Dissenting report of Senator Nick Xenophon
The Wrath of Grapes
Enough is enough
The Australian wine industry, including grape growers and wine
producers, faces an existential crisis.
Successive Winemakers' Federation of Australia (WFA) Vintage Reports
have set out the parlous state of an industry that is both iconic and the
economic lifeblood of regional communities around the nation.
As noted in the report, a mismatch of supply and demand has been
accompanied by falling profits for wine makers. By 2014, an estimated 84 per
cent of producers were not covering their variable costs, up from 77 per cent
in 2012. This is in stark contrast to the United States and New Zealand
producers receiving positive returns over the past six years.
The WFA estimates that up to 70 per cent of total current Australian
wine and grape production maybe uneconomic. Further, the WFA Vintage Reports in
recent years paint an even bleaker picture, particularly for the warmer inland
regions. These regions, including the Riverland, Sunraysia and Riverina have
been hit hard by a perfect storm of factors that have driven up to 90 per cent
of the industry in those regions into unprofitability.
The dithering of successive Governments over the unintended consequences
of the WET rebate scheme, an anaemic export push for Australian wine, and the
supermarket duopoly have all hit the sector hard.
The inquiry, which I co-sponsored with my colleague Senator the Hon Anne
Ruston, now the Assistant Minister for Agriculture and Water Resources, was a
critical opportunity to set out in a non-partisan manner the scope of the
problems facing the sector, the urgent need for reform, and above all a pathway
for recovery and renaissance of this great industry.
Tragically, the opportunity to set out an urgent pathway forward has
been lost, with some of the key recommendations of the report failing, in my
view, to reflect the weight and gravity of the evidence presented.
It appears that obvious, sensible, measured recommendations for reform
and recovery have been ignored.
The great fear I have is that the views of the major parties expressed
through this committee will give cover to the Government to either avoid taking
urgent remedial action now, or worse, pursue options that will hasten the
demise of many hundreds of family enterprises, whether grape growers or wine
Putting the squeeze on these smaller and medium players will mean an
incalculable diminution and loss of social and entrepreneurial capital amongst
grape growers and wine makers, profoundly impacting on regional communities and
their economies. In turn, the forced consolidation this will bring will mean a
loss of diversity and vibrancy in this iconic industry.
I commend the committee in the consultative and fair way this inquiry
was conducted and the professionalism of the secretariat. The submissions
obtained, the evidence heard and the summary of the evidence in the report has
been a most useful exercise. I take issue with some of the recommendations
which, in my view, are fundamentally at odds with the weight of evidence
presented to the inquiry.
Wrong Way, Go Back
The report's first recommendation is as follows:
The committee recommends that the Government phase out the
current Wine Equalisation Tax (WET) rebate over five years, allocating the
savings to a structural adjustment assistance program for the industry
including an ongoing grant to genuine cellar door operators to support their
Respectfully, this recommendation is misconceived, goes against the
weight of the evidence, and is dangerously counterproductive.
The weight of the evidence provided to the inquiry is set out in the
report. It includes the glaring apparent problems with the WET rebate
Morphing way beyond its original purpose to deliver long term
benefits to industry, assist smaller wine makers and boost tourism in regional
The anomalous WET rebate for New Zealand wine producers, costing
between $25 million and $35 million per year. This, in effect, subsidises New
Zealand wine makers with our money to undercut and hurt Australian wine makers
and grape growers;
Evidence of wide spread rorting that occurs, the
multiple-transactions, the deals done on bulk and unbranded wine, all of which were
never intended when the scheme was established; and
These negative effects include pushing the price of wine grapes
down, putting smaller wineries under unfair pressure, and consolidating the
power of large retailers.
The reform proposal presented by key industry players, led by the WFA,
were measured, sensible and urgently needed. In summary these proposal are to:
Keep the WET rebate in line with the original policy intent
of delivering long-term benefits to industry and tourism in regional
Stop the rebate going to unintended recipients and shut down
Phase out the WET rebate on bulk and unbranded wine over
four years to advance strong brands that command consumer loyalty and
profitable margins to reinvest back into regional Australia;
Abolish the separate New Zealand rebate arrangements that
provide preferential treatment to NZ wine producers and replace it with a
level playing field for all claimants, irrespective of nationality;
Encourage winery consolidation, where appropriate, by
introducing transitional WET rebate measures that allow the separate
rebate entitlements of the merging entities to be phased down to one
entitlement over four years;
Return $44m of government savings from these reforms to
industry to boost marketing of Australian wine to grow export demand; and
Provide industry support to assist those impacted by the changes.
The WFA has conservatively estimated that their plan would have
delivered net savings to the Commonwealth of at least $234 million over the next
four years. My principal criticism of the WFA proposal was that the $44 million
proposed for marketing may not be enough given we have a lot of catching up to
do in building up world export markets.
These above proposals were in effect, initially put to then Treasurer Joe
Hockey and to Assistant Treasurer the Hon Josh Frydenberg MP. The parlous state
of the sector and representations across a broad sector of industry was the
impetus for the Treasury's WET rebate discussion paper, which, after seemingly
unnecessary delay was released in August 2015.
The discussion paper spelt out the problems with the rebate, including
the rorting (with a virtual ‘how to’ guide as to ways to rort the system) and
made a compelling case for reform.
Inexplicably, the Government is yet to announce its reform package
despite the palpable urgency of the situation. Harvest has already started and
it may well be the last harvest for an increasing number of wine grape growers.
The brutal reality is that there are increasing parts of Australia’s
iconic wine sector that are struggling to survive.
The apparent increase in wine and grape prices compared to last year’s
vintage harvest mask the increased cost of production since then – especially
To suggest, as the report does, that the WET rebate be phased out and
replaced with a specific grants program for some smaller wineries is throwing
the baby out with the bath water.
The most credible pathway to reform is that set out by the WFA and other
key stakeholders. It was a broad consensus position reached that is fairer and
more effective than any other proposals put to the committee.
Exports are the key to dealing with the supply demand imbalance.
Now is the time to seize the opportunity with the lower Australian
dollar and recently negotiated free trade agreements to turbo-charge our sales
of Australian wines to the world (although I am a trenchant critic of many
clauses in free trade agreements, particularly their impact on our
manufacturing sector, I acknowledge there is an upside for wine exports to some
Australia’s efforts to showcase, promote and sell Australian wine to
world has been largely anaemic. Our lack of appropriate presence in
international wine expos and trade shows has been largely embarrassing.
Our competitors have left us for dead in terms of their marketing push
and results for their producers.
I make the following recommendations:
Keep the WET rebate in line with the original policy intent of delivering
long-term benefits to industry and tourism in regional Australia;
Stop the rebate going to unintended recipients and shut down the
Phase out the WET rebate on bulk and unbranded wine over four years to
advance strong brands that command consumer loyalty and profitable margins to
reinvest back into regional Australia;
Abolish the separate New Zealand rebate arrangements that provide
preferential treatment to NZ wine producers and replace it with a level playing
field for all claimants, irrespective of nationality;
Encourage winery consolidation, where appropriate, by introducing
transitional WET rebate measures that allow the separate rebate entitlements of
the merging entities to be phased down to one entitlement over four years;
Return $44m of government savings from these reforms to industry to
boost marketing of Australian wine to grow export demand.
Provide industry support to assist those impacted by the changes.
Going Down, Down, Down – The Effect of the Duopoly on the Wine Retail
Chapter 3 of the report fairly sets out the concentration of the
Coles/Woolworths duopoly in a domestic wine retail market of 60 per cent, and
the increasing push for private brands.
The private brands push unambiguously puts ‘further price and margin
strain on growers and wine producers alike’ according to the Australian Small
Business Commission. With private brand sales going from an estimated 5 per
cent in 2005 to up to 20-25 per cent now, this is a disturbing trend.
I support the report's recommendation that the Government amend
labelling requirement so that wine labels must declare where the wine is
produced by an entity owned or controlled by a major retailer.
But we need to go further to allow small wine makers to grow and
flourish. A strong effects test in our competition laws is needed to
ensure abuses of market power do not occur. That test should not be fettered by
the ‘substantial lessening of competition’ proviso as set out in the Harper
Further, having divestiture powers in our competition laws as I proposed
in the Competition and Consumer Amendment (Misuse of Market Power) Bill 2014
would lead to a change of culture or behaviour amongst some larger corporation
in the way that they deal with smaller companies.
In addition, the codes of practice need to be overhauled and strengthen
to give a real right of redress to growers and wine producers alike.
I recommend an effects test in respect of abuses of market power.
I recommend divestiture laws as a penalty in cases of abuse of market
I recommend an overhauled and strengthened mandatory code of practice to
provide protection to growers and wine makers from unconscionable practices and
abuses of market power.
Senator for South Australia
Navigation: Previous Page | Contents | Next Page