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Australian wine industry benefits from trade wars, overtakes France in China

www.smh.com.au by Darren Gray08/08/2019  

The Australian wine industry has emerged as an unlikely beneficiary of the ongoing US-China trade war, overtaking France in the enormous Chinese market.

Australian wine has been the "clear winner" in the Chinese market this year,  food and agribusiness lender Rabobank has declared.  Ongoing trade tensions have pushed up the cost of US wine, at the same time as the French industry recovers from a "horrendous" 2017 crop.

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Australia's share of the imported wine market in China has jumped to 25.7 per cent.

"The big thing that's happened in the last four or five months is that we've overtaken France as the number one position in the market," said Tony Battaglene, chief executive of Australian Grape and Wine, a group which represents growers.

The Chinese wine market has been a key battleground in the trade war, with China imposing three rounds of import duty increases that have hit US wine, of 15 per cent, 10 per cent and 25 per cent.

"US wine is now subject to a total levy of 106 per cent, including tariffs, a value-added tax, and an excise tax. These duties are having a marked impact on the profits of stakeholders along the chain – and this is impacting the competitive positioning of US wines," the Rabobank report said.

In the first four months of 2019 Australia's share of the imported wine market jumped to 25.7 per cent, up from 19.8 per cent in the same period of 2018.

"Australian wine continues to benefit from the free trade agreement with China and has emerged as the clear winner among imports," Rabobank said.

According to Rabobank US wine now enters the China market costing 64 per cent more than comparable Australian wine.

The average price of Australian wine sold in China has also grown, recently recording the highest average price among the top five wine exporters to China.

US wine exports to China fell sharply in the first four months of 2019, down almost 60 per cent in value, perhaps reflecting the fact that reduced margins on US wine imports made importing US wine less attractive relative to wine from other countries.

"For forward-thinking (US) wineries that have been trying to build their presence in the Chinese market for some time, the recent trade war creates a substantial setback, and it has undermined years of investments," Rabobank said.

"The report said Australia's biggest wine company, Treasury Wine Estates, had managed its route-to-market in China very well." Rabobank said Treasury had capitalised on the reputation of Penfolds and built a sound presence across various channels.

Rabobank senior analyst for wine and horticulture Hayden Higgins said US wine exporters would be sending less wine to China because of the price hikes due to tariffs, creating a gap that helped Australian producers.

The big thing that's happened in the last four or five months is that we've overtaken France as the number one position in the market.

Tony Battaglene, Australian Grape and Wine chief executive

He said the Chinese wine market was undergoing substantial changes, with imports declining in volume in 2018 for the first time since 2014. Yet the average price per litre of imported wine has been rising.

"You're seeing a slight slow-down in consumption but consumers are drinking more premium wine, (so) Australia has an opportunity to position more of its wine in that premium segment, but [we] will also see more competition from other countries looking to do the same," he said.

Australian wine was going very well in China.

Mr Battaglene said Australia benefited from the fall in US wine exports to China, "but we've also benefited from the growth of our own product, and there's been a fabulous growth in the price points...higher priced wine continues to grow very strongly".