What the China tariff will mean for Treasury Wine Estates

The ­nation’s biggest publicly listed winemaker is expected to detail on Monday the threat to its multi-billion-dollar business in China.

Treasury Wine Estates CEO Tim Ford. Picture: Aaron Francis/The Australian

Treasury Wine Estates, the ­nation’s biggest publicly listed winemaker and owner of well-known brands such as Penfolds and Wolf Blass, is expected to detail on Monday the threat to its multi-billion-dollar business in China after it was hit with a 169 per cent tariff on its premium wine destined for the nation.

Over the weekend at Treasury Wine’s Melbourne headquarters its chief executive Tim Ford, key executives, directors and lawyers will be pouring over documents published by China’s Ministry of Commerce, with the winemaker on Friday still trying to translate the statements into English as the crisis unfolded around it and the $45bn Australian wine industry.

The imposition of tariffs on Treasury Wine of 169.3 per cent for its wine imported into China is at the top of the range of a list of Australian winemakers that appeared on a Beijing hit list early on Friday morning, with many closer to 160 per cent while some others (not individually listed) have been hit with tariffs of 212.1 per cent.

The punitive tariffs are to begin from Saturday and could make Treasury Wine’s estimated $4bn China business almost unprofitable. The company reaps about 45 per cent of its annual $533.5m in earnings from the Asian region, of which a large proportion comes from China. However, most winemakers are still unclear on how the tariffs will operate and whether the tariffs charged from this weekend will be refunded if China ultimately rules next year that Australia has not been dumping wine.

Investor panic

Investors quickly panicked, however, as they counted the cost of Treasury Wine’s biggest and most profitable region becoming the victim of the latest economic war between Beijing and Canberra, sending Treasury Wine shares down as much as 15 per cent.

Before a trading halt was called, Treasury Wine shares were down $1.17, or 11.25 per cent, at $9.23. The once high-flying company, whose stock surged to almost $20 in 2018 on the back of its highly profitable Chinese business, has lost 30 per cent of its value since August, when Beijing shocked the industry with news it was investigating anti-dumping allegations.

The rout began when reports out of China suggested the Ministry of Commerce had announced new tariffs for Australian wine, with that speculation soon confirmed as a statement was posted, in Chinese, on the ministry’s website detailing that it had made a preliminary decision that Australian winemakers had dumped wine in China and done harm to the local wine industry. There is still an ongoing investigation, with a final ruling to be made next year.

There had been speculation since earlier this month that China would stop Australian wine from being passed through customs from November 6, with reports from some local winemakers such as Victoria’s Tahbilk that wine shipments were now being blocked in Chinese ports.

The Chinese government began investigating anti-dumping allegations against Australian winemakers in August and had sent off an 80-page questionnaire to a range of Australian winemakers on their exports.

On Friday, the Ministry of Commerce statement on its website revealed the Chinese government would take action against imported Australian wine from Saturday, including Treasury Wine as well as another publicly listed winemaker, Australian Vintage, which owns the McGuigan wine brand.

“On November 27, the Ministry of Commerce issued announcement No 59 of 2020, announcing the preliminary ruling on the anti-dumping investigation of wine originated from Australia,” the Ministry of Commerce statement on its website said.

“It ruled that there was dumping in the imported wine related to Australia, and China’s domestic wine industry had suffered substantial damage, and there was a causal relationship between dumping and material damage, and decided to take measures from November 28, 2020.”

Treasury Wine said in a brief statement to the ASX on Friday that it had requested a trading halt pending the preparation and release of an announcement regarding the decision announced by the Chinese Ministry of Commerce to apply provisional anti-dumping measures to Australian wine imports into China.

“Treasury Wine is reviewing the details of the provisional measures as a matter of urgency in order to update the market,” the statement said. “The company requests that the trading halt be effective immediately and remain in place until the earlier of the commencement of normal trading on Tuesday, ­December 1, or the release of an announcement by the company in relation to this matter.”

Earlier this month, Treasury Wine said the China Alcoholic Drinks Association had submitted a written request to the Chinese Ministry of Commerce that imports of Australian wine in containers of two litres or less into China be subject to retrospective tariffs.

Addressing shareholders at the Treasury Wine annual general meeting early this month, chief executive Mr Ford said the company remained focused on the long-term value and prospects of its business in China.

This was as anti-dumping investigations were still ongoing.

“Firstly, these investigations do not change our long-term commitment to China and we will continue to focus on building our brands in this market, and further developing the deep relationships we have with our customers and strategic partners,’’ Mr Ford said at the AGM.

“Secondly, we welcome the opportunity to participate in this investigation directly, and the team is currently responding to detailed information requests by MOFCOM (Ministry of Commerce) — we respect the process and will continue to fully co-­operate as these investigations continue.”

Australian Vintage imports were hit with a 160.6 per cent tariff. Its shares fell 12 per cent initially before closing down 1c, or 1.6 per cent, at 62.5c.