Winemakers see some possible good news from US tariffs
Australian wines shipped to the US will face a 10 per cent tariff, but major competitors in France and Italy will be slugged double that, which could benefit domestic winemakers in the long run.
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Chester Osborn is heading soon to the US for a sales trip and will arrive in a wine market utterly transformed by Donald Trump’s “Liberation Day” tariffs announcement, and which nobody in the Australian wine industry can say with complete certainty how it will play out.
Chief winemaker and owner of d’Arenberg, a family-run winery in South Australia’s McLaren Vale, Mr Osborn is still thinking about the tectonic shifts in the global wine market that will now start to show not just in Australia, but for our biggest competitors, France and Italy, as well as an expected upheaval in consumer tastes from New York to Shanghai.
“This is what I have been thinking about. Italy of course is huge, 24 per cent of all Italian wine exports go to America, and something in the vicinity of 16 to 20 per cent of all wine sold in the US, which suddenly has a 20 per cent tariff,” he told The Australian.
“And then there’s French Champagne as well, what do Americans do to replace it? Do they buy Australian?
“But if Italy and France can’t sell their wine in the US anywhere near as much they have to sell it somewhere else, which would be another competitor to Australia … so there is a lot of unknowns in what I’ve just said.”
The always colourful Mr Osborn is seeing plenty of challenges from the 10 per cent tariff slapped on Australian exports to the US, to be sure, but with European winemakers facing a 20 per cent tariff there’s an opportunity emerging too.
Will US drinkers dump soaring French Champagne for relatively cheaper Australian sparkling? Or will they ditch imported wines totally and switch to cheaper, locally sourced wine?
Meanwhile, just across the US border Canadian liquor shops are stripping their shelves of wine and spirits from the US as Californian wine and Kentucky bourbon face the wrath of angry shoppers. That space will need to be filled, and Australian wine could do it – unexpected upside from the imposition of tariffs by the US President.
Mr Osborn says the US is one of d’Arenberg’s largest overseas markets, and his early thoughts are to change his pricing to match the tariff, essentially passing it down the supply chain to his importers and wholesalers.
“Hopefully they don’t get offended, but we actually haven’t had any price rises in America for some time, and so you could argue they were due anyway, maybe, the problem is we could all be heading for a recession – which looks pretty likely right now – and then so what does that do to drinking habits?”
He does see an opportunity for Australian sparkling to leapfrog over French Champagne, which becomes even more expensive due to the 20 per cent tariff on Europe.
“Champagne has been decreasing in sales worldwide for the last few years because it’s expensive as people struggle with money, and so this is just going to exacerbate that. Maybe there’s an opportunity for other sparkling wines from the world that are of similar quality level. There are plenty in Australia, and we have one called Pollyanna Polly, which is very comparable to French Champagne, and is obviously a lot cheaper. So there is potentially an opportunity, but it just depends on how the market feels over there.”
William Dong, managing director of DMG Fine Wines, and whose portfolio includes one of Australia’s most prestigious and celebrated sparkling wine labels, House of Arras, told The Australian the new tariffs proposed by Mr Trump will mainly impact entry-level wines heading into the US. This should encourage more producers keen to get a foothold in the US market to focus on producing wines of quality, provenance, and wines with unique stories behind them. This could in the long run benefit makers of more premium wines, such as DMG.
“While trade wars are never good for developing long-term brand and sales growth, there are some benefits Australian producers can take advantage of versus other markets caught in the crossfire of higher tariffs – particularly European wines,” Mr Dong says.
“This is a great opportunity for premium wine producers like ourselves to develop relationships across the US market and build brand Australia with the world’s largest wine market.”
And Mr Dong believes sparkling wine, in particular, could benefit here.
“While Champagne trades heavily on its brand, the cost-of-living crisis makes consumers very price-sensitive. Brands like House of Arras have a huge opportunity to engage new consumers in America as they explore the broader sparkling wine category beyond Champagne. House of Arras produces some of the world’s best sparkling wines, and we aim to engage more with our customers in the US,” he says.
“This is a potential opportunity and a shake-up for the Australian wine industry,” says Craig Garvin, CEO of Australian Vintage and whose brands include McGuigan and Tempus Two.
“We need a shake-up as we are a bit of a one-trick pony. The days of shiraz and overrelying on shiraz into the US and everything else is losing momentum anyway. So we need to think about what we are shipping? And the world is looking for lighter varietal styles, and there is an opportunity to get more on the front foot.
“A 10 per cent tariff is not going to make or break us, if the consumer wants our brand they want our brand.”
Mr Garvin says pinot, cold-climate chardonnay and prosecco are the type of lighter wines Australia could now put before US drinkers as we have a price advantage over European producers. Prosecco, made under its Tempus Two label, is its fastest-growing wine.
Mr Garvin says China has reopened, there are big opportunities elsewhere in Asia too, while Canada is also now a promising market because of the tariffs.
“Canada represents an export opportunity but also because of the tariffs, US wine is not favoured in Canada so we are working hard with our Canadian partners to take advantage of that, and on top of the lower tariffs we have compared to the Europeans,” says Mr Garvin.
Hugh Hamilton wines boss Mary Hamilton is travelling through North America and is now in Boston, where she is contemplating her sixth-generation family-owned wine company’s next step. For her, Canada and new US drinkers are on her radar.
“About a week or two ago I thought Australia was in a really good position, because we knew that they were going to do that to Europe (tariffs), and we also knew that they were going to do it to Canada. So I was thinking, this could actually be quite good, but at this stage we didn’t know that tariffs would apply to Australia.
“So I thought, this could be quite good, because I’m going to Canada, to Toronto, next week, and I’m going to go and see the Liquor Control Board of Ontario, which is the biggest wine buyer in the world. That’s the government monopoly in the state of Ontario, and they’ve taken everything from America off their shelf, all wine, all spirits, and that’s the biggest booze seller in the world, under the one roof.
“But because tariffs are being brought in across the board, but at different percentages, and Australia’s is on the lower side of the percentages compared to Europe and South Africa … this actually may be okay.”
There might be many Australian winemakers making the long trip to the US in coming months, clutching new wines to put before US drinkers. But will they swallow the story, and the wine?
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