Australian wine benefits from China-US trade war
Australian wine has reaped major benefits during the Chinese market during the US-China trade war.
Rabobank’s latest global Wine Quarterly report shows that Australia’s share of imported wine to China, by value, has risen from 19.8% in 2018 to 25.7% in the first four months of 2019.
However, US wine exports to China were down by 25% in value in 2018. Export value fell sharply again in the first four months of 2019, down almost 60%.
Rabobank senior wine and horticulture analyst Hayden Higgins told the Adelaide Advertiser: “US wines were already at a competitive disadvantage relative to Australian wines due to the free trade agreement, but the tariff increase — with US wine now attracting a 106% levy after three increases in import duties on top of local taxes — means US wines entering the Chinese market cost about 64 per cent more than equivalent wines from Australia."
The Rabobank report noted that Treasury Wine Estates had managed its route-to-market in China well. It said TWE had capitalised on the reputation of Penfolds and built a sound presence across various channels.
Tony Battaglene, chief executive of Australian Grape and Wine, told the Sydney Morning Herald that Australia had 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".
In the four-year period from April 2015 to April 2019, Australia’s volume share in China has increased by 12.1%, with Italy the only other country to record positive growth at 0.9%. Meanwhile France’s share fell by 8.4%, Spain by 3.6%, the US by 1% and Chile by 0.3%.
However, 2018 saw the first decline in Chinese wine import volumes since 2014.
“Overly optimistic expectations and aggressive investments in the wine market have resulted in oversupply and overstocked products, and the market is working to draw down existing inventories,” Rabobank said.
The report noted this is likely to be a “temporary phenomenon”.
“China is expected to remain an attractive export market moving forward, though the competitive landscape for both foreign and domestic wine companies continues to evolve quickly,” it said.
It cautioned that while China offers enormous opportunity, it also requires dedicated focus in order to understand the ongoing changes in consumption habits, competitive positioning of imports, rapid changes in the retail environment — especially in e-commerce — and adjustments in the strategies of domestic players.