Daily Management Review

An Unsettling Example For EU Industries Is The Australian Wine Industry


China tariffs hit Australia's wine sector, which scrambled to find new markets, import grapes, and approach the government for assistance, but was unable to counteract the impact of declining exports, according to industry leaders.
That suggests what might be in store for the food and beverage industries embroiled in a trade dispute between the EU and China, which could make it more difficult for them to gain access to the vital Chinese market.
While the EU's wine industry is not involved in the present dispute, the pork and brandy industries are concerned Beijing may take punitive action against them after the group levied tariffs of up to 38% on electric vehicles manufactured in China.
Following Australia's requests for an investigation into the origins of COVID-19, China imposed import restrictions on a number of its products, resulting in comparable restrictions on the country's industries. Wine was subject to its first round of tariffs in November 2020.
The Australian wine business lost market share, important connections, and earnings after China imposed tariffs of up to 218%, while most other industries were able to find alternate, if sometimes less profitable, markets.
Australia was the world's fifth-largest wine exporter, with China being its most significant export market. It was known for its inexpensive red wines and more expensive bottles from areas like the Clare and Barossa valleys. The action almost eliminated $800 million in annual export revenue.
Local fire authorities reported that a massive explosion on Monday in South Korea destroyed a lithium battery business, confirming the deaths of twenty-two individuals.
Australian trade statistics shows that while some major firms with operations outside Australia, such Treasury Wine Estates, performed better, the country's wine exports in 2023 were valued 34% less than in 2019.
William Dong, CEO of DMG Fine Wine, and other wine producers have learned a valuable lesson: China is not the only source of supply.
"Never commit the same error again," he said. "We want to dance with China, but we don't want to go all in with them."
Following the levies, DMG, whose brands include Handpicked and House of Arras, boosted its market share in the United States and Southeast Asia and tripled its production from outside Australia to sell in China, according to Dong.
Although it gained back some lost revenue, its revenues were still 30% less than they were before to 2020, he added. "We were not as profitable as we used to be."
The Australian wine sector encountered challenges this year, including COVID-19, declining demand, and worldwide oversupply of wine. At the same time, tariffs were lowered.
During their tenure, Australian wine output decreased, reserves grew to over two billion litres, and grape farmers started to remove millions of unproductive plants.
Other sectors, like barley, which China banned in 2020, did better in expanding into new markets but frequently had to accept lower sales prices. Australian wine producers fought price reductions, according to three executives and two representatives of trade groups, since they diminish value over time.
Treasury Wine Estates started importing grapes from Chinese producers to get around tariffs and was allowed to sell wines from outside of Australia in China. One of its well-known brands in China, Penfolds, had a rise in net revenues in 2023 compared to before to the tariffs.
The company is going to be a "stronger and more diversified global business" as it enters the post-tariff period, according to CEO Tim Ford's statement to investors last week.
Under the prospect of tariffs, not all of the tactics available to Australian wineries can be readily adopted by EU companies.
For instance, French cognac, which is only produced in the Cognac area of France, accounts for the majority of China's imports of brandy from the EU.
These sectors can increase their sales diversity. But according to Australian wineries, expanding into new markets takes time.
The business community looked to the government for assistance in growing; Canberra funded wine marketers to assist businesses in establishing international trade connections.
According to Australian trade data, the value of Australian wine exports to Asian nations outside of China increased to $470 million in 2023 from $300 million in 2021 thanks to larger shipments to South Korea and Thailand.
However, according to Lee McLean, CEO of trade association Australian Grape & Wine, wineries had varying degrees of success in increasing sales overall. "Our story is not a particularly successful one," he stated.
Businesses forced to reduce their operations include Taylors Wines, a family-run winery in South Australia's Clare Valley that formerly sold a third of its exports to China under the Wakefield brand.
Mitchell Taylor, managing director, stated that regaining lost market share will be difficult.
According to Taylor, as enterprises such as his lost trade contacts and lay off people in China, French, Chilean, and local wine manufacturers flourished in the nation.
"If we ever get back to the level we had, it will take a long time."