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‘Cataclysmic Change’ To Sweep Through Wine Industry

By Tuesday 15 December 2020No Comments

Warren Randall, owner of Seppeltsfield Wines in the Barossa Valley which is a major exporter of bulk and bottled wine to China, thinks Beijing will keep punishing Australia unless there is some softening of the Morrison Government’s “moral stance”.

“The Coalition Government is saying that we will not be moved, that we are a sovereign nation, a country with freedom of speech and freedom of choice, and we will say what we like, when we like. If that changes, modifies, adjusts, softens… I think we will be better placed to enter into discussions with China. Diplomacy is the key here,” he says.

“I think most Australians probably agree with the hard line the Federal Government has taken – unless you’re one of the seven industries the loaded gun is being held to.

“If it softens, I think we can get through this within a couple of years.

“But if we hold our line and keep playing hard ball, I think they’re going to keep punishing us, I really do.

“That’s a very tough one.

“How many finger nails do you want to lose, before you yield?”

Warren thinks events in America will also shape our fortunes in China.

“With the change of government there is no doubt that Joe Biden will be much more moderate than Trump,” he says.

“For the world economy to function, the US and China have to do business.

“And I’m hoping America will be saying, ‘We’ve got a little mate down below there that’s got some nice resources including lovely crayfish and world class wine. What about him? Can he come for the ride? Can we put him in the sidecar?’”

Warren says the tariffs on Australian wine imports into China will drive sudden “cataclysmic change” in the Australian wine industry, with South Australian wineries the most affected. He fears for a lot of smaller growers and small producers.

“There are a couple of big waves coming,” he says.

“The first is JobKeeper which is being removed in March – in just three months. That will affect the financial viability of a lot of smaller Australian guys who have suffered from a downturn in tourism numbers and been supported by Government funding for the last six months.

“Now we have these interim tariffs. Sixty percent of our total production every year is exported and about 39 percent of that goes to China. So 20-25 percent of this whole industry’s sales were murdered in one day. That will have collateral damage to this industry and it will be felt for years.

“Pre-2021 vintage there will be a flood of bulk wine onto the market because all of the wine that was going to be bottled in Australia to go to China, won’t be bottled.

“Thankfully we had two short vintages in 2019 and 2020, and the flood is not going to be as bad as it could have been. So that’s a bit of a saviour, but again, after vintage – and it looks like we’re heading towards a reasonable crop – there will be another flood of wine. There will be a lake of wine, and that usually means a reduction in prices, so grapes won’t be required from private growers. Uncontracted growers will be at risk and their prices will drop. Vineyard valuations will drop and banks will get nervous.

“Some people just won’t be able to survive it, which is a pity because we lose diversity then. The big guys, the multi-nationals, the publicly-listed companies… of course they’ll survive it, but for the family companies there will be some casualties.”

Warren expects most Australian wine to be off the shelves in China within two months.

“The Chinese domestic winemakers will have an opportunity to fill those shelves with their own product,” he says. “Chile will also fill the shelves along with Spain and France. Even if tensions do ease over the next 18 months, it will take another three years to start getting significant shelf space back in China. It’s going to be hard work – at least five years of pain.”

Warren has been one of the most vocal supporters of the Chinese market for Australian winemakers. He says there should be no regrets about the enthusiasm with which Australia approached the market.

“I don’t think anyone could have predicted this,” he says. “To say that any strategy has been poor over the past decade with decisions in China, is a very hard statement.”

Warren flew to China 39 times in nine years to try to crack the market. He was due to go again in February, but Covid put an end to that. “I enjoyed China,” he says. Then he corrects himself. “Here I am already talking in the past tense. I loved it because to me it was a frontier, it was exciting. Whether you’re eating spiders or locusts or monkey’s kidneys  pangolins, it was a frontier.

“I like exploring. I like being out the front where no one else is. It’s risk taking, but exciting. I’m going to miss it.”

He thinks South Korea, Japan and Russia are worth pursuing for export markets. And the obvious one – India. “When they announced the tariffs my first thought was India,” he says. “South East Asia, certainly, but India should be included.

“If I went off to India now I would feel as if I was going off to my first trip in China. Lots of excitement, lots of opportunity… Who am I going to meet? How am I going to meet them? What business are we going to do? What do they want? So I’m seriously contemplating starting my new adventure in India.

“Of course we don’t have a Free Trade Agreement with India, but we didn’t have one with China when I first started going there nine years ago. Do we want a FTA with India? Yes. India’s population is slightly bigger than China’s – close to 20 percent of the world’s population.

“A lot of people don’t drink in India, but a lot do. And there is a budding wine industry over there that would be interesting to see from a production point of view, to see what their capabilities are.”

Warren says that like every period of hardship, opportunities will arise, noting that “the one big positive” is low interest rates.

“The interest rates are unbelievably low – 1.5 to two percent – they’ve never been lower, so there will be opportunities. But that’s courage personified. The fascinating thing to me is that when the Governor of the RBA is saying that interest rates and inflation will be low in this country for years, all I can hear is – ‘beep, beep, beep, beep’ – opportunity.

“I’ve always tried to be counter-cyclical, where if opportunity does arise I’m well placed to take advantage of it. You’ve got to play the cycles, you’ve got to understand the cycles, you’ve got to expect the cycles and be ready to react very quickly.

“There will be some hard times coming. Some tough decisions will have to be made. Some people will be in a position to make those decisions themselves, others won’t – the bank will make it for them.”

Seppeltsfield Wines also supplies premium fruit to Treasury Wine Estates. Warren has been encouraged by the company’s strategy as outlined by CEO Tim Ford.

“I think he spoke as an industry leader,” Warren says. “I read the strategy carefully and I liked it. Tim has suggested that Treasury, particularly Penfolds, will be able to maintain some sales in China, even at this very harsh penalty of a 169.3 percent tariff.

“He thought that 25 percent of sales to China could be moved elsewhere quickly into markets that are undersupplied. They will find new markets, but that takes time. There will be pain, and quite significant pain.

“But the other thing Tim said that I liked was that they will keep bottling the product, and warehouse it and mature it, so it is ready for the new markets. They’re not going to stop production. A company like Penfolds can’t because you only get one opportunity a year to make a Grange, a 707, an RWT or a St Henri – you can’t not make it.”

Warren lost a lot of business in China, including a bottled wine product that had been taking China by storm. But the company still has luxury bulk wine contracts in China. There are currently no tariffs on bulk wine, but producers are still nervous.

“There is some suggestion coming out of China that there may be a tariff on Australian bulk wine that is bottled and labelled in China under an Australian label,” Warren says. “But we don’t know yet. It’s another loaded gun.”

Despite the trade dispute with China and the effects of Covid-19, it’s full steam ahead for the six-star hotel Oscar Seppeltsfield, which is due for completion by the end of 2022. The development has been met with some resistance by a group of local protestors, but Warren says the “silent majority” in the Barossa want the project to go ahead.

“Now more than ever we need high net worth international visitors coming to the Barossa who want to stay in a six-star hotel and spa,” he says. “The side benefit of that is it helps to establish relationships with people across the world and it will help our cause in sending back wine to their countries.

“The Barossa has nothing – not even close. If we’re going to kickstart again to overcome this adversity that China has put on us, we need to attract international wealth and Oscar will do that. You need a magnet like a six-star hotel to bring people in.

“I know the protestors don’t want significant change in the Barossa, but you can’t stand still. Yes, developments need to be sympathetic to the surrounds but they need to be exciting, too. I wanted an architectural icon for South Australia, not necessarily for the Barossa. The bottom line is if we don’t do it in the Barossa we’ll do it somewhere else.

“If the Barossans don’t want it, the region will start losing ground to other wine regions.

“The Cube in McLaren Vale has absolutely shifted wine tourism in this state, so hats off to d’Arry and Chester and the Osborn family. That was a huge move, bold, creative and courageous and it has been magnificent for South Australia and McLaren Vale.

“The Barossa is known in the world, but it’s not well known. We all think it’s well known, but we are 1.7 million people in this tiny little state in this big world. Oscar will help the Barossa become very well known internationally. So yes, Oscar will happen.”

Warren is as committed to China as he has ever been and looks forward to the day he can chalk up his 40th trip.

“China for now is on hold,” he says. “Not dead, on hold. It probably does us good to seek new markets. They may have done us a favour. We certainly fell in love with China and she said ‘hey, hold your horses’. So in the meantime we go off seeking other opportunities.”

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