Nassim Khadem Reporter

Nassim covers the accounting and tax rounds for BRW, as well as general business news. She previously worked for The Age newspaper covering general news, state politics and economics.

View more articles from Nassim Khadem

Wolf Blass on how to get Australia out of the wine glut: forget R&D, increase levies

Published 18 February 2013 12:28, Updated 21 February 2013 08:06

+font -font print
Wolf Blass on how to get Australia out of the wine glut: forget R&D, increase levies

Unless the wine industry restructures Australian will continue to overproduce, say Wolf Blass. Photo: Fairfax Media

Wine legend Wolf Blass is calling on the federal government to shift its focus from research and development and instead introduce a new industry-wide levy to help the struggling wine sector better market itself to the world.

The Wolf Blass Foundation is helping fund a major review of the sector examining a raft of problems plaguing the industry including an oversupply of wine, declining exports to major markets including the US and UK, and heavy discounting by liquor retailers.

Local wine producers, including the owner of the Yellow Tail brands, Casella Wines, are battling with the impact of the high Australian dollar and seeing revenue take a massive hit.

In an interview with BRW, Blass, a former winemaker and the man behind the world-famous Wolf Blass brand, says not enough is being spent on promoting Australian wines to the world.

Currently, a levy is payable by producers on wine grapes to allow funding for research and development as well as marketing and promotion activities.

But Blass, who now works as a brand ambassador for Treasury Wine Estates (the company that now owns the Wolf Blass brand among other major companies including Penfolds and Lindeman’s) says not enough goes to promotion.

He says there needs to be a new or higher levy on industry to help fund a massive marketing push of Australian wine overseas. “We’ve got a levy already for R&D,” he says. “There has to be a different levy.”

“The industry has to seriously consider some kind of a levy to be put on each tonne of grapes crushed by corporate companies, medium companies and small family companies. This will all be examined as part of the review.”

Asked whether the levy should replace the R&D levy, he says: “There may be a possibility; but there needs to be negotiations with Wine Australia. There has to be a new structure put in place.”

The issue of tax on alcohol was examined as part of the 2010 Henry Review, which recommended a uniform rate of tax apply across all forms of alcohol. Cutting the tax on premium bottles of wine and instead lifting the price of cask wine would counter the problem of some cask wines costing less than bottled water.

While some lobby groups are against the change, the two major companies behind brands such as Wolf Blass, Penfolds and Jacob’s Creek – Treasury Wine Estates and Premium Wine Brands – support it. These companies want wine to be taxed per unit of alcohol, which is the way beer is currently taxed.

Such a change is estimated to raise about $1.5 billion a year, but the recommendation was rejected by Treasurer Wayne Swan at the time of the Henry Review and efforts to have it revisited since have failed.

Blass says the current wine review, which is expected to be completed within the next six months, will now re-examine these issues.

He says the high Australian dollar is here to stay and until the industry fundamentally changes its structure, oversupply will continue to devalue Australian wine brands internationally and result in heavy price discounting.

According to research conducted by wine bodies, Australia is producing 20 million to 40 million cases a year more than it is selling.

“We’ve got about 150,000 tonnes of grapes in surplus in Australia,” Blass says. “The only way we’re going to overcome this problem is new ideas on marketing. That means opening in new markets, offering new products of a better quality and doing things differently to what we’ve done in the past.”

Australian wines have been labelled with a bland reputation overseas in part because of the dominance of big retailers, with common complaints that Woolworths and Coles pressure producers into discounting.

Blass says apart from the issue of local dominance, there’s a worldwide problem with supply and governments overseas are taking more of an interest in supporting their local companies.

He says that in the 1970s and ’80s the Australian government had a big focus on marketing Australian wine to the world. While it continues to provide the wine sector with marketing funding, Blass says it doesn’t match efforts from governments overseas.

“The Africans, Chileans, Argentinians and Americans are making huge finance available to promote their country and their products in Europe,” he says. “Their governments are assisting their countries to enhance their export drive.”

IBISWorld estimates industry revenue will fall 1.3 per cent to $7.09 billion this financial year, but that it will grow in the five years through to 2017-18 by an annualised 0.7 per cent to $7.36 billion as local wine producers shift focus to more premium wines and export to new markets in Asia.

Topics:

Comments