(ABC) - Small wine producers in South Australia's Riverland have welcomed the Federal Government's plans to reform the controversial Wine Equalisation Tax (WET), but said the changes were needed a long time ago.

The Riverland contributes about a third of the nation's annual grape crush and many of its growers have been operating at a loss for several years.

The WET rebate was introduced in 2004 to prop up smaller winemakers operating in regional areas.

But Riverland Wine executive office Chris Byrne said loopholes in the rebate's eligibility criteria had allowed bigger producers to access the tax break, undermining its intended purpose.

He said some larger producers had been dividing sales between artificial business structures in order to claim the rebate.

"What we witnessed were, I guess opportunists, who were able to exploit the WET rebate ... and as a consequence, we saw major distortion in both wine and grape prices," he said.

"We refer to these as the 'virtual wineries' that cropped up [and] were simply trading in wine rather than growing grapes."

The Federal Government's 2016-17 budget included several reforms to WET policy, including shutting out bulk and unbranded wine from the rebate scheme and altering its eligibility criteria by July 2019.

The owner of boutique Riverland wine producer 919 Wines, Eric Semmler, said he hoped a tighter criteria would put an end to rorts in the system.

"There's been a lot of frustration and conjecture within the industry about how the WET tax should be handled and what it should actually do," Mr Semmler said.

"It probably was [not] being used for what it was designed for in the first place.