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25/09/2015

Australian wine industry presents case for reform to Senate inquiry

By Sonya Logan

Representatives of wine companies and national, state and regional wine industry bodies appeared at a public hearing in Adelaide yesterday as part of the Senate inquiry into the grape and wine industry.

The hearing was the first of three, with the second starting in Launceston, Tasmania, this afternoon and the third scheduled for the Swan Valley in late October.

Senators Nick Xenophon, Anne Ruston, Bridget McKenzie, Peter Whish-Wilson and John Madigan co-sponsored a motion to establish the inquiry earlier this year which was referred to the Rural and Regional Affairs and Transport References Committee. It is due to report in November.

Among the panel of senators at yesterday’s hearing were Nick Xenophon, Sean Edwards and Peter Whish-Wilson, who both have interests in the wine industry, and Glen Sterle, who chaired the hearing and was one of the senators involved with the last inquiry into the wine industry by the same senate committee in 2005.

“This is the second wine industry inquiry I’ve been involved with. I really hope and pray that we’re not just wasting people’s time and simply have another glossy report that sits on the minister’s shelf,” Sterle said during the hearing.

Representing the industry organisations that appeared before the panel of senators yesterday were Andreas Clark (Wine Australia); Mike Stone and Brian Englefield (Murray Valley Winegrowers), Lawrie Stanford and Vic Patrick (Wine Grape Growers Australia), Chris Byrne and Andrew Weeks (Riverland Wine), Brian Simpson (Riverina Wine Grapes Marketing Board), Peter Hackworth (Wine Grape Council of SA), Brian Smedley (South Australian Wine Industry Association), Geoff Lewis (Clare Region Winegrape Growers’ Association) and Warrick Duthy (Clare Valley Winemakers).

Keith Todd, Alex Sas and Anita Poddar (Accolade Wines), Warren Randall (Seppeltsfield Wine), Victoria Angove (Angove Family Winemakers), and Nick Waterman (Yalumba) were also witnesses along with Marc Allgrove, former Chapel Hill CEO and now partner in Evans & Ayers – Wine Business Consulting.

Many of the witnesses were asked if they supported the recommendations contained in the joint submission to Federal Government by the Winemakers’ Federation of Australia and Wine Grape Growers Australia which called for various WET rebate reforms and for the $44m in savings arising from these reforms to be returned to industry to boost marketing of Australian wine to grow export demand (see 'Wine bodies unite in call for tax reform and an extra $44m for global marketing'). Specifically, they were asked if these measures would restore profitability to the industry. Most agreed they would, although cautioned this was just one step of many in the process. When pressed further by the senators, many admitted the information available to industry was insufficient to provide proof of this expected return to profitability, but said introducing the reforms was on balance a better option than maintaining the status quo.

“The WET rebate reform that WFA and much of the industry is advocating will be a very strong signal to grapegrowers and signal some hope for industry,” said Victoria Angove. “If we don’t see urgent WET rebate reform we have considered helping our growers to set up as producers to access the rebate. That’s not the intention of what the rebate is about but that’s how dire things are.” She described reforming the WET rebate as “an important step in a long-term journey” of restoring profitability to the wine industry.

Angove said her company’s exports were at the lowest level in 15 years and that she’d never known business to be so tough.

“The need for investment in growing demand is significant,” she said. “The FTAs have given us a level playing field to play the game but they don’t grow demand. At the moment the Australian wine industry is like players [in the game]; we’re ready for the game, we know how to play the game but we’re not wearing any uniforms. That’s where this inquiry can help take the industry to provide us with those uniforms to help stimulate the demand side.”

Lawrie Stanford referred the senators to findings of the independent expert review of industry dynamics commissioned by WFA and released in 2013 which showed the WET rebate accounted for 12% of the oversupply.

“At the end of the day it is a minor issue. I’m angry that we’re spending so much time and energy debating that issue when big ones are on the table,” Stanford said, adding WGGA’s major concern surrounded the deficiencies in the commercial practices between wine companies and winegrape growers.

It was revealed that an estimated 3% of growers in the Riverland have restructured their businesses to enable them to access the WET rebate. Senator Edwards questioned whether WET rebate reforms were necessary if so few growers would be affected by them.

Andrew Weeks responded by asking, “What is the benefit in pursuing status quo? The fact that we’re having this inquiry shows that industry is in deep trouble. We need to do something and continuing with the status quo isn’t an option. On balance there is much better hope for everyone in the industry if these policies do come in.”

Chris Byrne added, “This is one of a number of measures and it seems to be getting undue emphasis in this inquiry. It is one of a number of measures that will assist the process of returning to profitability and sustainability.” He said the industry did not have the economic resources to delve deeper into the economic impact of reforming the WET.

Brian Simpson dropped something of a bombshell when he announced the Wine Grapes Marketing Board wanted to amend its submission to the inquiry by calling for the complete withdrawal of the WET rebate. He described the rebate as “one of the most distorting factors in the industry and is very pronounced in our region”. Simpson said at last count, 40 of the region’s 345 growers had restructured their businesses to claim the rebate.

“We have many growers who have forced to go into the WET rebate channel as a route to market because the profitability within the industry has declined massively.

“The WET rebate is subsidising cheap wine in the market. It’s nice that the Government is happy to subsidise low-cost wine throughout the whole sector but once it’s out the way wine should return to its more rightful value.” Simpson said he’d heard of business negotiations by growers who had licenses to process grapes into wine and were claiming the WET rebate where retailers said they wanted the 29% rebate in their pocket, “whereas it’s meant to go to the grower”. Simpson said his board had concluded that reforming the rebate to reflect its original intention wouldn’t “weed out the wrongdoers”.

Simpson said the WGMB also wanted the introduction of a mandatory code of conduct, noting that no Riverina wineries were signatories, saying this would allow for a higher level of transparency within the business operating environment of the industry.

There was further discussion during the hearing on the Code of Conduct and why uptake of the code by wineries represented only around 40% of Australia’s annual production. MVW and WGGA stressed growers would be better off if the code insisted on indicative prices being released earlier in the season given 80% of vineyard input costs were expended between June and January yet signatories were not required to communicate these prices until mid-December.

Submissions to the Senate inquiry into the grape and wine industry can be found here: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/Australian_wine_industry

 

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