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Rural and Regional Affairs and Transport Legislation Committee
09/02/2016
Estimates
AGRICULTURE AND WATER RESOURCES PORTFOLIO
Australian Grape and Wine Authority

Australian Grape and Wine Authority

[15.13]

ACTING CHAIR: Senator Whish-Wilson, as one of the two winemakers in the building, would you like to open the batting?

Senator WHISH-WILSON: I actually did not have any questions, but I might have one.

ACTING CHAIR: Senator Bullock, you may as well kick off.

Senator BULLOCK: I have a quick one, Senator Whish-Wilson, and I will not take long. Can you detail the expenditure on marketing that has taken place over the last period of nearly $2.8 million?

Mr Clark : Can you just repeat the question?

Senator BULLOCK: The recent marketing expenditure of $2.8 million: can you detail where that went—how it was expended?

Mr Clark : I am just not quite sure where you have got that amount from.

Senator BULLOCK: It must have been publicly reported, along with travel and accommodation costs of nearly $1 million.

Mr Clark : I can certainly give you an overview of the general areas in which we undertake our marketing activities, but I will just need a reference to that particular number to see what you are specifically referring to.

Senator BULLOCK: Give us the overview. I cannot tell you exactly where that came from, but it was quite specific in terms of the amount of $2,792,893. I doubt whether that has been made up; it must come from somewhere.

Mr Clark : No; but do you know the source document?

Senator BULLOCK: No, I do not.

Mr Clark : Perhaps I will give you a general overview. The annual budget, in terms of marketing activities derived from both levy-sourced income and then supplemented with direct revenue from wineries that participate in our user pays activities, is roughly $8 million a year. A significant amount of that is spent on our global overseas office structure, both people and the attendant costs that come with having offices in a number of locations around the world, such as London, Washington DC and Shanghai. We also have people in Canada and in a few other remote locations. The principal reason behind that investment is that they are on the ground, they are in the market, they build relationships and can manage a whole range of activities that we conduct in market. So that takes up a significant amount of the marketing spend.

Senator BULLOCK: What was the total of that?

Mr Clark : The total is around $8 million. We also spend marketing dollars on a whole range of what we call core activities, which are funded by levies, such as a visitor program, bringing key influencers out to Australia, getting them out to the regions.

Senator BULLOCK: My ever-vigilant electorate officer sent me a little note saying that the figure was on page 67 of your annual report.

Mr Clark : I have the annual report here. Those are notes to our financial statement, and it is a breakdown of all the suppliers that we have used—external suppliers—who have delivered marketing activities for us. I do not have all of those details to hand, but certainly, if you are interested in that detail, I can give that to you on notice.

Senator BULLOCK: That would help. With that other figure that I quoted—the travel and accommodation costs of $953,000—could you look at that, too?

Mr Clark : Certainly.

ACTING CHAIR: Senator Whish-Wilson, do you have a question?

Senator WHISH-WILSON: I have one. It is in relation to the recent inquiry that this committee had into the wine industry. There was a submission that asked the committee to investigate an amendment to the wine Australia act; it was 40DA(2). I do not know whether that means anything to you, but essentially this is amendment is about Australia's GIs with names that are also common English words, such as 'orange', remaining vulnerable to commercial exploitation by potentially unscrupulous operators. Are you able to comment on that?

Mr Clark : I am certainly well aware of all the issues that underlie that submission. This has been an ongoing conversation and debate with particular individuals who—

Senator WHISH-WILSON: That is correct. They have contacted me and other senators. We discussed this at a committee level, at a private meeting. Could you give us a bit of information about your processes and where you have got to on this?

Mr Clark : Yes. A number of years ago, an amendment was made to our act, which, in my view, was a very sensible amendment. To start off with, there are very strict rules around the use of geographical indications. For example—and this is both Australian and foreign geographical indications—with champagne, you simply cannot use the word 'champagne' on a wine label unless the wine is from the Champagne region in France. So even if it is quite an innocuous reference—it is a champagne style or this winemaker was trained in Champagne and has come back and brought the art to Australia—you simply cannot use that reference. With the strictness of that rule, some think it is overly strict, but it does stack up and it does make sense because it protects the integrity of the geographical indication regime.

With respect to a similar rule, there is a registered geographical indication of Orange based in New South Wales. So a similar strictness applies to the use of that term. However, there needs to be some level of common sense that applies, and an amendment was introduced to our act a number of years ago because, as we all know, 'orange' is a common English word. So if you had a situation where you had a complete prohibition on the use of the term 'orange' on a wine label, even if it was very clear that the person was not intending to make a claim that it was from the Orange region, that person would fall foul of the law and potentially be liable to serious fines or imprisonment.

Senator WHISH-WILSON: How could you prove that intent?

Mr Clark : In the absence of a common English word exemption, if you have it on the label, that is it. The amendment was introduced so that, if someone was using a word which was a GI but using it not to try to reference where the wine was from or where the grapes were grown but they were using it in the common English phraseology, that would not fall foul of the law. To my mind that is a very sensible situation. For example, there was a wine label around a number of years ago called the Orange Tree. There was a nice picture of an orange tree on the label—

Senator WHISH-WILSON: I have seen it.

Mr Clark : It was very clear from that label that the wine was not purporting to be from the geographical indication of Orange. We think that is a very sensible landing and in no way undermines the overall reputation of the geographical indication of Orange.

Senator WHISH-WILSON: When that amendment was made, was there any specific conflict or case study that you used or that was brought to your attention when that amendment was made? I will try to think of some other examples of words that are common that might relate to a wine region. I cannot find any, but I might be missing something. Was there another example that actually led to this amendment?

Mr Clark : Off the top of my head, I cannot recall. You are right in saying that many are common English words and they are quite distinct place names. But I can happily take that on notice because I used to know this information in great detail a number of years ago. The memory is a bit hazy since then, so I can consult—

Senator WHISH-WILSON: Who pushed for that amendment? These things do not just appear. You do not just wake up in the morning and find that they have happened, so clearly someone wanted it amended. Can you recall what that process was?

Mr Clark : I will take that on notice; I think that is probably the best way. Largely, it was that we had a revised wine agreement with the European Union and there were a number of amendments required to be made to our act through that process and it was one of the amendments that flowed from that agreement. We also thought it was a sensible outcome, but I am happy to put a lot more detail on notice.

Senator WHISH-WILSON: What I am interested in is whether the proprietor of that label, the Orange Tree, was in any way involved in lobbying for that change. I am not sure whether that was just coincidental or whether that may have occurred.

Mr Clark : As far as I am aware, there were no interactions with the owner of that label in that case.

Senator WHISH-WILSON: I would be very interested in that feedback, if you could provide it.

Mr Clark : Certainly.

Senator EDWARDS: Mr Clark, it is good to see you here again. I read recently in media reports that the wine industry export market was growing. What is it growing by and what do you think the causes for that are?

Mr Clark : We recently released the export numbers for 2015. Pleasingly, there was a lot of positive news there, which is very welcome because, as we all know, it has been a very tough period for the Australian grape and wine community over the last 10 years or so. I will give some headline numbers. The overall value of Australian exports grew by 14 per cent in 2015 to $2.1 billion.

Senator EDWARDS: Double-digit growth.

Mr Clark : Yes.

Senator EDWARDS: For the first time in how long?

Mr Clark : That was the highest rate of growth since 2007.

Senator WILLIAMS: The free trade agreement is working well.

ACTING CHAIR: China is up 11 per cent.

Mr Clark : The growth is significantly driven by Asia: China is up 66 per cent; Hong Kong is up 24 per cent.

Senator EDWARDS: Can you say that again?

Mr Clark : China is 66 per cent.

Senator EDWARDS: Is that 66 per cent in volume?

Mr Clark : Value. Hong Kong is up 22 per cent; Japan 16 per cent; and Korea 38 per cent.

Senator EDWARDS: In 12 months. Doesn't this bode very well for the Australian wine industry?

Mr Clark : I think it is excellent news. At the same time it is a great early signal that we are on a pathway hopefully to restored prosperity, although we are very conscious of the fact that this growth could be patchy. It is critically important that it flows through to the grape grower community, and it has in some parts but not in a lot of parts. The overall message is that, yes, it is a very strong signal. The Australian category is coming back in a whole new way and sentiment is turning, but it is critically important that we plough on together and do the hard yards.

Senator EDWARDS: While we are on markets, how are the mature markets of the UK and America going in terms of both volume and value?

Mr Clark : They have been very tough markets for us recently. One of the most pleasing figures out of the 2015 numbers was the US return to growth; it was up four per cent. We have lost a lot of value over the last 10 years and it has been in decline, but it has returned to some growth, which is great. The UK was up only marginally—0.2 of a per cent.

Senator EDWARDS: It is tough, isn't it?

Mr Clark : Yes. I was in the UK during the week before last. We had a headline Australia Day tasting activity with an outstanding turnout, a lot of great interest and a lot of very positive media articles. All the exhibitors I spoke to were incredibly pleased with the quality of the people that turned up, and they are optimistic about writing some quality business out of it. But we need to continue to push hard in that market because it is still our No. 1 market.

Senator EDWARDS: In the UK?

Mr Clark : By volume.

Senator EDWARDS: The US market is increasing; what do you put that down to?

Mr Clark : Undoubtedly the exchange rate.

Senator EDWARDS: Undoubtedly the exchange rate.

Mr Clark : The exchange rate helps.

Senator EDWARDS: It has been locked in at a dollar or parity for six or eight years?

Mr Clark : Yes. So that helps, although it is not a panacea. We will never see where an exchange rate readjusting would be a panacea, because there was a real sentiment decline for the Australian category in the US market. That is where we can play a key role in getting our wines in front of the key influencers who are going to help turn the dial in that market, to get the sentiment returning to Australia. Those two factors are helping.

Senator EDWARDS: How does this confluence of exchange rate and a renewed focus from the UK—exchange rate in the US, a renewed focus from sommeliers, writers, journalists and retailers in the UK—play in to your marketing strategy at AGWA?

Mr Clark : The core of our strategy is around increasing demand and the premium paid for all Australian wine. The way that we are going about that is by bringing a sharper focus to our premium or fine wine offering. We think that has not been well understood globally. We need to make sure that it is understood because we think that will help to change perception, change sentiment and get people to reconnect with the Australian wine offering overall, which will deliver benefits throughout the whole sector, throughout the whole value chain.

Senator EDWARDS: Have you rewritten a marketing strategy or are you in the middle of writing one?

Mr Clark : The formation of this organisation, as you know, was a little over 18 months ago. The critical first task was for us to develop our five-year strategic plan. Part of that is: what do we want to do as an organisation; how can we have an influence? The marketing strategy was part of that.

Senator EDWARDS: What have you identified early that you are short of, in trying to carry out the plan?

Mr Clark : In terms of resourcing?

Senator EDWARDS: Yes.

Mr Clark : Certainly, as you are well aware, there has been—

Senator EDWARDS: I am; other colleagues who are in the middle of a Senate inquiry into this issue may not be, so they may be interested.

Mr Clark : We have been in discussions with peak industry bodies who have been putting forward a range of policy proposals to the government, one of which is about increasing any resourcing provided to us; so it is part of that conversation. They are leading that debate, obviously, because that is their role as the peak industry bodies. But, as part of that, we have said, 'Okay, what would we do if there was additional money coming our way?' Principally we think the range of activities we deliver at the moment is effective in delivering returns. So, if there was additional money, we would take them to a new level. For example, a visitor program, we think, is one of the key ways to get our wines in front of people and get them enamoured with the Australian offering—

Senator EDWARDS: The visitor program?

Mr Clark : Yes, the international visitor program.

Senator EDWARDS: So you bring people here.

Mr Clark : Correct.

Senator EDWARDS: What do you call them—gatekeepers?

Mr Clark : Basically, we are targeting people in the trade, whether it is journalists or buyers, very commercial people—and it is not just traditional media; but also people who are blogging, et cetera.

Senator EDWARDS: So you have not had enough money to operate those programs?

Mr Clark : We have been able to bring a lot of people out, but sure—if there were additional money, we would be able to target more people to bring out and that would only bring benefits for the sector.

Senator EDWARDS: Is that what has been responsible for the growth in Asia, or has it just been the shoe leather of Australian winemakers in Asia?

Mr Clark : I think it is very difficult with all of these conversations to isolate one factor at play. I think it is a combination around the exchange rate being more favourable and, in some markets, the free trade agreements have had a significant head-turning effect and are having real benefits. It is bringing key people out here, and the role that we play in doing that. Also, fundamentally, at the end of the day, what we do is hopefully very useful, but let us be honest about this: the success lies with the hard working wine exporters, winemakers and grape growers who are producing the quality product and going out into the market. The preparedness of our Australian wine exporters to get out into the market is legendary—out for long road trips and selling their product and doing the hard yards.

Senator EDWARDS: We have just heard from them over the last four months, and a lot of them are on the bones of their butt. So how do we get them into a better position to be able to afford to even buy a plane ticket to go to Asia, let alone access Austrade who, when you ring them up, say, 'It will be five grand to even come and talk to us to participate'—I am being a bit loose here. But in terms of their being a user pays organisation, how do we now—with the confluence of currency and interest advantages around the world—put some impetus behind your marketing budget?

Mr Clark : An observation in that regard would be that everything I have seen in the EMDG Scheme is very effective in allowing people to get out into the market. Those who have exhausted their opportunity to tap into that scheme tell me that they wish they had more opportunities to access EMDG grants to help them get out into the marketplace. But, at the end of the day, issues around policy and resourcing are—

Senator EDWARDS: It is a matter for the government.

Mr Clark : It is a matter for the government—in conjunction, obviously, with the peak industry bodies—to have those conversations.

Senator EDWARDS: A lot of the people with EMDG grants who have exhausted them, exhausted them at a time when currency was against them and interest in Australian wine was against them. So you are suggesting a review, maybe of policy of government, to have a look at that as to how we could take advantage of the current environment.

Mr Clark : Just based on my experience being out in the key activities overseas, a number of people always tell me that they would not be here if they were not able to access or tap into the EMDG Scheme.

Senator EDWARDS: How much of an influence do you think the growth of private label has been in the retail sector here, which has had a consolidation from a low 30 per cent in 2004 to now some 76 per cent in 2016? I think at last count—you could see them all identified if you went to Huon Hooke's blog—there are about 276. I could be wrong—there might be more; it has been a week or two since I have looked at it. So some retailer's organisation might have dreamt up another label to trick the public with. How much do you reckon the growth of private label in Australia is affecting the profitability of those wine producers we have just talked about?

Mr Clark : Again the Winemakers Federation is best asked to comment on this, to be honest.

Senator EDWARDS: But private label, you agree, has had an effect on the domestic market?

Mr Clark : I think that the shift to the supermarkets and their developing their own products obviously has changed some of the market dynamics. From our perspective, we see them as a great opportunity to help promote Australian wine. We do events such as Aussie Wine Month every year and we have worked with the retailers—we have worked with Dan Murphy's in the past—to help promote Australian wine, promote Australian brands through that promotion.

Senator EDWARDS: I do not know whether you are going to go here, Pete, but does your marketing budget as a percentage reflect well in terms of global parity for the volume that you sell into the marketplace? Have you ever done that work?

Mr Clark : I think it depends on who you are comparing us with. I think it is quite well known that the Europeans get quite significant support through the European Union processes. So they can far outspend us. But, as far as I am concerned, it does not always mean that they are overly effective. You have to be very prudent and efficient with the resourcing that you have got and make it go a long way. I think we are generally regarded as being a pretty efficient generic body—that is the terminology that is used overseas, such as in London. We are pretty highly regarded for what we can do on a pretty limited budget.

Senator EDWARDS: Finally, the issue of taxation. In global terms, as an industry, where do we fit in the level of government taxation on our product? Are we the lowest or the highest?

Mr Clark : Again this is straying into, I think, territory of policy and resourcing type questions, which are not in my domain.

Senator EDWARDS: But surely you know, Mr Clark, whether we are the highest taxed industry in the world or whether we are the lowest.

Mr Clark : That work is done. There are a number of submissions made, I think, by the Winemakers Federation which have that data in there in terms of how we compare.

Senator EDWARDS: Would you disagree with me if I said that here in Australia we are the highest taxed wine industry in the world?

Mr Clark : I know that here we are subject to a wine equalisation tax of 29 per cent in addition to the GST.

Senator BULLOCK: Questions of fact are not casting an opinion as to the government's policy, so a question of fact would be open to the committee.

Senator Ruston: Senator Bullock, there may be a question of fact in terms of the 29 per cent plus the GST, but Mr Clark may not know where—

Senator BULLOCK: If he does not, he should, Minister.

Senator EDWARDS: I have finished.

Senator Ruston: Excuse me, Chair. Could I finish what I am saying, please?

CHAIR: Go on.

Senator Ruston: A statement as to whether Mr Clark knows the relative position of Australia's tax rate against those of the rest of the world would not necessarily be a statement of fact that he is trying to avoid giving you the answer on.

Senator WHISH-WILSON: I have a point of clarification. You have talked about those numbers to Senator Edwards about export growth in value terms.

Mr Clark : Yes.

Senator WHISH-WILSON: Can you also give those to us in volume terms?

Mr Clark : I can give the headline. In terms of the overall volume, it grew 6.4 per cent, to 744 million litres.

Senator WHISH-WILSON: So we are assuming that there has been some value accretion there—that we perhaps moved up the brand?

Mr Clark : I think that is a critical indicator. We do not want to go down the path of volume growth; it is one of value growth. The value surpassing volume growth is very important. Particularly pleasing is the significant growth we have had in the bracket which is $10 FOB and above.

Senator WHISH-WILSON: That is what I was going to ask, yes.

Mr Clark : That has grown—and I have the figure here—by 35 per cent to $480 million, and there are some really positive numbers. If we break that bracket down further, there is double-digit growth in a lot of those price segments. So we are getting some traction at that premium bottled wine export end.

Senator WHISH-WILSON: But your target market is still to grow the premium—

Mr Clark : Yes. That is where we have underperformed and we need to take some ground.

Senator WHISH-WILSON: Thank you.

Senator STERLE: Take this on notice if you can; there is no stress. I am very interested in this. No-one has to bite and get their undies in a knot, but I have just got back from China and I think the Chinese free trade agreement will open up some definite advantages in certain parts of our economy. Can you tell us how much wine is exported to China, what varieties, and from what states? Has there been a marked improvement since the announcement? There probably has not been, but this is just so that I get an idea. It is amazing how much of our wine I have seen in China. So just give us an indication. You can take it on notice.

Mr Clark : Thank you; that is fine.

Senator STERLE: Thank you; thanks, Chair.

CHAIR: That concludes the Australian Grape and Wine Authority. It is nice to think that the wine industry is on its way back after the shemozzle with the MISs, which I think was in 2005, wasn't it?

Senator EDWARDS: No, 1996.