In this difficult economic climate, companies across the globe are looking to cut their business payments. If one succeeds, people rarely think of the externalities created, especially when the impacts are abroad. As part of a growing trend, attempts by UK firms to cut costs importing wine is leaving a bad taste in the mouths of South African producers.
In the UK, wine importers have progressively opted to save costs by purchasing wine from South Africa in bulk, rather than in bottles. By shipping the product in giant containers, UK importers package the wine themselves domestically at cheaper rates.
This movement from bottled to bulk has been accelerated since companies first started to feel the financial pinch in 2008. Four years ago, 45% of South African wine was bought in bulk; today the figure has increased to more than 56%.
Sainsbury’s, one of the key firms to begin doing this, has been pleased to announce that the UK consumer directly benefits from the lower costs. Contrarily as UK wine importers search for a way of making cheaper international payments to South Africa, it is to the detriment of Africa’s largest economy.
It has been estimated that more than 700 South African job losses can be directly attributed to the UK’s switch away from pre-packaged wine, and as the trend continues, more losses are predicted.
In a country blighted by high unemployment, the government proclaims that further job losses are out of the question. Ready to fight back against the downward pressure, retaliatory action is being threatened unless there is a reversal in the demand for bulk wine.
Each year the UK imports 993m rand (£79m) of wine from South Africa, making it the South African wine industry’s most important partnership, however using leverage of its own, the African nation annually imports 1.7bn rand (£129m) of UK produced whiskey.
This trade imbalance would mean that a reciprocated strategy by our southern hemisphere partners would have greater consequence to the UK packaging industry, with South Africa preferring to maintain harmony.
On a wider scale however, the trend appears to be global. Other wine producing areas such as Australia, California, Chile and New Zealand have all reported corresponding changes. The revenue for wine packagers and exporters is decreasing as importers try to reduce their costs abroad by limiting their international payments.
For UK firms looking to save money importing products from South Africa, there are a number of other, job preserving, options that can be explored.
Businesses primarily look to save money on the operational side, however are often less stringent on their administrative costs. Such costs would be the fees that banks charge to make international business payments. By using dedicated foreign exchange companies, like RationalFX, companies can see large savings on one-off transactions, and these savings are compounded for those making regular international payments to South Africa.
Another option open to firms looking to save on international transfers would be employing one of RationalFX’s core trading strategies, which allow importers to protect themselves against downward fluctuations in exchange rates, whilst taking advantage of positive swings and also allowing for more accurate financial forecasting.
If UK wine importers reassess their foreign exchange dealings, savings could easily be found, hasten to add, without the negative impact on employment elsewhere.