ACCC Market Study

On 26 September 2018, the ACCC announced it would conduct a market study of the Australian wine grape industry. The purpose of the market study is to complete an in-depth review of the industry, and identify any market failures or trade practices issues that may be preventing the functioning of competitive markets or resulting in detriment to wine grape growers.

The market study will examine:

• the state of competition between winemakers and other purchasers of wine grapes;
• bargaining power and risk allocation in the supply chain, particularly in relation to growers and winemakers;
• issues around price and quality assessment;
• contracting practices between growers and winemakers (including the timing of price notifications and payments);
• the effect of the existing voluntary industry code and dispute resolution processes, and
• the use of collective bargaining by growers.

The ACCC called for submissions from growers, winemakers, retailers and others operating in the industry, with the  5.00pm Friday 2 November 2018 deadline. To help guide these submissions, the ACCC released an issues paper on its website.

The Issues Paper
The issues paper contains a number of factual errors and mistaken assumptions, demonstrating the ACCC does not have a clear understanding of the structure and dynamics at play within the sector. This highlights the need for winemakers to share their views and experiences, to provide an accurate and comprehensive understanding of the industry.

While you should take what you will from the issues paper, some of WFA’s key concerns include:

• The paper is based largely upon the findings of a survey of growers taken in July and August this year, in which only approximately 5 per cent of Australia’s wine grape growers responded (262 of approximately 5,000 across Australia). This is a very small sample size, and may not present an accurate portrait of grower views. For example, many growers have noted that there is no competition between wine grape buyers for their product, where our understanding is that there is a significant amount of competition for quality fruit. WFA’s message is that we are in a different position to other industry, such as the dairy industry, where there is a more limited choice of purchaser for producers to consider.
• The ACCC seems to consider wine in the same context as more homogenous products, like wheat, milk or eggs, and draws on this perception to make assumptions about winemaker – grower relationships.
• The paper’s conclusions about the drivers of oversupply, and the more recent movement toward market equilibrium, are simplistic. It seems to place the blame for oversupply primarily with winemakers, and doesn’t adequately recognise the impacts of currency movements, consumer trends, greater competition from emerging overseas producers and the global financial crisis as contributing factors to the downturn in demand. With regard to the more recent correction, it does not mention the work the industry has done to structurally adjust or our efforts to strengthen demand for premium Australian wines overseas.
• There are some statements relating to the allocation of risk in the supply chain which are troubling to WFA as they do not adequately reflect the risk burden assumed by winemakers in their commercial activities.
• The paper’s comments on the voluntary wine industry code of conduct warrant deeper consideration. While WFA would of course like more wineries to become signatories, the paper doesn’t consider the reasons why many wineries haven’t joined up (eg they are vertically integrated and don’t buy fruit, or they already have long-standing, difficulty-free relationships with growers).
• The claims about winemakers using assessments of subjective measures like the colour, flavour and appearance to unreasonably downgrade fruit at the weighbridge should be considered more deeply.
• The ACCC is particularly interested in the availability and quality of price information, including issues around pricing signals, growers’ capacity to adjust inputs in response to these signals, and how and when winemakers make their decisions about the final price offered. Your input on these issues help paint an accurate picture of the industry for the ACCC to draw upon.

Next Steps
The ACCC will also hold public forums in a number of wine grape growing areas across the country to hear directly from interested stakeholders. The dates and locations of the consultation forums will be announced shortly, and we encourage all winemakers and grape growers to attend to ensure that the ACCC gain an understanding of the complex nature of the sector.

We anticipate the ACCC will release its draft findings in March 2019 and the final report in June 2019. Following the release of the market study report, the ACCC will decide whether any further action is required and if it is necessary to look at an Inquiry into the industry. Such an inquiry would provide the platform for the ACCC to make recommendations for codes of Practice, or other regulatory responses, to issues identified through the Inquiry.