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. [1] It so happens that on
October 3rd I wrote to you quite briefly about wine [2], 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 [3] 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. [4] 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 [5], 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
[6] and I now enclose another copy to refresh your memory. You
will recollect that the Chancellor [7] 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