The brandy industry has welcomed the indication from Government that excise duty increases are under review, saying it revealed a greater understanding of the industry and its challenges.
An excise hike of 8.5% on brandy was announced by the Minister of Finance, Nhlanhla Nene, during the annual National Budget Speech on 25 February 2015.
Mr Nene added that other reforms under consideration include providing excise duty relief to wine-based spirits such as brandy. The rationale is that brandy is at a cost disadvantage compared with other forms of alcoholic spirits.
“The above is the result of continuous open dialogue between the brandy industry and various Government departments around the unique challenges facing wine producers and cellars,” says Christelle Reade-Jahn of the South African Brandy Foundation.
MAJOR ECONOMIC ROLE
The South African brandy industry has long played a major role in the economy. It is estimated that South Africa is the world’s seventh largest brandy producer. While the majority of brandy is consumed within the local market, this industry has also achieved significant export growth although from a relatively small scale. This product of the vine has significant economic relevance.
“It takes about five litres of wine to produce one litre of brandy,” explains Reade-Jahn. “As such, the South African brandy industry has a symbiotic relationship with the wine industry, increasing local manufacturing value and stimulating local job creation.”
The market demand for brandy also has a significant impact on the primary wine producers in South Africa. Recent research by the Bureau of Economic Research (BER) indicated that for every one percent of increase in South African brandy sales volumes, the price of distilling wine to South Africa’s grape producers increases by 0.9%.
“A growth recovery of the SA brandy industry will therefore positively influence the overall profitability of South African wine producers, who are significant local employers. The economic value added multiplier for South African brandy has been estimated at 1.30, the government tax multiplier at 1.44 and the employment multiplier at 6.85.
"This shows that for every R1-million increase in the demand for brandy, economic value added in the economy will increase by R1.3-million, government tax revenue from excise and VAT will increase by R1.44 million and 6.85 jobs will be gained. The economic growth potential from a world class local product such as South Africa’s brandies is substantial.”
Reade-Jahn added that the cost of producing a brandy to South Africa’s high standards was far higher than that of spirits made from grains or sugar cane.
“Grapes are a more expensive raw material compared to maize or sugar cane. South Africa’s legal requirements for the production of brandy are superior to most other brandy-producing countries. This gives the industry the ability to produce world-class brandies.”