China Tariffs

[Waiters Friend]

Signs of a reprieve in the near-ish future?

https://www.msn.com/en-au/news/australia/chi ... 7061&ei=27

[WineRick]

Still way too many vines in the ground for growers to make a decent living. Also, I think that Accolade, and other companies, grower contracts need to be scrutinised - "Sorry, we can't take your grapes "Changed Market Conditions" clause, but hey, we'll give you $130 / tonne! Treasury can't openly buy grapes at these prices as they are a publicly listed company .... but Accolade can.

What's happening now happened in 1963/64, 1973/74/75/76 (Riesling boom), late 1970's (Chardonnay boom), 1984/85/86 (Shiraz $180/tonne and less - Vine pull.) right up to 2020's (lets blame China). I've experienced them all, starting as a 10 y.o.
Large wine companies love gluts!! They historically have controlled our industry, and industry bodies.

[phillisc]

WR...I'm stumped at your view on large companies loving wine gluts. I am trying to process in my head why this might be.
Can you shed any light on this please? Is it that they can drip feed stock, as they have large volumes tucked away somewhere?
Cheers Craig

[Sean]

Lifting the wine tariffs should be very positive, especially for big companies like Treasury Wine Estates. But not as much as people think perhaps.

Still a couple of weeks until China makes it official. ABC News reported -

Beijing appears to be just weeks away from removing tariffs that have crippled Australia's wine industry since 2020, with an interim decision by China's authorities reporting that the duties are no longer necessary.
The tariffs of up to 220 per cent applied to bottled wine and severed the market's value from $1.2 billion at its peak just before the tariffs were introduced, to about $10 million last year.

Things have changed a bit since then however.

An ASX announcement from Treasury Wine Estates this week has already indicated they won’t be back at pre-tariff levels for some time. Or as they put it - “TWE expects that the incremental EBITS contribution from the re-establishment of its Australian country of origin portfolio in China would be minimal through the remainder of F24.” In plain language, they are talking about their Australian wines, not their US or China-made wines.

That hasn’t stopped the TWE share price gunning it over the last few months based on big expectations about the wine tariffs being lifted. As they say follow the money. The share price has gone up from a low around $10 to $12.50 so far in 2024 - or about 25%.

One reason for some caution, however, is that it will take time to adjust back to ramping up wine sales in China again. They have had to pivot their sales effort into other markets during the China tariffs over the last few years. So there will be a time lag until they reap the bigger profits they expect to get out of business in China.

Related to that is the problem of the wine glut here after the China tariffs effectively cut exports by a third. Last year Rabobank did a report on Australian wine, which said the equivalent of 2.8 billion wine bottles were unsold stock in this country. That is not going to now be shipped off into China.

Perversely doing that would only legitimise China’s claim (in our WTO fight with them) that Australia had been dumping wine into China - which was supposedly the basis for their anti-dumping tariffs in the first place.

Meanwhile Australian producers have been trying to diversify or open up new markets for their exports over the last few years. Wine Australia has been running more trade shows in India, Korea, Japan, Vietnam and other s/e Asia places. The medium-sized wine companies in particular were being encouraged to go down that track. Australian producers could be a little more wary now about throwing all their eggs into one basket - even a potentially lucrative one like China.

A second reason is the China economy has changed, because of the economic slowdown. Wine sales generally might not be booming the way it was pre-tariffs. Wine consumption in China has halved from its peak in 2017 apparently. Also the fight for market share could be harder. Other wine producing countries have probably taken advantage of the “ban” in Australian wine, and entrenched themselves much better in the distribution chain in China now.

A third reason is the size of domestic wine production in China. Apparently China is the world’s biggest grape producer. In 2022 their wine production was 420,000 tons, ranking them 12th in the world, and wine consumption was 880,000 tons ranking them 8th highest in the world. But both have been falling in recent years. Like most other countries, there is a parochial factor and a lot of people in China will choose China’s wines first over Australian wine.

The outcome of that for Australian producers is that China’s more discerning middle class is only interested in premium wine brands - and just a few wine companies really have enough money to plough into marketing and distribution in China.

Of course Penfolds for example has already realised that. They have created their own Chinese-made Penfolds label wines aimed primarily at the domestic market. They called it their “country of origin” strategy. Also set up funds to train winemakers in China and here in Australia, which began a couple of years ago.

I am guessing they expect to be at the front of the line when Australian producers start the race back into China.

Finally (without getting too political hopefully) this should be seen in the context of the Beijing government - or how they do business and diplomacy.

The timing of the wine tariffs has been linked to Australia’s call for an investigation into the cause of the COVID epidemic. It is regarded here as punishment by China for that, and hit a number of primary producers - not just the wine industry. Interesting what was banned initially and which bans have been lifted since then. The ban on coal exports was lifted after two years for example, when China’s government clearly had a strong self-interest to do that.

Also the issue of the Australian government being first to ban the use of Huawei technology with the rollout of 5G in this country. The reason for that given was the link between Huawei and China’s government. This has grown into other cases for re-examining trade and investment by China in Australia since then. So even now the politicians here are scrutinising Chinese investment in mining, agriculture and energy infrastructure (wind power turbines is the latest one I think).

Lifting the tariffs by China’s government could be simply a sweetener in the latest efforts to improve a lot of other trade deals between the two countries.

So this has a wider and long-running context rather than just a debate about anti-dumping laws and a WTO fight over wine.

[WineRick]

WR...I'm stumped at your view on large companies loving wine gluts. I am trying to process in my head why this might be.
Can you shed any light on this please? Is it that they can drip feed stock, as they have large volumes tucked away somewhere?
Cheers Craig

Wine gluts lead to grape surpluses.
When there's oversupply, a tonne of warm area Shiraz can be snapped up for $150/tonne (even though it costs about $250/tonne to grow)
In boom years, or years of short supply, that same tonne could fetch $1800 - 2000.

[BHCC1]

Geez WineRick - wish I could grow grapes for $250 per tonne. That doesn’t even cover picking costs!

[WineRick]

Geez WineRick - wish I could grow grapes for $250 per tonne. That doesn’t even cover picking costs!

Exactly! Our warm area growers are some of the most efficient in the world regarding their quality, and they do it without any Govt. subsidies.

What annoys me is that our two largest supermarket chains are draining the EU wine lake with many broad, basic appellations - and no doubt EU subsidised - at huge mark-ups on cost but still under $30! A number of high-end restaurant chains are doing the same but need to have a 'somm' on the floor to explain these obscure labels that sell around $75 - 85/bot., having been bought for a few euros.

France is biting the bullet and pulling up thousands of hectares of vines - Australia needs to follow. And don't ever go down the accelerated vineyard depreciation scam road again, which brought in the carpet-baggers!

[WineRick]

And don't get me started on the 'dollar-a-litre-milk' scandal!

[JamieAdelaide]

You’d be a mug building your business in China not believing the tap won’t be turned off again. Australia will always face confrontation with the CCCP. It’s not a market to ignore obviously. Just needs a more opportunistic approach and a mature realisation you can’t bleat when geo-politics has the ban in place again.

[phillisc]

WR...I'm stumped at your view on large companies loving wine gluts. I am trying to process in my head why this might be.
Can you shed any light on this please? Is it that they can drip feed stock, as they have large volumes tucked away somewhere?
Cheers Craig

Wine gluts lead to grape surpluses.
When there's oversupply, a tonne of warm area Shiraz can be snapped up for $150/tonne (even though it costs about $250/tonne to grow)
In boom years, or years of short supply, that same tonne could fetch $1800 - 2000.

So that may translate in to cheaper sales to the multi-national. It seems OK to pay a grower a premium when there is a shortage...supply/demand and all that...but in a glut haven't seen much activity on the price front for consumers...perhaps with China toying with Australia and 2.7 billion bottles that don't have a home...the dam is about to burst/bust? Certainly a flood of crap from 2017 and 2020.

Cheers Craig

[Ian S]

Maybe we'll see the return of the cleanskin, as a way of disposing of surplus without openly trashing the brand?

[felixp21]

China's economy is far far worse than the West think and Beijing will admit to.
Horrendous.
The Chinese GDP and growth rates are, at best, a loose approximation, as it is still very much a cash society, or better described as a red packet society.
The plumber will charge you $30 for his services, but you then need to hand over a further $80-100 cash depending on what has been repaired. And it is not just tradies, its everyone. An obstetrician will charge a total of $200 for the entire confinement and delivery, but then if you have chosen a top doctor, you need to hand over the red packet with a further $3000.

So forget inflation and growth over there, go talk to the man in the street. Businesses are closing everywhere, and upper middle class China, 200,000,000 of them, are doing it real tough. They are the ones buying wine, to show off their success mainly, and that avenue of sales is dramatically reduced.

The Aussies will find this an incredibly tough market when they return, and IMO, are in for a very, very rude shock.

[phillisc]

Felix, perhaps I am just a simple or hopeful lad.
I still think there is plenty of options in the domestic market...if only wineries here want to play.
Or that the recent mistake, where a few of us picked up Seppelts Sparking Shiraz for 80% off, may occur more frequently

I know precious little about China, apart from the many students that I engage with, in the higher education space.
However, your figure of 200M seems somewhat conservative of those doing it tough, what about the 800-900M who supposedly, don't imbibe?

Cheers Craig

[felixp21]

my 200,000,000 is the upper middle class, not those doing it tough.
I'd reckon 1.4 billion are doing it tough at the moment lol.

selling lots of wine to the Chinese at the moment is going to be tough!!

[JamieAdelaide]

I still think there is plenty of options in the domestic market...if only wineries here want to play.
Or that the recent mistake, where a few of us picked up Seppelts Sparking Shiraz for 80% off….

Aren’t you dooming the industry if you think domestic options involve your recent discounts? Now granted, it’s been a pricing and marketing pisstake locally for some time.

I spent two weeks a month in China for 20 years and now I spend two weeks a month in the USA. Wow! Fascinating to see where we may have gone wrong. Aussie wine in the USA was either cult or cheap as once the cult went away you are left with cheap. And frankly, South American table wines ( Italy too ) represent amazing relative value, interest, quality and food durability versus our cheap wines. Many of which are made in the mirror of the flabby cults.

China was an odd market. Penfolds obviously smashed it but many Aussies sat on shelves for years beyond their expiry for their style.

We really seemed lost as an identity abroad.

[phillisc]

I still think there is plenty of options in the domestic market...if only wineries here want to play.
Or that the recent mistake, where a few of us picked up Seppelts Sparking Shiraz for 80% off….

Aren’t you dooming the industry if you think domestic options involve your recent discounts? Now granted, it’s been a pricing and marketing pisstake locally for some time.

I spent two weeks a month in China for 20 years and now I spend two weeks a month in the USA. Wow! Fascinating to see where we may have gone wrong. Aussie wine in the USA was either cult or cheap as once the cult went away you are left with cheap. And frankly, South American table wines ( Italy too ) represent amazing relative value, interest, quality and food durability versus our cheap wines. Many of which are made in the mirror of the flabby cults.

China was an odd market. Penfolds obviously smashed it but many Aussies sat on shelves for years beyond their expiry for their style.

We really seemed lost as an identity abroad.

Its been a domestic marketing pisstake for 20 years now.
Many wines are priced beyond annual inflation figures and way above an ROI of 7-9%...which the average punter would love to have on their savings, assets etc. Third party etailers are courting and the swamp is being drained through saving face deals, although septic 2017/20 vintages have made it very difficult for wineries, plus hard to retreat or concede that your product is overpriced with out similarly trashing your brand...so that may be the doom to which you refer.

I have no doubt that there are very good wines abroad for excellent VFM. Certainly when in country France and the bigger cities of Italy, it was a daily sport, to pick a few wines that I have little idea about, and more often than not the lottery threw up some very pleasant surprises.

I understand that its important for you Jamie to have Aussie wines viewed favourably in the international space, and yes many factors in getting it right, and equally many poor decisions has got it wrong, but its never been a focus to me.

Anyway, the industry doesn't need or is not interested in old farts like me, the're after the carefree younger supposed cashed up punters who think nothing on dropping three figures, paying exorbitant prices, just because some influencer said so

Just made my annual purchase from a small family run winery ( who stated they are largely unaffected by the Chines situation), who have not increased price from the previous 2-3 years. I suspect they are sitting in the 7-9% ROI and not in the stratosphere that other wineries place them selves in, because these wineries think they are extra special, seduced by critics and the like, who claim that punters should be paying far far more for their wares.
Give me a break!!

Cheers Craig

[Chuck]

Bottom line. OZ can't rely on CCCP to keep fair trade open on a continuous basis. They have used tarrif on many of our quality produce as a negotiating/punishment tool. It didn't work for many items. However CCCP will continue to flex its muscles from time to time with impunity. OZ needs to seek alternative more reliable markets for produce CCCP will likely target regularly. Notice they haven't put tariffs on critical raw materials (iron ore, coal etc, gas etc)?

The whole way CCCP has changed since new regime has tried to flex its muscles has been very disappointing. They are chasing foreign investment but who would do business there now? Let's see how Tesla go as CCCP ramps up cheap EV production. I've heard many current foreign manufacturers are moving operations to more friendly jurisdictions.

The economy is stalling and the property market is in meltdown with prices going down. This should keep the CCCP awake at night.

[felixp21]

Trust me Chuck, it is. Very, very awake.
Ol' uncle Xi is crapping himself for the first time since he took power. Sadly, I think we are not too far away from another Tiananmen Square

[Ian S]

p.s. I believe it's CCP. CCCP is the old acronym for the now defunct Soviet Union.

[JamieAdelaide]

That’s my typo, if it matters, but the extra C could be used savagely and vulgarly to describe the thugs they are.

[Ian S]

Agreed

[Chuck]

I think the extra "C" could be added with it's derogatory meaning appropriate.

[JDSJDS]

Tarriffs are off as of March 29!

www.decanter.com/wine-news/china-remove ... ne-526318/

[I Love Shiraz]

I still think there is plenty of options in the domestic market...if only wineries here want to play.
Or that the recent mistake, where a few of us picked up Seppelts Sparking Shiraz for 80% off….

Aren’t you dooming the industry if you think domestic options involve your recent discounts? Now granted, it’s been a pricing and marketing pisstake locally for some time.

I spent two weeks a month in China for 20 years and now I spend two weeks a month in the USA. Wow! Fascinating to see where we may have gone wrong. Aussie wine in the USA was either cult or cheap as once the cult went away you are left with cheap. And frankly, South American table wines ( Italy too ) represent amazing relative value, interest, quality and food durability versus our cheap wines. Many of which are made in the mirror of the flabby cults.

China was an odd market. Penfolds obviously smashed it but many Aussies sat on shelves for years beyond their expiry for their style.

We really seemed lost as an identity abroad.

I totally agree we have lost our way overseas, particularly in the US market, where consumers associate us with cheap critter wines (Yellow Tail, etc.) and full-bodied red wines. Our marketing efforts need to focus on the diversity of our offering, with plenty of light to medium-bodied reds, as well as lovely Chardonnays and Rieslings.

[Sean]

Tarriffs are off as of March 29!

www.decanter.com/wine-news/china-remove ... ne-526318/

Yes it was given wide coverage in all the Australian media.

The response from winemakers here seems to be a mix of relief and cautious optimism getting back into the China market.

But nobody expects wine exports to be anything like it was pre-tariffs.

The big wine companies will chase those bigger margins and likely benefit most out of the restart of wine exports to China this time.

They also have more cash for the marketing and distribution.

So obviously they are still keen to have another go at China.

Some businesses have been preparing to go into the market from Hong Kong so I think things will start flowing pretty quickly.
It’ll take some time to rebuild the pipeline, there’s some additional requirements I think in terms of the need for self-registration, et cetera, so we’ve updated our export guide.
- Martin Cole, Wine Australia CEO (ABC News)

We will look at the whole region and not try to specialise too much in the Chinese market.
A lot of hard work [has been done] there in the past, so it will be good to try and rebuild those relationships in the market.
- Mitch Taylor, Taylors Wines (ABC News)

[Treasury] will immediately begin to expand its premium and luxury Australian wine distribution in China.
The removal of tariffs on Australian wine exports to China is terrific news and is cause for celebration across the Australian wine industry and with our partners and consumers in China.
- Tim Ford, Treasury Wine Estates CEO (ABC News)

While we do not anticipate a snapback to 2020 levels, we do see a sizeable opportunity for our business in China and we are excited about the long-term potential this market brings.
I was in China last week meeting with our key customers and distributors including at the Food and Drinks Fair in Chengdu and I can say there is genuine excitement about bringing Accolade’s portfolio of exceptional Australian wines back to the Chinese consumer.
- Robert Foye, Accolade Wines CEO (ABC News)

We had orders, already paid for, sitting in the warehouse - and they’re still sitting in the warehouse, but they’ll go very shortly.
We were really gearing up to sell quite a lot of high-end expensive wines into China so we’d been building up some stocks.
There’s two containers on wharves over in China ready to be sent through, and there’s plenty of people talking about ordering too.
- Chester Osborn, d’Arenberg (ABC News)

[JamieAdelaide]

Australia also has an unexpected competitor in China now. China! More and more I’m seeing Chinese wines lighting up the Hong Kong scene and marketing aggressive and patriotic.

This patriotism can also quickly roll toward another embargo. A US/ Australian regional military exercise to flex muscle in the Phillipines for example, bang, the soft belly of Aussie wine exports to China banned or trashed - by their mindless netizens.

[Chuck]

Australia also has an unexpected competitor in China now. China! More and more I’m seeing Chinese wines lighting up the Hong Kong scene and marketing aggressive and patriotic.

This patriotism can also quickly roll toward another embargo. A US/ Australian regional military exercise to flex muscle in the Phillipines for example, bang, the soft belly of Aussie wine exports to China banned or trashed - by their mindless netizens.

Chinese vines have only been in for a short time so I question the quality at this time. Anyone have experience with any? Are the growing areas good for quality wines or just crappy over-irrigated bag-in-the-box stuff perfect for mixing with coca cola.

[JamieAdelaide]

The quality can be high. Certainly as high as some of our exports.

[phillisc]

Well that is indeed interesting.
Wonder when the first Chinese wines (or at least if I have noticed), will reach Australia.
A delicious irony in light of Pennies/TWE (what else would you expect) quickly announcing that domestic prices will increase, as they have every year (nothing to do with tariffs just an annual convenience), due to increased international competition.
Put your wallets away folks...time to sit this one out a bit longer
Cheers Craig