A new national wine authority started life in Australia at the beginning of July, offering centralised support to the country’s A$3.4bn ($3.16bn) wine industry on everything from marketing to export regulation and viticultural research.
The Australian Grape and Wine Authority (AGWA) merges Wine Australia Corporation (WAC) and the Grape and Wine Research and Development Corporation (GWRDC) in a move that producers hope will lead to better co-ordination and stronger accountability. It is also a response to the 10-year crisis gripping the Australian wine industry, during which chronic oversupply issues and falling exports have left many businesses unsustainable or unprofitable.
AGWA has an acting board of three-month appointees to oversee its early operations, led by acting chair Brian Walsh and acting CEO Andreas Clark, supported by a team of experienced directors. Its creation follows support for the merger from the industry’s two peak bodies: The Winemakers’ Federation of Australia (WFA) and Wine Grape Growers Australia (WGGA).
Better use of resources
Clark is keen to stress that the move was not primarily motivated by the need to save money – although levies paid by producers to WAC have fallen from A$17m ($15.75m) to A$11m ($19.19m) over the past six years – but he admits that the integration will help financially too. “The various tied funding streams for AGWA’s activities remain unchanged, but the expected administrative savings will be redirected to service delivery,” he says.
For Yalumba CEO Robert Hill-Smith, the creation of AGWA was “a no-brainer”. While pointing out that the new organisation “drives the levy further in terms of efficiencies”, he, like Clark, sees broader advantages beyond the purely financial. “The ideal benefits will come from being a team around the table with a commitment to success at a high level,” he says.
Australian Vintage CEO Neil McGuigan agrees. “It is never a simple matter,” he says, “but streamlining is effective. It gets all the right people around the table at a time that are focused on delivering the same outcome.”
Having said all that, money remains a concern. Funding is “never enough”, in Hill-Smith’s words. “The new corporation needs a lift back to the funding it once enjoyed through levy payers’ contributions,” he adds. “It is running too lean. There is a lot to do, so resources are very much stretched…We need teamwork, not obstruction.”
“It has a lot to do with funding,” adds McGuigan. “The only disconnect I have, is that the promotional arm needs to be run by members of the Australian wine community that are focused on marketing and not just the process. We need quality, clever marketers running this aspect of the AGWA.” This taps into broader concerns from McGuigan that the new structure shouldn’t focus too strongly on process, rather than results. “The money that the Australian wine industry puts into AGWA must be used to create more business for all Australian wine companies, rather than simply fund compliance and regulation,” he says.
Much, Hill-Smith believes, will depend on how the funds are divided up. Asked if AGWA can deliver practical change, he responds: “Yes, it might. The pool of levies is pretty good – it is the allocations between admin, promotion and science (R&D) – that is the $64m question!”
The priorities
And, now that AGWA is established, what strategy will the new structure pursue?
One possibility is suggested by the WFA report Actions for Industry Profitability 2014-16, initially released in August 2013 and finalised, after consultation, in December. This three-year, A$33.75m strategy document covers everything from the wine/health debate to tax reform. It advocates increasing the old Wine Australia budget by A$2m a year, spending A$1m a year on boosting attendance at trade shows, and investing A$7.5m in joint marketing with Tourism Australia. However, it scrapped plans for a A$4.5m Australian Food and Wine Centre in Shanghai and reiterated opposition to a vine buy-back scheme to cut production levels, instead proposing a A$6m programme to establish a national vineyard database and to pursue other research projects.
“It’s a blueprint for momentum around returning economic health to the industry – identifying bite-sized targets with four short-term targets including reforming of the WET [Wine Equalisation Tax] rebate system and five further medium-term targets as key pillars of the review,” says Hill-Smith. At the time of writing, AGWA’s reaction to the plan was not yet clear. The AGWA board is required to prepare an initial Corporate Plan for the organisation’s first year by 30 September, following this up with a five-year plan by 30 June 2015, and using the pre-existing plans of WAC and GWRDC as a starting point.
Speaking in July, Clark said the AGWA board had not yet had the chance to consider the WFA blueprint, but added: “That said, the previous board of Wine Australia supported the key action to grow the demand opportunity in our key export markets by providing a short-term boost to AGWA’s core market development funding to supplement industry levies and contributions during a critical time when we need to invest in new and existing markets.”
The changes come at a time when the Australian wine industry continues to adjust to the demands of global markets, amid reports that Chile has overtaken it as the world’s leading New World wine exporter. In the year to June 2014, Australia’s wine export volumes fell 2% to 684m L, with average value down marginally to A$2.60 per litre. The figures reflect a continued shift to bulk exports, which rose 4% to 392m L, while bottled wine exports were down 10% by volume to 285m L, but up 6% in value terms to A$4.77 per litre. That last figure represents a reversal of negative trends since 2007, but is also partly a consequence of larger quantities of cheaper wines being exported in bulk for bottling at their final destination – a move designed to enhance profitability.
“Sustainable profitability continues to be a challenge for the Australian wine sector – an issue shared by all in the value chain,” says Clark. “AGWA will continue to focus on encouraging the faster adoption of research and development outcomes across the whole value chain, from vine to glass, and on delivering activities that build the reputation of the category in our major markets, to ensure more quality Australian wines are available to consumers, whether it be on retail shelves or restaurant wine lists.”
For Hill-Smith, the key is for Australian wine to transcend the lazy stereotype promulgated by “too many blogs and columns”, encouraging a positive belief system in its diversity, quality and value. “We need to start getting busy in the hospitality channel as a priority,” he adds. “So we need ‘mates’ and ambassadors to help us a little in return for all the hospitality we have offered over the last 30 years!”
The AGWA explained
The Australian Grape and Wine Authority (AGWA) came into being on 1 July 2014, merging Wine Australia Corporation and the Grape and Wine Research and Development Corporation (GWRDC). The new body, based in Adelaide, offers Australian wine businesses centralised marketing, export regulation and research and development (R&D) support. It was formed in response to a proposal from the Winemakers’ Federation of Australia (WFA) and Wine Grape Growers Australia (WGGA).
The AGWA has a budget of A$34.7m in 2014/15, about A$11.5m of it matching public funds for R&D. A board of acting directors was appointed to oversee AGWA’s establishment for an initial three-month period.
They include:
- Chair: Brian Walsh. As well as a 24-year career at Yalumba, Walsh has held many posts in the wine industry and tourism, and is an experienced wine show judge.
- Director: Eliza Brown. CEO of Peter R Brown Family Vineyards and Brown Brothers Wines’ first female director. Particular experience in advertising, sales and marketing.
- Director: John Casella. MD of Casella Wines, best known for the creation of the Yellow Tail brand.
- Director: Brian Croser AO. Established Petaluma in 1976, a former president of the WFA and has made strong contributions to wine industry education.
- Director: John Forrest. Experience as an irrigation consultant, giving an understanding of the challenges facing wine and table grape farmers, as well as producers of dried vine fruits.
- Director: Ian Henderson. CEO of Australian Vinegar and a professional wine and vinegar maker.
- Director: Janice McDonald. Chief winemaker for Burch Family Wines, owner of Howard Park and Madfish, with 25 years’ industry experience.
- Director: Kim Williams AM. Experience as a director in the Australian media, with a range of corporate skills.
Actions for Industry Profitability 2014-16
The Winemakers’ Federation of Australia (WFA) has unveiled a three-year, A$33.75m action plan designed to rejuvenate the Australian wine industry, rebuilding its export sales, profitability and image. The 43-point strategy document, Actions for Industry Profitability 2014-16, was first announced in August 2013, but was amended following a three-month consultation process, including a number of regional roadshows.
It addresses six main areas, including: wine and health; increasing consumer demand; correcting supply imbalances; encouraging open and fair competition; reforming Australia’s Wine Equalisation Tax (WET) rebate; and managing future wine tax arrangements. Core measures include increasing the budget of Wine Australia – now part of AGWA – by A$2m a year, boosting Australian wine’s presence at trade shows with a new budget of A$1m a year, and investing A$7.5m in a joint marketing programme with Tourism Australia.
In the document, the WFA reiterates its opposition to a vine buy-back scheme aimed at cutting production levels, although it admits that up to 70% of current wine grape production in Australia is uneconomic.
The Wine Equalisation Tax and the enemy over the water
One of the key issues identified in the Winemakers’ Federation of Australia (WFA) strategy document on the future of Australian wine was the Wine Equalisation Tax (WET) rebate. This allows producers to claim a tax rebate of up to A$500,000 on sales – but applies equally to Australian companies and their overseas competitors.
“Currently, foreign entities can access a rebate of up to A$500,000 for wine sold in Australia in direct competition to local producers,” says WFA chief executive Paul Evans. “This is completely at odds with the original intent of the rebate, which was introduced to support small and medium-sized Australian producers and the regional communities they operate in.”
Now the WFA and the Wolf Blass Foundation have announced a strategic partnership, commissioning critical analysis to strengthen the case to government for WET reform. The WFA says New Zealand wine has been a particular beneficiary of the WET rebate, calculating that volumes imported into Australia have increased by 139% since 2005, the year after the rebate was introduced. And it says that reforming the WET could save the Australian government some A$25m a year.
