The Wine Rules

Over The Rainbow – Sustainability and Farming Systems

There is no such thing as sustainable farming. I write this as the arts educated husband of the PhD who wrote the Sustainable Australia Winegrowing system. 

Moreover, the shiniest, happiest and newest term in viticulture, “regenerative farming,” is already being misused, abused and diminished by growers, winemakers and wine writers across the world. Terms like “practicing organic” (certified or not), “biodynamic practices” (certified or not) and “regenerative” (no one in Australian viticulture is certified as such) are now being recycled and conflated with “sustainable” (certified or not) to a greater extent than ever before both here and abroad. This careless use of language is either deliberate in order to mislead and / or dissemble or it is used unwittingly by those who genuinely don’t know the material difference(s) about any or all of the above terms regardless of their professional qualifications.

Sustainability is the strategic framework used to ensure the continued existence of civilisation understanding that human expectations and population are both increasing over time while recognising that much of our resource base is increasingly finite. Said another way, if resources were not limited, the discussion of sustainability would be moot. While most think sustainability is a destination or state of being we can get to, it isn’t. It is a dynamic concept that requires innovation to be realised. To quote viticultural sustainability expert, winemaker (and my wife), Dr. Irina Santiago-Brown, being sustainable “is the pot of gold at the end of the rainbow that continually recedes from us the closer we get to it.” Sustainability is the goal, not the means. You can be more or less sustainable, but never sustainable.

While the goal of making sure that civilisation is able to continue to exist applies to all of human endeavour, how we farm (which is in turn categorised by farming approaches or certified farming systems) is one of the biggest variables wine grape growers can manage to pursue the goal of sustainability.

Despite abundant but decreasing resources, the world will be unable to feed itself into the future absent meaningful changes to how we farm. Growing wine and other alcohol inputs is different to other agricultural pursuits in that does not provide food, clothing or shelter for man and is not benign in its externalities to the planet’s health or man’s. (There is no such thing as a little heresy.) Given this status in an increasingly resource constrained environment and including the effects of ongoing climate change, more extreme weather events and declining availability of water; grape growers and grape growing will be put on a riskier and more precarious perch than other agricultural pursuits over time. 

Assuming a semi-rational world, to the extent that growing wine grapes and making wine (or other alcohol) diverts resources – land, labour, water, on farm inputs and capital – away from these other unfulfilled needs of a growing population is the extent to which wine grape growers will need to utilise their resources at a beneficial level of practice matching or exceeding that of the best of the alternative users of these resources. To the extent that wine grape growing does not do so will likely be the extent to which wine grape growers can expect to lose their social, ecological and economic licenses to operate in the future, in that order.

Environmental and sustainability schemes developed by industry are initially or eventually diluted to the point of meaninglessness regardless of sector in order to increase relevance or participation and because they are developed by industry players who simply don’t want change. This isn’t a criticism of any particular scheme but rather all industry developed schemes in all sectors.

With this in mind, industry governance – regardless of country – should be based on the highest standards developed by truly independent experts embracing all three dimensions of sustainability without industry interference or pressure. These descriptive and dynamic benchmarks need to be set in reference to competitive users of the same resources in a broadly regional context (e.g. hot climate and cool climate regions face different challenges and community benchmarks) and be continually revised over time in light of evolving practices and resource limitations. This won’t be cheap but will be far less expensive than not doing so.

Different systems will be required for growing and making wine, both with respect to others’ best practice in their business segments (e.g. wineries would potentially benchmark against other beverage manufacturers, etc). If industry governance operates from this framework rather than from the short to intermediate term of its’ members preferences, it will provide the wine industry the best possible chance to continue as a viable and successful industry for the longest foreseeable period of time. If this approach is adopted nationally, it could become a strategic competitive advantage for the national industry, particularly if other countries do not do something similar. In simple terms, we could actually lead the world in a serious way that we do not at present. Alternately, to not do so will actually increase risks to the members they are meant to represent. As Will Rogers used to say “even if you’re on the the right track, you’ll get run over if you just sit there.”

Within grape growing, the dominant vineyard farming approaches or “systems” (if certified) are conventional, organic, biodynamic and regenerative. While practices within these systems frequently overlap considerably, the regenerative approach currently appears to be the “best” pathway to pursue to achieve these ends. The regenerative approach is the only approach that seeks to continually and specifically improve the status of the resource base via diversity of plant and soil life, increasing organic matter and water holding capacity while simultaneously reducing or minimising the costs of external or off-farm inputs. Practitioners in other sectors report that yields are often similar to conventional approaches while profitability is typically much better than conventional approaches at any level of yield. 

And, it is not as comprehensively prescriptive as certified organic (all the things you can’t do) and biodynamic (all the things you can’t do + all the things you have to do) systems are. The current Australian sustainability system, SWA, is a mish-mash of prescriptive, descriptive and best practices from conventional farming that treats measuring soil health as optional. How can any system that doesn’t mandate rigorously measuring the effects of the endorsed management practices on the resource base be considered “sustainable”? Compared to what?

The big idea in the regenerative approach is that if you look after your soil, the soil will look after your vines. If it sounds simple, it (sort of) is. It is based on the insight that the carbon rich soils of most farming regions in the world were the result of the interactions of plants and animals over time. That these ideas mostly emerged from herding and broad acre cropping in Zimbabwe, the USA, Australia and New Zealand makes sense in this context. While some vignerons around the world have stumbled into and adopted parts or all of this approach, the heavy lifting emerged from other agriculture sectors, often in far more challenging environments than vineyards experience anywhere. To restore depleted soils to being resilient soils, the idea is that we need to mimic those systems. 

For the un-initiated, the core tenets are: 

  1. Keep bare ground covered, even with weeds if necessary. Even that 40% of your vineyard right under your vines.
  2. Have a diverse mix of ground covers (ideally at least seven species from four different plant families e.g grasses, clovers, legumes, brassicas, flowers, root vegetables, etc). This needs to be amended and fine tuned over the years and seasons.
  3. Minimise soil disturbance. 
  4. Incorporate grazing animals into your farm system or employ mechanical bio-mimicry if you don’t have grazing animals.
  5. Minimise or eliminate artificial fertilisers and herbicides – even weeds have a role to play at times. 
  6. To the extent possible, have living plants covering the ground year-round.

There’s more to it of course but the principle is that diverse ground covers activate soil life particularly by encouraging fungi and bacteria to cycle for optimal availability of nutrients, draw down and cycle atmospheric carbon and nitrogen as well as to prime the air and water cycle in the soil to ensure maximum water retention. 

The diversity idea is based on complexity of interactions in the soil between the plants’ root systems including your vines’ root system. Complex systems are typically more stable and resilient in any endeavour. The result seems to follow the math of network theory (n to the n minus 1) in that when you reach seven different species, all the possible combinations and connections between them reach about one million in number. Having one less species reduces that number to about 150,000. (This is my completely non-scientific observation). Having four different plant families increases this diversity again.

Because the regenerative approach uses fewer off-farm inputs and can reduce tractor passes and possibly foliar spraying, it reduces out of pocket costs and financial risk for growers. Beyond a certain threshold, the story of sustainability is usually about “better or worse” rather than “right or wrong”. In this respect, the regenerative approach right now appears to be the new “better” approach to reducing costs, improving on-farm and farm gate outcomes while operating at best practice levels. To the extent it puts the wine industry on a path to improving the planet by improving soils, drawing down and storing carbon and making better wine, it actually makes our industry more resilient to the shocks that are inevitably headed our way.

Our experience with this approach at Inkwell over the last three years (after having been organic certified for the last 7 years and organic in practice for 10+ years) is a noticeable improvement in plant health, fruit quality, expected yields and water retention. Moreover, we are still implementing our approach with full “conversion” occurring this year. Author’s warning – the period of time, absence of a control data set and recent unseasonably cool seasons do not make for a reliable or scientific data set. Having said that, we have not experienced nor can anticipate any serious downsides to this approach. It’s a healthier, ore interesting approach that happens to be a hell of a lot more fun.

A great place to start learning more about this approach is from Great Plains rancher and farmer Gabe Brown’s book Dirt into Soil. When you get more interested, Nicole Masters’ For the Love of Soil bears repeated reading as does anything about soil life by Australian soil scientist Dr. Christine Jones or Ray Archuleta from the USA (Google them). Dr. Jones’ case study of orange tree dieback from Florida is stunning and could possibly be relevant to vineyard diseases.

Charles Massy’s The Call of the Reed Warbler is an exceptional survey of many regenerative approaches employed in many different sectors and regions of Australia as well as the history of their development. All of these writers, researchers and practitioners have a number of YouTube videos that you can watch right away as well. Another viticulture specific publication worth reading is McLaren Vale viticulturist Richard Leask’s Nuffield Scholarship report as it is one of the only resources written by a viticulture practitioner. While we view things differently in terms of terminology, it is another great place to start. Jason Haas’ Twitter feed is another good resource. His Tablas Creek Winery in California is the only certified Regenerative Organic winery I am aware of. Beware, this is one big rabbit hole…

Once you get your head around the regenerative concept (a great deal of “unlearning” is required), your entire business and our industry start to look a lot simpler as well. But, as with all changes in farming methods, it is a multi-year process where the biggest change occurs between your ears. You can’t change everything overnight if you are a long-term user of fertiliser and herbicide without expecting some shocks. If this approach is interesting, read and watch a lot, ask a lot of questions, get help from someone with experience, take it small and slow at first and always measure the results. The social and economic benefits of doing so are a safer, healthier and less expensive approach to farming that are more sustainable to boot. 

Who’s Sustainable? Who’s Asking?

With the blessing of Wine Australia’s funding and limited participation, Australian Grape and Wine (the “peak” industry body representing about 20% of Australia’s wine growers and wine makers) and the Australian Wine Research Institute (funded by grower and winemaker levies, matching taxpayer funds and corporate research projects) rolled out Sustainable Wine Australia in 2019. Setting aside the origins of the program (my wife is suing them in Federal Court regarding same), SWA does not assess the sustainability of the Australian wine industry.

Participants in SWA assess their own businesses.  But the industry bodies that think sustainability is good for us have not been willing to turn the lens around at their governance of the industry. SWA is just another a “Look! A bunny!” response to the structural and embedded problems resulting from decades of poor industry leadership. It gives these bodies a chance to say they are doing “something” while continuing to shirk their own responsibilities.

Any serious accounting of the current sustainability (triple bottom line – people, planet, profits) of the Australian wine industry would be bleak reading from a list of symptoms to their causes. The AGW and Wine Australia rolled out Vision 2050 in April 2020. This is a forward-looking ‘strategic plan’ document that has received little attention since it was published. Not that it doesn’t matter. But who has read it then or since?

The lack of public response to its release was undoubtedly seen as acceptance of its goals by the wine community. While it covers most of the big issues, it makes a lot of motherhood and apple pie declarations while actually presenting a view that these bodies actually know what is best for us and have the ability to make things happen. Any consideration of its forerunners -1996’s Strategy 2025 and 2007’s Directions 2025 – reveals massive gaps in their understanding of strategic planning. This newest document praises those prior efforts, minimises their disastrous downsides and positively decouples these organisations from responsibility for these outcomes.

Vision 2050 is no different. It lays out a seemingly rosy view of our future wonderfulness while working from the assumption that China had eliminated our historic oversupply. In fairness, it also highlights the risk of insufficiently diversified export markets but does nothing to say “here are a few things we could do if one of these markets disappeared overnight or dried up, etc.” Less than 18 months later, the China bust has already laid waste to many of the un-tested assumptions of their thirty-year plan.  Despite the pious “father knows best” tone of the document, their institutional response to these radically changed conditions since has been practically non-existent.

My favourite part of Vison 2050 is as follows:

“Without social licence to operate, the Australian grape and wine sector will struggle for relevance. To succeed and prosper, our key objective is to be respected and trusted for how we conduct our business. In an increasingly complex world, the grape and wine sector must demonstrate the value it contributes to our nation – in clever and careful use of our natural resources, in proactively working with government and the health sector to demonstrate our product’s credentials, and through contributing to minimising alcohol- related harms, and in making a real commitment to the economic and social well-being of rural and regional Australia, especially through the provision of employment opportunities and services (see pillar 4).” P23

And better:

“It is critical that the grape and wine sector demonstrates to the community, consumers, customers and governments our social licence credentials. Our future requires the development of rich and enduring relationships based on mutual respect and understanding between these stakeholders.” P24

Recognition that our “social license” is our key asset (I assumed people were) is hugely important because much of the regulatory framework for our industry rests on this idea. So, when these bodies are spectacularly wrong about structural and historical oversupply and do nothing to advocate serious change to address the causes of that for decades, we need to consider that the system is fundamentally broken and that it is our institutions that are not sustainable or delivering on the ‘social license’ we require to operate in. China is just another thing they got totally wrong and isn’t the problem that needs solving.

Keep in mind that as a rural industry that the AGW, Wine Australia and the wine industry at large have always been cosy with Liberal and LNP Governments. It’s not for nothing that Liberal Senator for SA Simon Birmingham is a former AGW employee. Failed transphobic Liberal candidate for the formerly safe Liberal seat of Warringah Katherine Deves is a former employee of Treasury Wine Estates. TWE Global Public Affairs Director Jeffrey McCormack spent most of the last decade hopping between senior political roles in the federal Liberal and NSW state governments. He has now parachuted onto the AGW board after just two months in the wine industry (or any industry for that matter). The Wine Australia Board members were all appointed in 2021 by National Party leader and former Minister for Agriculture David Littleproud. They serve until 2023.

Given the seismic shift(s) in politics with Labor, Greens and independent candidates coming to power on strong climate and health agendas, these relationships are no longer the asset they were. In fact, they may be liabilities as the industry faces numerous long-term threats converging at different rates of approach.

Avoiding or resisting policy change is a viable short-term tactic if used in the context of a long-term evolutionary strategy. One only needs to see how the tobacco industry went with a “no change” strategy. Or, how the sugar industry (particularly in fizzy drinks) is rapidly losing ground to policy makers worldwide. The health and environment campaigners won’t stop there. We are clearly in their sights.

The AGW policy of bending as little as possible to any possible change means that that our strategic position of strength is getting increasingly prone to breaking. Their recent failure on the multi-colour labelling changes is evidence that the policy environment has already changed – even the most business friendly LNP government ever had stopped listening to the AGW. Imagine what can happen in a Labor government. The inevitable outcome of their strategy of change avoidance reminds me of the quote about how someone went broke; “very slowly, then all at once.”

To suggest their strategic planning process repeatedly demonstrates its own irrelevance is only partly unfair. Some of the issues highlighted are permanent issues, some existential in nature and in need of the credibility of bodies who are smart enough to not assume anything instead of nearly everything. Unfortunately for the rest of us, the people in positions in these institutions face little real world exposure to the environment of total and continually changing risk that many industry participants live with on a daily basis.

Inadequate window dressing type documents like Vision 2050 act to destroy our credibility as an industry when they don’t stress test their assumptions or offer alternative scenarios for deliberation. Instead, Vison 2050 thinks that the way forward should include “developing options for rationalising the sector’s representative bodies while maintaining maximum engagement with all stakeholders.” As screwed up as this industry is, the problem isn’t too many voices and too much competition for better ideas, it is that there is far too little of both because of the monopoly on policy advocacy that these bodies hold. Yet, they want even less discussion and more money to keep doing what they have always done to get the same results they’ve always gotten that are bleeding the industry dry. Why?

The real problem for AGW is that 70-80% of Australia’s winemakers and nearly all of its grape growers will not voluntarily go out of pocket to join a body that so clearly does not represent their best interests. They exist financially only because of their five or six biggest members. It is no wonder that they don’t make their financial reports or meeting minutes public despite their aspiration to be ‘transparent.’ My guess is that either of the McLaren Vale or Barossa associations have stronger balance sheets than this mob. It’s no stretch to think that new federal government already knows that they are a paper tiger.

What our industry needs right now isn’t Vision 2050 but Look in the Mirror 2022. The entire wine industry and our institutions need to address all of the major risk points that we currently face where we assume only the worst, offer serious alternatives for broad discussion and direct our energies and limited resources accordingly. Here are a few to consider. There are many.

Oversupply

The Australian wine industry has suffered from an oversupply of about 15% of its wine grape crop for nearly two decades with steadily falling or stagnating prices paid for grapes. When demand from China seemed to (finally) absorb this oversupply a couple of years ago, improved prices were still below any sort of long-term sustainable income figure. When I became a grape grower in 2003, $7000 revenue per planted acre was considered to be doing OK on an operating basis. Even then, this figure did not account for the capital holding and opportunity costs of owning a vineyard.

Since then, costs, (excepting interest rates) have increased for all major vineyard inputs substantially – labor, agri-chemicals, water, diesel, posts, wire, seed, equipment, the lot. It is fair to say that the “doing ok” figure is now at least $8000 per acre. Very few growers achieve this figure in any region on a consistent basis. Falling interest rates helped to absorb a lot of these costs but now rates are starting to rise again. This is the reason major wineries are selling vineyards despite interest rates still at historically low levels. As long as oversupply continues, vineyards are bad investment. And, any industry that cannot continually attract new or replacement capital is, by definition, dying.

Rising interest rates and inflation may be the final straw for many. The questions that need to asked in a serious strategic planning process are things like: will lower vineyard prices just encourage lower standards of production and drag the market lower?, will the “right” vineyards be pulled out?, if so, “right” for who?, will fragmented removals push some regions below critical points of community and industry viability? Etc.

The next step has to be “how do we get the best outcomes for the entire industry? And, “what are the best outcomes, and, for who?” and so forth. This is not the discussion we are having as an industry. Why not?

The continuing problem with wine grape oversupply is that most of the oversupply of wine grapes ends up getting “cleared” from the market for somewhere around the cost of picking because growers have to pick their fruit on to the ground even if there are no buyers. Because the clearing price is so low, it enables someone somewhere to still make a buck making the cheapest possible wine while dragging the rest of the market lower. In a normal market, years of this would drive growers to sell and wineries to close.

There are at least six reasons they don’t:

1)The wine industry doesn’t want balance any time soon, instead it foresees that until 2050: Production levels will be maintained around the current long-term average” Vison 2050 (p.5)

2) Wineries spread their contracts and purchases around to keep as many growers growing as possible because wineries generally think that they benefit from lower prices (this is more arguable than accountants think). So, individual growers usually only have an over-supply on part of their vineyard, not the whole thing.

3) What sane investor wants to buy vineyards that don’t even return their cost of capital?

4) Tearing out a vineyard is a lot more expensive that it may sound.

5) A high percentage of independent growers have off farm jobs / incomes.

6) Magical thinking.

The result is most independent growers just go broke more or less slowly rather than exit. Most lack the funds needed to transition to new varieties or value add to their crop. Wineries know this and take advantage of it. While the government loves to call this scenario “market failure” because the normal incentives of supply and demand don’t work as expected, there is plenty of blame to spread around including to government.

In theory, beer and spirits should have enormous structural price advantages over wine because wine can only be made once per year while breweries and distilleries can produce year-round and aren’t nearly as affected by weather as winemakers are. Even with grape prices equaling picking costs, wine should still cost more to produce for these reasons. Yet, Australian wine producers are able to offer such cheap alcohol per unit in the form of boxed “goon bag” wine, that communities like Geraldton WA have tried to ban them. The human and social toll it takes (most visibly in remote communities like Geraldton) is extraordinary.

Resources:

While water resources are the result of a patchwork of regulations and legal entitlements by state and source, it is fair to say that water availability is, and will be, increasingly constrained by climate change over time. The trend is not our friend. And, wine grapes are not food.

In a severely constrained environment, governments may well make choices about who receives irrigation water and why. The wine industry’s ‘social license’ that assumes it has an equal right to this resource may not be sufficient unless it is seen as part of the solution rather than part of the problem. Supporting policies that enable wine to be sold for less than water (or any other alcoholic beverage) is not a strategy that will enhance our social license when we need one.

Soil:

Viticulture is ideally suited to be the model citizen for soil health. We don’t require annual tillage and vines naturally hold soils; both help prevent erosion. We also have the opportunity to be part of the longer-term carbon solution by encouraging the natural carbon nitrogen cycle to sequester and use nutrients with less inorganic inputs using cover crops better than we have in the past. We follow this approach in our vineyards in the hope of building long term soil health, water holding capacity and resilience. And, we test these practices with annual soil tests.

From what I have been told, SWA doesn’t mandate annual soil testing while its predecessor system SAW did. While their stated commitment is to “continually strengthening the standards of Sustainable Winegrowing Australia beyond ‘best practice’ “(P26), how can you manage, let alone improve, a resource without regular measurement?

Examples like this make accusations that the AGW’s and Wine Australia’s strategy is more about marketing than leaving a better world behind appear relevant. Some could call it greenwashing. Why they support a standard that doesn’t require testing our core resource is hard to fathom. Awareness of this willingness to look good rather than be good or do good is also potentially damaging to our social license that they think they are upholding.

People:

The goal of the postwar agri-chemical industry(s) was to increase yields and productivity while replacing labor inputs with mechanical and chemical inputs. Over time, this approach has hollowed out rural towns, driven consolidation and depleted resource bases worldwide. One positive trend that is emerging is that the chemical vs people balance is beginning to shift back a little bit. For instance, highly trained agronomists can substantially reduce or eliminate inorganic inputs in viticulture while improving quality and returns. And, practices such as mechanical weeding require people and machines rather than chemical inputs. At the other end of the chain, selling middle and higher priced wine profitably requires a lot of off-farm folks in design, marketing, packaging and technology who can be lured back to help revive rural communities if they believe they are clean and healthy places to live and raise families. Selling a lot of wine cheaply does not have this effect or opportunity.

The fact is that highly mechanized, chemical input driven wine grape farming has quite a lot of negative externalities – rural depopulation, soil degradation, excessive water use and pollution, low profitability and oddly, low employment. All of these run against the grain of the notion of sustainability. While most industries thrive on high productivity ($ of output divided by people employed), in wine it can be the opposite for the reasons mentioned above.

Getting outside of our wine bubble, there are a number of parties and policy makers that actually see the wine industry as a real problem in Australia, some who see it as worse than brewers and distillers. The problem with this view for us is that they are not looking for very nuanced solutions to “our” problems of oversupply and the like. They want to impose heavy handed solutions to real social problems and let the chips fall where they may in our industry. The wine industry is forever explaining that (most) wine is consumed more responsibly and deserves different treatment but it can’t explain away the abuse arising from cheap wine and goon bags either.

There is a reason for that.

Taxation:

Despite our modern history as “one big industry” since the formation of AGW in the 1990’s, reality has always been more or less different to that. Interestingly, the architect of the one industry, one voice approach, Brian Croser, now talks about acknowledging “two industries.” And, the inland growers’ regions have now banded together (as the oddly named Australian Commercial Wine Producers or “ACWP”) to effect policy change outside of the AGW. Their current and particular beef – paying levies on tonnage rather than value is not silly. I happen to agree with them. However, to expect that change without changing our taxation to the volume of alcohol produced rather than its value only destroys any remaining notion of fairness or “social license.”

Simply put, the ACWP make themselves look ridiculous by asking for all tax and levy policy to benefit them and disadvantage everyone else. Any notions of one industry, one voice has to be laughed at now by governments. Nonetheless, in a bid to save his beloved AGW from its foundational flaw, Croser now argues on the side of the ACWP and against volumetric taxation. You can’t make this up.

Volumetric taxation would be a game changer for the industry. It will make the cheapest wine much more expensive, no doubt. If the wine industry wants its social license to have value and credibility, maintaining taxation advantages that ensure wine is the cheapest way for the most vulnerable people in Australia to get pissed isn’t the best way to prove that.

On the other hand, by removing this very serious negative and focusing on the positive that most wine drinkers do consume wine responsibly is also an argument that volumetric tax doesn’t necessarily have to be at the same rate as spirits or beer. Both can be true. There is a deal to be had here that is a long term net positive for the industry.

Something like 70% of Australian wine is made from inland region grown fruit and something like 70% of that ends up in export markets as low value bulk wine without paying any WET tax at all. Of the remaining 30% of inland fruit, if a (worst case) revenue neutral volumetric tax were implemented and was anywhere near as disastrous as these same people suggest, it might make half of that remaining 30% (15%) of inland production unviable. While this would not affect only these three inland regions, this 15% is pretty close to the volume of long term structural oversupply in Australia. And, it would likely affect the least amount of land, the fewest people, save the most water and do more for on farm profitability of remaining growers in these (and other) regions than any other policy.

Given the extraordinarily profitable and counterintuitive success of people like Ashley Ratcliffe at Ricca Terra farms in the Riverland, the argument that industrial grape production of two or three varieties of grapes is the only viable economic pathway for the inland wine regions is a joke. Ashley cannot grow fast enough to keep up with a rapidly changing market. The opportunity for these regions to re-tool with warm and hot climate appropriate varieties that sell for far higher prices than the crops they grow today is enormous. If I were a young grower, that is where and how I would be investing in the wine industry regardless of tax policy today.

Depending on the volumetric taxation rate chosen, it will also likely create a tidal wave of innovation in the $10-$40 per bottle segments that may finally bring Croser’s other vision of Australia being the world’s best wine country to fruition. As smaller and newer players exploit the many export opportunities for fine Australian wine that isn’t just Shiraz and Chardonnay, they will grow and reap economies of scale allowing Australia to become very competitive in segments where it isn’t at present.

If I were in the multiple simultaneous pickles that those who govern our industry find themselves in today (carbon, health, water, oversupply, labor, etc) with the walls slowly closing in with all of them, this one choice on tax is as close to a silver bullet as they will find. But, it will immediately destroy the AGW as a representative body of “one industry.” And most of the biggest players will fight it tooth and nail. There is a reason that industry Boards don’t have a seat for the future, just ones for those who want to maintain the status quo.

Personally, I don’t see the problem long term. I’m all for short term (3-7 year) transition plans. Growers and wine makers will have to figure out new funding and representation models that make sense that doesn’t overweight a couple large companies. Governments will have to figure out who they want to recognize and support (companies / donors or voters?) but telling them we are “one industry” is a fundamental mistruth that can’t be papered over any longer. Or, that the advocates for Australia’s cheapest way to get pissed are entitled to a ‘social license” to keep making money off the backs of the vulnerable.

Branding:

As suggested here many years ago, we need to abandon “Wine of Australia” to the inland regions and their producers. As far as most of the world is concerned, this is already the case. To those who use the confusing as hell “Southeast Australia” appellation, just get rid of it and use Wine of Australia. We need an alternative for our fine wine offerings. I’m not bitter, just realistic about this very real problem that needs serious thought, not lowest common denominator one industry, one voice thinking.

Between 2017 and 2021 Wine Australia spent nearly $50 million (of one time funding) promoting Australian wine exports yet total bottled wine sales stayed flat at $1.1bn while unit prices increased about 15% (around the inflation rate for the period) because we just did more of what already wasn’t working. We need to embrace the need to promote differentiated state and regional branding for bottled products as a path forward (unless anyone has a better idea). Regions and states will need to learn how to promote themselves with Wine Australia’s enthusiastic financial support. Look how well Tasmania is doing as a brand with almost no money. They’re not silly.

All of these and others are serious threats that need to be addressed in a serious strategic plan. For instance: What will the industry do in a drought much worse than the last one? What is our plan B? What if government decides to limit the agricultural use of river water to food crops to ensure we can feed ourselves? What if government decides that an indexed revenue neutral volumetric tax is the go? What will happen to those affected by a radical step changes in policy rather than a negotiated or transitioned one?

Major change on numerous policy fronts is coming to us one way or the other. Our governance bodies need to shape up quickly and start presenting real choices for our future. We can either be the champion or the victim in this process. As Will Rogers used to say “even if you’re on the right track, you’ll get run over if you just sit there.”

The wine industry’s Plan A is dependent on nothing much changing despite being in an agricultural industry that is both irrigation and chemical intensive on an island continent that is also the world’s driest during a period of radical climate change and worldwide trade and supply chain disruption. What could go wrong?

Just sitting there isn’t an option. One principle that Vision 2050 is clear about is that they are “continually strengthening the standards of Sustainable Winegrowing Australia beyond ‘best practice’ to meet changing circumstances.” (P26) AGW and Wine Australia need to apply their logic to their own governance if they want a successful industry, not just taxing sustainable grape growers who make their marketing job easier.

Another example of Vision 2050’s extraordinarily low ambition is to “aim for a carbon-neutral industry by 2050. Nothing less will satisfy our sector and the planet.“ (P25) Nothing less that “aiming” by 2050? Really? How can they maintain a sense of entitlement to a ‘social license’ when their goal for carbon reduction is at the absolute bottom of the worldwide industrial stack? We can do this by 2030 if we have any sort of serious leadership.

Recognising that we produce an addictive substance that is not food (I know, I know, pure craziness) is to recognise that when push comes to shove, our industry can’t be as good or bad as other industries, we have to be better. Much better. In all respects. To quote Vision 2050 again: “We must deliver against the principles of legitimacy, credibility and trust. Reputation is everything!” (P24)

It’s time we demand that the AGW and Wine Australia get much better and and start delivering for us on the hard choices. We will all eventually face these; together or alone. That is the real choice.

Dr. Krstic’s Craziest Hour

The Wine Rules name is an homage to John Irving’s Cider House Rules. Irving explored the written and unwritten “rules” of life and morality across races and castes in all its ironic and hypocritical splendour. How these themes play out in the Australian wine industry are always a source of fascination for me.

So, when good friends suggested the tone of my last post; “Dr. Longbottom’s Young Frankenstein (without the funny bits)”, was a bit over the top, others even considered themselves “outraged,” it gave me pause to reconsider. In short, they said, “you could have written it differently, more nicely.” Maybe they are right, maybe they aren’t. Before you consider that question, please consider these:

  1. Where was your outrage when Dr. Santiago-Brown was being privately smeared and defamed in 2014 and 2015 having done absolutely nothing worthy of either? Did you speak up then?
  2. Where was the outrage when Dr. Krstic decided to send a letter to AWRI’s mailing list saying that instead of investigating Dr. ISB’s very serious allegations made in private conversation then in correspondence and then publicly in this blog? Having made the Board and MD of AWRI so aware without any investigation being undertaken, our avenues to address this matter were exhausted barring taking a wealthy public institution to court.
  3. Where was the outrage when Dr. ISB’s academic work was plagiarised by a national research institution?  Don’t their employees “sign a paper” saying that plagiarism – in any of its forms – is not ok when they start working for the AWRI? 
  4. How can you read an extremely detailed description of the process of exactly how institutional / systemic bullying occurs effectively and without sanction in academia and research and then arrive at the conclusion that the person exposing that process is a bully knowing that the person in charge of that institution was begged to investigate the matter privately and did not do so?

The fact is that no one will speak up against these institutions or these people for fear of negative personal and career impacts. This is the essence of institutional bullying. In our case, they lack such leverage and obviously think that we will go away. As the saying goes, ignorance is free but education is expensive.

What makes this such ripe content for The Wine Rules is Dr. Krstic’s reaction to the last post. He started a private / not-public Facebook post accusing me of being a “cyber bully” and the rest. Various voices including the head of Wine Victoria chimed in with their support, others with their unfavourable opinions of me and the blog. (My personal favourite was the one who suggested that I didn’t “get” the internet because the piece was so long. D’oh. Having met or represented three of the six founders of the internet, many of the first and second generation internet companies (from 3com to Netscape, Broadcom, etc) in my life (oh, and my friend who was the sys admin on node 3 at UCLA that made it an “inter”net, I can only laugh.) But, it was a good laugh.

Defensive people are rarely ironic on purpose but this may be Dr. Krstic’s craziest hour. He was clearly upset that his employees’ conduct was exposed to some sunlight and that he was personally exposed for having chosen to not investigate allegations about the cloistered world of bullying in the wine industry research field. Ingeniously, he struck back by name calling in a private Facebook post where the only people supposedly able to see it are mostly from the cloistered world of wine industry research! You can’t make this self-validating nutbaggery up. This mob has lived in a truth and accountability free zone for so long that the sometimes harsh light of reality must be blinding. 

For the rest of you, I strongly suggest reading Caste by Isabel Wilkerson to understand that the reactions expressed by him and his are utterly typical reactions to a situation where the expectations of the dominant caste, race and status are upended by people who don’t fit their worldview. If that seems too serious, read The Cider House Rules. Both are magnificent.

How the AWRI Board can handle the cognitive dissonance of this situation and these behaviours without taking decisive action is beyond comprehension. 

We press on. 

China: The Wake Up Call We Needed to Have

Prologue

I have had quite a few emails and phone calls recently asking where I went for five years, why I’m blogging again, etc. Well, the last question should be obvious enough but I’m not only interested in the institutional abuse of power at the AWRI or its appalling lack of leadership and governance with respect to my wife’s published research. The machinations and governance of the entire industry have always been of interest because it has been so particularly counterproductive for most of the last quarter century. 

The reason I went dark for five years was to undergo four knee surgeries including three different replacements (don’t ask), build a cellar door and micro-hotel business from used shipping containers in McLaren Vale and to see if absolutely anything would improve on its own.

It turns out the only thing that showed much positive change was the China trade. We (Inkwell Wines) have avoided China for our own reasons, but to see China mop up all of our over-supply in a few short years was pretty damn exciting and beneficial for everyone. However, to see that crash overnight with no “plan B” was a particularly Australian wine industry type experience.

Anyhow, this blog is written to get folks to think about the fact that the problem isn’t China, Morrison, the Chinese wine industry (despite all being individually and collectively problematic), but us. Every “grand” strategy ever launched by the Australian wine industry has ended in fizzle or worse for those of us on the bottom rung – growers and small fine winemakers.

There are structural, governance and regulatory dimensions of this problem that never get addressed because we have had the same leaders (or their proxies) in place for these past thirty years. What we need is a new generation of smart, lateral, integrated-thinking leaders and policy about the entire operating context for our industry.

The old model has conclusively proved it doesn’t work multiple times in all of our biggest markets including the local market. We need to stop. And then, begin again with fresh eyes and dreams.

This blog is for those who feel or believe this but need or want a way to start this discussion. Please read the following as the start of change that must occur both with the “fierce urgency of now” and the wisdom of our grandchildren looking back on us.

CHINA, AND EVERYTHING AFTER

The news that China is going to impose huge new tariffs against Australian wine is the news none of us needed to have to close out 2020. The degree of shock registering throughout the industry provides the first clue – that, once again, we aren’t prepared for the future. But, with any loss of this magnitude – China consumes 25% of the wine we produce – we have to ask how and why it happened. To understand this, we need to understand the last crisis in the Australian wine industry – the glut of the oughties.

The post-millennium glut was a predictable outcome of massive overinvestment in the wine sector in the late 90’s and early oughties resulting from accelerated tax depreciation for new wine grape vine plantings. This policy was the result of wine industry leaders of the day lobbying for these tax breaks in a belief that Australia could be the biggest and best wine producer on earth.

These same leaders, despite turning out to be hopelessly naïve, have continued to inform and drive industry policy ever since. What we have today is a recipe for disaster designed in the 1990’s for a 1980’s problem.

From 2005 to 2015, Australia suffered massive twin hits of wine oversupply and a tumbling reputation for quality worldwide while wine inventories cleared and the industry unprofitably “adjusted.” What a lot of folks missed in this ten-year period was that this outcome was neither biggest or best in any positive sense. And, because a) everyone in the industry was in on the original scam (in so many ways) and b) most people just can’t say “I stuffed up”, we never identified a suitable new national strategy or new people to lead. Nor did industry stop listening to those who flogged this nonsense in the first place. 

Industry appeals for the government to assist in an adjustment process were justifiably rebuffed at the time. As an aside, Simon Birmingham has been on both sides of this divide; first as the man in Canberra for the Winemakers Federation and now as Trade Minister during this China row.

In the last five years, the entire sector has bounced back to something like parity due to a huge increase in demand from China in a strategy long championed by folks like Warren “Wazza” Randall of Seppeltsfield Wines. Almost alone, Randall saw that the scale of the opportunity China presented was our last best hope of a large market where we could sell above average value wine after our “biggest and best” strategy had wrecked our opportunity for a fine wine reputation in the USA and UK. Randall devoted enormous resources in China selling the Australian fine wine proposition. For many, his success was our success. 

I’ve often observed that the people who understand the wine market best are grape growers. All news, good or bad, is felt by them immediately. Only growers think in decades and generations. Wine makers think in vintages while public companies and marketers think in quarters.

As Australia’s largest private grower of high value grapes, “Wazza” understood that prices would never increase until net demand exceeded net supply and that only China held the promise to absorb that much wine in the near to medium term.

The result since 2015 has been something like balance in supply and demand. This is an incredible turnaround that deserves full credit. This strategy was always two things: 1) necessary over the long term and 2) risky over any time frame. While the Free Trade Agreement signed a few years ago seemed to neutralise a lot of risk and lower barriers, the destabilisation of the USA China relationship since 2016 has created risks that have revealed deeper cracks in the Australia China relationship than most were aware of. This will take a lot of time to stabilise, if ever, and is largely out of Australia’s control.

The best part of the China trade has been that it has involved both huge quantities and two to four-times the prices paid by other large markets. Almost too good to be true. On the corporate front in China, Treasury Wine Estates has been the volume leader leveraging Penfold’s Grange as a calling card to open many doors. 

TWE has now announced that they are withdrawing from China to divert elsewhere and that they would be reducing Australian grape intake starting immediately. While trade policy will change in a year or five, the market will remember that we didn’t hang on through the tough times. How bad will we look if trade policy does an abrupt about face in six months? We’ll look like Good Time Charlies, not a serious industry or nation. This is an under-appreciated risk.

What this “shock” event has revealed about our national wine industry is that absolutely everything has to be going right – a growing world market, China booming, low-ish currency, no “too big” vintages, some bad vintages overseas, FTA’s, etc – for supply and demand to be in balance. Prices for grapes have only started rising across the market for the past few vintages and for many are still below prices paid well over a decade ago.  In inland regions, more than 90% of growers are still losing money.

What the last few years has shown is that our default trading context – the WTO, TPP and FTA’s framework built over the last decades – is coming apart at the seams. We can’t bet on export growth anymore to solve our problems. And, these matters are largely out of our hands despite our best efforts. 

There is less irrigation water available in most places and or higher prices than in the past, as well as hotter, shorter vintages that don’t allow for capital invested in wineries to be used as efficiently. The oversupply of winery capacity resulting from the millennial building boom has temporarily masked the shorter vintage problem but this trend seems set to continue with climate change.

This failure to think inter-generationally is, perhaps, the most under-appreciated risk right now both for those winemakers who sell to China and the entire Australian wine industry. Fifteen years of wishful thinking that nearly (almost) got us ahead isn’t a strategy.

As an industry, we need to either pray things go back to normal quickly or we need to discuss existential questions sooner rather than later. Because, it is very unlikely that: 

  1. the Chinese will revolt over Australian wine and demand tariffs be lifted
  2. either the Chinese or Australian government changes its current position  
  3. the USA China rivalry settles down any time soon

The core issue we have to grasp as an industry is that no one has ever chosen between “biggest” and “best” for the Australian wine sector. And, aside from the Randalls of the world, no one in a position of leadership has publicly proposed serious alternatives to either or both of these options. 

The policy implications of serious change are significant. However, the cultural change required is, in the wine context anyhow, practically “un-Australian”. Meaning, the consensus-driven style of Australia’s governing bodies and institutions – always billed as a strength – is poorly suited to the hard decisions required. If you are a leader who has something to say, now is your moment to risk getting kicked off the old boys’ club Christmas card list. It’s not that bad, I promise.

A few points for those who don’t know the industry intimately: 

  1. Australia exports about twice what it consumes domestically so is effectively dependent on foreign demand and currency fluctuations to remain profitable.
  2. Exports are not taxed while domestic sales attract 41.9% (inc. GST) tax on sales over $500,000 for wineries.
  3. The peak industry body, Australian Grape and Wine, operates on a principle (not written) of Board unanimity and hand selects its Board members that represent less than 20% of winemakers but 90% of production. In other words, the industry’s least change adept / most risk averse members controls industry policy.
  4. The federal corporation that oversees the industry, Wine Australia, has a Board of hand-picked Directors recommended by a “third party” (usually an industry grandee well past their use-by-date) from a slate of self-nominated applicants. This means very little innovative thinking or real change is tolerated. And that is before the first meeting opens for business. 
  5.  National wine grape supply is overwhelmingly grown using scarce river water. Those with permanent water entitlements get nearly free water to grow huge crops of largely unprofitable grapes. While few make money, the cost of change is higher than incrementally losing their capital as long as water is nearly free.
  6. Export prices for Australian wine at wholesale are between $1-$2 per litre in most of the world but around $5 per litre to China. As a reference, the shiraz we grow in McLaren Vale is worth around $8 per litre on the vine (before picking costs, winemaking, oak barrels, packaging and distribution costs) are taken into account. From our perspective, $5 per litre exports are only a win relative to $1-2 exports.
  7. Using the above inputs and outputs, our shiraz uses Australia’s scarcest resource, water, to create close to 100 times the product value of the same water input in a wine grape crop grown in an inland region. 
  8. Most winery operating margins lost in the last decade or so have ended up in the ColesWorth duopoly’s pockets (a duopsony for the pedantic) on a nearly penny for penny basis.

Seemingly, there are only two ways to look at this. Some would argue that as a high cost producing country, the only way Australian wine is competitive is at lower price points from fruit grown in inland regions grown for export markets ($1-$2 per litre). This is a razor thin margin business with exacerbated water and currency risk that does not create a huge number of jobs and is successfully dominated by Casella’s Yellow Tail brand, particularly in the USA. Their brand focus and enormous scale make this possible. On the other hand, when the Australian dollar was at historic highs, even their business looked wobbly for a while.

The other way to look at it is that high value wines use far less water, employ disproportionately more people, are in climatically less risky regions and are better able to withstand currency and demand variations over time because of the high dollar margins ($5-$100 per litre).

In either case, large companies dominate the market for the purchase of wine grapes (in market parlance, wineries are “price makers” while growers are “price takers” due to the perishability of grapes) in respective wine grape growing regions and have monopoly-type price-setting power due to their sheer scale.

The brand “Australian Wine” is hopelessly out of focus as a result of serving both of these fiefdoms. What has seemingly escaped everyone is that this either or analysis needn’t be the case and that major structural change is necessary if we are to sustainably continue. Finally, government involvement is required – sooner or later depending on the path chosen.

As mentioned, China is not the problem we face. We face many challenges and need integrated thinking and strategy to re-platform the industry for generations. Industry has taken a one-by-one approach to problem-solving that, when it has accomplished anything, can only be viewed as a “kick it down the road” strategy.

The wine industry regularly defends itself as “special” when making arguments about, health, taxation, tourism, regional economic development, etc. And the truth is that wine is different, even special, in that we do support regional economies better than most rural industries and because we only produce once per year. We are not like beer or spirits that can be produced any time of year, anywhere, with ingredients available year-round and using capital equipment year-round. 

The other truth is that we produce an addictive product that performs identically to beer and spirits (for people who consume for inebriation purposes) that does not deserve preferential treatment on the basis of consumption pattern.

There is nothing “special” about cask wine or bottled wine under, say, $10. When you realize that 41.9% of that price is for tax, you realize wine can be made as cheaply as bottled water or soft drinks. Not special at all in this respect.

If the wine industry insists on being treated differently from beer and spirits on matters of tax, we need to be honest about what else makes wine special. As usually mentioned, wine is enjoyed as the beverage of choice to celebrate life’s moments and is enjoyed more responsibly by its customers. This is not only because of price but because it is deeply etched in our souls, cultures, religions and even at a genetic level as some research suggests. (Humans grew brains faster by eating over ripe fruit that gave us a huge caloric advantage over other species and a buzz as a kicker). This is no small thing.

When you consider that our rivers are already running dry, the temperature is dramatically increasing, the medical establishment and other lobbies (including beer and spirits) want to make wine more expensive and that we do not produce essential food with our resources, at some point, we will lose the moral authority to argue that our “special” case is a net positive for society.

What we need to consider is using this latest crisis as a lever to shift the entire industry onto a more sustainable path for producers, the health of society and the preservation of our resources. These interests can all be served simultaneously by changing the way the industry is taxed. And, the industry can choose a better path by driving that process rather than having it imposed from without by a changing social or natural climate.

The latest long-term strategy (Strategy 2050) doesn’t even scratch the surface of addressing all of these challenges in an integrated way – it is just a repositioned, un-stress-tested, don’t startle the horses re-print of what got us into this mess in the first place. How far the consensus is from reality was proven by one announcement from Beijing.

Here, then, is a list of proposals that could achieve all of the above:

  1. A volumetric tax that broke even with the current ad valorem tax at around $15 per bottle. (Keep in mind, we would still be also required to pay an ad valorem tax (GST) on top of a volumetric tax as we do now on ad valorem so it would not be a pure volumetric tax). The current “un-bonded” system would remain. 
  2. This tax could be phased in in three steps over a five-to-six-year period to allow time for adjustments. 
  3. Government offers to buy grape growing properties (only available to those with full permanent water rights) on a reverse Dutch auction basis using a multiple of the water rights value as a “floor” price so that owners can sell in dignity provided they grub out vines and plant native biodiverse flora over the property. The goal should be to retire maximum permanent water rights per hectare.
  4. Remaining growers would be encouraged to voluntarily re-plant or graft some of their holdings to varieties more climatically suitable than Chardonnay, Shiraz and Cabernet. Think Nero d’Avola, Grenache, Touriga Nacional, Mataro, Fiano, Vermentino, Arinto, Greco, Albarino, etc. This could be achieved through a temporary loan scheme under-written by governments or by contracts with wineries. Diversity, sustainability and less water demand will result.
  5. The government agrees to fix the volumetric rate rather than indexing it and indemnifies winemakers from lawsuits and legislation designed to harm it by medical, health, trade and consumer groups.
  6. Labelling to be within 0.5% alcohol by volume as with other major producing countries. 
  7. No company should be allowed to have more than 20% market share in the national market or more than 30% share of purchasing in any wine region by law administered by the ACCC. This will require some company reorganisation but will also allow companies to become large enough to take on export markets seriously and not unduly dominate local markets for production or consumption. Further, it will encourage export growth without harming current large exporters in the domestic market (bar the 20% rule). It will also reduce the Balkanisation of supply that harms growers.
  8. Some form of incentive for producers who make physical investments in all of the sectors required for the long-term success of the industry and regions – growing, production and tourism. I know this makes “virtual” producers cranky but they do not contribute to regional economies in the same way as people who make capital investments do – be it in consumption, employment and housing patterns. We need to remember that societies have economies, not the other way around.
  9. Grocers need to be prohibited from owning wine production, packaging and distribution businesses. Their 80% share of wine retail is bad enough.
  10. No one over 65 should be on any industry Boards. Please leave the next generation to make their own mistakes. Boards should be both more inclusive to women and minorities as well as chosen more democratically. Maximum starting ages for new Board members should be 55 or less (don’t worry, I’m nearly 58).

While there is something to annoy everyone in this list (promoting more government involvement and more market competition – crazy, huh? Proof enough of its worthiness for consideration IMHO), these proposals present lots of small losses, changes and opportunities for different companies and regions but none are necessarily fatal to any.

Cheap producers will still be able to export but will be harmed in the local market. More expensive producers will be able to reduce prices and be more competitive, particularly in the $20-$40 per bottle segment. Innovation, consumer choice and quality will explode.

Net employment will grow as higher value producers grow (high value wine employment is a much higher portion of revenue than low value wine). “Stranded” growers will be able to quit or retire with dignity and their holdings eliminated from national supply. Those that don’t sell or adjust risk failing but they already have that risk. Permanent water will be saved benefitting the rivers and the environment (hopefully). Ideally, land left without water will be required to be returned to restore native vegetation that will provide bio-diversity benefits for those who remain.

The big loser will be folks who buy wine because it is cheaper or equal to beer or spirits. This is no bad thing. And, for Aunt Mabel on a pension who enjoys her “one glass with dinner”, maybe the government will re-visit the aged pension or her rellies will help out. As an industry, we should not be viewed as part of the problem or one of the causes of the problem, of disadvantage in Australia. Let the beer and spirits industry answer for that instead. That would make our industry special.

I’m sure there are variations on the above schema that could work. Peak bodies need to be advocating for a “grand bargain” to address the long-term triple bottom line for the industry. Any other solution will be incomplete and set the foundation for yet another crisis. 

We need to operate from a gross wine grape production base probably 15-25% lower than at present for the profitability and survival of all remaining participants. Failure to do so will be to bleed all industry participants as occurred between 2005-2015. As an industry, we do not have the resilience to survive that again with our current balance sheets. And, the poorer we get, collectively and individually, the greater the justifiable pressure to continue to sell our assets to foreign interests – like the Chinese – will be. 

Governments can be slow, but they aren’t stupid. If peak bodies do not pro-actively respond soon with a plan for the long-term viability of the industry, governments will see their failure as an industry unable to help itself and will step in of their own accord and on their own terms. (This is when government use the term “market failure” without a trace of irony despite them regulating the industry). Then, god knows what will happen but we can be sure it won’t be great – just look at the dairy industry, or the live export business, or the grain export business, etc. 

This is not a “steady as she goes”, “she’ll be right”, “softly, softly”, or “sheet it home” moment in wine industry history. Nor is it a time to bravely say “let the market take care of it.” Government policy is part of how we got here. It will need to be part of how we get somewhere better.

It is time to implement a lead, follow or get out of the way standard at every industry body. The visionaries who are willing to take risks, and take an activist, sustainable intergenerational view on policy, are our best bets, not the folks who have been doing the same things the same way hoping for different results. That’s the definition of insanity.

Source for photo – foodnavigator-asia.com

Dr. ISB Responds to AWRI Evasion – AGAIN #TooLegitToQuit

Dr. Irina Santiago-Brown at Inkwell

Below is the text of a letter sent by Dr. Irina Santiago-Brown today in response to a non-responsive letter written by Dr. Mark Krstic, MD of AWRI. In his letter, Krstic suggests a meeting or meetings to understand Dr ISB’s claims of authorship of SAW that was used without attribution in the AWRI’s SWA system. Krstic’s letter was in response to a cease and desist demand letter written to Krstic by Dr. Santiago-Brown on 5 November 2020 that has not yet been honoured by the AWRI.

25 November 2020

Dear Dr. Krstic,

I refer to your letter of 13 November 2020 and note that a response was requested prior to 12 November 2020.

In response to your request for meeting(s) to constructively resolve my concerns, I can only wonder what your motivation is in doing so. 

There is no need for a meeting. As explained in person and in writing, my authorship of SAW, and thus SWA, is systemic and structural. You cannot parse, delineate or “un-pick” my contribution from SWA. While AWRI has attempted to obscure my contributions, you have not done so successfully.  

All portions of SWA that were not adopted directly from Entwine, or (possibly) developed and published since you adapted and published SAW as part of SWA, are directly derived from my work. Until you acknowledge this, no progress is possible. Given the publicity this has received, isn’t unusual that absolutely no one else has claimed authorship of SAW if it isn’t solely my work?

As the MD of the premier research institute in Australia for the wine and grape sector who employs a staff to research and administer sustainability for the sector, don’t you find it inconceivable that the AWRI would not have attempted to understand my research prior to publishing it without attribution? The claim that you are “not entirely clear” of what I consider “compromised” more than a year later, and after much correspondence exchanged, can only be viewed as disingenuous. The AWRI’s failure to do so now can no longer be considered a result of ignorance or lack of awareness or clarity. 

I have demanded in writing that you suspend or disband SWA until such time as you can develop a new system that is not derived from my work. You do not mention this demand in your letter. You have consistently and disrespectfully ignored every clearly stated written and verbal request and demand I have made to date. This cannot be viewed as being disingenuous. However, it can be viewed as a continuation of a nine-year pattern of behaviour by the AWRI to inhibit, diminish and defame me and my work. 

With respect to your “timeline”, I should not have to remind you that another form of research fraud is to knowingly publish false information. Again, if you do not know what is false on your timeline, it is a function of administrative and academic incompetence or malfeasance by the AWRI. That is your responsibility.

My view is that your timeline is an active attempt to diminish and defame both me and my work by making them “one of many” non-equal people and events in a factually inaccurate, and frequently irrelevant, timeline. It is a document that can be changed or deleted at any time and does not represent adequate attribution or recognition of my work much as the attribution of my work by MVGWTA is now an “error 404” web page.

The AWRI (and others) did the things I have previously mentioned to prevent my work from being developed, used successfully and recognised between 2011 and at least 2017. Since some point in time in 2017 or 2018, the AWRI adopted, adapted and published my work without attribution, let alone a sense of irony.

That you have not fully investigated all of my claims in the 11 weeks since you were informed of them is a failure to comply with your fiduciary responsibilities to both your staff and me to provide a duty of care for a safe work environment. That your Board has not formally instructed you to do so is also a failure of their fiduciary responsibility to provide a duty of care. 

I can only speculate that the reason you, and they, have not investigated these allegations is that you, and they, are fully aware of at least some of this behaviour and fear the outcome of a proper, thorough and impartial investigation. Your continual efforts to paint you and the AWRI as victims in this matter is staggering in its dishonesty.

If you believe my claims of abuse of power by the AWRI (including bullying, defamation and plagiarism) are defamatory and un-true, you should investigate them and sue me for them. You, and your Board, can no longer avoid this reckoning without significantly harming the reputation of the AWRI knowingly. This is also a duty of care matter. You need to do as I have requested.

To be clear, these requests are:

  1. Stop using SWA immediately or attribute my work properly and in in full.
  2. Remove my name from your “thank you” page as my name is included with many others who have not contributed to SWA and uses their credibility. This is a type of research fraud.
  3. If your “timeline” is to be kept, it needs to be re-written in full, acknowledging that there were no sustainability initiatives in place in Australia prior to the publication of my research and/or the development of SAW.  All other initiatives, including Generational Farming, were related to the environment only. If you do not understand the distinction being made, you shouldn’t be in your position.
  4. Publish a press release acknowledging my work with a public apology for your “misunderstanding” of my authorship and your subsequent efforts to diminish me and my work.
  5. Remove Dr. Mardi Longbotton from the management of the program until all of my claims have been investigated thoroughly. Only then we will have a productive reason for a meeting.

Please advise whether you will be doing as requested by 2 December. Absent this, I will pursue other remedies. I will not accept any more evasion or delay from you. 

Best Regards,

Dr. Irina Santiago-Brown

BTW – Regarding your request that we publish your correspondence in full – start your own blog.

Dr. ISB responds to the AWRI: “It’s the Constitution. It’s Mabo. It’s Justice. It’s Law. It’s the Vibe.”

The Castle shared on YouTube

For those not from Australia, this video clip is from the big courtroom conclusion to The Castle, one of Australia’s great comedies. It is a David vs. Goliath tale about a middle class family trying save their tract house (The Castle) from an airport runway expansion. And, it was Irina’s first Australian movie experience. As a person’s home is all they have, an academic’s published work is all that they can say is theirs. And, in the end, The Castle is about the shared belief that being right matters more than being powerful in Australia. It’s all about the vibe.

Please find Dr. Irina Santiago-Brown’s response to Dr. Mark Krstic’s most recent correspondence regarding her allegations of mis-use of her published work by the AWRI appended below.

5 November 2020

Dear Dr. Krstic,

I am in receipt of your letter to me of 30 October. 

To summarize, you make the following points:

  1. You assert that I made various demands and threatened legal action against the AWRI.
  2. Your letter implies that my husband and I may have damaged the reputation of the AWRI, its officers and employees.
  3. Your letter says you will not use my work without attribution, nor claim credit for my work, nor attribute my work to other entities or authors and that you appreciate any or all of these actions would require my consent.
  4. Confusingly, your letter then modifies this prior positive assertion by saying that you “do not believe” you “have done any of those things” and then goes on to deny that that you have misused my work in the same sentence.
  5. Your letter then attempts to mollify me and, by inference, threaten me by saying you do not “intend” to embarrass me in the media. 
  6. You offer to meet to “discuss my concerns and endeavor to satisfy you in relation to them.”
  7. Finally, you wish to “clearly understand what” I “consider is comprised in each of the SAW content, SAW system and SAW online system.”

I make the following points in response:

  1. Your letter is substantively non-responsive to my cease and desist demand letter.
  2. Your letter is non-responsive to my claims of a pattern of mistreatment by AWRI employees and officers involved in this matter over an extended period of time. This pattern of behavior has been, and continues to be, an abuse of power by the AWRI.
  3. My husband and I have repeatedly suggested that if my entirely appropriate demands are not met, my only recourse would be legal action. This is not a threat. It is my legal right. If, as you assert in your letter, you are innocent of all my claims, you have no reason to view the assertion of my legal rights as “threatening” to you.
  4. By not resolving a simple matter amicably and privately when requested to do so in writing and person, and instead continuing a pattern of diminishment of me and my work by the AWRI, both you and Chair Rose personally entered into the pattern of inappropriate behavior and mistreatment by the AWRI towards me and my work.
  5. That you wish to “resolve this matter amicably” now appears to be a result of the publicity generated by my husband making my claims public on his blog TheWineRules and not because of my polite request to resolve this amicably and privately over two months ago.
  6. As I explained in my first email to you, either you are mis-using my work or my PhD was a fraud. There are no other possible logical conclusions to this matter. If you wish to keep using SAW without attributing it formally to me, I suggest you take up having my PhD rescinded with the University of Adelaide.
  7. You are free to attempt to build your own sustainability system from scratch. To the extent that a new system uses my work without appropriate referencing and attribution, I will again demand you cease and desist from doing so.
  8. It is not my responsibility to explain my work to you so that you “clearly understand” it. I don’t work for you and my time is valuable. It is your responsibility to read my published work including the SAW system, understand it and attribute it appropriately. That you do not “clearly understand” my work now, and that no one from the AWRI has ever contacted me prior to using it in order to “clearly understand” it is yet more evidence of the reckless disregard for both my published work and academic reputation by employees of the AWRI including you.
  9. In your press release of 15 October 2020, you said “The AWRI stands by the actions of its staff, its integrity as a research organization and the integrity of the Sustainable Winegrowing Australia national program.” How can this statement possibly be true when you claim to not “clearly understand” my claims on 30 October 2020? 
  10. The reason my husband and I have made this public is because we have nothing to hide in this matter.
  11. If you believe that either my husband or I have untruthfully damaged reputations, we welcome our day in court to defend our reputations from your continuing mistreatment. 

Please recall my first email to you on 3 September 2020 attempting to resolve this matter “amicably”. At that point in time, I hoped this to be a simple matter that could be easily resolved. The only reason there is now a “lengthy exchange of correspondence” that “you do not wish to enter into” between us is your unwillingness to behave according to accepted norms of academia as previously requested by me in an “amicable” fashion. Because of the choices you have made since that time, this is no longer a simple matter. 

To remind you, we already had the meeting you request in your letter on 24 September 2020. It was unsuccessful then and your press release from 15 October and your letter from 30 October are clear that any new meeting will be unsuccessful for the very reasons made clear in those documents.

There are three points resulting from your decision-making that now complicate matters:

1) Because of your ongoing mis-use of my work and your continuing failure to acknowledge that the AWRI is doing so, I am demanding that you disband the SWA system immediately as it is unworkable in its present form without using my work.

2) You and Chair Rose have exhibited a complete failure to provide duty of care for the health and safety of both the employees of AWRI and me as required of management and officers of any company by not formally investigating my claims of mistreatment by the AWRI first reported to you in writing two months ago. 

3) Both you and Chair Rose are also bound by the AWRI constitution “To take into account the legitimate interests of both Wine Grapes Levy Payers, Grapes Research Levy Payers and other key stakeholders in the pursuit of these objects.” As a levy payer, you do not appear to have taken into account my interests in any way thus far with respect to my claims. 

For all of these reasons, you and Chair Rose have now established yourselves as being both au fait with and complicit in this matter.Given the serious nature of institutional integrity raised by these facts, I am suggesting that terminating the employment of all those involved in the mis-use of my work and the handling of my case, including you and Chair Rose, is now required. 

In order to protect the reputations of many fine AWRI employees not involved in this matter, it is my belief that doing these things voluntarily and immediately would be the least embarrassing outcome for your institution and the Australian wine industry.

Please advise me in writing by 12 November 2020 as to whether the AWRI’s choice is to seek to have my PhD rescinded in order to continue using my work without proper attribution, publicly disband SWA in its present form or litigate this matter. We see no other paths forward at this time.

Regards,

Dr. Irina Santiago-Brown

‘Cease and Desist’ Letter Issued to AWRI by “Too Legit to Quit” Dr. ISB

21 October 2020

As a result of the Australian Wine Research Institute’s apparent mis-use of Dr. Irina Santiago-Brown’s published research in their Sustainable Winegrowing Australia (SWA) system for the past year and their continuing refusal to appropriately acknowledge and cite her work, Dr. Santiago-Brown sent a cease and desist letter to the AWRI on 20 October 2020. 

Too Legit to Quit – Dr. Irina Santiago-Brown #AWRI

 Dr. Santiago-Brown commented that the press release issued by the AWRI and subsequent reporting quoting AWRI Chair Louisa Rose as “both incorrect and seemingly still more evidence of an ongoing and systematic effort by the AWRI to diminish me personally, my work, my professional reputation and deny my sole authorship of the system they are employing without appropriate acknowledgement.

Simply ‘thanking’ me for my ‘contribution’ and offering to place my name in a materially incorrect timeline is akin to Michael Jackson’s estate removing ‘Lennon-McCartney’ from Beatles songs they own but instead offering to mention them in a timeline of rock n’ roll history they are ‘working on’. There is no precedent for this.

This is not about ownership, it is about authorship and part of a long string of incidents designed to diminish my original research that they are using without acknowledgement. Citing sources and people who did not contribute to SWA is another form of unacceptable academic referencing methods that they are now engaged in with this nonsensical timeline. With unacceptable behaviour like this, I can only wonder what else they are hiding.”

An unsigned copy of the letter is reprinted below:

The AWRI, Obsfucation and Misdirection

If you find yourself in a hole, stop digging. – Will Rogers

You can’t polish a turd. But, you can roll it in glitter. – common

Dr. Mark Krstic, Managing Director of the AWRI, responded to my last post on The Wine Rules yesterday. I wish to thank him for confirming much of that post. Unfortunately for the AWRI and the Australian wine community, he chose to do so in a way that neither resolves the matter at hand or improves the AWRI’s reputation. In his letter to SWA members he said:

To address the points Krstic addresses briefly:

While Krstic “comprehensively denies” any allegation of plagiarism and claims to have legal advice that supports this, I can assure you that if I had made unsubstantiated allegations of plagiarism about any major academic / research institute that were not true, their lawyers would have been in touch with me already. They would have demanded that the post be taken down. My belief is that they have not contacted me for one good reason – truth is still a defense in court.

Krstic then denies that SWA was a “rebadge” of SAW despite using the exact same words in its title as SAW but in a different order. Seriously. It is much worse than just a re-badge of the title. The SWA system re-used the SAW system in wholesale proportions. Yes, they re-worded the content. Schoolchildren know that this doesn’t get you off the hook for not being original. And, in a particularly novel innovation, they switched the scoring system from 0, 1, 2, 3, 4 to 4, 3, 2, 1, 0. You can’t make this stuff up.

He goes on to draw a narrow case that “program content” was drawn from just two programs, Entwine and SAW (not the rich history of…individuals and organisations” he cites later). This is where he goes badly wrong. SAW was a system for assessing sustainability in viticulture. Within that system, there was content. It is analogous to a sport. The sport is a system – rules, league structure, schedules etc. The teams, players and games are the content. This distinction about SAW has been repeatedly explained to Dr Krstic in writing and in person. His deliberate evasion on this point by using the word “content” appears to be evidence of his consciousness of guilt by failing to note the systemic nature of Irina’s contribution.

Dr. Santiago-Brown solely wrote the SAW system. She co-authored four of the six chapters of content (as previously acknowledged in my post) with community members as part of her method of developing a program with broad uptake. Two chapters she wrote herself. All contributions were properly acknowledged at the time of first publication.

SWA failed to acknowledge Irina, or the co-authors of the “program content” that Dr Krstic admits using at the time of publishing. However, they have neither admitted their wrongdoing in not having done so or apologised for not doing so because they know to do so potentially creates additional liability and embarrassment for them. The illogic and inconsistency of maintaining this position, among others, is bewildering. And, not cool.

Krstic goes on to claim that SAW has always been owned by MVGWTA. This is false. SAW was an open source document authored my wife and published as part of her PhD while she was employed at MVGWTA. In open source, there is no “owner” just authors and authorship. To use open source materials, all that is required is acknowledgement of authors and sources. MVGWTA publicly acknowledged that Dr. Santiago-Brown was the author numerous times in 2014 and 2015. The AWRI failed to do so at the time it published SWA. This is incontestable.

The content of SAW was always intended to be a living document that evolved as the world evolved – be it technology, climate, social mores, business practices, etc. That was the specific point of the famous redacted paragraph in 2014 – that SAW was much more adaptable and continuously improvable in the real world than Entwine. Its’ content was to be changed over time, updated and adapted. That was one point of novelty of the system Irina wrote and SWA subsequently adapted. It was not just about the content. So, why not recognise the novelty of her system and just apologise?

I’m no lawyer, but if MVGWTA made representations that it “owned” SAW to the AWRI, that is a matter for those two to work out amongst themselves. And, that AWRI would ever knowingly receive work previously published in a PhD as being “owned” by another party brings into question the due diligence done by AWRI. The University of Adelaide might have an opinion about that claim as well. Success has so many fathers. But SAW had only one mother.

Ad taken in WBM donated by Irina and me “gifting” SAW to the Australian community. Note current AWRI Board Member Toby Bekkers and newly elected Corrina Wright in photo.

Krstic’s “rich history” of sustainability comments go straight to the point of my last post – that employees of AWRI have engaged in a pattern of behaviour to intimidate, defame, and diminish my wife’s work and academic reputation since 2011. That he seems to wish to diminish her here and add to the litany of prior actions (some of which he is aware of) is appalling behaviour. The purpose of the AWRI suddenly producing a voluminous timeline (again without any attribution of sources for same) of moments and people that possibly had something to do with sustainability (and some not!) over the last 30 years appears to not be an effort to recognise all the contributors but to diminish the work of one. To make out like she’s just a chorus girl in the back row of one scene of the show. It just seems petty and cruel.

Further, Krstic either does not seem to understand sustainability or obsfucates its meaning to somehow equate it with environmental or natural resource schemes. When Irina wrote her PhD, she investigated all of the principle sustainability systems in use in the “New World” of viticulture. She did not include Entwine in that research because it was not a sustainability system. Nor was Yarra Valley’s, nor any of the others cited. They are not equivalent to and are not sources of SAW or her work.

Setting aside the cast of multitudes who may or may not have contributed to sustainability in Australian viticulture, the AWRI’s citation of Generational Farming is, at best, muddled. The Generational Farming system was an early effort by MVGWTA (developed mostly while I was Chair of MVGWTA) that we incorrectly called a sustainability system. Just as Entwine later incorrectly called their system a sustainability system, it was an environmental system. But, GF used a different method of data collection than Entwine.

The MVGWTA Board recognised that GF was a good start but lacked significant components and the rigor required by a sustainability system. That is why we advertised the position for someone to build a sustainability system. And why Irina was hired. Irina immediately ditched that system (known as Version 1.1) because it was much more flawed than even we realised. The GF name was retained until MVGWTA had built an online system that anyone in Australia could access at which point its name was changed to reflect that capability. In fact, the reason PIRSA funded the development of the online system was because anyone could use it, not just MVGWTA’s members.

Notably, Krstic does nothing to address a number of other matters raised in my post that question the integrity of SWA aside from Irina’s authorship of SAW, AWRI’s mis-use of her work and the lack of appropriate recognition provided. One can only speculate why he has not.

Finally, in a statement made to Meininger’s Wine Business International, Louisa Rose was quoted as saying “We want to acknowledgeable of the people in the industry who have contributed to the sustainability journey that the industry is still on, and Irina is certainly one of those people, but not the only person.” Who ever said Irina is the only person who has contributed to the sustainability journey in the industry? What rubbish. And, from someone of her stature in the industry. I’ll be ashamed for her. As stated in my prior post, the culture and governance issues appear to be profound and not limited to one or two people.

Dr. Krstic’s letter does nothing to solve the demands we presented to him – recognition in form and content agreeable to by Irina and an apology for not having done so. The timeline offered does nothing to appropriately recognise Irina’s novel contributions to sustainability in viticulture in Australia. In fact, AWRI doesn’t even appear to understand which parts of Irina’s work they have used without acknowledgement. What a hot, tawdry mess.

More on this later. Much more.

SAW, SWA, SWIPE – Academic integrity and the AWRI

Irina Santiago-Brown photo by James Braund / Wine Enthusiast

The Judgment of Solomon is a story from the Hebrew Bible in which King Solomon of Israel ruled between two women both claiming to be the mother of a child. Solomon revealed their true feelings and relationship to the child by suggesting to cut the baby in two, with each woman to receive half. With this strategy, he was able to discern the non-mother as the woman who entirely approved of this proposal, while the actual mother begged that the sword might be sheathed and the child committed to the care of her rival. https://en.wikipedia.org/wiki/Judgment_of_Solomon

What is Plagiarism?

Many people think of plagiarism as copying another’s work or borrowing someone else’s original ideas. But terms like “copying” and “borrowing” can disguise the seriousness of the offense:

According to the Merriam-Webster online dictionary, to “plagiarize” means:

  • to steal and pass off (the ideas or words of another) as one’s own
  • to use (another’s production) without crediting the source
  • to commit literary theft
  • to present as new and original an idea or product derived from an existing source

In other words, plagiarism is an act of fraud. It involves both stealing someone else’s work and lying about it afterward. 

https://www.plagiarism.org/article/what-is-plagiarism

OR, WATCH THIS:

My wife, Dr. Irina Santiago-Brown, wrote the Sustainable Australia Winegrowing (SAW) system as part of her PhD between 2011 and 2014. Irina’s PhD from the University of Adelaide was (to the best of our knowledge) the first PhD ever awarded in Sustainability in Viticulture. It is still the reference work on sustainability systems, assessment methods and indicators. 

During that time, she was the beneficiary of more than $400,000 of levy and taxpayers funding to develop this important research. McLaren Vale Grape Wine and Tourism Industry Association (MVGWTA) released this fully web based system as SAW with Irina’s participation and approval in 2014. As is required when using someone else’s work, MVGWTA publicly acknowledged Irina’s authorship.

Some years later, Wine Australia employed an outside expert to review two systems, the Entwine system and SAW, and to recommend one to be adopted as the national sustainability system for the wine and wine grape industry. SAW was recommended as the preferred sustainability system and later transferred from MVGWTA to the Australian Wine Research Institute for industry wide adoption and implementation under the direction of Dr. Mardi Longbottom of the AWRI. This report is not available for review despite our request. However, while the AWRI tells this story somewhat differently, that both were chosen. It matters little. Logically, had the report chosen Entwine, SAW would not be acknowledged as a source of the current system.

The AWRI subsequently changed the name to Sustainable Winegrowing Australia and published an adapted version of SAW on its website in 2019 that says it “builds on the strengths of the previous Entwine Australia and Sustainable Australia Winegrowing (SAW) program.”

I won’t bore anyone with the details of what is published there because to do so is expressly prohibited by the terms of use published on the SWA site. I would publish those unusual terms here but, yeah, you get the point. And to describe or explain all of the ways that SWA has apparently used Irina’s work is, you got it, secretive and quite unusual in the world of sustainability systems for obvious philosophical reasons.

The salient point is that at no point in time has the AWRI or SWA acknowledged that Irina alone wrote the SAW system and that SAW is the result of her published academic research. In short, they appear to have apparently borrowed heavily from and utilised her work in published form for the last year. 

Given the bruising fight and reputational damage Irina suffered in getting SAW recognised as an “equivalent” system to Entwine at the hands of the Winemakers Federation Association’s (now called Australian Grape and Wine – “AGW”) WINEC Committee which included Dr. Longbottom and Ms Gioia Small in 2014 (and after), Irina backed away from continuing her research and publishing these past five years. She has also prevented me from writing about it. 

Then came #2020. The year from hell that has changed all of us in some way. In Irina’s case, it was the realisation that the possibility of a traditional career she had in her areas of interest was terribly compromised by this lack of recognition of her work. And, that she had nothing to more to lose as her good name and work had been erased from the story of sustainability in the Australian wine industry by the premier research institution in Australia with the tacit support of Wine Australia and AGW. 

And, that she wanted to get back to writing independently about her research. However, if she approached a publisher claiming to have written the basis for the national sustainability system, there is no record of attribution by SWA. No publisher in their right mind would consider her credible. So Irina approached the AWRI’s Managing Director Dr. Mark Kristic to try to resolve this amicably.

In order to keep this as short as possible, she wrote him an email explaining the effects of terrible treatment she had experienced as a result of a pattern of behaviour by the AWRI and its employees and that this present lack of recognition for her work was consistent with that pattern. Further, Irina demanded recognition for her work and a meeting to discuss what that recognition for her work should look like. Finally, she posed a dilemma for Dr. Kristic to consider which is: either SAW should be recognised by the AWRI and SWA as her original work or that her PhD was fraudulent because SAW was one of the four documents that made up her thesis and that she is prepared to have that determination made either way. Solomon would understand.

Dr. Kristic responded in a seemingly sympathetic way and a meeting over coffee was had Thursday 24 September. In that meeting Mark disclosed that there were some big announcements coming up in the next few weeks and that this might be a good time to address this omission including recognition for “all the other contributors.” We found this last phrase odd but hey, we were trying to be reasonable. 

He also admitted that AWRI chose to only acknowledge the contributions of organisations rather than individuals and that no individuals are acknowledged in SWA. This is an academically indefensible position which he seemed to recognise later by suggesting they were “working” on acknowledging the “rich diversity” of contributors. Or, the AWRI is proposing the end of academic citation as we know it. Attribution must always occur at the time of publishing for obvious reasons. It is never an afterthought. Has the AWRI ever published any of its own research – aside from SWA – without attribution of the individuals involved? Ever?

However, we made one demand clear – that the AWRI publish a press release to major wine media worldwide acknowledging Irina’s original and novel research that underpins SWA today so that her contributions could never be “erased” again. We left the meeting knowing that we were understood and understood that this upcoming announcement would be a good vehicle for this to occur. 

Then, in a follow up email sent 28 September Dr Kristic mentioned that Irina’s work would be recognised on the acknowledgement and references pages of SWA as part of recognising many organisations and other people who also made contributions. Taken together with the verbal understanding we had, it seemed like a good start to a process of reaching a solution amicable to us.

The following day, 29 September, the big announcement Dr. Kristic mentioned was made by the AWRI – a press release (https://www.awri.com.au/wp-content/uploads/2020/09/Sustainability-trust-mark.pdf) announcing a new “trustmark” for SWA to be used by participants in SWA on their websites, bottles, etc. This included quotes from the heads of Wine Australia, Australian Grape and Wine and Dr. Kristic. Nowhere was there any mention of Irina or her contribution. Irina was, once again, devastated. And any belief in the good faith understanding we thought we had to that point evaporated. 

After trying to quell our disappointment and anger, I wrote a letter on Irina’s behalf demanding that Dr. Kristic provide a written plan to do as we requested (and thought already we had agreed to) by close of business 2 October. He responded in a disingenuous way by not acknowledging our principal demand by pretending not to understand it and that he would attend to it when he came back from personal leave. 

We replied and reiterated our demand. To resolve this matter, all he had to do was say in writing he would do as agreed. He did not write that because they will not do that. A disappointing outcome but for us it is better to know sooner rather than later as Irina’s chain of disappointments with respect to the acknowledgement and use of her work is already quite long. 

On 7 October, Dr. Kristic replied offering “That AWRI issues a public statement acknowledging all those people who have made a significant contribution in the evolution and development of the current SWA program. While we recognise that Irina has played an important role in the development of the SWA program through her PhD research and her involvement with MVGWTA and SAW, to not recognise others who have also made a significant contribution to the sustainability agenda in Australia would be negligent and inappropriate. This would include recognition of those involved with MVWTA Generational Farming (the pre-runner to SAW), SAW, CRCV EMS program, EMS Yarra Valley, Yalumba Vitis program, WFA Entwine, etc.” 

So, not recognising Irina’s contribution before we demanded that the AWRI acknowledge her work was completely cool but to not recognise all of these other people and programs that made significantly smaller contributions to SWA is suddenly “inappropriate and negligent”? The hypocrisy (and the reality bending narrative employed) is breathtaking.

Remember that the AWRI’s own press release quoted prior that SWA “builds on the strengths of the previous Entwine Australia and Sustainable Australia Winegrowing (SAW) program”? Where was AWRI’s concern for all these other contributors just a year ago when they were handing out recognition? From just this example, it seems that their concern for reputations is uneven and inconsistent.

Suffice it to say, this offer and the language used to diminish Irina’s sole authorship of a primary source (by AWRI’s own published words) for SWA only served to inflame the situation.  Our personal view is that this a continuation of the AWRI’s long campaign to diminish and dilute Irina’s work, contribution and reputation. 

What makes this even worse than in the past, is it is now being done by the Managing Director of AWRI (not just a middle level employee) who has now acknowledged that what has occurred for the past year is “negligent and wrong.” Worse, he also seems to acknowledge that this is an accepted pattern of using un-referenced source material from many sources for SWA and not an oversight. Or, he’s just trying to diminish Irina by bringing others into a new narrative. Which is it? Solomon would understand.

One of the many ironies here is that SAW began as a peer reviewed system as the viticultural content of the system (the system and content are distinct entities) was written by community members in McLaren Vale (including Irina) to ensure it reflected industry best practice not local peculiarities. It was also done to address justifiable concerns expressed by local organic and biodynamic growers that the value of their certifications wouldn’t be watered down by participating. Nowhere does SWA claim to have ever been peer reviewed despite AWRI being an elite research institute where the standards of academia (including peer review) are usually consistently applied. 

Another, from the public portion of the AWRI website, is the listing of members of SWA and the year they joined. Some big names in the industry go back to 2009 and 2010 despite there not being a sustainability system anywhere in Australian viticulture except a nascent and incomplete system called Generational Farming in McLaren Vale prior to 2014.

These long time members appear to have been members of Entwine, an environmental management system (EMS) accredited by Freshcare (principally used by horticulturists and groceries), which is not a sustainability system. How can they have been members of a sustainability system that didn’t even exist? Playing fast and loose with facts and professionally understood terminology is not what the world expects from the AWRI.

Another indication that SWA may just a re-badged SAW changed to comply with Entwine is that it appears that Freshcare is accepted as an “equivalent” accreditation pathway for some members despite not even being a sustainability system! This was the entire point of the debate between SAW and Entwine in 2014 that ended with the WINEC Committee of Entwine authorising the redaction of an auditor’s report.(For the uninitiated, this was such egregious behaviour that WFA had to hire a retired judge to explain this wasn’t breaking the law.) Entwine was an environmental management system that only addressed the environment and was thus just one portion of what SAW offered (a triple bottom line sustainability program). Logically, the reverse can’t also be true. 

If my understanding is correct, there are completely different rules and pathways for certification for different members but just one “trustmark” to unite them all. And, this possible discrepancy is, perhaps, the biggest reason for all for the secrecy. And, a reason to question this system, its management and governance much more closely than has been done to date by a national wine industry that relies on the systemic integrity of SWA. All of these examples leave the door open to cries of “greenwashing” to the detriment of the entire national industry. 

So, our next step of trying to obtain redress for Irina is writing this article. It is necessary because a major institution appears unable to just do the right thing. Maybe this is because it won’t address deeply rooted inconsistencies for what appear to be political considerations and / or out of fear of bad publicity. Or, perhaps, they fear any admission will create further liabilities so they choose to defend the indefensible and hope to overpower us or wear us down. Or, possibly, all of the above. It’s quite a pickle for them to be in right down to the people involved. Ironically like 2014, huh? 

The question that keeps coming up is why would they take such personnel and policy risks after the horrible publicity of 2014? Don’t management and the Board have adequate information, standards or risk mitigation procedures? How can something as straightforward and easily solved as this put the good name of so many other outstanding researchers at risk? 

Irina and I realise we’ll soon be viewed as the troublemakers, not the victims of a dysfunctional culture of management and governance of Australia’s premier research institute where egos appear to trump the rigorous demands of academia. Where the fight for every scrap of recognition drives the culture because their careers and funding depend on it. 

SWA, this enormous new national sustainability system has no sources, no authors and no credit given to any person. Organisations don’t write, people do. It’s like it wrote itself, voila! Unless, of course, another organisation that does not wish to be acknowledged wrote it for the AWRI. That would be worse still. 

If it is Dr. Longbottom’s work, she should be acknowledged. If it is based on Irina’s authorship of SAW, Irina should be acknowledged. If Dr. Longbottom or her team plagiarised Irina’s work, they should face the discipline standard for such academic infractions. You don’t need a PhD to understand the rules or penalties of plagiarism. Solomon would understand.

There is no possibility that the AWRI misunderstood the ramifications of the use of another person’s original work absent detailed acknowledgement. Work is original or it is not. We shouldn’t have to beg the AWRI to just acknowledge the obvious. Until now, we weren’t even asking for an apology because we know the egos involved are, likely, incapable of that. Now we are insisting on it..

And here is Irina, once the golden child of viticultural academia, who received the highest possible praise for her ground-breaking PhD on Sustainability in Viticulture written by a female, immigrant, person of colour in a second language in under three years while she worked a part time job to educate the overwhelmingly white, mostly male Australian wine industry about how they could improve the industry from the ground up through grower self-improvement and education. Maybe it was just to good and obvious an idea for them to accept and celebrate.

The woman who gave up a high-level career in government in Brazil because she wanted to make a contribution that could benefit the world. The woman who spent her life savings to try to make that dream a possibility and came that close to succeeding only to thwarted by her own industry. If history is any guide, not one of the many who are in a position of power who knows this is all true will stand up to defend her. 

Does the Australian wine industry somehow think that #MeToo and #BLM aren’t problems for us? Have we learned nothing? Why has Irina never even received a single phone call to use her unparalleled expertise in developing a national sustainability system? Why is all of our investment in her education and work just tossed aside? Wasn’t this the point of Wine Australia making the investment in the first place? Who is this mob afraid of? Will the AWRI’s primary funding body, Wine Australia, or anyone else hold these people to account?

We’ve seen the movie. We know how it ends. We know it doesn’t help our business. Or bring us any joy. As Irina’s husband, I will stand by her, and up for her, to the death regardless of whatever is thrown our way.

We’ve seen what a retired white conservative judge hired for purpose can do to someone’s reputation by never interviewing them when they are a central part of an investigation. What the Australia wine establishment will do to protect its own regardless of truth or consequence. Sadly, the only thing learned by industry governance participants in 2014 was that they’d be backed in no matter what they did wrong. 

“Why do this?” you might ask. Because the entire industry has had a superior alternative with SAW in place since 2014. The auditor saw that then. Wine Australia saw that and hired a third party to evaluate our best choices and make a recommendation. The third party who chose between the systems saw that. Everyone saw that, except the AWRI and their program manager. Why?

As a levy payer in McLaren Vale, I’m stunned the McLaren Vale Association gave away a superior system they could control in return for SWA. It’s like swapping a Benz for a car with a home built tray top on back. What written assurances did they receive in return that they system would be no worse? Any?

As an industry we are out of time for dancing around a few fragile egos while climate change is accelerating its impact on all of our businesses and us. How out of touch are these bodies with the reality on the ground? Resolving the real issue here is to the ongoing benefit of the whole industry and is the only responsible option. 

Also as an industry, we are in a great position to make enormous changes rather quickly and relatively inexpensively while maintaining a unique position to educate those who make the big decisions about our economy (consumers of our high-end wines and leaders of government, finance and industry are a nearly perfect overlapping Venn diagram). SAW helped us do that from the bottom up. We saw what a difference it made in McLaren Vale.

To do that nationally, we have to embrace the scientific method and peer review, not our biggest levy payers or egos, in (re)building our once sterling sustainability system. Truth be known, to have the highest sustainability standards in the world is a comparative and competitive advantage for us. It is much easier for us. But, you need to understand the world of sustainability systems to know that. Why the secrecy and complications?

The beauty of the simplicity of SAW was that growers immediately saw the benefit and participated willingly. Famous viticulturist and former WGGA Chairman Vic Patrick bought two copies the first time he saw an early workbook because it was so easy for his team to use to improve. 

Anyhow, having published this, the next step for Irina and me will likely be calling our lawyer, at our expense in the middle of the worst business climate imaginable for a boutique wine producer, to take on a Goliath with all their taxpayer and levy-funded lawyers to try and get Irina’s good name back for her to use. Unless of course, they decide to do the right thing finally.

Or, maybe, we’ll end up on the low cost path and just have a retired judge paid for by the AWRI explain how somehow this isn’t exactly plagiarism and the ducks will just paddle on as they have since 2014. 

Or, that Dr. Mark Kristic does the right thing and issues a press release as requested and takes action to rescue SWA from the morass of contradictions it has created for itself and apologise in writing.

Or, even crazier, the industry is startled into actually doing something truly great instead of what it’s doing now.

In any case, the word “TrustMark” has a whole new meaning for us. Solomon would understand.

For the curious, here is the link to the University of Adelaide’s easily discoverable Academic Integrity Policy: https://www.adelaide.edu.au/policies/230/?dsn=policy.document;field=data;id=239;m=view.

I was unable to find the AWRI’s similar policy on their website.

Also, if you would like to read Irina’s frequently cited work and easy to read work on sustainability systems, you can find them here: https://www.inkwellwines.com/publications

Public Letter to the Wine and Grape Levy Payers of McLaren Vale

I have been a member of the Board of the McLaren Vale Grape Wine and Tourism Industry Association (MVGWTA) for most of the past 9 years and served as its Chair between 2008 and 2010. During that time, MVGWTA has gone from being effectively bankrupt with annual membership revenues of about $450,000 to an organisation with approximately $600,000 in the bank and about $800,000 in member revenue this fiscal year.

During my time as Chair, we implemented a dual (Growers and Wine makers) levy system for revenue, implemented a Constitution (remarkably, there had been none before), ended “managed” and unaudited elections as well as nearly a decade of systemic rorting of the Association by some of its founding members. As should be expected, none of this served to enhance my popularity with the beneficiaries of the prior arrangements.

Then Board members Andrew Kay, CEO of Wirra Wirra, Tim Althaus of Primo Estate and volunteer Lincoln Ridley, Controller at D’Arenberg, provided critical support for our efforts to create financial stability and governance transparency during these years and deserve recognition for their contributions.

Perhaps the most important thing we did was to officially buried the historical differences between the different industry sectors by agreeing that the core focus of the Association was the marketing / promotion of the regional brand “McLaren Vale” as well as protection of its rural character.

Between 2009 and 2013, we successfully lobbied to prevent 6000 houses being built at Bowering Hill and Glenthorne Farm, obtained permanent protection for a large part of our wine grape growing region from future subdivision via the “Character and Preservation Act (McLaren Vale)” state legislation, substituted 1 gigalitre (one billion litres or enough for 2500 households) annually of non-potable reclaimed water that was previously dumped in the Gulf of St. Vincent for mains drinking water that had been previously used in irrigation and thereby saved at least 60 growers from extinction due to the quadrupling of mains water prices, published the most detailed Geology Map of any wine growing region in the world, developed and rolled out one of the finest viticultural sustainability programs (Sustainable Australia Winegrowing (“SAW”)) in the world, achieved 50%+ adoption of SAW as well as gifting SAW to the rest of the Australian wine industry.

Since 2013, The Epicurean Way – linking the wine regions around Adelaide  – and Adelaide’s inclusion in the Great Wine Capitals of the World program have also been implemented. Both of these are ideas that were initiated by us in 2008-2010. While many critique these accomplishments by saying we upset too many people along the way, all of these were accomplished with some degree of state and / or federal government support or engagement. Governments tend to only support things once the balance of support has shifted.

While I was personally involved with all of these projects, all were a culmination of the tireless voluntary contributions and collaboration of numerous community residents, volunteers and believers in the future of the McLaren Vale wine tourism region. Central to these efforts were our state MP (now) Minister Leon Bignell and then Federal MP Amanda Rishworth, grapegrowers Jock Harvey and Richard Leask, viticulturists Irina Santiago-Brown (my now wife), Derek Cameron and James Hook, journalist and industry historian Philip White, former publisher Stephanie Johnston as well as former MVGWTA executives Elizabeth Tasker and Marc Allgrove. Anyone who knows these folks know that while they don’t play on the same political teams or move in the same social circles, they all share our long term vision for McLaren Vale as a world class wine tourism region.

The umbrella vehicle we used to accomplish all of this was the MVGWTA – frequently over the opposition of some of our own nay-saying members as well as numerous industry and government bodies – and generally with very little funding. While success has a thousand fathers, the people mentioned did the heavy lifting. Folks like these embody what a thoughtful and industrious rural community looks like.

Simply put, no wine region in Australia can claim to have accomplished so much in the last ten years to position itself for the future. We knew we didn’t have all the answers and that  we were building the cornerstones for the foundation of what we believed would become McLaren Vale’s moment on the world stage of wine.

After Tom Harvey became Chair in 2013, the Board worked diligently to put the Association on a sound administrative footing to be able to hire a permanent management team and Chair  (former SA Labor Minister) John Hill in early 2015. Having done so was a moment of pride for many of us. We thought we just might be, finally, on a glide path to great things.

So, to now find myself resigning from this Board over what I consider to be fundamental matters of fairness, competence and transparency (let alone outcomes) – particularly with respect to the current Board elections – is a great disappointment. I will not lend my name to them.

Freed from the constraints of my responsibilities to the Board as an four-time elected Grower member, I am at liberty to observe publicly that the matters raised in the letter appended below are part of a larger, documented pattern of unaccountable behaviour which it is fair for levy members to be aware of and question closely. Levy payers and members are free to contact me directly if they wish to know more.

The text of my letter to Chair John Hill – and his response – is appended below:

24 November 2016

Attention: John Hill

Chair, McLaren Vale Grape Wine and Tourism Industry Association (“MVGWTA”)

Given that:

1) You were notified in writing that the elections to the Board of the MVGWTA have been interfered with by the management of the Association on at least two occasions on behalf of at least one candidate,

2) That one instance of said interference (according to the candidate) resulted in the candidate being eligible who would not have been otherwise eligible due to an incomplete nomination form,

3) That the second instance of interference (switching the same candidate’s industry sector) could be seen to be attempting to maximise the candidate’s chance of election to a Board seat,

4) That said interference has not attracted any disciplinary action,

I can only conclude that you approve of management’s interference in, or management of, Board elections.

Moreover, using deficient sector selection rationale, incorrect election forms were sent out to Wine sector levy payers and Wine sector ballots to some Grape sector levy payers. Apparently, an email was sent out to attempt to correct the former mistake. In my case, I received a Wine sector ballot while being a Board member for the Grape sector.

On the Wine sector ballot, a candidate who is supposed to be in the Grape sector is listed. Both mistakes will cause confusion and possible harm in both sector’s elections. In short, almost every aspect of this election has been managed improperly.

Regardless of what rationale you apply to this situation, the other candidates for the Board position(s) in question have been treated unfairly by the outcome(s) of your decision to accept repeated interference on behalf of at least one candidate.

Elections must be – and be seen to be – both free of interference and fair to all candidates. This election does not appear to meet either criterion. Having been notified, this is your responsibility alone.

Having spent most of ten years ensuring that this sort of institutional behavior was excised from our Association, I cannot knowingly condone, defend or lend my imprimatur as a Director to an election that appears to be deliberately managed or interfered with by management, either in its process or outcome.

Your failure to enforce the separation of management from Board elections and to ensure that the elections are both free and fair leaves me no option but to resign as Director effective immediately.

Our levy payers and community deserve better.

Sincerely,

Dudley Brown

Of all the personal traits valued in business, accountability is paramount. We may not agree with people who are accountable, but we understand them. Those who are not accountable for themselves, their choices and their subordinates are always eventually found out in positions of actual responsibility. And, it never ends well.

Five + hours after sending the above email to Hill and the Board, Hill (also known as “Mr. Teflon” by journalists – see the link for a better understanding of his modus operandi) sent a reply email to me and the elected Directors who I had copied. He also copied the recently appointed Board Member (appointed to advise the Board on “risk” – a new thing under Hill) who is also the Returning Officer for the election as well as General Manager Jen Lynch (who is not a Director) both of whom I had deliberately not copied, saying:

“Directors (sic) I note Dudley’s letter to me (copied to you) re election.  As the election has been under the control of the RO (sic) I have referred it to him for any comment.

In Hill’s recently published book, On Being a Minister: Behind the Mask (currently ranked #1,932,486 in the Amazon Kindle Store) Hill writes “A crisis is what happens when the minister doesn’t deal effectively, openly and completely with a problem. You have to be decisive – and get involved. Generally for operational matters ministers should be at arm’s length, but when problems emerge they have to get their hands dirty.”

 As the Chair had been previously notified of significant and prejudicial irregularities and interference by management in the electoral process for the Board, the only responsible party is the Chair to take action to resolve these matters. To pretend that the Returning Officer is alone responsible for “comment” or action on these irregularities, despite no formal reporting structure between management and the Returning Officer, is nonsense.

The fact is that the Chair is both aware of and appears to approve of these irregularities despite the fact that they are both deeply unfair to the other candidates nominated and confusing to the levy paying electors. By Hill’s own definition, he has created this crisis by not dealing “effectively, openly and completely with a problem.”

Rather, “Mr. Teflon” is distancing himself from being accountable for this mess (and others) while still pretending he has the skills to be Chair. Either the Chair accepts responsibility for mistakes made on their watch or they don’t – that is the standard by which they are measured.

There is no room for Rann-era ministerial blame shifting in an organisation of three employees or for one so ready for opportunistic, market oriented management and governance.

My fear is that 10 years of smart, community based foundation building for Brand Mclaren Vale will be frittered away by Hill’s “anaesthetist” routine instead of being the basis for McLaren Vale’s moment in the global world of wine.

McLaren Vale has a more diverse (more female winemakers, more winemakers from other countries, more grape varieties, soil profiles and unique geology, you name it), exciting and interesting (most ecologically sustainable wine region in the driest state on the driest continent, new winemaking styles, spirit of community and camaraderie rarely found elsewhere, etc) story than any region in Australia.

In an era where these authentic attributes are the most prized currency of regional wine tourism marketing, Hill and Lynch spent just 3% of the Association’s revenues on marketing Brand McLaren Vale last year while busily standardising various committee terms of reference and checking the easy KPI boxes while 8 of 10 of their employees and contractors resigned or were terminated.

18 months after being hired, Hill and Lynch still don’t have a forward plan for the capital cities and international marketing that they were hired to develop in their first months in the job, let alone the basic regional marketing pitch. It took me six months of mostly unrequited questioning to discover this.

The GM received a $10,000 pay increase in her first annual review and one contractor was paid out $20,000 (or, the levies paid on 1200 tonnes of grapes or 500-600 acres of production – poof!) to just “go away.” Spending others people money comes easily to this administration.

The McLaren Vale moment recedes before us.

In Hill’s book, he wrote “In politics the truly successful ministers are the ones who fall in love with their portfolios, because they then become passionate about their responsibilities, making it easier for them to persuade others.” Fellow Labor Minister Michael Atkinson commented on Hill’s observation that “The downside of this is that some Ministers…become hand puppets of their chief executive.”

While I have yet to personally see any results of Hill’s “passionate” responsibility to promote our region, after 18 months of reasonably close observation, I can confirm that Atkinson knew his mark well.

Peace. Out.

WET – Can We All Agree on This?

The Australian Federal Government has requested submissions regarding its proposed policy changes on the Wine Equalisation Tax (a 29% value added on at the wholesale level) Rebate. The rebate provides for the first $500,000 in WET tax collected be rebated to all ‘winemakers’ who pay the tax regardless of the type or packaging of the wine. The proposal can be viewed here:

http://www.treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/Consultations/2016/Wine%20equalisation%20tax%20rebate/Key%20Documents/PDF/WET-Rebate-Implementation-Paper.ashx

The purpose of the rebate is to support rural communities regardless of where the winemaker, lives, works, employs people, makes wine, etc. The government is proposing to reduce the $500,000 rebate to $290,000 over the next few years, limit the rebate only to “branded” wine (e.g. no bulk or cleanskin sales apply) and possibly add some “asset tests” such as owning or leasing a winery or vineyard, etc.

The potential effects of these reforms have been modeled inasmuch as the government believes that it will increase tax collections by $300 million. As a bit of grease, the government is giving $50 million dollars to Wine Australia to re-start the Australian export engine over the next few years. There is no evidence that these proposals have been modeled as far the short or long-term effects that these proposed reforms will have on the industry.

So, while this proposed reforms will protect the smallest (sub $1 million per year in sales) wineries, reducing the rebate will seriously impact the wineries that sell between $2-$5 million of wine per year most. $2 million businesses will effectively losing $210,000 per year in the change or, over 10% of their revenues. A $5 million dollar wine business will lose the same $210,000 dollars in benefit but only about 4% of its revenues. It is not a tax change designed to bite evenly. That behemoths like Treasury Wine Estates, Accolade, Australian Vintage and Cassella will still collect $290,000 in rebates seems perverse.

The asset tests that seem most controversial are perhaps most interesting. While the law needs to be applied evenly, it is a clear case of established companies trying to squash innovative, high quality competitors before they grow. On the other hand, for ‘asset free’ or ‘asset light’ wine businesses to contend they make an equal contribution to rural economies as those with significant capital investments, or that they compete on a level playing field with those businesses, is simply false. They don’t. They benefit from inefficiencies created by over-supply and over-investment caused by poor government policy. To the extent that they take up some slack in the system, they are of marginal positive net benefit economically. From an innovation point of view, they are priceless.

With respect to eliminating the rebate on bulk and unbranded wine sales, there seems to be near universal agreement that this is a good place to start.

The torturous road to this policy “place” started out years ago as a quest to end the persistent oversupply of grapes that is bleeding almost everyone in the industry dry. In every instance since the implementation of WET in the 1990’s, tax policies have had political origins rather than policy origins. The Winemakers Federation of Australia and the largest individual companies have lobbied for, and obtained these policies with disastrous long term outcomes. Historically, those companies are Treasury Wine Estates (Penfolds, Lindemann’s, Wolf Blass), Accolade (Hardy’s), and Pernod Ricard (Jacob’s Creek, Orlando). In the 80’s and 90’s they were called the PLO.

So it is this time. The net effect of these changes will be to reduce grape prices and competition (eg the number of wine companies, particularly regional ‘smallish’ family owned ones or highly innovative asset light ones) significantly without hurting large and medium wine companies at all. In fact, these changes will force grape growers back into the clutches of the large companies who, by and large, operate with very little competition on a region by region basis with the advantage of perishability to control prices paid to growers. Moreover, the low priced grape door will be opened for the large retailers to make an enormous push into the market wreaking havoc that may never be unwound.

While these policies will inevitably, finally, reduce supply somewhere, it will reduce the supply of those that can’t afford the step change rather than the lowest value producers who cause the overwhelming majority of the oversupply while weakening growers in all other regions and sectors. In short, its an unguided missile launched by the biggest companies and the WFA (whose members only constitute 20% of winemakers and 25% of the national grape crop) to do maximum harm to everyone else.

So, in the long-term interest of the industry and not just the big boys, I have a modest proposal:

  • Eliminate the rebate on bulk and unbranded wine. Almost everyone agrees.
  • Ensure that large retailers are not the beneficiaries of the change by implementing rules to ensure that winemakers own all ‘brands’ receiving rebates and that all wine brands receiving rebates are freely available in the marketplace and not simply captives of the large retailers.
  • Start a policy driven review process of the tax arrangements for the industry conducted by non-political policy makers in government to model various policies and scenarios of outcomes of those policies (understanding worldwide competition, currency, etc) to be completed within 12 months with recommendations to be made in the long-term interests for the industry and country alike on a triple bottom line basis. Only the government has access to enough data to model these.

Then, we have this conversation.

The proposed changes are a power grab made without proper information, modeling or consideration of their long term outcomes. The support of the WFA should be a warning to all – they haven’t made a policy call that worked out well in the long term for 25 years.

And like all, consultation processes, very little is likely to change from the proposals except to remove a few onerous bits to show that the pollies “listened.” Don’t blame the party in power. This is how they all do.

We need a dynamic, innovative and profitable industry for growers and wineries alike.

The least we can do is agree to what we agree to and demand serious modelling and analysis, not political back room dealing. So, lets give this on-line democracy thing a whirl…

If you agree, have a thick hide, skin in the game and an Aussie accent, you can start an online petition. You only have until the closing of submissions on 7 October 2016 to make a difference. If you do, I will happily publicise your effort as will most of the Australian wine media. See below to get started…

www.petitiononlineaustralia.com/

https://www.change.org/en-AU/guides/start-your-onlinepetition

Please get out in front on this. We have your back.

 

Hack the System

In an effort to head off ten more years of federal wine industry policy that delivers the wrong result(s), The Wine Rules is proposing a wine community “hack” of the new rules that the government has proposed. The goal here is to identify the holes in the hull and to make suggestions as to where the mines in the harbor might be before we set sail.

For instance, one goal here is to keep “Colesworths” from profiting from the WET Rebate. Another is to make sure folks have real “skin in the game” in the wine industry. Moreover, the new rules suggest that there be some sort of winery ownership or lease documentation test to be considered a winery.

Given this, why couldn’t the following scenario start occurring 1 July?

Large grocery approaches a grape grower with the following deal:

  • Grocery leases rights to a grocery owned “brand” to a grape grower
  • In exchange, grower agrees to sell x cases of y wines using aforementioned grocery owned, winery leased branding on bottles to said grocery at an agreed price.
  • Grower takes grocery contract to bank for finance
  • Grower purchases or leases some winery equipment and / or winery space to produce the contracted quantity of wine
  • Grower hires a winemaker pre-approved by the grocery customer to see wine through production
  • Grower bottles and sells wines to grocery and collects WET Rebate.
  • Grower gets paid by grocery. Rinse. Repeat.

Would there be anything that would be wrong or illegal about this arrangement?

Does this arrangement achieve what the government intended?

And, do you think that the grocery factored in the WET Rebate that the grower would receive when it calculated the price it offered the grower knowing that the grower had no where else to sell their fruit?

In other words, is the grower any better off?

Is the “branded” wine industry any better off?

Did the grocery profit from the WET Rebate or not?

How could the government ensure this didn’t happen?

In my view, this arrangement would be totally legal. And, totally wrong. For everyone. Perhaps even, the grower.

If you think companies and people could rip-off the new system, how would they do it? Who would do it? And, what unintended consequences could result from the proposed rules?

We’ve all whinged enough – let’s do something positive for the industry and the government and “hack” the system before the industry, and a lot of good people, get buggered again.

The Wine Rules will publish any sensible letter sent to us that does one these things (identify rip-offs, unintended consequences, who would benefit and how the government could ensure it didn’t happen) over the coming weeks. We will collect all responses (published or not) that we receive and provide them to the incoming government (and to the general public on our site) for their consideration in a few weeks time.

Last, if there are any people or organizations that wish to offer up some prizes for the best answers, we’d be happy to reward the smartest and (and funniest) wine hackers out there.

Have a hack by replying to this post using the buttons at the bottom. Or, email me at thewinerules@gmail.com if you prefer.

If you do not wish your name to be used, we will keep it confidential at all times provided you indicate in writing that this is your wish. Or, just don’t provide it…:)

Hack away!

Dudley

Below are the rules announced by the government going forward:

Changes to the WET Rebate

As a first step, the Turnbull Government will introduce amendments to strengthen the associated producer rules in the WET legislation. The intent is to stop multiple claims for the WET rebate by complex structures of associated businesses.

From 1 July 2017, the WET rebate cap will be reduced from $500,000 to $350,000 and from 1 July 2018 to $290,000. Tightened eligibility criteria will apply from

1 July 2019. Around nine out of ten current claims are for less than $290,000.

A phased reduction of the cap will help affected winemakers transition to the new arrangements.

Under the tightened eligibility criteria, a wine producer must own an interest in a winery and sell packaged, branded wine domestically.

The requirement to own an interest in a winery ensures that the rebate can only be accessed by wine producers who have a stake in the wine industry. This approach addresses stakeholder concerns about ‘virtual winemakers’ accessing the rebate.

Restricting the rebate to packaged, branded wine would implement the recommendation from the wine industry’s peak body, the Winemakers’ Federation of Australia. It addresses the wine industry’s concern that bulk and unbranded wine product contributes to structured arrangements that exploit the rebate.

The Government will undertake consultation to settle final details on the tightened eligibility criteria, including the definition of a winery.

The changes to the WET rebate will equally apply to producers of cider, perry, sake and mead. The changes will apply to New Zealand wine producers who claim the rebate under trade agreements.

Budget impact: Changes to the WET Rebate

The changes to the WET rebate are expected to raise $300m in revenue over the next four years.

http://www.budget.gov.au/2016-17/content/glossies/tax_super/downloads/FS-Tax/10-TFS-Alcohol.pdf

WET, Rebates, WFA and The Two Way Bet

Part Two – One Way Out 

Q: What do John Howard, Bill Clinton, Richard Nixon, Nelson Mandela, John Kennedy and Bob Hawke have in common? How and why are they monumentally more important to history than the office holders who immediately preceded or followed them (Paul Keating aside)?

A: Each chose to fundamentally reverse course on a long held belief or to advocate a different policy than one held by their core constituency at a critical juncture because they came to understand that the price of a particular change would dwarfed by the price of not changing. To wit: Howard – handguns, Clinton – Free Trade, Nixon – China and EPA, Mandela – violence, Kennedy – tax cuts, Hawke – floating the dollar.

Could Howard have gotten rid of handguns by asking his Liberal and National supporters what they thought first? Nixon with the Republicans about China? But, they personally committed to a strategic shift and then convinced their constituency why it was imperative. Both did so from a point of “we have to do this.” Not, “what can we do?” Leaders who are not capable of these sorts of strategic reversals are not leaders, they’re clock-watchers.

What does this have to do with the wine industry? Everything. It just lacks leadership willing to take on its most change averse core constituents.

The wine industry has to let go of its wildly unsuccessful approach to its industry wide “group think” top-down strategic planning bias of the past 20 years and accept that there are no permanent allies, only permanent interests and focus on them. Wine companies and business models come and go but regions, voters and industry reputations are pretty much forever.

The health lobby has been viewed as the enemy of the wine industry because they advocate tax increases on wine. They fought a 20+ year campaign against Big Tobacco before winning. But when they won, they won and kept winning. Looking back, it is hard to remember what the argument was about – was it smoking on airplanes, in restaurants, in elevators and advertising ciggies to children? Which of these seem like “rights” worth defending to anyone today?

Properly considered, ad valorem taxation of wine is not a tax, it is a subsidy for the manufacture of the cheapest alcohol available in the domestic market. Defenders point to the people who responsibly enjoy this cheap alcohol as a defence against all those that abuse it as though this makes it a “right.” Just as there were “responsible” occasional cigarette smokers who didn’t light up in crowded rooms, they weren’t the reason that new rules and taxes on cigarettes were required.

Without stretching this comparison too far, the cigarette industry tried to stop all change because they knew the truth about the dangers of their products. The wine industry appears to be doing the same thing for the same reasons while making the case that wine is a somehow different and better form of alcohol that should be treated differently than spirits and beer. The only possibilities in analyzing this as a strategy is that they are A) correct in all respects and standing on principle or B) to some greater or lesser extent, wrong and protecting the status quo for as long as possible to maximise profits, etc.

Without reciting a full literature review of the harmful effects of low priced wine on vulnerable parts of the population of Australia, it is safe to rule out option A as being “true.” The problem being solved isn’t a right / wrong problem. Moreover, Government, industry and lobbies are making different cases for different outcomes. Government wants maximum employment, tax revenues, regional investment and harm mitigation. Industry wants profits and to be protected from competition. The health lobby just seems to want the wine industry taxed out of business.

Everyone can’t get what he or she thinks they want in this equation. Prohibitions don’t work. Excessive taxation doesn’t work for the same reason. And, alcohol is never going away. Its been with us since at least the time man figured out that slightly rotting fruit was higher in calories and had a little euphoric kick to it. Finally, while growing tobacco isn’t an option for most people, anyone with a jug of fruit juice or a bag of sugar can make alcohol.

What is needed is sensible policy that captures the costs of the harm done, particularly to health, in the product sold. The only way to mute the prohibitionist impulse is to embrace that it is the alcohol in the wine, not the size of the price tag, that causes harm and tax it accordingly. Just because we don’t like their strident argument, it doesn’t make the health lobby completely wrong.

On the other hand, everyone needs to recognise that the wine industry is, in fact, different than the beer and spirits businesses for a number of reasons. Wine can only be made once per year and requires substantial capital investment that is inefficiently used so its cost structure is very different to beer and spirits. Wine has a very different social role – people enjoy it as part of eating and celebrating and quite a large percentage seem to enjoy it responsibly.

It is also an important regional industry in every state as well as a large export earner for Australia. Its role in tourism, employment, taxes paid etc is enormous compared to beer or spirits. Many of the regions where wine grapes are viable are, by definition, low value agricultural areas where because of inadequate rainfall or soil fertility, they will not support much else. Finally, if well managed, it is a sustainable industry for generations to come.

In short, it is reasonable to suggest that wine should be taxed somewhat differently to spirits and beer for perfectly good reasons. Moreover, a smarter industry would be advocating better tax polices to address these issues to weaken the health lobby’s opposition as opposed to blocking, uniting and encouraging it.

With respect to oversupply, it is bleeding the industry dry on a massive and broad scale, destroy(ed)ing our reputation as a fine wine country and not made anything better for anyone except those who profit from grape growers’ misery. In a free market, oversupply would be cleared by low prices and vines ripped out until supply balance is achieved. However, a subsidy exists (the rebate) that, along with a naïve belief in an interventionist government solution and sheer desperation, contributes to the persistence of oversupply.

From a government point of view, the most important lesson should be that rorting and tax avoidance would continue to occur on a scale proportional to the scale of oversupply regardless of the rules in place. Until the oversupply is wiped out entirely, the ATO and the Australia taxpayer will continue to be a victim of bad policy as well. Nibbling around the edges with still more rules for a failed policy both speeds up the vicious cycle of tax avoidance by winemakers and enforcement by the ATO.

From a winemaking industry point of view, the best policy for reducing competition isn’t new government rules but by the market charging competitors more for wine grapes than they do in an oversupplied market. Large highly efficient operators can operate in a higher cost environment far better than smaller, less efficient competitors.

With respect to the WET Rebate, it isn’t a right / wrong matter either. The free marketer in me says that all subsidies are inefficient and will distort markets in ways not entirely foreseeable or good. The farmer in me sees the market power that one or two wine companies hold in each regional market for wine grapes to make prices over a perishable commodity and see the wine industry is nothing like a free market. So, some policy around the margins to curb the worst behavior and encourage better outcomes is desirable if it is not overly intrusive.

There are perfectly good reasons for a rebate to operate on a modest scale to support very small wine businesses in regional areas. The proposed asset tests (own or lease a winery) will be difficult to administer (the words “synthetic lease” about to start trending) and probably quite unfair. However, it is also unfair for folks with no capital investment to obtain the same benefits by “free-riding” on those with significant investments. And, if it is to benefit regional Australia, should someone receiving a rebate have to live and spend his or her money in the regions as opposed to living in the city? Isn’t the small winemaker’s daily living expenditure as much a part, or more, of a sustainable regional area as any other expense?

With respect to folks who just don’t want to change, anyone looking around the industry today that believes that the existing or proposed rules will fix the industry for the long-term better is dreaming or not paying attention. And if they are not yet at a point where their fear of not changing exceeds their fear of change, they will never get there. Sadly, not changing will be more expensive than change for all involved including the government at this stage. This industry is in deep and immediate trouble without making fundamental near term changes.

So what could a sensible new regime look like?

  • Abolish ad valorem and establish a volumetric tax under the WET regime that is not set as high as spirits and beer – say one that breaks even with ad valorem between $12-15(RRP) per 750ml equivalent. Wines less than that would rise in price, those above would decline. This will end oversupply.
  • All labeling requirements to be within .5% alc/vol (as in most of the rest of the world) instead of the current 1.5%. This will ensure integrity in the system and raise revenue.
  • A rebate set to $350,000 and indexed for those (except as in item 5 below) with vineyard and/or winery assets (e.g. personal majority control only) ownership or long term (minimum three year) exclusive leases over same. Cellar doors should be considered but would have to be owned not leased because they require far less outlay and capture the pointy end of the value chain only. This will ensure continuing real investment across the grape wine and tourism value chain in regional Australia.
  • The rebate should wind back as companies grow – above $10 million in annual revenue, they should receive no benefit. As in any good progressive tax system, the wealthiest and largest should pay a bit more.
  • The rebate should be available to those without assets (as above) who live and work in a regional area for a maximum of five tax years. After that, if they have not been successful enough to persuade a bank or investor to back them in purchasing assets, they shouldn’t continue to benefit from the rebate. This will ensure the door isn’t closed to new entrants, it will help weed out the less successful and save the taxpayer some money.
  • All rebates and assets should be somehow linked or tied to an individual’s tax file number – e.g. they should not be able to operate under multiple entities or access successive rebates every five years.

While there is something here for everyone to not like, these rules would eliminate oversupply, create and sustain a market for regional investment and generational transition, create incentives to make lower alcohol wine of greater quality and replace a culture of rent-seeking with a culture of ownership and profitability for regional Australia and the Australian wine industry.

Finally, it should go without saying that there should be some government assistance, education and re-training for those economically displaced by rule changes. The changes proposed above will provide more than enough income to do so over the short run.

This could be the basis for an industry wide approach to coming to terms with what we must do. Who wants to lead this?

WET, Rebates, WFA and the Two Way Bet 

 

 

The Real Problem – Part 1

(Despite advice to tart this post up with pictures and the like, its just a wall of words because the current circumstance is a convoluted and sad new low for the Australian wine industry. But, as a tragic who follows this rabble closely and naively thinks that hope is always just around the corner, I feel the need to report the how, who, where and why of this debacle. Even very informed people are asking questions about how the hell we got to here. I hope this helps. So get your stimulant of choice, prop open your eyelids and try to stay awake. – Dudley)

The recent changes made by the federal government to the Wine Equalisation Tax Rebate to be implemented over the coming budget years are a sad consequence of a failure of governance by the Winemakers Federation of Australia (WFA) – the government recognised “peak body” for the national wine industry. WFA represents some 15-20% of Australian wineries (and about 80-90% of the wine produced) as well as about one-quarter to one-third of all the wine grapes produced (grown by their winery members).

In classical tragedy, the sad ending is a result of a personal flaw (pride, ambition, vanity, greed, etc) or some built-in characteristic (like Achilles’s unprotected heel) that can’t be escaped. The recent changes made by the government are a result of at least one of each of these.

As to the former, WFA fell for a schoolboy’s two way bet “heads I win, tails you lose” made by two of its largest members – Treasury Wine Estates and Pernod Ricard – and, as a result, has ended up throwing most of the medium and small winemakers of Australia to the wolves. In the contorted process in between these two points, it has lost any legitimate claim to its peak body status.

What ostensibly started out as an effort by industry to end the massive long-term oversupply of the Australian wine grape market ended as a successful anti-competitive power grab by Australia’s largest winemakers endorsed by a government whose main objective appears to have been increasing revenues while those not directly responsible for any of it get punished pretty much exclusively.

While the current winners and losers seem obvious enough, the question of interest at this point in this slow motion play is this: did WFA Chairman Tony D’Aloisio and the largest wine companies actually work together to this end wittingly or, was D’Aloisio completely snookered by them? In short, is he an evil genius or, just not so smart?

The WET Rebate changes – which reduce the amount of rebate from $500,000 to $290,000 over the next few years and limits access to the rebate to those who own or lease a winery – comparatively benefits WFA’s largest members; Treasury Wine Estates, Accolade, Cassella, Australian Vintage Limited, Pernod Ricard, DeBortoli, Yalumba etc. by harming their smaller competitors. All wineries will each wear a $210,000 per year income hit (small beer to the large, large beer to everyone else) while their most innovative competitors, the small “virtual” winemakers who are bringing the wine world’s interest back to Australian wine – will get shoved to the wall through new rules limiting their access to the rebate.

For the sake of transparency, none of these changes affect our family grape and wine business directly. The only dog we have in this hunt is the desire to see Australia recognised as a great wine making nation worldwide. The changes recently set out by the government will not hasten this outcome unless significant changes are undertaken.

The winemaker fury unleashed by these changes is understandable as it punishes those who did not cause the current industry mess and obscures the real problem facing the industry: long term over-supply in the Australian wine grape market.

WFA has advocated over 20+ years for policies to create and sustain conditions of surplus in the grape market to provide low and stable prices for wine grapes for its winemaking members. In fact, the only time(s) that WFA advocated for a reduction in supply has been to independent wine grape growers to reduce their crops as the surplus had grown so large it was negatively impacting WFA’s member wineries.

WFA advocated accelerated depreciation for vineyard investment to support massive planting growth in the 1990’s and early 2000’s. This policy was a result of the rapid run up of grape prices as Australian wines exploded into export markets in the low value dollar environment of the early and mid-1990’s.

The strategy was to get tax breaks (this is what industry associations exist for mostly) for WFA members to expand profitable businesses by reducing the cost of fruit through supply increases. While originally envisioned as a tax break for wineries to plant more vines, it turned into a vine planting cum raid on the ATO principally organized by the wine industry’s own employees for their personal gain both inside and outside of their day jobs.

Two common examples: wineries offering long term fixed price supply contracts to managed investment schemes managed and / or owned by their own employees (and their family members) or when winery employees would buy cheap land and sell it to a buyer with the promise of long term contract if they paid dearly and / or with a contract to employ contractors controlled by the employee or family members, etc. Many of the “great” names of the wine industry profited handsomely from this trade at the taxpayers’ expense, some even collecting gongs for their “services.”

Eventually, this got too smelly even for the winemakers who realized that the wrong sort (e.g. non-winemakers, particularly grape growers) were profiting from this scam and finally asked that it be curtailed in 2004. In order to ensure the right sort (winemakers) were looked after and that the “excess” surplus went away, WFA sought and obtained the WET rebate of $290,000 (later increased to $500,000) on wine sold thinking this would create the right incentives and reward their members.

Predictably, grape growers (and other sorts of rent seekers including retailers like Coles and Woolies) then became “winemakers” to obtain $500,000 per year in tax rebates. Winemakers of all sorts would blend and buy and sell and buy and sell the same wine multiple times to get multiple rebates. Even employees of wine makers got in on the scam by “making” and “selling” wine to their employers to get the rebate as part of their compensation package.

Another unintended consequence of long term oversupply and low prices was that a new generation of winemakers was able to start making very innovative wines with very little investment and collect rebates on their sales. Some of these wines have started to capture the world’s attention for Australian wine after a decade in the wilderness.

While legal at the time, all of this behavior reflects the questionable logic of governments endorsing peak bodies and accepting their guidance in the management of sectors of our economy. While a peak body satisfies government’s seemingly sensible request to industry to speak with “one voice,” governments are absolved from making the hard decisions between competing views of the future within an industry. When things go right, it is the politicians’ success. When it goes wrong, governments have industry to blame.

As to the latter type of tragic flaw, WFA is composed of three “colleges” (Large, Medium and Small winemakers) of which four representatives of each are represented on the Board. In turn, the WFA constitution requires the assent of 80% of the votes cast to enact policy. 80% of 12 equals 9.6 votes. Assuming that the law of rounding is applied, ten votes are required to approve smoke-o.

The tragedy is that in preventing any two colleges from running roughshod over the third, the entire body can do very little that is progressive or collective as would befit a body of governance such as WFA. This structure tends to benefit large incumbents because incumbents prefer that progress be profited from and not shared with others while the smallest fear the economic power and influence of the largest. And, it can permanently stall necessary step-change recommendations like volumetric tax that might get over the line with a simple majority.

The crux of the problem is not that WFA Board are bad or dumb, it is that the WFA Constitution is a formula for deadlock, not governance. While they can generally agree on the need for more tax breaks, less competition and that independent growers should pull out their vines, they lack a structure for fair and reasonable strategy and policy to evolve over time as industry needs change.

Keep in mind that the WFA only represent their member companies. Not the 80% of wineries who do not belong, nor the businesses of 70% of the wine grapes grown (that’s the role of the underfunded, dysfunctional and ineffective WGGA), nor the regions where grapes are grown and made into wine. Taken together, these deficiencies render WFA’s current claim to industry governance inadequate.

One of the foundational crimes of the WFA was the negotiation of a 26% “ad valorem” wholesale sales tax (WET) on wine in the 1990’s along with the depreceation scheme. At the time, the reigning companies (Penfolds, Lindemans and Orlando, or, the “PLO”) all had large, low value (bag in a box) wine businesses and supported this method.

Then WFA President Brian Croser’s recollection is this:

“On the tax issue the original 1993 Dawkins proposal was to instantly increase the sales tax on wine from 20% to 31%, which could have had dire consequences and we fought that back to a staged implementation to 26%. The large companies negotiated the vineyard depreciation offset.”

There is no record of Croser or WFA arguing against the depreceation offset publicly as far as I can find. That he was totally unaware of this side deal seems improbable, but there you are.   The parallels to Tony D’Aloisio and 2016 could not be clearer.

What the poorly conducted debate over the last year has made plain is that all sectors of the wine industry have cause for complaint and that no one set of policies will satisfy any one sector. The scenario of “why try to please everyone when everyone can’t be happy?” has opened the door to these new rules for the government.

How the present government landed on the present solution is pretty simple; the need to appear to be “doing something” expedient (e.g. before an election) that appeased those with the most access to government while the prospect of additional tax revenues trumped solving the hard (but solvable and controversial) problem of oversupply that they were meant to be solving with industry. How the problem being solved morphed from oversupply into too much competition bears recounting.

In September 2011, Treasury Wine Estates went “rogue” and announced it desire to see major tax changes. These calls went nowhere until May 2015, when TWE (Penfolds, Wolf Blass, Wynns, et al) and Pernod Ricard (Jacobs Creek) went outside the WFA tent together and announced that they would campaign with their own money to 1) get the ad valorem tax changed to a “volumetric” tax (a tax on the amount of alcohol in a bottle rather than the value of its contents) and 2) to eliminate the WET rebate altogether to get rid of distortions caused by virtual winemakers, retailers and rent seekers. Interestingly, in June 2015, Pernod publicly defended this approach by saying that “The single biggest challenge facing the Australian wine industry is the ongoing, unsustainable oversupply of lower-quality grapes and wines, which harms both its image and financial performance.”

Around that time, Australian Vintage put its membership “on hold” with WFA in order to represent its own (presumably differing) views to government. In any scenario, if the WFA lost two of its largest members, it financial capacity to continue and its claim to represent most of the industry would be wrecked. Having temporarily lost one of the largest, it appeared to believe that it was doomed to sue for peace with the other two if it was to continue as an organisation. Ever the corporate lawyer, President Tony D’Aloisio started imagining ways to paper over the differences.

What was not inevitable was what the terms of the peace would be. Would TWE and PR be happy winning just one side of the two way bet or would they demand the whole enchilada? Or, was the terror of volumetric tax only a cudgel used to obtain wider rebate reforms than WFA would agree to in order to comparatively benefit large companies at the expense of everyone else? Or, were they bluffing?

Without bluffing in response, D’Aloisio had the choice to publicly say that if TWE and PR wished to go rogue on these issues, they did so without the support of the WFA Board and that WFA would oppose these efforts. Strategically, TWE and PR only really need WFA 1) for the base of political and multi-state / community support (e.g. voters) that its other 400 members provide and 2) to make sure the industry does not cooperate in ways harmful to them. What happened instead was pathetic – D’Aloisio blinked.

Oddly, the most economically sensible (and politically difficult) solution for the entire industry was the proposal to change the taxation method to volumetric. Given that two-thirds of Australian production is for export, the taxation method is of no consequence to this portion of the market.

To the exposed one third of the industry remaining, it is clear from the research that high value grapes and regions create jobs at a rate of about 4 times per tonne to that of low value regions while employing as little as one-eighth of the water for the same value of grape output. The University of Adelaide’s Kym Anderson’s encyclopedic research on this topic “Economic Contributions and Characteristics of Grapes and Wine in Australia’s Wine Regions ” from April 2009 is unequivocal. As this research was partially underwritten by WFA, they can’t claim to not know this.

For those who claim that a volumetric tax would wreck inland communities etc, it just isn’t so. Some grape growers would exit grapes and enter another agricultural sector, some would shift to a different level of value production by changing to less water intensive and climatically appropriate varieties or quality grades, some would carry on as they have, many would add value by making wine, building cellar doors etc. and some would leave the business.

Given that these regions are currently poorly differentiated and being financially bled to death en masse, a phased in volumetric tax actually presents real opportunities for change. However, to erect new barriers to these businesses evolving and entering the value added branded wine sector would be doubly cruel policy. As to what an alternative and prosperous future looks like, The Ricca Terra Farms and Chalmers businesses are great inland success stories that should be studied and emulated. You can make money there in this business environment.

To the extent that there would be low value grape growing and winery job losses, they would be replaced by those generated from additional plantings of just one fourth of as much grape volume using one eighth of the water in high value regions. Moreover, the enormous quantities of irrigation water saved could be used to grow food, jobs and economic diversity in inland regions instead of surplus wine grapes that sell as wine for less than bottled water as at present.

By way of example, McLaren Vale has cut nearly half its grape production in the last ten years but emerged with a stronger and more successful industry by focusing on higher quality and greater diversity of grape, wine and tourism experiences. This, in turn, is attracting world-class investors who are buying and planting vineyards again. We’ve slowly learned that the only way forward is to grasp the nettle of change, not avoid it.

On the consumer side, a volumetric tax would spur demand for higher value wines (e,g. over $15 p/b) as their retail prices tumbled due to reduced taxes per bottle. Higher value wine would steal share from other drinks sectors as taste became the basis for consumption. Competition and investment in this sector would increase significantly. There is already a looming shortage of high quality fruit that is causing smart wineries (Casella (Yellow Tail), Jackson Family Estate, (USA), Delegat (NZ), Seppeltsfield (Barossa) and others) to purchase large vineyards in high value Australian regions to guarantee future supply.

On the other hand, goon bag wine would increase in price and cause consumers to contemplate which form of alcohol they preferred based on taste rather than price. But goon bags will not disappear. Not ever. Lots of people like the flavor and convenience of bag in a box wine and will pay more for it.

Numerous reviews, including the Henry Tax Review, have suggested ad valorem be changed to volumetric for many economically efficient and sensible reasons only to be ignored because of some large companies and WFA’s lobbying to maintain ad valorem. Code words used like “caring for regional Australia and inland communities” unfortunately mean “keep the surplus”, “keep the wine industry’s monopoly on low priced alcohol” and “don’t make us change.”

Most importantly, the health lobby has made legitimate points in its campaign to change tax on wine in Australia. It is a well-funded lobby that will not quit. As with the tobacco industry, what will bring them eventual victory will be the toxic equivocations of the wine industry’s leaders, not the toxicity of the wine industry’s products.

To fight to maintain a permanent large price advantage to sell alcohol in large (millions of units of 3-5 litre boxes) formats to the most vulnerable in society is to abandon the moral high ground to those who might do our industry much more serious harm than sensible self reform would entail.

The current leadership of the wine industry has somehow captured the triple crown of bad governance: economically non-adaptive, strategically wrong and morally odious. If the wine industry wishes to prosper over the long term as a respected industry in Australia, it needs to reverse all three of these positions at speed.

Without recounting the multiple industry and government initiatives including a Senate Inquiry, suffice it to say that WFA was in a fight for its own survival, not a fight for the best policy or for its 400 members.

When it put out a mad list of things that 80% of its board could agree to (including less competition and more tax breaks), the government implicitly rejected the WFA offering by establishing still another committee of industry folks (including TWE, Orlando, DeBortoli, Yalumba and others) to make recommendations to it via the Treasury instead of through Agriculture.

Instead of saying to government that “the WFA has made recommendations that its entire Board supports” and staying out of it, D’Aloisio joined this new committee when invited. Had he stayed out of it, he would have undermined the new group’s legitimacy and been able to make a principled case on behalf of WFA’s members against their eventual recommendations.

However, by joining, he lent WFA’s imprimatur to the new group’s authority and allowed his own small and medium members to ultimately get the shaft. While we can only speculate why he made such a poor decision for his membership, it is a reflection of his failure to play the two way bet from a position of principles or courage in the first place.

This committee’s findings, combined with the Senate Inquiry, gave the government scope to back policies preferred by the big end of town. Given that the Government’s prime short-term concern is revenue, this was a seemingly expedient and reasonable solution. However, these new rules will prove to be not only bad policy and bad politics, they will be a nightmare to enforce.

Had WFA lost on ad valorem, it would have lost its other large members – AVL, Casella and, perhaps, Accolade. Instead, it got to keep all its big members (despite the fact that they do not agree on the big issues of oversupply and taxation) while sacrificing its medium and small members interests.

All of which is to say that this convoluted saga served the biggest companies perfectly: everyone has forgotten what they were supposed to be doing – eliminating the long-term oversupply of grapes that is destroying the industry that was both caused and perpetuated by WFA over 20+ years.

Instead of a sensible policy emanating from those granted “peak” authority, the wrong issues have been now been settled by the government punishing the exact people and businesses who had little or nothing to do with causing the problem – small and medium winemakers – without solving, let alone addressing, the what needs solving – oversupply. At a minimum, government was not well informed by industry. As the “peak” body, only WFA and its president can be blamed for this.

It is cheap and stupid to characterise this as a purely political issue, or to demonise one political party or the other. Neither major party has implemented a broadly sensible set of policies with respect to alcohol and taxation. Nor have they declared what the tax and rebate is explicitly for and against; harm mitigation, general revenue raising, demand management, etc.

Governments are responsible for representing the country, not just one set of interests or to solve just the easy problems or to raise revenue. They alone have the resources and authority to do the job in full and at the pace required to achieve outcomes with positive long-term effects for the country.

I have spoken with enough people in the bureaucracy and the (present and former) government(s) to know that they know this has not been “solved” as long as oversupply remains and that there is a lot of work remaining. They also know that WFA is a shambles but are not sure what to do about it.

In classical Greek mythology and tragedy, the punishment after the downfall was often agonizing and repetitive – like Sisyphus pushing his rock or Prometheus’s eyes being continually attacked by birds. Without major reform like a volumetric tax to put the Australian wine industry on a different trajectory, the industry’s future will likely be equally awful and repetitive. Or maybe the dollar will drop to 50 cents USD and we’ll forget all about this. Again.

For what it is worth, my prediction is that as the reforms bite and the competition quickly disappears, the grape supply will not contract by much, if at all.

What will happen is that these large wine companies will renew their decades long race to the bottom of the price, margin and quality barrel (notice after years of “luxury”, “premiumisation” and “masstige” talk that TWE is introducing its Yellowtail priced Blossom Hill range to Australia right now?) and keep grape growers on the knife edge of survival. Meanwhile governments will justifiably say “how did this happen, we did what industry asked” whenthe complaining grows louder.

Oh, and where the $50 million “from the government” to be devoted to marketing Australian wine the next four years came from that no one is talking about and no one knows how it will be spent? One guess.

Your options:

  • Cancel your WFA membership. Now.
  • Care enough to complain. Loudly.
  • Its election season – call, write and post on social media to candidates and tell them these reforms harm the wrong people and don’t address the problems of over supply – you will be surprised how much they listen once every three years. WFA, Treasury and Pernod Ricard are betting you won’t. List of candidates here.
  • Demand that WFA lose its federal peak body status until its current President stands down and new rules in its Constitution are put in place for 51% of its Board to make decisions and its Board members to be elected by their entire membership.
  • Or, do nothing. Other professions beckon.

Part 2 to follow in the coming days.

HISTORIC FIRST: WINEMAKERS FEDERATION UNITES WINE INDUSTRY

In a thrilling and concise “8 Point Plan” the Winemakers Federation of Australia claims to have united the famously fractious wine industry around the proposition that other people should pay to fix WFA’s 20+ year run of disastrous policy ideas by creating a “demand led recovery.”

Among the key points to achieve their vision is to ‘keep the WET rebate (a 100% tax break on alcohol tax for most producers) for branded wine because it continues to deliver on the original policy intent’ while simultaneously ignoring the actual original policy of only benefitting the smallest wineries.

In another crazy brave act of thought leadership, WFA also proposed to nullify an international treaty by keeping foreigners (Kiwis this time) from accessing the WET Rebate scheme despite them doing so legally and calling it a “level playing field” idea (despite its tilt).

WFA also announced that they have agreed that a federal government sanctioned body – the marketing friendly named AGWA – should receive $40+ million dollars in to ‘grow export demand’ for Australian wine despite AGWA overseeing 10 years of steadily declining international market share and falling prices paid or Australian wine in overseas markets.

Most importantly, the WFA proposes that nothing at all should change for their members in order to fix the Australian wine industry “before the 2016 vintage” aside from winemakers receiving a new tax break to encourage industry “consolidation.”

In a historic demonstration of industry unity, WFA also obtained the support of the national grape growing organization WGGA behind the proposition that WGGA’s grape grower members should lose all WET rebate tax benefits for making unbranded “bulk” wine and cleanskins from their grapes and selling it to companies such as industry duopolists (duopsonists for the pedantic reader) Coles and Woolworths.

The WGGA, headed by former long time Wine Australia employee Lawrie Stanford, did not answer TheWineRules questions in writing when asked about WGGA accepting financial sponsorship from key bulk wine buyer Woolworths.

When questioned why WFA didn’t propose a different tax system to discourage production of oversupplied low value wine and laws to protect consumers from otherwise regulated and dangerous substances like wine with no labels, WFA CEO Paul Evans replied: “politics is the art of the possible.”

In other politics news, the federal government has set up its own group to look into taxation arrangements in the wine industry in spite of the 8 Point Plan. Meanwhile, it can be reported that there has been generational grumbling that the top secret VOMIT (Very Old Men In Tweed) organization is “running things”.

Exclusive photo of VOMIT Leadership Meeting

Exclusive photo of VOMIT Leadership Meeting

The Kangaroo Court and the Reign of Error

The Kangaroo Court and The Reign of Error

All together now

Tie me kangaroo down, sport

Tie me kangaroo down

Tie me kangaroo down, sport

Tie me kangaroo down

 Tan me hide when I’m dead, Fred

Tan me hide when I’m dead

So we tanned his hide when he died, Clyde

And that’s it hanging on the shed

– Rolf Harris

 A kangaroo court is a judicial tribunal or assembly that blatantly disregards recognized standards of law or justice, and often carries little or no official standing in the territory within which it resides. Merriam-Webster defines it as “a mock court in which the principles of law and justice are disregarded or perverted“.[1]

 A kangaroo court is often held by a group or a community to give the appearance of a fair and just trial, even though the verdict has in reality already been decided before the trial has begun. Such courts typically take place in rural areas where legitimate law enforcement may be limited. The term may also apply to a court held by a legitimate judicial authority who intentionally disregards the court’s legal or ethical obligations. – Wikipedia

The problem with “rock bottom” moments in life is that the inevitable consolation offered is “it can’t get worse than this.” The problem with this is that it almost always does get worse. So, after ten horror years in the Australian wine industry, I won’t say, “it can’t get worse than this” here. It just might.

Last week, the Winemakers Federation of Australia released the much-awaited “Bleby Report” about the documents that WFA redacted and represented as complete to the McLaren Vale Grape Wine and Tourism Association (MV). (Anyone who is unfamiliar with this matter can refer to the post on this site named WoofaGate and Entwined leadership ).

There are two notable things about this – that WFA accepted Hon. Bleby’s report as complete and the report’s stunning deficiencies.

After 16 pages of breathless reportage about bureaucratic derring-do, the retired Hon. David Bleby concluded this about WFA’s conduct:

“the fact that the information conveyed purported to be in the form of a copy of the letter, when it was not, thereby constituting misleading and deceptive conduct.” (italics mine)

To think it could have just ended here with an apology from WFA and a sacking or polite resignation or two was one of those false rock bottom moments. We all wish this would end.

Tony D'Aloisio Tony D’Aloisio

Tony D’Aloisio, President of the WFA, chose to give a miss to the opportunity for WFA to assert its integrity in this matter and instead released an occasionally bizarre and combative statement meant to be the final word on the matter (in his opinion anyhow).

One of his surreal conclusions from this statement was:

“Importantly there was no finding by Mr Bleby of unethical conduct or dishonesty or fraud on the part of any of those involved. Nor was there any finding that or that there were systemic issues within WFA or WINEC that needed to be addressed.”

Understood in two parts, this conclusion gets even weirder. “Misleading and deceptive conduct” is by definition “unethical” and “dishonest.” (Seriously, why would WFA be implementing honesty counselling unless the problem being remedied was “dishonesty”?) Orwell would have loved this guy.

The second part is that there was no finding of “systemic issues within WFA or WINEC that need to be addressed.” Of course there wasn’t. The judge wasn’t asked to investigate this. Hon. Bleby himself says “a belief that WINEC was only acting in the interests of larger wineries or other or a combination of factors is not for me to judge.” (italics mine) Mr. D’Aloisio must think that we are unable to read.

Taken together, Mr. D’Aloisio’s statement is, at best, nonsense to deflect blame away from WFA for an offense committed by at least one WFA employee and committee Chair – both established and admitted to –  prior to Hon. Bleby being hired.

This is the beauty of hiring your own judge. You can conclude whatever you want regardless of what they conclude.

kangaroo court

To avoid distraction as to blame in this matter, WFA paid for, accepted and published Hon. Bleby’s report. In doing so, this report became WFA’s report. They now wholly own it, its deficiencies and its potential liabilities.

The terms of reference that Mr. D’Aloisio and WFA publicly established for the Hon. David Bleby in investigating this matter were:

“In relation to the covering letter to the Aus-Qual report prepared for WINEC: Examine the events relating to the provision of the covering letter and differences between the original and copy provided; Speak to those involved and as he deems necessary to others; and make all such other enquiries as he sees fit.”

In all things legal, especially between two formidable lawyers such as D’Aloisio and Bleby, words matter. This remit does not provide Hon. Bleby discretion with respect to whom he speaks to – he is required to “speak to those involved.” He may then speak to others “as he sees fit.”

I am not a lawyer but English is my mother tongue. Whether witness, suspect or Good Samaritan, the person discovering and reporting a potential crime or offense, civil or criminal, is, by definition, “involved.”

In his 18-page report, Hon. Bleby makes reference to Dr. Irina Santiago-Brown, by my count, at least 24 times. (For the sake of absolute clarity for the reader, Dr. Santiago-Brown is married to your correspondent. She has reviewed this post and commented on it for purposes of accuracy.) Dr. Santiago-Brown both discovered and reported the misleading conduct at the source of this matter.

Dr. Santiago-Brown was not contacted at any point in Hon. Bleby’s investigation of this matter while the rest of those “involved” were contacted and / or interviewed, some numerous times.

The omission of Dr. Santiago-Brown’s testimony creates such awkward gaps in the evidence presented that at one point Hon. Bleby is forced to confess that “A copy of the letter was produced to me at my request. While it may have raised some concerns to some growers, its relevance to the matter in hand was unclear to me.” This confession of lack of understanding by Hon. Bleby is the hinge on which this entire report swings.

The letter referred to is a letter from Treasury Wine Estates (TWE) advising grape growers that they needed to enrol in Entwine by 30 September 2014. Participation in MV’s Sustainable Australia Winegrowing (SAW) system had been accepted by TWE as proof of Entwine compliance in prior years. In 2014, this was no longer to be accepted by TWE despite the fact that WINEC Chair (and TWE employee) Ms. Gioia Small was responsible for administering an ongoing third-party assessment of equivalence between the two programs whose results were received by both WFA and her on 5 August 2014, nearly eight weeks prior to this deadline.

Ms. Small’s own LinkedIn bio describes her role thus: ‘Regional Manager Sustainability Treasury Wine Estates 2002 – Present (12 years)Adelaide, Australia Responsible for the strategic direction and overall management of environment for wineries, vineyards and packaging centres in Australia. Leadership and management of a national technical team servicing vineyards, wineries and Grower Relations teams. Encouraging innovation and adoption in a commercial environment.” (italics mine)

 

Gioia Small Gioia Small

In Hon. Bleby’s report, Ms. Small claimed she was unaware of this letter from TWE.

This entire kerfuffle was (originally) about this timing – Mr. Griffante and Ms. Small appeared to be dragging the chain and proposing a possible equivalence announcement perhaps as late as November 2014 using the rationale that a lengthy process of WINEC evaluation and recommendation and then WFA Board evaluation and acceptance was still required despite both parties understanding that Aus-Qual was the relevant authority to make this assessment.

According to Dr. Santiago-Brown, Ms. Small explained that this lengthy (and previously un-articulated) process was required as WINEC was not up to speed on the Aus-Qual process to establish equivalency between the programs and the importance of “due process.” It was in response to Ms. Small and Mr. Griffante’s inability to even recall the names of the WINEC members that Dr. Santiago-Brown used her phone to identify the committee members on the WFA web page as referenced by Hon. Bleby in his report.

(As a reference point with respect to timelines, expectations, chain dragging and entwined interests that apparently escaped Hon. Bleby’s reportage and timeline, Mr. Griffante forwarded a letter on 31 July 2012 on behalf of TWE Grower Relations Manager Hamish Franks in which Mr. Franks states: “TWE has concluded that there is a relatively short (- 6 months) within which the MV program and its 3rd party audit system is likely to receive sign off by WFA.” I am curious what Mr. Franks’ reporting structure looks like at TWE and if Mr. Griffante was forwarding similar emails for other winery members using Entwine in McLaren Vale.)

Damien Griffante WFA Damien Griffante WFA

Anyhow, MV levy payers had contacted MV in 2014 indicating that they wished to remain in SAW but needed assurance that it was equivalent to Entwine prior to the 30 September 2014 cut-off date set by WFA or risk being unable to sell their fruit to TWE in the coming season. For many growers, to ignore this warning from TWE was to potentially face financial ruin. Hence, MV’s request to release the results of the Aus-Qual report on or before 30 September was to protect its levy payers from serious harm or needless duplication of effort resulting from a deadline established by TWE and WFA / Entwine. This entire matter can not be understood without understanding the relevance of this deadline and how it came to be.

That WFA’s CEO Paul Evans, WFA’s Manager Damien Griffante and / or WINEC Chair Gioia Small did not communicate the context of this salient fact to the Hon. Bleby in at least seven reported separate conversations (plus email) is now clear.

WFA CEO Paul Evans WFA CEO Paul Evans

That this is the standard of communication offered to the Hon. Bleby by WFA in an investigation entered into and paid for by WFA members is emblematic of this current mob. They must have adopted the “shortest possible truthful answer” and “CYA” strategy of defense attorneys everywhere.

Had Hon. Bleby interviewed Dr. Santiago-Brown, he would have had no doubt about the significance, relevance, timing or urgency of the TWE letter or the ensuing events. Instead, he chose to blithely report that the letter’s relevance was “unclear” to him.

Had Hon. Bleby understood the context of just this one letter, his entire report would have been different. For the first 16 pages, he seems to be trying to turn simple tale of apparently inept bureaucrats overwhelmed with the prospect of the embarrassment that they might be revealed as inept bureaucrats into a potboiler of conflict and intrigue.

Hon. Bleby’s report attempts to build up a dramatic parallel story line to the factual one whose relevance was unclear to him. In this narrative, WFA is riven with “tensions” in an environment of “suspicion and distrust” about what could happen if WFA showed MV the auditor’s covering letter that expressed exactly what MV had been telling WFA for three years – that Entwine may not yield continuous improvement because of its structure.

In the Analysis and Commentary pages of his report, Hon. Bleby goes as far as to breathlessly report a meeting held on 5 September thus: “hostile, tense and unpleasant, as indicated by the opening apparently irrelevant salvo concerning the alleged TWE letter and the failure to provide a copy of whatever other documents had accompanied the comparison table.” This is the same TWE letter that Hon. Bleby has already reported that he has seen and does not understand the relevance of is now “alleged” and discussion of it is “apparently irrelevant?” Really?

Moreover, Hon. Bleby refers to a “history of adverse media” and that “there had been mainstream and industry media reporting which was critical of Entwine” and a belief that these “public criticisms were inspired by MV.” These statements are reported as credible and made without reference to any documentation supporting the existence of these beliefs let alone MV’s responsibility for it. This is fantastical stuff for any sceptical reader to accept without any supporting documentation, references, footnotes, etc.

Excepting one article written by wine author and columnist for The Australian Max Allen in 2009 (get over it!), I cannot recall any negative media reports about Entwine. And, I cannot ever recall a public comment by anyone from MV, which disparaged Entwine or WFA.

Again, the judge’s narrative angle would have been badly undercut by Dr. Santiago’s testimony. In short, the build up of tensions reported by Hon. Bleby would be seen for something quite different; a smokescreen created after the fact by those already found to have misled to justify their calculated deception, attempted cover-up and chain dragging designed to benefit WFA at MV’s expense. But, not having met Dr. Santiago-Brown, the judge sails along to his thrilling conclusions without investigating the matter wholly or enquiring as to possible other motivations for deception.

What is clear from Hon. Bleby’s report is that Ms. Small had decided as early as 5 August 2014 that the “to be redacted” paragraph was not for public consumption and that Mr. Griffante was aware of her thoughts. Another point made is that Mr. Griffante redacted a second document (the ‘questions’ document sent to Aus-Qual) before transmitting it to MV as well.

The previously admitted misleading conduct appears not to have been a ‘heat of the moment’ error of judgment in an atmosphere of “tension” but the result of a premeditated effort where an additional document was also redacted and transmitted to MV to cover up the initial redaction. Mr. D’Aloisio failed to mention this as well in his denial of wrongdoing.

Dr. Irina Santiago-Brown. Sustainability Officer, Sustainable Australia Winegrowing. Dr. Irina Santiago-Brown. Sustainability Officer, Sustainable Australia Winegrowing.

Setting aside the repeated discourtesy Hon. Bleby shows Dr. Santiago-Brown by not once addressing her by her formal title (he prefers Ms. Santiago-Brown, Irina Santiago-Brown and “Irina” while always addressing all other participants by their proper names), he also incorrectly describes her role at the outset as “Member of MV and actively involved in the formulation of MV Program.” Oddly, Hon. Bleby never neglects to refer to himself by his own honorific title.

By contrast, Hon. Bleby describes the admitted source of redaction, Ms. Small, as “Member of WINEC since 2007 and Chair of WINEC since late 2013; Regional Manager Sustainability, Treasury Wine Estates (“TWE”), having worked in environmental sustainability for TWE and one of its predecessors (Southcorp) since 2002.”

Hon. Bleby neglects to mention that Dr. Santiago-Brown has been employed by MV since 2011 as the Program Manager managing the Sustainable Australia Winegrowing (SAW) system (Hon. Bleby gets that name wrong as well) who has both personally compiled the SAW program and is the only person in Australia to hold a PhD in Sustainability in Viticulture.

That her PhD thesis – a survey of all the assessment systems for sustainability in viticulture in the “New World” wine producing countries – makes her perhaps the most qualified person anywhere on this subject is conveniently not reported by the judge. Moreover, SAW’s six different chapters have been successfully peer-reviewed by relevant world experts. No other remotely similar system in Australia, including Entwine, can claim this level of rigor or academic qualification.

Another gaping omission is the redacted letter from Aus-Qual. Considering that this letter, and its subsequent redaction, is the subject of the investigation, how strange is it to not include this letter, including its redacted passage, in the report?

Despite his best efforts to polish this pile and roll it in glitter, Hon Bleby still finds that the acts already admitted to being wrong as still being wrong. Unfortunately, in doing so he seems to accept and propagate the “emotionally charged” smokescreen purported by Mr. Griffante, Ms. Small and Mr. Evans without fully investigating it by interviewing Dr. Santiago-Brown. This smokescreen version is the reality distortion field needed by Mr. D’Aloisio to come to his own shape shifting conclusions and pronouncements.

Despite all of this (there’s more), the real question in this matter comes down to the terms of reference established by WFA: Was Dr. Santiago-Brown “involved” in this matter or not?

If Dr. Santiago-Brown was “involved”, why wasn’t she “spoken to” as everyone else was and as Hon. Bleby’s terms of reference require? Why wasn’t she given the opportunity to speak to the events everyone else had the opportunity to speak to? Why wasn’t she given the opportunity to explain the substance and context of meetings and emails as reported by Hon. Bleby as others were? Why did Hon. Bleby not provide her the right of reply? What happened to a “fair go”?

If Dr. Santiago-Brown was not involved, why is she mentioned 20+ times, her behaviour and her work allowed to be freely characterised by third parties and editorialised upon without the right of input or reply? If she was not involved, she should not appear in this report except peripherally and purely in factually based terms.

In either scenario, this report can only be understood as deeply flawed and an effort to paint Dr. Santiago-Brown in an unfavourable light. Why would WFA’s Board accept such an obviously deficient and mean-spirited document and publish it? What sort of people are these? What are they going to such lengths to protect?

(courtesy smh.com) (courtesy smh.com)

In accepting and publishing this report, Mr. D’Aloisio and the WFA Board have both committed and compounded an error of governance that has created a needless liability for the entire WFA membership. This report must be formally and publicly withdrawn immediately.

All those responsible for this perversion from the initial redaction to Mr. D’Aloisio’s bizarre conclusions must accept responsibility and resign or be removed from positions of responsibility as a matter of decency and integrity for the benefit of the entire Australian wine industry.

Finally, WFA must issue Dr. Santiago-Brown a public apology for the indecent treatment she has experienced at the hands of those who should know better.

It serves the entire Australian wine industry’s worldwide reputation poorly to have admitted wrongdoers who have also been found to have done wrong by a third-party to be absolved of all wrongdoing by the President of the WFA. Simply put, WFA’s behaviour isn’t good enough. WFA’s near 400 members deserve better. That the other 2000+ non-members also get besmirched by this conduct is a pity.

It is up to WFA members (including WINEC committee members) and Board members to decide that enough is enough and demand immediate change.

If you want this matter to go away, make yourself heard. Email a board member, post a comment, write a letter.

Please do your bit to adjourn this kangaroo court and bring an end to this reign of error.

Or, maybe we’re not at rock bottom yet.

WoofaGate and Entwined Leadership

“It was worse than a crime. It was a mistake.” – Talleyrand

re·dact verb \ri-ˈdakt\

1:  to put in writing :  frame

2:  to select or adapt (as by obscuring or removing sensitive information) for publication or release; broadly :  edit

3:  to obscure or remove (text) from a document prior to publication or release

– Merriam-Webster

Don’t let it bring you down, It’s only castles burning – Neil Young

This is the blog I haven’t been able to write for three years. My wife wouldn’t let me write about her. Or her research. Or her system. But even she has had enough.

Having said that, TheWineRules is my blog, my outlet for digging into and understanding the contradictions of the written and unwritten rules of the wine industry. As with all miners, I often wonder if the seam I am working will just peter out one day. Instead, the thin yellow line I started excavating a few years ago just grows. I’ve never thought it a Comstock Lode type find but it has proven perversely dependable.

The recent revelation by Anthony Madigan, Editor of Wine Business Monthly in his weekly online column, TWTW, that a Winemakers Federation of Australia (WFA) employee redacted an auditors report on the instructions of WFA’s Wine Industry National Environment Committee (WINEC) Chair before sending it via email to employees of the McLaren Vale Grape Wine and Tourism Association leaves me thinking I’m going to need a bigger shovel. If you are unfamiliar with Madigan’s article, I suggest you read it before continuing with this.

Anthony Madigan

Anthony Madigan

I have been involved at first or second-hand with the effort by McLaren Vale’s Grape, Wine and Tourism Association (GWT) to obtain accreditation for its sustainability system by the WFA’s environmental assurance reporting system Entwine since day dot. The first hand experience was as the Chair of GWT when it started this process and as a Board Member of GWT for the past few years. My second-hand experience has been as partner and husband to Dr. Irina Santiago-Brown.

Irina was hired by GWT in January 2011 as a part-time employee to develop GWT’s then named Generational Farming environmental sustainability system for viticulture into a world’s best triple bottom line sustainability system for viticulture. Our mutual personal interest was established when she interviewed me while researching the origins of our system. Thus, in addition to my Board capacity, I have heard, second-hand, the goings on of her efforts to achieve accreditation over the past 44 months in the same way any couple discusses their day at the office. As with any dutiful spouse, my job is to listen, not take notes!

Since Max Allen compared Entwine unfavorably with Generational Farming in an article in The Australian in 2009, the relationship between the two bodies governing these systems has been generally tepid despite significant efforts by GWT to improve them. WFA’s prior CEO, Stephen Strachan and I had many vigorous and professional conversations on this subject among others.

I respect Stephen for his ability to argue and disagree in a productive and professional manner that is sadly lacking with most of those in leadership positions in our industry. We both appreciate the value of open debate in finding the best answers. Stephen and I shared the view that the Entwine and Generational Farming were not competitors but were rather cooperating systems that should ‘nest’ like high school and university. Current WFA Director Andrew Kay was a GWT Director when Stephen met with our Board and shared this viewpoint.

Former WFA CEO Stephen Strachan

Former WFA CEO Stephen Strachan

The Generational Farming story began as a small un-named and un-funded project in 2004 and grew in fits and starts from then as a community based effort to define and score best practice sustainability for vineyards. It was a logical next step for a region that had invested nearly $2 million in ‘best practice’ grower education over the preceding 10 years.

As a matter of good governance, GWT recognized that the need to be able to both quantify and share outcomes from that investment if we were to continue to collect and spend levy funds collected from growers responsibly. (WFA and other peak bodies would do well to take note of the logic employed here by our little regional association in their own undertakings.)

With the advent of Entwine as a new national system, we sought to ensure that our system did not cause our members any duplication of effort with respect to paper work. Thus, the good opinion of Entwine became a very high priority for Generational Farming.

When we first enquired in 2009, we understood that a formal and objective process for accreditation of other systems had not yet been documented by WFA and that there would be a bit of understandable to-ing and fro-ing while both systems found their feet. Five years later, the McLaren Vale system has still not received documentation from WFA that spells out exactly what is accredit-able, how to get accredited and what the expected outcomes are. Presumably, this continuing lack of an objective process is the reason that WFA employed an auditor to compare the two systems for equivalence.

After GWT’s first request for accreditation, an “Initial equivalence assessment” document prepared by independent firm TQA Australia (representing WFA) in August of 2009 concluded that “The requirements of the MVGWTA program were found to exceed the requirements of the Entwine Australia equivalence criteria, particularly in the areas of biodiversity management, training and education and IPM (integrated pest management).” It also said “Overall, the alignment of the MVGWTA is good, with the exception of the requirement for an independent audit, and the subsequent system requirements of the Entwine Australia criteria, such as documents and records, internal audits and corrective actions, and independent certification.”

From that first productive interaction, MVGWTA subsequently sought the advice of auditors as to how to best make Generational Farming auditable and implemented all of the other recommendations to finalize accreditation by WFA.

The process went slowly after that. In 2011, Mr. Strachan became aware that WFA’s WINEC Committee and employees appeared to be dragging the chain with respect to the accreditation process. Mr. Strachan made changes in the following months that he believed would improve things for WFA and Entwine’s ability to accredit other programs including ours. Not long after, Stephen moved on to seek his fortune in the commercial world. We had a long Christmas lunch at Fino to wish him well. These were the good days.

Since Stephen’s departure, and after Paul Evans’ appointment as CEO of WFA, progress has been glacial. What an engaged executive could have easily resolved in a few weeks dragged on through numerous rounds of hair-splitting argument, indecision and obstructionist behavior over years without progressing anywhere. Much of the hair-splitting related to definitional matters involving concepts like continuous improvement, ISO standards and the philosophical underpinnings of different types of environmental assessment.

When Mr. Evans chose to get personally involved in this matter in the past year, I was assured as a GWT Board member that GWT employees informed Mr. Evans of this pattern of obstructionist behavior. That this was necessary is a bitter irony after Mr. Evans had said “Our focus is not on the need to change but the way to change if we are to establish a platform for success and sustainability across the sector.” in 2012.

Despite its lofty representation of itself as a “peak body”, WFA is not a large organization. Its website lists 11 total employees including the CEO, three General Managers, three Managers and two administrative assistants. While it claims to represent over 90% of the Australian wine industry due to the size of its members’ production, it really represents something closer to 15% of actual winemaking businesses.

The self-described “voluntary” Entwine program has some 700+ participants out of an approximate 7000 vineyard businesses and about 2500 winery businesses in Australia. A large portion of these participants are businesses that sell wine grapes to WFA’s largest member, Treasury Wine Estates (TWE). TWE requires growers who sell them grapes to participate in the Entwine system. Ms. Gioia Small is the Regional Manager for Sustainability for TWE. Ms. Small is also the Chair of WINEC. The WFA (presumably Evans with Board approval) appointed her to this role.

Gioia Small, Regional Manager Sustainability, TWE. Chair, WINEC of WFA. SAWIA Environment Committee Member and past Chair.

Gioia Small, Regional Manager Sustainability, TWE. Chair, WINEC of WFA. SAWIA Environment Committee Member and past Chair.

A few things stick out about Entwine. One is that WFA has been quite adamant that their method for implementing an environmental record-keeping program based on ISO14001 and HACCP (a system developed for other horticulture markets called Freshcare) principles is the appropriate standard and method for environmental continuous improvement and assessment for the viticulture industry. Freshcare is an important standard for fresh food quality and safety for horticulture. It is not a sustainability program. Despite overlaps there are significant differences.

Another is that ISO standards demand that participation in ISO compliant systems be voluntary in nature because coerced behavior is unlikely to lead to meaningful or lasting improvement. This renders the distinction between ‘voluntary’ at Entwine and ‘mandatory’ with member’s suppliers somewhat irrelevant from systemic integrity point of view.

Another is that Entwine is not contextually situated. Sustainability is a concept that is best understood and applied within the context of the participant. For example, what is sustainable best practice in a region with significant disease pressure is very different from dry and windy McLaren Vale. While this insight is obvious to any farmer, it might seem less relevant to a head office viticulturist.

Another is that it Entwine is not a peer-reviewed system. A few weeks ago, Mr. Evans publicly dismissed some alarming alcohol abuse research by saying “not a peer review in sight.” He obviously considered that to be damning enough to dismiss its relevance entirely.

Irina’s peer-reviewed and published research on the use of ISO based systems in viticulture is revealing in its analysis of the appropriateness of numerous approaches:

Process-based assessments are usually based on the International Organisation for Standardization Standards (ISO) standards. In agricultural assessments, a typical example is the implementation of environmental management systems (EMS) through the ISO14001 standard or through ISO-based locally developed guidelines. The greatest shortcoming of process-based assessment is that it does not ensure performance outcomes. The practical outcome of process-based methods is the production of written documentation (e.g. management plans). Furthermore, the ISO family of standards were developed mainly to provide a model for large enterprises to set and operate a management system. The ISO 14001 is a challenging and costly task for small and medium organisations.”

So, to interpret in a grape grower’s language – size matters. A lot.

Dr. Irina Santiago-Brown. Sustainability Officer, Sustainable Australia Winegrowing.

Dr. Irina Santiago-Brown. Sustainability Officer, Sustainable Australia Winegrowing.

Aside from being paper work intensive, not able to assure actual on farm outcomes and only being good for large organisations, why is Entwine’s approach appropriate for the near 7000 small and medium grape growers of Australia? Who benefits if not them? Why was this approach chosen? Who chose it? I can only speculate that it wasn’t the small or medium-sized members of WFA.

One of the conclusions Irina came to in developing the McLaren Vale system was that only a combination of approaches was useful for creating meaningful outcomes for all stakeholders. As such, it employs a mix of process-based, best practiced-based, indicator-based, criterion-based and compliance-based methods to achieve an easy to use system that provides outcomes, actions, pathways for improvement and meaningful data to both participants and the community.

After just three years of Irina’s involvement, the McLaren Vale System is a truly voluntary system with membership of about 25% of growers who grow about 50% of the fruit (15-20,000 tonnes) from McLaren Vale. If Entwine had similar results, it would have 1700 growers and 800,000 tonnes of fruit involved.

The now re-named “Sustainable Australia Winegrowing – McLaren Vale” (SAW-MV) was founded on the open source principle. Open source means that GWT borrowed ideas freely from other systems that permitted it to do so and that it freely shares with others in turn. This is the essence of sustainability – freely learning and educating about principles that should productively benefit man and his environment.Sustainable Australian WineGrowingThis is also the logic that underpins GWT’s offer to gift the SAW system to the rest of Australia from this week and to re-name the system. Now any region or state can append their name to the end of the program after they have modified the system for their particular context. Or, individual growers anywhere can just sign up to use the system to get benefit from it and still comply with Entwine.

When we started on this project in earnest, local chili and grape grower Jock Harvey enrolled thought leaders in our community to develop individual chapters for grower self-assessment of best viticulture practices including topics like Pest and Disease, Irrigation, Waste Management, Employee Relations, Soil Health and Nutrition and Biodiversity. When Irina came on board, she improved these chapters to a higher standard based on the research she was doing at the University of Adelaide as a PhD candidate.

Jock Harvey. Take three.1998.

Jock Harvey. Take three.1998.

Irina’s story is that she came to Australia in 2009 as a mature student with extensive work experience in government and trade from Brazil to undertake a Masters of Science program in Viticulture at the University of Adelaide at her own (considerable) expense. Her thesis researched cost comparisons between organic, biodynamic and conventional viticulture systems.

She was subsequently encouraged to apply for a PhD program and a University scholarship. She was one of a small number of scholars at the University to be awarded a full scholarship that year.

Her masters’ research had sparked an interest in audited systems of viticulture including sustainability. She had noted the Australia, alone (with the exception of Chile at the time) among New World wine countries, lacked a major sustainability program. At about the same time as her admission to her PhD program, she coincidentally started employment working on McLaren Vale’s sustainability program on a part-time basis. Her University Dean had to approve this mutually beneficial arrangement and did so noting that she would be held to the same expectations as any full-time student on a scholarship. e.g. no slack given.

Irina then applied for research funding with the GWRDC as her research required significant travel to investigate other sustainability systems. She was one of only a few applicants to receive full funding from the GWRDC that year. The one conclusion to be drawn from this is that the University of Adelaide and the GWRDC both saw great value for our industry in having someone with a deep understanding of these subject domains in Australia.

Fast-forward three and a half years. Irina lifted the McLaren Vale system to a standard where it was successfully peer-reviewed by noted world experts. She obtained funding from the State of South Australia to have a successful and easy to use web-based GPS driven data collection and reporting system built that gives growers analytical and decision making capabilities they have never had before. It also provides reams of aggregated data that informs both regional development and academic research.

She finished her PhD in exactly three years despite only having three work days per week to work on it. Two of the three articles that comprise her thesis have been published in leading international peer-reviewed academic journals including the journal Sustainability. (The third is pending approval for publication). Her thesis has been reviewed by world experts and accepted “without comment.” That means they had nothing to add or disagree with. Both recommended her for Dean’s commendation – the highest honor. Not a bad result for someone with no science background prior to 2009 working in a second language. She graduates this Wednesday.

The only things that Irina has not been able to achieve have been accreditation for the McLaren Vale system by Entwine (until last week’s unusual events) and acknowledgement by the industry of the quality and scale of her contribution to the Australian grape and wine industry.

To whit, Irina has not even been invited (let alone to speak) to the upcoming Australian Wine Industry Environment Conference. The South Australian Wine Industry Association (SAWIA), not WFA, sponsors the conference. No matter, according to the SAWIA website, Gioia Small is on the Environment Committee there with TWE’s Stuart McNab (reprising his Director’s role on WFA’s Board) serving for many years on the Executive Committee at SAWIA. I’m assuming the SAWIA Environment Committee has something to do with the SAWIA Environment conference but that may be drawing a long bow.

In any case, it’s a small world when you’re on the outer in the Australian wine industry.

Stuart McNab. Chief Supply Officer - Global Wine Production, TWE. Director, WFA. Executive Committee, SAWIA. Former President SAWIA.

Stuart McNab. Chief Supply Officer – Global Wine Production, TWE. Director, WFA. Executive Committee, SAWIA. Former President SAWIA.

Incredibly, this conference will have a presentation called “International perspectives on environmental management in the wine industry” by a reasonable sounding bloke who got a Churchill Scholarship to study this topic. Irina has just spent three years researching and publishing the definitive peer-reviewed research on this topic with the sponsorship of the entire Australian wine industry and all Australian tax payers. But the Australian wine industry won’t be hearing about this research with SAWIA’s help. Another session, “Refreshing Entwine,” is to be presented by the redactor in question.

That others in the industry are left to infer that Irina’s extraordinarily relevant and state of the art research is not important or valuable to the Australian grape and wine industry is implicit in the choices made by SAWIA. By contrast, The International Organisation of Vine and Wine (OIV) certified VITEFF conference flew Irina to France to speak in 2013 because of their interest in her work in McLaren Vale. This was before she had even published her research.

Certification systems like “Organic” or “Sustainable” are trust marks by which the integrity of both the product and producer are conveyed to a distant consumer. Their economic value is wholly dependent on their systemic integrity and the integrity of those who develop, maintain and audit them. For Entwine and WFA to communicate such a lack of integrity by their recent actions debases the value of their mark and all those associated with it.

In this instance, Freshcare, the McLaren Vale system, the auditor Aus-qual, Entwine’s participants, WINEC committee members and WFA’s members have all suffered some diminishment of reputation by being associated with Entwine’s inappropriate behavior. And, as the default “national” system, the entire Australian wine industry’s reputation suffers by default worldwide.

What those with the power to make these subjective and poorly informed decisions appear to insufficiently value is the real harm done to many people’s reputations. It’s a bad look for a country and industry that prides itself as a place where there is a fair go for all.

As a not disinterested observer, the entire matter of WFA’s behavior over the past few years is, to me, both short-sighted and small-minded. That extraordinary results are possible with just a change of attitude seems lost upon them.

Instead of viewing the McLaren Vale system as a cooperating system that extended Entwine’s membership reach, credibility and acceptance, the WFA viewed it as a competitor.

Instead of sensing the worldwide marketing possibilities of having a sustainability system of the highest standard for Australia (finally), it tried to starve the one it had of credibility by not accrediting it for five years. New Zealand, Chile and even South Africa sailed right past Australia in global sustainability awareness in the wine market and reaped the marketing benefits of doing so during this period.

 

The seal on every bottle of sustainable South African wine

The seal on every bottle of sustainable South African wine

Chile Seal

Chile Sustainability Seal

California Sustainable logo

California Sustainable logo

Oregon and Washington State Sustainability Seal

Oregon and Washington State Sustainability Seal

 

New Zealand Sustainable logo

New Zealand Sustainable logo

Instead of simply listening to Irina’s repeated efforts to educate them about the standards of best practice assessment methods she had learned in research paid for by the Australian grape and wine industry for its benefit, they chose to block her (including shouting her down in meetings) at every turn. That this is exactly what the redacted paragraph alludes to is no coincidence. No disinterested third-party viewing this potted history would be able to accept WFA’s behavior as being in the best interests of the entire Australian wine industry.

This behavior does raise the question of whose interests are being served however. That no one has been fired (or even kicked off a committee) immediately for committing or abetting an offense is damning. Why is the CEO of WFA protecting the employee and committee person? What consequences, and from whom, does he fear by doing so? Or, worse, does he fear no consequences himself? Is this the real motivator – that the WFA Board accepts and / or endorses this sort of behavior? Is this even possible in 2014?

WFA CEO Paul Evans

WFA CEO Paul Evans

This redaction wasn’t a mistake.  To remove the letterhead and a conclusive paragraph from a report by an auditor (presumably the report was a pdf file and required some work to do so) after sitting on it for five weeks is not an accident either. Mr. Evans’ explanation and apparently implicit endorsement of the behavior is that it was redacted deliberately because “it was deemed inappropriate and a subjective opinion that did not reflect what both organisations were looking for  in the assessment, that is, an independent and rigorous review of both programs based on solid evidence.” Parsing this alarming sentence is required.

What the Committee Chair (and by inference Mr. Evans) appears unable to comprehend or accept is that the result is the considered and informed opinion of an independent expert (McLaren Vale apparently had no say over the terms of reference for the engagement although WFA did) qualified to provide such opinions (this is what auditors do and why WFA hired Aus-qual) that reflects current best practice based on the evidence provided and that it is not a “subjective opinion.”

Further, the WINEC Chair is not legally permitted to make personal judgements upon an auditor’s professional opinion by ordering it to be redacted in providing that report to a third-party.

Lets assume that even if there was a finding in court that the Committee Chair’s judgement about the auditor’s opinion was correct, her actions would still be considered wrong. It is an indefensible position for anyone to take.

You don’t need to speculate to guess that what GWT employees were “looking for” was exactly this sort of rigorous professional opinion after five years of being stuffed around by a WINEC Committee and WFA employee who did not have an “objective” process to follow to become accredited by WINEC to Entwine.

Finally, the WINEC Chair in no way speaks for GWT and has not been authorized to do so as far as I am aware. Her remarks are intellectually contemptuous and offensive.

The presumption and arrogance presented by Small and Evans in this dismissive non-apology are precisely what is wrong in this five year saga of peak body mediocrity.

Another theory for this redaction is that perhaps WFA and WINEC do not also want anyone to know of Entwine’s potential shortcomings after the substantial amount of member and taxpayer money invested to date in a program that does not appear to have much uptake or acceptance across its 390 or so winery members.

That the WFA is willing to risk so much just to obscure what it had already been told already by Irina (and should be baseline knowledge to its employee,  Committee Chair and CEO) – that Entwine could be better (and why) – is just not good enough.

Mr. Evans is the CEO of WFA. Simply put, either his employees and committee members know that unethical or illegal behavior is a termination offense or they do not. If they do not know this standard, the buck has to stop with the CEO because he presents an unmeasurable liability to his members. If the employee did know this standard, why did he take orders from a non-employee to do so and not consult Mr. Evans prior to doing so? And, finally, why are WFA employees taking orders from non-employees? Is this the real problem here? Who do they work for?

The mistake here was the attitudinal failure by much of leadership of the industry to choose greatness by grasping the opportunity to showcase great and original research being done in Australia, paid for by Australian grape and wine industry and then apply it to make its national system a world recognized, peer-reviewed system of sustainability and excellence for viticulture.

It’s been 11 days since this matter came to light. The employee is still employed, the committee chair is still in the Chair (and employed) and Evans is still CEO. SSDD.

Leadership like this is just not sustainable for Australia. It’s time to change.

What do you think?

Cricket. Re-imagined. (Part 2 of It’s Just Not Cricket. Or, Is it?)

The hardest thing to change isn’t other people’s opinions (pointless) but their perspective (possible but hard).

Apple understands this better than perhaps any company. From their earliest products they designed from a consumer’s perspective, giving consumers choices that they both didn’t know they could have and ones they couldn’t believe they didn’t already have from other products (e.g. beautiful typefaces, icons, a mouse, touchscreens, great printers, etc).

The only thing that separated Apple from the rest was that they took a consumers’ perspective over the long term. The difficulty facing most companies, governments, industry associations and other traditional non-profit bodies is that their perspective is often shaped by their largest customer(s), segment(s), investor(s), ethnicity(ies), union(s), etc over a relatively short time frame. This is a cardinal mistake and the reason so many organizations never rise above mediocrity.

The right question isn’t “who is my biggest xxxx?” It is, as Apple surmised, “Who am I doing this for?” In short, Apple chose to put the customer at the center of their product design and, more radically, to enable the customer to re-imagine and re-design their experience of the product(s) that Apple created. This in turn gave Apple a massive feedback loop advantage over its rivals. By doing so, they designed in a bias that impels them to innovate for customers that don’t exist yet as opposed to a bias that just tries to placate incumbents.

ibmapple

 

In the Australian wine industry, the newly created Australian Grape and Wine Authority (a merger of the old Wine Australia and Grape and Wine Research Development Corporation) ‘sits’ on top of the industry. While their temporary Board decides on a new CEO, the Board must seriously start looking at strategy (particularly marketing) to implement rapidly that delivers far better returns (more bang per dollar spent) than the returns of the past ten years. By definition, this means change – driven by rapid innovation – if different results are to be expected.

On the marketing side of the business, one of their key functions is hosting (usually this means paying for) wine industry influencers, buyers and distributors on trips to Australia where, frequently / usually, the guests are part of larger group often from one country. In reviewing annual reports, this seems to be about 100 people per year.

These guests travel around on a well-managed itinerary (think lots of bus trips) principally to those regions and producers who pay extra (surplus to the normal levies, taxes, fees that all exporters and producers are subject to do so by law) to Wine Australia to have these guests visit them. That this bus trip, tasting, regional experience, meal, tasting sleep, rinse, repeat approach excludes authentic serendipity and the development of personal connections for all but a few, is a great tragedy in the rush to show everything and appear to be ‘fair.’ Its a bit like taking visitors to the zoo where they never get so close to the exhibit as to touch anything but a koala.

Happy to be off the bus and on the beach.

Happy to be off the bus and on the beach.

While the box checkers can pat themselves on the back that everyone goes home happy, the product is the IBM “green screen” desktop PC of our time – designed in another era for an audience with different expectations.  This isn’t to diminish the IBM PC’s success or Hazel Murphy’s road trips with UK influencers decades ago. On the contrary, both legitimized entirely new product categories in spectacular fashion. While IBM was once the biggest PC company in the world, it has been profitably out of the PC business for most of a decade already while remaining a huge and important computer company while Wine Australia has kept its If its Tuesday, This Must be Belgium business plan intact.

 

Not exactly what Ken Kesey had in mind

Not exactly what Ken Kesey had in mind

To be successful, Wine Australia needs to embrace a higher leverage model (fewer staff, overheads and labor intensive programs) deploying scarce funds at the coal face educating guests not squandering funds on overpaid bureaucrats.

Digital natives and near-natives (Generation X turned 50 this year) now dominate the wine industry’s ranks. These groups famously value authenticity, unique experiences, choice, independence and, above all else, being treated as an individual with unique needs. As a starting point, if we want them to value Australian wine, we need to show them how we much we value them first.

Here are some ideas that could be rapidly developed and delivered at a far lower price than current approaches with potentially much better outcomes.

#1 Treat different people differently.

Recognize that not everyone wants to have the same experience and that they hate spending their time on experiences that do not meet their needs. Moreover, different guests with different attributes warrant different levels of attention and investment. This could mean sorting guests into maybe three ‘buckets’:

Bucket 1 – younger, learning types of influencers – sommeliers, bloggers, MW students, WSET students with a job in the industry – on premise or off.

Bucket 2 – buyers / decision makers in relevant categories, bloggers and writers with traction / followers, senior sommeliers, wine educators, etc.

Bucket 3 – influencers with national or international reach, major buyers, writers, etc.

Show those worthy of funding respect by calling them Scholars – they are professionals here to learn more about us. This process alone would be media worthy (free) world-wide if marketed appropriately.

#2 Re-invent the Visitor Program part of Wine Australia to act as a great concierge.

Wine Australia could be an incredibly knowledgeable, contextually nuanced (e.g. polite while understanding your budget)  organization able to solve problems in real-time – instead of being a full-time cruise director and/ or travel agent. If there are groups of guests who prefer group travel, outsource the work to businesses like MW Tim Wildman’s James Busby Tours who do it better (and make money doing it).

In addition to better private tour businesses emerging, another outcome of this approach would be that regional specialists / consultants would emerge in no time to assist Scholars, businesses and regions. Given appropriate context setting, the private sector will innovate far better solutions than any top-down organisation like Wine Australia. And, if businesses and regions don’t adapt, innovate and improve to the new context, they just won’t get many visiting Scholars and visitors. That is fair.

#3 Instead of inviting people, make people apply, and compete, to receive a Wine Australia “Scholarship” regardless of their ‘bucket.’

Rewarding people who work for things they want instead of those who simply accept freebies eliminates a lot of wasted spending up front. For Bucket 1, this may mean for only paying for their airfare. For Bucket 2, it may mean setting a decent amount for them to budget. For Bucket 3, it may mean a generous / business class budget (enough for high end accommodation, airline seats, etc) for their visit. (Crucially, Scholars should only be reimbursed once they have provided detailed study notes and feedback about their experience(s) to Wine Australia.)

#4 Once accepted, find out what the Scholar would like to experience.

What regions? Varieties? Restaurants? Climates? Wine styles? Flora, fauna,  beaches, slow and / or ‘off’ days are also key differentiators of the Australian experience that too frequently get crowded out by another tasting or bus ride. Our job is to get the customer to fall in love with the entire culture of wine in our country. This is our biggest point of difference to other countries, not our buses. This can only occur on Australian time not Beijing, London or New York time.

#5 Let the Scholar define their experience and how to spend / stretch their budget.

Wine Australia’s job would be to assist Scholars’ in experiencing as many of their preferences as possible within the scholarship awarded.

The promise here is empowerment, not control. The theme is that we trust the Scholar (and each other) to create great experiences. Our job is to provide fantastic choices and appropriate information. Who under 50 goes to a travel agent and asks “where should we go?” We go online. We research. We ask friends. We go to TripAdvisor and read other guests’ feedback. We balance costs and choices – this is ‘how we do’ in 2014. Our Scholars are the same (probably much more so) – treat them with respect by enabling them to make decisions that suit the learning experience they wish to have.

Did they already invent this for us?

Did they already invent this for us?

#6 Create or adapt a TripAdvisor like platform for reporting feedback from and to Scholars and industry alike.

Nothing sells like transparency and accountability. We all need it if we are to rapidly improve the offering.

This platform, in turn, can become the touchstone of how consumers  research wine tourism in Australia. This would be valuable. What if we just handed the Scholar a mobile phone and a connected iPad when they arrive (with the information,  maps contacts, possibilities)  loaded according to their preferences for them to use while here? If we replace control (or anxiety) with information and the possibility of serendipity, then the Australian wine culture will soak in for the Scholar. (We could probably even get a TripAdvisor to act as a partner to do the site development instead of trying to do it in-house).

#7 Solicit the industry (individual businesses for specific experiences and regional bodies for regional attractions, offerings and events) to register what they have to offer (A+ sort of thing but deeper).

For example, this should even include the possibility of having Scholars stay in our homes, join us for a meal to stretch their budget so they can afford a great meal at Fino or Salopian Inn or even help out in the vineyard, winery or lab for a day. Or, or, or. Almost everyone in the industry has something to offer but we need to re-imagine the possibility of experiences for our guests. (The Golden Rule is a good starting point).

In 2012, we invited a young backpacking, MW studying, European sommelier to join us for picking and pressing Viognier one day. We sent him photos of his day here via email and stayed in touch using social media. Today he is a sommelier at Michelin starred restaurant and helping introduce us to distributors in Europe. Imagine the commercial outcomes of hundreds or thousands of these sorts of possibilities and relationships being kindled per year between producers here and influencers overseas. The results could be staggering for the entire industry in a short few years.

 

Customer for Life

Customer for Life

#8 Every trip should start at the National Wine Centre for two days of intensive education about the Australian wine industry.

And, set the expectation that this is the country where the old world rules don’t apply, where experimentation in vineyards is only matched by our technical contribution to world-wide wine knowledge (sequencing genomes is very sexy if told as part of an engaging story), where laid-back rustic charm, sustainability, technical excellence, finesse, diversity and great wine communities are different sides of the same die.

Then, set the Scholars free to discover it all for themselves at a personal level.

NatwinCenAus_3

The Scholar’s stories will travel for decades in their home countries, selling Australia and Australian wine all along the way.

Just imagine the possibilities if Wine Australia relentlessly asked “Who are we doing this for?” and innovated instead of repeated.

To be continued…

 

 

 

Its Just Not Cricket. Or, is it?

The new Australian Grape and Wine Authority Board of Directors is a curious beast. Without going through all of the bios, TheWineRules offers its best wishes to Chair Brian Walsh as he grapples with a somewhat mad slate of Directors. Walsh is a good and intelligent man with a difficult brief. He is responsible for the merger of the Grape Wine and Research Development Corporation and Wine Australia into one new body (AGWA) and for hiring a CEO by 1 October.

The Minister for Agriculture apparently rejected many of the recommendations (9 of 10?) made by the Winemakers Federation and appointed a Board that, despite grave compromises, at least demonstrates the positive use of the word oversight. The significance of this is that it is apparent, even to those unfamiliar, that the wine industry lacks leadership and direction. Reports are that the Minister is concerned about Wine Australia’s years of financial losses and the wine industry’s health (exports have declined 30% in recent years).

walsh-662x288

Board members John Casella, Kym Williams (ex-News Corp) and Brian Croser will each be likely trying to stamp their fingerprint on the Australian industry for decades to come with the selection of a new CEO, buying matching furniture for the merged entity and much else. These are big personalities comfortable with getting their way. Walsh’s job is not enviable.

With all respect for Casella’s business acumen (his hugely successful $5.95 per 750ml Yellowtail is fetching prices 3-5x of some of Treasury’s wines at Walmart right now), a singular focus on developing Australia’s reputation as a fine wine-producing country is required immediately.

Masstige marketing hits rock bottom

$1.04 less and Lindeman’s would be priceless (photo courtesy of TKR)

The world is fully aware of our ability to make cheap and, to some palates, tasty / cheerful wine. But only Casella seems to have figured out the business model as to how to do it profitably. In the huge US market, there is only room for two big players in this segment – Gallo and Franzia.  Australia probably shouldn’t plan on their being many more success stories similar to Casella’s here.

Max Allen has well documented Brian Croser’s special share of responsibility as the co-architect (with Len Evans) of the current industry situation his book The History of Australian Wine.  Evans and Croser’s mad zeal for Australia to be a huge wine producer in the 1990’s lies at the root of our unsustainable industry today. (for more on this, see Wine, War and Metaphor and Croser’s responses to same.)

Kim Williams is a wild card except having a reputation for being a tough operator. Perhaps he is there to report back to the Minister what’s really going on in the wine industry. The rest of the Board is a mixed bag with one Board member from a vinegar company. Vinegar? Whats the message being delivered with this one?

The short analysis is that this scenario bears an eerie resemblance to the Australian cricket team over the past decade. We all remember the good days, don’t we? The risk averse selectors kept the old players in for so many years that, in order to win again, we have now had to skip a generation (or two even) of perfectly good talent that never got to play at the top-level at the age and for the time required to be winners.

And, while the old players were winning for so many years, the game was “professionalized” with managers, trainers, doctors, academics and lawyers taking over management of the game with the selectors’ blessing. As the old players retired, the old selectors and the new managers played the 32-year-old clean-skins because it was “their turn” and excluded some real talent because they didn’t fit their statistical and psychological models. Australia proceeded to lose and keep losing until Darren Lehmann stepped in and restored the focus on winning cricket matches with diverse talent and letting bowlers bowl.

lehmann-413458

The wine industry finds itself in a similar mess of its own design. The “professional” managers (lawyers, accountants, MBA’s, HR folks, etc) in industry bodies are beholden to the selectors who hired them while remaining wildly out of touch with the weird long tail of the new world of wine. Worse, much of the harm they do is both craven and self-inflicted – threats of “serious consequences” for natural wine makers, peak bodies threatening journos with lawsuits for doing their jobs, spruiking the big companies agendas, relaxing Phylloxera standards, equalizing winery and vineyard workers awards, the list goes on.

The fact is that the old boy (not too many women here) selectors and the new professionals have seen to it that the next generation of players hasn’t been given real space to develop or lead let alone develop the generation behind them. As with cricket, it just isn’t in their mutual interest to do so unfortunately. (I await the rebuttal about the Future Leaders program). The reason cricket changed course after just five or so years of losing and the wine industry hasn’t changed after ten years of losing is that the Australian public cares deeply about cricket. They don’t give a toss about the fortunes of winemakers.

So, here we are with a strange three-month interim Board charged with selecting a new CEO for the new merged business. The leading candidate is Acting (great title) CEO Andreas Clark. Clark isn’t just a lawyer. By background, he’s a Canberra lawyer cum wine industry bureaucrat who doesn’t list any business (aside from legal), viticulture, oenology or scientific research experience on his up to date LinkedIn profile. Clark was quietly parachuted into the job when former CEO Andrew Cheesman (and Croser’s former CFO at Petaluma) resigned.

Prior to this, Clark was the COO (see page 54 for org chart) at Wine Australia in charge of the entire back office and compliance function (e.g. pretty much all but marketing) while Wine Australia spent about a million dollars per year on average more than it brought in since 2010. Apparently, these annual losses were ‘part of the plan’ because Australian wine exports tumbled from $4 billion to $2.8 billion over roughly the same period. At the culmination of this orgy of losses in 2013, Wine Australia held a massive “we did something” box ticking event called Savour in Adelaide that was supposed to be the major game changer for the industry.

Simply put, Savour paid the way for hundreds of overseas media and wine buyers to come to Adelaide to get “re-sold” on Australian wine. The guests got to watch sessions like “Mythbusting – Australia’s regions, sites, innovations, sites, quality, diversity and its characters” (is selling against a negative our best pitch to lead off with?) and this 30 minute presentation pitching the national wine industry. (Rookie sales advice – sell the sizzle, not the steak).

Then to defray some costs, it sold places at the show to regional industry associations and Australian wineries to show their wares to the guests. It was deemed a great success by participants. (Aren’t all expenses paid trips to Australia for a week of drinking and eating always a great success for the participant?)  This hugely expensive exercise was apparently underwritten mostly by state and federal government grant money.

Contrast Savour to the wildly influential and controversial Landmark Australia Tutorials for a dozen or so top media and trade people worldwide from five years ago that was a) paid for by outside sponsorship and b) shut down because levy payers (who hadn’t paid a cent) thought them too elitist (e.g. their plonk wasn’t poured). Another event to contrast Savour with is the New Zealand Pinot event in 2013 that put a strong second leg under the NZ wine industry. Even John Lennon couldn’t imagine an event in Australia about one variety that wasn’t Shiraz.

The Landmark and NZ Pinot events fundamentally changed how key gatekeepers around the world viewed the potential of Australian and NZ wine in the same way – intense focus and by sharing knowledge – but at different scales. Savour tried to do everything – spruik the industry, talk about regions, talk about brands, etc. – without being about any one thing. Great marketing shows, while poor marketing tells.

Landmark Tutorial Guests

Landmark Tutorial Guests

There is a long-term revenue problem that still hasn’t been fundamentally addressed by Wine Australia  –  levies are in decline because the industry  (particularly exports) have been shrinking in Australia. With its accumulated reserves largely spent after years of losses, Wine Australia was merged with GWRDC (the interesting and innovative 2/3 of the AGWA business) with the hope that it would be able to tap into GWRDC’s much larger budget. The pitch seems to be that having spent all its money and failed, the problem is lack of funding, not lack of imagination, talent or strategic capability.

A few years ago, Wine Australia began selling member programs to individual wine companies and regions to raise additional revenue. These are voluntary ‘user pays’ schemes where the chance of ever seeing a visitor brought here with your levy funds without belonging to one are near zero. User pays events should be funded and organised by users, not by statutory bodies with governance responsibilities to all levy payers.

Just one example of how this works out in the real world – when a major buyer from Europe came to Australia last year (I believe at their employers expense but with Wine Australia’s assistance with scheduling), they requested to visit us while they were in McLaren Vale because we had met once overseas and they wanted to see a micro Australian wine-making operation out of curiosity.

Instead of just organizing a one hour visit to one non-program member winery, Wine Australia ended up organizing a dinner for 15-20 winemakers and a tasting of 150+ local wines and invited us to attend at the end of our guest’s day in McLaren Vale. When I asked our guest how their day was, they politely said “It was nice. I saw the same wineries I saw the last time I was here. I came to Australia to see what was new.”

These are highly intelligent and sophisticated industry people who can see through what they are presented. They visit many countries and are comparing us to them at every point in their analysis. To treat them in a way that assumes they are not intelligent is a core issue for the image of Australian wine overseas and Wine Australia’s integrity.

This, in a nutshell, is the problem Clark hasn’t / can’t  solve because Wine Australia is beholden to the program members at the expense of everyone else – even if the visitor is paying their own way. The customer wants to know what is new and interesting about Australian wine, not who pays a cut to the man. For the wineries desperate for global attention, they’ll pay almost anything they can afford.

Then there’s the expenditure problem. The total cost of employee benefits for  Wine Australia was $5,510,000 in 2013. The cost for 2012 was $4,440,00. This is a $1,070,000 increase, or 24% in one year. The crazy bit here is that one Senior Executive (presumably Cheesman) earned $396,835 in 2012.

After a bit of digging, it appears that, excluding bonuses (one time events can distort the picture), the average compensation package of the Wine Australia senior executives increased from approximately $177,000 in 2011 (with six senior executives, $1,061,000 total + a $55,000 bonus for Cheesman) to $198,000 in 2012 (with five senior executives, $994,000 plus Cheesman’s $105,000 bonus that year) to a $239,000 average in 2013 (with four executives, $956,000 in total plus $36,000 in bonus paid).

This is a 35% increase in average guaranteed compensation for senior executives over just two years while Wine Australia was roughly losing, on average,  a million dollars per year and the wine industry was hemorrhaging in the export market. But, because they ‘dropped’ an executive each year, the total didn’t change much. (All figures taken directly from Wine Australia Annual reports 2011, 2012, 2013). The only thing missing in this analysis is the 2014 annual report that probably won’t be published until after the choice of a new CEO.

Andreas Clark

Andreas Clark in the only picture we could find of him.

Because the sum of senior executive salaries stayed about level, or down, in 2013, the balance of the million dollars in wage increases must have been directed to the staff.

According to the annual reports, total staff employed by Wine Australia has hovered between 45 and 55 over the past few years.  Austrade used to employ ten to fifteen Wine Australia staff for practical / legal reasons on behalf of Wine Australia in other countries. TheWineRules’ understanding is that these salaries were still indirectly paid by Wine Australia (with an administrative surcharge) through Austrade and (although noted in the annual report) these employees were not directly counted as employees in the annual report.

The 2013 annual report would lead you to believe Wine Australia increased headcount from 45 to 48 but the like for like analysis is that they employed 42 directly and 13 indirectly through Austrade in 2011 (55 total) 45 directly and 10 indirectly through Austrade (55 total) in 2012 and 48 directly plus 3 indirectly through Austrade (51 total) in 2013. Assuming this analysis is correct, headcount actually decreased by 7% between 2012 and 2013 while total staff compensation increased by about 25%. This equates to an average compensation increase of 34% for staff in just one year after remaining roughly level for years beforehand. Or, a million bucks in extra salary split between about fifty people.

Also, in the 2013 annual report, Wine Australia notes receiving $1,050,000 in income as “receipts from government”. A best guess is that this amount was intended for planning the Savour event. This revenue was not a common event for Wine Australia. In 2011, they only received $125,000 and $150,000 in 2012 in government funding. What Wine Australia appears to have done with this large one time grant is to have spent it on permanent salaries and entitlements. By doing so, their $530,000 cash decrease from 2012 (following 2012’s $1,926,000 cash decrease from 2011) looks like a major improvement in performance. In reality, if staff compensation had remained approximately level (as it had in previous years) and no government grant had been received, Wine Australia would have lost in the ball park  of $1,500,000 in 2013. Or, $3.4 million of losses in just 24 months while the management handed out raises all round.

Accounting being accounting, not all losses are created equal. When you buy something for $200,000 and sell it for $100,000, you need to book a $100,000 loss. When you increase recurring expenses by $100,00 and don’t have recurring income to pay for them, you create a loss of $100,000 per year forever (or until you get rid of the expense(s)).

Out of fairness, let’s look at the GWRDC budget in the same period as a comparison. Both bodies faced intense revenue pressure as levy income decreased. Perhaps they both faced similar business pressures to increase their costs.

The GWRDC manages a budget that currently constitutes more than 60% of the combined AGWA entity revenue base. Despite this, their total income has decreased in recent years from nearly $24.8 million in 2011 (with a $447,000 dollar loss) to $22,733,000 in income (with a $318,000 profit) in 2012 to  about $21.9 million in income in 2013 (with profits of $941,000). Despite an 11% decrease in revenues (or $2.9 million dollars less per year) over the two-year period, the GWRDC  turned a $447,000 annual loss into a $ 941,000 annual profit. Nor did they wind down their substantial reserves in the lead up to the merger.

GWRDC has a highly leveraged model (big budget with a high ratio of senior executives to total staff)  with only 11 full-time employees. Total compensation expense at GWRDC rose from $1,349,000 in 2011 to $1,425,000 in 2013, a 5.6% total increase over two years. They have three senior executives whose average salaries average about $173,000 each. In 2011, they averaged about $162,000 each. This represents an increase of average total compensation over two years of 6.1%.

So while average incomes were within 10% of each other in 2011, Wine Australia senior execs averaged $66,000 more per year than GWRDC execs just two years later. The sad part here is that GWRDC had a $941,000 profit in 2013 that it could have splashed out to its employees and execs to make sure they didn’t get stiffed in the new organization, but they didn’t.

The real story here is that the net effect of the compensation increase was to fundamentally increase Wine Australia’s cost base well beyond its revenue base so that the relatively frugal and cash positive GWRDC would have to bail out Wine Australia out of the GWRDC’s operating funds after they merged.  It is difficult to fathom the self-interested cynicism of this ‘poison pill’ strategy.

Given that reports were published as early as April 2012 that this merger was in the works – well within the financial year that these extraordinary compensation increases occurred – saying “what a coincidence” is not a possibility. The one thing they didn’t plan for was that the Labor government would be turfed and a Minister who actually knows accounting would end up with oversight of them. Rut-Ro.

When questioned by Senator Sean Edwards, Mr. Clark made it clear he is comfortable with the current Wine Australia strategy in his testimony to a Senate hearing. (He is even prepared to “defend” it.) Given that Minister Joyce is  an accountant by profession, this may be exactly why he has appointed a temporary board of directors.

 

Senator and Grape Grower Sean Edwards

Senator and Grape Grower Sean Edwards

 

Agriculture Minister Barnaby Joyce

Agriculture Minister Barnaby Joyce

One last example of Wine Australia’s lack of strategic orientation – why isn’t Wine Australia threatening the makers of nationally distributed Hunter Valley flavored potato chips and the makers of Barossa Shiraz gravy with ‘serious consequences’ and at least trying to protect the enormous brand value created by our Geographic Indicators (GI) system instead of threatening a few folks making bathtubs of ‘orange’ wine?

The fact is that many (not all) of the ‘professionals’ and the ‘selectors’ in many bodies (not just cricket and wine) are primarily concerned about their own positions, prestige, relevance and incomes. Losing and winning are of no direct financial consequence to most of them in a game played with other people’s money.

In the Australian wine industry, they are also the uninteresting, un-new and un-weird that have been losing market share, relevance and attention in a rapidly changing market for the world-wide wine consumer. Or, perhaps they just have a natural  affinity for the part of the market that is losing share and money at knots. In either case, our ‘selectors’ and ‘professionals’ at Wine Australia have been on the wrong side of history and not just the wrong side of a currency market. Serious change at these levels is vital, important and urgent for the industry.

Whose “turn” it is to be on the Board or the CEO of Wine Australia is of little or no interest to the 30,000 people who work in the industry. We just want winners who will create and communicate a vision that resonates with the industry and consumers alike.

And, if they can win big, TheWineRules is only to happy to see them make even more money. Unfortunately, we have folks who are depleting the funds we need for marketing for their own salaries while losing in the marketplace like Brazil against Germany in soccer.

These choices – both for a CEO and a long-term Board, are (possibly? finally?) the inflection points we have all been waiting for to put the Australian wine industry on a sustainable path to greatness. Hopefully, the accountant in Mr. Joyce sees this as clearly in the accounts from the past few years.

My questions for the industry is this – Who is the wine industry’s Darren Lehmann? (And, who will select him or her?)

 

 

 

Australia’s Best Independent Wine Shops 2014

2 June 2014

 TheWineRules and sponsor WBM magazine are proud to announce “Australia’s Best Independent Wine Shops 2014” as follows:

Large / Diversified:

 Blackhearts and Sparrows – Melbourne VIC

Specialty (three winners):

Wine Republic – Fitzroy VIC

 Bond’s Cnr Fine Wines – Northbridge NSW

 Armadale Cellars – Armadale VIC

Regional / Boutique:

 Heathcote Wine Hub – Heathcote VIC

Online:

 Vinomofo – Melbourne VIC

In announcing the results, TheWineRules and Inkwell Wines founder Dudley Brown said “this years results show that social media is the place wine stores need to be seen. Nearly four times as many online votes were cast in 2014 compared to 2013 to recognize Australia’s best independent wine shops.

The theme that emerges from the 2014 winners is about creating unique experiences for customers by offering wines and service not available at major chains. The best also find new ways to connect and build relationships with their customers using social media.”

Paul Ghaie from Blackhearts and Sparrows, a five store independent wine group in Melbourne commented, “customers want to eat and drink differently and to have unique experiences. That’s where we come in.”

The only repeat winner, John Cox of Bond’s Cnr Fine Wines said “to have won a second time is a great honour. We hope it gives customers the confidence to support specialist shops and wineries where they can learn from talk to passionate experts.”

“There were some other interesting results this year Brown commented – Victoria had a massive showing with five of the six winners, there was only one repeat winner from 2013, nearly 50% of all votes were cast from an Apple device and one really excited person from Malaysia voted nearly 1600 times for the same shop (their votes were disallowed).

Phil Hude of Armadale Cellars in Victora said “We’re excited to be recognised by our customers. The wine retail business is all about customer relationships and ensuring that customers enjoy their wine journey as much as we do.”

All of the winners share a commitment to wine knowledge, consumer education and service that sets them apart. The real winners are the consumers who frequent these merchants,” Brown added.

Steve Oates of the Heathcote Wine Hub, winner in the Regional / Boutique category, said “It is great to be recognised as one of Australia’s ‘best’ and we’re proud of the great diversity of wines we sell from Heathcote.”

One recurring theme this year was a brand new store finishing at the top. Wine Republic is a new shop in Fitzroy featuring a 1000 wine bottle light sculpture (see below) proving there is always room for smart new approaches to retail. Owner Tom O’Mara said “We are thrilled for Wine Republic to win in Australia’s Best Independent Wine Stores Awards after just six months of operation.”

 

Wine Republic Fitzroy Victoria

Wine Republic Fitzroy Victoria

In the online category, Vinomofo founder Andre Eckmeier said that: “It is exciting and rewarding that so many of the customers who have come on the Vinomofo journey have voted for us. Customer confidence is the ultimate validation.”

Finally, Brown thanked the “social media army that is promoting diversity, greatness and small producers of wine online.”

About: TheWineRules  (@thewinerules1 on Twitter) is a wine industry blog written by winegrower Dudley Brown of Inkwell Wines  in McLaren Vale. All opinions, mistakes, etc. and are solely his.

WBM is the premier wine industry magazine in Australia.

e: thewinerules@gmail.com

Wine, War and Mixed Meta(for)

“Don’t follow leaders, watch the parking meters” – Dylan

“I read the news today oh, boy” – Lennon / McCartney

Wine industry hit by high $A

JULIE-ANNE SPRAGUE, AFR 15 Jan, 2013 07:09 AM

THE federal government’s statutory wine agency has warned Australia is not close to reaching sustainable wine production and urged producers to focus on selling and marketing more expensive wines to help combat the impact of the high currency.

This article ((and the pronouncement by Andrew Cheesman (I don’t make these names up) of Wine Australia)) were prompted by news that Casella Wines, makers of $7 per bottle Yellow Tail, had reported a $30m loss and were in breach of bank covenants primarily due to the strength of the Australian dollar. Casella was the news lead but the real story is that most everyone in the Australian wine industry is in a struggle for survival.

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Andrew Cheesman and some, ummm, “product”

What did not rate a headline was a meeting held for over 100 grape growers held in McLaren Vale in 2006 where Warren Randall, owner of (then) Tinlin’s Wines (but now owner of Tinlin’s, Seppeltsfield and Boar’s Rock) bluntly and emphatically told growers “grow A or B grade or get out.”

In 2006, the big buyers of fruit were pulling back on their purchases of all fruit, particularly A and B grade. C grade (for $10-$15 per bottle wine) was the rage because the “high” Aussie dollar (then around $.75 USD, now $1.05 USD) was making lower priced wines unprofitable and higher priced Australian wines were in a slump. The bottom was falling out of the grape market at almost every level and here was Warren Randall telling us we should be doing the opposite of what wineries were asking (and, more importantly, willing to pay) for.

What Randall knew then was that the oversupply and the Aussie dollar would lead to a long drawn out war in the industry. Regardless of what the market wanted, the high cost of doing business in McLaren Vale dictated that we had to differentiate and sell smaller crops at higher value.

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Warren Randall of Tinlin’s and Seppeltsfield

Warren’s warning was the distilled essence of leadership akin to that given at Omaha Beach; “take that cliff and you might die. Stay on this beach and you will die.” It’s not what you want to hear but is something you need to act on. Was that the sort of thing Cheesman meant to say the other day? Or, not? It wasn’t clear or, in bureaucrat-ease, what they call “actionable”.

Seven years later, growers in the Vale find themselves in the most advantageous position in the wine grape industry (aside from TasMania). Shiraz fruit was pre-sold by November this year. Prices are well up for the third year in a row. Wine makers have followed suit with dozens of McLaren Vale wineries with $50+ offerings now. No one is in the clover, but not many are in deep shit with the bank anymore either. Regardless, the strong Australian dollar is hurting even diversified and successful wineries.

Since there is no “new news” in any of this, why does it rankle to read Cheesman’s comments seven years on?

War is so frequently used as a metaphor for business and business strategy it is odd to note that while they share so many features, notably purpose, they are the opposites in one significant respect – means.

In war, you fight and win knowing that both sides will suffer horribly. In business, if you cannot trade in a mutually profitable way, you lose.

For years, the large wine companies ran the industry like it was in a war. They engaged in an arms race buying and building refinery-sized wineries with capacity to buy, grow and make wine far beyond their collective talent for selling it. Unfortunately for the big wine companies, those were the good ol’ days. The first to suffer this awareness were the growers when their long-term contracts were up for renewal beginning in about 2004.

The wine companies then acted as though the growers were not long-term suppliers but the enemy who had misled them into their mess. They turned their might on growers cancelling tens of thousands of hectares under contract, restricting terms, reducing prices, etc.

Meanwhile the big public wine companies collectively wrote off over $7 billion dollars in losses and every public wine company but Treasury has since gone bust, sold up or been taken private. Interestingly, write-offs are usually and largely a function of the eventual recognition that management wildly overpaid for assets, not so much trading losses. (It seems write-offs also played a big role in Casella’s current loss as well.) Unfortunately for growers and shareholders of the big companies, they got the sting.

And, because these companies operated under the wrong metaphor, having never figured out how to trade in a mutually profitable way, most big winemakers finally admitted they lost that war and moved on. The ones that have changed their relationships with growers, notably Treasury, have seen their fortunes rise again recently. Conversely, those that haven’t didn’t. In any case, many growers refuse to sign contracts for more than one year now.

While the big boys stumbled through 2000’s, Casella swooped in like Mr. Wolf in Pulp Fiction and cleaned up the bloody mess created by the not so bright. They snapped up enormous amounts of low priced fruit and contracts and built an enviable, well-managed privately owned empire with one huge advantage / weakness – exposure to the US dollar.

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Casella Winery and Vines

Casella made money where Treasury, Accolade, Pernod Ricard / Orlando, Lion Nathan (owners of Brian Croser’s Petaluma where both Cheesman and CEO of Winemakers Federation of Australia CEO Paul Evan’s hail from), Australian Vintage, etc. saw only problems. And, crucially, Casella kept hundreds of inland grape growers’ backs from the wall after the big guys had walked away from them. There is much to admire about Casella despite their wine. Unfortunately, as a tall poppy growing in Australia, they and their growers may be much more vulnerable than good experience should dictate.

Anyhow, here we are in 2013 being told by Wine Australia to “move up market.” Perhaps we should welcome their horribly belated recognition of what was so bleedingly obvious to the acquisitive Warren Randall that he had no problem sharing it with the world in 2006. Or, instead, we can look at some of the rest of what Cheesman said:

“Australian wine exports delivered a solid performance in some of our key markets last year and, as global supply is tightening, we believe there are signals for cautious optimism….”

But, this really isn’t the case. As detailed by Wine Hero, the latest export figures are frankly depressing. The only big export market where there is any significant good news is China while the US, UK and Canada are all “bad” by any profitable definition. As my older former business partner used to tell me, “any fool can sell dollars for 99 cents.”

In the U.S. Civil War, Lincoln fired seven generals over three years before he found one “who will fight;” the outsider Ulysses Grant. Almost no war ends with the same general in charge as at the beginning because while they are experienced enough to get the job, their experience is rooted in another era. In short, they always try to fight the last war.

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Honest Abe

Leadership is the core problem for the Australian wine industry, not vines or currency. As history shows, most of the revered leaders that grew the wine industry in the    1990’s were not much smarter than a cheap Australian dollar and cheap equity underpinned by tax breaks. Most of the grape growers were not much smarter than cheap land, under-priced or nearly free water to irrigate with, tax breaks for planting and generous contracts written by the wine companies. I have no quarrel with every dog having his day in the sun but the lessons that these groups learned in the 1990’s haven’t applied in the real world since at least 2005 when all of these premises suddenly inverted.

In a cruel twist of fate, these folks have gone on to dominate almost every Board and position of leadership in every company and peak body at every level since that time. Those employees that didn’t hew to the belief that the good times would return for “cheap and cheerful” Aussie wine delivered by the traditional big companies have been systematically muffled or moved on by these same people. Meanwhile, the outsider, Casella was actually doing “cheap and cheerful” bigger and better than anyone ever before them and made money doing so. This situation reminds me that when the discouraged fox says in Aesop’s fable “those grapes were probably sour anyhow” we see how little has changed in 2500 years!

Those rare folks who actually tried to fight / change the paradigm and were moved on have then had insidious whisper campaigns about their skills and personal lives spread about them following their departure. Those who say nothing of this out of fear of similar treatment or being out of the “in crowd” thus become conspirators in this awfulness. It is too sad and pathetic to just say nothing of it. Professional lives get wrecked while the no longer fighting just paddle on to the next meeting or tasting.

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Brian Croser

The ones who stay on are tradesmen like Cheesman – former Wine Australia Chairman Brian Croser’s former accountant or the nearly mute “Board Sitters” who seem to just collect fees for their attendance. There’s hardly a great winemaker, great wine grower, great marketer or great salesperson under 60 years of age in sight governing any of these bodies. Nearly everyone at this level is over 60 years old and had their glory days in the last war. It’s not that they’re not smart. It’s that they’re Dad’s Army.

The under 60’s who seem to rule the industry roosts today tend to be lawyers, HR folk, accountants, other back office box checkers, journos, PR hacks and people with no prior relevant industry experience. It’s like a Labor party candidate pre-selection convention. Despite these other skills, most are simply not equipped with the experience to lead in a worldwide struggle for Australian grape grower and winery survival. There are some that I would be reluctant to hire to be V.P. of No Smoking in the Lobby. (By contrast, Ulysses Grant had  personal experience of combat in the Mexican – American War. Some experience matters more than other in certain jobs.)

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General Ulysses Grant

How many of these have successfully owned and operated a vineyard or a winery? How many have pruned, pumped over or fix leaks at 3am? (Before you go barking mad at my simplifications, there are always exceptions – a notable one being the formidable Kate Harvey at GWRDC). We need more like her but they don’t fall off trees.

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Kate Harvey, GWRDC

Cheesman’s analysis and summation was soothingly written to not startle the horses probably because he believes the rest of the industry to have equine numeracy skills. The substance of the export data leads only to the conclusion that Cheesman is, at best, a soothsayer and, at worst, intellectually contemptuous of members / levy payers and / or those bereft of analytical skills. As he is a CEO who always mentions his CPA (most try to just forget that part of their career), we can hope to rule out the latter.

Wine Australia’s (and all of the other industry bodies) levy payers and members deserve leadership comfortable communicating the unvarnished truth in plain language in real-time, not seven years after it was obvious to the merely sentient. Rather, we get weasel words from those more interested in their own survival than the levy payer’s with the vain hope folks don’t notice their thinly veiled contempt for everyone else’s intelligence.

Like Lincoln’s first seven generals, the rent seekers who hold these positions by creating and attending each others meetings while achieving startlingly little at great expense need to be quickly and continuously culled until this industry finds one(s) “who will fight” for the folks whose levies and fees pay their wages. But they won’t do it to each other. And the big companies who ensure these mild folk get these positions won’t do it. And, even if the positions were open most of the ones who would fight wouldn’t even apply to work for these people and these people would never even grant an interview to those who could save them from themselves. Its like some kind of  time warped self replicating reality distortion field for mediocrity where it’s always 1999. Something has to give.

What‘s it going to be?

The Best(?) Is Yet To Come

It’s been nearly four years since my last post. In the near future, we will be publishing the most important story ever told on this site. As soon as I know how it ends, I’ll be sharing it here. Stay tuned…

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