Australian Wine Holds Up Even as Chinese Tariffs Bite

(AFR) — The punishing tariffs imposed on Australian wine in late November by the Chinese government caused an immediate heavy slide for the 800-plus companies that had built up a A$1.3 billion ($990,000) export business to that country.

Wine Australia, the overarching body for the local wine industry, said on Wednesday there had been a rapid decline in December as the China tariffs of up to 212% were implemented, but also in November as companies prepared for a harsh tariff regime after it had been foreshadowed by Chinese authorities.

Wine Australia Chief Executive Andreas Clark said on Wednesday the China tariffs had resulted in a steep decline in overall exports from Australia in the final two months of 2020.

However, official figures for 2020 showed that China was still the top export destination for the 12 months of 2020 because of the substantial sales generated by the likes of Penfolds owner Treasury Wine Estates Ltd. earlier in the year.

Treasury Wine Chief Executive Tim Ford said in late November he expected it to take two to three years for the company to gain traction in its strategy to divert high-end wines to other markets such as Japan, South Korea, Taiwan, Vietnam and Thailand, and to increase sales to existing big markets including the U.S. and Australia.

Interestingly, Treasury Wine shares have rebounded by 32% to around A$10.41 since early November, when they were sitting at A$7.87.

Economies reopening

The prospect of economies reopening around the world later in 2021 as vaccination programs start to make headway in hard-hit countries, along with seemingly regular speculation about potential private equity takeovers, has improved sentiment.

China was the No. 1 export destination in 2020 even though total exports to the Chinese mainland ended up being down by 14% to A$1.01 billion.

But in a sign that Europe and the United Kingdom are set to be a big focus in redirecting those China exports, the U.K. was the second-largest destination for 2020, with sales up 29% to A$456 million. It was followed closely by the U.S., which was up 4% to A$434 million. Canada was next, up 5% to A$192 million.

Overall, Australian wine exports to all destinations were 1% lower at A$2.89 billion.

Clark said there had been a large increase in exports from August to October, primarily to mainland China and the U.K.

He said there had been significant growth in exports over the year to Europe, which was up 22% to A$704 million.

Clark said Australian businesses had stepped up their push for extra sales to the U.S., U.K. and Canada, and were also looking to redirect product to the local domestic market.

This story was first published in The Australian Financial Review.

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