### From regulation to market

Given its domestic orientation and isolation for the most part of the twentieth century, South Africa is seen as a new player in international wine markets. However, calling it a ‘New World’ wine country is not entirely correct, because the first vineyards were planted in the Cape peninsula by Dutch settlers as early as 1655 and became the most important industry in the colony during the rule of the United Dutch East India Company. Between 1815 and 1825, supported by favourable British import tariffs and until his death some help from Napoleon on St Helena, wine was three-quarters of the exports from the colony (Van Zyl 1975, pp. 123, 162). However, by the end of the century exports had almost collapsed. The 1860 trade agreement between the UK and France made French wines cheaper to import. Adding to the malaise was the spread of phylloxera in the late nineteenth century which destroyed most of the Cape vineyards. Cape wines were certainly not able to compete in Britain on quality.

The KWV was set up in 1917–18 with the aim of buying up the entire crop to protect the price. In 1924, the government granted the KWV its first statutory powers to regulate the industry by setting a minimum price and taking up the right and obligation to dispose of the unsold surplus outside Southern Africa. In 1940, it set the minimum price for good wine and in 1960 set up the system of production quotas. (Vink et al. 2004, p. 229). In the 1970s, the KWV took over the effective regulation of plant propagation, and of the import of vines clones, thereby regulating the choice of varietals, notoriously the attempt to exclude the import of Chardonnay in the 1980s (Klopper 1986).

The power to regulate was won only after repeated struggles and petitions by wine farmers, first to the Cape colonial government and later to central government after Union in 1910. The first producer co-operatives were formed between 1906 and 1909, with the encouragement of the Cape colonial government. The next, and most rapid expansion was between 1939 and 1949 when 27 new co-operative cellars were established. By 1994, there were 69 in place (Botha 1966, pp. 77–78, Table 25, SAWIS 1997). The Co-operative Cellars Committee (KWK) shared members and office-holders and aligned itself with the KWV, which claimed to speak for the ‘wine industry’ (at the producer level).

The powers wielded by the KWV until the mid 1990s were not acquired in one fell swoop in 1924, but rather in an incremental fashion over decades. After 1948, when the National Party (NP) came to power, government adopted a more generous and supportive stance towards the Cape wine farmers. Amongst others it provided for cheaper loans through the Land Bank, financial support for worker housing and the establishment of farm prisons (Goussard 2000). The KWV, and the co-operative cellars, aligned themselves with and became clients to the dominant NP. As part of the ‘Cape-Nationalist wine complex’, government patronage and support was exchanged for votes.

The regulation period was characterised by a focus on high yields and volume over quality, and an overall preference for the production of brandy and fortified wine. It was only in the 1950s that fortified wines were overtaken by (cheap) unfortified wines. However, most of the wine produced at the Cape was ‘low price’ wine, produced by Stellenbosch Farmers Winery, for consumption by farm workers and the rural and urban poor.

Ritzema de la Bat, the General Manager of the KWV, described the ‘bedrock’ of the control system as the statutory minimum price for ‘good wine’, the disposal of the ‘surplus’ wine grapes for distilling wine through the KWV, and the statutory enforcement of planting quotas. ‘Without it there would be chaos’ (Williams and Vink 2002, p. 707).

Throughout the twentieth century, production increased right until the advent of the new ‘quality era’ in the early 1990s (Williams 2005).2 Exports, on the other hand, which had made up 6% of production in 1961, fell to an all-time low in the late 1980s (Vink et al. 2004, p. 236). In 1989, on the brink of Mandela's release from prison, they represented only 0.6% of total output (Anderson 2004). ‘Good wines’, for their part, formed only a small proportion of total exports. In the 1980s sanctions and international opprobrium blocked whatever little export there was, and, combined with the regime of statutory regulation, insulated most producers from the demands of international markets.

Most of the approximately 4600 growers (SAWIS 1997) had a vested interest in regulation. The arrangement not only guaranteed a minimum price for their wine, but also provided subsidised bank loans and a generous tax regime. In addition, political control saw to it that cheap, subservient labour was in ready supply. In exchange, from 1948 most wine farmers gave their vote to the Cape National Party.

However, the system also had its critics – something that had been gathering momentum since the 1970s. For one, the ‘estate’ cellar sector had become ever harsher in its critique of the control which the KWV bureaucracy exercised over the industry, putting a break on innovation and modernisation, and some farmers defied the quotas on new planting. The producing wholesalers who dominated the domestic market and were unwilling to put up with KWV's control of price-setting, which they thought discriminated against them in favour of co-operative wineries. Equally important, some figures in the industry saw privatisation as a pre-emptive step to avoid regulation by a future black, post-apartheid government, the latter being only a question of time once Mandela had been released and constitutional negotiations got underway.

The KWV had no choice but to ‘suspend’ production quotas in 1992 when some private cellars defied its control on new planting. The minimum price could not be sustained and was abolished in 1995, which made the ‘surplus pool’ redundant even before the conversion of the KWV into a company in 1997.

In 1995, a new chairman and managing director were brought in to oversee KWV's reinvention of itself as ‘free enterprise and market oriented’ (cited in Williams 2002). Part of the strategic considerations of the part of the wine lobby was to take with them the assets the KWV had accumulated over decades – something which was only prevented when Derek Hanekom, the new ANC minister of agriculture, stepped in, and after bitter recriminations the KWV reached a compromise and settled out of court (Vink et al. 2004, pp. 238–239, Ponte and Ewert 2007, p. 7). At the same time that the first steps towards deregulation were taken (1992), sanctions were lifted and the world opened up to new opportunities.3

After an initial wait-and-see attitude, closely watching the outcome of the election, most cellars and the growers started to invest and embark on a process of innovation and ‘upgrading’ – especially in the vineyard and the cellar (less so in the area of marketing). In more than one sense, the years 1994 to 1996 mark the watershed between the ‘old’ and the ‘new’ South African wine industry. As we try to show below, this is borne out by most wine industry statistics.

A veritable renaissance of the industry soon followed – a process that continued until the mid 2000s. By 2005, with the rand strengthening and the start of a red wine ‘glut’ in the global market, the prospects of the industry worsened for the first time since the mid 1990s.4 In 2006, the industry witnessed decreasing exports, some bankruptcies, and a general decrease in profitability and competitiveness.5 However, it soon recovered and by the end of the decade the industry was exporting almost half of total production. Although most South African exports sell in the ‘basic’ or ‘standard’ price segment, new markets are opening up and exports are being sustained. What growers and cellars have done to get to this position, is discussed in the next section.