Australia poised to top China wine market again, but the trade’s $1bn fat years are over
Australian wine makers will struggle to claw back half of their $1.2bn exports to China even after Xi’s government waives its tariffs. Our correspondent explains why from Beijing.
Even with an end of Beijing’s tariffs, Australian wine makers will struggle to claw back half of their $1.2bn exports to China because of a slump in consumer spending and Xi Jinping’s crackdown on banquet culture.
But even a third of the pre-tariff level – worth about $400m – would once again make China the biggest customer for Australia’s wine industry, overtaking the US and the UK, our current two biggest markets.
Within a fortnight, Trade Minister Don Farrell, who has a side-hustle as a winemaker, expects the Chinese government will formally end its devastating tariffs of almost 200 per cent on Australian winemakers. Beijing’s interim decision released on Tuesday indicated Canberra’s confidence is well placed.
In a further sign of their imminent removal, Foreign Minister Penny Wong late on Wedesday evening confirmed her Chinese counterpart Wang Yi will visit Canberra next Wednesday. It will be the first visit by China’s foreign minister to Australia since 2017.
“Dialogue is central to a constructive relationship with China and to supporting regional peace and stability,” Senator Wong said. “It’s Australia’s view that a stable bilateral relationship would enable both countries to pursue respective national interests, if we navigate our differences wisely.”
The end of China’s politically-motivated wine tariffs will be a boon to one of Australia’s most depressed industries and a political win for the Albanese government, which has made removing them a priority.
Senator Wong and Senator Farrell’s home state of South Austalia will gain the most.
However, our wine industry’s fat years won’t be returning, as The Australian discovered on a visit last week to one of Beijing’s biggest wine wholesale markets.
The good news is that a love of Shiraz and Treasury Wine Estates’ Penfolds labels should see our producers overtake France again as China’s biggest source of wine imports. Australia reached the top spot in 2019, when it set its record of $1.2b exports to China.
“It will take two or three years, but Australian wine will get back on top,” one Beijing wine wholesaler told The Australian, during an interview in his store.
But the bad news is that Australia will be returning to a Chinese market that has undergone a profound structural decline. Last year, China imported only $1.6bn of wine. That’s down more than 60 per cent from its peak of $4.28bn in 2018.
Industry experts said China’s wine market collapse as a slump unlike any other in the modern history of wine.
Australian trade economist Kym Anderson has identified a cocktail of reasons that have contributed to that fall, including Covid-era restrictions on socialising and a decline in Chinese discretionary spending as the economy has slowed.
But in a paper in the Journal of Wine Economics, Dr Anderson noted that the collapse began years before the pandemic.
“Part of that decline … may be attributable to the austerity measures introduced by President Xi that frowned upon lavish official dinners and other conspicuous consumption and gift-giving,” he argued.
The wine-sellers The Australian spoke to in Beijing said it remains a challenging time to be selling products many see as exotic, imported luxury goods. Chinese consumers are now buying less wine and at a lower price point than in the pre-pandemic era.
“It’s really tough right now,” said one store owner.
Revenues have more than halved from their peaks in 2018. The rise of China’s online shopping channels has made their falls even steeper.
Before tariffs were whacked on Australian wine in November 2020, our industry was by far the most reliant on China in the world.
At the trade’s peak, almost 40 per cent of Australia’s wine exports by value were going to China. More than 70 per cent of that, or $800m worth, was red wine from South Australia. No other wine region in the world was anywhere near as dependent on China.
After the tariffs, Australia’s total wine trade in 2023 was down more than one third, or $1 billion worth, from its peak of $2.91 billion in 2019. The worst hit were Senator Farrell’s fellow South Australian wine producers.
Australia thrived in part by being in a rare group of countries with zero tariffs on their wine exports to China, giving it a big benefit in a price-sensitive market.
Chile, New Zealand and Georgia all have zero tariff access to China. European producers, including France, have tariffs ranging from 14 per cent to 20 per cent on their wine exports to China.
Since the tariffs were imposed on Australia, France and Chile have been the biggest beneficiaries, although their gains haven’t made up for their bigger falls as the Chinese market overall has shrunk.
A problem for all wine exporters to China is there remains a lot of unsold stock in the country. On our tour through the Beijing wholesale market, The Australian found many little known Australian wines that had been imported before the tariffs were imposed.
Surprisingly, Treasury’s Penfolds range is available at many shops in China, with a suspiciously low price for a wine that should have a circa 200 per cent tariff.
One store owner indicated his Australian-produced Penfolds had made its way to his store via Hong Kong, where Beijing’s tariffs do not apply. He declined to explain how exactly.
Trade numbers from Wine Australia suggest a huge amount of product has followed a similar path. In 2023, Hong Kong was Australia’s third biggest wine market, worth $290 million — almost three times the amount from before the tariff was imposed.
During a week-long trip to China, The Australian found other creative ways Australian wine businesses have kept their brand awareness up in the Chinese market.
The Casella family has been selling a bespoke product for the China market: made-in-China Yellow Tail, which The Australian found available in local supermarkets. Australian grape growers have reason to believe it will be on the endangered species list by the end of the month.
A sad sight for Australian wine grape growers in this Beijing supermarket:
— Will Glasgow (@wmdglasgow) March 9, 2024
It looks like normal Yellow Tail on the shelves. But read the label and see it’s produced and bottled in Chile — to get around 🇨🇳’s ~200 % tariffs on 🇦🇺 wine pic.twitter.com/k2O82r1x5e
No one knows when China’s wine slump will end. Last year, imports fell by another 20 per cent as China’s broader economic slowdown crimped purchases of wine for gifts, traditionally a big source of sales in the country.
Last week, China’s leaders set a growth target of “about 5 per cent” but many in the Chinese wine industry said they doubted that will be achieved.
”I’m quite suspicious. You look at the state of the economy, the property market. And all the new industries like car makers — they’re not profitable,” said one wholesaler.
Still, for Australian wine producers, a third to half of their old China trade would be news to celebrate.
“It’s not going to be a silver bullet by any measure,” said one member of the Australian industry, who declined to speak on the record until Beijing had confirmed the change — just in case.
“But the sheer scale of the market. It’s going to be good for the industry,” he added.
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