Australia’s major wine producer, Treasury Wine Estates (Treasury) is considering plan to source for grapes from China as it attempts to mitigate the effects of recently implemented high tariffs on Australian wine.
Treasury’s plans are part of a revised strategy for China, which late last year announced a preliminary import tariff on Australian bottled wine of up to 212% to counter what it claims to be dumping of Australian wine into its market.
Treasury expects demand for its wines to be “extremely limited” while the tariff is in effect until August 2021 the latest.
Treasury is activating a series of plans to reduce the impact of the measure, including potentially sourcing for grapes from Chinese vineyards for its portfolio in the country to circumvent import tariffs. The company also said that it could use grapes from its French vineyards.
Treasury however did not disclose whether these grapes will be used to make Penfolds, its leading wine brand in China. This measure of sourcing grapes out of the home country has already been part of Treasury’s multi-country strategy which it had announced earlier in 2018.
Treasury is also planning to re-channel its premium Penfolds wines comprising of Penfolds Bin and the Icon range to other luxury wine markets such as the US and other Asian countries. The 2 lines represent 25% of Treasury’s Penfold’s annual volume.
China is an important growing market for Treasury accounting for 30% of its overall profit in 2020. While Treasury expects to be slapped with 165% tariffs on its products, it hopes both Australian and Chinese governments will resolve the political tension as soon as possible. According to Treasury’s CEO Tim Ford, “We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position.”
China was the biggest export market for Australian wine by value, accounting for 42% of sales outside of its home market in 2020, according to Wine Australia. This figure might drastically change in 2021 as Australian wines are effectively locked out of China market, and its producers seek out other ‘lesser lucrative’ export markets. This episode is also expected to exert a downward pressure on Australian wine prices
