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Australia's wine industry - meeting the challenges. Speech to the 1998 Wine Industry Outlook Conference, Melbourne Convention and Exhibition Centre, 21 October 1998

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Australia's Wine Industry - Meeting the Challenges

Speech by the Hon Alexander Downer, MP, Minister for Foreign Affairs, to the 1998 Wine Industry Outlook Conference

Melbourne Convention and Exhibition Cen tre, 21 October 1998



At this time of international uncertainty and instability, it is striking to speak at an industry outlook conference where the mood is so determinedly optimistic. Your conference agenda reflects the good fortune of the Australian wine industry. The order of business focuses on sustained growth, on targets already exceeded, on ambitious plans for further expansion, on new markets which have been developed, and on new ways of doing business - at all stages in the production and marketing chain.

Australia's wine industry - good management pays off

That good fortune, in turn, reflects foresight and good management rather than good luck. It is through good management, for instance, that sales of Australian wine across all price points have been increasingly steadily in a Japanese market otherwise mired in recession. The messages we have been sending and publicising for some years in Japan are now being heeded - messages about the good value of Australian wine, its consistent world class quality, its distinctive reputation, its great range and diversity.

Globally, good management means that wine exports this year are well on track to reach $1 billion. At the beginning of this decade, Australian wine exports were worth $114 million. By the end of the decade, we expect that figure to have risen ten-fold.

That would represent an enormous contribution to the Australian economy at any time. It is now doubly valuable, given the extent of economic problems around the world.

As a South Australian, I take particular pride in the achievements of my home State. Ten years ago, in 1988, our wine exports were valued at $67 million. (I would note that, even starting from that low base, our exports were still more than double those from New South Wales and three times those from Victoria.) Five years ago, in 1993, South Australia's exports had risen to $237 million. Now they stand at $583 million. It is not inconceivable that, with new plantings and new production methods, we will one day sell $1 billion worth of pure South Australian wine to the world. I need hardly mention to this audience the very special historical contribution which my own electorate of Mayo has made to the reputation of Australian wines.

My most important job today is to salute your achievement and to congratulate those responsible for the industry's success. You have created your own success, in seeking out new markets, in developing new varieties of grapes and wines, and in exploring and refining new wine-making techniques. There are common threads in all those elements of the industry's performance. They all reflect continuing creativity, innovation, experimentation and risk-taking in the industry. Nobody in your industry is inclined to rest on past laurels. In addition, your success reflects the industry's determination to work to define and to establish a future place for Australian wine in the world market. Nobody in your industry seems tempted to look inwards or backwards - nor to agree with the facile claims of protectionists.

All those strengths - continuing creativity, the courage to experiment, a willingness to take risks, a considered and determined assessment of what the future will bring - are what other Australian industries need to achieve sustained export success. Through investments, training and secondments - implantation, as you would say in the wine business - you have exported Australian techniques and expertise to the world. We also need you to demonstrate to others at home the dividends which accrue from using new techniques, developing new skills and adopting a global perspective to market opportunities.

How the Government can assist

Our job in government is to help and support your work wherever we can. The tariff cuts we have instituted have reduced the price of essential inputs for your business. De-regulation of the financial sector has expanded your options for financing that business. Sustained economic growth at home has enabled you to consolidate the domestic market.

The Government's new tax reforms will rectify the existing inefficient, unfair and unnecessarily complex tax regime. We have also recognised the need for our policies to reflect important health and social considerations. Accordingly, the Government has de cided to impose a Wine Equalisation Tax to replace the difference between the current wholesale sales tax and the new GST. Our measures are designed to ensure minimal impact on the cost of alcoholic beverages so that, for example, the price of a four-litre cask of wine should only increase by the estimated CPI increase associated with indirect tax reform (around 1.9 per cent).

The Government also felt that, with the price of basic foodstuffs set to rise slightly under the new package, it would not be reasonable to allow a considerable fall in the price of wine.

The wine industry will benefit from other aspects of the new package. Wholesale sales taxes will disappear from a raft of industry inputs, while some duties and other taxes will also be removed (financial institutions duties, debits taxes and some stamp duties) . On the demand side, the significant increase in disposable incomes created by the package's income tax cuts will benefit wine sales.

In addition, wine exports will be one of the big winners under the Government's tax reform package. Exports of all goods and services - including wine - will be GST-free: exporters will be entitled to claim credits for GST on their inputs; both the GST and the WET will not be payable on exports. We estimate that under the new package the total cost to Australian industry of producing exports will fall by some $4.5 billion (achieved by removing hidden wholesale sales taxes and other duties and taxes).

Our reforms, and the economic growth which has underpinned our economic management, have helped you to boost exports. They have also helped to create new jobs around Australia. They have helped you to re-vitalise country towns, with wine production which gives the families in those towns new skills and new horizons, and which gives new energy and optimism to many segments of rural Australia.

Meeting the export challenge

That is the job we have been doing together at home. Overseas, we need to deal together with the challenges facing the wine industry as well as helping you to exploit new opportunities. The challenges to our export market are numerous, and export growth will not get any easier in coming years: these challenges include high tariffs and taxes in the important new markets in our region; regulatory and tax burdens in other markets, such as in North America; the temptation on the part of other governments to achieve market success by subsidising production and export; and the potential use of labelling and other regulatory requirements as a form of protectionism, impeding our market access.

We will also need to deal with that most telling backhanded compliment given to our industry: the rush among our competitors to adopt innovative Australian winemaking practices and to plant those varieties associated with Australia's export success. This range of challenges would be daunting, but for the key advantage that forms the backbone of our export industry: our unrivalled capacity to innovate, to provide the market with what it wants, and to create an excellent product at a competitive price.

This will ensure that our industry can prosper in a more competitive international market, and can rise to the challenges posed by massive new plantings in the US, and by the heavily subsidised overhaul of the vineyards of Europe. When it comes down to making and marketing a superior product, the Australian industry has proven itself to be admirably self-sufficient, and you don't need the government looking over your shoulder to see off that particular challenge. But in other areas, the Government has an important role in improving market access, and we intend to use the full range of mechanisms - bilateral, regional and multilateral - to achieve this.

We need to keep lobbying our neighbours to reduce their high tariff and tax rates on imported wine. We need to assess carefully the effect of increased American production on supplies and prices of wine, to ensure that this vital market remains open and that regulatory barriers are lowered at a time of fast-increasing domestic production. We need to encourage the EU to see the mutual benefits of a more open international market in wine, and to resist any temptation to resort to protectionism. The EU remains our most important export market. The Australia-EU Wine Agreement, concluded in 1994, has helped consolidate the foundations of this bilateral trade, and should help sustain its future development.

Some bilateral issues remain to be resolved under the Agreement. We are pursuing, in good faith and in a constructive spirit, negotiations with the EU on possible ways of protecting traditional expressions, but have yet to settle on the basis of any protec tion. One particular worry is the introduction by the European Commission of Regulation 881/98, which seeks to regulate the use of certain traditional expressions before the matter has been worked through bilaterally. We do not believe such unilateral action is consistent with our bilateral Wine Agreement, and we have made that view emphatically clear to the EU.

At the same time, the bilateral Wine Agreement can't exist in isolation: in advancing our trade interests with the EU and in other markets, we need to keep in step with the broader obligations and opportunities created by the World Trade Organisation's various multilateral agreements. Those agreements bind us all, and benefit us all: the WTO trade regime has vastly improved the international trade environment. It is, overwhelmingly, in our national interest - however we choose to define that interest. We have no interest in bilateral outcomes that could fall foul of challenges under the broader WTO rules, as this would undercut the predictability and certainty that our industry needs for export growth. Hence the need to introduce some new terms into your ever-expanding wine lexicon - terms like TBT (the WTO Agreement on Technical Barriers to Trade), TRIPs (the Agreement on Trade-Related Aspects of Intellectual Property Rights), and SPS (the Agreement on the Application of Sanitary and Phytosanitary Measures).

Those terms, and the trade rules which lie behind them, are not unduly technical or complicated, no more so than lots of your own terms. We need to set our bilateral arrangements in an international context, the necessarily fluid context of international trade rules, of shifts in labelling regulations and marketing strategies in many countries, and - hardly the least important - of changes in consumer preferences and tastes.

The way ahead

Your conference will assess other challenges as well - the impact of the vast new American vine plantings; the effects of the recession in Asia; the production plans of other countries in the New World. I look forward to reading your conclusions and assessing your judgments. They will be fundamental to future planning for this industry, and your industry is, in turn, an essential component in Australia's export drive and economic growth.

It is with that anticipation, and with the greatest of pleasure, that I now declare this conference open.