In late 2020, China imposed severe tariffs on Australian wine. Asia Wine Hub founder Jeremy Oliver asks, what now? This article first appeared in the January/February 2021 issue of Food & Drink Business.
The Chinese government’s imposition of crippling trade restrictions upon imports of Australian wine has given the local wine industry a $1.2 billion headache. With warehouses, containers, logistics systems and even ships packed with wines destined for China – packaged and labelled specifically to meet Chinese customs and customer requirements – this headache that started as a dull throb has become a lot more intense of late.
China has now doubled down with a formal tariff of 6.3-6.4 per cent on top of its new duty deposits (payable by importers) of between 107-212 per cent. On the one hand, that’s nothing more than a flick in the eye after a knockout blow, but on the other it potentially paves a way for a more liveable solution in time. Let’s wait and see.
It’s my view that more than half of Australia’s wine exports to China by value relate to exports from Australia by Chinese citizens as part of a procedure to gain visas and permanent residency in this country – as part of a highly organised process given full legitimacy by our federal and state governments. Much of this wine is OEM (Buyers Own Brand) at very low levels of quality, so it doesn’t fit into the category of quality branded wine that is now seeking an alternative market. Which leaves this market category with a $550 million problem.
Anyone believing there is a simple, effortless and straightforward solution to this by simply finding new customers somewhere else is either listening to too much talk radio or our politicians, many of whom seem to believe it’s as easy as flicking a switch.
But there is truth in the notion that our recent concentration on the China market and its ability to absorb huge volumes at high prices has caused our wine producers to neglect other markets in the Asian region to the extent that they now feel ignored and taken for granted.
This is not helped by a lack of cultural awareness still shown by Australian producers. I have been told by importers in Korea recently that they have been asked to sell Australian wine with China-focused label designs and even sporting back labels in Chinese.
China aside, there are indeed significant opportunities for Australian wine brand owners across Asia’s diverse wine markets. Of course, none represent the size and richness of the China opportunity, but most Australian wine brand owners only focus on a fraction of the China market in any case.
Before exploring the ‘new’ Asia opportunity, Australian wine brand owners need to ask themselves what success looks like. How much wine at what price points do they need to sell? How much resource in terms of time, travel and other marketing support can they invest in order to deliver these sales? How many relationships with different importers in different markets can they sustain?
The key thing to remember is that Asia is a massive patchwork of entirely different markets, with different profiles, different levels of maturity, different cultural expectations and different levels of tax and political risk. Anyone adopting a ‘one size fits all’ approach to Asian markets will fail unless of course the demand for their wines is off the charts.
Unless China quickly returns to the table, this is a major reset for Australian wine. I think it’s only a matter of time before there’s a glut of low-priced and low-quality wine on our domestic market. Smart brand owners will look to take a strategic, medium-term approach towards a carefully chosen selection of Asian markets. I anticipate considerable interest in more mature markets such as Korea, Japan and Singapore, plus potential upside in Vietnam, Thailand and even India.
There’s no silver bullet for wineries faced with large volumes of what was made and packaged as China-bound wine. However, with a considered, smart and medium-term attitude to engagement with other Asian markets, it’s indeed possible to build a more diverse and potentially more reliable future.
Jeremy Oliver is a co-founder and partner of Asia Wine Hub, a platform designed to inform, advise and support Australian wine brands in the Asian region.
