2021-2024 Sino-Australian Wine Tariff Turbulence
The world-renowned wine writer Jancis Robinson MW once remarked, "Australian wine’s fortunes have been saved by China. "
Australia has always been a country heavily reliant on wine exports. After trying Europe and North America, Australian wine began to focus on the rising and open-minded, growth-oriented wine market in the East - China.
The newly enamored Chinese wine consumers have stronger purchasing power, a large consumer base, and a fleeting acceptance of premium brands. Australian boutique wines, led by brands like Penfolds, rushed to prosperity.
The slashing of the French market
Benefited from the Free Trade Agreement signed in 2015. For Australian wines in containers smaller than 2 liters, the tariff, which was 14% before 2015, decreased to 11.2% in 2015, 8.4% in 2016, 5.6% in 2017, 2.8% in 2018, and finally to 0% in 2019.
Meanwhile, France, which previously held the largest share of the wine import market in China, maintained a steady 14% tariff during the same period. French winegrowers, like frogs in warm water, watched as Australians gradually nibbled away at their market share. By 2019, Australia surpassed France to become China's largest source of imported wine.
Australian wine not only has promotion in local markets (Push) but also attraction in its homeland (Pull). Australia's favorable natural environment and relatively relaxed immigration conditions have led many Chinese to choose to immigrate to Australia through wine trading.
According to immigration regulations, these immigrants are required to export nearly 20 million RMB worth of Australian wine and other products to China each year. With an estimated immigrant population of over a thousand, they conservatively bring in about 2 billion RMB worth of Australian wine imports each year.
The popularity of robust and full-bodied Australian wines with Chinese palates stems not only from the prevalence of high-quality bottled wines but also from a large number of Australian-based wines donning local brands in China. Leveraging the market penetration capabilities of local brands, they educate the foundational market consumers' palates. Those accustomed to the taste of Australian wine will also patiently appreciate the elegance and length of high-end wines. This combination of Push and Pull has indeed made Australian wines invincible in the Chinese imported wine market.
Unexpected opponents are brewing quietly.
Chinese wines, a group unfamiliar to Australian winegrowers, make them tremble.
On July 6, 2020, the China Alcoholic Drinks Association, representing the domestic wine industry, formally filed an anti-dumping and countervailing investigation application against imported related wines from Australia.
Indeed, Australian wines have not only encroached on the market share of other imported wines but also affected Chinese domestic wines: from 2015 to 2019, the domestic wine market share of similar products plummeted from 74.43% to 49.58%; sales revenue dropped from 46.605 billion RMB to 14.509 billion RMB, a significant decrease of 68.87%; industry profits also declined by 79.71%.
Australian winegrowers witnessed the speed and power of China for the first time. The Ministry of Commerce issued a filing notice on August 18, and on November 27 of the same year, it determined that Australian wines were being dumped and subsidized, causing substantial harm to China's wine industry, with a causal relationship between the two.
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Due to dumping rates of 116.2% to 218.4% and subsidy rates of 6.3% to 6.4%, the Ministry of Commerce decided to impose a five-year anti-dumping duty on Australian wines effective from March 28, 2021, with rates ranging from 116.2% to 218.4%. To avoid double taxation, no countervailing duties were imposed. From 0% to 218%, it was like going back to pre-liberation overnight.
In 2019, bottled Australian wine sales to China amounted to US$800 million, accounting for 35% of all imported wines, ranking first. Meanwhile, China (including Hong Kong and Macau) imported wines accounted for 45% of Australia's export wines in 2019, also ranking first. The deep connection between the two first places was broken with the imposition of anti-dumping tariffs starting on March 28, resulting in a rapid decline in imports. By October 2021, Australian wine exports to mainland China had shrunk to less than 10% of the same period the previous year. The number of Australian wine merchants exporting to mainland China dropped dramatically from 2,189 to 399.
In addition to immediate responses, the closure of the Shanghai office of Australia Wine, a crucial catalyst in the overall penetration of Australian wines, was significant. After struggling for a year, it closed on June 21, 2022 - Australian wines lost their export gateway and shut the window on market insights.
During the pandemic-induced downturn in consumption, the vacuum left by Australian wines decreased significantly and was quickly filled by other countries. French, Italian, and other wines, which had previously lacked cost-effectiveness due to a 14% tariff, suddenly became more attractive. New Zealand and Chilean imported wines enjoyed zero tariffs and thrived.
Chinese investment in Australian wines slowed down. For example, Wei Long shares previously made substantial investments in Australian vineyards for wine processing but later recorded significant impairment losses, leading to the sale of some vineyard assets.
Domestic wine producers in China explored new strategies. In the process of Australian wines attempting to localize products, they gained opportunities to cooperate with top international brands. To alleviate tariff pressures, Australian wineries started bottling with Chinese wine. Since overseas brands can resurrect through Chinese wines, why wouldn't Chinese consumers go further, not just paying for brands but also for the more down-to-earth cost-effective Chinese wines? As a result, a phenomenon that worried Australian wines emerged. Even though there is no shortage of importers who can foresee the impact of tariffs and have stockpiled enough bottled wine to sell for three years, the news of Australian wine import tariffs has lowered consumer perceptions, coupled with the large base of casual consumers swaying due to changes in Sino-Australian relations, making Australian wines valuable but difficult to sell.
After a glimmer of hope or a last gasp, on March 29, 2024, three years after the implementation of anti-dumping tariffs, the official cancellation of anti-dumping and countervailing duties on Australian wines was announced.
Is this another opportunity akin to the tariff reduction that began in 2015?
The current situation facing Australian wines: a three-year brand vacuum period, requiring continuous investment in brands. The discontinuous supply side over these three years has had a huge impact on brand promotion. Consumer attention spans are short, requiring constant stimulation to build loyalty.
The downward market: In 2019, China's wine industry generated revenues of 14.5 billion RMB. By 2023, cumulative sales revenue for China's wine industry amounted to 9.09 billion RMB, only 60% of that five years ago. The overall scale of imported wines has also shrunk, more than halving over the past five years.
Having lost the once-primary export consumer market, a large amount of wine inventory urgently needs to be digested.
There are also different opponents. Over the past three years, countries such as France, Chile, and Italy have rapidly seized the market share vacated by Australia, leaving little space for newcomers.
How can Australian wines recapture the market?
As to how will the market react? In 2023, news of the possible cancellation of anti-dumping tariffs in 2024 prompted many to relocate their stocks to mainland China via the Hong Kong portal in advance. In 2023, Australian wine exports to Hong Kong increased by 74% compared to the previous year, exporting 9.4 million liters of Australian wine worth 290 million Australian dollars within 12 months.