ACCC raises concerns over future wine industry growth

26 July, 2019 by Andy Young

Australia’s competition watchdog the ACCC has said that future growth prospects for Australia’s wine industry are heavily dependent on reforms to improve competition for wine grapes.

Speaking at the Australian Wine Industry Technical Conference in Adelaide this week, the ACCC’s Deputy Chair, Mick Keogh said that 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.

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Keogh told the conference that imbalances in bargaining power between a small number of major buyers and a much larger number of small-scale sellers, largely characterises the wine grape growing industry.

“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.

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

He added that 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 Keogh. “Many growers have told us that they were reluctant to raise concerns with their winemakers due to fear of retribution.”

Last month the ACCC published the interim report of its wine grape market study, which claimed harmful practices were restricting competition in some Australian wine grape growing regions and limiting the potential for growth of Australia’s wine industry. The regulator is expected to release its final report in September 2019.