Review of regulatory options for the wine and grape sector

Abstract

On 23 August 2024, the Hon Julie Collins MP, Minister for Agriculture, Fisheries and Forestry, announced that Dr Craig Emerson had been selected to examine whether there was market failure in the grape and wine sector and provide advice about regulatory or other interventions.

Dr Emerson was also given the task of leading an independent impact analysis of regulatory options for the Australian grape and wine sector concerning fair trading, competitive relationships, contracting practices and risk allocation.

Dr Emerson made 14 recommendations following this review and analysis.

Summary

Dr Emerson’s review noted the following general points, which informed his recommendations.

• Winegrape growers with weak bargaining power, particularly in the warm inland grape growing regions of Australia – the Riverland, the Murray Darling and Swan Hill regions and the Riverina. Uneven bargaining power is less prevalent in the cooler regions, but harmful commercial conduct by winemakers in these regions, such as protracted payment terms for their grape suppliers, can similarly shift risk inordinately from winemakers onto their grape suppliers.
• Power imbalances exist between many independent wine makers and oligopolistic liquor retailer. Endeavour Group, Coles Group, Metcash Limited and ALDI comprise around 80 per cent of the domestic retail market, with Endeavour Group and Coles Group having a combined market share of around 60 per cent.
• The current industry-led voluntary Code of Conduct is unenforceable.
• A mandatory Code is the only viable option – it should be enforceable by the ACCC and apply to large and medium-sized wineries buying winegrapes from external providers – those with annual grape purchases exceeding 2,000 tonnes (calculated on a 3-year rolling average basis).
• The Code should require early notification of offer prices for grapes – specifically
  • winemakers purchasing grapes from the warm inland regions should be required to provide Wine Australia with their offer prices for simultaneous publication on the first Wednesday in October each year for grapes purchased under contract for each grape variety they seek to buy, and
  • participation in two surveys run annually by Wine Australia should be a requirement of the mandatory Code to improve price signals available to growers.
• The Code should make quality assessment processes more objective – in place of arbitrary assessments, objective standards for assessing maturity, purity, condition and other grape parameters – as provided for in the current voluntary Code – should be a requirement of the mandatory Code.
• The Code should protect against retribution – protection against retribution should be included in the purpose of the Code and an anonymous complaints mechanism for growers to report issues to the ACCC should be established.
• The Code should require grape supply agreements and purchase orders to be in writing and not be subject to unilateral variation by a winemaker. 
• The Code should improve payment terms between winemakers and grape growers – minimum payment terms should be fair across all Australian jurisdictions and all winemakers covered by the mandatory Code should be required to notify Wine Australia of their payment terms, which Wine Australia would publish on the first Wednesday in October each year. 
• Informed choice for wine consumers – it should be clear to wine consumers if they are purchasing own-brand wines or not.
• Data to support winemaker innovation – small, independent winemakers should have timely access to sales data for their wine sales through vertically integrated, oligopolistic liquor retailers, and larger winemakers should have access to the market data at the same level of granularity as that for retailers’ own-brand wine labels.
• Wine Equalisation Tax (WET) and vertical integration – the WET should be reviewed by the relevant Australian government agencies to ensure it is still meeting its policy objectives without unintentionally providing advantages for vertically integrated winegrape production, winemaking and wine retailing businesses.
• Application of general competition and consumer laws – a range of strengthened competition and consumer law amendments that have already been enacted, together with announced and foreshadowed reforms, should be applied to deal with anti-competitive behaviour and unfair practices in the grape and wine sector.
• Impact analysis shows that the benefits of Dr Emerson’s recommendations outweigh the costs, and Dr Emerson has ruled out other proposals where the costs would clearly outweigh the benefits.

Recommendations

Recommendation 1 – make the voluntary code of conduct mandatory
The voluntary Code of Conduct for Winegrape Purchases should be replaced with a mandatory Code of Conduct for Winegrape Purchases (mandatory Code). All winemakers whose purchases of grapes exceed a three-year moving average of 2,000 tonnes per annum should be subject to the Code. Except where a recommendation expressly requires a change in the terms of the current voluntary Code of Conduct, these terms should be carried across to the mandatory Code of Conduct.

Recommendation 2 – earlier price offers for inland grapes
The mandatory Code should require winemakers to decide on an offer price for each grape variety they seek under contract from the warm inland regions of the Riverland, the Murray Darling and Swan Hill regions and the Riverina. All offer prices should be notified to Wine Australia, which would collate these prices and publish them simultaneously on the first Wednesday of October each year.

Recommendation 3 – mandatory survey participation to inform Grape Price Indicators dashboard
Participation in the National Vintage Survey and the Production Sales and Inventory Surveys should be compulsory for all winemakers subject to the mandatory Code, to improve the accuracy of the Grape Price Indicators dashboard and to further increase price transparency and assist growers and winemakers in making informed business decisions.

Recommendation 4 – publication of payment terms
All winemakers covered by the mandatory Code should be required to notify Wine Australia of their payment terms, which Wine Australia would publish on the first Wednesday in October each year. If, after two years of operation of the mandatory Code, payment terms and associated payment times have not improved materially, all winemakers subject to the Code should be required to pay growers in full within 30 to 60 days of the end of the month of the final delivery of grapes.

Recommendation 5 – price deductions must refer to an objective parameter
Objective standards for grape assessment of maturity, purity, condition and other grape parameters relating to quality – as contained in the existing voluntary Code – should be specified by winemakers subject to the mandatory Code in their contracts with grape growers. For grapes purchased by winemakers subject to the mandatory Code, any deductions from the offer price, or any other adverse decisions such as rejection of the grapes, must be done with reference to at least one objective assessment parameter.

Recommendation 6 – greater protections against retribution
The mandatory Code should place greater emphasis on addressing the fear of retribution by including protection against retribution in the purpose of the Code and ensuring that retribution captured under the obligation to act in good faith includes action taken against suppliers for exercising their rights under the Code.

Recommendation 7 – an anonymous complaints channel to the ACCC
An anonymous complaints mechanism should be established to enable suppliers and any other market participants, including winemakers supplying to retailers, to raise issues directly and confidentially with the ACCC. 

Recommendation 8 – mediation and arbitration built into the Code
The mandatory Code should provide parties with avenues for mediation and arbitration to resolve disputes.

• Parties can agree on an independent mediator or arbitrator. Winemakers must attend independent mediation if requested by a grower.
• Where mediation has not settled a dispute, independent arbitration can be used to settle disputes as agreed between the winemaker and the grower.
• The working group referred to in Recommendation 14 should identify a suitable entity to take on the function of receiving notifications of disputes.

Recommendation 9 – no anti-competitive terms in contracts
The mandatory Code should include a requirement that all supply agreements and purchase orders:

• Be in writing and not subject to unilateral variation by a winemaker;
• Not include for the winemaker a first right of refusal for when the grower produces more grapes than is required by the supply agreement; and
• Not give winemakers the right to terminate agreements with growers when grapes become surplus to requirements, for any reason and at short notice.

Recommendation 10 – transparent labelling practices
The large liquor retailers that sell own-brand wine – Endeavour Group and Coles Group – should indicate on the back of their wine labels their ownership of the wine, to enable customers to readily identify the wine as an own-brand product. If satisfactory compliance has not been achieved after two years, consideration should be given to the development and application of an Information Standard to enforce compliance.

Recommendation 11 – accessible sales data and market reads
Coles Group and Endeavour Group should collaborate with appropriate companies, such as Circana and Quantium, to ensure smaller independent winemakers receive their own sales data and market insights free of charge and, for larger winemakers, at a reasonable price. Coles Group and Endeavour Group should ensure such data is obtainable at the same level of granularity as the granularity of data provided to them for their own-brand wine labels.

Recommendation 12 – review the WET
A review of the Wine Equalisation Tax (WET) and WET rebate should be undertaken by relevant Australian government agencies to ensure they are still meeting policy objectives without unintentionally providing advantages for vertically integrated grape producers, winemakers and wine retailers. 

Recommendation 13 – ACCC should be adequately resourced
The ACCC should be given adequate resources to enforce the Code and the other recommendations of this Review (without the Department of Agriculture, Fisheries and Forestry being expected to provide those resources from within its existing budget).

Recommendation 14 – a working group should guide implementation
A working group should be established to implement the recommendations of this Review that are accepted by the Australian government, led by the Department of Agriculture, Fisheries and Forestry and including representatives of the ACCC and Treasury and relevant state government agencies, along with representatives of Wine Australia.