ACCC highlights "harmful" practices in wine grape industry
Wine grape growers have been waiting up to nine months after grapes have been delivered to a winery for payment, according to the Australian Competition and Consumer Commission (ACCC).
In September 2018, the ACCC conducted a study of the market failures in warm climate grape growing regions: the Riverland, Murray Valley and Riverina. These areas account for about two-thirds of Australia’s wine grape production.
The watchdog has released an interim report highlighting harmful market practices caused by bargaining power imbalances between winemakers and growers.
As well as delayed payment terms, other concerning practices included: imbalances in supply agreements which allocate more risk to growers; a lack of transparency and certainty over how grapes are priced and assessed for quality; and supply contracts that run for multiple years but do not offer price certainty to growers.
Despite these issues, the report found “growers were frequently reluctant to raise concerns with the ACCC because of fear of retribution. This points very strongly to a market which is not functioning well.”
“We found that winemakers do not publicise the prices they pay to growers and often have confidentiality terms to prevent growers from disclosing their indicative and final prices to other growers,” explained ACCC Deputy Chair Mick Keogh.
“Meanwhile, various supply arrangements appear to favour incumbent buyers of bulk wine grapes, such as exclusive supply clauses, automatic and long-term contract extensions, and difficult contract termination obligations on growers.”
To address these concerns, the ACCC has proposed measures that improve the efficiency of the industry, promoting stronger competition between winemakers and increasing transparency for growers.
The interim recommendations include:
- winemakers in warm climate regions be required to provide indicative and final grape prices to an independent third party for simultaneous public release
- payment terms for wine grapes be shortened so growers are paid within 30 days of delivering grapes
- objective standardised testing for wine grape quality assessments be developed
- the dispute resolution mechanisms in the Australian Wine Industry Code of Conduct be improved.
Although the Australian Wine Industry Code of Conduct has been in place since 2009, it is voluntary and the ACCC said its impact has been limited due to the low numbers of winemakers that have signed up. This means many growers are not able to access its dispute resolution mechanisms.
“The ACCC recommends that Australian winemakers with more than 10,000 tonnes of processing capacity sign the code,” Keogh said. “If more big winemakers don’t sign up, a mandatory code may be needed to bring about the required industry reforms.”
Australian Grape and Wine welcomed the report, with Chief Executive Tony Battaglene stating: “The release of this interim report is an important milestone in the ACCC’s process of taking a deep and comprehensive look at the Australian wine sector.
“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 ACCC is seeking feedback on the interim report by 28 June 2019 before releasing a final report in September 2019.
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