TOWARDS TRANSFORMATIONIN THE WINE INDUSTRY:THE WINE CHARTER & INDUSTRY SCORECARD

Johan van RooyenCEO, SA Wine & Brandy CompanyandChair, WCSC Technical Team

1. The Wine Economy today

Core business activities/Stakeholders

producers - 4435 : < 100 ton + 50% < 500 ton + 80%wineries - 505 : small private 83%; Co-ops 13%Trade (?) - 97 : 67 wholesalers; 30 exportersCivil society and community based organisations (80)Labour groupings (11)Note:Size definitions (DTI-CGP) and stakeholders important

Economic value of the wine industry + R22 billion GDP contribution Turnover + R10 billion Exports + 3 billion and expanding 4x added value multiplier + R4 billion wine tourism Household income + R10 billion + 250,000 employment opportunities (add 50,000 tourism); Positive employment & income linkages Skew ownership; social legacies (later) Highly competitive and fragmented industry, but business consolidations are developing

Trends in the competitiveness of the wine industry in South Africa (1961-2003)

Trends in the competitiveness of selected wine producing countries (1990 2003)

Key role of Government national and local:Policing & regulatoryService: certificationSupport systems: trade, R&D, DTI support, etcLevers and levies: licensing, water allocations, etc

Industry Government partnership important:The Wine Industry Strategy Plan (WIP) as framework

Goals:Competitiveness and profitability (tariffs, taxes, R&D, trade policy, etc)Economic transformation & Empowerment (BEE Charter)Sustainable Natural Resources Management (BWI, IPW)Socially responsible consumption (ARA, papsak, BEE Charter)

2. The contextIncreased competitiveness and world standing of the South African wine industryA highly skewed ownership, skills and business regimeRacialised political economyA history of problematic labour relations, social evils and fragmented civil society relationsSubstantial positive rural linkages: income, employment, value add

Positive & negative legacies; but positive future prospects: productivity; power of ownership; unlocking resources; social sustainability; Fair trade prospects, etc

The reasons for Black Economic EmpowermentLegislation requires and regulates

An economic growth strategy to support the attainment of an equal dispensation for black groups: Focus on business mobilisation and entrepreneurship development

Voluntary, except when doing business with the state or as a strategic industry

Agriculture is a strategic industry and licences are required to produce and distribute wine

Performance assessment and grading of contribution towards BEE required (in terms of definitions and a scorecard)

3. Wine industry Charter Process (since October 2003)Wine Charter Steering Committee (WCSC)Representative of all role players(Table of role players)Regular monthly meetingsTechnical support by specialists and industry groupings

Linking with other groups (manage overlaps)Liquor traders and trade-mark ownersAgriBEEDTI Codes of Good Practice (CGP)

WCSC: Role players

WCSC: Role players

Wine Industry Charter7 Internal Drafts to dateWCSC meeting of 25 April 2006 took decision to distribute Charter among interest groups first for workshoppingEnd of July : to the public and the mediaAugust/September : presented to the MinisterElectronic version available from - nv@sun.ac.za or gerhard@sawit.co.za

Contents of the CharterIntroductionChallengesThe mission statementThe scorecard

Annexures: The context of the wine industry(That which directs the Wine Charter)Historical contextGlobalizationEconomic contextLocal contextTransformation to dateWine industry Strategy Plan (WIP)

Wine Industry Charter: Consultative ProcessInvitation to interest groups to give:Comments on the proposed scorecard, its expected contribution to transformation, and problems likely to be encountered during implementationAdvice regarding the completion of the Charter. These include: Strategies to support projects and programmes across all elements of the scorecard; andThe institutional structure of the Wine Charter Council: institutions to implement the support strategies, and institutions to monitor progress during implementation Appropriate linkages with other charters (AgriBEE, Liquor Industry, etc)Scenarion planning / what-if analysis to set realistic and effective targets (GP&A facilitation)

Link to Governments Code of Good Practice (CGP)Important guideline to all in the wine industryQualifying enterprises are expected to complete a scorecard to determine their contribution to BEE (qualifications still outstanding)Industries may propose their own scorecards, but there is a limit to deviations from the code of good practice of the Department of Trade and Industry (DTI)For the wine industry, it is necessary that the scorecard be fully aligned to the AgriBEE and Liquor Trade scorecards i.e. complete overlaps

Scorecard for large enterprises (GP)Note: GP + R2m turnover; AgriBEE proposal + R50m turnover wine industry?

Scorecard for smaller enterprises (GP) (QSEs)Note: GP + R300 000-R2m turnover; AgriBEE proposal + R5m-R50m turnover wine industry?

Small enterprises (GP)Exempt (receive level 4 basis points), but could still have an opportunity to accumulate a high score and position themselves as preferential partners

GP below R300 000 turnover to be revised?

AgriBEE below R5m turnover

Wine industry?

Contribution levels (GP)Wine Charter proposal for small enterprises = level 1 scoreGP&A proposal for small enterprises = level 4 score

Who completes the scorecard?From a wine industry perspective, participants are defined as enterprises whose core business focuses on any aspect of the value chain for wine and who over three financial years have earned on average more than 50% of their turn over from these activities before being rated.

Producers, cellars, trade, services, service providersOverlap with other Charters?

5. Details of the Wine Charter: The Scorecard - Ownership

How does this promote land reform?

Control

Control (QSEs)

Employment Equity

Employment Equity (QSEs)

Skills development

Skills development

Skills development (QSEs)

Preferential procurement

Preferential procurement (QSEs)

Enterprise development

Enterprise developmentThe following multipliers apply:

Enterprise development (QSEs)

Rural development and poverty eradication: farming community

Rural development and poverty eradication: farming community

Rural development and poverty eradication: No farming community

Rural development and poverty eradication: No farming community (QSEs)

Summary:Wine Charter & Industry Scorecard* Voluntary in order to move to a level 2 contributor (level 1 if black owned)

6. Strategic Focus on Growth with Equity: Deviations based towards:

Wine industry accepts cut-off level of Codes of Good Practice but must align with AgriBEE and Liquor Industry Charter.

Deviations from the Code of Good Practice

3. Includes land reform as an option in the Ownership and Enterprise Development elements;

4. Change the name of the Management Control element to the Control element, reduce its weight to 5 points and include only those indicators dealing with representation on the Board;

5. Group the Senior and other Top Management indicators with the Employment Equity element of the scorecard

6. Increase the weight of the Rural Development and Poverty Eradication element to 15 points (Large enterprises)

7. Distinguish between enterprises with and those without people living on the farm

8. Change the indicators, weights and targets where there are people living on the farm

Concluding thoughts:

Management tool (complicated)Size criticalPerceptions criticalProvide comments