China-Australia trade war forces winemakers to look to US, UK, and India to market

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As Australian trade officials attempt to negotiate their way out of trade disputes with China, many of the nation’s winemakers are conceding it is time to find more reliable countries to do business with.

China’s decision to add an anti-dumping tariff of up to 212 per cent on Australian wine — that took effect last month — has seen wine exports to China plummet by 95 per cent, according to initial estimates by industry body Australian Grape and Wine.

Australian winemakers are now looking to Britain and the United States as alternative markets, as tensions with China brought about by the coronavirus pandemic force the industry to seek stability in 2021.

There are also calls to boost the popularity of Australian wine in parts of the developing world, especially in India where the industry hopes inking a bilateral trade deal could help open the floodgates to a booming population.

The United States

Taylors Wines in South Australia’s Clare Valley usually exports about 20 per cent of its wine to China, but when four shipping containers full of premium red wine got held up at a Chinese port in October, the company realised it needed to start looking beyond China.

Mitchell Taylor, the managing director of Taylors Wines, said the United States — where the company already exports small quantities of wine — was the best bet, given it was an established market with room to grow.

Taylors Wines’ Mitchell Taylor says Australia needs to target prestigious international markets.(Facebook: Taylors Wines)

“While it is a complex market in the US, there certainly is a lot of loyalty for quality and a good wine brand over there.”

China has only been the top export destination for Australian wine since 2016, and in four years it has grown to account for 36 per cent of wine export revenue in Australia, according to IBISworld.

Prior to that, the United States was the top export market for Australian wine (followed by the UK), although traditionally the drops that sell better in the US are cheaper bulk wines rather than boutique or premium ones.

“We really need to do more marketing in some of these very prestigious international markets, particularly at the higher end of the market to get that message out about the quality of Australian wine,” Mr Taylor said.

Lee McLean, from industry group Australian Grape and Wine, said America was a harder sell because Australian wine not only had to compete with strong domestic production in California, but also other wine producing nations.

According to Wine Australia, the value of wine exports to the US in 2019 was $432 million — half of the value of wine exported to China, which is around $1.2 billion.

However, even if Australia does boost imports to America, it won’t be on the scale of the demand seen coming from China in recent years — each year Australia sends more than 130 million bottles of wine to China.

“Chinese consumers really love Australian wine, and they are willing to pay top dollar for it as well,” Mr McLean said.

“So being able to shift that sort of quantity at those sorts of prices to other markets is very difficult.

“But if we are willing to make that sustained effort in places like the United States, we will see the kinds of incremental growth we need to be profitable over the long term.”

Europe and the UK

The United Kingdom’s withdrawal from the European Union which officially started on Monday has left the door open for Australia to ink new trade agreements with the UK and EU — and many winemakers are hoping these arrangements could be a short-term fix to the China problem.

Negotiations for the Australia-UK Free Trade Agreement started in June, and now that British and European lawmakers have finalised their trade deals, Australian officials will be looking to do the same soon too.

Alister Purbrick from Tahbilk Winery and Vineyard in Victoria said an Australia-Britain trade deal that reduced or eliminated duties would provide some instant relief, given the existing popularity of Australian wine in the UK.

Tahbilk Winery’s Alister Purbrick says reduction in import duties will give Australians a price advantage in the UK.(Supplied: Alister Purbrick)

“Australia is still the number one country by wine volume imported into the UK, so it’s a very important market for us,” he said.

In the year ending June 2020, Australian wine exports to the UK were worth $383 million, according to Wine Australia.

“That can certainly grow quickly and significantly if the Federal Government can get us some relief on import duties,” Mr Purbrick said

“That would make a huge difference for our industry overnight because you suddenly would have a price advantage over your international competitors to help you engineer greater sales.”

Mr McLean said the wine industry was closely following the Australia-European Union trade negotiations as well, but flagged those might not be as fruitful for wine exporters as the UK talks.

“In some of those traditional wine producing countries like France, Spain and Italy, it is a tough nut to crack,” he said.

“There’s also Russia, which is a big economy, so we should be looking at opportunities there to see if we can export some of that high-quality wine to Russia.”

Asia and Africa

Bruce Tyrrell from Tyrrell’s Wines in the Hunter Valley has had a shocker of a year.

He lost most of his 2020 crop to smoke damage from the summer bushfires, months of cellar door income due to COVID-19 shutdowns, and then lost his Chinese customers too.

About 25 per cent of the wine he produces for the export market ends up in China. But despite the frustration, Mr Tyrrell has welcomed the need to find more reliable countries to do business with.

“I think this will probably make us less dependent on China,” he said.

Bruce Tyrrell from Tyrrell’s Wines says they have recently started looking at Uzbekistan and Kazakhstan to sell their wines.(Supplied: Bruce Tyrrell)

Mr Tyrrell said he believed the American and British markets were worth expanding, but, his strategy was to grow his exports in other Asian countries and build entirely new markets in Central Asia.

“We burned all of our existing market in China and so looked to where we can expand distribution,” he said.

“So countries like Japan, South Korea, Taiwan, Indonesia and the Philippines are the main ones we want to work, then we have recently opened Uzbekistan and Kazakhstan too.

India is another growth area, however high duties and taxes on imported wine mean it is not an overly attractive market for many producers just yet.

The wine industry is calling on the Federal Government to finalise a bilateral trade deal with India, known as the Australia-India Comprehensive Economic Cooperation Agreement, that has been in the works for 9 years.

“India will be a significant focus for us as it will be for a number of other agricultural industries, but the thing to remember with India is that it is a long-term proposition,” Mr McLean said.

Australian wine exports to India were worth about $9 million in 2018-19 — far less than the $1.2 billion value of wine exports to China.

But with a population of 1.3 billion — and with 700 million of those people above the legal drinking age — India has potential to be a huge market.

“We are also looking at India because we feel there is a population that is growing and an economy that is growing,” Mr Taylor from Taylors Wines said.

Mr McLean also sees Africa as a growing market in the decades to come.

“There are real business centres in East Africa, particularly in places like Kenya, where there is likely to be opportunity not only from the business community from a growing economy, but also from the tourists,” he said.

“This is a time where we have an opportunity to think outside the box and look at every opportunity, not just the same sorts of markets we look at year in and year out”.