Trade Dispute With China Puts Australian Wine Industry In a Precarious Position

Australian wine at the 2018 China Food and Drinks Fair Chengdu
Bustling pre-pandemic Food and Drinks Fair in Chengdu, China / Wine Australia

On March 26, 2021, after several months of restrictions, China’s government imposed tariffs of 116–218% on bottled Australian wine imports through 2026. This effectively shut the doors on what was Australia’s largest export market.

Now, the 2022 vintage is well under way. But for many in Australia, a cloud of uncertainty hangs over this harvest as the industry begins its second year effectively shut out from Chinese distribution.

The Australian wine industry relies heavily on exports, shipping 60% its production overseas. In less than a decade, China soared to the top of that export list, becoming Australia’s first AUD $1 billion (USD $733 million) a year wine market in 2019. Until recently, China accounted for 39% of all Australian wine exports.

By the end of 2021, a year after the first round of tariffs, Australian wine exports to mainland China had decreased by 97% in value. The global value of Aussie wine exports sank by 30%, according to Wine Australia’s latest Export Report.

“In 180 years, the Australian wine industry has never suffered such a setback,” says Warren Randall, proprietor of The Randall Wine Group, one of Australia’s largest private vineyard holders, and previously one of the nation’s most public proponents of Chinese investment.

A result of frayed relationships between the Chinese and Australian governments, the tariffs were imposed not just on wine but on other agricultural products as well, including Australian coal, beef, crayfish and timber.

Warehouse filled with Australian wine.
Australian wines awaiting shipment / Courtesy of Wine Australia

“The Australian wine industry was an innocent bystander, a casualty in the crossfire of political coercion between China and Australia,” says Randall. “We did not heed their 14 grievances and they savaged seven Australian industries which were exporting 10% or AUD $20 billion of produce to China.”

“Twenty-three percent of the total annual value of the entire Australian wine crop was lost overnight,” he adds.

The impact on China

The tariffs don’t just affect Australian producers. Chinese importers and distributors have also been dealt a blow.

“We haven’t imported any Aussie wines since the anti-dumping policy was announced, as the new tariff has made it impossible to sell those wines at this cost,” says Baron Hong, general manager of Pran Wines, a Chinese importer and distributor dedicated to premium Australian wines.

“Australian wines used to be the most popular among Chinese wine drinkers, ranking number one in [the country] in terms of market share,” says Hong.

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The loss of Australian wine will be felt by Chinese consumers, though many distributors like Hong have turned their attention to imports from other wine-producing countries. “The wine industry is composed of so many brands, varieties, origins,” he says. “With a wine drinking history of merely 20+ years in China, I think it’s hard to say anyone is irreplaceable.”

For now, Hong’s focus has shifted to South African and U.S. wines, though he hopes to import Australian bottles again someday. “We will definitely bring our old friends back when possible,” he says.

Selection of Australian wines at a tasting.
Introduced to the country in 1995, producer Penfolds is re-appropriating its previous allocations to the Chinese market / Courtesy of Wine Australia

The impact on Australia

Large companies like The Randall Wine Group and Treasury Wine Estates, whose Penfolds brand helped introduce Chinese wine drinkers to Australian wine in 1995, have the means to pivot. Randall, whose crown jewel is the historic Barossa winery Seppeltsfield, has announced plans to acquire more Australian brands with strong connections to export markets outside China. Treasury, which was hit with a 174.6% tariff and announced a $77 million profit loss last August, is focusing on markets in Australia and the U.S., as well as parts Thailand, Singapore and Malaysia.

But small winegrowers and producers have limited options, and many will struggle.

“The closing of the China market leaves about 25% of the national wine grape crop without an obvious destination,” says Dudley Brown, owner and founder of Inkwell Wines, a small organic winery in South Australia’s McLaren Vale. “This is going to hit different producers in different ways. For growers who were selling to winemakers who were selling to China, many have nowhere to sell their fruit.”

In the immediate future, this could mean drastically reduced prices with bulk wines sold cheaply in other export markets.  Or, as Brown puts it, a “short-term opportunity from hell for the long-term image of Australian wine.”

Woman sniffing wine at wine tasting.
Wine Australia China Roadshow visited four cities in 2017—Fuzhou, Chongqing, Zhengzhou and Beijing / Courtesy of Wine Australia

What comes next?

Australia is challenging China’s tariffs in the World Trade Organization (WTO), but the process is lengthy and its first attempt has already been blocked by China.

In the meantime, many wineries have doubled down on the domestic market while looking elsewhere for new export opportunities.

“It will take time to offset the loss in trade to mainland China,” says Rachel Triggs, Wine Australia’s general manager of corporate affairs and regulation, in a recent press release. “This is not something that will happen overnight, nor within a year. But the Australian wine sector is resilient, and there are early signs that hard work in expanding and diversifying markets is paying off.”

Lessons to be learned

Some see the loss of Chinese distribution as an opportunity for the industry to learn from the dangers of becoming too invested in a single market.

“The history of the Australian wine industry is of 35-year cycles of booms and busts,” says Brown. “It is also the story of too many eggs in one basket, whether for fortified wine until the 1950s, or exports to the U.K., U.S. and China in the last 30+ years.”

Positive changes could come from Australia’s latest export challenges, too. Brown cites overproduction as a chronic problem, and feels wholesale vineyard removals are a necessity, particularly in bulk production areas that rely on cheap irrigation water.

“[This could be] the continuation of the really great story that has been occurring for the last ten years in Australia,” he says. “A plethora of climate-appropriate varieties grown in reasonable tonnages produced into wonderful fresh new styles of wine by smaller producers that the world really hasn’t seen much of yet.”

Published on March 10, 2022
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