Australian wine sector a worrying case study for EU industries in China trade spat

According to industry executives, Australia’s wine industry has been struggling to recover from the impact of Chinese tariffs, despite its efforts to find new markets, source grapes from other countries, and seek government assistance. This situation serves as a warning for other food and drink sectors that may become entangled in the EU-China trade dispute, potentially affecting their access to the Chinese market. Although the EU’s winemakers are not currently involved in the dispute, sectors such as pork and brandy fear that they may face retaliatory measures from Beijing after the EU imposed tariffs on Chinese-made electric vehicles. Similarly, Australia faced import restrictions and tariffs on various products after calling for an investigation into the origins of COVID-19, with the first tariffs on wine introduced in November 2020.
After China imposed tariffs of up to 218%, the Australian wine industry suffered significant losses, including market share, key relationships, and profits. Despite other industries finding alternative markets, the wine industry was unable to do so, resulting in a decline in exports worth $800 million annually. Australia, known for its affordable red wines and premium bottles from regions like the Clare and Barossa valleys, saw its position as the world’s fifth-largest wine exporter and China’s most valuable export market severely impacted. According to Australian trade data, wine exports in 2023 were 34% lower than in 2019, although some larger players with production outside Australia managed to fare better. This experience has taught wine makers, like William Dong, CEO of DMG Fine Wine, the importance of not relying too heavily on China in the future. Dong emphasizes the need to avoid repeating the same mistake and to maintain a balanced approach in engaging with the Chinese market.
DMG, the company that owns brands like Handpicked and House of Arras, saw a three-fold increase in production outside of Australia to cater to the Chinese market and also managed to expand its market share in the U.S. and southeast Asia despite the tariffs, according to Dong.

While DMG was able to regain some of the lost business, its sales still remained 30% lower than pre-2020 levels, resulting in decreased profitability.

The tariffs were imposed at a challenging time for the Australian wine industry, which was already facing issues like oversupply, declining consumption, and the impact of COVID-19. During this period, Australian wine production decreased, stockpiles grew to over two billion liters, and grape growers had to resort to destroying unprofitable vines.

Other industries, like barley, which were also affected by China’s trade restrictions in 2020, fared better in finding new markets, although they often had to accept lower sale prices. Australian wine makers, on the other hand, resisted price cuts as they believed it would have a negative long-term impact on the value of their products.
Treasury Wine Estates successfully navigated around tariffs by selling wines from outside Australia and sourcing grapes from Chinese growers. This allowed their popular brand, Penfolds, to achieve higher net revenues in 2023 compared to pre-tariff times.

In a recent investor update, CEO Tim Ford expressed confidence that the company has emerged from the tariff era as a stronger and more diversified global business.

However, EU industries facing similar tariff threats do not have the same flexibility as Australian winemakers. For instance, China’s imports of EU brandy are heavily dominated by French cognac, which can only be produced in the Cognac region of France.

While these industries can explore diversifying their sales, Australian winemakers acknowledge that it takes time to build new markets.

To aid in expansion efforts, the Australian wine industry has sought assistance from the government. Canberra has stepped in by funding wine marketers to help companies establish trade relationships in other nations.
According to Australian trade data, Australian wine exports to Asian countries outside of China, such as South Korea and Thailand, increased in value from $300 million in 2021 to $470 million in 2023, thanks to larger shipments. However, overall, the success of wine makers in building sales has been mixed, according to Lee McLean, CEO of industry body Australian Grape & Wine. He stated that “Our story is not a particularly successful one.”

For example, Taylors Wines, a family-owned winery in the Clare Valley in South Australia, used to sell a significant portion of its exports in China under its Wakefield brand but has been forced to scale back its operations. Managing director Mitchell Taylor expressed that regaining lost market share will not be an easy task.

While French, Chilean, and domestic wine makers have expanded in China, companies like Taylors Wines have lost trading relationships and had to lay off staff in the country. Taylor added, “If we ever get back to the level we had, it will take a long time.”
Reported by Peter Hobson in Canberra and Emma Rumney in London; edited by Jan Harvey.