Australian Wine Businesses Prepare to Return to China

Australian Wine Businesses Prepare to Return to China - Australian wine companies see more light as relations between Beijing and Canberra ease, with Treasury Wine Estates (TWE), the biggest foreign supplier of wine to China before the retaliatory tariffs, preparing for a return to the Chinese market.

Australian Wine Businesses Prepare to Return to China

Australian Wine Businesses Prepare to Return to China

Australian wine companies see more light as relations between Beijing and Canberra ease, with Treasury Wine Estates (TWE), the biggest foreign supplier of wine to China before the retaliatory tariffs, preparing for a return to the Chinese market.

With the growing likelihood of Beijing lifting tariffs on wine, following its removal of barley tariffs, TWE has postponed its decision on the annual high-end wine export quota to China to keep the option open for re-entering the Chinese market.

Tim Ford, TWE’s Chief executive, has pledged not to cut the supply of its premium local Penfolds wines in Australia.

Mr. Ford said it was sensible for Penfolds to give room to restart exports to China given the efforts made in the bilateral relationship.

“It’s prudent to give ourselves some flexibility,” he told Australian Financial Review.

However, he promised that the group would continue to diversify its markets and would not cut back its sales in emerging markets.

“[Even if the tariffs were dropped,] I don’t think we could get back to China making up 30 percent of TWE’s profits in the next five or six years unless we undid all the work we’ve done in other markets, which we are not going to do,” Mr. Ford said in a talk with the Australia China Relations Institute (ACRI) at the University of Technology Sydney in May.

Australia’s export market to China took a hit at the end of 2020 after the the Chinese Communist Party imposed punitive tariffs on Australian wine and other exports, in retaliation to the former Morrison government's call for an independent investigation into the origin of COVID-19. Subsequently, sales of Australian wine were redirected to Singapore, Malaysia, and Thailand.

2 Years to Address Wine Surplus: Expert

Nevertheless, some experts believe that even if Beijing lifts its tariffs and wine consumption in China recovers, Australia’s wine industry will take at least two years to work through its surplus stock, as the curbs had coincided with an exceptional growing season.

“This coincided with COVID, logistics bottlenecks, and inflation, which were major hurdles in the way of plans to grow and diversify exports,” RaboResearch analyst Pia Piggott told Reuters. “Thus, two-plus years into the tariff, prices of Australian commercial red grapes have significantly declined, and oversupply issues remain.”

Bottles of Australian wine are seen at a store selling imported wine in Beijing, China, Nov. 27, 2020. (Florence Lo/Reuters)
Bottles of Australian wine are seen at a store selling imported wine in Beijing, China, Nov. 27, 2020. (Florence Lo/Reuters)

Despite high inflation and rising wine prices, the market still has strong demand for high-end wines, however, the market for cheap wine is suffering. Last month, TFE announced it would close its winery in Karadoc, Victoria, which produces lower-end wines such as Lindemans, Yellowglen, and Wolf Blass.

TFE’s final dividend has been raised to 17 cents a share from 16 cents a year ago.

In the 2022-2023 financial year, the Penfolds division increased revenue by 14.2 percent to $365 million (US$233 million). But total revenue fell 1.7 percent to $2.49 billion, while net profit fell 3.3 percent to $254.5 million.

Difficult conditions in the low-end wine market have prompted Accolade Wines, Australia's second-largest wine company, to sell its assets, while its private equity owner, The Carlyle Group, is facing huge debts.