It speaks volumes about the dire relationship between not only Beijing and Canberra but also China and major international corporates operating in its country that Treasury Wine Estates boss Tim Ford first learnt of the 169.3 per cent tariff to be slapped on his wine via his office Bloomberg terminal.
Then there is the further embarrassment that when the 80 page official document from China’s Ministry of Commerce was obtained by the owner of brands including Penfolds and Wolf Blass it was all in Chinese and had to be translated first — and correctly — before Mr Ford, his management team and the Treasury Wine board knew what was being inflicted upon their business.
Treasury Wine is the biggest importer of wine into China and sells some of the most popular brands in the country. It has invested heavily, helping to educate Chinese drinkers. During COVID-19 the only country to have a public launch of the Penfolds vintage was China.
But this is China, and when the politics dictate punishment be handed out all of the hard work, good relations and countless boozy banquets Treasury Wine executives had to sit through with their Chinese counterparts count for nothing.
Mr Ford, a South Australian native and vocal supporter of Port Adelaide in the AFL, is now presiding over a very different company to that of his immediate predecessor Michael Clarke and the CEO before him, David Dearie. Both of those CEOs had the strong tailwind of a surging China and thirsty Chinese consumer to help bolster revenue, pay top dollar for its luxury wines and in many ways provide a halo effect that also helped ratchet up the prices for much of the Treasury Wine portfolio.
Now Mr Ford is facing a possible price war as millions of bottles of wine, especially from smaller and less financially strong producers, are rerouted to Australia and dumped on bottle shops for a quick sale.
Mr Ford hopes he can stay above this tawdry race to the bottom and keep out of any discounting, which is likely for his luxury and premium wines but a much harder sell for Treasury Wine’s long tail of cheaper commercial wines.
Sure, he will be successful in packing some of that wine off to Japan, South Korea and Hong Kong. Maybe Taiwan will take some more loads and some can be put back into the European and North American markets.
Importantly, Treasury Wine will need to limit the supply of grapes it takes on to help constrict wine production down the track and this will help create a shortage, or at least a perception of a shortage, for the pricey wines in his bulging portfolio.
But that takes time and in the short term Australian drinkers especially are probably in line for some bargains and hopefully much better allocations of Penfolds now that China is out of the picture.
This is a problem not of Mr Ford’s making and the market will cut him plenty of slack as a third of his most profitable earnings are snuffed out with the stroke of a pen by the Chinese Ministry of Commerce.
A takeover of a now weakened Treasury Wine could also come back onto the radar, similar to the $3bn failed bid by private equity about six years ago.
However, the chances of a Chinese company being allowed to buy the winemaker or take a piece of Penfolds in the current political climate is next to impossible.
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