As of January 1 this year, Australian wines are free of the tariffs usually levied on wines imported into China.
Wine is one of a range of Australian products now protected as part of the bilateral China-Australia Free Trade Agreement brokered in 2014. This gives Australian winemakers an enviable advantage over many of their competitors in the world’s fastest growing market for wine. Only Chile and New Zealand enjoy similar free trade agreements.
However, the relationship between Australia and China is far from cosy or comfortable after being sorely tested during 2018.
Held up by design
In April and May 2018, containers of Australian wine were left for up to three weeks on Chinese docks and in warehouses as part of a deliberate go-slow by Chinese customs authorities acting on the direct instructions of the Chinese government.
The inaction on the docks showed the Chinese were willing to flex their considerable economic muscle to bring their major trading partner into line following accusations they were meddling in Australian politics. Fears that Chinese political donors were becoming a threat to national security resulted in Australia passing new national security laws to prevent foreign agents from influencing the country’s democracy.
It has been claimed that the hold-up on the docks was due to a consolidation of a number of customs services, but companies with Chinese employees on the ground tell of their staff being “fobbed off” by customs staff when they enquired as to the movement of stock.
The hold-up was severe enough for Australia’s biggest wine producer, Treasury Wine Estates, to issue a profit warning. However, Chinese entrepreneurs who package wine in Australia for sale to their networks within China appear to have been less affected, if at all. Increasingly, traditional Australian producers see the new wave of Chinese entrepreneurs working in Australia as their competitors.
“We’ve got about 1,500 exporters into China from Australia,” says Tony Battaglene, chief executive of the Winemakers’ Federation of Australia (WFA). “A lot of those are [Chinese] entrepreneurs who don’t make or grow grapes; they package wine themselves. My understanding is that they had a much easier route.”
The dock hold-ups were a sobering wake-up call for Australian wine producers.
Intertwined
“We want to prosper in China,” says Mitchell Taylor of Taylors Wines, “but we see there can be a risk. It is such a promising market and an exciting market – Australia enjoys over A$1 billion ($7,163m) in wine sales, and they are at very high price points – but we do see the political risk.” That billion-dollar benchmark often comes up in conversations with Australian winemakers. In 2017, China overtook the UK to become Australia’s most valuable export market and the magic figure is actually A$1.04 billion. On the one hand, Australian producers are extremely proud of the work that went into achieving such an impressive sum. On the other, they worry about a growing dependency on what is proving to be a highly volatile market.
“It scares the hell out of me,” says WFA’s Battaglene. “If China hiccups, our whole industry shakes. I am desperately hoping that everyone tries to diversify their exports."
McLaren Vale-based wine producer Corrina Wright, whose family owns Oliver’s Taranga Vineyards, says it’s hard to look past China, where Australian wine sales are growing at an “astronomical” rate. “The US is in decline and the UK is stagnant or in slight decline,” she says. “[But] I don’t like the idea of being reliant on one market, especially one that can be less democratic in its actions.”
With an Australian federal election due this year, probably in mid-May, makers are also nervous about what a likely change in government could do to an already fragile relationship with China. Many are looking further afield in Asia for wine business.
Australia already has free trade agreements with both South Korea and Japan, but at this stage those markets are small. Taiwan has potential and producers like Mitchell Taylor claim to do well in Malaysia, Singapore and Thailand despite high taxes and duties. “We have a bit of diversity in the Asian region,” he says.
But his focus, and that of most Australian winemakers, will undoubtedly remain on China.
“China will always be the big one and will always be the exciting one,” he says, “but we’ve just got to be mindful that there will be a few bumps along the road as our company and the industry enters the market.”
