31st October, 1928
PERSONAL & CONFIDENTIAL
My dear Prime Minister,
I have noticed in recent cables to the 'Times' from Adelaide that you have to meet a deputation from the Winemakers and that a rather vigorous controversy resulted.  It so happens that on October 3rd I wrote to you quite briefly about wine , because I rather anticipated some such occurrence. I then told you that I proposed to go very carefully into the whole position and that I would send you a considered statement after my return from Rome.
I have decided that as Mr. Faraker  and his staff have been largely concerned with these wine questions, it would be desirable to collaborate with them in the preparation of a report upon the situation. This report is now being drafted and will be forwarded by the next mail.  I am, however, anxious to put before you the position as I see it as the result of several interviews which I have recently had with people here.
Firstly, Sir Francis Floud, the Chairman of the Board of Customs and Excise, has had prepared for me a full statement on the statistical position, a copy of which I am enclosing. These sets of figures show- (a) that the importation of Australian Sweet wines have progressed in the following way:-
Year Imports into U.K.
gallons 1924 5,790 1925 464,299 1926 1,118,174 1927 3,680,596 1928 1,002,000 (5 months)
(b) that the following quantities of Australian sweet wines have been entered for consumption in the United Kingdom:
Year Entered for consumption gallons 1924 1,960 1/3 of imports 1925 233,633 1/2 " "
1926 845,840 3/4 " " [Handwritten]
1927 1,833,056 1/2 " "
1928 943,000 (8 months)
The approximate difference between the imports up to May 1928 and the British consumption up to the same date is 2,856,000 gallons.
This figure fairly closely corresponds with the estimate of 3,000,000 gallons of Australian sweet wine in bond in the United Kingdom which is current. These figures show a very great expansion of exports and a very satisfactory expansion of consumption were it not for the immense exports of 1927 and the resultant accumulation of unsold stocks. You will notice that, allowing for a continuance of consumption on the same basis during the last four months of 1928 as in the first eight, the consumption in 1928 will be nearly double that of 1926 but about 300,000 gallons less than in 1927.
The remaining tables furnished by Customs show the imports of Grape juice or Must and the quantities of British wine entered for consumption. The latter figures are of special interest as they confirm the statement that the additional 6d. per gallon levied as excise upon British wine has had some effect upon the consumption of this article.
To supplement the precise statistics furnished by Customs in regard to Australian, South African and British wine, I have looked up the importation of Portuguese and Spanish wines and I find that for the nine months ending September 30th the following figures are given in the official returns:-
Nine months ending Sept. 30th Wine imports 1926 1927 1928 Gals gals gals Portugal 4,941,914 4,690,181 3,065,552 Spain (Reds) 1,289,892 1,101,172 680,271
These figures indicate that the heavy increase in duty on foreign wines has had a considerable effect in checking consumption. They further tend to confirm the impression which I have gained that the attempt to blend N.E. 25 wines with N.E. 42 in order to circumvent the duties has not been altogether successful.
It is stated that the blend is only successful when the wine goes straight into consumption.
So far I have attempted to give you a brief survey of the existing position. Now I want to let you know of the opinion which I have formed of the position as a result of a conversation with Etchell, of the Vine Products Co. Etchell's views were quite independently confirmed by Buring , who is over here and I find that Faraker also concurs in their general soundness.
Etchell maintains that Australia has made a fundamental mistake in attempting to compete with the very poorest and lowest quality wines available on the British market, i.e. the British wines and the poorer Tarragonas. He maintains that reasonably well matured Australian sweet red wine, with its high alcohol content, ought to compete with the common Port wines. He explains that British wines cater for working men and being (a) quite inferior in flavour to Australian, (b) of a low alcohol content, should be regarded as below the level at which Australia can afford to compete. He says, and in this I certainly agree, that, although Australian Port cannot, for many years, hope to compete with Vintage Port, yet the good Australian Port type wine is as good if not better than the average Portuguese Ports sold in hotels and restaurants, and by grocers to the private consumer. In short Etchell's view is that the price level for Australian wine is from 1/- to 1/6d per gallon too low. This he considers to be due to- (a) haphazard marketing;
(b) the depressing effect of the 3,000,000 gallons stock;
(c) a wrong estimate of the wines with which Australia should compete.
He drew my attention to the South African way of handling the situation. Semi-compulsory cooperation, a Government regulation to prevent the shipment of immature wine and businesslike arrangement for advertising and pushing the sale of the wine. I am obtaining the South African regulations and these will be attached to the report.
After my conversation with Etchell, I looked up the market at present supplied by 'Ports' and found that Great Britain imported from Portugal in 1926 5,827,000 gallons of wine of over 30 strength, of which 5,500,000 gallons were of 34 and over. It is probably safe to assume that less than 1,000,000 gallons were of the really fine port types, so it is clear that there is a large market to cut at.
As against these wines Australia has the full 4/- preferential advantage and this, together with the bounty, ought to be sufficient to enable us to establish for ourselves a steady growing export trade, provided we adopt the right methods.
One word about British wines. I consider that the Government here has treated Australia very well in this regard. I sent you last April a copy of a letter from Sir Francis Floud on this subject  and I now enclose another copy to refresh your memory. You will recollect that the Chancellor  did impose the additional 6d. per gallon. I am quite sure that it would be both ungracious and impolitic for Australia to ask Great Britain to increase the excise upon British wines. So far as I am aware, the Commonwealth Government has never done this and I should be glad if members of the Viticultural Council could be made to see that Great Britain has dealt very generously with their industry.
Now as to methods for rectifying the mess into which unorganised marketing has thrown the Australian wine industry. I suggest that the objectives should be as follows:-
1. To restrict exports so as to allow the surplus stock in Great Britain to be absorbed.
2. To provide for the creation of reserves in Australia so as to allow of an export of mature wine and to allow for a continuance of trade even after a vintage failure.
3. To create some organization capable of reducing the present chaos to order and to allow of the establishment of a policy to introduce our wines into spheres where they can compete with common ports in addition to the present channels of consumption.
I suggest that given a certain measure of co-operation from wine makers, the Commonwealth Government can achieve these objectives in the following way:-
(a) A declaration that the export of wine must be restricted to allow the London stocks to be absorbed.
(b) As a corollary to (a) the Commonwealth Government to arrange that the bounty be paid only on wines licensed for export and such licences be limited for, say, twelve months to wines for which definite contracts have been made.
(c) The Commonwealth Government to declare that it does not desire to profit by the reduction in bounty payments and to dedicate the difference between 1929 payments and 1928 payments to a fund to assist makers to finance the creation of a reserve of up to, say, 2,000,000 gallons.
(d) To introduce legislation on the South African pattern to prohibit the export of sweet wine under, say, eighteen months age.
This to take effect as from some date in 1930.
My impression is that action along these lines would immediately stabilize the market and would enable the stocks to be sold at, say, 1 /- per gallon more than present prices. It would also place the future trade upon a secure basis. We have today a consumption in the United Kingdom of about 1,500,000 gallons. This we ought to be able to maintain and also expand by competition upwards rather than downwards.
Australia as a high wage paying country cannot afford to compete with poor quality goods. This is true of wool, of wheat, of dried fruits and, I think, it is also true of wine. I find it difficult to discover along what lines we could reasonably approach the British Government for more preference on wine, at least until we have set our own house in order. Perhaps you will study the report which we hope to send forward next mail.
This letter has proved long but I think you will like to have the situation as I see it set out clearly.
Yours sincerely, F. L. MCDOUGALL