Australian Winemakers after Diversification to Survive

Published 2021년 4월 8일

Australian winemakers will need to diversify away from China as the main export market in the long term. China’s Ministry of Commerce confirmed it would impose “anti-dumping” measures on Australian wine imports starting March 28th. The duties, higher than November’s temporary tariffs of 107.1% to 212.1%, are now confirmed at 116.2% to 218.4% and were applied for a five-year term. The industry will now need to focus on driving growth in new and existing markets.

The Chinese Ministry of Commerce said in November of 2020 that the domestic wine industry had been hurt by the dumping of cheap and subsidized Australian wine. The Australian Grape & Wine Association said in a Senate hearing in the first week of March that wine exports had decreased to less than USD 759 thousand in January of 2021 and have seen wine exports plummet by 95% since the trade conflict with China. Now that the tariff extensions are confirmed, the Australian wine industry will request the federal government to refer the dispute over the World Trade Organization.

Trade Conflict between China and Australia

Chinese authorities concluded a seven-month anti-dumping investigation into cheap Australian wine. According to the authorities, dumping and subsidies have occurred in imported Australian wine and have caused substantial damage to the Chinese wine industry. As deteriorating political relations are affecting exports of not only wine but also barley and timber, the Chinese Ministry declared that “China’s domestic wine industry has suffered material damage, and there is a causal relationship between the dumping and subsidies and the material damage.”

While the trade conflict seems to be driven by political tensions from both countries, the five-year anti-dumping rate could completely wipe out Australian wine's competitiveness in the Chinese market. Following the new tariffs’ announcement, Australian wine saw its share price slump more than 13%. For the Chinese market, Australian wine might suffer a price increase of about 50% on the bottle price, which will make Australian wine overly expensive for the Chinese market.

Strong Dependence on the Chinese Market Dependence

According to the Australian Grape & Wine Association, Australia sends more than 130 million bottles of wine to China each year. Before the conflict, China imported nearly 40% of Australia’s wine exports worth around USD 810 million in 2019. By October 2020, just before the tariffs were introduced, Australian exports hit a peak of USD 164 million, a monthly record high on value. Wine exports have sunk since December 2020, as the first temporary tariffs were imposed on the 28th of November.

China has been the main export destination for Australian wine since 2016, and in four years, it has grown to account for 36% of wine export revenue in Australia. By 2020, the Australian export value to China was USD 710 million, a decrease of 10% from the previous year due to the COVID restrictions. However, the Australian industry was optimistic that China’s imports would recover for 2021, as they weren´t expecting to face the highest tariffs imposed by their largest buyer.

Source: ITC Trade Map, Tridge

Focus on Driving Growth in New Markets

As Australian trade officials will attempt to negotiate trade disputes with China, most of Australia's winemakers agree they will need to diversify into other markets to ensure the industry stays viable over the following years and that the success of this would be crucial to its survival. Exporter brands will need to focus on the growing demand for Australian wine in other existing and new markets. However, producers may have to accept lower prices in other markets in order to move volumes of wine, as most of these markets have a high demand and already competitive low cost and premium segments.

United Kingdom

Australia is the number one country by wine volume imported into the UK, making it the second-largest market after China. According to Wine Australia, Australian wine exports to the UK were worth USD 383 million in 2020, representing around 17.5% of the total export share. In 2020, sales of Australian wine increased by 9% in volume in the UK and a 38% increase in value.

The withdrawal from the European Union has left the door open for Australia to sign new trade agreements with the UK and EU, hoping that these arrangements could be a short-term fix to the China conflict. Negotiations for the Australia-UK Free Trade Agreement began in 2020, a trade deal that will reduce or eliminate duties would provide some instant relief to the Chinese conflict. Australian wines would suddenly have a price advantage over other international competitors in the UK market.

United States

The United States was the main export market for Australian wine (followed by the UK) back in 2015, although traditionally, the wines that sell better in the US are cheaper bulk wines rather than boutique or premium ones. However, the US is considered to be the best bet for growth in an established market with room to grow and with no risk of political interference. In 2020, the value of wine exports to the US was USD 320 million, a 2.7% increase from the previous year and a 6% increase in volume.

Australian winemakers are conscious that the US is a much complex sell, as it would have to compete with domestic production in California and other wine-producing nations.

India

There are also efforts to boost the popularity of Australian wine in some other regions in the world, especially in India, where the industry expects to sign a bilateral trade deal that could help open a promising market with a booming population. The trade deal with India, known as the Australia-India Comprehensive Economic Cooperation Agreement, has been in the works for nine years, and it is the wine producers who are calling on the government to finalize it, as it could bring down high duties and taxes that the country has on alcoholic beverages.

Australian wine exports to India were worth $9 million in 2019, far less than the USD 1.2 billion value exported to China in the same year. However, with an increasing population of 1.3 billion and 700 million people above the legal drinking age, India can be a huge market.

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