Years of struggle ahead for Australian wine producers to replace China as five-year tariff confirmed

Australian wine producers have years of struggle ahead as they seek to fill the void left by China effectively cutting itself off as a major market.

China has made its final decision on how much to slug Aussie wine imports, and one major producer has signalled it’s going to take years to fully develop other markets.

The Asian superpower last year accused Australian winemakers of “dumping” – selling below the cost of manufacturing their products in a bid to increase market share – and imposed an interim tariff of 175.6 per cent while its investigation was under way.

China’s Ministry of Commerce has now made its final determination and settled on the same rate, saying the duty will remain in place for at least five years.

Penfolds owner Treasury Wine Estates told the Australian Securities Exchange on Monday it was executing a detailed response plan to maintain the long-term strength of its business model and brands, with the full potential to be progressively realised over the next two to three years.

“Today’s final determination does not result in any change to those plans,” the company said.

Treasury Wine Estates is turning its attention away from China. Picture: Jono Searle

In its half-year results released last month, Treasury Wine Estates chief executive Tim Ford said it had been a period of significant disruption, with lower shipments in China plus global pandemic-related disruptions causing an 8 per cent fall in total sales revenue.

But the company said it had “increasing confidence” around its plans to divert luxury wine previously destined to China to other markets.

It is funnelling more cash into sales, marketing and brand-building activities in other priority Asian markets while slashing its overhead costs in China and focusing heavily on developing a premium-focused business in the US.

Wealth management group Ord Minnett said it had assumed an elevated tariff level would continue, but it was confident Treasury Wine Estates would continue to execute its US plan well.

“However, the five-year tariff removes a source of optimism some investors had for Treasury Wine that such an elevated level of anti-dumping duty could be sustained,” Ord Minnett said.

Taking the dispute to the World Trade Organisation will be a long process. Picture: Jono Searle

Australian wine industry officials are expected to request the federal government refer the dispute to the World Trade Organisation.

But that’s a process that is expected to take several years, and in the meantime, the punitive duty “effectively closes access to the large and growing China wine market”, Ord Minnett notes.

“The removal of China as a home for Australian commercial wine will add pressure to industry margins,” it said.

Trade Minister Dan Tehan said the five-year impost was “extremely disappointing and completely unjustifiable”.

Australian beef, barley, wine, lobsters and coal exports have also been targeted by China in the ongoing trade war – seemingly sparked by Australia’s ban on Huawei participating in building the 5G network and joining calls for an inquiry into the origins of COVID-19.