Wine grape market study Interim report June 2019 accc.gov.au Australian Competition and Consumer Commission 23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601 © Commonwealth of Australia 2019 This work is copyright. In addition to any use permitted under the Copyright Act 1968, all material contained within this work is provided under a Creative Commons Attribution 3.0 Australia licence, with the exception of: the Commonwealth Coat of Arms the ACCC and AER logos any illustration, diagram, photograph or graphic over which the Australian Competition and Consumer Commission does not hold copyright, but which may be part of or contained within this publication. The details of the relevant licence conditions are available on the Creative Commons website, as is the full legal code for the CC BY 3.0 AU licence. 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Table of contents Glossary................................................................................................................................ 4 Executive summary ............................................................................................................... 8 Context of the market study............................................................................................ 8 Issues and implications .................................................................................................. 9 Interim findings ............................................................................................................. 10 The quality assessment of wine grapes is a key issue for growers ............................... 12 Price transparency in the industry should be improved ................................................. 13 Supply agreements are varied and typically favour winemakers ................................... 14 The voluntary code has not resolved key industry problems......................................... 16 Interim recommendations ............................................................................................. 17 Quality assessments .................................................................................................... 17 Price transparency ....................................................................................................... 17 Payment periods .......................................................................................................... 18 The Voluntary Code of Conduct ................................................................................... 18 Contracting practices.................................................................................................... 19 The market study ................................................................................................................ 20 Rationale for conducting this market study ................................................................... 20 Industry consultation .................................................................................................... 20 Lack of response from some stakeholders ................................................................... 22 1. Industry Background .................................................................................................... 24 1.1. Wine production is a complex multi-year process ................................................. 24 1.2. Australia has many diverse wine regions .............................................................. 27 1.3. The wine supply chain involves a range of transactions ........................................ 27 1.4. Australian wine is sold to international and domestic sales markets ...................... 33 1.5. Recent market conditions have reflected cyclical international factors .................. 35 1.6. Regulatory environment and previous reviews ...................................................... 43 2. Warm climate grape growing regions ........................................................................... 46 2.1. The characteristics of warm climate regions magnify competition issues .............. 47 2.2. Each of the warm climate regions has unique characteristics ............................... 54 3. Quality assessment ...................................................................................................... 58 Wine grape market study—Interim report 2 3.1. Growers are concerned about quality assessment practices ................................. 58 3.2. Quality assessment lacks transparency ................................................................ 61 3.3. Quality assessment lacks certainty ....................................................................... 64 3.4. Growers have questioned the integrity of quality assessment ............................... 65 3.5. Winemakers control timing of quality assessment and harvest ............................. 70 4. Pricing .......................................................................................................................... 73 4.1. Winemaker pricing decisions are based on market forecasts ................................ 73 4.2. Large scale factors affect supply and demand ...................................................... 75 4.3. Pricing mechanisms in grape supply agreements ................................................. 78 4.4. Existing price notification practices vary significantly ............................................. 79 4.5. The industry has raised concerns with indicative pricing under the Code .............. 81 4.6. Grape pricing is not transparent and should be improved ..................................... 86 5. Contracting practices ................................................................................................... 89 5.1. A broad range of supply agreements are used ...................................................... 89 5.2. Supply agreement preferences vary among growers ............................................ 90 5.3. Bargaining power is imbalanced in favour of winemakers ..................................... 92 5.4. Possible unfair contract terms under the Australian Consumer Law ...................... 95 5.5. Dispute resolution processes are inadequate in addressing imbalances and detriment arising from supply agreements .................................................................. 101 6. Competition for wine grapes ....................................................................................... 102 6.1. The market for wine grapes ................................................................................ 102 6.2. Market concentration varies significantly between regions .................................. 107 6.3. Winemakers compete for grapes in a variety of ways ......................................... 109 6.4. Competition for grapes is being impeded by multiple factors ............................... 111 6.5. Collective bargaining may result in public benefits .............................................. 112 6.6. Winemakers are constrained at the wholesale level ............................................ 115 7. Australian Wine Industry Code of Conduct ................................................................. 118 7.1. There are three models for industry codes in Australia ....................................... 119 7.2. The Code is intended to balance the interests of growers and winemakers ........ 119 7.3. The Code has had some positive impact but could be improved ......................... 122 Wine grape market study—Interim report 3 Glossary ABARES Australian Bureau of Agricultural and Resource Economics and Sciences. AWRI Australian Wine Research Institute. Australian Grape and Wine Inc (AGWI) national grower and winemaker representative organisation formed in 2019 following amalgamation of WFA and AV. Australian Vignerons (AV) former grower representative organisation which amalgamated in 2019 with WFA to form Australian Grape and Wine Inc. Broker facilitates buying and selling of grapes and/or wine on behalf of growers, winemakers and other clients. Bulk wine wine that is transported in containers, such as stainless steel or bladder containers, rather than in bottles or other smaller packaging. It is packaged at its destination, sometimes after blending with other wines. Bulk wine is usually commercial wine, and on average is sold at a much lower price than bottled wine. CCA Competition and Consumer Act 2010. CCW CCW Co-operative Limited, a co-operative of approximately 600 growers in the Riverland (previously known as Consolidated Co-operative Wineries). Code Australian Wine Industry Code of Conduct – a voluntary code which took effect on 1 January 2009. Code Management Committee (Code the committee responsible for administering the Committee) Code. The Code Management Committee replaced the Code Administration Committee on 1 November 2011. Collective bargaining group (CBG) a group of suppliers, such as wine grape growers, who join together and use their bargaining power to negotiate with buyers, such as winemakers. Such groups have to be authorised by the ACCC or would be in contravention of the CCA. Commercial wine lower quality wine than premium wine, often made with grapes from warm climate regions. Often defined as wine retailing for less than $10 per bottle. Contract processing a business arrangement where one party pays