Australia set to be overtaken by Chile as second largest exporter of wine to China

With Australian producers effectively locked out of the Chinese wine market, French and Chilean producers are moving to fill the gap.

China's President Xi Jinping raising a toast during the Belt and Road Forum in Beijing in 2019.

Chile is set to usurp Australia as the second biggest exporter of wine to China, with France bolstering its dominant position after tariffs ranging beyond 200 per cent effectively destroyed the market for local winemakers.

Rabobank’s wine quarterly, released on Wednesday, said global wine imports into China actually fell 5.3 per cent in the first seven months of 2021, after years of strong growth, but predicts the market will return to growth once the effects of the Australian tariffs and pandemic-related supply issues wash through.

The Australian wine sector, bolstered by the Chinese love for big bold, red wines and zero tariffs under the China-Australia Free Trade Agreement, had grown its exports rapidly over the past 15 years or so into China, to the extent where in September last year, China bought more wine than the next four biggest markets combined.

That robust growth came to a sharp halt in November last year however, when the Chinese Government announced interim tariff measures of between 116.2 per cent and 218.4 per cent, while it investigated whether Australian producers were dumping wines into China, and whether the Federal Government was unfairly subsidising local producers.

In March the tariffs, which apply to wine in containers of two litres or less, were locked in for five years, and while there are moves to challenge the duties through the World Trade Organisation, Australian Grape and Wine chief executive Tony Battaglene told News Corp Australia this week that the industry accepted that the market, previously worth $1.2bn, was effectively closed for the next three to five years at least.

READ MORE:Australian wine exports crushed by China tariffs

Rabobank figures show that by 2020 Australia was nipping at the heels of France as the largest exporter to China, coming in at 26 per cent market share compared with France’s 27.4 per cent.

But its projections out to 2025 see Australia dropping to fifth position, while Chile moves up to number two, followed by Spain and Italy. France is expected to continue to grow its market share to 33.8 per cent.

“Following the tariffs imposed on Australian wines, wines from other countries have gained ground to varying degrees,’’ Rabobank says.

“French wine, as one of the biggest beneficiaries, has seen strong growth, both in value and volume.’’

Australian wines on the shelves of Chinese supermarkets are set to become a rare occurence.

“Chile is also on the rise with competitive advantages and is likely to gain further share to become China’s second-largest supplier of wine by 2025.

“Italy and Spain benefited from the drop in Australian imports as well, and are expected to further expand their share in the Chinese market.’’

Rabobank global strategist - beverages, Stephen Rannekleiv said the longer the punitive tariffs on Australian wine stay in place, the more its competitors stand to gain.

“The assumption that France, Chile, and other countries have a long-term opportunity to gain market share in China is based on the current relations between China and Australia,’’ he said.

“The longer the anti-dumping duties remain in place, the harder it will be for Australia to reclaim all of its former share.’’

Rabobank says at the top end, demand for Burgundy and Bordeaux wines continues to increase.

“Champagne and Rhone Valley have also benefited from this good dynamic,’’ the report says.

“Chile is also on the rise with competitive advantages and is likely to gain further share to become China’s second-largest supplier of wine by 2025.’’

The report says that while Chile previously exported wine to China as a private label product, using a low-price strategy to attract customers, this was changing.

“With the trend towards premiumisation, Chile is constantly restructuring its exports to change the perception of its cheap quality, as evidenced by a 22.9 per cent increase in prices over the past year.

“Leading wineries are aggressively expanding into the mid- to high-end Chinese wine market to capitalise on the opportunity.’’

Rabobank says there is still a solid place for Australian producers should the tariffs be wound back.

“Given the established brand and quality reputation, we reckon Australian wines will regain a solid position at the top end of the market in China,’’ the report says.

“But it is more likely that the longer the anti-dumping duties remain in place, the harder it will be for Australia to reclaim all of its former share.’’