Chapter 4Strengthening the code and securing a sustainable wine industry
4.1Strengthening the Australian Winegrape Purchases Code of Conduct (the code) and securing a sustainable Australian wine industry into the future requires a whole-of-industry approach. Although the relationship between growers, winemakers, and retailers can at times be strained, the industry can only recover and move forward through a collaborative approach that is fair for all parties. All links in the supply chain need to be strong and profitable if the industry is to prosper.
4.2This chapter will examine ways to strengthen the code and the Australian wine industry more broadly, including:
the case for making the Code of Conduct for Australian Winegrape Purchases mandatory;
improvements to payment terms and timeframes;
information and data sharing;
industry marketing and expansion into new markets; and
support for diversification within and outside of the industry.
The case for making the code of conduct mandatory
4.3The overwhelming sentiment among grape growers was that a mandatory code of conduct is necessary to create a fairer market for winegrape purchases. Power imbalances, unfair payment terms, and asymmetric information have all contributed to a feeling that the introduction of a mandatory code with enforcement mechanisms and penalties in place for non-compliance is the only way to deliver a fairer system.
4.4Growers asserted that, as price takers, they are at the bottom of the supply chain with little to no negotiating power. Mr Jason Perrin, Riverland grape grower, told the committee that a mandatory code with penalties was required because:
… the winemakers pass on every aspect of their market, consumer and company woes to the grape growers at the very bottom of the ladder. A wine company needs to improve its bottom line; slash the price of grapes again. It is the only link in their economic chain that they can manipulate pretty well unhindered, with no regulatory body to be accountable to.
4.5The lack of penalties for non-compliance with the current voluntary code was a prominent issue in the evidence received. While the voluntary code provides a useful template for contract terms, it is of little use if there are no penalties for not abiding by the terms. Ms Amanda Dimas, Riverland grape grower, stressed that, ’there is no way that you can look at this problem we are facing and not see the need for a Mandatory Code of Practice with the need to penalise those that don’t abide by the rules… our winegrape growers are in the red and not being paid for a minute of their hard long days’.
4.6Growers acknowledged that there are good elements to the current code, in particular the dispute resolution process which has provided a straightforward way for growers and wineries to settle any disagreements. Mr Perrin suggested that the ‘bones’ of the current code of conduct could be kept but that it simply needed to be made mandatory. He suggested that he would like to see a mandatory code as soon as possible, as ‘a lot of growers aren't going to survive to the 2026 harvest’.
4.7Other industry members urged caution in introducing a mandatory code, saying that the needs of all stakeholders must be considered and that unintended consequences may result. Mr Mick Keogh, Deputy Chair, Australian Competition and Consumer Commission (ACCC), warned that ‘a mandatory code should only be implemented where there is clear evidence of significant market failures causing harm to businesses’. South Australia Wine Industry Association (SAWIA) noted that many of the competition and structural issues impacting the wine industry, including supply and demand imbalance, price transparency, and financial sustainability, are not unique to the wine industry and are commonly found in many primary production industries. SAWIA warned that some of these are not solvable through regulatory means and could cause further unintended issues:
Matters such as depressed grape pricing are not matters which can, or should be, addressed through regulatory intervention. There is also a very real risk that increased regulatory intervention in the wine industry will result in small winemakers being driven out of the grape market as a consequence of shortened grape payment terms (e.g. 30-day payment terms) and increased business complexity, red-tape and cost of compliance, leading to a concentration of buying power amongst the mid to large-size winemakers. Further regulation may also erode the grape supply industry through indirectly forcing a shift to, and reliance on, bulk wine trading in order to avoid the need to comply with heavy regulation. Interventions that are a catalyst for either scenario would not improve the position of growers.
4.8Professor Kym Anderson, Executive Director, Wine Economics Research Centre, University of Adelaide, agreed, saying that if the big processors did not like the terms of a mandatory code, ‘it would add incentives to big producers of wine, big wineries, to increase more of their own grapes in their total production’ rather than buying from other growers.
4.9Winemakers reiterated the good points of the code and agreed that structural oversupply was the primary issue leading to depressed prices. Mr Joe Russo, Chief Supply Chain Officer, Accolade Wines, commented that the code is ‘generally operating well’ and ‘provides a robust and transparent mechanism for resolving disputes that is well utilised by industry’. Mrs Fiona Anderson, Senior Legal Counsel, Treasury Wine Estates, and representative on the Code of Conduct for Australian Winegrape Purchases committee, agreed that ‘there are so many significant benefits to the code’:
[T]he code does create a really positive tool, especially around contracting practices—things like setting out minimum terms to protect the grower and basic things such as having a contract in writing specifying maturity, purity and condition standards, minimum pricing terms and, as we've also heard, the dispute resolution procedures, which are there to protect the grower. So I think it's important to focus on the benefits there as well.
4.10Mr Russo acknowledged that ‘there is scope to continuously improve the code by increasing coverage and, potentially, strengthening penalty provisions’. However, Accolade Wines does not support the code being made mandatory. Mr Russo argued that prescribing a mandatory code would be significantly more complex and resource intensive, and that, in the view of Accolade Wines, there is no benefit of such a move that would outweigh the costs.
4.11Mr Kerrin Petty, Chief Supply and Sustainability Officer, Treasury Wine Estates, was ‘open-minded’ about a potential mandatory code. While reiterating his belief that ‘the heart of this issue is a structural oversupply’, Mr Petty noted that Treasury Wine Estates would be ‘open to participating in whatever is for the benefit of the industry’. If a mandatory code were to be introduced, it should be through ‘a collaborative process that's well understood, so that everyone's voice is heard’.
4.12Many stakeholders from across the industry made the point that the preparation of a mandatory code needs to be collaborative and include the entire supply chain.Mr Henry Crawford, Board Member, Riverland Wine, said that a code should not limit the market and that it should also address power imbalances further up the supply chain:
[A] code of conduct must not distort market signals or slow or prevent supply-demand rebalancing. Riverland Wine supports the implementation of the mandatory code, provided that there is extensive consultation on key terms, as there are risks to growers, and provided that a similar mandatory code be implemented between retailers and winemakers.
4.13The need for a code of conduct to consider retailers was also expressed by others. Mr Jeremy Cass, Board Member, Riverina Winegrape Growers, acknowledged that the winemakers are also ‘pushed around’ by the large retail groups, particularly Woolworths and Coles, and that strong wineries were necessary for growers to be successful:
[W]e've advocated, right from the beginning, for a code of conduct that doesn't stand between the wineries and the growers but goes all the way to the retailers. That's because, at the moment, the code that stands just between the wineries and the growers is in effect divisive. Basically, it pits one against the other. We want our wineries to be healthy because a healthy winery means that we're going to be healthy growers.
4.14The ability for winemakers to compete fairly in stores is critical to ensuring a sustainable and profitable chain from grower to retailer. Riverland Wine pointed out that the relationship between winemaker and retailer has an effect on growers. Any reduction in the value of wine through actions taken by the major retailers flows through to the growers, as winemakers pass those losses on. Riverland Wine argued that, if the ‘expectation is winemakers treat growers fairly through the application and adherence to a code of conduct, it is only reasonable that the key negotiating and trading terms also apply to retailers and distributors in their dealings with wine suppliers’.
4.15Mr Paul Derrico, Chief Executive Officer, Murray Valley Winegrowers, advocated for a mandatory code but warned that it would not be a ‘silver bullet’ that solves all of the issues in the industry. Further structural adjustments are required if the industry is going to recover to a sustainable state:
I would add that, mandatory code or not, what needs to be fixed is the industry. If there was a mandatory code tomorrow, the issues of the industry would still be there and we'd still be having all the problems. We talked about earlier pricing announcements. Five years ago when prices were good, there were no issues about announcing the prices earlier. We want better payment terms now. Again, when things were good in 2020 or thereabouts, you might've been able to get paid in 30 days or maybe a bit quicker. The code is just a symptom of the disease. The disease is that the industry's in the doldrums. It's that simple.
Indicative and minimum pricing
4.16Some growers called for a mandatory code with prescribed minimum pricing. Minimum pricing would enable growers to have certainty as they make decisions about how to manage their crop and provide security for their operations into the future. Evidence received suggested that minimum pricing, fixed pricing, or a transparent pricing mechanism should be a requirement of any grape and wine supply contract.
4.17Ms Dimas suggested a minimum price of $300 per tonne would be best, as that is the break-even price for many growers:
It would be handy to have $300 as the minimum, but we understand that markets fluctuate. So if growers were willing to drop the fruit on the ground, knowing that there was a glut, minimum pricing would be beneficial for us—to know that we're at least going to recoup what we have laid out.
4.18Mr Peter Hill, Committee Member, Riverland Wine, agreed that a minimum price should be included in contracts to give the grower the choice of whether to plant:
Inside the code, if the winery gives a contract to plant grapes, there has to be some sort of minimum price. If the minimum price is $300, for instance, they can say, 'Yes, I'm happy to plant.' But if there's no price there, you're just living on hope and we've all seen that before. So inside a code there could potentially be some sort of pricing mechanism that could give assurances for growers into the future.
4.19In South Australia, there are legislative means for the government to influence pricing. The Wine Grapes Industry Act 1991 allows for the responsible Minister to order a certain price for winegrapes sold to a processor:
5—Indicative price
(1) The Minister may, by order, recommend a price (expressed as an amount per tonne) for wine grapes grown in the production area and sold to a processor.
(2) The price may vary according to the variety of wine grapes.
4.20The Hon Nicola Centofanti MLC told the committee, in relation to the Wine Grapes Industry Act 1991, that it would be difficult for a Minister to determine a price that would usually be set by the market. She also warned that setting a minimum price that was not sustainable for winemakers could have further unintended consequences:
[P]erhaps the most pertinent question is what price should a Minister choose? Some growers are advocating that “a sustainable price” should be recommended by the Minister, seemingly independent of the wine market – which is what naturally determines the value of wine grapes. Setting a price of $300 per tonne for inland fruit, for example, would provide certainty to growers, but would not be sustainable for a wine company to pay if making and selling a product on the current bulk wine market.
4.21The Hon Nicola Centofanti MLC noted that the wine sector is different from other agricultural industries due to the complexity of value-adding. While most other industries have a good estimate of how their product will be processed and sold further along the supply chain, there is a wide range of characteristics in winegrapes that then determine the value of the processed wine. This makes the task of assessing the inherent value of the fruit offered for sale very challenging.
4.22Mr Derrico made the point that, while a minimum price close to the cost of production would be ‘fantastic’ for growers, it would create a system where it was nearly impossible to lose money. Mr Derrico warned that if a price representing cost of production was mandated then the current oversupply of grapes and wine would only worsen.
4.23Mr Russo advised that Accolade Wines does include minimum prices and pricing mechanisms in contracts with individual growers for new plantings. However, it is opposed to mandated minimum prices for the reason that there is no method that could set prices to an effective level that is sustainable for all parties.
4.24Mr Petty said that Treasury Wine Estates already includes minimum prices in their contracts with growers in the inland regions. He said that, ‘pricing is relatively flat to prior years but that's off a relatively good base as well’ and that Treasury Wine Estates uses the ‘same mechanics that most people use to determine pricing’, namely internal supply and demand balances.
4.25Evidence received suggests that including minimum pricing in supply agreements is as much about providing pricing certainty ahead of harvest as it is about guaranteeing a minimum price. In noting that her growing costs are about $300 a tonne, Ms Dimas suggested that, if a winery needed to purchase for less than the cost of production then she would simply not pursue a crop for that vintage. If a minimum price was not mandated as part of the code, having pricing information as early as possible would still allow the grower to make decisions and act within the market dynamic.
4.26Under questioning about the ideal timeline for pricing release, growers generally advised that May or June would be best. Ms Dimas said that this time of year is when growers typically do their pruning and that having an indication of price at this time would allow for them to cut back, retrain vines, or bud them over if required. Mr Jack Papageorgiou, Board Member, Riverland Wine, concurred, saying that winemakers typically know approximately what prices will be and that if this were shared with growers they could make better decisions regarding their crop:
[W]e normally start pruning in the first or second week of June. If you talk to some winemakers, they can actually give you the price in June-July. They run a business, they're professional people, and they have markets—they're fully aware of where the market is and the prices. There is a position for them to announce some prices in June-July because that gives us an indication before we start putting investment and our capital costs into the vineyards to manage, and it would start from pruning. We've got to find ways to reduce the costs, but we need some good, strong indications of where we're going with all this.
4.27Mr Derrico agreed, arguing that, even if prices change after the initial indication, all that growers are really asking for is a level of transparency for them to base their operations on:
[T]here's not a winery that deals with a bank, or that's a publicly listed company, that wouldn't know their price come 30 June, because you've got to have a budget and, within that budget, you're going to have your grape price for the following vintage. Fair enough; things might happen around the world to change that. If you can amend your price—whether it's the end of August or the end of October—and say, 'The price needs to be amended for this reason,' that's all transparent. But at the moment, waiting until the second Wednesday in December, as we've put in our submission, invariably one of the large wineries comes out first and everyone else falls in behind.
4.28Growers did acknowledge that circumstances can change and that the price offered in June may vary due to a whole range of factors by the time of harvest. Mr Brent Farnsworth, Board Member, Murray Valley Winegrape Industry Development Committee, said that it was probably ‘impossible’ to accurately predict price that far out and that it risks a grower making the decision to keep their crop alive only to have the price decrease to below the cost of production. Mr Farnsworth said that he didn’t ‘think you can put that pressure on the wineries to actually call it that early’.
4.29Mr Crawford argued that wineries would likely be conservative in their estimates if they were forced to give early indicative pricing. Doing so could be detrimental to growers as those conservative estimates would become the standard for the coming vintage:
The trouble with asking wineries or forcing wineries to come out with their pricing early is that, by default, they'll put forward the lowest possible price they can, and then that kind of sets off the market for the next 12 months or until the vintage. As a grower, I've never felt the need to hear my winery's pricing in May or even earlier, simply because I have a reasonable understanding of the market. There are no great surprises with the market.
If we start regulating wineries to put out that pricing, there's a very real possibility that could actually have a negative impact… We've got to put our economist hats on and think, 'How is the market going to respond to this?
4.30Mr Derrico was also wary of the potential for ‘price signalling’, where one winery releases prices early and others simply wait for that price before following. To counter that, he suggested a system where all wineries would need to submit their prices independently to a centralised point:
If there were a mechanism where all of those prices that wineries had to pay were sent to an independent body and then all the prices were released on the same day, that might help. Or all the wineries could have to turn up in a room and do a PowerPoint presentation and say, 'That's it.' That would take out what I'll loosely call price signalling.
4.31Mr Russo somewhat agreed that winemakers would be conservative in their early price estimates, saying ‘of course’ Accolade can release prices as early as July but that it would ‘factor risk into that pricing for the unknown’. He noted that the industry is fragmented and that ‘long-term forecasts change’, using the example of the United Kingdom lowering demand significantly just one week after the introduction of duty reform. Mr Russo advised that global wine markets can cause price fluctuations of five to ten per cent and it is that volatility in the June-December period that could cause early indicative prices to change by the time of harvest.
4.32Ms Brigid Nolan, General Manager, The Wine Group Loxton, said that The Wine Group releases its prices by 30 November each year and recognises the importance of growers being able to make decisions that adjust to market conditions. However, according to Ms Nolan, ‘it is simply not possible or reasonable’ to be able to release accurate pricing data earlier than October or November. Ms Nolan stressed that winemakers are also price takers when accounting for the global market:
In most cases, we simply do not have a firm understanding of the cost of materials, inputs and other relevant budgetary components that feed into the determination of prices that we are viably able to offer growers…The timing of when we can make prices is also largely dependent on when we have a clear view on forecasted demand for the forthcoming vintage. This is determined by the volumes crushed in the Northern Hemisphere and the forward demand plan, which is based in the United States.
4.33Earlier indicative pricing is the ideal outcome for growers, however, the calls for early pricing again illustrate that the underlying need for growers is for more information that can help inform them and their business activities. Pricing, market trends, export values, global wine prices, stock-to-sales ratios, grape crush, and sales figures are all useful metrics for growers to strategically plan their future operations.
Information sharing
4.34Although there were calls from some stakeholders for greater transparency of market information and data, the committee heard that work is already underway to make this information more accessible to a wider audience. Since the release of the ACCC’s Wine grape market study final report, a number of important measures have been introduced or planned to address this issue.
4.35In 2020, the ACCC’s Perishable agricultural goods inquiry report recommended that the government and industries explore measures to foster price transparency as a means to increase competition. In response to that recommendation, the Australian Government committed $5.4 million to improve price and market transparency, including $989 000 to Wine Australia, the Inland Wine Regions Alliance, and Australian Grape and Wine (AGW), to develop a winegrape price indicator.
4.36The result was the introduction of the Grape Price Indicators Dashboard on the Wine Australia website. The dashboard provides a clear summary of factors affecting inland winegrape prices, including export values, global bulk wine prices, stock-to-sales ratios, grape crush, and sales figures. All of this information can be filtered by grape colour and variety to aid in forecasting pricing trends for future vintages.
4.37The Australian Bureau of Agricultural and Resource Economics (ABARES) has also begun the publication of quarterly winegrape price forecasts and commodity analysis for commercial grapes. The winegrape price forecasts aim to offer growers and producers an objective analysis of future grape prices. The forecasts have been released since March 2023 and are now incorporated into ABARES quarterly Agricultural Commodities Report.
4.38SAWIA advised that growers and winemakers also have access to the National Vintage Survey which provides crush figures for each vintage by volume and value, as well as average weighbridge purchase value by variety and region. This is complemented in South Australia by the SA Winegrape Crush Survey, which provides pricing information by variety and region, and historical weighted average price for key varieties in each region. In advising of these resources, SAWIA also noted the challenges associated with pricing transparency, including the limited usefulness of historical prices relative to future estimates.
4.39A key recommendation from stakeholders throughout the inquiry was the introduction of a national vineyard register. Dr Martin Cole, Chief Executive Officer, Wine Australia, said that a national vineyard register is currently under development to get ‘a better handle on the supply’ and ‘get better data to inform decisions on the supply side’. Wine Australia submitted that the planned National Vineyard Register will collect and release data on vineyard areas, vine age, grape varieties, and geographic locations and should be in place by June 2026.
4.40Professor Anderson observed that if data were able to be submitted by growers directly into the register immediately following their vintage, then it could be collated and released in real time. Such an approach would provide growers with the most up-to-date information possible when managing their winter activities. This would present new opportunities for growers to compare, benchmark and analyse results from neighbouring regions and production methods—a point also raised during the Viticulture and Wine Sector Working Group (Working Group) consultations.
4.41Dr Cole explained that establishing the register will take the cooperation of regional organisations and grape growers to collate and supply data:
It's a polarising issue. We are getting some folks saying that they're kind of negative towards it. But overwhelmingly, I think most people are seeing the benefits for that work. We have some pieces of the jigsaw. In South Australia, you would know Vine Health. We have very good data. Some of the folks that you've heard from today play a role for their region, such as Paul Derrico, in terms of grape growers providing that service, but it's not in a form that's joined up nationally where we can actually do some predictions. Information on what's in the ground by region, by variety, I think, will be the critical piece to understanding the supply and demand side.
4.42Mr Keogh explained that a requirement for mandatory price reporting would be possible, including as part of a mandatory code of conduct. Other countries have similar reporting requirements in place already:
It would certainly be available to government to require mandatory price reporting. I observe that in both the US and the EU there are quite comprehensive requirements on certain sectors of the agricultural processing sector to publish market information very regularly. For example, the Packers and Stockyards Act of the US requires vertically integrated feedlot meat processors to publish the price they are paying on a 12-hourly basis. That's a very comprehensive set of requirements there. Similarly, the EU has price observance arrangements, where they do mandate a requirement to report pricing on a quite regular basis across a big comprehensive list. That mechanism is available. It's not inherently part of a code, for example, but obviously it could be incorporated if that were the case.
4.43SAWIA expressed the view that winemakers, regional associations, state organisations, AGW, and Wine Australia should co-ordinate the publication of regular and practical pre-vintage market analysis and information to growers. Such information should include bulk wine market data, domestic wine sales data, consumer trends and insights, and grape pricing trends. However, while advocating for the dissemination of information in this way, SAWIA also noted that regulatory intervention in relation to pricing transparency and information would not solve the issue that the actual price paid for grapes is ultimately driven by market forces that are outside the control of growers and winemakers alike.
Minimum payment timeframes
4.44Growers stressed that current timeframes for payment under the code make budgeting difficult, limit business cash flow, and position them as ‘unsecured creditors’.
4.45The current voluntary code sets out the following payment terms that must be adopted as a minimum by all signatories:
one third of the total 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.
4.46The code notes that the ACCC ‘considers best practice to be 30 days and that flexibility should not extend beyond 60-day payment terms’. Lengthy payment periods in agreements may be considered unfair under Australian consumer law.
4.47Ms Dimas reflected that this timeline makes accounting difficult. Bringing the final payment forward to the end of the financial year would streamline season-to-season budgeting and would make processing taxes easier without having to carry over and move back payments to ensure they are calculated in the correct financial year. Ms Dimas noted that ‘harvest begins in January and is concluded by March-April’ and so payment by the end of June should be feasible, as ‘you would not expect any other industry to work for payment terms of eight months post-delivery’.
4.48The Hon Nicola Centofanti MLC noted that shortening payment terms may have unintended consequences. If the code was to reflect the ACCC’s recommendation of 30 days as best practice, this would cause stress for smaller wineries compared to large operators, potentially resulting in fewer customers for grape growers to sell to. Mr Keogh warned that the ACCC had heard similar concerns. He advised that the more stringent, or shorter payment terms are, the less likely it is that smaller wine producers will be able to comply due to cash-flow issues. This could inadvertently remove some of the competition from the processing sector unless there are parameters built in to ensure the measure is targeted at larger operators.
4.49Shorter payment timeframes would likely be reflected in lower prices offered as grape purchasers aim to account for the loss of interest payments. Mr Perrin noted this effect, who told the committee that Accolade Wines offered shorter timeframes for payment in exchange for lower prices. He advised of a grower who requested payment by the end of June but was told that the price would be 3.6 per cent less if this payment term was agreed to. For this reason, Mr Perrin suggests a final payment date of the end of July, rather than the end of the financial year in June.
4.50Riverland Wine recommended bringing the final payment forward to the end of the financial year on 30 June for similar reasons to those put forward by Ms Dimas. It suggested payment terms of 50 per cent within 30 days of delivery and the final 50 per cent by the end of June. Riverland Wine also advocated for similar payment rules for retailers, saying that final payment from retailers to wineries and bulk wine suppliers should be received within 30 days of delivery. Riverland Wine believes this would be reasonable, given that finished wine purchases—as either bulk or packaged wine—are much closer to final sale to consumers and therefore require minimal further processing expenses.
Contracting
4.51Growers also proposed the increased use of long-term contracts to ensure security and viability when planting a new crop. Winegrape crops typically start to bear fruit after three years and only reach full bearing after four to five years. This extended timeline means that the grower must take on the risk of that variety still being in demand years after planting. Mr Perrin asserted that one-to-three-year contracts do little to provide security for growers during this period:
This one-year or three-year business—thinking it's doing us a favour—is a nonsense for growing a high-cost crop that takes at least three years to get a few grapes on it, which is not even an economic proposition at that stage. Then the winery says, 'Oh, well, we actually don't want that variety anymore because consumer tastes have changed.'
4.52The long lead times on planting, growing, and harvesting grapes prevents grape growers from pivoting to popular varieties at short notice. If a winemaker incorrectly forecasts which varieties will be in demand as a result of changing consumer tastes and export markets, it is not financially possible for growers to continue replanting new varieties to adapt.
4.53An additional benefit of long-term contracting would be the certainty it provides growers in the eyes of other institutions. Ms Dimas expressed that having a long-term contract would provide security for growers to gain finance from banks who currently ‘don't want to look at us’ due to the lack of long-term security. Ms Dimas proposed three-, five- and seven-year contracts to better reflect that it may take at least two to three years to grow an economically viable crop.
Other codes
4.54Mandatory codes of conduct are enforced in other agricultural industries. Both the dairy and horticulture industries, among others, have introduced mandatory codes toimpose minimum standards of conduct on processors and producers.
Dairy Code of Conduct
4.55The Dairy Code of Conduct (dairy code) came into effect on 1 January 2020 to regulate the conduct of farmers and milk processors in their dealings with one another. The dairy code aims to account for the imbalance in bargaining power between dairy farmers and processors and addresses longstanding industry practices which were seen to be unfair.
4.56Under the dairy code, all milk must be purchasedunder a milk supply agreement that complies with the code. The dairy code sets out minimum standards for milk supply agreements but does not prevent the parties from agreeing to other mutually-agreed terms that are also consistent with the code and not otherwise unlawful. All milk supply agreements are required to contain the following:
supply periods specifying the start and end date of the supply agreement;
quality and quantity requirements for milk, including the processes to measure those requirements and what actions will be taken if the requirements are not met; and
fees for services, including what services the processor will provide to the farmer under the agreement.
4.57The dairy code does not regulate the price of milk. Instead, processors are responsible for determining the price of milk under their supply agreements. However, the code does require a milk supply agreement to specify a minimum price payable for milk and limits the circumstances in which a processor can lower or ‘step down’ the price. Including a minimum price, or schedule of prices, allows a farmer to know the minimum amount they will be entitled to receiveif they supply milk that meets the quality requirements in the agreement.
4.58Mr Keogh reflected that the dairy code ‘has brought significant benefits to the nature of the contracting negotiations and arrangements between dairy farmers and dairy processors’. Prior to the dairy code being introduced, contracts between farmers and processors were ‘enormously unbalanced’ and gave considerable pricing discretion to the dairy processors. The introduction of the written milk supply agreements and the requirement to publish prices on 1 June each year allowed farmers to see what competition was available to better inform their supply decisions.
4.59SAWIA submitted that a similar code would not be feasible for the wine industry. According to SAWIA, ‘the dairy code is appropriately tailored to the unique trading arrangements, operating conditions, and market forces that apply specifically to the dairy industry’ and applying those to grapes and wine would ignore distinctive features of the wine industry. While minimum pricing can work in an industry like dairy, where the primary product is relatively homogenous and has a narrow range of outcomes after the value adding process, doing so in wine would not be possible. The wide range of quality and end-product outcomes would make regulation of price a ‘fundamental misstep and result in adverse outcomes for both growers and winemakers’.
Horticulture Code of Conduct
4.60The Horticulture Code of Conduct (horticulture code) applies to the relationship between a grower and a trader of horticulture produce. Horticulture refers to unprocessed fruit, vegetables, nuts, herbs, and other edible plants. The horticulture code governs the relationship between grower and an agent or merchant who is either selling the produce or acting on the grower’s behalf to sell produce.
4.61When entering an agreement, grower and trader must:
have a horticulture produce agreement in place before trading;
make sure the horticulture produce agreement is in writing and meets all required conditions and minimum requirements;
state quality specifications for produce; and
ensure the grower accepts the agreement before trading, either by signing it or by confirming their agreement in writing, such as by email or text message.
4.62During an agreement, traders must: accept delivered horticulture produce except where the agreement permits it to be rejected; notify the grower within 24 hours if their produce has been rejected; exercise reasonable care in handling and storing the grower’s produce; and pay the grower for horticulture produce within the specified payment period.
4.63Trade agreements must meet minimum requirements to be deemed valid. Agreements must specify quantities, delivery requirements, product standards based on FreshSpecs produce specifications or an agreed-on assessment measure, and details on how to deal with produce that does not meet quality specifications. Agreements must also state the timeframes in which the grower will be paid, penalties if these timeframes are not met, and methods for how price will be determined.
4.64SAWIA believed that the agency model and the ‘on-selling’ merchant model inherent in the horticulture industry has ‘very little application or relevance to the wine industry’. SAWIA submitted that the wine code has been drafted and adapted over time to reflect the unique requirements, market conditions, and characteristics of the grower-winemaker relationship and stated that other primary produce mandatory codes ‘have no application to the grape and wine industry’.
4.65Conversely, Murray Valley Winegrowers saw merit in the horticulture code’s specification of the terms of transaction. Murray Valley Winegrowers believed there should be a mechanism similar to the horticulture code whereby terms and conditions of sale are a prerequisite of the transaction. Having a mechanism like this in effect ‘would protect both parties’ when entering into grape supply agreements.
Industry marketing
4.66The committee heard that an improved and strengthened code of conduct would help address issues with power imbalances in the wine industry, however, to alleviate the stock-to-sales oversupply, other measures would need to be taken. The Working Group heard that increasing the demand and reputation of Australian wine was viewed as a key priority in redressing the imbalance in supply and demand. Professor Anderson agreed, commenting that, through a ‘refreshed focus and a more positive vision for the industry’ the Australian wine industry, ‘could capture a bigger share of the world market, through boosting its generic and firm marketing efforts and investments in innovation’.
4.67One reason for the decline in consumption across the globe is the shift in consumer preferences from commercial to premium wine. Although consumers are drinking less wine than previously, when they do drink, they are choosing better quality, premium varieties. The Working Group heard that some stakeholders believe the industry should focus more on premium wine rather than commercial while others acknowledged that commercial wine is a vital part of the sector, particularly in the warm regions, and can be more competitive internationally.
4.68The Hon Nicola Centofanti MLC observed that the region the fruit is grown in has a strong influence on the value of the resulting wine. The warm, inland regions are commonly seen as lower value than the cooler, temperate growing regions. This value difference is partly due to marketability, where wine produced in a region with a strong reputation will usually command a higher sale price. This effect was recognised by Mr Harry Vlassopoulos, Riverland grape grower, who alleged that grapes from the inland regions were blended with grapes from better known regions without the customers knowledge and without crediting the growers who produced the fruit:
I’ve seen truckloads of wine grapes…leaving our area destined for better known winemaking areas, only to be blended in with their products and marketed as wholly and solely as that region’s product. So it’s ok and the quality is good enough for our winegrapes to be used as extenders for better known winemaking regions, But it’s not ok for Riverland growers to be paid accordingly or our region to be recognised for its contribution to the industry.
4.69Mr Vlassopoulos proposed a rule that would force winemakers to include the percentages of grapes used by region on their labels.
4.70Professor Anderson argued that ‘actions are needed to boost demand for Australian wines’ and that it would be possible to do so by ‘enhancing investments in generic promotion, in collective [research and development], in industry data collection and analysis, and possibly by funding a structural adjustment scheme’. Professor Anderson used the US as an example of how awareness of Australian wine has declined in the past 20 years in step with a decline in marketing efforts there. He proposed raising Wine Australia’s marketing levy and increasing marketing expenditure to better compete with other, larger, wine producing nations.
4.71The Working Group reported that winemakers had diverse views on opportunities to increase wine sales. Some called for additional government assistance to recover the market share held prior to COVID-19, while others placed greater emphasis on building the domestic market as an additional, underutilised source of demand. Assistance to restore the US market was also sought, while the expansion into Asian markets was seen as a long-term proposition that would require collaborative and strategic investments from both government and industry.
4.72AGW also saw value in increased marketing and a diversification of markets. In its Pre-Budget Submission 2024–25, AGW made two recommendations to better support the wine industry's marketing efforts, both domestically and internationally:
Recommendation 2:
Invest $36 million over the forward estimates in an export market driven recovery.
Recommendation 3:
Invest $20 million in a domestic marketing campaign to drive food and wine tourism in Australia, including an additional $10 million to retain and extend the Wine Tourism and Cellar Door Grant scheme on an ongoing basis.
4.73AGW recognised that the temporary loss of China as an export market illustrated the need for the wine industry to diversify to other markets. It submitted that, providing opportunities for businesses to lead their own recovery ‘will help drive demand for Australian wine internationally, diversify our export markets and reduce the downward pressure on grape prices’. AGW identified Japan, South Korea, Vietnam, and India as markets that could use further investment.
4.74The need for market diversification was recognised by the Department of Agriculture, Fisheries and Forestry (DAFF). Mr Matt Lowe, Deputy Secretary, DAFF, reflected on the importance of supporting the sector to build long-term sustainable demand for Australian wine:
Introducing and establishing Australia's world-class wine to new markets will help redress the imbalance between supply and demand over the long run. For example, the department's Agricultural Trade and Market Access Cooperation program has supported industry in exploring new markets, promoting Australian wine abroad and building much-needed diversity in the demand for our great Australian wines.
4.75Representatives of DAFF advised that funding has been provided to diversify and expand further into markets including the US, China, Japan, South Korea, Malaysia, and Thailand.
Support for change and crop diversification
4.76It is clear that winegrape growers take great pride in their industry and the work that they undertake. For many, their vineyards have been in the family for generations and the current group of growers have spent their entire lives in the growing community. Many growers wish to remain in the industry that they have spent their lives working in.
4.77However, other growers have expressed a wish to exit the industry or diversify into more profitable crops. The Working Group found that this group of growers had encountered several barriers to exiting or diversifying into other industries, including:
lack of technical assistance and industry leadership;
lack of disposal options for growing equipment;
little available information on how to transition away from winegrapes and into different crops; and
no easily available advice on other forms of horticulture production.
4.78To address these issues, the Working Group made the following recommendation directed at Wine Australia, Australian Government, and relevant state and local governments:
Recommendation 2:
Address barriers to exit and diversify:
Support grape growers and winemakers diversify their farming enterprises, product development or move to non-traditional revenue streams or alternative alcohol products by providing information and support services.
Investigate options to support waste management to avoid environmental, biosecurity, financial and social risks and impacts associated with transitioning from grape production and abandoned vineyards.
Reducing the surplus
4.79The oversupply of grapes and wine is the key problem driving many of the wine industry's difficulties. It is unlikely that prices will rise for either growers or winemakers for as long as the oversupply remains. Evidence was received throughout the inquiry advising on how the oversupply might be managed to return to a reasonable equilibrium.
4.80As discussed in Chapter 2, Australia is not the only country experiencing an oversupply of red wine. Globally, stocks are higher than sales due to an oversupply of wine from producers and lower demand from consumers. To combat the issue, France has offered a €160 million subsidy to dispose of some of its surplus through distillation into industrial alcohol. A vine pull scheme has also been established in Bordeaux with the goal of removing nine per cent of the region's less profitable varieties. Spain has a similar program, with €14.7 million provided to distil excess stocks of red wine.
4.81Mr Cass recommended that Australia should examine the possibility of a similar scheme:
It would be great to see something like the initiatives in Spain and France, where they actually take some of that other wine out. We're not talking about something that goes every day; it would be a one-off thing. Take it out of the industry and turn it into ethanol or something like that. There would be a cost involved, but it would bring it back into balance so that we could have a bit of a reset and start moving forward as an industry again.
4.82Professor Anderson opposed intervention in this manner. He observed that those surpluses are not necessarily owned by grape growers or winemakers and are more likely to be in possession of commercial operations that store wine and sell it. Intervening would upset this market activity. Rather, he believed that the only way for the surplus to decline was through the expansion of markets and decrease in selling costs, particularly freight.
Exiting the industry and crop diversification
4.83The exit of growers from the industry is one way to reduce winegrape supply and lower the current stock-to-sales ratio. Exits can occur through growers leaving the farming sector entirely, or through diversifying into other agricultural industries. It is essential that these growers are not just selling to other winegrape producers if supply capacity is to be reduced.
4.84The Working Group reported some success stories in this approach. Some producers havve reportedly transformed their vineyards by co-planting climate-appropriate, in-demand winegrape varieties with other horticulture, such as olives, that provided good commercial returns. Mayor Ella Winnall, Berri Barmera Council, highlighted that there were also use cases for plots in the Riverland that had nothing to do with grape growing or irrigated horticulture:
There are some properties within the Riverland that have genuine alternative high-use land uses that may not even be irrigation or irrigated horticulture at all. There could be opportunities for residential developments where there are vines in some towns. There are opportunities for some properties to transition from irrigation to broadacre cropping. There are opportunities for some land parcels that are along river corridors, for example, to be returned to native vegetation.
4.85Mayor Winnall explained that, for this type of transformation to occur, there is a need for mapping to be undertaken to ‘understand the genuine alternative, high-value outcomes for that land’. Undertaking that mapping work would provide the data and information needed to make those kinds of strategic land-use decisions.
4.86Representatives from Riverland local councils explained how historic land allocations and plot size make it difficult to viably transition to other crops. During Renmark’s early settlement, smaller irrigation blocks were allotted as part of soldier-settler schemes. These blocks range from ten to 25 acres and are still in use today. The small size of these blocks makes them difficult to viably work and derive a level of income that would sustain a family. Many families supplement their farming income with off-farm employment. Mr Tony Siviour, Chief Executive Officer, Renmark Paringa Council, noted that there are some examples of successful transitions, including into blueberries. But, in general, the size of these blocks is a barrier to scaling businesses, increasing markets, value-adding, or diversifying crop types, further highlighting the need to identify other uses for the land.
4.87The Working Group reported that water recovery options were raised during consultations, as both an opportunity and a risk:
Some growers reported they were considering permanently trading their water entitlements, but they were simultaneously concerned about the loss of productive water from the region. Other stakeholders observed water buybacks could be an opportunity for those growers who wish to exit the industry.
4.88Under the Murray-Darling Basin Plan, the Australian Government is planning to buy back water entitlements to recover over 450 gigalitres of additional environmental water for the Murray-Darling River. Mayor Winnall observed that selling their water entitlements on the open market is a way for grape growers to exit the industry. She acknowledged that the water recovery program will be an additional entrant into that market but did not want to see the program take place in an uncontrolled way.
4.89Mayor Winnall expressed ‘serious concerns’ about the possibility of the primary production industry exiting the region when these water recovery measures are undertaken. She warned that if water recovery is not undertaken in a measured way, it could leave properties with no genuine alternative uses. Haphazard recovery could have ‘a serious long-term effect for us in our community, our council, our infrastructure and our rates, as well as our irrigating, irrigation troughs and their infrastructure running through those properties’.
4.90The need for some growers to exit the industry has been recognised by stakeholders across the supply chain. In April 2024, Accolade Wines offered $4000 per hectare to CCW Co-operative (CCW) growers for them to pull their vines, thereby reducing overall supply for the long term. Mr Russo said that ‘Accolade is the only entity in Australia, private or public, to have made a meaningful effort to support the difficult but necessary transition’. The package was rejected by the growers as being of too little value, but Accolade Wines remains ‘committed to being a party to gaining a sustainable wine industry through the entire value chain’.
4.91A vine pull scheme was also considered by the Working Group but was rejected as it ‘would be more likely to cause unintended consequences and potentially do further harm to the long-term viability of the industry’. In 1986, the South Australian and Federal Governments co-funded a vine pull scheme that contributed to a 15 per cent net reduction in Australia’s winegrape bearing area between 1985 and 1987. This scheme was considered unsuccessful in retrospect, as it was not means tested and so many growers who already had the financial resources to restructure their farms took advantage of the scheme. It also did not consider which grape varieties were being removed, allowing for the removal of varieties that would soon be in demand.
4.92Industry participants believed that government can, and should, play a role in encouraging growers to exit and diversify. Mr Hill observed that talking about diversifying into other industries is pointless unless there is adequate support to follow through:
We've got a significant amount of wine grapes and a significant amount of red wine grapes. That's why we've heard from growers today that everyone's hurting. The government's not reacting quick enough. They're talking transitioning to this and transitioning to that. No-one's got money to do that. So they're talking all the right stuff, but growers need money to transition into citrus, table grapes or stone fruit, to get out of some red wine grapes and to marry up supply and demand again. But government's just not reacting quick enough.
4.93This need for support has been recognised by industry representatives. In January 2024, AGW received broad support from stakeholders after it released its Pre-Budget Submission 2024–25. Recommendation 1 of this submission was for the Federal Government to ‘Invest $30 million in a sustainability support package for vineyard owners’. AGW recognised that, if no support was provided, the industry would experience ‘forced exits, widespread vineyard abandonment which can lead to significant biosecurity risks, attrition of younger generations in the affected areas, and adverse mental health consequences’. The proposed package would be used to invest in ‘protected cropping, environmental plantings, or modifying equipment or infrastructure for alternative systems to improve irrigation efficiency’ and would be accompanied by a requirement that no planted vineyard area be left unmanaged. AGW estimated that the program would facilitate the transition to a more profitable and efficient crop over approximately 4 000 hectares.
4.94Mr Timothy Pfeiffer, Chief Executive Officer, Berri Barmera Council, warned that any funds being delivered by government must be used for economic transition and not just stimulus. Mr Pfeiffer stressed that funding must be directed in a way that allows growers to start looking at different crop types and at brand new industries that could be introduced to the region:
We do have a lot to offer; we do have comparatively cheap land that can be used for irrigation. As of right now, temporary water is not exorbitantly expensive, so there is the opportunity for different market entrants there. We just need to make sure that any economic inputs into the region are actually for transition and not just stimulus.
4.95Mayor Winnall added that an important part of transitioning to other crops was ensuring that the manufacturing side of any industry is accounted for. Funding transitions to other crop types will aid primary producers, but if there is no value-add further along the supply chain then, the local economy still suffers. Mayor Winnall likened it to a symbiotic ‘chicken and egg’ scenario where the crops are required in order for manufacturers to set up in the area, but that manufacturers are required to process the crops.
4.96Mayor Winnall also warned that grower demographics need to be accounted for when planning for crop transitions. Many growers are aging and are not financially prepared for any large-scale transitions. They also do not necessarily have plans to pass their business on to their children. Ultimately, the region will require new entrants to come in and redevelop the land:
We need new entrants into the market to purchase these properties, with their vision for the land. We can't necessarily expect the existing cohort of growers to enter a new industry. They've been grape growers their whole life. That's what they know how to do. Asking them to pull the vines out and become citrus growers—that's not what they do for a living.
4.97Mr Papageorgiou, added that, all a lot of these aging growers are after is the ability to leave the industry with dignity:
Through this difficult time, not every grape grower is going to survive. Industry and government need to work out a package for those growers—whether it's five or 10 per cent; whatever the percentage—that don't want to do this anymore. They've been doing it for 30, 40 or 50 years. They cannot find a way out of this. So here's an opportunity for the industry and government to negotiate a package. Government wants to buy back water for the environment. This guy here and those guys there want to leave the industry. Let them leave with some dignity. They can stay on their farm and still contribute to the local economy. They can simply stop growing grapes, because of their size, the age—you name it. That's one way you can assist those growers to leave the industry.
Committee view and recommendations
4.98It is clear from the evidence received during this inquiry that recent years have been difficult for the entire Australian wine industry. The loss of the Chinese market from 2020–2024 resulted in over $1 billion of lost value and laid bare the historic structural imbalances that exist within the industry.
4.99There are two reasons for the loss of value and hardship currently being felt in the industry. First, an oversupply of grapes and wine as a result of decreasing domestic and global demand. Second, inadequate terms and conditions in commercial relationships between different parts of the supply chain, from growers through to the retailers. It is important to recognise that, while both of these factors have an effect on the wine industry, they are two separate problems requiring different solutions.
4.100The committee is convinced that there is a need for the Australian Winegrape Purchases Code of Conduct to be made mandatory for purchasing agreements in the warm inland growing regions of the Riverland, Riverina, and Murray Valley (including Sunraysia). Grape growers in these regions are subject to power imbalances in negotiations, poor terms in supply agreements, and little recourse due to the lack of protections under the voluntary code. The current code has some strong aspects which need only to be made mandatory to create significant improvements to the wellbeing of growers.
4.101The voluntary code contains a dispute resolution process that has been praised by growers and winemakers alike. However, as evidenced during the 2023 dispute between CCW and Accolade Wines, there is little use in a voluntary dispute resolution process if one side can simply choose to walk away and not abide by it. A mandatory code should include a dispute resolution process which must be honoured and adhered to, with mandated penalties for those who choose not to.
4.102The committee is concerned by payment and pricing terms in the current voluntary code. Growers routinely wait upwards of eight months for grape payments, making it difficult to maintain cash-flow and plan for future crops and harvests. The committee has heard that this payment timeline is the cause of great angst and stress for growers as they try to run their business. The committee is sympathetic to small wineries that may not be able to pay within 30 days of delivery, however, full payment by the end of the financial year in June would be a reasonable compromise.
4.103Similarly, the lack of pricing information until close to harvest limits the ability of growers to plan. Many growers who engaged with the inquiry were pragmatic and understood that prices may not always be as high as they would like. However, by being given this advice well in advance of harvest, the grower can make their own decision on whether to move forward with, and commit money to the crop. The committee heard a range of views, with some growers saying that having the initial pricing information between June and September rather than December would be helpful. However, the committee also heard conflicting views that early pricing could lead to wineries being conservative in their estimates, thereby leading to lower prices being offered. The committee believes some form of earlier indicative pricing would assist growers in deciding whether to proceed with funding and growing a crop. The committee was unable to form a view on how early this should be.
4.104Pricing was not the only area of supply agreements that had growers feeling like they were being left in the dark. The perceived subjective nature of quality assessments leaves growers nervous about their sale prospects, and with little alternative, given that quality decisions are frequently made after delivery. Some winemakers advised that they work with growers prior to harvest to ensure quality earlier in the growing season. This practice should be more widespread. Quality assessment standards, measurements, and methods should be clearly outlined in all supply agreements with clear next steps should the grapes not meet the minimum grade.
4.105The committee recommends that the Treasurer, in consultation with stakeholders and the Australian Competition and Consumer Commission (ACCC), determines the most appropriate model for a mandatory code of conduct for Australian winegrape purchases (code of conduct) across all of Australia’s winegrape growing regions, with a specific focus on the most impacted inland regions of the Riverland, Riverina, and Murray Valley (including Sunraysia); to be implemented by the ACCC. The code of conduct should establish fair and equitable terms addressing the following:
payment terms to be limited to within the financial year of delivery at the latest;
quality requirements including minimum standards, measurement methods, and what actions will be taken if the requirements are not met;
earlier indicative pricing; and
binding dispute resolution.
4.106The committee is encouraged by the development of a National Vineyard Register. Lack of access to information and data was a frequent complaint of the growing community. The work being undertaken to establish the register will ultimately be a useful resource for growers and other industry stakeholders to collate and distribute up-to-date data to inform investment decisions. Wine Australia must continue to focus on supplying easy-to-access data and dynamic price information. Wine Australia must remain cognisant of the changing needs of its stakeholders and prioritise simple dissemination of its information, particularly for those who may not be digitally literate.
4.107The committee recommends that Wine Australia continues to facilitate and enhance the collection and dissemination of wine and grape information and data that it publishes, for the benefit of wine and grape growing sectors.
4.108Australia is suffering from the negative effects of a long-standing oversupply of red wine which was exacerbated by the loss of the Chinese market. The oversupply of wine is not a problem limited to Australia as, worldwide, major wine-producing countries are grappling with the effects of reduced consumption. France and Spain have both implemented adjustment measures to dispose of surplus wine and reduce plantings, and similar programs have been considered in other jurisdictions. The committee observes that a similar program may be beneficial in reducing Australia’s current stockpile and oversupply issues.
4.109The committee recommends that the Australian Government investigates the feasibility of distilling excess wine into industrial alcohol, or otherwise disposing of a portion of Australia’s wine surplus.
4.110To reduce the stock-to-supply ratio over the long-term it may be necessary for some growers to exit the industry. The committee heard that there are alternate crops and land uses that would be ideal for grape growers to divert to, or complementary crops that growers can establish alongside their grapes in order to diversify their product. Many growers are willing to make a change but lack the information, data, or financial capital necessary to exit the industry and start afresh. The committee believes there is a role for government in assisting and supporting growers to make this transition.
4.111The committee recommends that the Australian Government, in consultation with Australian Grape and Wine Ltd, investigates potential support packages to aid growers in transitioning out of winegrapes and into other crops or land uses in the warm inland wine regions.
4.112While this is not a problem that Australia can market its way out of, the committee is encouraged by the efforts made to establish new markets, particularly in India and South-East Asia. Establishing new markets, growing demand, and showcasing Australia’s quality wine to the world will not only aid in alleviating the current stock-to-sales surplus but also set the industry up to be stronger into the future.
4.113Australian Grape and Wine made a pre-budget submission recommending funding for an export market driven recovery and investment in a domestic marketing campaign to drive food and wine tourism in Australia. The committee endorses the sentiment of this submission and encourages Australian Grape and Wine to prepare an updated submission to the Australian Government to reflect changes to the industry in the last 12 months.
4.114The committee recommends that Australian Grape and Wine provides an updated Pre-Budget Submission reflecting the current status of the Australia wine industry.
4.115On the basis of that submission, the committee recommends that the Department of Agriculture, Fisheries and Forestry invests in Australia’s wine market through the establishment of new trading partners, expansion of existing markets, and promotion of wineries and cellar doors domestically.
Senator the Hon Matthew Canavan Chair |