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Tariffs slow Lodi’s reach into China wine markets

www.recordnet.com by Bob Highfill 05/05/2019  

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Ironstone Vineyards has sold wine to China off and on for about 20 years.

Other Lodi wineries have entered the promising market more recently.

The punitive and retaliatory trade tariffs between the United States and China have had negative effects to varying degrees, depending on the size and business model of each winery.

For instance, Ironstone Vineyards, which is based in Murphys and grows wine grapes and conducts much of its business within the Lodi American Viticultural Area, has an extensive portfolio of wine brands, distributes nationwide and exports to 50 countries. China ranks in the top 15 of Ironstone’s export markets in terms of sales, so the winery is hanging in there right now.

“We still are shipping to China,” said Joan Kautz, global sales and marketing director for Ironstone Vineyards. “We’ve shipped three orders so far this year, which is about 3,000 cases. I would guess it would be 6,000 to 8,000 cases this year, depending on what happens with the tariffs.”

Klinker Brick Winery in Lodi, which is distributed nationally and is building its burgeoning global business, has ceased dealing with China for the time being.

“Right now, we’re not shipping any wine to China because of the tariffs,” said Steve Felten, owner of Klinker Brick Winery and Felten Mehlhaff Farm in Lodi.

Joe Lange, international sales director for LangeTwins Family Winery and Vineyards, said he hasn’t shipped wine to China recently, either.

“We’ve started small in China, our first order being last year just as the first round of increased tariffs took effect. The tariffs certainly did not help but it’s just one of many challenges we face in a super competitive market like China. While still positive on growing our business there, it will be a longer road to be sure,” Lange said.

Chinese consumers enjoy California wines, said Carl Yu, chief operating officer with Wine to China in San Ramon. But California wines are priced higher than most of their international counterparts because of tariffs and taxes. Many European countries, Chile, Argentina and Australia have much more favorable trade agreements than the U.S. with the world’s most-populated country.

“It’s quite unfair for the people of China who like California wines,” Yu said.

Ironstone is working with its Chinese distributor, Xiamen International Wine Exchange, to keep the brand alive for good reason. In 2017, China imported $197 million of wine, the majority French, according to The Drinks Business. Kautz said were Ironstone to leave China, it would be difficult at best to get back in. Therefore, Ironstone and its distributor have decided to keep price levels the same and operate under tighter margins. China imports Ironstone’s classic label and reserve Zinfandel, Cabernet Sauvignon, and Obsession red blend and Symphony.

“We’re both taking the pain right now,” Kautz said. “We’re looking at the long-term opportunity in the market. They do a lot of work building a brand over there and, if you’re out, people move on to different brands or countries.”

Kautz said hurdles are nothing new in exporting to China or doing business, period. China was a tough market to crack 20 years ago. The country was new to wine and France had a strong grip on the import market. Today, consumers are more knowledgeable, more adventurous and more people with disposable income are interested in wine.

“China as a market has an incredible amount of opportunity,” Kautz said. “California has just started to tap it and we’re going in at a disadvantage.”

About 90 percent of U.S. wine exported to China is from California.

So, how did we get here?

The first retaliatory tariffs went into effect on April 2, 2018, and were applied to about 90 food and agricultural products. China applied additional tariffs on 900 food and agricultural products, including grain, meat and animal products, fruits and vegetables, seafood and processed foods. When compounded, the new total tax and tariff rate on U.S. wine exports was equal to 79 percent, according to Wine Institute.

On March 29, 2018, just days before the first retaliatory tariffs, Klinker Brick Winery shipped its first container ever, about 10,000 bottles of Zinfandel, to Shenzhen, China. Klinker Brick’s team and officials from Wine to China, which helped broker the deal, watched enthusiastically as a loaded container truck departed the winery’s warehouse in Acampo bound for the Far East.

Klinker Brick has not shipped to China since.

“We just had a meeting with our Chinese distributor and he seems to think from his connections in China that the tariffs are going to be straightened out in two to three months,” Felten said. “China can’t go any further. They’re really feeling the pinch and a lot of people are here, too, in wine and agriculture in general.”

Yu shares Felten’s optimism regarding a trade deal being struck. On April 25, President Donald Trump announced Chinese President Xi Jinping soon would visit the White House, fueling anticipation the nations will finalize a trade deal. In January, the leaders agreed not to add additional tariffs this year.

Yu said the U.S. represents about 1 percent of China’s total market share and imports of U.S. wines declined 56 percent in 2018 compared to the previous year.

“There is a lot of room for U.S. wines to reach the regular consumer,” Yu said. “They like the California wines because of their strong flavors and complex structures. My thinking is after next month, all the tariff issues will be settled and then we will have a lot of U.S. wines going to China.”