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Encounter lecture series

Contemporary cross fertilisation: the wine sectors in Australia and France

Mr Tony Spawton & Associate Professor Larry Lockshin

This is a verbatim transcript and may contain grammatical and spelling errors, particularly in the case of foreign words.

ELEANOR RAMSAY: The Encounter Lecture Series is hosted by the University of South Australia and specifically our Hawke Centre to celebrate the chance encounter, or perhaps not-so-chance encounter, of Baudin and Flinders 200 years ago. Not-so-chance perhaps given the number of British and French explorers who were busy around our coasts in those days. These lectures have sought both to celebrate that encounter but also to explore something of the spirit that generated it and also the cultural and scientific and other legacies from that encounter.

My name is Eleanor Ramsay and I am an Adjunct Professor at the Hawke Institute. These lectures were actually conceptualised and planned by the Director of the Hawke Institute, Professor Alison McKinnon who is currently on study leave undertaking research in Sweden but have been organised and hosted, as I mentioned, by the Hawke Centre. The Director of the Centre, Liz Ho, is also unfortunately on leave but in her place and both the directors' place, Louise Barnes has done a wonderful job organising and running these lectures.

It is my pleasure to welcome you on behalf of the Centre, the Institute and the University but also to introduce our speakers this evening, Larry Lockshin and Tony Spawton, who between them have drunk a great deal of wine, know a great deal about wine, more specifically in France and England but not limited to that at all and in a moment I will give you a snapshot of their many achievements and contributions to this significant industry for both Australia and for France. It has often struck me that we share with the French the dedication with which, the seriousness with which, we take the pleasures of food and wine, particularly in this State.

Of course, the title which is even more imaginative than the one I was given because the lecturers have been exercising their imagination: Contemporary Cross Fertilisation or Genetic Incompatibility, and I hope I am not giving too much away if I say it has an historical depth to it which I am very pleased about as a some-time historian. Of course, South Australia did not become a French colony and it has been interesting to speculate why, given some of the information we have had in earlier lectures about the extent of the exploration, more than 50 per cent of our land mass from the centre, the south and the west by the French, but it is interesting that we are so famous for the wine industry which internationally is regarded as quintessentially a French industry.

It has also struck us, those of us who have attended most of these lectures, the extent to which the British cultural heritage from that era has dominated in our lives and the extent to which the French cultural heritage that has been made smaller, though it was, is so under acknowledged. In fact, in our wine industry historically we owe much to France and its influence. Both the varieties of our grapes and many of our wine-making techniques are of French derivation, so I am looking forward to hearing about the incompatibility that the lecturers will bring to us.

As the title of tonight's lecture suggests, there has been a mutuality about this cross fertilisation which again internationally probably is far less recognised that there is a contribution from Australia back to France as well as from France to Australia. Certainly it strikes me and many of our visitors, our colleagues who come here to work with us from the south of France. I can recall on several occasions them commenting that South Australia, our lifestyle and our dedication to good food and wine reminds them of their homes. That seems to be the case in my view.

It is now my pleasure, however, to move to introduce the two lecturers, Dr Larry Lockshin first, who spent more than 20 years in the wine industry firstly as a viticulturalist and now as a marketing academic and consultant. He is also the Associate Editor for Wine Marketing, for the Australia and New Zealand Wine Industry Journal, the Associate Editor for Business and Economics, for the Journal of Wine Research and regularly writes for Harpers and Spirit Weekly. Larry came to Australia in 1995 to act as the coordinator for Wine Marketing Diploma at the University of Adelaide but also, he tells me, attracted by the prospect of being able to work with Tony Spawton.

He joined the University of South Australia as an Associate Professor in 1999 and we were delighted by that development. He has a tough life. In July of this year he will be going for 5 months on study leave to Montpellier, terrible place to find yourself having to eat and drink a great deal of good food and wine. Tony Spawton is an internationally recognised specialist in wine marketing and a regular contributor to the wine marketing academic programs in America, Europe and South Africa. He is a lecturer in our Wine Marketing at the University of South Australia and also the International Director of the Wine Marketing Research Group. He is also the President of the expert group in the area Market Analysis and Networks of the very prestigious International Office of Wine which is based in Paris and he is a Visiting Professor in International Marketing at the Ecole Superieure de Commerce in Normandy.

Larry and Tony together have created a world first in developing the world's first on-line Masters degree in Wine Marketing. This is in collaboration with partners throughout the world, in France, in Chile, in South Africa, in the United Stages and in Argentina and it has a global audience and I understand students from all over the world as well. A wonderful development which was launched in the year 2000, amongst many other historical events. I am sure, however, that that is enough for you to understand these two men are absolute experts renown throughout the world and who know a great deal and will teach us a great deal, I hope, about France and England and our wine industries. Please join me in welcoming them this evening.

LARRY LOCKSHIN: Thank you, Professor Ramsay. The way we are going to do this, I am going to speak first and then Tony is going to come on. I have drawn the straw of talking about Australia and Tony, as his resume indicates, has spent a lot more time overseas, especially in France, and he will speak more about the French wine industry. What I am going to talk about and I think the title kind of says it all, we are going to talk about history but we as marketers and people who teach wine business are interested in the future and what happens in the wine sector in a global sense. So first I am going to give you a few minutes, a very few minutes, but to set the stage for what the global wine market looks like today and what are the issues facing economies like Australia and France involved in international wine trade.

Then really the main thesis of our presentation as we get towards the end when we look at the future is that both countries' ability to compete in the 21st century has really been set by their structure and their history which developed in many cases haphazardly and we do not really put ourselves as historians per se but we do look at the fact that what you have today is a result of an historical process in the fact that they have appellations in France and Australia has quite a different structure, really sets the stage for how we will compete in the future and we are really, Australia and France, not Tony and I, are competing in the global marketplace.

So after we talk about that, that leads us really to the development - we will not get into the deep issue, I am waiting for a PhD student to help me decide what is wine quality because that is an impossible task because we were talking about it before the lecture started. The differences in how the two countries perceive and measure quality are really key, I think, for how they compete in the global market. Then we will look at Australia's view of the future, France's position and what they are in the future and the conclusion where are they going from here. So I am first going to start with the global wine market and a small bit of Australian history and I will turn it over to Tony to talk about a French wine history.

I think the first thing, and you can peruse this slide and wonder why the heck I am talking about concentration and key markets and I have got Germany and United States up there, is because what is happening in the consumption market in wine is affecting the production and selling, marketing of wine around the world. Just in the few years covered by the slides I have here, from 1991 to 1999 which are as recent figures as I could get, if you look at that first two lines in each table you can see that, say, in Germany the supermarkets, hypermarkets, discount stores have gone from having 38 per cent of the total share of wine sales in Germany to 50 per cent. Specialist outlets have dropped. Wineries have dropped and cafes and restaurants have dropped.

It is not much different in the United States. The supermarkets and hypermarkets have expanded their control of the channel quite dramatically in the US. Specialist outlets and convenience and variety stores have dropped and just as another look, the UK, much the same picture between the supermarkets and hypermarkets, discount stores, again, the growing market share. Even in France it is not quite as high and the cafe restaurant sector has not dropped as much as in the other countries, but the point I am trying to make is that when the majority of wine is sold through large chain retailers the number of buyers, and by this I mean representative business buyers for the market, shrinks.

Less than 100 years ago if you went to France you would find that most of the wine that was sold was sold within 50 or 100 kilometres of where it was grown. As the global trade expanded, of course, Australia - and we will talk about having shipped wine for more than 150 years to the UK, but what has happened now is if you are going into the UK market, for instance, there are five major supermarket chains that buy about 70 per cent of all the wine sold at retail as far as shops, not the wine sold on premise.

So no longer do those buyers, and they buy huge amounts of wine, no longer do those buyers want to talk to a hundred or 200 negotiants. They are very happy to talk to large wine companies like our Southcorp or like Gallow or like some of the large French companies who can provide for them all kinds of wines at different price points, different brands. The point I want to make is that the retail structure, because it is consolidating and wine is now a big featured item in retail stores around the world, is actually forcing the industry to consolidate in reply to what the markets are doing. So the bigger wineries actually have better bargaining chips when they go to market with these kind of markets and that structure, as you can begin to see how this talk is going to unfold, is favouring countries like Australia and the US that have large companies and disfavouring and making it more difficult for countries like France that have lots of small wineries.

That is one point. The other point if we look at the production and this is the production of wine, what you see is a graph that shows the per cent of market share in the world, so the global sales by sector. The biggest tall column is soft drinks and that shows that almost 80 per cent of all the soft drink sold in the world are sold by three companies. Going down, spirits, it is close to 50 per cent now, tea and coffee in the 40, 45 per cent, it has gone up a bit since 1998, beer with some consolidations is now about 25 per cent and wine, sitting down there, about 7 or 8 per cent.

What we are saying is that the retail sector has consolidated quite rapidly. The wine sector with as big wineries as we have in Australia or wherever, has a long, long way to go for consolidation. We are going to see some of it. I do not think we are ever going to see, certainly not in our history, 80 per cent of the wine sold by three companies but the trend, I think, is very clear, that bigger is becoming global and I am not saying better, I am just saying bigger is what the global market is moving towards.

If we look at the production by company we see in the first column, that is the top five, the biggest five wine companies' in each of these countries share of the market in that country, of wine production in that country, the US 73 or 75 per cent of all wines produced by the top five companies. New Zealand 80 per cent. Australia, this is 2000, says 68, it is now closer to about 78 with the merger of Rosemont and Southcorp and a few other mergers going on. Argentina 50, Chile 47 and the size of those companies are quite large. Now, compare this with the big companies, the big countries in Europe, France, the biggest, the biggest five companies in France only sell 13 per cent of the wine. So we are looking at two quite different countries when we start looking at what their positions are in the global trade. Italy is even less and Spain is somewhere between the middle.

Now, the size of those companies is quite large, $350-whatever million in sales, but lots of companies, lots and lots of small companies. Who does sell the wine in those countries? Cooperatives. So you look here in the column, 870 almost 900 cooperatives in France with 120,000 members. So what you have is an industry that is made up of thousands of small growers, many of whom own shares in a cooperative, who legally because they own them must take the grapes they grow. So this leads us, as you will see further down, into how quality is controlled and all those issues. Quite a different story than what you see in Australia.

Just a quick picture of what the world wine market looks like. That big, bluish-purple area is France, Italy, Spain and Germany. They produce in the world together almost 60 per cent of all the wine in the world produced by those four countries. France's share alone is somewhere above 35 per cent of all wine production. So as much as I have made about small wineries and thousands of growers, France is not going away, believe me, they are huge. Looking around the back side we see that South America, South Africa, 3 per cent, Latin America, Chile and Argentina particularly 9 per cent, the US about 7 per cent and there is Australia with about 3 per cent of global wine production.

So we are quite a small fish in a very big ocean but believe me, we have made our mark and I think we punch, as you say, quite above our weight in the kind of influence we have both in marketing and in wine production styles across the world. If we look at wine consumption you begin to see the problem facing the French and the other European countries. This graph from 1970 to 1999, so it is about 30 years, shows that in those key countries, France, Italy, Spain and then we have Argentina, Chile, wine consumption has dropped dramatically. The other side of the coin, as Tony will go into more detail, is that wine production has dropped but not nearly so dramatically.

So what has happened is, is wine has been consumed less and less and less, it is less of a food item for peasants and for the workers in the field. That wine has to go somewhere and it has gone out on to the world market. So that is the one thing. Then we look in the other direction at some of the emerging markets. Notice that these are not traditional wine producing markets, Netherlands, Denmark, UK, Ireland, Japan, we could put Australia on there as well, where consumption has gone from almost nothing, 3 to 5 litres per capita, up to in some cases 20, 25 litres per capita. Australia now is hovering about 22 litres per capita. We were up as high as about 25 back in the eighties and if you go far enough back we were quite low in the production of wine.

This graph here, the yellow bar, shows the negative growth, in other words the drop in consumption across those key countries. You see Spain, Portugal, Switzerland, Austria, Greece, all the way through Italy and France. The blue line shows the actual volume. The yellow is per cent, the blue - so you see the two lowest points are Italy and France showing on the right-hand column the hectalitres, so 35,000 hectalitres, so 35,000 times a hundred litres of wine less that is being consumed in those markets. So that is the global situation both countries are facing.

What I want to switch to now is begin to talk a bit about, and I am not going to go into a whole lot of detail, but I put up two charts, one that a graduate and student and I wrote back in 1998 and then Kim Anderson who is a Professor at the University of Adelaide and one of his graduate students did a similar study using different statistics. Looking at the stages, and you can see Professor Anderson's slides look more at the export side of things than the import, but I just thought I would read a little bit and I had to bring my reading glasses so I could do this. As was pointed out by Professor Ramsay, Australia was not settled by wine producing people initially. The British, the English, loved to drink wine. To be honest, they really had no idea of how to grow grapes and make them into wine.

One of the very interesting stories we came across was that in the initial settlements grape cuttings were brought over but no one knew how to grow the grapes. So one of the first things the Brits did was export some prisoners, some convicts, they were not English convicts, they were two French prisoners of war who were sent in the belief that because they were French they must know something about making wine. That turned out to be quite a good joke because after 3 years in the colony I am going to read an excerpt from a letter that was written by Philip Gidley King who was the Governor of New South Wales to Lord Hobart who was the Secretary for War in Colonies in London in 1804. He writes:

In this place it is necessary, I should inform your Lordship, that after a trial of 3 years I do not find that the success attending the culture and management of the grapes will in any degree compensate for the experience attending that object as this is the third year they have generally been blighted which has prevented me from employing more men and extending that cultivation. The two Frenchmen who came out in 1800 to manage this object knew very little of the business. They attempted last year to make wine from the best of the grapes that could be collected but it has turned out so bad that I shall not trouble your Lordship with the sample I had intended to send. As the Frenchmen had a promise of settling or having a passage to England, although their conduct has not merited that indulgence, I have given one of them his choice, who your Lordship will observe by the enclosure, prefers going to England. The other, with his own consent, I will retain here longer to see if his progress when left to himself will be better as last year he made some very good cider from peaches which are now getting plentiful.

So these Frenchmen were good at growing peaches and making peach cider but they miserably failed in the process of making wine. So it was not an auspicious beginning of the Australian industry. What I really wanted to take from this slide and then I will not spend much time and I will talk next about quality which also has some historical implications, is that initially grapes were not that widespread. They were grown starting about the 1840s in South Australia, late 1830s, and then Hunter, New South Wales. Most of the attempts to make wine were pretty bad and I will talk in a minute about the wine show system, the agricultural show system and the impact it had on wine quality which was actually quite positive.

It was really coming and at the same time I think the interesting thing is that from the very beginning in Australia there was a separation of grape growing and wine making. Tony will talk more about France and the link between the grower and the wine making. In Australia in many cases people grew grapes as part of their farming but sold those grapes to wineries who made the wine. Historically that led to the fact that Australia never really had appellations or regions of origin that were defined literally until the 1990s. Certainly we had Barossa, we had Hunter, we had Coonawarra which is almost a dirty word when you talk about defining boundaries because they still have not settled on the boundaries at Coonawarra, but the idea was there was no line drawn that said: this is Barossa and this is not Barossa, which in France was quite the opposite.

The reason of that is it is really historical structure that growers were separate from the places of production. In the mid 1800s when the goldrush first came in the 1850s the wine industry took off both as people travelled to new parts of the country and as the demand for alcohol and initially, let us face it, wine was grown as a source of alcohol. If it did not taste very good as wine, you added spirits to it and made it into port or sherry or something like that and it tasted maybe better but at least it had a good kick. I could read lots more correspondence about some of the bad wines but I will leave this. I have just embarrassed Valmai Hanckel here in the audience. She in a week from Saturday is giving a lecture on the history of the Australian wine industry and will be much more detailed about some of these things. I am not going to talk much about them.

What I did want to say is that much of the industry and its growth, especially as you see in the 1881 era, the kind of phase 2 in my history called oversupply, is that when the British government granted colonial privilege to the Australian and other colonies, which meant they taxed our wine or alcohol products at a lower rate, exports went up. All of a sudden we became competitive because we could sell wine. We could not produce it as cheaply and ship it over the ocean, but we could sell it more cheaply if the tax was lower. The growers today are still arguing about that in Australia but we will leave that until another time.

That really kicked off the exports. Then at the beginning of World War I and at the end of World War I the returned servicemen were given, many of them, plots in the riverland at the same time irrigation technology came into being and many of these returned servicemen were given 20 acres and they grew some grapes, they grew some peaches, cherries, lemons, oranges, a mixed plot, and of course they were too small to make wine so again we had a narrower historical development of lots of grape growers but selling to wineries. During that period we had the rise - they were already there but we had the big rise of the companies like the Seppelts and the Yalumbas and the other family‑owned companies that were buying these grapes and taking advantage of this so-called subsidised export scheme.

However, some of the problems were the wine changed in a funny sort of way on its way to England. It went bad, it turned to vinegar, it spoiled, because again we really did not know in Australia that much about the technical production. That was the impetus back in the twenties for the starting of Roseworthy College as a place to study the science of wine making. Again a historical development that I will show in my next slide has had a lot to do with the success of the Australian wine industry.

Certainly during World War II when American servicemen were stationed in Australia they bought whatever was cheap to drink and that turned out to be fortified wines and some of the table wines. After that point and that gave the industry a boost to gain some more consolidation, some more growth, but after that domestic demand went down and most of you, I can see most people in this room have been around through the sixties, seventies and eighties and now nineties, and that domestic demand increase really came on the heels, I believe, of quality increase in table wine, the fact that we could now make sound table wines using good technology such as understanding the micro‑biology, refrigeration, the development of another of Australia's great innovations, the bag in the box or the wine cask, something that brought wine to everybody's dinner table.

It was really that domestic boom that fuelled the ability, the readiness, to be in exporting when a confluence of circumstances in the 1980s happened. The confluence was a shortage of French wine due to some bad harvests, bad years, some visits by British wine writers to Australia and the fact that we had a bunch of wine that we were not selling and all of a sudden modern export was born. I will not go too much into that right now. What I want to briefly talk about is how our quality control system has occurred and then Tony will talk about the same thing as I have just talked about in French terms.

The agricultural wine show system, as we all know, is a system devised for the local growers to show each other what they have done. In Australia that developed a very unique culture of wine makers meeting together. Their wines were judged eventually blind and then the results and then they talked to each other about what happened. They shared their secrets, their scientific knowledge about what they did. We have records in the study Rebecca Dumfry and I did going back to the 1850s where the wine makers were telling each other what they did with the barrel, how they grew the grapes, how they pruned the grapes. This exchange of knowledge became a cultural thing in Australia where we do not have a lot secrets in production, we share it with each other and that sharing means that when things like refrigeration came in, wine from Gramps Winery won a gold medal because it was a white wine made with refrigeration. Within 2 years everybody was refrigerating their wine fermentations - not everybody, but it was becoming a big thing because of the success because people shared their secrets.

As I have noted before, the establishment of Roseworthy College and the development of a wine science and the real understanding of micro‑biology helped as well. What we have done out of that has focused rather than on individual vineyards the focus of our industry has been on consistency, on blending across areas, across varieties. We did not have the rules and the structure that France had and we just did what tasted good and it has really served us well in developing that consistent brand growth. We also have what is called the Australian Wine and Brandy Corporation and the Australian Wine Export Council which are unique institutions that oversee the production rules and regulations with producing wine and oversee the exporting of wine. Every wine that leaves Australia is scientifically tested and tasted by a panel before it is allowed an export licence and that system has really allowed us to maintain a very, very high quality going overseas.

To my final point, that because we are so good in quality there are some questions that arise. Are Australian wines all the same? My answer to that is another whole lecture but my answer is of course not, we know that, but that is a question that comes out of sometimes negative publicity where people are trying to say: well, they are all really good but they all taste the same, it does not really matter. So this is where I stop and now I will introduce Tony to talk about the same thing in France.

TONY SPAWTON: Thank you. I now want you all to cast your mind back to the period just before Christ when, in fact, that was the start of the French industry. One of the things that the Roman legions took with them wherever they went was they always took a supply of wine, not to provide their soldiers with courage but, in fact, they found that adding wine to the local water supply which probably was pretty polluted was the fact that it maintained the health and well being of the soldiers. So in fact as the Roman Empire spread, particularly into the west, during that time prior to Christ it actually took its culture with it.

In France the majority of this viticulture moved into the southern part of France which, as Larry will find out when he goes to Montpellier, topographically and climatically is very similar to Australia. Also in fact there were a few other things that occurred not only with the Roman legions but also some of you remember the eruption of Vesuvius wiped out a lot of vineyards in and around Naples at that point in time but also and again, as the Australian industry today finds, the Roman Empires were not slow in imposing tax and finding that as there was a growing demand in society for wine it was found as being a very useful mechanism of revenue.

So in fact Emperor Domitian not only imposed taxes but also started imposing limits on the exportation of wine out of Italy which again was an encouragement to the growth. Similarly, of course, the Italian traders and negotiants also found that the French had a very good taste for wine, so in fact it caused the development of the industry in Bonne in the south of France but also Bordeaux and Burgundy.

So in fact the early industry was there and consumption was encouraged as a mechanism to overcome the deficiencies in the infrastructure. Although it was very much a class consumption as well, in that the rich were allowed to drink wine undiluted, hence I guess the saying of: the drunk is a lord. Whereas as far as the lower classes were concerned and the lower down you went in the classes, the greater the level of dilution. So in fact wine became not only a protection in terms of health but it also became a drink, a pleasant drink. Wine was available in work places and in fact in some areas of serfdom wine was actually made as a mechanism of payment.

To come back to look at the influence of the British. Larry covered with you the influence of the British but in fact it was the British actually who really looked at the commercialisation and took advantage of the fact that there was a growing demand for wine in the United Kingdom. The greater part of western France was, after the Roman conquest, ruled from the United Kingdom which included Eleanor of Aquitaine, who in fact when she was King Henry IIs wife she almost created somewhat of a monopoly for the development of Bordeaux as a supply of wine to the UK market.

So in fact there was a very close correlation between the development of the wine industry in France with an increasing demand for wine in the United Kingdom, which is very similar to the developments and then perhaps the shortcomings of the wine industry in Australia, particularly during the early part of the last century. Also the fact that you were a wine maker became very much a status symbol in France. In fact, it became because of the ability of the wine maker, you know, they were almost revered in the same way as artists were revered. So at that time there was almost an ingratiation of a wine maker within the French industry.

Also in 1660 they started to develop the discipline that now Professor Lockshin and I teach, which is Wine Marketing. It came from an Arnaud de Pontac who really sort of created a quality price hierarchy and in fact not only developed his own chateau brand which is haute briand which you will find referred to in Peeps's diaries but also a commercial wine which was the Pontac wine as well. So in fact the early parts of marketing and also the structure, the future structure of the French industry, can very much go back to the development of Arnaud de Pontac.

The other one, of course, is that in the major market for France, the United Kingdom, as the wine makers were getting an enormous status within French society the vintners or the importers were gaining similar status in the United Kingdom, to the extent that during the 17th century the greater proportion of the councillors for the City of London were actually made up of the royal group of vintners which exists today. They do not have the same level of, I guess, control, but for example, the wine group at the Department of Agriculture in the United Kingdom up until quite recently was financed, 50 per cent of the finance for the bureaucrats who actually regulate the importation and distribution of wine in the United Kingdom, was actually financed by the vintners.

To come back to the issue of quality, because again it was the British who instituted or started demanding quality. In fact the first part of the history or development of quality and the quality system within France actually came from Portugal. Again after the time that France did finally get rid of the British there were then constant wars, the 100 years war and so on, so Britain always had to find an alternative source. Again during the last century they came to Australia but previous to that they went to Portugal. Nevertheless, the Portuguese were not perhaps as scrupulous as they might have been, so in fact the establishment of the port industry which is now based in the Dural and again if you go to the Dural you will find that the majority of the negotiants have English names, but also during that stage is that in order to ensure that the consistency of the wine that actually came to the UK, particularly for colour, and as Patrick Ireland will tell you, is an important ingredient in terms of determining quality, because the Portuguese were actually tampering with colour in order to get better prices for their product.

The first appellation system was actually established in Portugal at the insistence of the British. The French, seeing that the British, in particular the vintners group, were becoming more and more concerned, they also started to work on the development of an appellation system. Coupled with that and again similar to Australia, was as in the French history, they would call it the period of enlightenment. For these quality systems or appellation systems to be developed there needed to be a scientific base, a basis on which to be able to do it, a basis not only in understanding the vineyard, the vine itself, but also a basis of understanding and developing a system which would provide the optimum output for the vine but also the optimum quality of the product as it was produced.

So in fact they actually started writing these particular rules down. As wine makers started to produce better quality it became a system of reporting and recording, determining the number of bunches per vine, the actual yield per vine, the actual amount of juice that actually was produced from a single crush, all of these became legislated, controlled systems and again it was basically a control system determined to ensure that the consumer was protected and that there was a lack of fraudulent behaviour.

The other thing also that was happening is that whereas, and as Larry mentioned, one of the reasons why the early trade out of Australia ran into difficulty, particularly with long sea voyages to the Unite Kingdom, was the actual storage of the wine. The barrel was found to be an effective way of storing but other methods were being looked at and of course probably one of the great breakthroughs in the development of wine as an international trade was the use of the bottle but also of the cork, so in fact there was now a sort of guaranteed system where the wine maker could actually determine the qualify of their product and again it is still the practice in France and if you buy a bottle of French wine you will see on the label: mis en boteille, which means it is bottled at the vineyard. So in other words it is almost a statement of guarantee of the integrity of that product, so that the product that is actually in the bottle is what the wine maker intended it to be.

Although the home of wine marketing, the French industry is strictly designated to negotiants and producers. In fact, this is one of the problems that France currently faces, is that it needs to start to adjust its thinking. It has been very good at implementing the Pontiac period and of course it has taken and each year it refreshes its marketing plan with the quality of each particular vintage as has been determined by the terroir. Nevertheless, there is this expectation that this ingratiation of the wine maker is still very much a view which perhaps the industry is going to have to come to grips with in that they have a belief that the system that the operate and the way that they make wine determines that these wines are the best possible wines that can be produced by a particular wine maker.

Nevertheless, there is little concern for what the consumer thinks of these particular wines and I have heard it said more than once in places such as Montpellier, that wine marketing is about to teach people to appreciate our wine, rather than perhaps the other way around and that is the understanding of what consumers are prepared to appreciate and then to produce wines for them. The other system is how these negotiants sell it because in France, whereas the producer sells to a winery who then makes the wine and acts as the negotiant, which is the basis of the Australian company, in France the wine makers, irrespective of how small, tend to make their own wine and then the negotiants buy those wines from the particular producers and undertake the distribution and marketing on their behalf.

Now, this system has served the industry particularly well and again because as far as the market is concerned and the way the market signals are delivered is that the negotiants who are the link with the retailers invariably went to the producers, bought the wine, bottled it or may well have bottled it, labelled it and shipped it, so the producer had no real contact with the market place at all. Along come our friends, the supermarkets, and it is now quite a different kettle of fish. The first thing is that we have some quite large companies here but we also have very large vineyards, whereas the average size of a vineyard in Burgundy is between 7 and 30 hectares. So in fact, you know, in terms of the scale of being able to now deal in the market place is putting the French industry at a significant disadvantage.

I will now go back to Larry and he can talk about the way that the Australian industry is meeting this challenge and then I will come back and talk about the French industry and what they will need to do to be able to do the same.

LARRY LOCKSHIN: Just a few brief words because most of us know much more about Australia than France. I think the first thing is that I can put this slide up for Australia. Australia has a domestic marketing strategy and has a growth strategy for export markets. That strategy, which Tony and I were involved with developing, involved meetings of major players in the industry, grape growers, some of certainly the big wineries and the associations and through a multi-stage process came up with what had to be done and domestically we know very clearly that that is the foundation of Australia's industry. In other words, I hope most of you drink your wine each day or each week and that gives us the good foundation for export. If we did not have that we would have a problem because that is where the cash flow comes from to develop the export markets.

If Australia is going to grow domestically, that growth is going to come through people who consume only occasionally, consume on holidays or birthdays, not from people who are already drinking wine. We also know that that growth is happening only about 2 per cent a year so any increase in sales, and we have a huge increase in production, has got to be sold overseas. Australia has gone through and developed an export strategy prioritising the different markets deciding what the level of investment in marketing is, but those plans are paid for by fees generated by the wineries exporting, so it is not a government subsidised programme which we may find in France is quite different.

The wine marketing council using those fundings, AWIC, actually has officers as people who work in London, Frankfurt Germany, Tokyo and in New York and those people actually had a committee, they did not have a staff, they had a committee of wineries who were exporting to those regions and those wineries themselves decide the market strategy for each of those markets. We have an industry that quite uniquely self manages and the big and the little work together. Yes, there are some disagreements. I liken it to the Queen Mary sailing over to England and you have got a few canoes behind it. You have got the Southcorps and the Rosemonts and the BRL Hardys and the Queen Mary and you have got all the small wine makers furiously riding the wake to keep up with it, but they do open the door. The big wineries open the door, they create the category and in those markets everybody works together to put on promotions. They pour each other's wines and that really, to my mind, Australia has looked to the 21st century now as a group collaborating and I think you will find that in France that is quite different.

TONY SPAWTON: Whereas Australia has a plan, France does not, because in some ways they felt they have never needed one. In fact the growth that occurred for Australian wines, particularly in the United Kingdom market during the 1990s, would actually achieve in the period when there was quite considerable growth in the UK market anyway, so in fact the French did not actually see what was going on. It was only until their sales started to be affected that they suddenly realised that there was something going on which maybe they had not understood.

The Germans, however, were suffering fairly badly at that particular time and in fact in some ways the cat was let out of the bag when Australia published Strategy 2025 in 1996. I happen to have been on study leave in France at that particular time so I got an invitation go to down and speak to the Bureau Interprofessionale in Burgundy and to explain to them as an academic what marketing strategy was about. So I turned up at a very lavish board room and the negotiants sat on that side of the table and the producer sat on this side of the table and I went through a morning session on marketing strategy through an interpreter but it would appear that I was not getting very far with their understanding.

We went to lunch. Again the negotiants sat one side of the table, the producers the other. After they have had a few wines there was a few questions asked about why actually has Australia done this Strategy 2025? Is it a plot to gain revenge on Mururoa for the atomic tests on Mururoa? So I thought: well, in fact we have a problem. So after lunch we drove back so I could get the train back to Paris with the General Manager for the Bureau Interprofessionale and I said, "That did not go very well this morning, did it?" He said, "Well, in fact, it went surprisingly well in my opinion. I have now worked in this place for 3 years. That is the first time that I have had the negotiants and the producers in the same room without them having a fight."

In some ways they do act autonomously and in fact they do compete with each other. So in fact as far as the French are concerned, Burgundy and Bordeaux could be two different worlds, as far as they are concerned, not located in France. So rather than Australia where there is now collaboration at all levels of the industry, even within the regions themselves in France there is no collaboration. The industry is very fragmented, it is small holdings. The wine makers themselves are fiercely independent in the way that they operate and they have very little opportunity of providing leverage with the major distributor chains.

Branding has also become somewhat of a dirty word. Brands in France are seen to be retailer brands. They tend to be the produce that comes out of the cooperatives. Nevertheless, the basis of the industry is becoming increasingly more and more the development of brands. The industry in France, as Larry told you, is in quite serious domestic trouble. He told you: keep drinking wine because in fact as you keep drinking wine it also supports the industry in its export efforts. Well, the French, as you saw, are drinking less wine. It was thought for some time that they are drinking less but drinking better, but no they are not. In fact there are less people drinking wine and the way that they are drinking wine has changed.

There has been societal change in France in the same way as there has been societal change in Australia or in any advanced industrial country. France was very much an agrarian economy, an agrarian industrial economy. What has happened over the last 25 years is that it has become less and less agrarian, the same as Australia, less and less industrial, so in fact the dispensing of wine in the work place is no longer happening and become more and more white collar. So they need to be able to develop again a culture for wine now in quite a different scenario but they are being precluded from doing that because they probably have some of the most rigid regulations in the promotion of wine, or any alcohol for that matter, within the European Union.

France does have brands, brands like Mutteram Carday, but if it is to compete internationally then it needs to have more brands. The appellations themselves behave as brands and I think that you will now see that they are beginning to more and more operate as brands and collaborate within the market place and market them as brands. To provide the critical mass they need to reform the cooperative system. There is 870 cooperatives of varying qualities. They also are, as the cooperative system in Australia was and in fact there are no remaining wine cooperatives, they are not particularly well managed, they have to take their grapes, their level of standard of quality is not particularly sound, because they do have the critical mass but they will need to reform the cooperative system for that to happen.

Equally, the cooperative system in itself is in decline anyway because wine, particularly in the south of France, is a subsistence agriculture which means that younger people do not want to become involved in the industry either as wine makers or from the commercial point of view, so in fact the intellectual base of the industry is similarly suffering. The industry also needs to do its own marketing. The producers need to get involved to take the market signals directly rather than even in the export marketing using generic marketing rather than operating as more of an industry in the same way as Australia does.

LARRY LOCKSHIN: I think, just to finish up, we have provided you very briefly - obviously we could keep you here forever and it is late, but the two countries, one of whom started off without any wine growing, one of whom has been growing wines, as you have heard, since ancient Roman times, have really come to a collision and that collision has been the chief market of both countries, the United Kingdom, where this year for the first time the French market share and the Australian market share are almost identical, going from where France had 40-plus per cent of the UK market, Australia next to nothing, and this year it is somewhere around 20, 21 per cent of the market equal between both countries.

I hope we have explained to you some of the reasons for that and where we think the countries are going in the future. We have not really gotten into who works for whom and the fact that companies like Prino Ricarde which are French companies are big, big players in the Australian industry, that is another story. I hope we have given you some insight into why the wine industry has developed in each country quite differently and what competitive and in some cases non competitive advantages that it has given each of those countries. Thank you very much.