Winegrape and Wine Industry in Australia
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Winegrape and Wine Industry in Australia "PROTECTED - UNDER EMBARGO UNTIL TABLED/RELEASED BY PARLIAMENT" A Report by the Committee of Inquiry into the Winegrape and Wine Industry Final Report June 1995 WINEGRAPE AND WINE INDUSTRY TABLE OF CONTENTS Page Abbreviations xii Preface xv Terms of Reference xvi EXECUTIVE SUMMARY 1 RECOMMENDATIONS 17 PART I: INTRODUCTION 1 NATURE AND SCOPE OF INQUIRY 25 PART II: INDUSTRY AND MARKET INFORMATION 2 THE AUSTRALIAN WINEGRAPE AND WINE INDUSTRY 35 2.1 Grapegrowing 36 2.2 Wine production 48 3 REGIONAL SIGNIFICANCE 57 3.1 Regional dispersion 57 3.2 Contribution to regional economies 66 3.3 Summary 72 4 WINE MARKETS 75 4.1 The domestic market 75 4.2 Composition of demand 78 4.3 Distribution arrangements 84 4.4 Domestic price trends 86 4.5 The export market 87 v WINEGRAPE AND WINE INDUSTRY 5 POTENTIAL FOR DEVELOPMENT 93 5.1 Market outlook 93 5.2 Strengths, weaknesses, opportunities and threats 96 PART III: MAJOR ISSUES 6 RESEARCH AND DEVELOPMENT 111 6.1 Introduction 111 6.2 Rationale for public funding 113 6.3 Grape and Wine Research and Development Corporation 116 6.4 Cooperative Research Centre for Viticulture 117 6.5 Assessment of institutional arrangements 120 6.6 150 per cent tax concession for R&D expenditure 125 7 THE ROLE OF THE AUSTRALIAN WINE AND BRANDY CORPORATION 127 7.1 Historical background and current operations of the AWBC128 7.2 Export controls 130 7.3 Promotion 134 7.4 International trade relations 137 7.5 Food standards 138 7.6 Truth in labelling 140 7.7 Assessment and proposals for change 141 8 IRRIGATION AND WATER ISSUES 167 8.1 Introduction 167 8.2 Allocating rights to water use 169 8.3 Areas for reform 190 vi WINEGRAPE AND WINE INDUSTRY 9 OTHER IMPEDIMENTS 193 9.1 Packaging costs 193 9.2 Labour and training issues 199 9.3 Grape supply arrangements 209 9.4 State regulations 217 10 EXTERNAL EFFECTS OF ALCOHOL CONSUMPTION 225 10.1 Introduction 225 10.2 Effects on health of alcohol consumption 227 10.3 The costs of alcohol abuse 238 10.4 Measures to control alcohol abuse 243 10.5 Summary 247 11 TAXATION OF WINE AND BRANDY 249 PART A:Setting the scene 250 11.1 Introduction 250 11.2 Indirect taxation in Australia 251 11.3 Guidelines for judging taxation measures 259 11.4 Participants’ views about the form and level of taxes on wine 263 PART B:The Committee’s recommendations 282 11.5 Taxationrecommendations 282 PART C:Tax-related matters raised by the brandy industry 314 12 OTHER TAXATION MATTERS 321 12.1 Wholesale sales tax treatment of wine used for tasting 321 12.2 Wholesale sales tax concessions for small business 325 12.3 Write-off allowance for establishing vineyards 328 12.4 Valuation of wine stocks for income tax purposes 330 vii WINEGRAPE AND WINE INDUSTRY 12.5 Taxation of ‘ready-to-drink’ alcoholic beverages 336 12.6 Taxation of flavoured beverages with a fortified wine base340 12.7 The Fringe Benefits Tax 343 12.8 The Income Equalisation Deposits scheme 347 12.9 Assistance to develop export markets 349 12.10 Cash grants for winemakers 350 12.11 State and territory liquor licence fees 351 APPENDICES A Participation in the Inquiry 361 B Key elements of the AWBC Act and regulations 369 C Transferability of water 379 D Assistance to the wine industry 387 REFERENCES 393 viii WINEGRAPE AND WINE INDUSTRY Tables Table 2.1: Cost structure of grapegrowing regions Table 2.2: Average grape prices by region, 1992–93 Table 2.3: Winemaking cost structure Table 3.1: Employment by wine and brandy establishments, by state, 30 June 1993 Table 4.1: Major suppliers and buyers of wine, 1992 Table 7.1: Export promotion funding by the AWBC, 1991–92 to 1993–94 Table 8.1: Irrigated agriculture in Australia, 1992–93 Table 10.1: Estimates of the economic costs of alcohol abuse by Collins and Lapsley, 1988 Table 10.2: Estimates of the economic costs of alcohol abuse by the Tasman Institute, 1988 Table 11.1: Australia’s indirect taxes, 1993–94 Table 11.2: Commonwealth, state and territory taxation of beverages Table 11.3: Ad valorem equivalent tax rates: WST, excise and state/territory liquor licence fees Table 11.4: Various alcoholic beverages, equivalent WST plus excise on a per litre of alcohol basis Table 11.5: Estimated revenue collections from alcoholic beverages, 1993–94 Table 11.6: Expenditure on selected products by household income quintiles, 1988–89 Table 11.7: Illustrative comparisons of taxation arrangements for wine applying in Australia and European Community countries Table 11.8: Alcoholic beverages, drinking sessions greater than four standard drinks per session Table 11.9: Impact of majority proposal on tax paid: selected products Table 11.10: Summary of the effects of Mr Scales’ taxation recommendations, as at 1 July 2000 Table 12.1: Description of some ‘ready-to-drink’ beverages sold in Australia and summary of associated taxation arrangements Table 12.2: Interstate comparison of liquor icencel fees Table C.1: Water transfers in New South Wales Table D1: Definitions of the classification of commodities used by customs for tariff purposes ix WINEGRAPE AND WINE INDUSTRY Table D2: The ad valorem and specific rates that apply to the classification of commodities used by customs for tariff purposes Table D3: Average nominal and effective rate of assistance, by activity, for the agricultural sector, 1990–91 to 1992–93 Table D4: Average nominal rates of assistance on outputs for manufacturing industries, 1989–90 to 1993–94 and 1996–97 Table D5: Average effective rates of assistance for manufacturing industries, 1989–90 to 1993–94 and 1996–97 Boxes Box 1.1: Major strengths, weaknesses, opportunities and threats Box 1.2: Wine industry plan for 2010— key aggregates Box 2.1: Modern vineyard technology Box 3.1: The Yarra Valley region Box 3.2: The WA wine industry Box 3.3: The wine industry in Tas, Qld and the ACT region Box 3.4: Participants’ estimates of regional employment Box 3.5: Major suppliers locatedin the Barossa Valley Box 8.1: Initiatives to reduce transmission losses Box 8.2: What are property rights? Box 8.3: Measuring river salinity Box 8.4: Tradeable discharge permits to reduce salinity Box 10.1: Private and external costs Box 11.1: Defining the terms Box 11.2: Wine and wine taxes in New Zealand Box 12.1: Wine companies and compliance with the FBT Box B.1: Objects of the AWBC Act Box B.2: Powers of the Corporation Box B.3: Contracts for carriage of grape products Box B.4: Part 2 — General export controls Box B.5: Conditions of export Box B.6: Powers to set export prices and quantities x WINEGRAPE AND WINE INDUSTRY Figures Figure 2.1: Australian grapegrowing, 1975–76 to 1994–95 Figure 2.2: Grape varieties used in Australian winemaking, 1993–94 and projected production, 1996–97 Figure 2.3: MIA grape prices, 1964–65 to 1994–95 Figure 2.4: Wine production in Australia, 1974–75 to 1993–94 Figure 2.5: Wine production by type, Australia, 1986–87 to 1993–94 Figure 2.6: Employment, wine and brandyindustry, 1968–69 to 1992–93 Figure 2:7: World wine production, 1992 Figure 3.1: Winegrape production by region Figure 3.2: Change in premium portion of winegrape crop, by region, 1987–88 to 1993–94. Figure 3.3: Share of wine production, by state, 1993–94 Figure 3.4: Total wine production, by state, 1982–83 to 1993–94 Figure 4.1: Domestic consumption of wine, 1948–49 to 1993–94 Figure 4.2: Annual per capita domestic consumption of alcoholic beverages, 1964–65 to 1993–94 Figure 4.3: Domestic sales of Australian table wine, by container type, 1977–78 to 1993–94 Figure 4.4: Domestic sales of Australian wine, 1970–71 to 1993–94 Figure 4.5: Domestic sales of Australian wine, by type, 1993–94 Figure 4.6: Domestic consumption and imports of brandy, 1971–72 to 1993–94 Figure 4.7: Alcoholic beverages, price movements, 1975–76 to 1993–94 Figure 4.8: Export value and volumes, 1980–81 to 1993–94 Figure 4.9: Exports by major market, 1985–86 to 1993–94 Figure 4.10: Exports to the United Kingdom, 1980–81 to 1993–94 Figure 4.11: Exports to New Zealand, 1980–81 to 1993–94 Figure 5.1: Wine consumption of ten largest importers and Australia Figure 8.1: Grapevine irrigation method, by state, 1990 Figure 10.1: Consumption of standard drinks on last occasion, by age, 1990 xi WINEGRAPE AND WINE INDUSTRY ABBREVIATIONS AAB Australian Associated Brewers ABARE Australian Bureau of Agricultural and Resource Economics ABS Australian Bureau of Statistics ACV Australian Council of Viticulture ADA Anti-Dumping Authority AMA Australian Medical Association ANTA Australian National Training Authority ALRC Australian Law Reform Committee ALSA Australian Liquor Stores Association APMG Alcohol Project Management Group ASF Australian Standards Framework ATO Australian Taxation Office AWBC Australian Wine and Brandy Corporation AWEC Australian Wine Export Council AWF Australian Winemakers’ Forum AWRI Australian Wine Research Institute CIE Centre for International Economics COAG Council of Australian Governments CRCs Cooperative Research Centres CRCV Cooperative Research Centre for Viticulture DSICA Distilled Spirits Industry Council of Australia EC European Community ECA Environmental Contingency Allowance EMDG Export Market Development Grants EPAC Economic Planning Advisory Commission EPA Environmental Protection Agency (New South Wales) FBT Fringe Benefits Tax xii WINEGRAPE AND WINE INDUSTRY GATT General Agreement on Tariffs and Trade GIC Geographical Indications Committee GWRC Grape and Wine Research Council GWRDC Grape and Wine Research and Development Corporation HES Household Expenditure Survey HIZ High Salinity Impact