On 3 June 2019 the Australian Competition and Consumer Commission (the ACCC), Australia's competition and consumer protection regulator, released an Interim Report drawing attention to harmful market practices that could be restricting competition in some Australian wine grape growing regions and limiting the potential for growth of Australia's wine industry. More details can be found on the ACCC's website at Wine Grape Market Study. Stakeholders in the Australian wine industry are encouraged to make submissions on the interim report by 28 June 2019.
Why is the ACCC concerned?
The report identified a number of practices adopted by wine makers when entering into supply contracts with grape growers which were described by the ACCC as concerning, including:
- a lack of transparency and certainty over how grapes are priced and quality assessed;
- exclusive and lengthy supply contracts with automatic and long term extensions;
- lack of price certainty for growers during the supply contract term;
- lack of publicity of prices and strict confidentiality obligations preventing price disclosure by growers, making it difficult for growers to assess whether price offers they receive are competitive;
- delayed payment terms, in some instances up to nine months after grapes have been delivered to a winery; and
- difficult termination clauses.
What has the ACCC recommended?
The ACCC made a number of interim recommendations aimed at addressing the power imbalance between winemakers and growers, including:
- winemakers in warm climate regions should be required to provide indicative and final grape prices to an independent third party for simultaneous public release;
- payment terms for wine grapes should be shortened so growers are paid within 30 days of delivering grapes;
- objective standardised testing for wine grape quality assessments should be developed; and
- the dispute resolution processes in the Australian Wine Industry Code of Conduct (the Code) should be improved.
Wait, we already have a wine industry code of conduct!
The Code was established in 2008 by industry participants in an attempt to address ongoing issues within the wine industry - but participation in the Code is voluntary.
To be an effective mechanism to improve industry practices, the ACCC states that participation in the Code by major winemakers is essential. With that end in mind, the ACCC recommends that Australian winemakers with more than 10,000 tonnes of processing capacity sign the Code. However, the ACCC states that current participation levels are problematic. The ACCC states that if participation levels by major winemakers do not improve the ACCC may recommend to Government that a mandatory code be introduced.
So, what should winemakers and grape growers do?
The ACCC will publish its final report in September 2019. Putting aside for a moment the recommendations that are yet to be implemented, the ACCC has identified a range of contract terms which it considers may be unfair under the Australian Consumer Law (the ACL). The ACL applies to many business to business transactions. While the current ACL unfair contract term regime does not go further than rendering some unfair contract terms unenforceable, the Government recently announced plans to strengthen protections to small businesses from unfair contract terms. As part of this plan, the Government will consult on amending the unfair contract regime to make unfair contract terms illegal and attach fines to breaches.
Winemakers and grape growers looking to get ahead of the curve must review their supply contracts with these changes in mind, especially those contracts that are coming up for renewal or renegotiation. Unfair contract terms should be removed - they can't be enforced, may attract bad press and could, in future, result in a hefty fine.
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