China puts cork in wine trade bonanza

Australian Grape and Wine chief executive Tony Battaglene says the downturn in China this year may have prompted Chinese wine makers to lodge a complaint against Australia

Australia’s wine sales to China have been one of the great success stories of the China-Australia Free Trade Agreement that came into force in December 2015.

Sales have doubled and the move to zero tariffs under ChAFTA have helped Australian wine exports to China to outstrip sales from France in recent years.

But as chief executive of Australian Grape and Wine Tony Battaglene said on Tuesday, Australia’s success has made it a target.

He says the downturn in the wine market in China this year, as a result of the economic shutdown, may have been a factor in prompting domestic Chinese wine makers to lodge a complaint against Australian wine.

In its statement on Tuesday, China’s Ministry of Commerce said it was examining the increase in Australian wine sales from 2015, the very period covered by the start of ChAFTA.

It is clear for months that the Australian wine industry may be vulnerable to growing tensions between the Morrision government and Beijing.

Australian wine was specifically mentioned as a target by China’s ambassador to Australia, Cheng Jingye, in an interview in April following a call by Foreign Minister Marise Payne for an inquiry into the origins of the coronavirus, seen in Beijing as pointing a global finger at China.

The interview was followed by the imposition of tariffs of some 80 per cent on most Australian barley exports to China and the news that four Australian abattoirs were temporarily banned from sending beef to China.

Trade Minister Simon Birmingham has tried to argue that Australian trade with China has held up despite the increasingly tense rhetoric being aimed at Australia from Beijing.

Yet for many in the Australia-China trading business, it was just a matter of time before the Chinese showed their anger at Australia with another trade move.

For many observers, it was not a case of if China would seek further retaliation against Australia but when, and what industry it would seek to target.

With a strong demand for Australian iron ore and travel restrictions already affecting tourist and student travel, wine exports were an easy target.

The Chinese have used the wine industry to send a political message in the past when exports of wine by Treasury Wine Estates to its new warehouse in Shanghai were held up in early 2018.

While the delays, which were eventually overcome, were never explained by the Chinese side, they were widely seen to be sending a message by Beijing against perceived anti-China rhetoric that began under the Turnbull government, including Malcolm Turnbull’s decision to quote Chairman Mao when explaining the need for new foreign interference laws.

This also followed Chinese anger at the Turnbull government’s move to ban Chinese telecommunications giant Huawei from supplying its equipment for the rollout of the 5G network in Australia.

In an interview with The Australian last week, Treasury Wine Estates’ new chief executive Tim Ford admitted he was worried.

ASX-listed Treasury Wine Estates has become the largest single foreign supplier of wine to the China market. “Does it worry me?” Mr Ford said when asked about increasing tensions in the Australia-China relationship, including suggestions Chinese consumers could boycott Australian wine if they were unhappy with moves by the Morrison government. “Of course it worries me,” he said. “We saw it two years ago when we faced operational challenges getting our product into China for a short period of time,” he said. “We would hope they don’t happen in the future.”

Sadly, he was wrong.

Wine sales to China, which were running at about $420m in 2015-16, more than doubled to just over $1bn, with the move to zero tariffs under ChAFTA helping Australian wine exports to China to outstrip sales from France in recent years.

Under ChAFTA, tariffs on Australian wine of between 14 and 20 per cent, which were in force in 2015, were removed by January 1, 2019.

While total wine sales to China were hit earlier this year by the economic shutdown forced by the coronavirus, which emerged in the industrial city of Wuhan in January, Australia’s total wine exports to China for the financial year ended June were up by 0.7 per cent by value to $1.1bn.

Import data by Global Trade Atlas showed Australia had 37 per cent of the value of wine imported into China in the 12 months to the end of May, far exceeding the 27 per cent market share by French wine, 13 per cent held by wine from Chile and 6 per cent of the market met by wine from Italy.

Sales of Australia wine by volume over 2019-20 were down by 17 per cent to 121 million litres, reflecting both a slowdown in sales because of the virus and a concerted move across the board by Australian winemakers to sell higher priced wine into the China market.

The average value of Australian wine exports to China was up by 22 per cent to $9.07 a litre, free on board.

If the anti-dumping investigation into Australian barley is any guide, the review could hang over the head of the Australian industry for more than a year.

With Australia-China ties at their worst levels for decades, other exports to China could also find themselves a potential target.