelf life of their detergent already supplied deteriorates over time. This combined with lower efficacy means that brewers may blame suppliers for poor microbial results and then change to a different supplier.
Also affected are laboratory services and specialist equipment suppliers. Expensive equipment for conducting non-routine analyses is going out of business as no products are being sent to them.
South Africa has a vibrant and strong wines, beers and spirits sector. To shut the entire sector down again will mean irreparable harm to the industry.