Major winemakers still ambitious to grow Asian operations despite China slapping industry with crippling tariffs

One of Australia’s largest wine producers says it is still looking to expand its Asian business despite China slapping the industry with major tariffs.

Australia’s largest wine producer still has ambitions to grow its Asian exporting business despite recent trade tensions with China crippling the industry.

In a fact book released to the Australian Stock Exchange on Tuesday, Treasury Wine Estates (TWE) has reaffirmed targets of growing group earnings margin to 25 per cent of every dollar sold globally, with regional Asian margins aimed to be kept at nearly 40 per cent.

The company said it intended to expand its multi country of origin portfolio and drive an increase in distribution depth, breadth and availability in key Asian markets.

TWE’s endeavours to grow its Asian exporting business comes after massive roadblocks in its largest Asian market – China, which has slapped Australian wine exporters with harsh trade tariffs of between 107.1 per cent and 212.1 per cent.

Treasury Wine Estates sells 25 per cent of Penfolds to China. Picture: Supplied

Beijing imposed tariffs on local winemakers following an investigation that allegedly found Australian producers were dumping wine into the Chinese market in an attempt to lower the price.

The tariffs imposed on the wine industry were among many sanctions placed upon Australian exports such as agriculture and resources, with the list growing as the trade spat between Beijing and Canberra worsens.

In TWE’s fact book, the Penfolds, Wolf Blass and Lindemans owner said the Chinese wine market was worth $12.9 billion and represented 63 per cent of total volumes distributed in Asia. China is the company’s largest buyer of luxury wine.

TWE on November 30 said it was diverting wine to other markets as a result of the Chinese tariffs on the industry.

“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” TWE chief executive Tim Ford said.

“There is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.”

Treasury Wine Estates CEO Tim Ford said Chinese tariffs would cost jobs and hurt regional communities. Picture: Aaron Francis/The Australian

Approximately 25 per cent of TWE’s luxury brand Penfolds is sold to the Chinese market.

Analysts at Investment Bank Goldman Sachs said the import tariffs had prompted a “rapid halt” to earlier optimistic trading trends for Australian wine sales in the major economy.

“We must now look to the shifting volume trends for Australian alcohol exports into other regions as a guide to new revenue activities for TWE and the industry,” equity researchers at the brokerage said.

“A lack of notable volume shifts will flag either a reluctance to act on inventory clearance or, the more likely scenario, that export wine is being redirected into the Australian market.”

Goldman Sachs estimates wine exported to China represented approximately 15 per cent of Australian demand in financial year 2020.

In October, bottled Australian wine imports into China were up 13.9 per cent.