A mandatory code of conduct for winegrape purchases should be introduced, Senate report says

A mandatory code of conduct for winegrape purchasing should be put in place along with support packages for growers to leave the industry, a Senate committee report says.

Winegrape growers lack bargaining power, a new report says.

A Senate committee has recommended that a mandatory code of conduct for winegrape purchasing be implemented to redress the power imbalance between wine companies and growers, as well as support packages for growers to leave the industry and measures to use or dispose of the nation’s wine glut.

The huge oversupply in the sector is also “not a problem that Australia can market its way out of”, with the structural oversupply in the sector the result of huge over-investment between 1980 and 2008, and which demands concerted action at a government level to address.

A report published on Friday by the Rural and Regional Affairs and Transport References Committee recommends that the Treasurer, in consultation with the Australian Competition and Consumer Commission (ACCC), “determines the most appropriate model for a mandatory code of conduct for Australian winegrape purchases across all of Australia’s winegrape growing regions’’.

The report singles out the Riverland, Murray Valley and Riverina areas, including Sunraysia, for special attention, with growers in these areas having struggled for the past two decades to remain profitable.

The report suggests payment terms under such a code should ensure payment within the financial year of grape delivery at the latest, the introduction of a quality standards measurement and enforcement model, earlier indicative pricing from buyers and binding dispute resolution processes.

The report also recommends the government assesses the feasibility of distilling excess wine into industrial alcohol, “or otherwise disposing of a portion of Australia’s wine surplus’’.

It also recommends that, “the Australian Government, in consultation with Australian Grape and Wine, investigates potential support packages to aid growers in transitioning out of winegrapes and into other crops or land uses in the warm inland wine regions’’.

The report says that the Australian wine sector produces about 1.25bn litres of wine per year on average, with about two thirds of the wine grapes coming from the warmer climate Riverland, Murray Valley and Riverina regions.

The Australian wine sector produces about 1.25bn litres of wine per year on average.

“There is a perception that the warm climate regions produce lower quality grapes than the cool climate regions, and so the majority of grapes grown in warm climate regions are used for commercial, low-value wine primarily for exports,’’ the report says.

“Most grape growers in the warm regions are not involved in wine production and generally sell grapes to winemakers under supply agreements that pay based on volume and quality.

“The wine may be bottled at destination and sold to the consumer as a bottled, branded wine. “Bulk wine is usually sold entirely based on price, with less capacity to command brand value.’’

Issues with international trade and changing trends had contributed to an oversupply of grapes, the report says, causing issues across the entire supply chain, while the 2021 imposition of tariffs in the China market, which were revoked last year, had also closed a large market, particularly for bulk wine.

While there is an existing voluntary code of conduct for winegrape purchases, the report says the committee heard that it was not working adequately due to inadequate enforcement and incentives for compliance.

“Evidence received from growers suggests that the code is not currently working as intended and is not effective at protecting growers’ rights,’’ the report says.

“A focus on increasing signatories at the expense of effective enforcement, and a lack of penalties for not abiding by the code, were recurring themes raised throughout the inquiry. “This, in addition to a lack of information for growers and consolidation of large winemakers, has effectively created a power imbalance between growers and winemakers that leaves growers feeling disempowered.

“For those wineries that are signatories, there is a belief amongst growers that signing on is a way to benefit from the code without being beholden to any of its negative aspects.’’

The perishable nature of wine grapes once picked is also problematic for growers, who are in most cases unable to find an alternative buyer at short notice, should they have a dispute with their purchaser, the report says.

On the payment front, some growers were waiting for up to eight months for payment, split across three tranches, the report says, while payments from wine companies which were not signed up to the voluntary code could be even longer.

The report notes that as far back as 2005 a government committee had recommended a mandatory code of conduct be introduced.

“It was observed in 2009 that the surplus of wine and grapes was causing long-term damage to the industry and that a structural adjustment was required,’’ it says.

“Industry leaders at the time warned that it was not just a cyclical period of boom and bust, but instead was due to a broader and deeper structural problem that industry would not be able to ‘trade its way out of’.

“Despite these warnings, the downturn in trade to the US was offset by the rise in trade to China in the 2010s and any consideration of lowering the supply of wine in Australia was put on hold as China rapidly increased imports of Australian wine in both volume and value.’’

The report also notes that Wine Australia describes the potential for growth in demand for wine as “extremely soft’’, with forecasts predicting a four per cent decline in wine consumption globally from 2024-28.

The report says that a working group looking at issues in the wine industry in 2024 found that there were also “difficulties” in relationships between winemakers and retailers, with four retailers – Endeavour Group, Coles, Metcash and Aldi – commanding a market share of almost 70 per cent.

Originally published as A mandatory code of conduct for winegrape purchases should be introduced, Senate report says