Market imbalance threatens future wine industry growth

22 July 2019

Future growth prospects for the Australian wine industry will be heavily dependent on reforms to improve competition for wine grapes, according to the ACCC.

The current low level of competition between winemakers buying grapes not only leads to inefficient outcomes in production and pricing but also discourages innovation and capital investment, ACCC Deputy Chair Mick Keogh said in a speech to the Australian Wine Industry Technical Conference in Adelaide today.

Mr Keogh said the wine grape growing industry is largely characterised by imbalances in bargaining power between a small number of major buyers and a much larger number of small-scale sellers.

“The imbalance in bargaining power results in growers accepting contracts with sub-optimal terms, with limited ability to resolve disputes, and having to wait sometimes up to nine months for payment for their grapes,” Mr Keogh told the conference.

“The ACCC’s wine grape market study interim report found these significant issues represent a very real threat to the growth of the wine grape industry, especially in an era of scarce resources such as water."

“The wine grape industry will need capital investment by growers to improve irrigation efficiency and to plant improved grape varieties," Mr Keogh said.

“Only when the growers have greater confidence and certainty in the market will they be prepared to undertake this investment.”

Mr Keogh said a lack of pricing transparency is also hindering the effective operation of the market.

“Increased pricing transparency will provide better price certainty to the market, and not only improve growers’ bargaining power but also boost competition between winemakers."

“We are conducting the market study because of the significant number of confidential complaints received from growers about how their market works,” said Mr Keogh. “Many growers have told us that they were reluctant to raise concerns with their winemakers due to fear of retribution,” Mr Keogh said.

The ACCC is currently seeking feedback from the industry on its interim report.

Notes to editors

The ACCC’s market study of the wine grape industry was launched in September 2018, after feedback from industry participants during previous ACCC engagements with the industry.

This market study focuses on what are referred to in the industry as warm climate grape growing regions. The three warm climate regions are the Riverland, Murray Valley (which includes the Murray–Darling and Swan Hill regions) and Riverina. Around 1500 growers operate in these regions, which produce approximately two-thirds of Australia’s wine grapes.

The ACCC has been consulting with a wide range of industry participants during the market study, including through two public forums and other meetings held in warm climate grape production regions during November 2018, attended by ACCC staff and Mr Keogh.

For further information see: Wine grape market study.

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