Australia-China FTA Kicks In

[felixp21]

I commented a couple of days ago on another thread that all of a sudden the prices of Australian wines in China seemed to have dropped dramatically. Well, I can now confirm that this is due to the new FTA, which has now kicked in and results in zero tax on imported Australian wine.

It is great news for Australian wine-makers, although it comes in the back-ground of a significant decrease in wine imports overall into China.

Vino-joy, the Asian wine import 'bible" is reporting that Australia, for the first time in history, has displaced France as the number one country for wine imports (by value) into China, at US $415 million, which is stable from the previous financial year (actually down 0.5%). Chile remains the number one for imports by volume.

Over that period, wine imports into China, overall, have dropped 14% in volume and 19.5% in value, which demonstrates how well the Aussies have fared in these tough times. Worth noting that in the past 12 months, over 2000 Chinese wine import businesses have gone bust!!!

So, I wasn't seeing things, and armed with this new information, I will look forward to checking out both the prices and popularity of Aussie wines down at my local 5-6 venues selling wine. The French and Italian imported wines still face over 40% taxation, so logically you would say that the market share for the Aussies should only increase in the foreseeable future.

My guess is that it may actually now be cheaper to buy Australian wine in China than Hong Kong!!!!
Looking forward to next summer already, when I can pop down to the local and pick me up a nice Tasmanian chardonnay cheaper than they are selling it in Hobart

[felixp21]

Of course, whilst it may be great news for people like me, it may not be quite so wonderful for the Aussie wine consumer, given that the World's largest potential wine market will undoubtedly switch it's attention to Australian wines. This in turn will sooner or later cause a very significant demand for the Aussie premium stuff, and I would be certain the likes of Penfolds have already realised this and are pricing their new products accordingly.

[JamieBahrain]

I think this is great news for Australia. We provide a fantastic experience for the mainland consumer.

However, I'd caution a centimetre of business dependance on this market, due geo-political complexities. Please Australia, broaden your market.

[felixp21]

Wise words, Jamie, although I think the countless number of reasonably desperate small winemakers struggling to sell their products will see this as a golden goose that simply cannot be ignored. I know you would be well aware of the generally absurd pricing of wine in China, so to see excellent wines being sold at prices far below International competitors of similar quality suggest the quite probable return of the golden age of the Australian wine industry.

China is winning the International Trade war, and it is a war, because they have a win-win mentality. USA, and other Imperialist nations, are struggling, as their zero sum mentality has been recognised and is now rejected by so many emerging and established countries.

The FTA, acknowledging the geo-political sensitivities that accompany it, is a great example of China's win-win mentality. The key is to keep the agreement in balance, and not slip into dependance.

[JamieBahrain]

Do you think the well priced Aussie wines will be easily accessible in China?

Just using the local Hong Kong market as an example, Aussie wines at say Watsons, are not very competitively priced considering zero taxation and duty. Everyone pays the land lord in Hong Kong so you find great pricing from the emerging wine e-tailers.

On a personal note, it will be great for me! I take a bottle into China every week, though now I'm searched every visit ( including i-phone ) I've decided it isn't worth the hassle and fluid interpretations of customs laws for crew. I'll be drinking Pennies with my Peking Duck ( I do prefer CNP or Burgundy )

[felixp21]

yea, but I think the "great" pricing will take time. My guess is that China will see really competitive prices on Australian wine in 12-24 months.

already, it is clear there has been about a 40% reduction in the prices of Aussie wines across the board. Interesting to see that the 2015 Leeuwin Estate chardonnay can be had at $120 equivalent, not that competitive yet, but considering that is the same price as Louis Jadot Bourgogne Blanc, it won't take more than a year or so for the locals to realise which is the better product.
the local outlets would be currently making a small fortune out of Australian wines (zero tax... as compared to the same wine in Australia which includes WET plus GST) so I would think that as demand increases, these outlets will start competing with each other for the ever-growing business, leading to downwards price pressure.

most wine in China is sold on the internet (Tao Bao etc) but one of the disadvantages of living in this climate is that there is only about a two month window to use this, so my guess is I'll be using retail outlets for any purchases. No way would I buy wine off the internet from March-December and expect it to be be in sound condition after sitting in the back of a non-air-conditioned truck for 72 hours in 36C heat and 90% humidity.

I genuinely believe this FTA will have a very, very significant effect on French, Italian and Latin American wine sales in China. In particular, the Bordelaise must be looking at this with quite a deal of nervousness, not so much the Cru Classes, but everything below this.

Sadly, I also think that the days of huge discounting in Australia may also be pretty short-lived. Whilst not that many people in China drink wine, and the current economic downturn doesn't help the situation, the market in China as it stands would be at least 10-15 times that of the market in Australia, which should be a sobering thought for the Australian wine consumer.

[Polymer]

More than happy to see China soak up more Australian wine and less other wine....

[JamieBahrain]

It's going to be a bumpy road. If the market is the magnitude of what Felix suggested ( Halliday has suggested similar ) and the Australian wine industry is clever in their positioning and supply, it will be another Australian industry dependant upon China.

There's no free lunch. One slip up by an Australian politician ( Bolt's interview yesterday of MP Gladys Liu for example ) or pressure on Australian freedom of navigation patrols in the South China Sea ( which we've been doing for 50 years ) and the CCP will tell people not to drink Australian wine. And living in HKG, I've seen the power of this. Let's hope for firm and skilled diplomacy.

Going the other way, Chinese direct investment in our wine regions has some bizarre twists and turns. They bought Warrenmang in the Pyrenees, wouldn't buy Luigi's museum stock ( Woolies have now ), closed down the winery and then the winery resort burned down. How odd?

[WAwineguy]

So now it might be cheaper to book a cheap economy flight to Beijing, buy 3 bottles of Grange, and bring it back to Australia duty-free?

[felixp21]

haha, theoretically, that situation one day might occur, but it is unlikely to eventuate for some time. ATM, prices seem to be the same as they are at retail, not discount, meaning the vendors are making all the money from the agreement. But that situation won't last, there will be downward price pressure from competition at some stage in the future.
BTW, buy that return ticket to Shanghai or Chengdu, you'll have a much better time (Beijing is a pretty much a dump )

[Polymer]

I agree about Shanghai...much better...and a lot closer....drop by Hangzhou while you're there...