Dr Thulasizwe Mkhabela is an agricultural economist and is currently the Group Executive: Impact & Partnerships at the Agricultural Research Council; mkhabelat@arc.agric.za
Dr Thulasizwe Mkhabela is an agricultural economist and is currently the Group Executive: Impact & Partnerships at the Agricultural Research Council; [email protected]

Covid-19: Quantifying the impact of the alcohol ban on SA's agricultural sector

By Opinion Time of article published Nov 4, 2020

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By Thulasizwe Mkhabela

JOHANNESBURG - According to Milton Friedman, one of the great economists of the 20th century, “One of the great mistakes is to judge policies and programs by their intentions rather than their results”.

Just because a policy intervention is intended for the greater good of society does not mean that there will be no unintended consequences. When assessing these policies, we should not look at the good intentions that produced and necessitated them, but at their actual effects at addressing the problem at hand and on jobs and overall economic wellbeing.

In a bid to manage consumer behaviour and alleviate the strain on the health system amidst the Covid-19 pandemic, the South African government imposed recurring bans on the consumption and distribution of alcohol within the country during the lockdown.

Despite the fact that activities within the agricultural sector were classified as essential services, actors involved in the manufacturing and marketing of alcoholic beverages were excluded. However, the harvesting and preservation of grapes and other primary agricultural products used in the manufacturing of alcoholic beverages were permitted.

This inevitably affected the manufacturing, exports, imports and the domestic sales of alcoholic beverages. There was concern from the alcoholic beverage industry about the detrimental effects the ban would have on the economy in terms of job losses, revenue forfeited as well as loss of market share in international markets.

This article takes a look back at what could have been done differently in order to minimise the detrimental impact of the imposed ban on the consumption and distribution of alcohol. A value chain approach is used to identify relevant interventions through consultations with the critical value chain actors in the alcoholic beverages industry. The industry was broadly categorised into two, namely, wines and beers.

The ban on the distribution and consumption of alcoholic beverages did not only affect the wine and beer industries but also other value chain actors including tavern owners, restaurateurs and firms that make packaging materials like glass bottles and cans.

For instance, the glass container industry whose major sales (85percent) are to the alcohol industry lost about R5 billion according to industry sources.

The glass industry contributes R11.8bn to national gross domestic product and employs more than 26 000 people. The ban on alcohol sales and distribution had far reaching effects on the economy. For example, Consol Glass suspended construction of a new R1.5bn glass manufacturing plant in Ekurhuleni, Gauteng indefinitely as a result of the Covid-19 related ban on alcohol sales.

It has been estimated that the initial ban on alcohol sales during stages 5 and stage 4 of the national lockdown cost the state about R12bnin lost taxes whilst about 120 000 people in South Africa's alcohol industry risked losing their jobs due to the ban.

The ban also resulted in delay and/or cancellation of expansion plans by some breweries. Media articles, for instance, reported that SAB cancelled R2.5bn in capital and infrastructure upgrades for 2020 and is reviewing another R2.5bn for 2021 while Heineken reported that it has also put plans for a R6bn expansion in Durban on hold.

The expansion could have created 400 jobs. SAB further reported that SAB East Coast Region lost R2.9bn in revenue as of August 07, 2020.

The region had to destroy 23.5 million litres of beer worth R27 million and a further 4 million litres worth R33m may have been written-off and destroyed. Moreover, 8 700 liquor retailers in KwaZulu-Natal and their employees; maize farmers in the province, local printing companies; owner drivers and crew; sorting and splitting contractors; promotions companies; merchandising companies and many other vendors that rely of beer for survival were severely affected. It should be noted that most beer manufacturers source their agricultural products from more than 1200 farmers and more than 750 of these are smallholder farmers.

There are more than 2000 farmers producing wine grapes country-wide and 533 cellars, producing 970 million litres of wine.

According to industry sources, there are 290 000 people are employed both directly and indirectly in the wine industry value chain and approximately 50percent of south Africa’s wine is consumed on the domestic market.

Following the lockdown, South Africa, one of the top 10 wine producers, had around 240 million litres of stock across the industry. Despite the good export markets, currently there are challenges globally due to build-up of stock, poorly functioning ports due to elaborate sterilising and high absenteeism. Moreover, shipping companies are no longer coming to Cape Town due to the some of the above stated challenges.

The alcoholic beverage industry should better position itself to be able absorb similar exogenous shocks that may befall the industry. The industry should look at diversification into new export markets, especially in Asia and Europe.

Product diversification is another approach to minimizing risk. The industry could consider products such as distilled spirits for export, vinegar (in case of wine), alcohol-based hand sanitizers as well as the production of juice concentrates. Wines can also be further processed into vinegar, a commodity that is in demand for culinary purposes, among others.

The Agricultural Research Council (ARC) has the capacity to develop technologies for agro-processing via value addition and new product development. This is key to ensuring a measure of stability within these agricultural commodity groups going into the future.

The author would like to acknowledge the contribution of colleagues from both the National Agricultural Marketing Council (NAMC) and the Agricultural Research Council (ARC).

Dr Thulasizwe Mkhabela is an agricultural economist and is currently the Group Executive: Impact & Partnerships at the Agricultural Research Council; [email protected]

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