What’s Next for Australian Wine in China?

• Chinese tariffs likely to impact Australia’s wine market share in China in the near- to medium-term unless a quick resolution is reached.
• Australian winemakers and exporters should actively consider other Asian countries with less mature wine markets and expanding middle classes who present attractive growth opportunities, such as India, Thailand, and Vietnam.

In late March, China’s Ministry of Commerce announced steep tariffs of over 200 percent on Australian wine for a five-year period, throwing Australia’s wine industry into a state of disarray.

Australian wine is among the most popular varieties in China. In 2019, nearly 35 percent of China’s wine imports came from Australia – more than any other country.

The tariffs, however, have left Australian winemakers scrambling to find alternative markets for their supply, while raising longer-term questions about the viability of Australian wine in China.

As worsening bilateral relations between the two countries have interfered with the longstanding success of Australian wine in the Chinese market, only a political solution will be able to bring the product back into a state of growth.

Australian wine’s success in China

Until recently, the wine industry had been one of the biggest beneficiaries of closer economic ties between China and Australia. With the boom of China’s middle and upper classes, the country’s total wine imports increased from US$542 million in 2009 to US$2.3 billion in 2019.

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Australia is the fifth largest wine exporter worldwide, due in no small part to China. Of the US$2.16 billion worth of wine that Australia exported in 2019, US$797 million – 37 percent of the total – went to China, making it by far Australia’s biggest market. In comparison, Australia’s second biggest export market, the US, received just 15 percent of total exports.

In addition to growing demand for wine in China, Australian exports took off when the China-Australia Free Trade Agreement (ChAFTA) came into force in December 2015. That year, Australia exported US$285 million worth of wine to China, and a decade earlier, in 2005, Australia exported only US$11.1 million worth. China has therefore been the most important driver of growth in Australia’s wine industry over the past two decades.

Crisis hits Australian wine exports

The introduction of Chinese tariffs on Australian wine is the result of a multi-year deterioration in the political relationship between the two countries.

Matters escalated after Australia’s government supported an international inquiry into the origins of the COVID-19 coronavirus in April last year, in itself a controversial exercise.

On May 12, China refused some Australian beef shipments, citing health concerns, and on May 18 announced tariffs at a rate of 80.5 percent for five years on Australian barley. Other products, such as coal, copper, iron ore, meat, and seafood, have also encountered import problems.

In August 2020, China’s Ministry of Commerce announced an anti-dumping investigation into Australian wine. The official grounds for the investigation was a complaint from the Chinese Alcoholic Drinks Association, which argued that Australian products were being imported at below cost in order to gain market share and were subsidized by the Australian government.

On November 28, 2020, the Ministry of Commerce announced the completion of the investigation, instituting temporary tariffs ranging between 107.1 to 212.1 percent. Finally, on March 26, 2021, the Ministry of Commerce announced that anti-dumping tariffs on Australian wine would be in place for five years beginning on March 28, 2021, at a higher rate of between 116.2 and 218.4 percent.

The particular tariff rate depends on the producer. For example, Treasury Wine Estates must pay 175.6 percent, Casella Wines must pay 170.9 percent, and Assoclade Wines must pay 167.1 percent, while smaller exporters face the maximum 218.4 percent rate.

While Prime Minister Scott Morrison’s call for a COVID-19 investigation appears to have been the catalyst for tariffs on Australian wine, the bilateral relationship had already been fractured.

In late 2017, Australia introduced new foreign interference laws after a series of scandals allegedly indicated Chinese interference in Australian domestic politics. Further, in 2018, the Australian government banned Chinese telecom giants Huawei and ZTE from participating in the country’s 5G wireless network.

Australian winemakers lose China market share to other exporting nations

Tariffs on Australian wine have essentially halted their exports to China. According to Wine Australia, an industry body, Australia exported just US$9 million worth of wine to China in the four-month period from December 2020 to March 2021, representing a 96 percent drop from the US$253 million worth wine exported the previous year.

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Meanwhile, winemakers from other countries, such as Canada, New Zealand, and Chile, have stepped in to fill Australia’s lost market share. For instance, Chilean wine exports to China grew by 40.6 percent in the first quarter of 2021, though this is in part because the COVID-19 pandemic caused a sharp decline in economic activity the previous year.

Australian wine producers continuing to sell wine to China have faced difficulties clearing customs. In April, for example, Shenzhen customs detained about 8,640 liters of red wine from the Paspaley Group and 2,646 litres from Lindsdale due to poor labeling and excessive additives. Episodes such as these show that Australian exporters may face other trade barriers in addition to tariffs.

What lies ahead for Australian wine in China?

Although Chinese authorities have placed tariffs on Australian wine for five years, it is possible that a political solution could resolve the dispute before then.

In December 2020, Australia lodged an official complaint with the World Trade Organization (WTO) against China regarding barley exports, and stakeholders are considering lodging another one regarding wine tariffs.

Beyond the WTO, bilateral negotiations between the Australian and Chinese governments could resolve the issue, although there have been no public signs of progress.

Imminent need for market diversification

If, and when, Chinese authorities retract the tariffs, Australian winemakers will likely continue to diversify their markets after experiencing the political risks associated with dependence on Chinese consumption.

Consequently, other Asian countries with less mature wine markets but growing middle classes present attractive opportunities, such as India, Thailand, and Vietnam.

As trade disputes continue to impact global exports, companies doing business with China and other regions are advised to pay attention to any threats to their market access. It has become clear that market diversification and supply chain flexibility will remain key factors determining business viability for international exporters and multinational companies.

For more information, please feel free to email our experts at china@dezshira.com. Our parent organization, Dezan Shira & Associates, has helped many foreign companies source and sell products in Asia, set up retail operations on the ground to sell directly to Asia’s massive consumer class, as well as access Asia’s dynamic e-commerce market. The firm retains experts on a country-by-country basis, ensuring that clients are able to grow their business in key markets across East, Southeast, and South Asia.

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