Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

I rise to speak on the Grape and Wine Legislation Amendment (Australian Grape and Wine Authority) Bill 2013, the Primary Industries (Customs) Charges Amendment (Australian Grape and Wine Authority) Bill 2013 and the Primary Industries (Excise) Levies Amendment (Australian Grape and Wine Authority) Bill 2013. These bills have support from both sides of the House. This legislation will merge the existing statutory wine authority corporations that we have—the Grape and Wine Research and Development Corporation and the Wine Australia Corporation—into one entity, and that is good because it reduces red tape. It reduces a bureaucracy and makes it smaller. It is interesting that this has strong support across the whole industry. Where consultation was done, there was not one single formal written objection to this proposal. So it is good to hear that the opposition is supporting us with these bills.

However, there are some concerns about the future viability of this most important industry that we have. To reflect its importance: this is an industry here in Australia that is the fourth largest exporter of wine in the world. That is a credit that we have. We are a small population but the fourth largest exporter. Something like 60 per cent of our production is actually exported overseas with only about 40 per cent consumed locally. In past years we have had export sales in wine of over $2.8 billion. That is the importance of this industry.

We look to the future and the challenges that this industry has. It has a wonderful future with growing prosperity in South-East Asia, in China and in India. The potential for this industry to grow, expand and create more wealth for our nation should make it one of our most important industries and one we need to look after.

However, there are some grey clouds on the horizon and there are some significant problems that this industry has. Of course the high dollar is an issue that many exporters have, but I say the real concern, the real challenge to the viability of an innovative, prosperous wine industry in Australia's future is the concentration of our own, home-grown retail market. For most companies, if they are to be successful exporters, they first must be successful and develop experience in their home market. Getting the grounding in their home market, getting their brands and production methods established is what gives them the ability to go out into that international field where competition is so much tougher, where they are competing in the global environment. That is why our local market is so important. But the concern we have is the absolute market concentration we see at the retail level in our wine and alcohol sector.

We have the supermarket duopoly currently controlling in the vicinity of 60 to 70 per cent of the retail wine sales in our nation. This has a very detrimental effect on producers. That was recently noted in a report put together by KPMG: the Australian Food and Grocery Council's State of the industry 2013: essential information: facts and figures. This report should send the alarm bells ringing through this place. The report notes significant problems that many of our food producers have and which I am also sure apply to our wine producers. It notes that across the industry there has been a significant increase in trade spend. Trade spend is what is paid by the supplier to the retailer for trade discounts and promotional allowances. That trade spend actually increased from an incredible 19.5 per cent of gross sales in 2008-2009. I have asked the Parliamentary Library to try to find me some data to see how that 19.5 per cent compares internationally. Unfortunately, they were unable to do so, but I believe there is no other nation in the world, there is no other food producing sector anywhere in the world that has such a high trade spend. This report noted that, between 2008-09 and 2011-12, that trade spend, the amount the producers are paying to the retailers, increased from 19.5 to 23.4 per cent. For food producers in this nation, for every dollar of sale they have, 23.4 per cent goes to the rebates and allowances they pay to our retailers. This is completely unsustainable. This report warns:

The increase in trade spend has come at the cost of suppliers' marketing and research and development spend which may have a long-term impact on growth, sustainability and innovation.

Those are the very three things we need to make sure we have viable food and wine producers. Growth, sustainability and innovation are jeopardised by this increase in trade spend.

To compare that 23 per cent trade spend: in our food industry salaries and on costs represent eight per cent. We are looking at close to three times the cost of wages and salary in the food producing industry going into trade spend. Former Treasury Wine Estates boss David Dearie recently commented on the effect of this massive increase that we have seen in the trade spend and also on the concentrated nature of the Australian retail market.

In an article published in The Sydney Morning Herald on 27 November, Mr Dearie said there are 2,500 wineries in Australia, each with multiple brands, which means tens of thousands of brands are competing for shelf space, 70 per cent of which is owned by just two companies. He said the supermarkets were using their relative strength and the wine sector's weakened, fragmented state to demand thicker margins compared to other beverage categories. Unfortunately, he recommends that a level of consolidation in the wine sector is inevitable and vital to boost their bargaining power with the supermarket chains.

But no matter how concentrated our wine producers become, they will not be able to have the bargaining power to offset the strength of the supermarket chains—and this is exactly the opposite of what we need. We need to have thousands of wine producers out there innovating and experimenting, coming up with new ideas and trying new methods. We need entrepreneurial drive in our wine sector. But this is all being threatened—it is all being compromised—by the concentration we have in our retail sector. This shows the importance of the coalition's commitment to have a complete review of the Trade Practices Act. Maybe what we need is the Standard Oil option, because the danger and threat to our wine producers of a concentrated retail market cannot be understated. This bill is a welcome move—it is a step in the right direction—but we really need to be very careful that our retail sector is not damaging the production sector. I commend the bill to the House.

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