Almost three years after China imposed tariffs of up to 212 per cent on Australian wine, Prime Minister Anthony Albanese says the two countries have agreed to a review that is expected to be completed in five months. Prior to the tariffs being imposed, Australia’s wine export to China was worth $1.2 billion.
Albanese said the breakthrough came late Saturday (21 October). Australia will suspend its action against China before the WTO while the review is underway.
“One in four of Australia’s jobs depend upon trade and our most significant trading partner, in terms of our exports, is China, which is larger than our next three partners – South Korea, Japan, and the United States – combined.
“This is a decision that will be worth more than a billion dollars in Australia’s exports. This is a very significant decision, because unlike some of the other products, the wine industry have indicated they were having difficulty finding other markets to fill the gap that was created by the breakdown in the trade with China. So, this is critical,” Albanese said.
Albanese said since the tariffs (80.5 per cent) were lifted on barley in August, the government had been working to secure a similar process to resolve the wine dispute.
Australian Grape & Wine (AGW) CEO, Lee McLean said, “It has been a very difficult time for Australia’s grape growers and wine producers in recent years following the loss of China as our major trading partner, the global pandemic and various weather events, so this is very welcome news for grape growers and winemakers across the country.”
McLean and AGW president, John Hart, were in Shanghai last week, meeting with the Chinese Alcoholic Drinks Association. McLean said the aim was to find common ground and opportunities for the two industries to collaborate.
“The re-engagement with China at the political, government officials and industry-to-industry levels has enabled the positive dialogue that has led to this decision,” said Mr McLean. “We have said from the beginning that dialogue between the parties would be critical to resolving this dispute, and we have taken a major step towards this today.”
“Australian Grape & Wine has worked closely with the Australian Government and the Department of Foreign Affairs and Trade over recent years to foster a mutually beneficial solution that advances the interests both Australia and China.
“We acknowledge the work of ministers and officials in rebalancing the relationship with China, facilitating the resumption of trade in commodities such as coal, timber, barley and hay,” McLean said.
Impact of tariffs was immediate
China announced the tariffs, ranging from 107.1 to 212 per cent, in December 2020 through the Chinese Ministry of Commerce, not diplomatic channels. It was a tough year for Australian imports to the country, with China imposing sanctions on seafood, sugar, coal, copper, timber, and barley.
The consensus was the tariffs would almost entirely collapse Chinese demand for Australian wine.
At the time, Treasury Wine Estates (TWE) accounted for around 40 per cent of Australia’s annual $1.3 billion export market. TWE China’s Luxury and Icon sales represented approximately 25 and 39 per cent of TWE’s annual global Penfolds allocation volumes and revenue respectively.
On news of the review, TWE CEO Ben Ford said, “It’s great to see an agreement for an expedited pathway forward to allow our Australian brands and wine to be sold in the Chinese market. There are only positives to come out of a favourable review for the Chinese consumer, customers, and the wine category, for the Australian wine industry and for TWE.”
The company has maintained its sales and marketing team in China while developing multi-country of origin products, including the first Chinese sourced and produced luxury Penfolds wine in August this year.
Ford said if the tariffs were removed, the company would rebuild its China business and presence but not at the sacrifice of long-term growth opportunities in other markets.
The company would look to rebuild distribution for the Penfolds Australian entry luxury portfolios, including Max’s, Koonunga Hill, and One by Penfolds.
A portion of Penfolds Luxury and Icon tiers would be reallocated from other global markets to progressively rebuild distribution in China, along with other Treasury Premium Brands Australian priority portfolios, including Rawson’s Retreat.
“TWE will continue to apply its globally standardised margin structure to Penfolds sales globally, to ensure long-term brand health and price integrity. This ensures that sales prices and margins from luxury wine are materially consistent in all markets.
“Both governments have worked constructively to achieve this outcome and we now look forward to a new era of positive engagement that ultimately will build a strong and growing China wine category should the review see the removal of these tariffs,” Ford said.
For third generation family winemakers, Calabria Family Wine Group, the news was a promising step forward. Sales and marketing director, and third generation family member, Andrew Calabria said the announcement brought “a renewed sense of hope for Australian winemakers and grape growers”.
“We commend all wine industry organisations involved for their efforts in reaching this positive development. We are grateful for the chance to have our wines potentially regain access to this important market. We remain committed to producing exceptional wines and delivering the utmost quality to our customers worldwide,” Calabria said.
He said the tariffs caused a loss in sales but also in relationships with valued Chinese buyers.
“At Calabria Family Wine Group, we recognise the significance of the Chinese market and the impact it has on our industry. We are eager to rebuild those connections and regain the trust and support of our customers,” he said.
McLean said, “China holds a pivotal position in the global wine market for Australia. Before the imposition of import duties, the value of Australian wine exports to China was $1.2 billion. Regardless of the outcome, we remain committed to diversifying our market presence and cultivating opportunities in markets across the world.”
Riverland Wine executive officer Lyndall Rowe said reaching a mutually beneficial solution for the struggling wine industry would be a “significantly positive outcome”, but it is still a long game for red wine grape growers.
Rowe said, “According to Wine Australia data, the reduction of red wine inventories will take time but the potential opening of trade to China will slowly help reduce this inventory. At the start of 22-23 there was 1.44 billion litres of red wine in stock in Australia.
“Current import data show that for the 12 months ending August 2023, China imported 270 million litres of primarily red wine, down from 750 million litres in 2017.
“Historically, Australia has had a global market share of China wine imports of approximately 20 per cent.
“If it were to regain this market share, that would represent 54 million litres of red wine. It is therefore likely to take time for the inventory of red wine in Australia to be reduced by China alone.”
Riverland Wine was encouraging all red wine (Cabernet, Shiraz, Merlot) grape growers to continue talking to their wineries for further guidance, and to do whatever they can to preserve their equity until there is further clarity next year.
South Australian premier Peter Malinauskas said the tariffs had a “severely detrimental” impact on South Australian wine producers.
Malinauskas said he took a delegation of leaders from South Australia’s wine industry and other business sectors to China last month to advocate for the lifting of tariffs, and to explore further opportunities for trade and investment.
“We had genuine and honest engagement with the Chinese Government on this matter during my visit last month, and officials were well aware of the importance of this matter to the people of South Australia.
He said the review was “a significant development for thousands of South Australians whose lives and livelihoods have been significantly hurt by these punitive tariffs”.
“This is a decision which has the potential to deliver benefits for people of both nations. South Australia is home to some of the most famous regions, historic estates and the oldest vines in the country – and Chinese consumers have demonstrated a strong affinity for premium and luxury goods, creating demand for high-quality South Australian wines,” he said.
At Accolade Wines, Regional MD Asia, Sean Cunial, told Food & Drink Business the announcement was a clear signal of positive momentum by both governments to strengthen the trade relationship.
“While there remain a number of steps before any relaxation of tariffs, Accolade is optimistic about the possibilities for our business, the suppliers we work with around Australia, and the industry more broadly given historic demand for Australian wine among Chinese consumers.
“We know the Chinese market has undergone significant change since the introduction of the tariffs, with increased competition from wines from other nations. Whatever the outcome of the review, however, we remain committed to working with industry and customers to rebuild the presence of Australian wines in this important market,” Cunial said.
