Harmful market practices are restricting competition in some Australian wine grapegrowing regions and limiting the potential for growth of Australia’s wine industry, according to an interim report released today by the ACCC.
Through its detailed market study into the winegrape sector, the ACCC has proposed measures to address concerning practices it believes are common across high-production, warm climate wine grapegrowing regions.
The ACCC has identified a lack of transparency and certainty over how grapes are priced and assessed for quality, as well as supply contracts that run for multiple years but do not offer price certainty to growers.
“We found that winemakers do not publicise the prices they pay to growers and often have confidentiality terms to prevent growers from disclosing their indicative and final prices to other growers,” ACCC deputy chair Mick Keogh said.
“Meanwhile, various supply arrangements appear to favour incumbent buyers of bulk winegrapes, such as exclusive supply clauses, automatic and long term contract extensions, and difficult contract termination obligations on growers.”
The ACCC is also concerned about delayed payment terms for growers, which can sometimes stretch up to nine months after grapes have been delivered to a winery.
“There are significant bargaining power imbalances between large winemakers and the small growers who supply them, a dynamic that is common between suppliers and processors across the agricultural sector,” Mr Keogh said.
“This power imbalance is particularly evident in the bulk winegrapes industry.”
The ACCC’s interim recommendations include:
- Winemakers in warm climate regions be required to provide indicative and final grape prices to an independent third party for simultaneous public release;
- Payment terms for wine rapes be shortened so growers are paid within 30 days of delivering grapes;
- Objective standardised testing for winegrape quality assessments be developed; and
- The dispute resolution mechanisms in the Australian Wine Industry Code of Conduct be improved.
“Increased transparency over indicative and final prices is likely to lead to greater competition between winemakers, and better outcomes for growers,” Mr Keogh said.
During the study, the ACCC closely examined the operation of the voluntary Australian Wine Industry Code of Conduct, in place since 2009. The Code’s impact has been limited due to the low numbers of winemakers that have signed up.
The ACCC found the Code’s key benefit to growers and winemakers was in providing a structured process for resolving disputes about price and quality assessments of wine grapes.
However, because many major winemakers are not signatories to the Code, many growers are not able to access its dispute resolution mechanisms.
“The ACCC recommends that Australian winemakers with more than 10,000 tonnes of processing capacity sign the Code,” Mr Keogh said.
“If more big winemakers don’t sign up, a mandatory code may be needed to bring about the required industry reforms.”
The ACCC is seeking feedback on the interim report by 28 June and expects to release a final report in September 2019.
The interim report is available at Wine grape market study – June interim report.
The ACCC’s market study of the wine grape industry was launched in September 2018, after feedback from participants during previous ACCC engagements with the industry.
This market study focuses on what are referred to in the industry as warm climate grape growing regions. The three warm climate regions are the Riverland, Murray Valley (which includes the Murray Darling and Swan Hill regions) and Riverina.
About 1500 growers operate in these regions, which produce approximately two thirds of Australia’s wine grapes.
The ACCC consulted with a wide range of industry participants during the market study, including through two public forums and other meetings held in warm climate grape production regions during November 2018, attended by ACCC staff and Mr Keogh.
Market participants and interested parties were invited to share their views about competition and fair trading issues that concerned them.
For further information see Wine grape market study