My dear Prime Minister,

AUSTRALIAN WINE AND THE BUDGET

During the last ten days I have received from Australia three
personal cables from people associated with the wine trade, urging
me to do everything I possibly could to influence the situation
here in favor of further action by the Chancellor [1] to assist
Australian wine against Portuguese and the so-called 'British'
wine in the coming Budget.

The situation is roughly as follows: You will remember what
occurred in the last Budget. [2] Immediately following the Budget,
the London trade felt that the Lisbon and Tarragona wines had
received a knockout blow and it is certainly true that, for some
months, trade in these wines was very stagnant. The British
importing houses and the Portuguese and Spaniards, however, put
their heads together and devised a method which consisted of
importing 2 gallons of wine at N.E. 25, paying 3/- duty, and 1
gallon of N.E. 42, paying 8/- duty. These wines are blended ex-
bond London, with the result that a wine of somewhere about 30
strength is obtained, on which the minimum duty paid would have
been 4/8d as against the Australian wine of 34 strength which has
to pay 4/-. I used the term 'minimum duty' because I think that,
in most cases, the blend does not consist of exactly two parts of
low strength foreign wine to one part of high strength and I
understand that, on an average, the blend results in payment of a
duty of about 5/6d per gallon. This, however, is a very different
story to the 8/- a gallon which war the Chancellor's intention.

The other side of the picture concerns the progress made in
British wines. These, as you will remember, had an excise of 1/-
per gallon levied on them for the first time in last year's
Budget. The so-called 'British' wine is chiefly made from
concentrated grape juice mainly imported from Greece and, to a
certain small extent, from South Africa. To this is added a
certain amount of sugar. The mixture is then fermented to a wine
which may be fortified with any form of potable spirit, not
necessarily grape spirit.

It is estimated that 3,000,000 gallons of this 'British' wine has
been placed on the market during the twelve months.

As a result of a number of enquiries, I have reached the
conclusion that the costs of placing the various wines in question
on the British market in a duty or excise paid condition are as
follows:-

Australian sweet wine 34 strength from 8/9d to 9/3 P. gal.

Blended Tarragona or Lisbon wine 8/- per gallon
'British' sweet wine 5/- " "

To the advantage enjoyed by the 'British' wine must be added the
fact that the wine is delivered in returnable casks. Of course,
the casks in which Australian wine is delivered could also be
returned but, in that case, freight must be considered and further
I understand that the Australian Coopers Union have refused to
handle the re-imported casks. These facts suggest that Australian
wine is still in a position of very considerable disadvantage on
the London market in spite of the quite excellent intentions of
the British Government, as expressed in the Budget of 1927.

There is, however, another side to the picture, as the following
table will show:

Imports of wine for the years ending
1925 1926 1927
Portugal 8,500,811 7,844,698 6,498,181
Spanish red 2,272,839 2,017,696 1,586,525
Australian 1,028,464 1,756,746 4,248,576
This table shows a tremendous expansion in the importation of
Australian wine but there is yet another factor, namely the
quantity of wine that has actually gone into consumption. When one
looks at these figures, one finds that the Portuguese and Spanish
red wine have gone into consumption just to about the same extent
as they have been imported, whereas, in the case of Australia, the
figures are as follows:-

1925 1926 1927
Entered for home gal gal. gal.

Consumption 782,459 1,415,773 2,305,141
The result of this is to show that somewhere about 2,000,000
gallons of Australian wine in excess of home consumption have been
imported. This last fact is quite sufficient to explain the
anxiety of Australian wine makers as regards the situation and the
slump in prices which has occurred.

To my mind these figures show, in the clearest way, the urgent
need for better organization of marketing. At present every wine
maker is offering Australian wine on the London market quite
independently of everybody else and, as far as I can gather, the
lack of system has given our competitors the chance of re-
establishing their position.

The action which I have taken has been, firstly, to see Amery [3]
and to place the whole facts fully before him. I attach hereto
copies of two statements which I prepared at Amery's request. I
told him that I was not prepared to make any representations on
the subject of 'British' wine. He strongly approved this attitude
but said that he would just like to have all the facts put before
him in an unofficial way so that he could discuss the matter with
the Chancellor. Secondly, I called on Sir Francis Floud, the
Chairman of the Board of Customs. Floud, who has only been in this
office for some six months, sent for the two other members of the
Board and we had a very long conversation.

The Board assured me that they had received representations from
British merchants importing Tarragona and Lisbon wines to the
effect that the new duties were having a most detrimental effect.

The Board also said that the tendency of the Chancellor would be
not to make any further alterations this year but to desire to
give the trade another year in which to settle down and to see
just what the developments were. They also said that, in view of
the import figures shewing the great increase in the import of
Australian wines and the decrease in Spanish and Portuguese, it
would be extremely difficult for the Chancellor to make a case to
the House for any further penalisation of the foreign wines.

I urged that the successful blending of the foreign wines was a
development in the last few months and that the great disparity
between Australian imports and the figures for Australian wines
entered for consumption indicated that things were by no means
satisfactory. I strongly suggested that, in the event of the Board
of Customs satisfying itself that this blending of foreign wines
was really taking place on a large scale, [the Board] should
indicate that the Chancellor's intention, as expressed in the 1927
Budget, was being defeated and that, therefore, steps should be
taken to render more difficult the practice of this blending.

The Board of Customs promised to place all these matters before
the Chancellor but certainly held out no sort of hope of any
probability of definite action.

In discussing this question with the Board of Inland Revenue, I
did not raise the question of 'British' wines but they themselves
told me that they were to receive a deputation from the British
wine importers urging that the excise on 'British' wines should be
increased from 1/- a gallon to a considerably higher figure. As
Vine Products Ltd., the chief firm making 'British' wine, have had
an extraordinarily prosperous year and have just declared a
dividend of 30%, I should think there was a reasonable prospect of
the Chancellor making some increase in this excise in the coming
Budget, especially as if he only adds 1/- to the excise, it would
mean an additional 150,000 to the Revenue. [4]

Yours sincerely,
F. L. MCDOUGALL