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JOINT STANDING COMMITTEE ON FOREIGN AFFAIRS, DEFENCE AND TRADE Trade Subcommittee
21/05/2009
Australia's trade and investment relations with Asia, the Pacific and Latin America

ACTING CHAIR —Welcome. The committee prefers that all evidence be given in public but if at any stage you wish to give any evidence in private you can request to do so and the committee will consider it at that time. The committee does not require you to give your evidence on oath but you should be aware that the hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the parliamentary chambers. I believe that you are also going to address a submission and evidence that was put in by the Australian Institute of Export, which has already been received in written form.

Mr Sandilands —That is correct.

ACTING CHAIR —We have received a company profile of Barokes Wines. Would a committee member care to move that it be formally received as an exhibit.

Senator O’BRIEN —So moved.

ACTING CHAIR —There being no objection, it is so ordered. Would you like to make opening statements.

Mr Stokes —I am here today to speak on EMDG and give the committee an example of what actual difficulties exporters have at the moment on a global basis.

Mr Sandilands —I am a private consultant in relation to the export development grants and I am here to represent the interests of my clients and also the export community. I am also on the national executive of the Export Consultants Group, which is affiliated with the Institute of Export. Two weeks ago Peter Campbell, I believe, gave evidence to the committee in Sydney—I have had detailed discussions with him—and a lot of the issues relating to export development grants were covered at that time, so I do not propose to go into further detail on what he covered, except to say that in the budget last week a further $50 million was provided to fund the expense in relation to the 2007-08 grant year. Prior to the budget there was $50 million allocated for expenses in relation to the 2008-09 grant year.

ACTING CHAIR —Would you just clarify that, because Peter Campbell gave evidence before the budget, as you correctly stated, and there has been mention from time to time of the commitment of an extra $50 million. Now we are talking about two $50 million commitments here, are we?

Mr Sandilands —There was a commitment prior to the election for $50 million in relation to the 2008-09 grant year.

ACTING CHAIR —That was from the minister, Mr Crean. I recall that.

Mr Sandilands —At the budget there was a shortfall projected of just under $50 million for the 2007-08 year, the balance of which is to be paid in June—next month. The budget did approve $50 million towards the 2007-08 grant year.

ACTING CHAIR —That is what I thought you said but it was a matter of a fair amount of discussion and concern that was raised.

Mr Sandilands —The concern in the export community is that for the 2009-10 financial year, which starts in six weeks time, the budget for the EMDG drops back to $150 million again. There is a lot of concern in the export community that companies are now having trouble reasonably budgeting for their export market development activities for a year which starts in the very short term.

I did not want to cover a lot of topics that were covered by Peter Campbell but I thought I would take the opportunity to mention three or four actual cases of my clients who have been affected by the potential short funding of future EMDG. Greg Stokes, being one of my clients, has agreed to come in and you can hear first-hand from an exporter about the challenges of that program.

I have notes, which I am prepared to leave for the committee. I have chosen three companies, who have agreed for me to provide copies of any correspondence they have had with the minister leading up to and subsequent to the budget. I thought I would give you a brief overview of those companies: what they are doing and what their concerns are.

ACTING CHAIR —Sorry to interrupt. It is important that we get this detail—I have not been through all the budget papers on this issue. The extra $50 million for the 2008-09 year gave a total of how much for that year under EMDG? Was it $200 million?

Mr Sandilands —Yes, $200 million.

ACTING CHAIR —That is what I thought. And the additional $50 for the 2007-08 year—the shortfall—was it again $200 million in total for that year?

Mr Sandilands —Yes, $200.4 million is the actual figure.

ACTING CHAIR —Now what you are saying is that the budget for the 2009-10 year is back to $150 million.

Mr Sandilands —Yes. I have here an extract from the budget statement if you would like to take that. It has got the figures for the three years, and future years.

ACTING CHAIR —Thank you. I promise not to interrupt again.

Mr Sandilands —That is fine. I am happy to clarify it now rather than later.

The first company I have chosen is one called Global Ears, which is a Melbourne based company that has developed a patented process for recycling exhausted air through air compressing equipment. The company has spent a considerable amount of money in travelling to give technical presentations to industry overseas. I think that 98 per cent of all their earnings in 2007-08 were export and 100 per cent of the current year are exports. The company actually won an export award in November-December last year. There is a letter there from the finance director expressing his concerns to Mr Crean about the lack of funding and the impact it is going to have on their ongoing marketing activity. He was happy for me to talk today and provide copies of that correspondence, which I have here. Would you like copies of those now?

ACTING CHAIR —Yes, could I have a motion that these documents be accepted as exhibits.

Senator O’BRIEN —So moved.

ACTING CHAIR —There being no objection, it is so ordered.

Mr Sandilands —The second company is named the Australian Turntable Company, which is based in Bendigo. They started off making turntables for trade fairs and showrooms for automotive purposes. They have now increased to making them for driveways, for dining rooms in expensive, high-rise apartments so that people can get a good view no matter where they sit around the table, and, more recently, in the Middle East they are using them for whole floors of high-rise buildings in Dubai and Iran in the building industry.

They are a very successful exporter and they have now started another company called Environmental Villages, which is sustainable housing. Included in those papers is some background to their activities. They are building a new park in Bendigo and they anticipate employing another 100 to 150 people in the next 12 to 18 months. Most of their work will be involved in EMDG. Paul Chapman, who is the CEO of both companies, is concerned that the tapering down of refundable grants in EMDG in the future will seriously impact on his ability to promote. It will be an expensive promotional exercise because the sustainable housing is a totally new concept and it will take a lot of travel, trade shows and technical exhibitions to penetrate the overseas markets.

The third company is a Tasmanian company, Roar Film, who are based in Hobart. They have developed an online education program. The CEO is a guy called Craig Dow Sainter, who actually relocated to London last year for 12 months to kick-start the project into the UK. As a result of that 12-month appointment, which was funded under the EMDG through overseas representation, the company is now selling into 37 per cent of all UK schools—in 12 months. They have now set up a full-time promotional office in London and hope to have 50 per cent of those schools at the end of this financial year.

He is concerned of course that with the threat of no full funding of EMDG he will not be able to support the office in the UK in the next financial year. Again, there is correspondence between Craig Dow Sainter and Mr Crean in the exhibit.

The last case is one that I mentioned before—Barokes—who have developed a patented product for wine in a can. I think that over 90 per cent of the company’s turnover is now export, and I thought it was probably desirable to have an exporter himself advising on the problems of getting into export markets and on the impact that EMDG has had in the past and how it will continue to impact on the company’s business.

Mr Stokes —Just to give you an idea of the sort of thing that I will be talking about, we have got a left-field product anyway so we are pushing it uphill as we go. As background, we have developed a unique process and a product. We started in 1996 and it took five years to develop and three years to patent. We have patented the process in over 40 countries now and we are in 30 countries’ markets. I have just come back from The Hague where we spent two days against 10 barristers on order to hold the patents in Europe, and we did. It is something unique to Australia. Australians invented this. We are exporting not only the product globally, we are also now starting to export the technology as well.

There are three parts of our business. The first part is the product. As you can see, there are different ranges. Those products around the world have won 28 medals in wine shows globally, which is a big thing for the wine industry. The private labelling, the second part of our company, has started to kick in with Australian Vintage, which was the old Semeon McGuigan. So the second-largest wine producer in Australia licenses the technology to put wine in the can and has now taken that to the Canadian market. Ninety-seven per cent of our sales come from overseas—only three per cent in Australia.

The third part of the business since the win at The Hague to maintain the European patent will come from licensing of the technology to overseas can manufacturing companies and fillers and wineries. We had 10 against us on the day and we were able to get over the arguments of the lot of them. What that means, coming back to Australia, is that, for example, Rexan produce 55 billion cans a year and will be clipping the ticket on everything that is produced to put wine in the can, because they will need the licence, the technology, so those funds come back to Australia.

The private labelling is where wineries are licensed and have their wine come to Australia to be packaged. I am talking to Dynasty, which is the second-largest winery in China after Great Wall. We are in discussions with them to send us their wine, to package it in Australia and then ship it back to them in cans so that they can take it out to the world. That is an example of the private labelling side. So you have got the can manufacturing with the canners using the technology. You have got wineries having us private label and value-add in this country and we are sending it back out, and you have got our product sales occurring on a global basis.

One example of a country that shows what we have been able to do with the support of EMDG has been Japan. Japan is probably one of the hardest markets to take a new product into because it is so finicky about packaging and they have got so many regulations to work with. Since 2005 when we opened the market and started moving a case or two into the market, we now ship four containers per month. We now ship over 200,000 cans into the marketplace. I have established an office with two personnel over there primarily with the marketing and promotion function to support the distributor. We have now gone up to 10,000 outlets and from last month we have captured up to 2½ thousand 7-Eleven stores. The convenience market in Japan alone is 50,000 stores and the vending market in Japan is five million units. So you have got five million vending machines—that is the potential. We use the EMDG for marketing and promotion and to support that office in Japan so that they can go out and support what the importer-distributor is doing in relation to sales.

We just did a promotion in spring, which is the last three months in Japan, and that has resulted in the expenditure of around $60,000 or $70,000 which we have put into the marketing side of it. The importer has put in more but we put in that amount for the market. Normally I would then look at what EMDG was to pay at the end of the financial year because, again, I need to do an autumn promotion in about August or September. So I use that funding to continue that marketing and promotion of what was generated here, and move it on to autumn.

To give an idea of what that small amount of money can do in actual sales, we have increased by about a third each year. Going into the next financial year it will be about 36 containers for the $3.6 million or thereabouts going into it. Given another shot in the arm in August and December, that can easily move up to 48 containers. So when you start to talk those sorts of volumes you are really on the radar screen and starting to pick up the size of the market.

Japan is important for us because we have only really tapped five per cent of the market with what we are doing with those sorts of volumes going into the country. That leaves 95 per cent of the market as greenfields. The fortunate thing is that we have got the four kings in Japan, the brewing companies—Sapporo, Kirin, Asahi—all buying from our distributor. That gives people an idea: if the companies do not like doing that—because kings do not buy from peasants—they won’t buy. But they currently do, and that is what has happened with the product. It is Australian wine in Australian cans, produced in Australia, and it has been elevated. We have got the freshness and flavour and the quality, and that is what we want to maintain.

It is important for me to know that there is stability in what is coming in through my back door to support what I am going to do out my front door, and the EMDG is one of those core assets that allows me to expand the marketing and open that marketplace and to support that office in Japan. I use that as an Asian example—I can go further but I will keep it to Asia—but we are also doing America, Canada, Europe and the UK. I just want to put across that it is difficult to compete. The wine industry in France gets €360 million to compete against us, to do what we do. They drop the value of their wine. They sell it at a loss because the government supports that loss to maintain their 47 per cent marketplace in the Japanese market. That is how it is. So we are pushing it uphill against something like that.

Senator O’BRIEN —And the French complain about the WET tax here!

Mr Stokes —Yes. We will get some reality to them—exactly right! That is why they have maintained that 47 per cent presence in Japan. But we have got an opportunity in Australia to claw some of that back and put our products in. We only make up four per cent of that marketplace for the wines that we produce, and we have got 2½ thousand wineries. So we have got to open these markets to support those 2½ thousand wineries’ production levels and employment levels, and this is a primary market to do it—let alone what I am doing in China and what we will do in India. All we are after is stability and certainty about what can come in to help us support that. We are not asking for much. We will spend over $800,000 in marketing over the next 12 months.

Mr HAWKER —Can you explain what the patent is?

Mr Stokes —I get that all the time. There are three elements of the patent. People have been trying to put wine in a can since 1936. The largest companies around the world, including Amcor that tried to knock it off in the first place, tried to until we beat them in court in 2003.

It concerns the wine parameters and the specifications of wine. Wine is an aggressive product over a long period of time. If you put Coca-Cola into a can, about six months is the maximum time before it will try to attack the lining of the can. Because wine has sulphur, sulphates, nitrates, copper and all those aggressive elements, it will continue to try to get out the environment that it is in. We have patented the specs of the wine to build a wine that does not try to eat into the lining. The next thing we did was create a lining for the interior of the can that did not affect the notes or flavour or have any detriment to the wine itself.

So you have, firstly, the wine specifications or parameters; secondly, the lining of the can; and, thirdly, the filling specifications. The filling specifications make up the third element of the process. We have created an exact equilibrium in the can. That means that under heat and cold it expands and contracts at exactly the same rate. Therefore, I can ship it in a dry 20-footer in 50 degrees into India and at 20 degrees below into Canada in the same containerised form. The lining, the wine and the headspace all expand and contract at exactly the same rate. The patent is the process of those three elements put together. That is what we have been able to patent.

About 95 per cent of the wine made today is in a can. That was not the case 10 years ago when I did it. Now, 10 years later we are thinking how we can go to a more friendly and better wine for you. That was what we were able to patent.

Mr HAWKER —Do you actually make all of your own wine or do others make it for you under your formula?

Mr Stokes —Others will make it under our formula. At the moment we have seven wineries that work with us around Australia that all participate and rely on us to take out this technology overseas. We have the white built in the Hunter, the rose built in South Australia and the red built in Victoria.

The first medals we won were in Singapore in 2004. There were 150 bottles and two cans. There were French, Italian and Spanish judges. We got a silver medal and got commended. The French judge came out at the end and saw the bottles and the cans and said, ‘Sacre bleu, what have I done?’ I said, ‘What do you mean, “What have you done”? You have judged the product not the package.’ He said: ‘But this is blasphemy. You cannot do this to the wine industry, you Australians.’ I said: ‘Hang on, all we have done is make wine convenient and portable. We did the cask and now we have done the can. You guys do the bottle, sure. Sit at a restaurant and drink it. But if you want to take a can to a barbecue, a picnic, down the beach or into the bush, what are you going to take it in? You are better off taking it in something that is fully recyclable, easy to transport and quick to chill.’ I had the same thing from producers all over the world.

ACTING CHAIR —I could not help but think about the ad—wine in a can, brilliant!

Mr Stokes —That is it.

ACTING CHAIR —We have not had a chance to look at the exhibits that you have provided, including the letters to the minister. I am trying to remember the evidence of Peter Campbell. There was certainly the issue of the lack of certainty and the fact that when they get to the second instalment of the payment it was a lot less in percentage terms, and that was governed by the amount of money in the pool and the number of applications. The budget papers say $150 million. What is the association looking for? Presumably, more money in the scheme. If so, how much? But also there is the issue of how it is allocated so that recipients are not in the position of thinking they are going to get X dollars and then getting a lot less.

Mr Sandilands —The $200 million we believe is going to be fairly close to for 2008-09 as a payout figure. I think the Austrade estimates were about $48.8 million or $49 million, so the $50 million that has come out most recently for 2008-09 is going to be pretty close.

ACTING CHAIR —That was my recollection of the earlier evidence.

Mr Sandilands —If there is $1 million or $1½ million left from that, it should be rolled over into the following years. For the 2008-09 year where the $200 million has been allocated, there is some uncertainty as to what the cost of the scheme will be. The amendments that have come into place have increased the maximum grant to $200,000. That has allowed our patents which have not been allowed in the past. They have reduced the qualifying threshold from $15,000 to $10,000, which are all going to be costs to the scheme.

There are two factors that probably cause uncertainty as to the amount of the spend. One is that for 2008-09, the performance test is being reintroduced so companies that have had more than two grants are now subject to an export earnings test. For companies that are coming in from years 2007-08, their maximum grant is five per cent of export earnings received, which is a fairly hard test. While the potential maximum grants of $200,000 are up, those companies would have to have in excess of $4 million worth of earnings to get those grants. The second unknown is the effect of the global recession where we know a lot of my clients have reduced their travel in the last 12 months because of the uncertainty and the climate. Also the markets have been more conservative. The impact of those two means that there is a lot of uncertainty as to the cost.

ACTING CHAIR —Can you just remind me, what was the recommendation of the Mortimer review on that threshold which, you were saying, was 15 to 10?

Mr Sandilands —Ten, that is right. That was a part of the Mortimer review.

ACTING CHAIR —I recall we had some evidence from somebody who said it should either stay at 15 or even go up.

Mr Sandilands —One of the main recommendations of the Mortimer review was to fully fund the scheme so that there is certainty in the exporter’s minds when they are budgeting. I think there was also a recommendation—which I am not in favour of, of course—to consider reducing the maximum number of grants to five. That was something for consideration rather than a firm recommendation, but it is something that I do not like to highlight too often. For the future years, we really do not know. It would be interesting in the 2008-09 year to see where the spend goes there because the impact of those changes will be more certain.

Senator O’BRIEN —Should we be continually promoting a business into the same markets rather than promoting that business to expand into other markets or for others to explore new markets, in the vein of the question of potential limitation of grants to a certain number over a period of time?

Mr Sandilands —Brett may be more able to answer this, but I believe that there is a lot of cost in getting into a market and a substantial ongoing cost to retain the market because there is more competition coming from, for example in the wine industry, Chile and Argentina and places like that. Because of the tyranny of distance, they are more competitive and their labour rates are a lot cheaper. There has to be ongoing promotional activity to show that Australian products are either better or to maintain market share. While I understand the arguments to limit it to certain number of grants in respect of a market, it is still very expensive to maintain market share.

Senator O’BRIEN —But surely the profitability of a market would determine whether you continued to pursue it or not. If it is profitable then it is worth continuing to invest in. Surely that is how a business would make that judgement.

Mr Sandilands —It does, but the cost of marketing in those countries is still substantial. You have to either visit there or have somebody on the ground to promote and participate in trade fairs. If you are not at a trade fair for two or three years, people say, ‘Isn’t that company in business anymore?’ So you have got to keep going there. Going to the trade fair, it is often difficult to quantify whether you can tie up a direct benefit, but, if you do not go, you potentially lose your market share overnight.

Mr Stokes —I think that that is a key point especially dealing in the Asian market where it is based on relationship as opposed to what we are normally used to dealing with in a western marketplace. Relationships take longer to build; therefore it is not like just walking into a market like we could in this country, New Zealand or Europe and saying, ‘I have a product; do you want to buy it?’ and off we go. And then, after the next three years, we will start to turn a profit.

In particular, what we found in Japan, and are starting to find in China now, as well as India, is that it will take you five years to develop your business before you start getting the profitability back into your books. That is because it has taken the first two years for them to trust you, to go further with you and to put their money up, as well as yours, to start the market off. Then you start to market it. The heavy end of it is those first couple of years. As you get down the back end, when you start to pick up and expand your marketplace and put more money into the marketplace, if you were to rejig it, you would rejig it lighter at the front and heavier at the back because of the relationships in Asia. Whereas if I were talking to you about America I would do the opposite—put it upfront, and then tail it off after five or eight years. It really does depend. I do not think there is a blanket formula that would do Asia, Europe and America. In particular, I think if you look in Asia, building that relationship takes five years, not three. That is why I would say that if you tailed it off after five, you are just starting to get into your business and having it kick off.

Mr Sandilands —In relation to the question, I do a lot of work in Tasmania. I spend about a week to a month down there during the lodgement period. I have always done a lot of work in the apple industry—or what was an apple industry there, because unfortunately there is not much of it left. There was an ongoing argument there with a lot of traders, the exporting companies, when the eight-year period came up and the new markets came in for a while. A lot of the growers then started doing a lot of their own marketing, instead of going through the traders. They were able to access EMDG only for maybe two or three years. The point was made then by the exporters, and also by the exporter associations, that there are only so many apples that can be exported out of Tasmania. The companies that had gone to the trouble—had the infrastructure in place and the market secured—were being penalised by other people that had come in and only supplied for short time and disappeared. Then Tasmania ended up losing those markets—not purely for that reason. They always argued that the open-ended access scheme was probably better in the long term for a whole industry, rather than having people come in and out of this scheme over a long period.

Senator O’BRIEN —People going out of apples and into cherries is the other dynamic in that.

Mr Sandilands —That is right.

Senator FERGUSON —I am interested in your promotion of wine in a can. In some of the overseas markets it is difficult enough to get them to accept buying Australian wines. I am talking about some of the older markets—the Taiwanese think that if you do not have a French wine—

Mr Stokes —You haven’t got one.

Senator FERGUSON —You haven’t got one. And then you are adding another concept of putting it in a can as well. Have you had any success in breaking into those markets which are traditionally difficult for Australian wine marketers?

Mr Stokes —We do. We actually sell wine to the French.

ACTING CHAIR —They are saying, ‘Sacre bleu!’

Mr Stokes —Yeah, that is right. They will boo me one day. We sell it to the French and we also sell it into Spain. We have not cracked Italy at the moment because they are liable to kill people who want to put wine in a can. But how we have approached the traditional markets has been in the licensing of the technologies. Rather than force Australian wine down their throat, if I am talking about the old world markets, what I will say to the wineries—like I did at the London Wine Fair a week ago—is that in order for wine to expand on a global basis, you need to capture a new generation because there is a generation going past that is used to it in a bottle. The generation that is coming through will accept quality, convenience and ‘now’ products, as opposed to storage products and cracking a bottle of the 2001 or ‘98 vintage. To open the door, what I have been able to do with them is to say: ‘Okay, what we will do is take our product into the marketplace as Australian wine in a can and see whether this concept works with your generation. In tandem with that, we will take a hand in glove approach with you and we will look at putting a French wine in a can, so we can private label a new license technology from me.’

That is what we are currently doing with the Chinese, even though it is not a traditional market. The Chinese send us wine, we package it here and then send it back. We are looking at the facilities of doing European wine because the Japanese now say to us, ‘Australian wine in a can—fantastic. It is working very well. Now—can you put Spanish, Italian, US and South African in?’ So we are looking at the South Africans sending us wine, packaging it and then sending it straight off to our markets in Asia. We are addressing the old world with the use of the convenience of a new generation, plus a partnering approach with them for the technology they can license from us. We are still clipping the ticket in this country, even into the traditional old-world marketplace.

Senator FERGUSON —What percentage are you selling in Australia?

Mr Stokes —Only three per cent of the market. In Australia there are 200 outlets—we put it into the Stamford hotels—into the minibars—we put it on Qantas to Japan and back. It becomes a solution as opposed to just a product: the weight-to-fuel ratio on a can in the air as opposed to a bottle in the air means savings for fuel and carbon footprint. We also put it into five-star hotels—the western hotels in China, Hong Kong and Japan. They put it into their minibars because it is tamper-proof. Anybody who takes a can of wine out of there cannot do anything to it. Once they crack it they cannot reseal it, it is already gone. Plus, they double stack and are quick to chill. That is why the hotels pick it up.

They are part of the leverage. I start at the top end—the expensive end—when I go into a market. If you talk to any maitre d’ or sommelier or anybody that is in the industry they will all scoff until they actually taste it and change their minds as to where this thing can actually work. We sell this into restaurants and people turn around and say, ‘What are you doing with a can of wine in a restaurant?’ In the day trade, at lunchtime, they crack a bottle and sell a glass. The bottle will sit there for a day or two and be stale and buggered. So if you want to buy wine by the glass—especially the sparklings—they will crack a can, give you the glass, and they have less wastage on it. The aspect we approach in the traditional market is that the product is a solution to a problem that you have as opposed to putting something down your throat.

Senator FERGUSON —What has been your experience with the EMDGs?

Mr Stokes —With EMDG you get most of your funding up front and it tails off to the end. But depending on the market you go into, you are better off with less up front and tailing out bigger. That is when you get your spend up, when you get your feet on the ground; you are better off getting either a longer period of time or a focus of the funding at the back end when you really are spending.

Senator FERGUSON —And you cannot get that now?

Mr Stokes —No, it goes the opposite way. It goes down.

Senator FERGUSON —It does go the opposite way. There is no flexibility whatsoever?

Mr Stokes —No, we are on about a 25 per cent claim that we can get at the moment I think. We will probably get $800,000 in marketing this year, so it is dropping away. As my costs are going up, my EMDG support is dropping away.

Mr Sandilands —Your maximum grant for the next two is going to be five per cent of your export earnings received.

Mr Stokes —And that is crazy. Given that three parts of the business are going to be kicking in and all those three are money earners, all those three will come back in and get taxed. It does not help it.

ACTING CHAIR —Do you see any market in Australia, and how would it compare cost-wise?

Mr Stokes —The market in Australia will be for the technology. The wineries come to us now; we do it for four wineries at the moment. They see what we are doing overseas—they are not concentrating on Australia; there is some wine in a can coming into Australia—they license the technology to get us to private label their wine in the cans under their labelling then they take it out on the overseas market. That is for the Australian wineries and it gives them an edge that no other country has got. This is a patented product and process that other countries cannot copy but which Australian wineries can tap into to ship their wine into new markets. We have created a monopoly for a wine in a can that Australians can access. That is what we need to promote. I do not do enough marketing and promotion because I do not have all the funds to do three aspects of the business. But if I did, that is where I would be concentrating.

ACTING CHAIR —What was the argument against patenting?

Mr Stokes —How do you patent wine in a can? It is like patenting wine in a bottle.

ACTING CHAIR —Okay.

Mr Stokes —They said that the can was another packaging medium, like the cask and like the bottle. However, because we do other things, those three particular aspects joined together work. What the can manufacturers say is, ‘Hang on, I produce a can and I can put anything I want into it.’

ACTING CHAIR —So the argument was not that it contravened some other patent but that it simply should not be the beneficiary of a patent. It is packaging.

Mr Stokes —I had a doctor of IP stand up and say, ‘They simply shouldn’t get it,’ after 30 arguments.

Senator FERGUSON —What is the size of the can, 250 millilitres?

Mr Stokes —That is 250.

Senator FERGUSON —How much does a can of your premium shiraz sell for in Australia?

Mr Stokes —In Australia, about $4.99.

Senator FERGUSON —A can?

Mr Stokes —A can. It is two glasses of wine.

Senator FERGUSON —It is two glasses.

Mr Stokes —That is pretty good. If you look overseas, in Japan I sell that for 400 yen.

Senator FERGUSON —It is cheap.

Mr Stokes —It is. Given what this thing can do, because it is a mass volume product, therefore the wineries are shipping mass volumes of wine. If you turned around and said, ‘I want a particular sav blanc,’ or a particular variety that limited the amount that I could access, then I could not do it. One of my problems going into Japan is that the first time I sat down with the Japanese they said: ‘Listen, mate, what volume can you do? If we’re going to do this, within the next five to seven years we expect to ship 35 million cans into this country. Before we sign the contract, have you got the stuff to supply to be able to do this?’ We can, because those volumes give a cost reduction. Cans are cheaper than glass, plus they are the only package that is fully recyclable—it comes as a can and comes back as a can. They can be transported at a lighter weight, so at a smaller cost. They do not have to be refrigerated, so they are not upside down in boxes in a refrigerator like we shift our wines now.

Senator FERGUSON —They do not break.

Mr Stokes —They do not break. Bottles cannot be transported easily. They take two-and-a-half hours to chill, whatever you want to do with them. Importantly, a bottle of wine is competing with 10,000 other wineries in any market that you take a bottle of wine into.

Senator FERGUSON —I take it that when you put the wine into a can the finished product, when it is opened, will not be any different. In other words, if you put a bottle down to age, some people say that it improves over time. Some wines are made to drink straight away. Mine have never had much of a chance to age, actually.

Mr Stokes —Good.

Senator FERGUSON —But just say that you got a bottle of—

ACTING CHAIR —Except the ones that you buy that are already aged.

Senator FERGUSON —But if you were to put an absolute premium quality wine—say a bottle Henschke’s Hill Of Grace—and put it into cans, could you guarantee that the quality of that wine would remain the same.

Mr Stokes —I get a seven per cent maturation rate over five years.

Senator FERGUSON —Seven per cent.

Mr Stokes —That is 1½ per cent a year.

Senator FERGUSON —But what it means, though, is that before you put it into the can it has to have matured. That is the problem for a winery.

Mr Stokes —That is right. But there is another side for a winery. When you are talking Henschke, you are talking about an ultra category.

Senator FERGUSON —I am. I am talking about an ultra.

Mr Stokes —Of the five categories, what we mainly ship are the premium and the superpremium. That is what normally goes into it. We have now had a request that next spring we put an ultra into the Japanese marketplace. The ultra will be at a far higher selling price and the ultra will have a little bit more character; it will need to mature. What it means is that I will have to allow a little bit more head space to increase the maturation rate. That is what we can do with the product. We can control what that wine does in the can, which is something that has never been able to be done before.

Senator FERGUSON —You are only really talking about export markets. In the domestic market, a container of wine at 250 millilitres is what some people want.

Mr Stokes —It is. Here, you will pay between $7 and $10 for a glass of wine, wherever you go.

Senator FERGUSON —That is correct.

Mr Stokes —Where it will come from in this market is when Wolf Blass start putting wine into a can, which they will. It will be the wineries that will put it into a can, and they will take it out to the market—because Australians need somebody else to tell them it is a good idea. So, if it is a big winery, with a name that people can recognise, as opposed to us, then they will have the confidence to try wine in a can, and that is when it is worth the marketing budget. I spent over $1½ million in Australia in marketing to try and wake up people at bus shelters and everywhere we put the advertising. There was a lot of tasting of the product but, because it was a brand that was unknown, the concept was unsure. So the concept works, but it needs to have a brand behind it to actually do it.

Senator FERGUSON —So it is the big four that ought to be doing it.

Mr Stokes —Too right. Oh, yes. Mildara Blass will do it, but they will do it through Foster’s in America first—and they are the six wineries that we are talking to over there. So, again, what they will do is the same as what Australians do: they make it work somewhere else and then come back to Australia and say, ‘What a great idea.’

Senator FERGUSON —Sorry, Peter; we are concentrating on wine!

Mr Sandilands —That is all right. I am quite happy about that!

ACTING CHAIR —We are about to break for afternoon tea, which will be coffee; it will not be a wine-tasting!

Mr Stokes —I will send you a case—no, we don’t want that!

ACTING CHAIR —No. I had better say now, on the record, thanks but no thanks! Are there any further questions? No. Even though it is from a government document, we should identify and accept as an exhibit table 3.2.7 of the Austrade budget statement which you presented, if someone could move that.

Senator O’BRIEN —So moved.

ACTING CHAIR —Carried. Thank you very much, gentlemen, for your attendance. It has been a very interesting discussion, particularly with your new product but also in following up on the EMDG scheme issues. You will be provided with a copy of the transcript and you can check that for any errors and make any necessary corrections. Please check with the Hansard reporters on your way out in case they need to ask you any questions. Finally, if there are any further matters that the committee need to follow up on, we will be in touch with you. Thanks once again. We are going to take a short break of 10 minutes to get a cup of coffee and then proceed to our next and final witness for today.

Proceedings suspended from 3.42 pm to 3.56 pm