Treasury Wine Estates has plans in place to resume imports into China

Treasury Wine Estates is ready to return to the Chinese market, but doesn’t expect demand to be akin to the pre-2019 levels.

Treasury Wine Estates has prepared a strategy to re-enter the Chinese market with Australian wine if China removes its tariffs, but it doesn’t see the market returning to 2019 levels when China contributed 30 per cent to TWE group profits, according to chief executive Tim Ford.

Speaking to a function hosted by the Australia-China Relations Institute at the University of Technology Sydney, Mr Ford said TWE had made preparations for several different scenarios if the China market was reopened as a result of discussions under way between Australia and China.

But he said the company had no intention of re-entering the China market at the cost of supplying other markets, particularly in Asia, where it has stepped up its presence in recent years following the closure of the China market as a result of the imposition of tariffs in late 2020.

Treasury Wine Estates chief executive Tim Ford. Picture: Aaron Francis

He said TWE was not getting any profit from its business in China at the moment because of its decision to reinvest revenues in the development of its Chinese-made wine, which produced its first bottles of Penfolds made from Chinese grapes last year.

“(Even if the tariffs were dropped) I don’t think we could get back to China making up 30 per cent of TWE’s profits in the next five or six years unless we undid all the work we’ve done in other markets over the past two or three years, which we are not going to do,” he said.

Australia was the largest foreign supplier of wines to the Chinese market, at trade worth more than $1.2bn, before it was virtually wiped out by the imposition of tariffs of more than 200 per cent – a move seen as a part of the deteriorating political relationship between the two countries.

Mr Ford said TWE senior management had started planning for a potential improvement in Australia-China relations in December last year after high-level meetings between Chinese President Xi Jinping and Anthony Albanese.

“It was in December last year that I finally allowed myself to think that things could change,” Mr Ford said.

“The dialogue was there, there was a sentiment shift from our government which was being driven strongly through dialogue.

“But also, amongst our customers in China, it was recognised that the relationship could change going forward as well.”

He said he and the senior TWE leadership team “locked ourselves away for three days to see what we would do if it did change and we have a plan which is ready to go if it happens”.

But he said if there was a resolution of the tariff issue, “this isn’t going to be a big tap that gets turned on overnight for us”.

“We don’t have incremental wine at the $100 a bottle and above level sitting there ready to go. If it’s at the $30 level, we will be able to start supplying the market very quickly, but it is going to take us two, three or four years to really start building up the Australian side of it again.

“We are not going back to where we supplied China and then had five or 10 per cent growth in other markets.

“We have worked too hard to build our brands and markets outside of China to turn them off overnight. We’re not going to do that.”

Trade Minister Don Farrell gives Chinese Commerce Minister Wang Wentao a bottle of his Godfather Too shiraz after their high-level talks.

Mr Ford said the recent visit to China by federal Trade Minister Don Farrell was “hugely significant”, although it did not result in any announcement of any specific resolution of outstanding trade issues.

He said TWE was closely watching the negotiations over the future of Chinese tariffs of 80 per cent on Australian barley that date back to May 2020.

The Australian government has appealed the imposition of the tariffs on barley and wine to the World Trade Organisation.

Mr Farrell has said the handling of the barley tariffs could provide the blueprint for a potential resolution of tariffs on wine.

“We have a view that barley and wine are going to be treated in the same way,” Mr Ford said.

“We are watching the barley process very closely. The minister said on the weekend that they were on track. There’s a process to be gone through. Hopefully it ends up in a positive outcome, but we don’t know.”

China represented about a third of TWE’s profits in 2019 before it was hit by the tariffs.

Before the tariffs hit in late 2020, the company was gearing up to supply more than 600,000 cases of $100 a bottle wine to China for the next three years.

“China was about a third of our business and about 80 per cent of our growth over the previous three years (before the imposition of tariffs),” Mr Ford said.

“It was probably about 95 per cent of the investment thesis for shareholders in our company. It was pretty important to us.”

The wine being produced for the China market was sold into other markets, particularly in Asia.

But Mr Ford said TWE still regarded the Chinese wine market as having significant potential in the future from a combination of foreign and domestically produced wine.