EXTENDED PAYMENT TERMS THREATEN OUR EXCELLENT AUSTRALIAN WINE
I’m confident that, like me, many Smallville readers enjoy a glass of excellent Australian wine. Maybe two.
Consequently, I’m also confident that our readers won’t be happy about yet another threat to our wine supply.
But that’s exactly what is happening, and the reason is a familiar one. Extended payment terms.
WE WILL PAY YOU IN 9 MONTHS
This is a subject I have written about often, and in relation to many different industries. Now it seems that Australian wine grape growers are falling victim as well. So much so, in fact, that the Australian Competition and Consumer Commission (ACCC) is conducting an inquiry into the industry “to identify any market failures or issues that may be preventing the functioning of competitive markets and resulting in detriment to market participants.”
ACCC Chairman Mick Keogh likened the industry’s payment terms to paying for a bottle of wine in instalments:
- one-third when you select a bottle and leave the shop. (By the way, under this scheme, you get to decide how much you will pay for the wine as well).
- one-third six months later, and
- the balance when you get around to actually drinking the wine.
The ACCC found that some growers were waiting up to nine months for payment after their grapes were delivered.
AN INDUSTRY IMBALANCE
There are more than 6000 winegrowers in Australia, mostly small-scale operations that supply to a relatively small number of large wineries. The industry, therefore, has a large imbalance in power between the suppliers (the grape growers) and the buyers (large wineries).
That industry structure opens up the possibility of another hurdle for small businesses – unfair contract terms. And according to the ACCC’s Interim report, unfair contract terms are a feature of the industry, along with extended payment terms.
Faced with such a power imbalance, growers have accepted “potentially unfair and uncertain contract terms” so they can be sure they have a buyer for their crop. Bear in mind that a grapevine is a long-term investment. They take six months – 5 years to produce a crop, and remain productive for decades. The grower is ‘locked in’ to producing a crop every year – with or without a buyer.
A LACK OF PARTICIPATION?
In its Interim Report, the ACCC expressed concern about the level of participation by growers in the study. That is not surprising, given the power structure of the wine industry. Growers were not prepared to speak out for fear of retribution, or not have their contracts renewed. In the words of the ACCC, “This points very strongly to a market which is not functioning well.” Yes, it does.
I found a similar reluctance when preparing for the Parliamentary Inquiry into how the mining sector can support businesses in regional economies. Again, there is a huge imbalance of power between the few, very large mining companies, and the many SME contractors. Contractors to large mining companies simply would not put in a submission to the Inquiry, or speak out.
WILL THERE BE ANY CHANGE?
Every time we have one of these Inquiries/Studies/Royal Commissions, I get very excited and hopeful that something will change – anything!
We do see some tweaking at the edges of some issues, but by and large, the status quo remains.
For those of us who thoroughly enjoy our excellent Australian wine, we had better hope that the prototypical Australian wine grape grower benefits from the ACCC Study and survives. And if they obtain some protection from 9-month payment terms, unfair contracts and “harm to their future business dealings with purchasers”, maybe the rest of us will as well.
Bronwyn Reid | 10 May 2017
Other Business Topics