“Accessible” Australian wine has conquered the Chinese middle class. Then came the rates

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It’s not often that politicians go out and encourage citizens to drink more alcohol, but in a video shared last Tuesday by the International Parliamentary Alliance on China, officials from 11 states around the world did so to protest against China’s “bullying”.

“In December, we ask all of you to join us in combating the authoritarian intimidation of Xi Jinping… by drinking a bottle or two of Australian wine and letting the Chinese Communist Party know that we will not be the victims of intimidation, ”said Swedish politician Elisabet Lann and Slovakian MEP, Miriam Lexmann said in the video.

The video was a call to arms for Australia’s allies. The country has launched head-first into a major political confrontation with China, its main trading partner, which could potentially cost Australian wine exporters their biggest market.

Associated with politics

The Sino-Australian brawl – for several years now – came to a head in April this year, when Canberra pushed for an international investigation into the origins of the COVID-19 outbreak in Wuhan, China. Offended or threatened by the assault on its honor, China retaliated with a series of economic sanctions against Australian imports, including sugar, barley, wheat, copper and, most recently, wine.

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In November, about three months after launching an anti-dumping investigation against imports of Australian wines, China imposed tariffs of up to 212% on Australian wines, torpedoing a trade worth $ 830 billion. dollars a year with Australian wineries. China is the largest market for Australian wine exporters, consuming around 40% of all Australian wine shipments.

When the tariffs were announced in November, Australian Trade Minister Simon Birmingham said they have made China an “unsustainable” market for the country’s wine exporters. Treasury Wine Estates (TWE) – the Melbourne-based maker of Penfolds, Wolf Blass and other brands – has already announced plans to find other markets to replace China, which accounts for 30% of the company’s profits.

After China, the United States is the most valuable market for Australian wine exporters, having purchased $ 326 million worth of wine in the 12 months ending September 2020, according to industry organization Wine Australia. The UK is third, with $ 319 million spent.

Bottles of wine imported from Australia are displayed in a supermarket on November 27, 2020 in Hangzhou, China. China hit Australian wine with tariffs in November, threatening to exclude Australian winemakers from the market.
Long Wei / VCG via Getty Images

If categorized by export volume, however, the order is reversed, with the UK overtaking the most Australian wines in 2020. The disparity between volume sold and money earned is testament to the high value of the market. Chinese for Australian producers.

“We are extremely disappointed to find our business, the businesses of our partners and the Australian wine industry in this position,” TWE CEO Tim Ford said in a statement, while warning that TWE will not completely abandon China.

The winemaker hopes he can stay in the market by sourcing grapes from different countries to bypass Chinese tariffs and potentially exporting more wine in bulk, which is cheaper and stored in shipping containers, rather than a product. high end packaged in bottles. Australian bulk wine is not subject to the new tariffs.

Boom and bust

China is expected to become the world’s second-largest wine market by 2023, overtaking France and moving closer to No. 1, the United States, according to industry tracker IWSR. Over the next three years, Chinese wine sales will reach $ 18 billion, compared to $ 40 billion in the United States.

China already overtook France as the world’s largest drinker of red wine in 2013, when Chinese consumers drank 1.9 billion bottles of red wine. White wine remains a marginal player in China. Red, according to the theory, is an auspicious color. And while the majority of Chinese wine is still bottled by domestic manufacturers – led by the Great Wall and Changyu brands – imports account for around 40% of the market.

Imported wine gained initial popularity as an object of prestige in the mid-2000s; it was ideal for giving gifts and toasting at banquets. But Chinese President Xi Jinping’s crackdown on corruption in 2012, which targeted excessive government spending and corruption through giveaways, has dampened the growth of imports of luxury wines, a segment dominated by so-called Old World vineyards. mainly in Europe.

Xi’s crackdown gave New World wines a boost – think Napa Valley, Chile and Australia – as the imagination-conscious Chinese middle class searched for premium, but unpretentious bottles.

NANTONG, CHINA – NOVEMBER 27: Bottles of wine imported from Australia are displayed for sale in a supermarket in the Nantong Free Trade Zone on November 27, 2020 in Nantong, Jiangsu province of China. (Photo by Xu Congjun / VCG via Getty Images)
Xu Congjun / VCG via Getty Images

According to Chinese customs data, Australia overtook France as the top source country for wine imports by value in 2019, shipping $ 830 million in wine compared to France’s $ 725 million. By volume, customs data shows that Australian wine accounts for about a quarter of all wine imports from China.

Massive

Australia’s success comes from targeting casual drinkers in the Chinese middle class, or the ‘masstige’ market, says Ben Luker, country director for Australia and New Zealand at industry research firm Wine Intelligence .

“I think Australia was very accessible as a premium wine. The lower price could have been a bit more attractive, compared to luxury labels, and Australian wine – as with New World wine in general – is not as ruled as producers in the Old World as far as branding and labeling is concerned. “Luker said.

For example, New World wine labels indicate the type of grape pressed into the bottle, while Old World labels tend to indicate the region where the grape was grown instead. This last piece of information, Luker says, is baffling to a casual drinker, who is probably not well versed with the signature profiles of the different Old Worlds. terroirs.

Unlike Old World wines, New World labels also include tasting notes, which help drinkers deduce whether a bottle can match their palate. However, the traditional flavor profiles used in English-speaking markets do not translate well in the Chinese world, Luker says, and Australia has been particularly proactive in closing that gap.

In 2015, the Australian Grape and Wine Authority designed a so-called tasting wheel that translates tasting notes for the Chinese market. Australian exporters can replace “Chinese hawthorn” with “blackberry”, for example, or choose “lychees” rather than “cherries” to describe the bouquet of a wine.

Toast

Despite Australia’s work in building a market in China, its customers are unlikely to put up with post-tariff price hikes. A 200% duty would triple the cost of wine for importers, with part of this increase being passed on to consumers. Other New World producers are poised to steal market share from Australia.

Chile ranked third in terms of wine exports to China by value in 2019, with $ 358 million in sales. Chilean wine is subject to a 0% tariff in China, thanks to a free trade agreement signed in 2005 that gradually wiped out wine tariffs in 2015. Similarly, Australian wines have seen their tariffs reduced gradually to nil in 2019, resulting in a sudden surge all the more shocking.

Chile is also among the top suppliers of bulk wine to China, which is shipped en masse and bottled by local brands to be sold under their own labels. Presumably then, whether they know it or not, Chinese drinkers already have a taste for Chilean wine.

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