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Grapegrowers say joint venture ‘on the nose’

Simon Evans reported in The Weekend Financial Review, 17–18 September 2005, that Brian McGuigan is pushing to overturn decades of tradition in a bold bid to slash costs as the wine industry reels from grape oversupply.

McGuigan, a veteran of the sector with more than 40 years’ experience, has put forward a radical plan that would entail his 300 grapegrowers sharing more of the burden of a volatile market under a new payment model.

He wants to set up a specialist joint-venture company in which growers would take a stake and ultimately be paid on the success or otherwise of the wine produced from their grapes.

But growers are angry and resisting change.

McGuigan believes now is the time to make changes, and that growers will benefit from less volatility in payments caused by the swing between good times and bad.

Mike Stone, chief executive of Murray Valley Winegrowers Inc, is aghast at the McGuigan proposal for growers to share more of the pain.

‘It might well suit Brian but it represents massive risk to growers’ Stone said.

The formation of a joint-venture company that would later distribute the profits from sales of finished wine back to grapegrowers would create enormous uncertainty about cash flow.

Stone says it would make it impossible for growers to plan for capital spending projects such as irrigation upgrades or switching grape varieties.

Chris Byrne, executive officer of the Riverland Winegrape Growers Association, which oversees 1200 growers in north-east South Australia, says growers do not like the message that the old style of fixed contracts is under pressure.

Growers are highly resistant to change and would insist that any move to a profit-sharing model would need to be highly transparent because there is a high degree of mistrust between growers and wine companies across the industry.

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