WGGA launches new online help for contracts

Australia’s independent winegrape growers are being urged against taking a “business as usual approach” in negotiating contracts with grape purchasers for the 2012 harvest.

Wine Grape Growers Australia Executive Director Lawrie Stanford gave the warning while launching new online information tools to help growers negotiate their grape sales. The online initiative was launched today at WGGA’s annual general meeting in Adelaide.

Mr Stanford said while most producers were acting fairly and ethically in the current challenging operating environment, some were exploiting the financial plight of independent growers to negotiate unfavourable contracts in a “David versus Goliath” scenario. In a chase to the bottom for prices, others follow to remain price competitive.

As a way of assisting growers desperate to sell their fruit and to hold their own in a market with depressed prices, WGGA has launched three new online information tools for growers:

  • A checklist of things to consider for growers entering into grape supply contracts.
  • An easy-to-use contract template that is fair to both growers and producers.
  • An “at a glance” outline of the dispute resolution process within the Australian Wine Industry Code of Conduct.

These information tools can be readily downloaded from the WGGA website at www.wgga.com.au.

Mr Stanford said there is emerging evidence of a range of unfair contract practices in the lead-up to the 2012 harvest.

These include re-interpreting standard clauses in ways that are convenient to the purchaser, setting prices or price determination mechanisms that do not accurately reflect grape quality and a trend towards ‘disposable’ contracts that have unbalanced ‘get out’ clauses.

Mr Stanford said to avoid being taken advantage of, growers must be willing to “walk away” from grape purchasers who are offering financially unsuitable or damaging terms.

“It’s critical that growers are well-versed in what is needed in a contract such as clarity on the quality and price for grape tonnages or a price setting mechanism, who has liability for damaged fruit during the harvesting and sales process, and payment terms,” he said.

Mr Stanford said the online information tools provided by WGGA would greatly assist independent growers and, by being freely available on WGGA’s website, were instantly accessible to growers anywhere in Australia.

A revised industry Code of Conduct to be available soon

Mr Stanford said it was encouraging that WGGA and the Winemakers Federation of Australia (WFA) had recently agreed to a revised Code of Conduct – a move expected to be ratified at WFA’s annual meeting on November 23. Nevertheless, it was disappointing that a relatively small number of winemakers had become signatories to date.

“Growers should ask grape purchasers if they are signatories to the Australian Wine Industry Code of Conduct and ideally, should only deal with those who are. By way of insurance, they should also understand the dispute resolution process in the Code.”

Mr Stanford also noted that the Code sets out only the basic requirements of good commercial practice.

“If a winemaker wishes to be unreasonable in their contract writing, and a grower is willing to sign up to potentially unfavourable conditions then these conditions are agreed and recourse to the dispute process is difficult,” Mr Stanford warned.

“Of course, there is also the problem that a large number of winemakers aren’t even signatories and are therefore not accountable to even the basics of good and fair commercial practice.”

WGGA Chair, Mr Vic Patrick, called on winemakers to take a leadership role in setting winegrape prices that offered the industry as a whole the best chance to restore the supply-demand balance by market signals that encourage sustainable fruit production.

“In an industry that prides itself on open and accountable market determination of its fortunes, the lack of leadership by the winemaking community is regrettable,” Mr Patrick said.

In a further blow to growers, winemakers are currently using contracts to force costly compliance measures on growers such as expensive environmental accreditation and membership of WFA’s EntWine program. This is done by making contracts contingent on accreditation and membership.

“In a discriminating way, winemakers should be encouraging the production of sustainable fruit, and discouraging that which isn’t. Lower prices, applied in a blanket fashion, are not in the longer term interests of the industry,” Mr Patrick said.

“This is a last-one-standing strategy that often denies growers the ability to cover costs and supports lost-cost, low asset wine trade.

“In turn, it pays no regard to the viability of valued growers who can support a bright future for the industry and it contributes to the maintenance of oversupply while undermining of the reputation of Australian wine.

“The Australian wine sector has for a long time prided itself on a strong collegiate identity and celebrated the competitive advantage this gives the national industry.

“It seems as though the vision, and the advantage, have been lost,” Mr Patrick said.

For further information and media interviews, please contact WGGA Executive Director Lawrie Stanford on 0417 859 282.

 

WGGA AGM 2011 Chairman’s Address

Wine Grape Growers Australia Inc

ABN 15 475 806 313

Chairman’s Address to Growers

The Annual General Meeting of Members

Held at the Australian Wine Research Institute Seminar Room

Wine Innovation Centre Building

Corner of Hartley Grove and Paratoo
Road Urrbrae

Friday 18th November 2011 at 10.30 a.m.

Let me begin with a thank you to all who have travelled to attend the third Annual General Meeting of the Wine Grape Growers Australia organisation.

I would also like to thank the largely voluntary Committee who represent diverse Regional interests for their input and support.

Our Executive Director (Lawrie Stanford) has worked tirelessly and raised the performance of WGGA to a new level of professionalism and I thank him for that.

I would also like to introduce Kelly Bonser who joined WGGA as Office Administrator in August this year.

The season that was Vintage 2011

Last season in summary can be described as extremely challenging for the majority of Australian viticultural regions. It resulted in generally below average revenue generation and high operating costs.

For many growers this resulted in depleted cash flows and continuing financial pressure.

In an environment such as this, growers rightly question what value they derive from membership of industry organisations.

“What am I getting for my dollar” came into sharp focus.

Membership

Membership and funding arrangements are an issue of past and ongoing istraction that continues to threaten the organisation’s effectiveness and/or existence.

WGGA continues to explore and consult widely on a range of options available to broaden the national grower membership and funding.

WGGA Revenue

WGGA received revenue of $332,000 in the 2010-11 financial year.

The majority of the revenue was received from the South Australian Grape Growers’ Industry Fund, the Wine Grapes Marketing Board – Riverina N.S.W. and Murray Valley Winegrowers Inc – Victoria

Minor amounts were generated from general membership, regional association affiliation and associate membership.

I can advise that the inaugural Memorandum of Understanding (MOU) between WGGA and WGCSA has been reviewed and updated and will operate for the remaining two periods of current S.A. Grape Growers’ Industry Fund.

Achievements 2010-11

While the past year has represented a period of review and rebuilding WGGA has delivered on a number of issues.

  • Commenced negotiations on harmonisation of Maximum Residue Limits (MRLs) in important export markets.
  • Completed a combined winemaker/grower review and refinement of the Australian Wine Industry Code of Conduct.
  • Established the Winegrape Quality Measurement Committee.
  • Identified and documented the most important trends and challenges facing growers to underpin the organisation’s policies.
  • Developed a new business plan for VineBiz
  • Contributed to National RD&E plans
  • Achieved in-principle agreement with WFA to develop a National Vineyard Data Base
  • Commenced primary responsibility for contingency management and negotiation of important biosecurity issues affecting all grape
    growing.
  • Revised the WGGA Water Policy and developed the WGGA RD&E Policy.

WGGA expenditure in 2011-12

The budget is split roughly evenly between personnel funding and programme content. Administration costs make up roughly 33% of the total budget.

WGGA has six strategic aims. One of the six “Addressing critical National issues affecting wine grape growers” accounts for just over 50% of the WGGA budget and three issues account for almost 90% of this component.

They are:

  • Market Access for Winegrapes – principally MRL negotiations, Code of Conduct, and quality assessment issues.
  • Knowledge and Capacity Development: foundation data acquisition and VineBiz
  • Biosecurity- based around the establishment of the National Winegrape Biosecurity Committee and Vine Health Technical Reference Group.

WGGA has also been active in negotiating for the establishment of a National Vineyard Data Base, contributing to the development for the GWRDC research, development and extension programme, establishing a Winegrape Quality Measurement Committee and other initiatives that will be addressed by the Executive Director.

WGGA activity in 2011-12

In the coming year, WGGA will continue to focus on current national issues and will monitor emerging issues such as The Carbon Reduction Pollution Scheme, the revised Murray Darling Basin Plan and the emerging wine industry taxation debate.

The challenges to be dealt with include

  • getting winery commitment to the Code of Conduct,
  • adequately funding and activating the new biosecurity committee and reference group to a point of effectiveness,
  • establishing new working arrangements with WFA,
  • securing funding for the long term and adequately resourcing the organisation.

Once again I thank you for your attendance, thank the members for their support, the committee and ED for their continued diligence over the past year and for the skill and knowledge they bring to the table.

 

Vic Patrick

Chairman

Download Chairman’s Address in PDF format

WGGA AGM 2011 Executive Director’s Report

Wine Grape Growers Australia Inc

ABN 15 475 806 313

Executive Director’s Report to Growers

The Annual General Meeting of Members

Held at the Australian Wine Research Institute Seminar Room

Wine Innovation Centre Building

Corner of Hartley Grove and Paratoo Road Urrbrae

Friday 18 November 2011 at 10.30 am

 

In my report to this meeting, I will try to strike a happy medium between relating the activities and issues of 2010-11, and giving you a taste of what WGGA sees for the future of the organisation and the grower community.

An important theme throughout my presentation today is improving the information base — and therefore knowledge — that both growers and your national organisation can action.

Supply and demand balance

Supply and demand imbalance was most frequently registered as the issue of greatest concern in 2010-11.

The 2011 harvest of a remarkable 1.6 million tonnes clearly indicates that adjustment in the industry is happening too slowly.

Apart from the size of the crush, the fact that so much of it was taken was also astonishing.

My speculation is that many processors are keeping their heads above water in two ways: by maintaining processing throughput and average unit costs on the back of loss-making prices paid to growers and, secondly, through production of low-value wine for global markets.  These pathways result in unsustainable prices for growers. 

Processors cannot be blamed for wanting to survive.  Nonetheless, your organisation, WGGA, is calling for greater industry leadership from winemakers in considering what the trade of low-value wine is doing to the value of Australian wine’s brand.

If at some price, this business is sustainable, that is fine.  However, more than ever before, growers will need to decide if they can supply this trade.

If they can’t make a living in price-driven supply chains, they need to say “no” to the prices offered and seek more profitable partnerships with off-takers or adjust their business.

Knowledge

Good knowledge is essential to drive good decisions. 

There are many reasons offered for why adjustment is so slow and, invariably, the reasons will differ from region to region.

The two reasons most frequently mentioned are off-farm income and diversified agricultural production among those who produce winegrapes.  Both strategies act as hedges against a downturn.

Unfortunately, we know little about the profile of growers in respect to these characteristics.  Planning an effective industry response to adjustment is hampered by this ignorance.

However, a solution is not far away: data commissioned from the ABS will soon provide new insights.  This data will improve our understanding of the grape growing industry by size, enterprise mix and by independent- versus winemaker-grower.

Based on this information, we can devise and target better policy.

Another major initiative to improve our knowledge — albeit in the longer term — is a project to create an industry-owned national vineyard database.

Once completed, this database should boost our understanding about the viticulture supply foundations of the industry; provide assistance in biosecurity matters; and afford the means to contact Australian grape growers.

If a national vineyard database delivers on all of these dimensions, it is very much supported by WGGA.

Capacity development – VineBiz

Ultimately, adjustment in the industry will occur by individuals making good decisions about their businesses. 

VineBiz is viewed as a highly effective tool for this purpose.  However, its use is languishing.

To make decisions about its future, we have undertaken research into what growers think about VineBiz and how they use it.  In summary:

  • Industry commentators and leaders say growers should use it;
  • Growers who have used it say it’s “great” but, despite their good intentions, they don’t go on to regularly use it;
  • Growers who have chosen not to use it say this is because they don’t have time, are not willing to pay for it or don’t have the required technology skills.

Put simply, while VineBiz is not seen to be the problem, it’s not seen to be the solution either.

Clearly, our challenge over the next 12 months is to further analyse these findings and determine how best to improve the use of VineBiz among growers.

Market Access for winegrapes

In 2010-11, WGGA was active in projects that promoted access of winegrapes to the market.  Our activity included:

  • Revising and promoting the Australian Wine Industry Code of Conduct;
  •  Establishing the Winegrape Quality Measurement Committee to set the rules and protocols for quality valuation that can be legally used in price determination;
  •  Providing input into the OIV (the International Office of Viti- and Vini-culture) that establishes the international regulatory environment for viticulture practice and winemaking; and finally
  •  Facilitating the negotiation of phosphorus acid maximum residue limits in Canada and China.

On-line tools to assist growers

Improving knowledge has been a theme of my talk today and I am pleased to have this opportunity at our annual meeting to launch a new initiative to help growers access markets.

To assist growers to hold their own in a market with depressed prices, we have released three new online information tools:

  • A checklist of considerations for growers entering into grape supply contracts.
  • An easy-to-use contract template that is fair to both growers and producers.
  • An “at a glance” outline of the dispute resolution process within the Australian Wine Industry Code of Conduct.

These tools can be downloaded from our website at www.wgga.com.au.

Code of Conduct

The signing of a revised Australian Wine Industry Code of Conduct is imminent.  A key revision to the original Code released in 2008 is the setting of new targets for the number of winemaker signatories. 

They are: 25% of the top 100 winemakers by December 2012, and 50% by December 2013. 

From our perspective, the release of a revised Code represents a renewed opportunity for the large number of Australian winemakers who have not yet signed up to come on board. 

While we believe that it is primarily the responsibility of the Winemakers’ Federation to encourage winemakers to sign up, we are nonetheless urging our members to insist that their off-takers become signatories.

Research, Development & Extension

As a primary stakeholder in the GWRDC — together with the Winemakers’ Federation and the Federal Government — WGGA has been active in providing input into the new GWRDC Five Year Plan and in selecting its new Board. 

This, in turn, has motivated us to review our policy on research, development and extension (RD&E). 

Our policy now states that as the sole beneficiary of national grower levies (the Grape Research Levy), the GWRDC has a responsibility to invest this money across the whole range of RD&E.

That is, research that benefits growers, development of growers and extension to growers.

Under the updated policy, grower development also includes facilitating grower engagement and feedback — to the GWRDC and the Federal government — on how their levies are spent.

Hence, grower development is an awareness and communication function as distinct from the no- less -important extension of scientific research.  

It’s a change in thinking and we are planning further discussions about this with the GWDRC and the Federal Government.

Vineyard Biosecurity

During 2010-11, some progress was made on improving vineyard biosecurity — but not as much as we would have liked.

During the year, a policy-setting body called the National Winegrape Biosecurity Committee was formed and met on two occasions.  In addition, the Vine Health Technical Reference Group is in the process of being convened.

The tasks that lie ahead are to:

  • Advance the development of a National Phylloxera Management Plan;
  • Review the categorisation of vine pests and diseases under the Emergency Plant Pest Response Deed);
  • Raise awareness in the industry of its responsibilities under that Deed; and 
  • Increase industry’s response readiness for an exotic plant pest outbreak at national, State and regional levels.

To help deliver results more quickly, we will be addressing the resourcing of this important work in the coming year.

Water

Within the winegrape growing community, water is largely a regional issue – given the role of the States in the distribution of Commonwealth allocations to irrigation.

Nevertheless, at the national level, the Murray Darling Basin Authority has been busy on the issue of water that will be available to the states for irrigators by the Commonwealth. 

WGGA has kept abreast of events via “observer status” with the National Irrigators Council.

From the beginning, we have argued for a balanced approach to making water available to the environment and the socio-economic effect on irrigators from reduced water access.

The next round of scrutiny on this issue will commence on November 28 when the second attempt at releasing the Draft Plan will occur.

Wine Tax

The Henry Review into Australia’s tax system — and a growing discussion within industry about impediments that the WET rebate may represent to industry adjustment — has meant wine tax was an issue for discussion over the past year.

Subject to continuing discussion and change, WGGA supports the current ad valorem tax mode.

We also support the following WFA positions:

  • No overall increase in the total tax revenue from the wine sector;
  • Reform of the WET rebate to remove distorting supply decisions;
  • No use of tax or artificial minimum pricing measures as a lever for health reform and;
  • Maintaining the differential tax rates for wine, beer and spirits.

Support for reforming the rebate is contingent on there being no discrimination against growers receiving the rebate, if eligible.

Government Relations

Good relations with government are essential for WGGA.

WGGA continued to develop a positive working relationship with the relevant Federal Government offices (primarily the Minister for Agriculture but also with DAFF and Ministerial Offices for Sustainability, Environment, Water, Population, Communities and Regional Development). 

The focus in government communications has been industry restructuring and facilitating a grower voice to provide effective feedback to the Commonwealth on the investment of its matching funds in research, development and extension.

Streamlining National Organisational Structure

Restructuring at the national organisation level is building a head of steam. 

Closer relations are set to gain a boost in the next few weeks as all four national organisations — ourselves, the Winemakers’ Federation, Wine Australia Corporation and the GWRDC — are set to co-locate in Industry House at the National Wine Centre.

A paper by the DAFF, analysing the pros and cons of a range of options for integrating the two statutory bodies (the GWRDC and Wine Australia) has been presented to WGGA and WFA for consideration.

WFA already has a policy that the two statutory bodies should be merged and WGGA will now consider its position on such a merger. 

In a parallel set of thinking, WGGA has presented the WFA with a proposal for creating a Council with equal grower and winemaker representation.  This has been received favourably and discussions are underway on the details.

It is worth noting that the current trend towards combined grower-winemaker associations at the State and regional level is unlikely, for the moment at least, to be adopted at the national level.

Membership and funding

Like many membership-based organisations, securing adequate funding is a challenge.  This issue is coming to a head through a review of the South Australian Grape Growers‘ Industry Fund.

After a year of thinking and investigation into alternatives and options, an action plan will be devised over the next year for restructuring.

Staying in touch with growers

The importance of a two-way flow of information between WGGA and growers cannot be over-emphasised.

It helps us to be effective in harnessing grower input and representing grower views in industry and government forums.

One innovation has been publishing our newsletter within the Grapegrower & Winemaker magazine, a better fit with our constituency.  The ongoing collaboration and support in this from Winetitles is acknowledged with gratitude.

WGGA also commenced an e-Alert system to inform growers about events and opportunities available to them.

Thank yous

I want to take the opportunity to acknowledge the contributions of a few key people.

Our Chair, Mr Vic Patrick, brings an immense depth of experience and understanding about the wine sector to this organisation and I thank him for his accessibility and his commitment to the cause.  Supporting both Vic and me are the voluntary Executive Committee who contribute their time and effort for the collective benefit of their fellow growers.

Along with Vic, I add my welcome to Kelly Bonser who has stepped into the role of office administrator on a half-time basis and performed admirably in a short span of time.  I also add my thanks for the expert and committed input of Sandy Hathaway into project-based activities.

Comments about the future

In regard to the future of our organisation, I am determined that next year I will be able to report wider representation, better representation and a closer partnership with winemakers on the many issues that we have in common along with greater collaboration with other agricultural sectors on matters that are, once again, in common.

Finally, I would like to share with you a thought for the future.

As the Australian wine sector and the major players in the sector become increasingly global in their interests and perspectives, I see an increasing role for representation by agents whose interests are aligned with that which is inalienably Australian ‑ vineyards rooted in Australian soil. 

In this regard, the national grower organisation is uniquely positioned to represent Australian wine sector interests. 

With the help of those with goodwill and the interests of the Australian wine sector at heart, I hope WGGA will increasingly have the privilege of this role in the future.  

Thank you.

Lawrie Stanford

18 November 2011

Download Executive Director’s Report in PDF format

Delivering for growers on national issues

WGGA achievements in 2010-11

Executive Director’s Report

July 2011

 

The past year has represented a period of review and re-building for WGGA, with new executive officers and a period of greater financial and organisational stability.

With a consolidation, re-orientation and planning phase in 2010-11 drawing to an end, a foundation exists on which the potential exists to further deliver in 2011-12 on initiatives that are important to Australia’s winegrape growers.

1. Improving prospects for winegrapes in the market place

  • Facilitating the export harmonisation negotiation of Maximum Residue Limits (MRLs) for traces of key compounds in wine starting with Phosphorus Acid. This will occur for key markets where the absence of agreements constrains wine trade and effective management of crops for the affected markets.

2. Facilitating better winegrape purchasing practices

  • Completed a combined winemaker and grower review and refinement of the Australian Wine Industry Code and re-setting of the Winemaker Federation’s targets for winemaker signatories.
  • Liaised with the Winemakers’ Federation of Australia on the administration of the Australian Wine Sector Code of Conduct. Facilitated the completion of a review and refinement of the Code and achieved a cost-saving re-structuring of the administrative arrangements.
  • Researched industry Codes through the ACCC, DAFF and the Code Administration Committee in order to effectively advise the growers on gaining maximum benefit from the existing voluntary Code and on alternative ways of encouraging fair and reasonable commercial behaviour in the purchasing of winegrapes.

3. Accountability in criteria used for winegrape price setting

  • Achieved the establishment of a Winegrape Quality Measurement Committee, hosted and managed by Australia’s peak measurement organisation, the National Measurement Institute, to standardise and verify trade measures governing price outcomes in winegrape trade.

4. Creating knowledge for the financial benefit of winegrape growers

In the areas of – market trends for winegrape production, policy to encourage better supply/demand balance, a national vineyard database, research, development and extension to support winegrape growing, tools for skills in financial management and business adjustment..

  • Preparing a Business Plan for VineBiz to build a more substantial foundation for the program’s refinement as a business-adjustment tool, its promotion to the grower community and its adoption.
  • Contributed to various committees of the National RD&E Framework – the Innovation Policy Committee, the National RD&E Consultative Forum and the National Wine Extension and Innovation Committee.
  • Active involvement in influencing GWRDC policy to benefit growers by facilitating grower input into the new 5 Year Plan and in selecting the new GWRDC Board.
  • Supported the Wine Australia initiative to implement an industry-owned National Vineyard Database.
  • Conducted and reported on the issues and potential outcomes of the 2011 harvest to inform growers of national influences on their marketplace prospects and their crop management decisions.
  • Issued reports and other communications that analysed the extent and nature of supply adjustment and implications for growers in the marketplace.
  • Researched and negotiated new data on the foundations of winegrape growing in Australia in order to better understand the factors that influence adjustment in the sector.
  • Commenced a process of engaging banks in thought leadership on finding solutions to adjustment in the Australian wine sector.

5. Creating vine health, quality and security

  • Conducted wide-ranging consultations on the restructuring of Australian winegrape biosecurity arrangements through WGGA coordination.
  • Commenced discussions that will bring WGGA’s coordination of national winegrape biosecurity arrangements into the central office.

6. Closer, more immediate liaison with parties that influence grower welfare

  • Contributed to a revitalisation of discussions that will result in co-location of the four national organisations.
  • Successfully cultured willingness in the Winemakers’ Federation of Australia to engage in dialogue about issues relating to grower welfare.
  • Engaged the Winemakers’ Federation of Australia in considering national organisational arrangements that will give growers greater participation in, and thereby influence on, national wine sector policy.
  • Built networks for influence by establishing contacts in the offices all relevant Commonwealth Departments (Agriculture, Fisheries and Forestry; Regional Development and Sustainability; Environment, Water, Population and Communities); agri-political organisations that can be leveraged for more effective grower policy, such as the National Irrigation Council and the National Farmers Federation); service bodies like Plant Health Australia and the Australian Rural Leadership Foundation, R&D bodies like the Wine 2020 Advisory Committee; chief officers of the national wine sector organisations (WAC, GWRDC, AWRI, WFA) and the various state wine sector associations; and like agricultural associations (eg Citrus Australia, Australian Dairy Farmers).

7. Contribution to national policy formation on matters that affect growers

In the areas of – water access for irrigation, wine sector supply/demand balance, access to overseas markets for Australian wine based on vineyard and grower practices, commercial practices in winegrape purchases, the impact on growers of environmental credentialing of vineyard practices, relevance of research, development and extension to growers, access to verified and healthy planting material.

  • Facilitated a unified national grower approach to negotiating the form and success of the Australian Wine Industry Code of Conduct.
  • Liaised with the Wine Australia Corporation to achieve a ‘common-sense’ approach to implementing the new Label Integrity Program that incorporated growers for the first time.
  • Issued statements in support of winegrape grower and irrigation community welfare in relation the Murray Darling Basin Authority’s proposed Basin plan.
  • Formed a Viticulture Reference Group to advise Australia’s representatives to the OIV.
  • Wrote a submission and presented to the NSW Legislative Council Standing Committee on State Development’s inquiry into Wine Grape Market and Prices.
  • Liaised with the Winemakers’ Federation of Australia on the treatment of growers in the Entwine accreditation process.
  • Contributed to the wine sector’s submission to the Productivity Commission on its Draft Report on Rural Research and Development Corporations.
  • Facilitated national winegrape grower input into the new GWRDC 5 Year Plan.
  • Revised WGGAs Water Policy in the light of emerging changes to national water policy regulating use of water for agricultural irrigation.
  • Met with key organisations that offer opportunities for collaboration and leveraging on policy initiatives that advance grower welfare.
  • Contributed to the national organisation’s review of the Wine Restructure Action Agenda (WRAA).
  • Supported the GWRDC-funded work to establish

8. Staying in touch with growers

  • Developing and building the infrastructure and content of a more effective WGGA contact database.
  • Regular communication with growers through a variety of communication vehicles –
    i. The United Grower newsletter. Published bi-monthly as a part of the Wine and Viticulture Journal (previously Australian Viticulture) in parallel with distribution to individual growers via regional organisations.
    ii. WGGA E-Alerts for timely advice on events and opportunities.
    iii. The WGGA website www.wgga.com.au.
    iv. Media Releases.
    v. Personal presentations of WGGA policy and industry assessments – both recipient- and WGGA-initiated.
    vi. Contributions to wine sector media.

9. Establishing a more equitable and effective national grower membership and funding base

Membership and funding arrangements are an issue of past and on-going distraction and continue to threaten the organisation’s existence. These issues have been the subject of intense research and thought in the organisation over the past year. The extensive research means the issues are understood at this stage and next steps will focus on choosing preferred courses of action and implementing change in a more targeted manner.

  • Explored and consulted widely on a range of options available to broaden national grower membership and funding.
  • Commissioned and secured new foundation data on the nature of winegrape growers in Australia in order to better target membership drives.
  • Consulted state wine industry associations on the prospects of supporting state based levies in the same format as South Australia. At the invitation of the SA Minister for Agriculture, Hon. Michael O’Brien, worked with Don Plowman, PIRSA Deputy CE of Primary Industries and Biosecurity, to canvass state agricultural Minister’s support for state-based levies in the same format as South Australia.
  • Canvassed both the political office and the supporting department for Agriculture, Fisheries and Forestry on the prospects of a nationally administered levy.
  • Informed and secured support of the WGGA Executive Committee in the strategic direction to be taken in broadening and more adequately funding national grower representation.

L Stanford
Executive Director, Wine Grape Growers Australia
July 2011

 

Wine industry must continue to focus on transition (Dec 2010)

A statement to industry by the Winemakers’ Federation of Australia, Wine Grape Growers’ Australia, and the Australian Wine and Brandy Corporation

6 December 2010

 

 

Background

In November 2009 the national wine industry organisations launched a Wine Restructuring Action Agenda (WRAA) with the release of a statement to the wine sector about the need to confront the reality of grape and wine oversupply.

 

The key messages were that:

  • Structural surpluses of grapes and wine were damaging the industry by devaluing the Australian brand, entrenching discounting and eroding profitability.
  • At least 20% of bearing vines were surplus to requirements and the problem was not restricted to specific regions, varieties or price points.
  • Australia could not compete in the global commodity wine market and needed to change its product mix to focus on sales that earn viable margins.
  • The industry’s rapid growth in the 1990s had added some vineyards of questionable value and even undermined the integrity of some regions.

This second statement reports on progress and outlines the next phase of initiatives designed to assist the industry’s transition to a new structure based around long-term sustainability and market opportunity.

 

Issues and progress

 Oversupply

There are signs of adjustment in vineyard area and wine stocks but these are by no means sufficient to suggest the “oversupply problem” has passed. It is particularly concerning that:

  • A smaller harvest in 2010 was the biggest factor in the adjustment and thus there is potential for oversupply to rise again if harvest levels return to previous levels.
  • Disease issues in late 2010 may have a short-term impact, but in the longer term the risk of an increase remains.
  • The adjustment does not address imbalances in the quality, varietal mix and cost efficiency of vineyard capacity.
  • Some cooler regions still believe oversupply is primarily an issue for, and the responsibility of, the warmer regions.

Australian Bureau of Statistics (ABS) data suggests a net reduction in vineyard area of 6600 hectares (8000 removed and 1400 planted) up until March 2010, with an additional 13,000 hectares not harvested during vintage 2010. [Removals may be understated as growers who have exited completely are unlikely to have responded to the survey]. These net removals represent a reduction of 4.3% of national vineyard area. However, if the hectares not harvested are permanently withdrawn the combined reduction is 13%.This compares with the 20% identified as the minimum necessary in the first WRAA statement.

The AWBC estimates a combination of decreased wine production and increased sales will see stocks fall from 1.9 billion litres to about 1.72 billion in 2009-10. However, an estimated 300 million litres of sales that led to this stock position are considered to be unprofitable and unsustainable and hence could be interpreted as distressed sales.

We also must recognise the increasing influence of businesses that are dumping cheap surplus wine on global markets, creating a false demand for fruit at unsustainable prices, undermining the image of Brand Australia, and delaying the adjustment process. This is not new but it has now become more entrenched and a more substantial influence.

In summary, despite clear market signals, adjustment is not proceeding at a sufficient pace. Larger and more commercially focused businesses are generally well advanced, having taken steps to clear surplus inventory and assets, realign their supply chain, revise brand portfolios and shift their market and price-segment targets. However, a combination of unrealistic expectations, non-commercial motives and short-term opportunism continues to motivate many operators to resist change.

Contributing factors include but are not limited to: the WET Rebate and/or off-farm income shielding otherwise unprofitable businesses; existing contracts causing complacency; barriers to exit (prohibitive costs, inability to recoup debt etc); a lack of alternative uses for land; demographic factors overriding business considerations; and a belief that oversupply is someone else’s problem or that demand initiatives will solve it.

 

Demand

Export volumes have risen 10% since 2007-08 but value is down by 19%, with exports of bulk wine below $1/litre rising 85% to 187ML in 2009-10. Most disconcerting is the decline in high value exports; volumes halved between 2003 and 2010. We can anticipate continuing recovery from the GFC but it is slow and, as the table below indicates, there is evidence Australia is not benefiting to the same extent as our competitors.

Changes in exports for key exporters, 2010 (From Rabobank)
Country Volume change (%)

Value change

(%)

 Period of measure
France

+41

 +21.9 Jan- June
Spain

+17.4

+6.3

 Jan- July
Italy

+6.1

+8.6

 Jan- June
US

+6

+22

 Jan- June
Argentina

-6

+18

 Jan- July
Chile

+ 13.1

 + 13.8 Jan- Aug
Australia

+3.1

- 8.7

 Jan- June
New Zealand

+18.1

+5.7

 Jan- June

Source: Australian Wine and Brandy Corp., ‘The Gomberg-Fredrikson Report’, Instituto Nacional de Vitivinicultura (Arg), Observatorio Español del Mercado de Vino, South Africa Wine Industry Information System, French Federation of Wine and Spirits Exporters, Wines of Chile, The New Zealand Winegrowers     Note: Value changes in local currencies

 

Domestic sales have grown by volume but imports continue to take a significant share of this. Of concern is the erosion of margins and profitability as cleanskins and retailer own-brands increase their share; Neilsen data shows a jump from 14.9% to 21.7% in just two years. While retailer power is the fundamental driver of this trend, the endemic oversupply is fueling it.

Recent developments further weigh against wine businesses. US monetary policy decisions have further strengthened the Australian dollar against the US dollar, impacting on competitiveness in one of our opportunity markets, while Australian interest rate increases will increase costs and reduce domestic demand.

 

Vineyard viability

A qualitative analysis of the physical performance of Australia’s vineyards undertaken to identify any underlying issues that might cause a region to underperform made the following observations:

  • Some celebrated regions have seen their overall performance diluted by rapid expansion and an increasing proportion of young vineyards.
  • Most regions produce a wide range of varieties with limited specialisation, leading to a national varietal mix that is not delivering to our potential.
  • In some regions site selection has too often been based on land availability rather than the potential to produce the best fruit, particularly during the recent planting surge.
  • Vineyard operators need to ensure they meet best practice standards in vineyard layout and make appropriate adjustments to match changing climatic conditions.

  

The next steps

It is vital to maintain our momentum in specifying and pursuing the changes necessary to resolve the imbalances between Australia’s current wine supply capacity and competitiveness (in terms of quantity, quality and environmental sustainability) and the market opportunities that can deliver ongoing profitability. The scope of these changes encompasses four areas.

Supply

  • The overriding priority remains the need to address oversupply issues and at least meet the minimum 20% reduction in total area as set out in the first WRAA statement.
  • Willingness to identify and then remove or redevelop vineyards that fall short of either physical (quality) or financial (cost) performance measures.
  •  Better align our vineyards and wineries to market opportunity
  • Universal adoption of best practice in water use efficiency.
  • Improve performance in addressing environmental custodianship.

 

Competitiveness

  • Develop strategies to cope with rising production input costs for wineries (labour, capital, water etc).
  • Adapt to the likelihood that the value of the Australian dollar will remain high and volatile.
  • Better understand our advantages/disadvantages relative to competitors in each market.

 

Demand

  • Increase emphasis on consumer access and engagement as an antidote to route-to- market consolidation.
  • Introduce more differentiation into the Australian wine offer, in wine styles and in the strength of the brand propositions (eg regional).
  • Specify new market opportunity metrics (geographies, channels, price segments).
  • Switch wine business emphasis from sales volume to sales margin, even where this entails conceding unprofitable markets.

 

Marketing

  • Reposition the Australian wine category to enhance credibility in the mid range and luxury wine segments.
  • Change focus of market development strategy from individual brands promotion to category reputation building and market penetration.
  • Prioritise high growth high yield markets for promotion effort.

 

WRAA priorities and actions

 

To support necessary industry developments, the WRAA partners have committed to the following specific initiatives:

  • WFA and WGGA will more closely monitor and analyse reductions in vineyard capacity and shifts in performance to ensure the scale and direction of supply restructuring is consistent with future requirements.
  • WGGA is upgrading and expanding its Vinebiz business support program to facilitate appropriate adjustment and build the capacity of growers to make independent judgements about (and promote) their produce to meet market requirements.
  • WFA and WGGA will create tools to encourage and assist vineyard benchmarking.
  • WFA is restructuring its WineSkills program to provide advice and information across the range of business development issues facing wine businesses and regions. Content will be developed in consultation with state and regional associations.
  • WFA will continue to support the Australian Taxation Office crackdown on WET Rebate abuse and evaluate reform options to reduce market distortions.
  • AWBC is preparing to implement strategies outlined in the China market research launched at the recent Wine Industry Outlook Conference and disseminate market intelligence, WFA and AWBC will commission research into other key Asian markets.
  • AWBC has completed detailed market opportunity analysis for key markets which it will release before the end of 2010.

 

Related activities

  •  WGGA, WFA and AWBC are developing a new biosecurity framework for the grape and wine sector.
  •  WGGA and WFA will commission research to gain a better understanding of the impacts of proposed Murray Darling Basin reform and work to ensure due consideration is given to economic, social and environmental impacts and goals.
  •  AWBC has introduced additional compliance measures to address the risks associated with the increasing share of bulk wine exports in the total export mix, particularly to emerging markets in Asia.
  • WFA, AWBC and WGGA are investigating an alternative approach to collecting and disseminating data and information that more effectively meets the needs of wine businesses than the current ABS collections.
  • WFA, AWBC and WGGA will review the sector’s R&D priorities to better align them with the restructuring imperative.

Download PDF version of this statement

The apparent 2011 crush indicates enduring oversupply

After a meeting of the national representatives of Wine Grape Growers Australia (WGGA) last week, the WGGA Executive Committee today predicted that the national crush in 2011 is likely to be between 1.3 and 1.4 million tonnes. That would represent a crush of between 19% and 12% down on the previous year’s crush and represents the third annual decline in a row following the 1.83 million tonne crush four years ago.

Drivers of an anticipated lower 2011 crush were (i) lost or rejected tonnages due to disease, (ii) as yet unquantified removed or abandoned vines, and (iii) un-economic or diseased fruit left on the vine or dropped at harvest.

WGGA Executive Director, Mr Lawrie Stanford, issued a warning that despite another apparently lower crush in 2011, the evidence was that the industry was still capable of producing more wine than could be profitably utilised by all members in the value chain.

While the crush is believed to be 1.3 to 1.4 million tonnes, it is understood that a lesser amount (in the vicinity of 1.1 to 1.2 million tonnes) went into wine production that had real prospects of returning a long-term profit in the marketplace.

In what was a relatively cool season that hindered full sugar development, the balance of the fruit above the 1.1 to 1.2 million tonnes going directly into wine production represented otherwise unwanted fruit, purchased well below the cost of production, for the purposes of making concentrate to boost the sugar content of grapes taken in for winemaking.

Alternatively, in a dynamic not fully understood or quantified at this time, the ‘balance’ may have been used for low grade wine in order to compete with low-cost world producers and bulk wine traders. Such practices concerns WGGA because it is only possible by purchasing fruit at well below its cost of production. In the process, this trade is impoverishing growers who in recent years have assumed by far the larger part of the agricultural risk. Moreover, it damages the reputation of Brand Australia in the eyes of wine customers and consumers worldwide and undermines Australia’s aspirations to be, and to be seen as, a premium wine-producing nation. It further devalued the efforts of the nation’s wine marketers to build Australian wine’s reputation at a time when demand was suffering.

Harvest update Feb-March 2011 – trends and issues

Industry Release 22 March 2011

WGGA Harvest Update – February/March 2011 – Trends and Issues

With the harvesting of white winegrapes well underway in most districts across Australia, but with the red harvest yet to start, an upward trend in tonnages has been reported in a new harvest update conducted in late February/early March by Wine Grape Growers Australia (WGGA) and Wine Grapes Council of South Australia (WGCSA).

After a brief reprieve from earlier wet, cool conditions, a period of generally dry and warmer conditions in late December/early January, suggests that tonnages from the 2011 harvest have edged up from the 1.4 million tonnes reported from a similar survey in late December. Quality expectations are high for the white fruit that has survived the ravages of disease over the course of the season. The reds that are yet to be harvested will face continuing challenges and uncertainty.

Commenting on this phenomenon, Lawrie Stanford, Executive Director of WGGA, said “In an interesting trade-off, the season has produced strong flavours and good acidity for crisp, aromatic whites. This will maintain the quality and interest despite some dilution of these characters by a good dose of water” Reflecting on factors that can, and can’t be controlled, he commented that “While we have ways to manage disease, it’s hard to turn off the water when it comes from the sky”.

In sum, the harvest thus far has been characterised by cooler than normal conditions, plus prolonged wet and then humid conditions – all of which led to early disease pressures. This was associated with practical as well as financial difficulties in management and considerable pessimism about the crop’s welfare.

Despite the challenges, successful management appears to have predominated although there still appears to be some variability influenced in part by the existence of abandoned and financially stressed vineyards. The reprieve from the wet conditions in late December/early January allowed some finishing-off for the white crop that is exhibiting good expression of character because of strong vine growth and the relative coolness of the season.

Variability is once again the key and region-by-region reports will be vital to gaining a complete picture.

It is apparent that the prevailing moisture levels this season have led to bigger fruit and higher tonnages per hectare that have more than offset losses from disease. Adding to this affect has been the relaxation of yield limits by some winemakers because of earlier pessimism about available production due to observed disease losses.

With the cooler nature of the season so far, the vintage is 3 to 4 weeks behind last year. The red harvest is generally about 2 to 3 weeks away at the time of writing. “Continued sporadic rain events in different parts of Australia nevertheless serve to remind us that the harvest is at best, half way through and there is much that can happen yet” said Mr Stanford. “If there is further rain in some regions the red harvest could end up being very different from current expectations.”

As the red harvest is about to commence, an additional challenge is expected to emerge – that of the red crop’s ripening. Some concern about this has been reported due to the lateness of the season and the damage caused by disease on leaf functionality.

While there were indications that tonnages were edging up from earlier estimates, Mr Vic Patrick, WGGA Chair, stated that a credible estimate was not possible. “It is regrettable that the industry is not collecting harvest intelligence in a timely fashion – industry stakeholders want and need to know” said Mr Patrick. “To the extent that these estimates rest in some part on knowledge about the actively maintained vines in the industry, it is puzzling why more industry resources are not assigned to understanding this component of the industry’s production equation.”

In recent years, on the back of massively increased charges sought by the Australian Bureau of Statistics to collect viticulture data through the Vineyard Survey, the regular collection of this data has been disrupted. Nevertheless, WGGA notes that GWRDC will invest more than $670,000 of levy funds on a full vineyards census in 2012 but a gap year exists for 2011. The Australian Bureau of Statistics’ Agriculture Census will cover events in 2011 but on standard timelines, the data will not be available until April 2012.

Even in the best of circumstances, the currently vital vine removals data comes with a lag. This lag leaves the industry blind to up-to-date adjustment that is occurring. The latest national intelligence available to the industry on vine removals is for 2009 – which primarily influenced outcomes in the 2010 harvest.

Despite some informal attempts by WGGA and WFA to measure removals leading into the 2011 harvest, nothing is clear. “At a time when the industry is going through supply adjustment that is vital to the industry’s future, the industry is not reliably informed as to what is happening”, said Mr Patrick.

At last count, for the 2010 vintage, 13 000 hectares or about 8% of the industry’s total area, was left unharvested or the fruit was dropped at harvest. Mr Patrick commented that “We also don’t know what has transpired with these vines leading into the 2011 harvest. Such gaps in industry knowledge can be costly to both grape growers and winemakers in terms of prices and orderly logistical handling of the harvest. The industry needs to develop systems to capture this data in a timely way.”

WGGA and WFA, together with the Grape and Wine Research and Development Corporation (GWRDC) and Wine Australia Corporation (WAC), are committed to the creation of a national vineyard database, along the lines of the SA database administered by the Phylloxera Grape Industry Board of South Australian. However, due to the requirement of legislation, this is a medium-term solution.

While acknowledging limitations on industry planning funds in the current operating conditions, WGGA views the industry’s service bodies, the GWRDC and WAC as bearing the greatest responsibility for the funding and analysis of such critical intelligence until the national vineyard database is in place.

For further information please contact WGGA Executive Director Lawrie Stanford on 0417 859 282 or Chair Vic Patrick on 0408 849 533.

 

FURTHER NOTES ON HARVEST TRENDS AND INFLUENCES

The white harvest is all but complete in the more northerly Australian winegrowing latitudes such as Queensland and the Hunter while it is largely complete in the middle latitudes in which the bulk of the harvest is taken and finally, the white harvest is yet to commence in the southerly latitudes such as the South Australian Limestone Coast and Tasmania.

In the eastern parts of Australia have been under the influence of La Nina which has defined the season. The dominant seasonal influences have been relative coolness accompanied with a wet winter and spring. These conditions even dragged into December. As the months became warmer (although still relatively cooler than the average) the wetness was progressively associated with humidity.

Late December/early January then saw a period of general reprieve with warmth and dryness allowing the crop to develop normally. With ample moisture and healthy vines the white crop finished well.

Sporadic rain episodes nevertheless resumed and continued into February albeit on a less protracted basis than earlier in the season. In this period, the hope was that the moisture would evaporate quickly because withholding periods in spray schedules meant spraying for mildew was not possible in many instances.

Inaccessible, saturated vineyards and in the extreme, even flooding, were the starkest expressions of this season’s wet conditions. Vineyard inaccessibility added to the challenges of disease management. While flooding was relatively rare, it was reported in the tropical-storm devastated areas of Queensland, isolated blocks in Leeton of the Riverina while extensive inundation has been reported in the Murray Darling-Swan Hill districts which appears to be the worst hit area among the warm inland districts that produce the largest part of the national winegrape crop.

In complete contrast, Western Australia, distant from the La Nina influences, experienced a dry winter, dry spring, some refreshing rain in January and, without any heat spikes as the summer progressed, consistent heat. Quality, balanced fruit development is reported to be in abundance.

As reported by WGGA earlier in the season, the costly management of widespread disease pressure has meant disease management has been variable depending on access in vineyards, access to sprays, the sales prospects of the crop and the financial reserves of vineyard operators.

It appears that effective management has nevertheless been possible for the majority of the crop.

Ample moisture has meant strong vine and canopy growth and the relative coolness is widely reported to have allowed good flavour development, lower sugar and higher natural acidity. For whites, this means the season will be good for the aromatic flavours that have met with consumer approval over recent years.

On the other hand, ample moisture has enlarged the berries and placed upward pressure on tonnages. As a result, tonnages are likely to be higher than they were thought to be earlier in the season when disease pressure was at a peak.

A further influence on the upward trend in tonnages has been added by the prolonged wet and uncertainty about continued rain which lead to some fruit to be taken off early, without full sugar development. This occurrence lead to the poorer, disease-affected tonnages that would have otherwise been rejected, being taken by wineries for the purpose of producing concentrate that can be added back to achieve required sugar.

Without the lashings of water in the west, character development of the whites that are done so well in that state, have been intensified. A great, if not necessarily an ample year, results in the west.

Thoughts now turn to the red harvest. Reports of the prospects are, as for the whites, variable. The red crop also faces the uncertainty of rain but in addition, faces challenges of ripening. Risks to full ripening are posed by the lateness of the season which could mean vine shutdown before ripening is completed. There are already some reports of reddening and yellowing leaves. Moreover, deterioration of leaf functionality through the ravages of this season’s downy attacks is affecting ripening ability.

Enlarged fruit due to this year’s moisture levels pose a risk to colour intensity.

If rain continues further into the vintage, there will be a contest between botrytis rot and ripening – continued wet favouring the former and drier, warmer conditions favouring the latter.

From the outset, the tonnages per hectare of the dominant red varieties, Shiraz and Cabernet, were thought to be lighter than last year, reflecting a rest year after last year’s big crops. The current risk to ripening adds to the production risks for reds.

In contrast to most other parts of Australia, the red harvest in Hunter Valley is complete due to its more northerly location and earlier maturing. Perhaps consistent with the increasing risk, the longer the fruit hangs out there in a season such as this one, the Hunter Shiraz has been reported as ‘awesome’.

Download PDF file of this media release

 

 

 

Warm inland winegrape growers paying the price

Industry Release              22 March 2011

Wine Grape Growers Australia (WGGA) today expressed concern about the rate of adjustment in warm inland winegrape production capacity. This message is released in conjunction with the latest WGGA Harvest Monitor, which outlined a disproportionate impact of this season’s early downy and mildew attacks in the warm inland regions (the SA Riverland, the Murray Darling-Swan Hill districts of Victorian and NSW and the NSW Riverina) and their costly mitigation.

Mr Lawrie Stanford, Executive Director of Wine Grapes Growers Australia (WGGA), said “The cost of disease mitigation this year, on top of the costs of additional water over the last few years, has the potential to financially break many warm inland producers along the major Murray Darling Basin river systems. This will cause further disruptive economic impacts in these communities and accelerate adjustment out of warm inland production.  However, while supply adjustment in the wine sector is necessary, it is not the warm inland product that is principally in oversupply. Oversupply is predominately located in coastal-temperate winegrowing areas (the rest of Australia’) yet warm inland winegrowing areas are paying the greater penalty.”

It has been long acknowledged that production from outside the warm inland districts has been the predominant source of Australia’s excess production capacity. “At the end of the day” said Mr Stanford, “the 40% of Australia’s winegrape production accounted for by coastal-temperate districts, is trying to squeeze into about a 15% share of Australia’s wine sales.”

The reason warm inland production takes the hit derives from the fact that coastal-temperate fruit, due to its quality, is more desirable than warm inland fruit at the lower prices created by oversupply, and it is purchased for inclusion in warm inland wine brands in preference to the traditionally sourced warm inland fruit.  This has the consequence of driving warm inland prices even lower and pushing warm inland growers out of the market.

Price and production outcomes in 2010 are cited as evidence for this distortion.

In 2010, the Wine Australia Winegrape Purchases Price Dispersion Report showed that the average decline in warm inland winegrape prices was 19% while that for coastal temperate fruit was 5%.

On the production front, the 2010 Vineyard Survey data shows that warm inland regions accounted for a 72% share of the estimated net tonnages removed in 2009-10. This share is 12 percentage points ahead of warm inland’s traditional share of total production meaning it is over-represented in the removals occurring within the industry.

At the same time, demonstrating the oversupply of coastal-temperate fruit, the coastal-temperate districts held the higher share (at 53%)of the tonnages estimated to be left or dropped at harvest – meaning it is over-represented in the industry’s oversupply (production without demand) by 13 percentage points over its 40% contribution to total production.

“It is inconceivable that all of the higher-cost coastal-temperate production is sustainable at the current prices for which it is being sold into warm inland wine brands.  At the same time, warm inland prices are driven down to unsustainable levels. This can’t be good for the industry” said Mr Stanford.

The wider ramifications for the industry as a whole are that the industry will get smaller,is necessary in the current context of oversupply, but there will not be a sustainability dividend because unsustainable coastal temperate production will replace otherwise viable warm inland production.

The impact on large number of people and businesses in warm inland districts is demonstrable. Data collected by the Phylloxera and Grape Industry Board of South Australia (PGIBSA) illustrates the case.

PGIBSA data in 2010 shows that warm inland growers could account for a third of all winegrowing businesses.  Moreover, for SA in particular(and possibly demonstrating the case across Australia), the Riverland accounts for one and a half as many winegrape growing businesses as the next largest major wine growing district.

Another way of looking at the PGIBSA data is to net out businesses that are not full-time grape growing operations(taken to be 24 hectares or less) since they will have other income for support in a time of winegrape downturn. On this basis, there is still the largest number of full-time businesses in the Riverland despite a higher proportion of ‘part-time’ winegrape growers.

WGGA believes that factors like the current season’s disease impact are just bad luck for warm inland production, and to be taken on the chin.  However, it doesn’t seem to be in the best interests of the industry for the sizeable warm inland sector of the industry to be dealing with a disproportionate amount of the adjustment pain from oversupply when it is largely not they who have created the problem.”

It is notable that 2011 appears to be very similar in terms of largely unsustainable price outcomes as 2010: the problem has become critical for warm-inland growers.

The case is also made by WGGA that industry information and analysis is currently not up to the task of providing timely, accurate information to best understand the critical changes underway in the industry’s viticultural foundations.

WGGA is encouraging the industry’s service bodies to improve the level of information and analysis available to the industry.  It is also committed to assisting all winegrape growers understand their businesses better, to assess what parts of their businesses are profitable and to restructure as appropriate.

WGGA identifies the following courses of action required to bring about an equitable and effective adjustment process that yields the most benefit to the Australian wine sector.

  • Better and timelier information on adjustment occurring to the sector’s viticultural foundations.
  • Pro-activity by the industry’s organisations to facilitate adjustment that is in the best interests of all industry participants.
  • For winemakers to remove their own vineyards identified as being in excess of requirement, rather than selling them back into the production pool.
  • For winemakers to work with their growers to identify profitable production, to offer sustainable prices for that fruit only and to encourage growers to remove that which is not.

For further information please contact WGGA Executive Director Lawrie Stanford on 0417 859 282 or Chair Vic Patrick on 0408 849 533.

Download PDF file of this press release

“Partnerships in profit” are needed to overcome low prices

Media  Release  
25th January 2011

The Executive Director of Wine Grape Growers’ Australia, Mr Lawrie Stanford, said that Australian winegrape growers were carrying an unacceptably high level of the financial and production risk in winegrowing, particularly in this 2011 vintage.  “We believe through general hearsay that prices in 2011 will be similar to those in 2010, despite a start having been made in reducing production capacity in the industry and despite significant crop losses this season through disease pressure” said Mr Stanford.

Supporting calls for better returns to growers issued recently by the Murray Valley Winegrowers in Mildura and the Wine Grapes Marketing Board in Griffith, Mr Stanford explained that the financial risk of production was born by growers more so than winemakers due to several factors faced by growers:

  • Indicative grape prices released far too late in the season, after the bulk of production costs had been incurred and long after growers needed to make sensible economic decisions in their vineyards.
  • The high cost of disease management this year, in what has been an extraordinarily high season for disease-pressure.
  • The strong possibility of further disease outbreaks from continued wet conditions.
  • Fears of fruit being downgraded after receival at the winery.

Mr Vic Patrick, the Chair of Wine Grape Growers Australia said “Growers need sustainable prices and most prices in the current operating environment sit at less than the cost of production. Growers are encouraged to work closely with their off-takers to negotiate sustainable prices. The alternatives are one of two difficult choices – to operate at a loss or to review and adjust their business operations.”

Wine Grape Growers’ Australia went on to say that it was important to understand the role of market conditions in determining low prices. These conditions include (a) the surplus of wine grape production, (b) poor economic conditions in our key markets that affected consumer ability to pay and (c) a strong Australian dollar that has eroded margins.

“At the end of the day” explained Mr Stanford “the low prices on offer point, yet again, to the critical importance of effectively dealing with the one factor within the control of growers – the systemic oversupply that is at the root of the problem. Oversupply must be dealt with so Australian winemakers’ marketing programs can build momentum and lift the returns to the whole wine industry value chain, including winegrape growers.”

At the moment, because of the oversupply and low prices, rather than focusing on the quality of Australian wine, the major tangible signal coming from the Australian wine sector is “that Australian wine is cheap.”

Mr Stanford said, “The problem is that the dominant mentality in the Australian wine industry at the moment is a supply chain mentality – too many operators are hooked on low prices.” There are several important dimensions to this situation. Being dependent upon low prices is not sustainable and can’t last, it is sending the industry broke, it leads to a rundown of infrastructure and it undermines consumer perception of Australia’s quality wine product.

Wine Grape Growers’ Australia strongly urged the Australian wine sector to break out of the unprofitable spiral of events created by a reliance on low-prices to retain or grow its market share.

“Winemakers pay low prices for winegrapes for a number of reasons – in response to the competitive pressures they experience in the market place, because of expectations created by retailers through discounting, and because, in the current oversupply situation, they can. Consumers ultimately benefit but in the process, our industry is damaged and viable production and jobs will be lost. Consumers need to realise that unsustainable prices can’t last – the industry is going broke and the local product consumers cherish will dry up. Unfortunately, growers contribute to the spiral by continuing to grow unprofitable fruit and by accepting low prices for that fruit – through desperation and a misplaced belief that better days could be just around the corner.”

While the somewhat better prices growers should be able to negotiate this year are due to seasonal effects, the fundamental conditions that are keeping prices low are more enduring and go instead to the core underlying problem – excess production capacity in the industry.

To break out of the low-price spiral created by excess production capacity, growers are encouraged to determine what parts of their vineyards are profitable and to structure their businesses around those areas and varieties. They must also demand wineries pay sustainable ‘cost-plus-margin’ prices or walk away from the offer and strongly consider removing those areas of vineyard.              

“Growers are invited to talk to us about how to go about analysing their vineyard’s profitability” said Mr Stanford, “we have developed excellent programs in recent years that give growers the opportunity to work with others on analysing which areas of their vineyard are profitable and the results of restructuring accordingly.”

Finally, Wine Grape Growers Australia appeals to Australia’s winemakers:

  • not to offer prices below production costs just because they currently can,
  • not to take fruit if there’s not a sustainable market for the wine or profit for the grower of the fruit,
  • to remove those areas of their own vineyards they have identified to be in excess of requirement, rather than selling them back into the production pool, and finally
  • to work with their growers to identify the grower’s profitable winegrapes, offer sustainable prices for the fruit and help and encourage growers to remove that which is not sustainable.

“Developing such a ‘partnership in profitably’ between winemaker and grower is the pathway to a sustainable industry and offers the best chance the Australian wine sector has to break out of its debilitating reliance on low prices.”, Mr Stanford said.

For  further information and  media  interviews, please  contact WGGA  Executive Director Lawrie Stanford on 0417 859 282 or Chair Vic Patrick on 0408 849 533.

Executive Director’s address to growers – 2010 AGM

Wine Grape  Growers Australia Inc
ABN   15 475 806 313

Annual General Meeting of Members
Held at Barossa Weintal Resort, Murray Street,  Tanunda on Wednesday 24 November 2010  at 10.00am

 

I don’t need to remind anyone in this room of the challenges facing growers, so standing here as the (relatively new) Executive Director of Wine Grape Growers Australia is both an honour and a somewhat daunting task as the news is not all good.

As the Chairman has remarked, we live in interesting times – perhaps too interesting!

The Chair and I represent a new leadership team for WGGA.  We are both nevertheless privileged to retain links to our predecessors whose terms of office covered the full reporting year for this AGM.  In the case of my predecessor, I am indebted to Mark McKenzie for providing me with the material I needed to report on the 2009-10 financial year.

My report  will touch  on a number  of the topics covered  by the Chairman  –  but at a more operational level.

 

Wine Industry Restructuring

The 2009-10 financial year was dominated by the central issue of industry restructuring, in the face of chronic over-supply and a worsening export market environment.

Wine Grape Growers Australia was actively engaged in assessing supply–demand research and the framing of the Wine Restructuring Action Agenda.

We continued to provide active grower-sector feedback to the other national bodies — including the potential for over-correction in the inland regions and the fact that the grower sector is carrying a disproportionate level of the market risk at this time.

We also continued to apply pressure on the major wine companies to share the burden of industry correction through removal of more winery-owned vineyards.

As an organisation, we’ve remained committed to the restructuring — and successfully argued a grower perspective in messages delivered to the industry as a whole.

 

Streamlining National Organisational Structure

A positive outcome of the restructuring process was bringing together the leaders of the four main national organisations into the Industry Directions Council.  This Council reviewed the restructuring processes within the industry, and at a lower level, greater administrative integration.

Co-location, the means of administrative integration, is scheduled to occur in 2011 – pending final sign-off by the relevant organisations.

 

Wine Industry Relations

The 2009-10 financial year also marked the reconvening of the Wine Industry Relations Committee

– a partnership between our organisation and the Winemakers’ Federation.

A number of new winery-grower issues have arisen for committee consideration, including the standardising  of colour  measurement  for fruit  grading;  minimum  limits  for 2,4-D  and sodium chloride, and smoke taint residues or content – all of which are under ongoing consideration by the committee.

 

Government Relations

Good relations with government are essential for an organisation such as ours.

Wine Grape Growers Australia continued to develop a positive working relationship with the Federal Government and the Department of Agriculture, Fisheries and Forestry.

We  have  been  fortunate  enough  to have  had regular  communications  and  briefings  with  the immediate  past  federal  Agriculture  Minister,  Tony  Burke,  along  with  his  advisers  and  senior managers in his department.

The key themes in government communications have been industry restructuring, wine tax impacts and research and development.

 

Changes to WGGA Constitution

A number of changes to our organisation’s constitution were adopted at a Special General Meeting in Adelaide on 3 December 2009.

These changes allowed for the option of electing a Chairman from amongst the members of the Executive Committee as well as having the option of an independent Chair.

As a step to improved Corporate Governance, other changes included the formal establishment of positions for a Deputy Chairman and a Treasurer.

 

Code of Conduct

As the Chairman noted in his presentation, winemaker commitment to the Australian Wine Industry Code of Conduct remains low.  For reasons to become obvious, there will be more said about this in the financial report.

The Chair adequately covered this topic in his presentation.

 

Vineyard Biosecurity

In 2009-10, the Winemakers’ Federation withdrew its membership of Plant Health Australia and as a signatory of the Emergency Plant Pest Response Deed.  This was done in favour of WGGA taking responsibility for these matters on the behalf of the whole wine sector.

Hence,  our  organization  has  assumed  “front  line”  responsibility  for  management  of  national vineyard biosecurity.

A new biosecurity framework is being developed.

During the year we liaised regularly with Plant Health Australia on biosecurity issues affecting the vineyard sector, including a revised Vineyard Biosecurity Strategy; National Plant Health Strategy; National Fruit Fly Strategy; and the categorisation of vineyard pests.

We also began discussions on allocating a portion of existing research levy funds, at 4 cents per tonne, towards the membership fee for Plant Health Australia.

This new allocation would supersede the current 1.6 cent per tonne grower contribution and 2.2 cent winery membership contributions to this cause.

A new national industry biosecurity structure was developed to replace the National Vine Health Steering Committee.  The biosecurity structure includes a new National Winegrape Biosecurity Committee, to be chaired by Wine Grape Growers Australia and supported by a Technical Reference Group.

 Sitting beside this will be a national winegrape assurance system, designed to accredit all vine material and provide a declaration of its varietal, clonal or rootstock identity; accredited source and health status.

A consultant has been appointed to develop the framework and to apply for industry funding.

 

Information & Analysis

During 2009, the industry had to adopt a fresh approach to the sourcing of foundation vineyard data.  This followed a decision by the Australian Bureau of Statistics to, in essence, double the cost of its annual vineyard surveying for half the data output.

Our organisation teamed up with the other three national bodies in an executive management group to explore data-sourcing options.

Interim, and compromise, solutions were found for the short-term, but an industry-owned National Vineyard Database was seen to be the solution in the long term.

From a position of relative advantage in this issue, through its statutory and industry links, the AWBC is taking the lead in this project.   The initial research conducted by the AWBC sounds promising, and the on-going activity has WGGA support.

VineBiz

During the year, the VineBiz Financial Ready Reckoner continued to be rolled out across wine regions through provider arrangements with Retallack Viticulture.

VineBiz workshops were presented in Margaret River, Murray Valley, Riverina, Barossa Valley and Limestone Coast.

 

Research & Development

During the 2009-10 financial year, WGGA stepped up its consultation with the Australian Wine Research Institute on issues of importance.

These  issues  included  the  viticulture-wine   quality  connection;   revised  research-to-practice modules; and a joint application for Farm-Ready Climate Change funding.

We have also received requests by the Winemakers’ Federation to support an increase in the winegrape R&D levy cap.

It is a difficult financial climate in which to contemplate matters of raised levies but at the very least, on-going consideration of this request will be contingent on grower representation in expenditure decision-making and the return from research to growers.

 

Industrial Relations

In  close  liaison  with  the  National  Farmers  Federation  and  South  Australian  Wine  Industry Association, WGGA responded to the introduction of the new Wine Industry Award.

We collated industry data and case studies on employment-cost impacts of the new award; made three submissions to the Australian Industrial Relations Commission to seek coverage under the Horticulture Award for independent vineyards; and — unsuccessfully — argued for greater flexibility in hours of work and overtime provisions under the Wine Industry Award.

A summary of key award provisions was produced and communicated to State and regional grower associations via our usual communication channels to growers.

 

Wine Tax

The crucial issue of wine tax also re-appeared in the past year, through concerted calls from the health lobby for a new volumetric tax on wine.

Our organisation responded with a submission to the Federal Government, detailing the negative socio-economic impacts of a volumetric tax on growers, and supporting the WFA position to retain the current ad valorem tax system and the WET rebate.

More recent thinking on amendments  to the WET rebate are being discussed with a view to removing impediments the rebate represents to industry adjustment.  However, WGGA will argue

 That in any such amendments, winemakers and winegrape growers who choose to make wine, be treated equally.

 

WGGA Strategic Directions

It’s important in any presentation like this to not only look back at what has been achieved, but to shift our gaze to the horizon, to see what lies ahead and what our future  could be.

As part of our strategic plan for the three years from 2010 to 2012, we have identified six strategic priorities.  They are:

  • Effective issues management Policy development and advocacy Cultivating relationships Communication
  • Membership and funding
  • Corporate governance.

I don’t have the scope today to cover all of these in full, however, I will un-pack the first strategic direction – that is, effective issues management – to reveal a little more detail.

Effective issues management covers such issues as our Code of Conduct, Biosecurity, Tax, Water Policy, Industrial Relations, Research and Development and a National Vineyard Database – all issues touched on by myself and the Chairman in our presentations today.

One issue very much at the forefront of our thinking is the supply and demand imbalance.

There is no question the imbalance is undermining the potential of our sector and while it could be argued that winemakers are ‘turning the corner’, the evidence suggests this is occurring at the cost of production foregone and ‘left out there’.  Hence, ‘turning the corner’ for growers is likely to come with a lag.

The recently released Australian Bureau of Statistics Vineyard Survey results support this view.  In 2009-10, nearly seven thousand hectares were removed but at the same time, some 13-thousand- hectares were left unpicked. Hence, while there has been a positive start to adjustment through market forces and industry initiatives, there’s a long way to go yet.

There is even the potential for adjustment of the wrong kind.  This wrong kind of adjustment will see  potentially  viable  warm  inland  producers  pushed  out  of the market  by a combination  of Coastal-Temperate oversupply and new water arrangements foreshadowed in the Murray Darling Basin Plan.

My vision for Australian  winegrape  growers  is for them  to be  partners  in a value-chain  that responds to consumer demand.

This will involve  breaking out of the predominant  history of supply-chain  management  and a reliance on the goodwill and sometimes over-rated expertise of winemakers.

In an operating environment requiring knowledge and business acumen to survive and prosper – all operators in the sector need these attributes.

The grower of the future will not await the good — or bad — news from a purchaser but will be actively engaged in anticipating consumer demand and promoting their product as a solution to the winemaker’s problem of providing consumers with what they want – to the benefit of all involved.

While remaining ever vigilant, protective and active in the process of advocating  for grower’s rights,  I  seek  to  build  capacity  in  the  grape  growing  community  to  achieve  greater  self- determination and profitability.

Needless to say, this vision of what could be – needs more resources, more money.

 Equal partnership with the grower’s closest partner in the value-chain, the winemaker, cannot be achieved from a funding base that is only 4% of that available to the winemakers.  But this is the situation that exists.

While it is difficult to contemplate how grower interests can be effectively represented without a national voice – there is a real threat to the existence of that voice.

There  are  challenges  in  pulling  together  this  national  voice  –  some  of  them  also  faced  by winemakers but some not.

  • They include –
  • Inadequate funding resulting from an ad hoc system of voluntary levies and fees applied unfairly across Australia.
  • Difficult operating conditions and many winegrape growers burdened by high debt and low received prices.
  • The reality that growers operate in a fragmented and widely dispersed industry, making it difficult and expensive to deliver programs and advice.
  • The  fact  that  growers  produce  a  highly  differentiated  product  with  a  wide  range  of locations, varietals, wine styles, market opportunities and government regulations.
  • Small sized operations on average and the consequent lack of market power and funding capacity.
  • As  a  farm-based  enterprise,  the  dilution  of  investment  in  grape  growing  by  the diversification of agricultural production activity.

The closing message today is a call-to-arms for growers of all persuasions to step up and support WGGA in continuing and enhancing its programs.  This ideally applies across all of the varied expressions of winegrape growing – across warm and cool production and across independent- grower or winemaker-based production.

Make no mistake, every intention is for Wine Grape Growers Australia to be here to stay and we will continue to deliver effective programs and services to the industry.

Working out a better funding model will be a key challenge for the organisation in the coming 12 months.

I am hopeful that when Vic and I return to this podium in 12 months time, we will have a positive story to tell on this very important issue.

Lawrie Stanford
Executive Director

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