About This Source - Bloomberg QuickTake: Now
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Bloomberg Quicktake: Now published this video item, entitled “China’s Tariffs of Over 215% Leave Australia’s Winemakers Reeling” – below is their description.
China’s assault on Australia’s wine industry is becoming quite the buzzkill. The latest round of tariffs — which could push import duties to over 215% in total — have left Australia’s winemakers reeling. Over the past 25 years, China, with its growing middle class and appetite for cool region Shiraz, Cabernet Sauvignon and other big reds, has become Australia’s biggest and most enthusiastic customer. Australia surpassed France as the top exporter to the country by value in 2019; last year, China spent A$1.2 billion ($904 million) on imports, about 40% of Australia’s total shipments, according to Wine Australia.
“They love our style, and they know our flavors,” said Mitchell Taylor, whose Clare Valley-based Taylors Wines in South Australia gets a fifth of its annual export revenue from China. “They have a very perceptive palate, so wine’s been a natural area for them to explore and to enjoy.”
Those buyers are quickly disappearing. Whisperings of tariffs to come pushed China’s purchases up 94% in October, according to China customs data; Australian winemakers benefited from a corresponding 40% jump in prices. Official data for November isn’t available yet, but the measures are expected to be an effective death knell, wiping out demand and pushing prices lower.
Now the Australian industry, still reeling from bush fires that scorched vineyards in early 2020 and the coronavirus epidemic that’s hobbled demand, is rethinking its entire global distribution plans. Shares of Melbourne-based Treasury Wine Estates, best known for its Penfolds brand, fell as much as 12% following the first tariff announcements.
The umbrella group, which owns Wolf Blass and Snoop Dogg-affiliated 19 Crimes, among others, announced an emergency plan would include reallocating its Penfolds Bin and Icon labels to other luxury markets and accelerate a drive to produce more wine in other countries to avoid made-in-Australia duties.
Chinese demand for Penfolds would persist at some level, Treasury Chief Executive Officer Tim Ford said in a call with investors Nov. 30, and reiterated a “long-term commitment” to the market. “We are extremely disappointed to find our business, our partners’ business and the Australian wine industry in this position.”
Australia’s next biggest clients, the U.S. and U.K., aren’t likely to offer much solace. With the luxury market cornered by California and Europe respectively, Australia’s become better known for bargain labels like Yellow Tail. “We’ll really need to sell the luxury story of Australian wine,” said Taylor.
Almost two-thirds of Australia’s exports to China were priced at A$10 per liter or more, according to Wine Australia, while the growth in exports to the U.K. and U.S. was predominantly from the sub-A$5 segment.
Breaking into a new market, particularly one with existing preferences, doesn’t happen quickly. Winemakers spend years courting and educating distributors, retailers and sommeliers about new flavor profiles and the specifics of terroir. The pitch is different too, Taylor said. Customary gift-giving and lavish dinners worked in China, whereas Americans look to wine journalists and global competitions, along with widespread advertising and promotion.
“We all have to look at how we’re going to reposition ourselves and reengage in other markets where we’ve perhaps shorted them,” said Alister Purbrick, chief executive officer of central Victoria’s Tahbilk Wines. He’s doubling down on the domestic market for now, but sees opportunity in another emerging market: India. Tariffs there have so far kept most exporters at bay, but he sees longer-term potential in shifting consumer preferences and the rise of a younger, more global generation.
Business with China had the potential to double “in the foreseeable future,” according to Taylor. “China was always the driver of our figures,” he said. “We just know the winemakers in France, Chile and New Zealand are cheering.”Bloomberg Quicktake: Now YouTube Channel
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