Australian competition watchdog warns of ‘power imbalance’ in wine grape sector

Australia’s competition watchdog has called for greater transparency in the country’s wine grape sector, citing concerns over how grapes are priced and assessed for quality in a market study.

The Australian Competition and Consumer Commission (ACCC) said in its interim report into the wine grape market that “harmful market practices are restricting competition” in some grape-growing regions, particular warm-climate areas like the Murray Valley, Riverina and Riverland.

In those areas, competition between winemakers for the grapes grown is limited, the ACCC found, because of their geographical isolation from other similar winemaking regions and the prohibitive costs of transportation.

A concentrated market for the grapes, where large winemakers acquire the majority of grapes in region, coupled with contracting practices that see growers sign multi-year agreements with long notice periods and restrictions on the sale of excess production, have also inhibited competition. Winemakers also do not generally publicize the prices they pay and prohibit growers from disclosing their indicative and final prices to other winemakers.

Growers also raised concerns about the transparency, consistency, timing and subjectivity of quality assessment methods used by winemakers, with some claiming to the ACCC that tests are “conducted arbitrarily or for ulterior motives.”

The ACCC made a series of recommendations for the sector, including:

• the development of a new uniform standard for testing grape sugar levels and color;
• more clarity on objective testing and sampling techniques used by winemakers;
• that winemakers be required to provide indicative and final grape prices to an independent body to provide greater transparency;
• that a new industry standard around payment terms should be established to require payment in full for grapes no more than 30 days after delivery;
• that the voluntary Australian Wine Industry Code of Conduct should be “substantially strengthened” and that all winemakers with crushing capacities of more than 10,000 tonnes should become signatories to the code.

“There are significant bargaining power imbalances between large winemakers and the small growers who supply them, a dynamic that is common between suppliers and processors across the agricultural sector,” ACCC deputy chairman Mick Keogh said in a statement.

“This power imbalance is particularly evident in the bulk wine grapes industry.

“Increased transparency over indicative and final prices is likely to lead to greater competition between winemakers, and better outcomes for growers.”

Troy Battagelene, chief executive of Australian Grape & Wine, a lobby group for Australian winemakers, said the interim report was an “important milestone” in the ACCC’s investigation of the sector.

“Australian Grape & Wine looks forward to reading this interim report in detail and working with the ACCC to ensure its final report reflects the needs of Australia’s wine grape growers and winemakers,” he said.

“Australia’s wine sector is now in a relatively strong position. At the same time, any opportunity to further strengthen commercial relationships in the Australian wine sector is positive. We encourage wine grape growers and winemakers to make sure their views are taken into account in the process.”

The market study was launched in September 2018 following feedback that the ACCC received during its previous engagements with the industry.

The competition watchdog is seeking feedback on its initial recommendations by June 28 and expects to publish its final report into the wine grape market in September 2019.

ACCC’s interim recommendations in full:

1. The ACCC recommends the National Measurement Institute (NMI) and the Australian Wine Research Institute (AWRI) work with industry to develop uniform standards for testing and measuring grape sugar levels and color.
2. The ACCC recommends that winemakers should use well-documented and objective testing and sampling techniques for quality assessments.
3. The ACCC recommends that supply agreements should clearly outline the testing and sampling methods that winemakers will use to assess grape quality.
4. The ACCC recommends that winemakers be required to provide indicative prices to an independent body by December 8 for all grapes intended to be purchased from growers in warm climate regions during the subsequent harvest.
5. The ACCC recommends that, after communicating final prices directly to growers, winemakers be required to provide final prices (both the non-quality adjusted price and a quality-adjusted weighted-average price) to an independent body which will then make that pricing information publicly available on May 1 [or another date considered suitable by industry].
6. The ACCC recommends that long-term payment periods should be phased out of standard form contracts and an industry standard be introduced to require payment in full for grapes no later than 30 days after delivery.
7. The ACCC recommends that the Code be substantially strengthened, and that all winemakers in Australia with crushing capacities above 10 000 tonnes become signatories to the Code.
8. The ACCC recommends that winemakers review their standard form contracts and remove any unfair contract terms.