Increased international demand for Australian wine over the past decade has boosted the industry. However, some Australian wine grape growers (growers) feel that they are not reaping the spoils of this renewed prosperity. Are winemakers cowing growers' capacity to negotiate and sell their grapes at a fair price? The Australian Competition and Consumer Commission (ACCC) wants to find out.
In late September 2018, the ACCC embarked on a nine-month market study to investigate the concerns of growers and develop solutions to address competition and other industry practices. The ACCC has indicated they may engage in enforcement action to redress any contravention by winemakers under the Competition and Consumer Act 2010 (the Act).
If you work in the wine industry, read on to find out whether your trading practices may be put under the ACCC's spotlight.
Lack of Competition between growers
The ACCC has identified lack of competition for the supply of wine grapes as one of the major concerns by growers. The ACCC cited figures from their online survey showing that 58% of growers in warm climate regions disagreed or strongly disagreed that they could sell to different buyers without suffering adverse treatment.
Winemakers need to secure a reliable supply of wine grapes each vintage and this is the likely reason why growers feel under pressure to be 'loyal' and sell to one buyer.
It is unclear what the ACCC will do if they to determine that there are endemic practices of winemakers pressuring growers in this way. The anti-competitive sections within the Act clearly prohibit companies from forcing the purchase of their goods. rather than the sale of goods to them. However, the Act does not neatly prevent the forceable sale of goods to an offending company.
Negotiation and terms of wine grape supply agreements
A key area of the ACCC's study revolves around the contracting practices between growers and winemakers.
The ACCC will be investigating the view of 60% of respondents in their online survey that contracts with wine grape purchasers are offered on a take it or leave it basis and do not provide a fair balance between the rights and obligations of either party.
ACCC scrutiny into wine grape contracting may have serious implications for winemakers if they determine that agreements contain unfair provisions in contravention of Australian Consumer Law.
Under section 23 of the Australian Consumer Law, aterm of a small business contract is void if the term is unfair and the contract is a standard form contract.
Growers would be considered small businesses under the Australian Consumer Law definition, if they do not employ more than twenty (20) people and the price paid for their grapes by a winemaker does not exceed $300,000 in any given year.
An unfair contract in a wine grape supply agreement may include terms that:
- enable only the winemaker to avoid or limit their obligations under the contract;
- enable the only the winemaker to terminate the contract;
- penalise only the grower for breaching or terminating the contract; or
- enable the winemaker to unilaterally vary the terms of the contract.
If you have terms within your standard wine grape supply agreement that disproportionately favour your company, you should seriously consider amending the offending clauses for future vintages.
Is there a problem with grower competition?
The preliminary studies by the ACCC suggest that there are issues with current competition and bargaining power of growers within the wine industry. However, you should be aware that the feedback that the ACCC has received on this issue has been from six workshops conducted in 2016 and an online survey which was open to all growers in August this year.
The ACCC cited the results of their survey repeatedly in their Issues Paper, despite the fact that only 5% of growers participated in the survey. It is unlikely that these 5% of Growers are indicative of the entire industry. Are this group merely a disgruntled minority?
Nevertheless, whatever the merits of the ACCC's investigations to date, winemakers should be prepared for their commercial and contracting practices with growers to be scrutinised over the coming months.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.