Chapter 1Introduction
Referral and conduct of the inquiry
1.1On 19 September 2024, the Senate referred an inquiry into the Australian winegrape purchases code of conduct to the Rural and Regional Affairs and Transport References Committee (the committee), with a reporting date of 28 February 2025.
1.2The inquiry was established to look into the adequacy of the voluntary Code of Conduct for Australian Winegrape Purchases (code), with reference to:
(a)the structure of, and any inequities in, the Australian winegrape and wine processing market;
(b)the nature and impact of current market and trading arrangements on the winegrape and wine processing industries;
(c)the impact of the current market structure on employment conditions for workers in the supply chain;
(d)the availability, transparency and accessibility of winegrape market price information and its effectiveness in forecasting winegrape prices and demand;
(e)the effectiveness of the current administration of the code;
(f)the adequacy of winegrape and wine industry representation at regional, state and national levels;
(g)policy and regulatory options to improve market competition and address any inequities, including the potential benefits and limitations of a mandatory code, and the applicability of existing mandatory codes of conduct in other primary industries; and
(h)any other related matters.
1.3The committee called for submissions by advertising the inquiry on its website and writing to a broad range of stakeholders to invite submissions. Submissions were closed on 18 October 2024, however, some late submissions were also accepted. A total of 15 public submissions were accepted and are available on the committee's website.
1.4The committee held three public hearings, including one in Renmark on 12 December 2024, and two in Canberra, on 7 February 2025 and 12 February 2025. A list of submitters and witnesses is provided at Appendices 1 and 2.
Acknowledgements
1.5The committee thanks the many individuals who made written submissions and gave evidence at public hearings. The opportunity to hear directly from so many people about their experiences significantly enhanced the committee's understanding of the adequacy of the code.
Structure of the report
Chapter 1—Introduction and background—covers referral and conduct of the inquiry, committee acknowledgements, and background to the inquiry. The background section provides insight on the Australian wine industry, differences between regions, value to the Australian economy, a description of the Code of Conduct for Australian Winegrape Purchases, and a summary of previous inquiries on the subject.
Chapter 2—The state of Australia’s wine industry—covers the structure of the industry, historic reasons for the oversupply of grapes, tariffs on Australian exports, changing consumption habits, and the impacts of the current market on wine grape growing communities.
Chapter 3—The Code of Conduct for Australian Winegrape Purchases—examines the code, imbalances in power dynamics in the industry, and inequities in supply terms.
Chapter 4—Strengthening the code and securing a sustainable wine industry—examines structural adjustments, ideas to strengthen the code, and potential diversification in the sector.
Wine industry background
1.6The Australian grape and wine sector is made up of more than 2 000 wineries and 6 000 grape growers across 65 distinct wine grape growing regions. More than 100 different grape varieties are grown in Australia across 146 244 hectares of land producing around 1.73 million tonnes of wine grapes annually. From this, an average of 1.25 billion litres of wine is produced each year, making Australia the fifth largest wine producer in the world by volume and sixth largest by value. Wine Australia advised that the sector is currently dominated by large businesses, with over 75 per cent of all Australian wine production coming from just 30 wineries.
1.7The majority of Australia’s wine grape production comes from the south-east of the country and regions are referred to as either warm or cold climate areas. The three warm climate regions are the Riverland, Murray Valley, and Riverina (which also encompasses Sunraysia). These three areas account for approximately two-thirds of Australia’s wine grape production. There is a perception that the warm climate regions produce lower quality grapes than the cool climate regions, and so the majority of grapes grown in warm climate regions are used for commercial, low-value wine primarily for exports.
1.8Most grape growers in the warm regions are not involved in wine production and generally sell grapes to winemakers under supply agreements that pay based on volume and quality. The Hon Nicola Centofanti MLC submitted that wine produced in warm inland regions is predominantly produced by a small number of large wine companies. This area produces large volume blends which are made with low margin and often dispatched in bulk. The wine may be bottled at destination and sold to the consumer as a bottled, branded wine. Bulk wine is usually sold entirely based on price, with less capacity to command brand value.
1.9In contrast, most cool climate growers are both growers and producers with a greater presence of small winemakers growing their own grapes. The Tasmanian Government submitted that up to 70 per cent of the state’s wine industry consists of processors who also grow their own grapes. This sector is dominated by bottled, branded product. There are bulk wine sales from all Australian wine regions, but this part of the market usually has higher value per volume and is sold on characteristics other than just price.
Figure 1.1Map of warm climate growing regions
Source: ACCC, Wine grape market study final report, September 2019, p. 43.
1.10The wine industry is a significant contributor to the national economy, with an estimated value of $45 billion. Winegrape production accounts for nearly $1 billion, while wine processing contributes approximately $5 billion. The industry provides further economic benefits beyond its direct output by supporting jobs in agriculture, manufacturing, and tourism. Overall, more than 160 000 people are employed in Australia’s wine regions.
1.11The industry is comprised of a wide range of businesses from small, family-owned farms to large corporate winemakers and major retailers. The sector is also fragmented, with grape growers consisting mainly of small and family-owned vineyards while the winemaking market is heavily concentrated in a few major players, particularly in the warm climate growing regions.
Figure 1.2Wine grapes supply chain
Source: ACCC, Perishable agricultural goods inquiry final report, December 2020, p. 44.
1.12The ACCC has noted that the Australian wine grape industry is unique when compared to other agricultural sectors. These differences include:
considerable variance in the quality and price of grapes, ranging from less than $300 per tonne for some varieties in warm climate regions, to over $8000 per tonne for some premium quality varieties in cool climate regions;
broad diversity of businesses ranging from the very small, single label wine producers to the large processors, like Treasury Wine Estates, with a market capitalisation of around $11 billion; and
long lead times associated with grape growing and winemaking. Newly established vines take at least three years to produce fruit, and wine is not ready for sale for between six months and five years after grapes are harvested.
Code of Conduct
1.13The Code of Conduct for Australian Winegrape Purchases (the code) was signed by representatives of the former Winemakers’ Federation of Australia and Wine Grape Growers Australia on 19 December 2008. It is now administered by Australian Grape and Wine (AGW). The code was significantly amended in November 2020 following a comprehensive review by the Code Management Committee (the Code Committee) between 2019 and 2020, and by the Australian Competition and Consumer Commission (ACCC) in 2019. As at October 2024, 83 winemakers were signatories to the code out of approximately 2150 wineries in Australia.
1.14The code is a voluntary industry code. Winemakers can elect to become a signatory, after which the code governs their dealings with winegrape growers. Where the code is incorporated into a contract by reference, it will have contractual force. The purpose of the code is to support fair dealings between buyers and sellers of grapes, provide an effective and equitable resolution process for disputes, and to improve relations between growers and winemakers.
1.15In developing the code, the Code Committee agreed on several important principles to be considered, including that the code should:
be practical and user-friendly;
be written in plain English, avoiding ambiguity and vagueness;
allow for appropriate levels of flexibility, whilst providing parties to a grape supply agreement (Agreement) with confidence and certainty regarding purchasing and pricing arrangements;
require Signatories to deal with Growers in good faith, and with due regard to each party’s legitimate business interests;
require that, where pricing is not fixed, the mechanism for determining price be clearly stated in the Agreement;
be supported by the provision of accessible, relevant and timely analysis of market trends, particularly in warm climates, to assist grower decision-making and adaptation to changing market conditions;
prevent Growers from suffering detriment for reasons other than those based on a failure to meet agreed specifications or other terms clearly outlined in their Agreement;
prohibit unfair contract terms, including those involving unilateral variations;
discourage lengthy payment terms; and
introduce a dispute resolution process for parties to Agreements.
1.16While the code makes note of these principles, it does not preclude producers and growers from reaching their own arrangements.
1.17The code includes a requirement for a formal review every three years or as otherwise considered appropriate by the Code Committee. The Code Committee reviewed the code regularly in its first year of operation and made several minor amendments to improve clarity of wording. A more formal review was conducted in 2023 that resulted in simplification of the steps required for a grower to lodge a dispute under the code. This review also considered shortening payment terms, however, no action was taken in order to maintain an optimal balance between strengthening the code and ensuring that signing it would not put signatories at a competitive disadvantage to non-signatories. The Code Committee reiterated that the primary objective at the time was to increase the number of signatories and coverage of the code.
Code Management Committee
1.18Responsibility for the administration of the code lies with the Code Committee. The Code Committee is made up of eight members, with equal representation from winemakers and growers, and an independent Chair. The Code Committee is elected by a sub-committee of the AGW board. Where there is a breach of the code by a signatory, the Code Committee has the authority to remove the signatory and may refer the matter to the ACCC.
1.19The Code Committee meets three times each year with additional meetings being called when necessary. According to its Charter, the Code Committee undertakes roles including the administration of the code, managing the business operations of the code, monitoring the operation of the code and recommending any amendments, endorsing the appointments of technical experts and conciliators, and conducting a formal review of the code every three years.
Effects of the code
1.20The code contains operative parts applying to grape supply agreements, grape prices and payment terms, grape assessments, and dispute resolution. Winemakers may become signatories to the code by giving written notice to the Code Committee. In becoming signatories, winemakers agree to adopt and be bound by the provisions of the code in their dealings with grape growers. A winemaker may cease to be a signatory by providing written notice to the Code Committee or if removed by the Code Committee due to breaches.
Grape supply agreements
1.21Under section 3.1 of the code, ‘all agreements must be in writing and expressed in clear terms’. However, the explanatory note to section 3.1 acknowledges that, given the nature of the wine industry, many agreements are made verbally in the ‘heat of vintage’. Although verbal agreements are enforceable under law, having a written record avoids ambiguity and the imperfection of human memory and provides certainty in rights and obligations. As such, section 3.2 provides that, when any non-written agreement is made, signatories must, as soon as practicable, make a written record of the agreement, provide a copy of that record to the grower, and make all reasonable efforts to obtain a written acknowledgement from the grower that the written agreement is complete and accurate.
1.22Any agreements entered into by a signatory must contain a statement that the code is incorporated by reference. Where a signatory does not incorporate the code by reference into its agreements with growers, it will be in breach of the code. Signatories may negotiate alternative positions outside of the code provided that the new position is negotiated in good faith, is by mutual agreement, and leaves the grower no worse off overall.
1.23The code notes that ‘harvest and delivery of grapes is highly time-sensitive and logistical challenges can be a common source of tension’. As such, signatories must try to take delivery of grapes as soon as possible after meeting agreed specifications, such as target Baumé, total acidity, or pH level. This is not always possible though, as delivery of grapes immediately upon them attaining maturity may be constrained for capacity and logistical reasons. As harvest delays can have serious yield and quality impacts, it is best practice that consideration should be given as to whether viticultural risk should pass to the winemaker if harvest is delayed due to reasons within their control, or if the grower should be compensated for prejudice to the crop, due to a delay in harvest outside of the control of the grower.
Grape prices and payment terms
1.24Under section 4.1 of the code, agreements must clearly set out one or more of the following pricing mechanisms:
the fixed price that the signatory will pay for the grapes;
the base price the signatory will pay for the grapes (subject to adjustment);
the grade prices the signatory will potentially pay for the grapes (whether or not subject to adjustment);
that the price payable for the grapes will be the ‘fair market price’ or the ‘weighted district average price’ of the grapes; or
such other pricing formula that will be used to determine the price of the grapes (which must be objective); and
on what date the calculation will be made and notified to the grower.
1.25Where the price of the grapes is to be the ‘fair market price’, the signatory must notify the grower of that price within the relevant time period set out in the Price Offer Notification Schedule. The Price Offer Notification Schedule requires that the price offer be provided by close of business on the second Wednesday of December prior to vintage in the following geographical regions:
Greater Perth (including Swan Valley, Swan District, Perth Hills or Peel);
Hunter Valley (including Hunter, Broke Fordwich, Pokolbin or Upper Hunter Valley);
Big Rivers (including Murray Darling, Pericoota, Riverina or Swan Hill);
North West Victoria (including Murray Darling or Swan Hill); or
Lower Murray (including Riverland).
1.26For all other regions, signatories must provide the grower with the price offer by close of business on the second Wednesday of January prior to vintage. If an agreement is entered into after the relevant time period, the signatory must notify the grower of the price of the grapes at the time the agreement is entered into.
1.27In general, pricing mechanisms should, to the extent practicable, be objective and not allow the opportunity for a winemaker to influence the price payable to the grower, except by assessments for grading or bonus payments.
1.28In addition to grape prices, the code sets out the following payment terms that must be adopted as a minimum by all signatories:
one third of the total payment by the end of the month following the month during which the grapes were delivered;
one third of the total by the end of June; and
the balance by the end of September.
1.29Where a signatory fails to meet these payment terms, interest should be paid to the affected grower at commercial rates. Signatories may negotiate different payment terms to those set out in the code provided that the alternative position is at least as attractive to the grower.
1.30The code also notes that, in South Australia, the Minister for Primary Industries and Regional Development may make a Ministerial Order to fix payment terms and conditions under the Wine Grapes Industry Act 1991 (SA). This Act allows the Minister to determine terms and conditions relating to ‘the time within which payment for wine grapes must be made by processors’, and payments ‘to be made by processors in default of payment within that time’. Any terms and conditions fixed by Ministerial Order are implied in every contract for the sale of winegrapes from a grower to a processor and any provision of a contract that is inconsistent with the terms is considered void.
Grape assessments
1.31Grapes are generally assessed against maturity, purity, and condition standards (MP&C Standards). They are also often assessed to determine their inherent quality in order to ascribe a particular grade to them. The code requires any MP&C Standards, grading parameters, benchmarks, or other specifications or terms affecting price, to be clearly communicated in agreements, including how price deductions or bonuses are to be applied. The timing and methodology of these assessments should also be specified. Under section 5.1 of the code, all agreements must clearly outline the following:
(1)any MP&C Standards the Grapes will be assessed against;
(2)any parameters/benchmarks against which Grading will be undertaken;
(3)the methods the Signatory will use to assess the Grapes against the MP&C Standards;
(4)any methods agreed between the parties for the Signatory to Grade the Grapes; and
(5)at what point any assessments or Grading will be:
(i)made; and
(ii)the results notified to the Grower,
for the purpose of potentially:
(6)determining the price of the Grapes;
(7)applying Price Deductions to the Grapes;
(8)making bonus payments in relation to the Grapes; and/or
(9)rejecting the Grapes.
1.32In assessing grape quality, it is best practice for signatories to involve their growers as much as possible. Where practicable, grapes should be assessed against the agreed standards prior to harvest, subject to final assessment post-harvest at the farmgate or the winery. When assessing grapes, signatories must avoid the use of subjective measures to determine price where credible objective measures are available, use Industry Endorsed Standard Procedures, and clearly document their methodology and results. Agreements must also clearly outline the sampling and testing methods that will be used to assess grapes.
1.33Following the assessment, the code mandates that no price deductions may be applied or grapes rejected unless they have failed to meet the MP&C Standards or other specifications contained in the agreement. A signatory must notify the grower of any decision to impose a deduction or reject grapes as soon as practicable following the assessment, ideally within 72 hours of any pre-harvest assessment in the vineyard or within four hours of any post-harvest assessment at the farmgate or winery.
Dispute resolution
1.34The code contains an explanatory note acknowledging that disputes over price reductions or grape rejections are often time-sensitive and need to be resolved within a few hours to avoid deterioration in the grapes. It notes the importance of factoring in the time-sensitive nature when determining the appropriate timeframe for a dispute resolution process.
1.35Dispute resolution procedures are laid out in Appendices 1 and 2 of the code. Court proceedings in relation to a dispute may not proceed until all other dispute resolution procedures have been exhausted. The first step in a dispute is for the grower to submit a ‘Notice of Dispute’ to the secretariat who will then notify the winemaker. The notice must specify the nature of the dispute, whether the dispute is time-sensitive, the desired outcome, and reasoning as to why that outcome is just. The secretariat may then liaise with both the grower and the winemaker to facilitate resolution of the dispute.
1.36If the dispute is not resolved after providing notice, the parties may agree to having an independent expert settle the dispute or, if they cannot agree, the secretariat will select an impartial expert. The independent expert will then determine their own processes, and the parties will comply with them, before a determination is delivered. Under section 6.3(b) of the code, ‘the parties shall be bound by an independent expert’s determination, in the absence of manifest error or misconduct’. Failure to comply with a determination will be considered a breach of the code.
Previous reports and inquiries
1.37Several inquiries and studies have been conducted by committees and organisations examining the level of competition in the wine sector. The key inquiries are summarised below.
RRAT References Committee inquiry into the operation of the wine-making industry
1.38In October 2005, the RRAT References Committee tabled its report into the operation of the wine-making industry. The inquiry was sparked by complaints from grape growers about the viability of their operations and their business relations with winemakers. The problems identified were the result of an increase in planting of vines in the late-1990s following a decade of strong growth in the wine industry. These vines were then ready for harvest in the early-2000s, causing grape prices to fall, while wine production increased at a rate faster than sales, creating a glut of unsold reserves.
1.39The committee made the following four recommendations:
Recommendation 1
The committee recommends that the Department of Agriculture, Fisheries and Forestry should consult with state authorities and peak bodies with a view to establishing a national register of vines.
Recommendation 2
The committee recommends that the Government should give priority to amending the Trade Practices Act 1974 to add unilateral variation clauses in contracts to the list of matters which a court may have regard to in deciding whether conduct is unconscionable.
Recommendation 3
The committee recommends that the Government, in consultation with representative organisations for winegrape growers and winemakers, should make a mandatory code of conduct under the Trade Practices Act to regulate sale of winegrapes.
Recommendation 4
The committee recommends that any national wine industry body should be separate from a winemakers representative body.
1.40In recommending a mandatory code, the committee reasoned that a voluntary code would not be enough to protect growers with weak bargaining power:
The more ethical winemakers would presumably follow the code; the less ethical would not. Given the strong evidence of poor business relations and exploitation of growers by some winemakers, the committee thinks that a mandatory code is justified.
1.41The committee also noted that ‘a mandatory code should not be regarded as replacing or superseding cooperative action by industry groups’ and that ‘to minimise disputes it is essential to promote a shared culture of how the industry should operate, and to have industry standards which both growers and winemakers have contributed to and are committed to’.
RRAT References Committee inquiry into the Australian grape and wine industry
1.42In February 2016, the RRAT References Committee tabled its report into the Australian grape and wine industry. As part of the inquiry terms of reference, the committee looked into:
the extent and nature of any market failure in the Australian grape and wine industry supply chain;
profitability of wine grape growers;
effectiveness of grape and wine industry representation;
the power and influence of retailers of Australian wine in domestic and export markets; and
the adequacy and effectiveness of market intelligence and pricing signals in assisting industry and business planning.
1.43In examining the code of conduct during the inquiry, the committee was of the view that there was value in a voluntary and industry-owned code of conduct. However, it believed that the code had not reached its potential as a fair dealing framework and was disappointed with the low levels of uptake of the code. As such, the committee made the following recommendations to review the code and possibly make it mandatory:
Recommendation 11
The committee recommends an independent review of the Australian Wine Industry Code of Conduct, to report to Government before 30 June 2016.
Recommendation 12
The committee recommends that if targets for increased uptake of the Australian Wine Industry Code of Conduct are not met, the Government, in consultation with representative organisations for growers and winemakers, reconsider the development of a mandatory code before the end of 2017.
1.44The Australian Government noted these recommendations and considered any review of the code to be a matter for industry.
1.45Other recommendations pertinent to this report included:
amending labelling requirements so that wine labels must declare whether wine is produced by an entity owned or controlled by a major retailer;
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; and
that funding be allocated so that the production of the Vineyards Census is resumed on an annual basis.
ACCC Wine Grape Market Study
1.46In September 2019, the ACCC released the final report into its wine grape market study. The study was undertaken due to concern by the ACCC about the level of competition between winemakers for growers’ grapes. The ACCC noted that ‘growers operating generally small-scale farms typically produce grapes under contract to a relatively small number of very large-scale winemakers’, particularly in the warm climate growing regions of the Riverina, Murray Valley and Riverland. The contractual arrangements between growers and winemakers in these regions has frequently been the subject of concerns raised with the ACCC. Key findings of the study included:
limited competition for wine grapes due to market concentration and contracting practices;
variations in assessments of quality of wine grapes and a lack of transparency in assessment testing;
insufficient price transparency;
variations in supply agreements, including unfair contract terms;
the ineffectiveness of the code in addressing industry problems.
1.47The ACCC ultimately made ten recommendations relating to the above issues, including the introduction of uniform national quality testing standards, the adoption of a best practice standard of payment within 30 days of the final grape delivery, a review of current standard form contracts to remove any unfair contract terms, and the substantial strengthening of the code of conduct.
1.48In December 2021, the ACCC released a follow-up report to the study. In the follow-up, the ACCC noted improvements in the industry and did not recommend that a mandatory industry code be introduced. For such a recommendation to occur, ‘the ACCC would need to see more evidence that the current trajectory of improvements to commercial practices under the self-regulation approach has stalled’.
1.49However, the follow-up also noted varied progress towards some of its recommendations, particularly those relating to price transparency and payment terms. The ACCC found that no progress had been made towards the recommendation about gathering, aggregating, and publishing pricing data by winemaker for each variety in each warm climate region before the end of each financial year. This recommendation was strongly opposed by winemakers at the time of the initial study and the submissions to the follow-up review indicated that that opposition remained.
1.50Similarly, feedback from stakeholders indicated that while some winemakers had moved towards shorter payment timeframes, particularly in the Riverina region, others were ‘completely dismissive’ of the ACCC report and continued with delayed payment terms. In response to this feedback, the ACCC warned that ‘winemakers are fast approaching their last chance to improve price transparency or shorten payment times‘ and that ‘unless significant progress is made, the ACCC will take further action, including considering its enforcement options or recommending a mandatory code or additional legislation’.
Viticulture and Wine Sector Working Group
1.51In March 2024, Agriculture Ministers recognised the challenges facing Australian winegrape growers due to the oversupply of red wine grapes, particularly in the inland regions, and agreed to establish a Viticulture and Wine Sector Working Group (the working group). The working group aimed to develop ‘a national approach to address the oversupply of red wine and the acute issues being faced by the sector, and support future balance and profitability returning to the sector’.
1.52The working group consulted with grape growers, winemakers, industry representative bodies, local councils, and other key stakeholders in each of the three warm inland regions, as well as engaging with impacted parties in other areas. The final report contained six recommendations to address the challenges facing grape growers and winemakers and to support improvement for the long-term viability of the sector. The recommendations were:
Address mental health and financial challenges.
Address barriers to exit and diversify.
Provide data and insights for better informed decision making.
Examine commercial contract arrangements across the grape and wine sector supply chain.
Boost demand for Australian wine at home and overseas.
Improve industry leadership and long-term strategic direction, supported by investment in research and development.
1.53The working group also outlined 15 actions for industry and government to deliver the recommendations.
1.54The working group heard concerns about issues in contract arrangements with winemakers, including pricing, long payment terms, and inconsistent fruit quality standards. While these issues were the main areas of concern, the working group also heard of the difficulties in relationships between winemakers and retailers. The four largest retailers (Endeavour Group, Coles, Metcash and Aldi) hold a combined market share of almost 70 per cent. Endeavour and Coles alone dominate a 55 per cent share of the market. Some stakeholders also noted that, despite concerns about the relationship, retailers are an important part of the sector and provide economic opportunities for both grape growers and winemakers.
DAFF Grape and Wine Sector Regulatory Impact Analysis
1.55On 23 August 2024, the Hon Julie Collins MP, Minister for Agriculture, Fisheries and Forestry, announced that Dr Craig Emerson had been appointed to lead an independent impact analysis of regulatory options for the Australian grape and wine sector concerning fair trading, competitive relationships, contracting practices and risk allocation. The analysis was tasked with examining whether there is market failure in the grape and wine sector and to provide advice about regulatory or other interventions. At the time of tabling, the final report has not yet been released and is expected in early 2025.