Wine industry reform needed for greater competition – ACCC
Australian wine will rely heavily on industry reforms to create a more competitive landscape, the Australian competition authority said on Monday.
The industry is experiencing a low level of competition between winemakers buying grapes which is leading to “inefficient outcomes” in production and pricing.
ACCC Deputy Chair Mick Keogh said in a speech to the Australian Wine Industry Technical Conference on Monday that this low level of competition discourages innovation and capital investment.
“The imbalance in bargaining power results in growers accepting contracts with sub-optimal terms, with limited ability to resolve disputes, and having to wait sometimes up to nine months for payment for their grapes,” Keogh said.
“The ACCC’s wine grape market study interim report found these significant issues represent a very real threat to the growth of the wine grape industry, especially in an era of scarce resources such as water.”
Keogh said the wine grape industry will need capital investment by growers to improve irrigation efficiency and to plant improved grape varieties.
“Only when the growers have greater confidence and certainty in the market will they be prepared to undertake this investment.”
He also said a lack of pricing transparency is hindering the effective operation of the market.
“Increased pricing transparency will provide better price certainty to the market, and not only improve growers’ bargaining power but also boost competition between winemakers.”
The ACCC launched a market study of the wine grape industry in September 2018 and is currently seeking feedback from the industry on its interim report.
“We are conducting the market study because of the significant number of confidential complaints received from growers about how their market works. Many growers have told us that they were reluctant to raise concerns with their winemakers due to fear of retribution.”
Exports continue to grow
Meanwhile, the export market is continuing to grow. Wine Australia reported on Monday that the value of Australian wine exports has continued to grow in the 12 months to June 2019, increasing by 4 per cent in value to $2.86 billion.
The growth was driven by China, and the US made a welcome return to growth.
“The strong growth in average value is positive for the wine sector and the broader economy as it lifts returns for wine businesses and flows through to regional economies through higher grape prices,” Wine Australia chief executive Andreas Clark said in a statement.
“Our National Vintage Report 2019 released last week shows that the average grape price has lifted for the fifth year in a row, reaching $664 per tonne, the highest level since 2008.”
US exports grew by 2 per cent in value to $432 million, which Clark said is “pleasing”.
“Average value increasing 6 per cent to $2.83 per litre, the first growth in 2 years, rewards the efforts of the many exporters who are working actively in that market to change perceptions about Australian wines and communicate about the diversity and excellence of Australia’s offering.”
Australian wine exports to China reached a financial year record, increasing 7 per cent in value to $1.2 billion, but volume decreased 16 per cent to 154 million litres as exports of wines below $2.50 per litre FOB declined.