Australian winemakers hope the Chinese market will reopen soon, Australian Trade Minister Don Farrell said after a meeting on Monday with his counterpart Wang Wentao on the sidelines of the WTO conference in Abu Dhabi.
In an interview on Tuesday with public broadcaster ABC, Mr Farrell said he had received assurances that Beijing would complete a review of tariffs imposed in 2020 by the end of March amid tensions between the two countries.
Wang Wentao “has made it clear that the procedures are underway and that we will get a result by the end of March,” the trade minister said, bringing a touch of hope to the industry.
As a long-time leading supplier of wine to China, tariffs imposed by Beijing on Australia are as high as 218.4%, reducing wine sales to this Asian giant to almost zero.
It was enough for the professionals to go on a war footing and send their production to Hong Kong, the historic gateway to the Chinese wine market, one of the most important in the world.
By the end of December 2023, Australian wine exports to the Chinese financial hub had increased by 28% in volume and 74% in value compared to the previous year.
If millions of bottles are willing to reinvest in the Chinese market, it will take a lot more to get back to 2019 levels than Australian wines there, with sales of more than 1.2 billion Australian dollars (728 million euros ) were sold. Today it sells for less than 10 million.
This sudden overproduction plunged the industry into a serious crisis.
“Immense financial pressure”
“In some regions, particularly those producing red wine, grape growers and winemakers are under enormous financial pressure,” notes Lee McLean, president of the Australian Grape and Wine Producers Association.
“I was in the Riverland (South Australia), people were being paid half the cost of producing their grapes,” he explains.
The job remains clear. “The Chinese market has changed significantly, we will not return to a turnover of 1.2 billion,” emphasizes Mr McLean.
“Firstly, if you leave a market for a certain period of time, other countries come and take market share. Then our biggest problem is that consumers worldwide are drinking less wine than they were 20 years ago and that is also the case in China,” he notes.
In its most recent stock market announcement in February, leading Australian wine group Treasury Wine Estates said it was ready to redirect some of these renowned Penfolds branded wines to the Chinese market.
Nikki Paulun, a winemaker on the Mornington Peninsula (Victoria), exported 200,000 cases a year to China before 2020, or 90% of her production, and had to switch to the Australian market overnight.
She has reconnected with her Chinese customers and says she is “incredibly hopeful” with the reopening of that market, but only hopes to make a third of her 2019 sales there.
“It was the worst conditions, with China and Covid at the same time, but it was a valuable lesson,” explains this Chinese speaker, who is now striving for market diversification and constant innovation.
“We need a return to the Chinese market in some way, but we need to make sure we don't get back into too much dependence,” says KPMG analyst Tim Mableson, believing the sector cannot escape the issue of reducing production . “Vineyard owners will have to ask themselves whether they want to continue in this industry.”
In retaliation, Beijing closed its market to a range of Australian products such as barley, wine and lobster in November 2020, notably after Canberra requested the opening of an investigation into the origins of Covid-19.
China announced a review of these tariffs in fall 2023, which is scheduled to be completed in March.