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Wednesday, 14 March 1973
Page: 578

Mr SINCLAIR (New England) - On any occasion when a measure is before the

House to relieve an obligation of a section of the community for the payment of excise, tariffs or taxes of any kind, it would be strange if most honourable members did not support it. It would be strange because the responsibility for financial management falls with the Government and in particular with the Treasury. It is their responsibility to determine where the funds are to be raised and where they will be allocated in the Budget. The Parliament debates programs which a government submits and the government normally listens to, approves or modifies the program which the Treasury submits to it. In this instance the Bill is not quite so clear cut. The legislation has been put forward because of an undertaking given during the election campaign by the then Leader of the Opposition, the present Prime Minister (Mr Whitlam). A promise was made that the excise which was applied by the previous Government to wine would be totally removed.

When we were in government we did modify the wine tax as a result of our consideration of a report that was prepared by Professor J. McB. Grant and submitted to the then government in April 1972. There are, however, very real problems that the community needs to be conscious of when considering the implications of this Bill. First of all there is no doubt that the wine industry has been going through a process of change which affects it in many ways. I shall speak on some aspects of that change during my few words to the House tonight. I regard it as no more than political expediency on the part of the present Government to lift the excise in this way without at the same time looking at the fundamental problems which face the wine industry. I am afraid that it seems to me in respect of many sectors of our rural industries that there is a change of attitude by the present Government which seems to hold the view that because a measure is introduced into the House there is no need to worry about more significant problems that might affect the rural industries, directly or indirectly. In no industry is this comment more pertinent than it is in relation to wine. This Bill is, largely, a political exercise. I invite honourable members to compare the net worth of this exise with the duty that is collected on what one would see as the working man's drink, that is the drink that most of us like in many circumstances in Australia. If we had a national drink I suppose it could be said to be more of that character than wine. I am referring to the excise on beer.

I am told that in the course of 1971-72 excise collections totalled S398.829m. That is a very significant sum of money. By comparison, under the 50c per gallon levy which initially was charged as excise on wine from 25th May 1972, about $ 11.5m was collected. After the reduction in excise from 50c a gallon to 25c a gallon Commonwealth revenue dropped approximately to half a million dollars in the period to its abolition.

In terms of the actual financial returns to the Government, there is no doubt that the excise on wine was nowhere near as significant as the excise charged on beer. I think that from that fact alone can be seen the political motivation which no doubt was in the mind of the then Leader of the Opposition when he gave the undertaking, during the course of his policy speech, to abolish the wine excise. To me this action reflects the concern which was then felt by the Labor Party as to its prospects in a couple of electorates in South Australia and one in southern New South Wales. I think that there is little doubt that the change that was introduced was a product of the Labor Party's electoral concern that if it did not lift the wine excise it would not succeed in winning the seat of Riverina and possibly other seats which it was contesting.

At the same time, I think that it needs to be said that in our community there are groups of luxury items which traditionally have been turned to as areas from which revenues can be raised for the purpose of running the Government. I personally do not see why, if, for example, the tobacco industry, is regarded as an industry on which a levy should be charged for the purpose of raising funds for administering the Government, or if policy is that beer consumers should be taxed for their consumption of beer, other sectors of the community should be exempt. Indeed, I find it somewhat paradoxical that the Labor Party, which claims to represent the working classes, has ignored the claims of beer drinkers and has concentrated on the claims of the wine growers.

Nonetheless, I believe that irrespective of these changes we need to be conscious of some of the problems which exist in the wine industry. I should like now to turn for a few moments to the conclusions which Professor Grant reached in his examination of the circumstances affecting the Australian wine industry. His report essentially related to the impact of the excise tariff on the wine industry.

For some years wine grape producers have been expressing concern at the significant increase in the area of annual plantings. Of course, in some States the increase has been more spectacular than in others. In the Hunter Valley of New South Wales, for example, there has been a very significant introduction of new acreage. The increased plantings have brought with them quite new concepts in wine growing and wine marketing. In the period from December 1967 to December 1971 the number of acres of vineyard planted increased from 1,497 acres to 7,265 acres. That is a significant increase. Similarly, in other States where increases have occurred, the growth has reflected something of the changing pattern of the industry. But I think it is important to recognise that, because of the time lag between the planting of new vines and maturity of the crop when the grapes are, ready to come into full production, in looking only at the increase in acreage we do not see the full story. For example, in the whole of Australia's wine producing areas - that is covering South Australia, New South Wales and Victoria- in 1969-70 the bearing acreage was 68,900 acres; the not yet bearing area was 17,800 acres. In 1970-71 the bearing area was 74,000 acres and the not yet bearing area was 21,700 acres. A very significant increase occurred in the acreage sown in Australia. This is part of the problem that has been affecting the small wine grape growers who have been spread through many of the more intensely settled areas of Australia. These growers have grown dual purpose grapes which are suitable for the wine industry or for the dried fruits industry or have produced grapes exclusively for the wineries. The wine excise caused them real concern as to where they were heading. 1 can recall that some 7 or 8 years ago representatives of wine grape growers came to me in my position as Minister assisting the then Minister for Trade and Industry to express concern at the direction in which their industry was heading. It is not just the matter, however, of increased acreage which creates difficulties in the wine industry. There have been particular problems arising from what is known as the vertical integration of the industry. It is in this area that some of the most notable changes are coming. I regard the vertical integration scheme in many respects as a healthy factor in the industry as long as it in no way prejudices the opportunity for continued sales by those small wine grape growers who are efficient producers. The difficulty in vertical integration is that the production of a large number of smaller growers traditionally has been sold through co-operatives by way of bulk wines to proprietary wineries. The proprietary wineries, because of the changing tastes for wine, the changing types of wine which have been produced and the increase in consumption, have, found that there was a distinct advantage for them in not only buying bulk wines but preferably in producing their own wines. Most of the proprietary wineries increasingly have moved into the field of producing thenown wine grapes and having been purchasing only that residual amount which they could not produce. This, of course, has created for the co-operatives and the bulk wine producers the problem of finding alternative outlets for their product. At a time when acreage was increasing, it was important that the annual level of sales was able to accommodate the additional annual pickings. When there was for any reason a cut back in the level of increase of sales immediately the pressure affected the co-operatives more acutely and, of course, the small wine grape growers who supplied to them.

I think one of the fundamental observations that comes out of the Grant Report was that it was true at the time of the levying of the excise that many of these factors were just falling into something of a balance. The increased price that resulted from the application of the excise did mean a slowing down in the rate of increase of wine sales. But let me assure the House that if honourable members care to look at the actual figures for sales they will see that in fact there was not a falling off in the volume of sales to the degree to which some honourable members have suggested. In table 1.5 in the Grant Report - I will read some but not all of the figures to the House - it can be seen in the field of both fortified wines and unfortified wines that the consequences were rather a falling off in the rate of increase than an actual reduction in the volume of sales. Coming as this did at the time when acreage was increasing and when the vertical integration program and the proprietary wineries were creating greater problems for the bulk wineries in selling their products, it created acute problems, particularly for the Murray River co-operatives.

It is interesting to look also at some of the consequences of the increase in acreage in terms of the additional storage facilities which wineries had to install. The natural result of an expansion of the industry was that the wineries found that it was absolutely essential for them to have greater storage capacities in order to be able to handle the increased acreage and increased gallonage which they would handle. In his figures Professor Grant gives an estimate of the increased storage capacity of the industry as a whole for the 1971-72 period as approximately 4.75 million gallons. Professor Grant points out that this figure is significantly below the 6 million gallons per annum that the industry was finding it necessary to provide to meet the rate of increase prior to the introduction of the excise.

The problem of additional storage was twofold. First of all it meant that in a good season there would be the problem of trying to dispose of a surplus crop. In addition there was the problem of the capital expenditure in providing the storage and the pressures which came on the wineries, if they were unable to meet the level of sales and so keep their cash turnover, in order to meet their commitments on capital expenditure. All these things took place at a time when the excise was levied and as a result the Murray River co-operatives were particularly affected.

Looking at the circumstances one needs to see the difficulties that these wineries suffered and try to see where we should go in the future. From an examination of the Grant report one fact which does emerge is that whilst it is true that at the time of the increase in price as a result of the excise and the application of the retail price markup onto the excise itself there was a falling off in the volume of domestic sales. It is also true that this progressively began to disappear. In other words, the rate of increase of sales was improving right throughout last year and by the time the 25c reduction was made by the previous Government the volume of sales was in fact very much back to normal. If one looks at the actual statistics of sales today I have no doubt that the customs clearances will demonstrate that since the December period when the 25c reduction was made until the consideration of this Bill today there has been a further stimulus in sales. However, the price today is higher than after the excise was introduced.

It is interesting to note the prices on a range of products. I do not want to specify the proprietary brands. I will give the recommended retail prices for wines selected at random. At the time the excise was introduced in August 1970 the price level for one company's dry red was $4.07. When the excise was halved in May 1972 the price fell to $4.02. When the excise was removed, after Labor came to office, the price fell but there has since been an increase to $4.50. Let me take another product, a dry white. At the time of the introduction of the excise the price was $1.14 a bottle. When the excise was introduced the price rose to $1.20 but fell to $1.15 when the excise was halved. But the price fell again immediately after the removal of the excise when the Labor Party took over government in December. When the excise was removed the price was $1.10 but today the price is up to $1.20. The price for a bottle of champagne was $3.60 when the excise was introduced. When the excise was halved the price fell to $3.55. When the excise was removed the price fell to $3.50 but the price of that champagne today has gone up to $3.60. Another product is fortified tourney brandy. When the excise was introduced the price was increased to $1.90 and when the excise was halved it fell to $1.85. Today the price is again $1.85.

It is apparent that consequent upon those price changes costs in the industry have caused wineries some difficulties in maintaining continually the price level at which they were originally offering wines. But it is equally true that if we look at the volume of sales and say that the price of wines sold in bottles or flagons is a significant factor in determining the volume of sales then prices today are generally above those which prevailed immediately after the introduction of excise, yet the level of sales today is significantly greater. So I submit that price alone is not the only factor that we need to look at in terms of the level of sales or the volume of sales.

A problem which comes out of an examination of the Grant report with respect to the Murray River co-operatives is that they are very heavily dependent on the domestic market. Because they sell such a large percentage of their product in the form of flagons and bulk wines, it is quite apparent that they need to look at ways and means by which they can expand their local sales. Many of them have been in some difficulty in financing adequately the level of sales which is necessary if they are not going to be able to supply bulk wines to proprietary wineries. I think it would be Interesting for this House to bear what program the Minister for Primary Industry (Senator Wriedt) has. Perhaps his representative in this House or the Minister for Overseas Trade and Minister for Secondary Industry (Dr J. F. Cairns), who is seated at the table, may be able to find out whether there has been any examination of the current circumstances facing wine co-operatives in the Murray region. This might determine whether they are adequately financed in terms of the necessity for them to increase direct selling and to ascertain whether there is a need for the Government to assist these co-operatives to obtain the necessary capital to provide them with the facilities to enable them to compete with the proprietary wineries in the marketing of wine not only in Australia but also overseas.

It is true that in recent months some cooperatives have been perhaps more successful than others. In one area I believe there is still a co-operative which is in real difficulties in terms of its future capacity to finance improved direct selling. Yet it is only by improved direct selling that the fundamental problems of the industry will be solved. It is not just by removing a wine excise. This wine excise measure is a device for political purposes and will not fundamentally change the circumstances of the wine grape growers or of these co-operative wineries. It seems to me that in dealing with a measure such as this we need to be told, concurrently with our examination of what is being done in this measure, what efforts are going to be made to help those co-operatives in other ways.

The other area in which I believe there is a necessity for some consideration is the general implications in the changed structure of the industry and of the problems in marketing abroad. There is an extremely interesting chart set out at page 73 of the Grant report. It sets out the brief record of the takeovers and major share acquisitions in the wine industry. It shows that there has been a lot of new capital invested in the industry in recent years. I think a lot of this new capital is good for the industry. It has brought new knowhow and it has certainly brought new marketing techniques into the industry. It has helped a lot of the under-capitalised wineries to pay a higher price for their wine grapes and to increase their volume of production and generally to improve the product. This is an important area of consumer preference. It is a product of the migration program of postwar years that the consumtpion of wine domestically is a more and more important part of our daily diet. For that reason it is important that the wine we produce is of as high a standard as is possible. But of course with increased volume of production the old personalised techniques of the early wine makers cannot be afforded and if the new mechanised techniques are to be applied then they should be capable of still producing a high quality product.

One of the things that has happened m the structural changes in the proprietary companies is that there has been a great deal of finance invested in companies which previously were to a considerable degree locked in because families were involved over a successive number of generations and as a result of the death of one or another of the early members of the family it was not possible to apply large amounts of capital to develop or to change the basic operation of the former family based company. In his report Professor Grant refers to 3 implications of changes in the production and marketing structure of the industry. He speaks of the rapid increase in new plantings of vines, to which I have referred, particularly from 1968 to 1969, much of this being undertaken by wineries, by companies associated with wineries and by companies which plan to establish wineries. So there was that emphasis on the vertical integration to which I referred. Secondly, since 1970 there have been many takeovers of wine makers by companies established in other fields. In other words, merchandising and marketing techniques from outside were being applied to an industry which in the past had been largely family orientated. The third change referred to was that a number of Australian States have revised their licensing laws. In New South Wales and Victoria there have been relative increases in the number of licensed retail stores. So the character of the market and the industry has changed in those significant ways.

In the domestic field the industry is still faced with real problems. From an examination of the statistics in the grant report I do not believe that those problems can be solved just by the lifting of the excise. Similarly there are problems in exports. Without going into the full detail of them let me say that in recent years there has been a significant decline in the volume of our exports to the United Kingdom. The table on page 94 of the Grant report shows that over the course of the years the volume of exports has been pretty static. It has declined from a peak of 1,997,000 gallons in 1964-65 to 1,296,000 gallons in 1969-70, with a slight increase in 1970-71 and an approximately static position in 1971-72. So with those figures going down and with the implications of the decline in the British market we are faced with very real problems.

There is no doubt that Australian wines on the British market were generally low priced wines, many of them not being of as high a quality as those consumed on the domestic market. As a result, Spain, Cyprus and other countries benefiting from the devaluation of their currencies were able to gain improved access. The combination of currency adjustment and entry into the European Economic Community has meant very real problems for the wine industry in relation to its ability to sell the same quantity of wine in the United Kingdom as it used to sell. Of course, there are opportunities for market sales. I was interested to read in this morning's 'Australian Financial Review' that Mr G. S. Hargrave, the export manager of Thomas Hardy and Sons Pty Ltd spoke of what he saw as an apparent wine boom in the North American market. He said that the American market is a huge one in area and in population, and probably it would be better to market in pockets rather than attempt a national compaign. He spoke of Australian wine companies' domestic labels requiring modification to meet requirements in the United States and Canada. He spoke of varietal grape names being favoured rather than the better known generic or geographical names used in Australia. He said:

It is incorrect to assume that it is a complete sellers' market.

Then he continued:

Other governments support their wine industry in foreign markets - Australia must be prepared to do the same thing and not rely on individual exporting companies to carry the entire burden.

When I, on behalf of the previous Government, lifted half the then excise on wine I gave an undertaking to the industry that the Government would look at ways in which market development assistance could be given in an added measure to the wine industry. We in the Liberal and Country Parties recognised the difficulties which the industry was going to face in marketing its product abroad. We gave an undertaking that we would try to find ways and means by which we could increase the assistance the Government was giving so that the industry would be able to take better opportunities in the overseas market than it had up to that date. Individual companies have been doing an excellent job.

Let me hark back to the problem of the bulk wine producers such as the Murray River co-operatives. The ability of those companies to take advantage of the American market is very limited. Their ability to do so without some access to additional capital is almost nil. This measure will in no way assist those companies to overcome their fundamental problems. It will not assist them to increase their share of the domestic market, to improve their technique of sale on the domestic market, to improve their opportunity for access to markets abroad or give them a chance to get in on the American market. If one looks at the statistics - which also come from the Grant report - of the constant increase in the imports of wine from all sources, one sees that the future for the industry is not without its very dark clouds. I believe that a political device such as this Bill is not the only way in which the industry can be helped. On the other hand, this measure is one which has for a long time clouded the whole of the field of the problems of the industry.

Many people, particularly those who are now in government, have gone around and preached to wine grape growers that the excise alone was the source of their problems. They have said that, because of the application of the excise by the earlier Government, their industry was in difficulties. They failed to look ahead and see the consequences of change on the industry and of the vertical integration of which I have spoken. On behalf of the Opposition, while supporting this Bill, I urge the Government to look more closely at the fundamental difficulties which this industry, among other primary industries, faces in the future. If the Government continues to ignore those real needs, I believe that the problems of the future for this industry will be very grave indeed.

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