The upcoming decision on China’s tariffs on Australian wine, expected in March, will be pivotal for both Australia’s largest wine company, Treasury Wine Estates, and the long-term relationship with China.
Hopes are that China will drop tariffs which range to more than 200 per cent on imports of Australian wine, imposed in March 2020, re-opening a potentially lucrative market for wine makers including Penfolds owner TWE.
Nothing is guaranteed in the Australia-China relationship, despite the improvements in ties under the Albanese government, and just how China chooses to make the decision will be closely watched for its diplomatic signals.
Anything short of a full dropping of tariffs, which was done with barley last year following a similar process through a World Trade Organisation complaint channel, will be examined for what message might be being delivered by Beijing.
It is not insignificant that China’s urbane ambassador to Australia, Xiao Qian, chose to raise a glass of red wine at his press conference in a toast with media in Canberra last month.
TWE chief executive Tim Ford has maintained a consistent focus on the opportunities of the China market since becoming the company’s chief operating officer in January 2019 with responsibility for global operations, and then CEO in July 2020, despite living with the tariffs on what had once been one of the company’s biggest revenue earners.
Ford, who has overseen an energetic strategy of developing TWE’s own China-made wine as well as continuing to sell into the China market with wine made from the US and Europe in recent years, presented the ambassador with one of the first bottles of Penfolds made with Chinese grapes at an event at the embassy in September 2022.
Releasing the company’s results for December half on Thursday, Ford made it clear that TWE has a clear strategy for a potential return to the China market, including reserving supplies of its Penfolds Bin and Icon wines for the Middle Kingdom.
Other parts of the strategy include plans to increase global prices on these two categories when or if the company starts selling its Australian-made product back into China.
Ford also has plans to step up sales and marketing operations in China where the company has maintained a team of some 120 people, despite Covid shutdowns and the effective block on imports of Australian wine.
An end to the China tariffs will provide a much-needed boost for TWE at a time when the success of its ambitious strategy in the US market is still being questioned.
TWE is a case study of what could be in Australia-China trade with a free and open flow of goods and healthy, or at least workmanlike, diplomatic ties.
By continuing its marketing in China, TWE has ensured that its Penfolds brand is still one of the most recognised imported wine brands in the market – despite the tariffs.
The China market was worth more than $1bn in export sales for the Australian wine industry before the tariffs and has the potential to be much larger in future.
In a broader sense, having well educated Chinese middle classes buying upmarket Australian wine can only be good for relations and more exports of goods to one of the world’s largest markets.
There is a lot riding on the announcement next month.
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