Australia’s wine industry has faced significant challenges since China imposed steep tariffs, drastically reducing exports to the critical Chinese market.
Industry executives recount the struggle to offset the impact by seeking new markets, sourcing grapes from other regions, and appealing for government assistance.
This scenario serves as a cautionary tale for food and drink sectors potentially affected by the ongoing EU-China trade dispute.
The Impact of Chinese Tariffs on Australian Wine
The imposition of tariffs up to 218% on Australian wine began in November 2020, following Australia's call for an investigation into the origins of COVID-19. These tariffs decimated Australian wine exports to China, which had been the industry’s most valuable market, accounting for USD 800 million annually. Before the tariffs, Australia was the fifth-largest wine exporter globally, renowned for its inexpensive reds and high-quality wines from regions like the Clare and Barossa Valleys.
While some industries managed to find alternative markets, the wine sector struggled. In 2023, Australian wine exports were 34% lower than in 2019. Larger companies with diversified production, such as Treasury Wine Estates, managed to mitigate some losses by sourcing grapes from Chinese growers and selling non-Australian wines in China. However, the industry overall suffered from reduced market share, weakened key relationships, and decreased profits.
Strategies and Lessons Learned
Industry leaders like William Dong, CEO of DMG Fine Wine, emphasize the importance of diversification. Dong’s company, which includes brands like Handpicked and House of Arras, tripled production outside Australia to maintain their presence in China and expanded into markets such as the U.S. and Southeast Asia. Despite these efforts, sales remained 30% below pre-tariff levels. Dong’s experience underscores a critical lesson: never rely too heavily on a single market.
The Australian wine industry faced multiple challenges during the tariff period, including a global oversupply of wine, declining consumption, and the COVID-19 pandemic. Stockpiles soared to over two billion liters, and grape growers destroyed millions of unprofitable vines. While some sectors, like barley, found new markets at lower prices, wine producers resisted price cuts to avoid long-term value erosion.
Treasury Wine Estates' approach to navigating the tariffs highlights a potential strategy for others: sourcing grapes locally in China and selling non-Australian wines. Penfolds, a TWE brand popular in China, reported higher net revenues in 2023 compared to pre-tariff years. CEO Tim Ford described the company as a "stronger and more diversified global business" in the post-tariff era.
Implications for EU Producers
The EU-China trade dispute, spurred by EU tariffs on Chinese-made electric vehicles, poses a threat to various EU food and drink sectors. While EU winemakers are not currently affected, industries such as pork and brandy fear retaliatory measures from Beijing. French cognac producers, for instance, cannot easily shift production outside the Cognac region, complicating potential strategies to circumvent tariffs.
Australian winemakers' experiences suggest that diversifying sales and establishing new markets are crucial but time-consuming endeavors. Government support played a role in helping the Australian industry expand, with Canberra funding initiatives to build trade relationships in other countries. This led to increased wine exports to Asian markets like South Korea and Thailand, from USD 300 million in 2021 to USD 470 million in 2023. However, the overall success in recovering lost sales has been limited.
A Long Road to Recovery
For many Australian wineries, the journey to reclaim lost market share in China is daunting. Companies like Taylors Wines, which once sold a third of their exports to China, have scaled back operations significantly. Managing Director Mitchell Taylor acknowledges the uphill battle, noting that French, Chilean, and domestic producers have filled the void left by Australian wines in the Chinese market.
The broader implications of this scenario are clear: industries heavily dependent on the Chinese market must adopt strategies to mitigate risk, including diversification and innovation. While some Australian wineries have found ways to adapt, the road to full recovery remains long and uncertain.
In conclusion, Australia’s wine industry offers valuable lessons for EU producers potentially facing similar challenges. Diversifying markets, leveraging government support, and avoiding over-reliance on a single market are crucial strategies to navigate the complexities of international trade disputes. As the global trade landscape continues to evolve, resilience and adaptability will be key to sustaining growth and profitability.
Source: Reuters