On 1 July 2014, the Australian Grape and Wine Authority (AGWA) was established, assuming the functions of Wine Australia Corporation and the Grape and Wine Research and Development Corporation pursuant to the Grape and Wine Legislation Amendment (Australian Grape and Wine Authority) Act 2013 (AGWA Act).

The establishment of AGWA has resulted in a single consolidated body to support the Australian wine industry, combining:

  • research and development functions previously conducted by the Grape and Wine Research Development Corporation (GWRDC)
  • marketing and export oversight previously undertaken by Wine Australia Corporation (WAC), including the continued use of the Wine Australia brand and intellectual property.

The formation of AGWA was proposed in 2012 by key industry bodies, Wine Grape Growers Australia and the Winemakers’ Federation of Australia, to facilitate the industry realising various economies of scale, developing and following a coordinated strategy in which both research and development and marketing functions are brought together, as well as to ensure that progressively diminishing levy payments observed in recent times did not result in a reduced service offering to industry.

AGWA is a Commonwealth statutory authority which, like other Rural Research and Development Corporations, will be funded through a combination of levies on production and Commonwealth funding for research and development activities. The organisation will have a budget of $34.7 million in 2014-15, including approximately $11.5 million provided by Commonwealth. This represents a reduction of the previous combined annual funding of GWRDC and WAC of approximately $3.5 million.

The formation of AGWA reflects a collective effort to preserve important resources for an industry which is currently facing significant structural and commercial challenges. In particular, the Australian wine industry has been challenged by the over-supply of both grapes and wine making capacity which has driven prices down, and made it difficult for many producers to meet their cost of production. This is, in part, a consequence of the highly fragmented nature of the industry which is made up of a number of small producers who do not benefit from the economies of scale that bigger producers can access and do not have strong avenues for distribution, while larger producers do not always have the flexibility to easily respond to changing market conditions.

Similarly, the high Australian dollar has caused difficulties for Australian producers competing in the export market where relative buying power has moved unfavourably for Australian wines. Australian wine has traditionally been a favourite “value for money” product, however with the high Australian dollar traditional competitors have once again become competitive in this regard. History suggests that where price parity is reached between Australian and French wines, the French equivalent will usually be preferred by international buyers. In addition, there has been increased competition from other wine exporting countries and, in fact, a recent study funded by GWRDC found that the value of Australian wine exports to countries other than China actually decreased by$1.3 billion between 2007 and 2012. A more positive story in exports is in China, to which wine exports grew by 333% in value in the same period and reflected 6% of total wine exports [1].

Although these market forces are likely to continue to impact the industry for some time, and the industry is in a state of transformation and rationalisation as a consequence, the wine industry remains Australia’s fifth biggest agricultural exporting sector, a $4.2 billion industry and is responsible for creating 54,000 jobs across Australia - primarily in regional communities. A strong statutory authority with clear strategies and directions can only benefit the industry and assist its members to manage the numerous challenges ahead.

AGWA’s functions have been clearly identified in the AGWA Act and include:

A.   Research and Development

  • investigating and evaluating requirements for grape or wine research and development
  • coordinating or funding grape and wine research and development
  • reporting to Parliament, the Minister and representative organisations on grape and wine research and development and the impact on the grape or wine industries of any research and development activities.

B.  Marketing

  • facilitating the commercialisation of grape and wine research and development
  • promoting the consumption and sale of grape products (both domestically and overseas).

C.  Compliance

  • controlling the export of grape products from Australia, including compliance with the Food Standards Code
  • licensing exporters and issuing permits for Australian Wine and Brandy exports
  • operating a labelling integrity program, to prevent false and misleading labelling and ensure compliance with the AGWA Act restrictions on how wine can be described
  • maintaining the Register of Protected Geographical Indications and Other Terms, which restricts the use of certain indications in labelling wine products
  • supporting the Geographical Indications Committee which defines each of the wine grape producing regions of Australia.

AGWA is currently in its establishment phase, with the chair and board of directors appointed for an initial term of three months to facilitate the establishment of the new entity. The Company has announced the appointment of Andreas Clark (formerly WAC’s Acting Chief Executive Officer) as Acting Chief Executive Officer for an initial period of three months to establish the authority and ensure continuity of existing services to the wine sector.

The establishment of AGWA and the merger of the functions of two significant industry bodies is demonstrative of a collective desire to consolidate in order to reduce red tape and unnecessary duplication of administration.  This is not unique to the wine industry, and in July 2013 Sugar Research Australia was formed which established a similarly streamlined and consolidated entity absorbing the functions of BSES Limited, Sugar Research and Development Corporation and the research elements of Sugar Research Limited.

It remains quite likely in our opinion that other rural research and development corporations and industry bodies may take steps towards consolidation of some their functions or find other ways to realise similar efficiencies. While future mergers may not result in a consolidated entity like AGWA,we expect that a number of bodies may reach agreements to share facilities and resources, such as back-office and administrative support, to ensure their ability to continue to deliver the same level of service despite reductions in Commonwealth support and levy revenue.

[1] Centaurus Partners, Wine Industry Report: Expert Report on the Profitability and Dynamics of the Australian Wine Industry (prepared for the Winemakers Federation of Australia) (August 2013), Winemakers’ Federation of Australia


Authors: Katherine-Anne Waldron

Brisbane

Ron Eames, Partner
T: +61 7 3135 0629
E: ron.eames@holdingredlich.com

Disclaimer
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed above.

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