Chapter 4
The role of AGWA and the export market
4.1
This chapter considers the role of the Australian Grape and Wine
Authority (AGWA) and the importance of research and development and data
collection for the wine industry. In considering the role of AGWA in promoting
Australian wine in the export market, the committee was struck by the small
amount that Australia spends compared with other countries.
Australian Grape and Wine Authority (AGWA)
4.2
The wine industry is served at the national level by AGWA, known as Wine
Australia. AGWA was created by legislation on 1 July 2014, merging the Grape
and Wine Research and Development Corporation and the Wine Australia
Corporation.[1]
The merger followed a formal submission from WFA and WGGA calling for a 'unified
whole‑of‑industry strategy.'[2]
4.3
AGWA is a body corporate with perpetual succession, with six to eight
appointed directors including a Chair. AGWA is required to produce an annual
report and hold an annual general meeting of the grape and wine industry.[3]
Its first five year strategic plan was released in July 2015, based on industry
consultation and submissions.[4]
In the Strategic Plan 2015–2020, AGWA forecasts projected income of between
$36.4 and 36.6 million per year over the forward estimates.[5]
4.4
AGWA funds research and development (R&D) activities for the wine
industry and maintains a register of Australian wine exports. Executive Officer
Mr Andreas Clark told the committee AGWA has had successes during its first 15
months of operation, stating:
...we realised operational savings of about $1 million; we have
invested in a range of new projects to quickly deliver value for the wine
community... we have increased our in-market engagement with events in UK,
Europe, US, Japan, Canada, South Korea, India, Mexico, Germany, Poland, Taiwan,
Hong Kong, Macau, Malaysia, Singapore and Denmark.[6]
Levy collection
4.5
AGWA collects three levies under the Primary Industries Levies and
Charges Collection Act 1991 —the grape research levy from growers and the
wine grapes levy and wine export charge from winemakers.[7] Industry
levies amounted to $17.2 million in 2012–13, including $11.6 million of wine
grape levies, $3.4 million of research levies and $2.2 million of export
charges.[8]
The Government matches the amount collected in research levies and on the promotion
component of the wine grapes levy.[9]
4.6
In addition to levy-based income, AGWA funds its regulatory activities
on a cost-recovery basis, charging licence application and renewal fees to
become a levy payer or exporter and product registration, export certificate
and shipping fees. It conducts 'user‑pays' activities including market
entry programs, retail promotions and master classes.[10]
4.7
Submitters including AGWA discussed the high administrative cost of levy
collection.[11]
AGWA stated that collection costs are more than $700 000 per annum, even after
a recent change to the collection of the wine export charge. From
1 September 2015, AGWA will collect the export charge alongside the wine
grape and grape research levies, where the Department of Agriculture previously
collected the charge. It was estimated that this will save $500 000 to
$600 000 per annum.[12]
4.8
AGWA submitted that it has 'ongoing discussions with the Department'
about reducing levy collection costs and that recent initiatives have already
achieved $515 0000 in savings, including:
...the removal of nil returns, better use of electronic
returns, an awareness and education program for levy payers, and the
introduction of a better‑targeted compliance method.[13]
4.9
AGWA attributed remaining costs to the 'large number of collection
points (processing facilities or wineries)', and has not 'identified any other
opportunities to reduce levy collection costs' without amendment 'to
dramatically reduce the number.'[14]
4.10
It was AGWA's submission that 'peak representative bodies should
consider whether the levy structure is optimal'.[15] AGWA
submitted that its levies must be 'spent for the purpose for which they were
raised' which 'restricts our ability to respond as needed to demand and to
deliver appropriate activities.'[16]
4.11
Some witnesses called for review of wine levy collection,[17] including on
the grounds that it imposes an 'unfair burden' on some industry participants.
It was submitted that growers from warm inland regions should not pay the same
as those from cool climate regions who receive higher prices for their grapes.[18]
On the other hand, the committee heard that those in cool climate regions
'believe the inequity is not so great' due to their higher production costs and
risk of crop reduction.[19]
Structure of AGWA
4.12
The committee heard limited discussion of a proposal to 'privatise'
AGWA, convert it into an industry body or delegate its functions to
representative organisations.[20] AGWA told the committee
the statutory model is not a natural fit, as:
...there are a range of obligations placed upon us which work
for a public service organisation but are more difficult to apply to an
organisation such as ours, which is quite small and which has a global
operation as well.[21]
4.13
It was the view of Wine Tasmania that an industry‑owned model may
enhance engagement and the strategic use of levies, explaining that:
...with a statutory body managing that, the representatives on
that body and perhaps the particular interests of that body may not really reflect
fully what the industry needs.[22]
4.14
These views were balanced by support for maintaining AGWA as a statutory
authority, provide it is well-resourced. WFA President Mr Tony D'Alosio AM told
the committee:
Australian Grape and Wine Authority is an important part of
the wine industry... We think it is right to have that. We think the policies
and plans they have announced are correct and they do deliver. There have been
good examples of good programs that they can run. Our assessment is that they
need money and support.[23]
4.15
AGWA acknowledged that the statutory model allows for integration of its
regulatory functions, and queried whether these could be performed within an
'industry-owned corporation.'[24]
Committee view
4.16
Noting its recent establishment, the committee does not consider that
AGWA should be restructured at this stage. The committee encourages industry to
contribute to the development of future strategic and operational plans for
AGWA so that any future representative and levy collection structure operates
efficiently and is responsive to industry needs.
Research and development (R&D)
4.17
The committee heard strong support for the government to continue
matching the research levy, currently paid by growers at $2 per tonne of grapes
crushed, as well as the R&D component of the wine grapes levy which is paid
by growers at a portion of $5 per tonne.[25] AGWA estimated it would
receive $11.5 million in R&D levy funds before the government's
contribution is added.[26]
4.18
AGWA explained that its R&D strategy spans short and long term
projects and targets both growing and winemaking activities. They described
their:
...supply-chain approach to RD&E investments... aimed at
increasing the sector’s long-term profitability and sustainability, which has
benefits for all levy payers and the wider community. Our investments range
from both short and long term applied R&D to blue-sky research where
success is less assured.[27]
4.19
AGWA uses its R&D budget to commission work from research providers
including Australian Wine Research Institute, Commonwealth Scientific and Industrial
Research Organisation and the National Wine and Grape Industry Centre.[28]
The work of the Australian Wine Research Institute was praised by some witnesses.[29]
For example, Mr Jeremy Dineen of Josef Chromy Wines told the committee that the quality of the Institute's work 'has been one of the
single biggest factors in our competitive and technical advantage' for over
50 years.[30]
4.20
AGWA R&D activities supplement those available to winemakers
directly under the R&D Tax Incentive. In 2012–13, the tax incentive was
distributed to 29 winemaking companies to provide for a total of
$29 million of R&D expenditure.[31] The Department of
Industry submitted that industry is able to access further 'largely untapped'
new programmes that 'offer a number of mechanisms to the industry to support
its efforts to tackle some of the issues it faces.'[32]
4.21
The committee heard examples of R&D being undertaken to grow wine
industry profitability. Wine Tasmania told the committee that it uses R&D
funding to plan for and anticipate future growth, stating:
...our partnerships with the department of primary industries
in Tasmania, the university and TIA—the Tasmanian Institute of Agriculture—are
to do some more research into how we look at evening out and improving better
predictability of yields and better yields, determining what is the right space
to yield.[33]
4.22
Likewise, Ms Victoria Angove of Angove Family Winemakers told the
committee that R&D prepares wine businesses for future challenges, noting
that:
...climate change is an issue for every agricultural business...
it highlights the importance of research and development and what we can do to
ensure that our agricultural crops, including the vineyards, are best suited to
deal with the challenges of climate change.[34]
4.23
Given its significance to future business planning, the committee heard
that industry would not support 'a redistribution of levy funding to marketing
at the expense of R&D'.[35]
The importance of future-focussed R&D is a theme of WFA's 'roadmap for
recovery' document Actions for Industry Profitability 2014–16.
Consultations undertaken by WFA had:
...highlighted the important role of innovation and increased
productivity for the Australian wine sector given the on-going challenges it
faces particularly as a high-cost producer.[36]
4.24
Further, WFA submitted that industry participants should have a voice in
the allocation of R&D funding:
It is important that industry play a role in setting AGWA’s
R&D priorities and that these priorities are used to guide the expenditure
of Government‑matched industry levies.[37]
Committee view
4.25
The committee notes the significance of R&D and data collection in
fostering intelligent business practices in the wine industry. In particular,
the committee has heard evidence that future-focussed R&D will be integral
to industry recovery from oversupply. The committee encourages AGWA to consult
widely with industry in order to invest in targeted R&D in both warm and
cool climate regions, with a particular focus on growing the business of smaller
growers and producers.
Recommendation 6
4.26
The committee recommends that Government continue to match the grape
research levy and wine grapes levy income collected by the Australian Grape and
Wine Authority.
Data collection
4.27
The committee heard that there is currently a 'data void'[38] or 'data
intelligence gap' in the grape and wine industry.[39] Better access
to improved data was a priority for witnesses and submitters.[40] AGWA
Executive Officer Mr Andreas Clark argued that better information leads to
better commercial decision-making, stating:
We fundamentally believe that the industry needs
comprehensive information and insights into a range of data—whether it is
production that is supply based or demand based—to make informed decisions. We
believe there are significant gaps at the moment in that information base.[41]
4.28
Commercial arrangements between growers and winemakers would be
simplified if data collection improved, the committee heard. WFA submitted
that:
... the provision of better information relating to supply and
demand throughout the season would assist growers make better business
decisions and remove the need for indicative pricing. Such information would
best be provided by the Australian Wine and Grape Authority and/or a
well-respected and independent research organisation such as ABARES.[42]
4.29
The committee heard evidence in favour of industry-owned data collection
by AGWA.[43]
AGWA has requested mandatory collection powers to assist in the development of
'an industry-owned national grape and wine database'.[44] They aim to
improve the quality of data while at the same time reducing the burden of data
collection on industry.[45]
WGGA submitted in support of this function, stating:
AGWA needs to be granted the legislative authority to make
the provision of data by individual operators mandatory combined with the
necessary assurances of comprehensive privacy and confidentiality.[46]
4.30
Wine industry data collection to date has been conducted primarily by
the Australian Bureau of Statistics (ABS). The committee notes the continued
intention of ABS to continue its 'legislated statistical leadership role'.[47]
ABS submitted that 'there are sources of data which are not being used to their
statistical potential,' for example, 'administrative records obtained through
the process of collecting levies.'[48] They also noted that
satellite or drone imagery and associated analytical tools can assess vineyard
health and growth potential, including identifying regional trends.[49]
4.31
ABS data collection has reduced since 2012–13 alongside 'a shift to
becoming a user-pays organisation.'[50]
ABS submitted that their last Vineyards Census was conducted in 2012–13.[51]
Their website stated the census is now biennial and AGWA will fund the 2015 and
2017 iterations.[52]
The Australia Small Business Commissioner considered the reduction 'had an
effect on individuals being able to make informed business practice decisions.'[53]
Committee view
4.32
The committee acknowledges the need for a return to a reliable, annual
source of industry data, and encourages Government to ensure this is
appropriately funded.
4.33
The committee has not heard significant evidence to justify providing
AGWA with powers and funding to collect wine industry data when the ABS has
historically performed this function to a high standard. Rather, the committee
encourages ongoing consultation between Government and industry to ensure data
collection is prioritised.
Recommendation 7
4.34
The committee recommends that Government give further
consideration to the roles of the Australian Grape and Wine Authority and the
Australian Bureau of Statistics in wine industry data collection.
Recommendation 8
4.35
The committee recommends that funding be allocated so that the
production of the Vineyards Census is resumed on an annual basis.
Export market
4.36
Exports account for approximately a third of sales of Australian wine.
In 2014–15, the export market generated $1.85 billion.[54] Wine exports
make a further indirect contribution to tourism revenue and national pride, as
WFA submitted:
Wine is a truly value-added Australian Export. No other
commodity carries its Australian heritage in quite the same way as a bottle of
wine. Australians are rightly proud of their wine industry and how it has
managed to take on the Old World and produce wines of exceptional quality
across all price points.[55]
4.37
Australia's main export markets are the United States, the United
Kingdom, China and Canada.[56]
WFA reported that Australia saw a rise of 3.6 per cent in volume and 3.9 per
cent in value for the year ending March 2015.[57] Of
Australia's approximately 2573 winemakers, the three largest, Accolade, Pernod
Ricard Australia and Treasury Wine Estate, account for the majority of wine exports.[58]
4.38
Despite recent pessimism, there are 'positive signs of recovery' for
Australia's export market.[59]
Wine Australia's Export Report September 2015 reported 'the strongest
rate of growth since export value peaked in October 2007' in the 12 months to
30 September 2015 after the value of wine exports rose 8 per cent to $1.96
billion.[60]
WFA submitted that the favourable exchange rate, free trade agreements and
renewed interest from North America all augur well for Australia wine exports.[61]
4.39
Australia is the fifth largest wine exporter by volume in the world, but
in some markets including the USA we rank as low as tenth in average value.[62]
Mr Warren Randall from Seppeltsfield Wine recalled that Australia has
recently fallen behind Chile as a leading wine exporter.[63] WGGA
attributes the drop to quantity rather than quality, telling the committee
that:
Brand Australia was flavour of the month during the 1990s. We
saw massive interest from the United Kingdom, the United States—it was front
and centre of the consumer's perception in those places. But I believe that the
industry in general probably focused too much on volume development and not
enough on quality development.[64]
4.40
The relatively low value of Australian wines overseas may be influenced
by our modest international marketing spend. The committee heard that Australia
invests considerably less than many European nations in wine promotion, which
puts our industry at a commercial disadvantage, including at home. AGWA
received approximately 1 per cent of Italy's wine marketing budget in
additional funding from between 2009 to 2013, as AGWA reported:
Over the period 2009 to 2013 Wine Australia received $2.1
million. That was additional support for marketing activities over and above
the industry revenue from levies or user-pay charges. That was equivalent to
about 1.4 million euros. Over the same period of time Italy received 189
million euros; France, 141 million euros; Spain, 117 million euros; and
Portugal 38 million euros.[65]
4.41
The extent to which Australia's wine regions have capitalised on export
opportunities varies. The University of Adelaide reports that 'South Australian
wineries have always been the most export focused', processing approximately
70 per cent of Australia's total export volume.[66] In Western
Australia, 2005 was the 'key turnaround point' for export growth which peaked
at 30 per cent. The committee heard the Western Australian exports are now
'down to 15' per cent.[67]
AGWA's role in exports
4.42
AGWA plays a central role in the Australian wine export market. Since
its commencement in July 2014, AGWA has issued export licences and permits to
exporters, maintaining the register of protected geographical indicators and
advising local producers on international wine composition and labelling
requirements.[68]
4.43
AGWA estimated that it would receive $5.7 million in 2015–16 from the
Wine Export Charge and the promotion component of the wine grapes levy. This
amounts to approximately 15 per cent of AGWA's income.[69] They
submitted that:
With this market development funding we will maintain our
market development staff in Australia, the United Kingdom, North America and
China, and conduct around 70 core market development activities.[70]
4.44 AGWA submitted that its market development staff 'provide knowledge,
insights and assistance' to producers looking to explore and develop export
markets.[71]
4.45
Clare Valley representatives proposed that 'AGWA’s role should be one of
oversight to ensure that funding allocated is spent on relevant, appropriate
activities that are likely to be effective.'[72]
Export Market Development grants
4.46
Separate from funding administered by AGWA, the committee heard that some
wine businesses benefit from the overseas marketing support provided by the
Export Market Development Grants (EMDG) scheme.[73] The scheme
was described to the committee as 'generous and relatively easy
to qualify for', noting that it is open to a wide range of businesses, not just
the grape and wine industry.[74]
4.47
The EMDG scheme reimburses small and medium businesses for up to half of
the cost of 'eligible export promotion over $15 000.'[75] The
Government's commitment to EMDG grants peaked in 2009–10 at 4 675
recipients and payments of $198.1 million. They fell to $116.1 million and
2 445 recipients in 2013–14.[76]
4.48
The results of a review of the EMDG scheme were tabled on 19 August
2015, finding that the grants are 'integral to the success of Australia's
international businesses' and recommending a progressive increase to the
scheme's budget allocation.[77]
Austrade received $137.9 million for the EMDG scheme for 2015–16, and it was
recommended that this be increased over the next three years to
$175 million in grants to 4 000 claimants, including additional
administered funding.[78]
4.49
In addition to the EMDG scheme, witnesses argued that the wine industry
would benefit from 'more direct, targeted marketing support' for individual
producers.[79]
WFA explained that EMDG does not support ongoing activity, as:
People can only make so many applications and then they run
out. There is an opportunity to refresh that and allow them to make the
applications as well as looking at increasing that grant.[80]
Marketing Australian wine
4.50
The necessity of repositioning Australian wine in the global marketplace
was commented on by several witnesses and submitters.[81] WFA submitted
that 'structural reform and an impactful, strategic marketing effort' are
required to restore Australia's 'reputation as a producer of quality and
premium wines.'[82]
In the absence of such reform, WFA warned that the industry 'risks loss of global
competitiveness.'[83]
4.51
Most witnesses and submitters were in support of AGWA receiving
additional funding to market Australian wine overseas.[84]
WFA Chief Executive Officer Mr Paul Evans explained that the system of funding
marketing only based on levy collection has a structural flaw, explaining that:
...the way our marketing spend is currently funded is a levy on
exports. Of course that puts you in a bind: when your exports are at their
lowest the levy from the exporters is also at its lowest, so you cannot dig
yourself out of the hole.[85]
4.52
As noted above, Australia's additional marketing spend is a fraction of
that spent by European competitor nations. To put AGWA's funding into
perspective, winemaker Treasury Wine Estates submitted that its private
marketing activity eclipses the combined AGWA spend on R&D, regulatory and
marketing activity.[86]
4.53
As well as requesting an increase in funding, witnesses and submitters sought
more input into AGWA's marketing spend.[87]
The committee heard that a 'combination' or 'twofold' approach is necessary,
supporting both national and region-specific marketing.[88]
4.54
Wines of Western Australia submitted that 'the user pays system remains
unpopular and creates disunity as it is perceived to cater to large companies
only.'[89]
They suggested that levies themselves could be more equitably distributed.[90]
Clare Valley representatives called for more targeted levy-based funding
specific to their region, and more inclusive marketing activities by AGWA,
because:
Despite paying a levy... smaller producers arguably receive
very little net benefit from either the overall “brand Australia” marketing
initiatives or the user-pays activities that they cannot afford.[91]
4.55
Differently, Treasury Wine Estates argued that given its limited
resources, 'AGWA should not provide support at the regional level within the
domestic market.' They submitted:
TWE has strong reservations about using scarce funds for
education and other domestic activity to compete with imports. Trying to change
consumer behaviour in these areas could soak up the entire AGWA marketing
budget with very little appreciable outcome.[92]
4.56
Marketing to follow free trade agreements was popular among witnesses
and submitters.[93]
Treasury Wine Estates Director Mr Roger Sharp proposed that Australia would
benefit from targeted promotion in new markets:
...in many cases the Australian wine category is competing in
markets with major competitor nations such as New Zealand and Chile, which
already have tariff-free access. A burst of marketing activity after the
signing of an FTA would greatly assist the industry to make the most of
positive developments in Australia's trading relationships.[94]
4.57
Noting that Western Australian wine exports have dropped to 15 per cent,
submitters requested AGWA appoint an export development officer based in Perth
to address 'shortfall and resourcing' issues.[95] Wines of
Western Australia proposed that in line with their Strategic Plan, the officer
would help the next 50 'hero brands' get 'market access – to open those doors
that are difficult for small companies to open.'[96]
Committee view
4.58
The committee was surprised to learn that Australia invests far less
than competitor nations in growing demand for its wine in international markets.
The committee notes evidence that the lack of promotion has had a negative
impact on the sales and reputation of Australian wine. On balance, submitters
and witnesses were positive about the marketing assistance provided by AGWA and
the Export Market Development Grants Scheme. Some called for more targeted and
strategic use of funding by those programs, and many called for a boost to
their funding.
4.59
The committee encourages AGWA to work towards more even distribution of
the marketing spend across the wine industry. In particular, the committee encourages
AGWA to explore further opportunities for smaller producers to participate in
user‑pays activities on a discounted basis. The committee would support a
regional partnership approach between smaller and larger producers in terms of
shared marketing and promotional opportunities.
Recommendation 9
4.60
The committee recommends that Government commit to increasing
export demand for Australian wine by considering whether current opportunities
for industry participants to increase exports through the Australian Grape and
Wine Authority and the Export Market Grants Development Scheme are fully
optimised or would benefit from redesign.
Recommendation 10
4.61
The committee recommends that the government significantly
increase its funding to wine export market development.
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