‘Harmful market practices’ uncovered in Australia’s wine grape sector

Australia’s competition watchdog has made a series of recommendations about the country’s wine grape sector, including removing unfair contract terms and phasing out long-term payment periods.

The Australian Competition and Consumer Commission’s final report in its Wine Grape Market Study, builds on the interim recommendations it made in June 2019.

ACCC deputy chair Mick Keogh said in a statement that the body remained concerned about “harmful market practices” uncovered since launching the study in September 2018, stemming from a “bargaining power imbalance” that exists between winemakers and growers.

Its recommendations focused on addressing this apparent imbalance by pushing large winemakers to make payment for grapes within 30 days of delivery and the elimination of some contract clauses that grant winemakers unilateral rights to vary agreements.

The ACCC also focused on price transparency, recommending the replacement of the current ‘indicative pricing’ system. This system currently sees winemakers announce their indicative prices in December, well after most grape growers have already signed contracts, according to the ACCC.

It recommended a new system of mandatory post-season price reporting by all major winemakers, with the prices paid to be publicly reported at the end of each season.

“Under this proposal, grape growers will have detailed information available of actual prices paid by winemakers over the previous season, to inform their decision about which winemaker to supply in the coming season,” Keogh said.

He added that the ACCC would an investigation into unfair contract practices in the sector, and could launch enforcement action against traders whose contracts it considered to include unfair terms.

Australian Grape & Wine, a lobby group for Australian winemakers, which said that the final report “misses the mark.”

“While the ACCC’s report presents a number of recommendations we will support, the recommendations relating to payment terms and price transparency create the potential for unintended consequences that erode recent market improvements,” AGW chief executive Tony Battaglene said in a statement.

“The ACCC’s recommendation relating to 30-day payment terms would reduce competition. Growers will choose to sell to larger winemakers which will be required to pay for grapes in fewer days, while small and medium-sized winemakers would face restrictions in both their ability to secure fruit and access finance”.

The body will review the sector’s progress in adopting the recommendations over the next 12-18 months, and could recommend a mandatory code for the sector if it is not happy with its progress.

The ACCC’s market study focuses on the warm climate grape-growing regions of the Riverina, Riverland and Murray Valley. Approximately 1,500 growers operate in these regions, producing around two thirds of Australia’s wine grapes, according to the ACCC.

Vineyards and the wine grapes sector have proved popular among some investors, with significant deals including Canadian pension PSP’s 2018 purchase of the Millewa Vineyard in Victoria for approximately A$16 million ($11 million; €9 million).

The ACCC’s final recommendations in full

The Australian Wine Research Institute work with the National Measurement Institute and the industry to develop uniform national standards for testing and measuring grape sugar levels and colour.

Winemakers should use well-documented and objective testing and sampling methods for quality assessments in the vineyard and at the winery.

the AWRI, in consultation with industry stakeholders, review current industry guidance on quality assessment standards, and amend the guidance to clearly reflect current best practice and to provide detailed information on standards for sampling in the vineyard and at the weighbridge.

Supply agreements should clearly outline the testing and sampling methods that winemakers will use to assess grape quality.

Warm climate grape grower representative organisations deliver accessible, relevant and timely analysis of market trends to warm climate growers.

For grapes purchased from warm climate regions, wine grape buyers be required to provide pricing information to Wine Australia. Wine Australia should aggregate and publish this information by winemaker, for each variety in each warm climate region, before the end of each financial year.

Long-term payment periods should be phased out of standard form contracts.

A best practice standard of payment within 30 days of the final grape delivery should be adopted for all winemakers in Australia with total processing capacity across all wineries, including subsidiaries, of over 10 000 tonnes.

The Voluntary Code of Conduct be substantially strengthened, and that all winemakers that purchase grapes from growers become signatories to the code.

Winemakers review their standard form contracts and remove any unfair contract terms.