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It’s not often politicians come 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 across the world did just that as a way to protest China’s “bullying.”
“This December we are asking you all to join us in standing against Xi Jinping’s authoritarian bullying…by drinking a bottle or two of Australian wine and letting the Chinese Communist Party know that we will not be bullied,” Swedish politician Elisabet Lann and Slovakian Member of the European Parliament Miriam Lexmann said in the video.
The video was a call to arms for allies of Australia. The country has barreled headfirst into a major political confrontation with China, its chief trading partner, that could potentially cost Australian wine exporters their single largest market.
Paired with politics
The Sino-Australian brawl—several years in the making—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 slew 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 Australian wine imports, China imposed tariffs of up to 212% on Australia’s wines, torpedoing a trade worth some $830 billion a year to Australian wineries. China is the largest market for Australian wine exporters, consuming around 40% of all Aussie wine shipments.
When the tariffs were announced in November, Australia Trade Minister Simon Birmingham said they made China an “unviable” 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 substitute China, which accounts for 30% of the company’s earnings.
After China, the U.S. is the most valuable market for Australia’s wine exporters, buying $326 million worth of wine in the 12 months ending September 2020, according to industry body Wine Australia. The U.K. is third in line, with $319 million spent.
If ranked by volume of exports, however, the order is reversed with the U.K. glugging the most Australian wine in 2020. The disparity between volume sold and money earned points to the high-value of the Chinese market for Aussie growers.
“We are extremely disappointed to find our business, our partners’ businesses, and the Australian wine industry in this position,” TWE CEO Tim Ford said in a statement, although he cautioned that TWE isn’t giving up on China entirely.
The winemaker hopes it can stay in the market by sourcing grapes from different countries to skirt China’s tariffs and by potentially exporting more bulk wine, which is cheaper and stored in shipping containers, rather than a premium product packaged in bottles. Australian bulk wine isn’t subject to the new tariffs.
Boom and bust
China is expected to become the world’s second-largest market for wine by 2023, surpassing France and inching closer to No. 1, the U.S., according to industry tracker IWSR. Within the next three years, Chinese wine sales will reach $18 billion, compared to $40 billion in the U.S.
China already overtook France as the world’s largest drinker of red wine in 2013, when Chinese consumers quaffed 1.9 billion bottles of the red stuff. White wine remains a marginal player in China. Red, the theory goes, is an auspicious color. And while the majority of China’s wine is still bottled by domestic makers—led by the Great Wall and Changyu brands—imports account for roughly 40% of the market.
Imported wine gained initial popularity as a prestige item in the mid-2000s; it was ideal for gift giving and toasting at banquets. But Chinese President Xi Jinping’s crackdown on corruption in 2012, which targeted excess government spending and bribery via gift-giving, stymied the growth of luxury wine imports, a segment dominated by so-called Old World vineyards, primarily in Europe.
Xi’s crackdown gave a boost to New World wines—think Napa Valley, Chile, and Australia—as China’s imagine-conscious middle class looked for premium, but unpretentious, bottles.
According to China Customs data, Australia surpassed France as the leading country of origin for wine imports by value in 2019, shipping in $830 million worth of wine compared to France’s $725 million. By volume, customs data shows, Australian wine makes up roughly a quarter of all China’s wine imports.
Australia’s success has come from targeting the casual drinkers in China’s middle class, or the “masstige” market, says Ben Luker, country manager for Australia and New Zealand at industry research firm Wine Intelligence.
“I think Australia was very approachable as a premium wine. The lower price point might have been a little more attractive, compared to luxury labels, and Australian wine—as with New World wine in general—isn’t as rule-bound as the Old World producers when it comes to branding and labelling,” Luker says.
For example, New World wine labels list the type of grape pressed into the bottle, while Old World labels tend to state the region where the grape was grown instead. That latter information, Luker says, is off-putting to a casual drinker, who likely isn’t well-versed in the signature profiles of the various Old World terroirs.
Unlike Old World wines, New World labels also include tasting notes, which help drinkers deduce whether a bottle might match their palate. However, traditional flavor profiles used in English-speaking markets don’t translate well into the Chinese world, Luker says, and Australia has been particularly proactive in bridging that gap.
In 2015, the Australian Grape and Wine Authority devised a so-called tasting wheel that translates tasting notes for the Chinese market. Australian exporters might substitute ‘Chinese hawthorn’ for ‘blackberry,’ for instance, or opt for ‘lychees’ over ‘cherries’ when describing a wine’s bouquet.
Despite Australia’s work in building a market in China, its customer base is unlikely to stomach a post-tariff price hike. A duty of 200% would triple wine’s cost for importers, with some of that increase passed on to consumers. Other New World producers are primed to steal market share from Australia.
Chile ranked third in terms of wine exports to China by value in 2019, with $358 million of sales. Chilean wine is subject to a 0% tariff in China, thanks to a free trade agreement signed in 2005 that gradually reduced tariffs on wine to nothing in 2015. Australian wines, likewise, had tariffs gradually reduced to nothing in 2019—making the sudden hike all the more shocking.
Chile is also among the leading suppliers of China’s bulk wine, which is shipped en masse and bottled by local brands to be sold under their own label. Presumably then, whether they know it or not, Chinese drinkers already have a taste for Chilean wine.
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