China’s Ministry of Commerce (MOFCOM) made its final determinations on its Countervailing Duties Investigation and the Anti-Dumping Investigation on 26 March.
The final decisions uphold the preliminary findings for both investigations (dumping, subsidisation, injury to domestic industry) that were announced in November and imposed countervailing duties of 6.3 to 6.4 percent and anti-dumping tariffs of between 116.2 percent and 218.4 percent (varying by company).
The tariffs are marginally higher than the preliminary duties imposed on 28 November and apply for five years from 28 March 2021.
Prior to imposition of the tariffs, Australia exported 112 million litres of wine valued at $1.2 billion to mainland China, representing 15 percent of the total volume and 39 percent of the total value of Australian wine exports in the 12 months ended November 2020.
The higher value share is because Australian exports to mainland China were predominantly premium wine, with 23 percent of the volume and 68 percent of the value at prices $10 or more per litre.
Mainland China accounted for 62 percent of the volume of all Australian wine exported at this price segment.
Furthermore, by wine style Australia’s exports are predominantly red wine with a 96 percent value share of exports to the destination.
Australian exports to mainland China have dramatically declined since the duties were imposed in November.
Total exports for the December 2020-March 2021 period were $12 million compared to $325 million in the same period last year.
The number of exporters to China also dropped. In the month of March 2021, there were 48 exporters to China compared to 580 in March 2020.
While there may be some adjustments to the supply base, for most Australian wine producers, alternative markets for products no longer destined for China will be required.
This will involve expanding existing markets or seeking new routes to market. For those companies with China as their sole market, this will be extremely challenging.
One option for this wine is the domestic market, either by taking share from imported wines and/or growing the size of the market. However, there is limited scope to take share from imports in the domestic market as these are predominantly white wine (New Zealand Sauvignon Blanc, French Champagne, Italian Prosecco) and the majority of Australian wine exported to China is red.
Australian wineries would therefore need to grow the size of red wine’s share in the domestic alcohol market, which is a challenge given that per capita consumption of wine is declining.
However, there are some premium red wine market segments that are growing. For example, according to IRI MarketEdge, in the 12 months ended 3 January 2021, the value of Shiraz and Cabernet Sauvignon sales between $15 to $30 grew by 22 and 27 percent respectively.
The domestic market cannot absorb all of the wines that previously would have been destined for mainland China, thus it is essential to grow and develop other export markets.
Wine Australia analysed 100 markets based on a range of economic and wine market measures and independent research. The analysis suggests that the three priority markets to focus on are:
- United States of America (USA),
- United Kingdom (UK), and
The three destinations have a combined market size of more than 480 million cases and Australia in 2019 held just under a 10 percent share.
Export figures for the 12 months ended March 2021 point to positive trends with the value of exports to the UK growing by 33 percent to $461 million, to the USA by four percent to $432 million and to Canada by nine percent to $195 million.
Retail figures from IRI Worldwide show growth in premium Australian wine sales in the off-trade markets in both the UK and USA. In the UK, IRI reports that in the 12 months to March 2021, the strongest growth for Australian wine in the UK off-trade market was between £7.01 and £20 per bottle with double-digit growth rates, albeit from lower volumes.
For example, sales at £7.01 to £8.00 grew by 38 percent and at £8.01 to £9.00 by 44 percent.
And in the USA, much of the increase in off-trade sales came from wines priced between US$8 to US10.99 per bottle (up nine percent).
There was also growth at US$15 to US$19.99 (up four percent) and US$20 to US$24.99 (up 15 percent). There is upside for Australian wine sales above US$8 per bottle.
Australia holds a two percent market share in this market segment, compared to 11 percent below US$8.
The secondary markets identified by Wine Australia are South Korea, Vietnam, Thailand, Taiwan, Indonesia, Japan, Singapore, Nordics, Germany and the Netherlands.
These markets account for a combined 460 million cases of wine sales with Australia’s share at around three percent.
There are also a number of emerging markets to monitor for opportunities in the longer term, including India, Brazil, Russia and Mexico.
These four markets have combined wine sales of around 140,000 cases and Australia’s share is less than one percent.
It should be noted that India has a wine import tariff rate of 150 percent, which makes it a challenging market to enter.
Clearly the Covid-19 pandemic will continue to hamper developing opportunities with travel restrictions preventing visits to market. Attending trade shows is no longer an option.
There will need to be a greater emphasis on digital interactivity.
To assist Australian exporters, Wine Australia has developed Australian Wine Connect (https://connect.australianwine.com/), an always-on platform that offers business-to-business matching services for retailers, importers and on-trade in Asia, the USA, Canada, the UK and beyond.
Connect will be a go-to resource for Australian wine over the next 12 months.
Trade will be able to conduct business with Australian wine brands in the Expo, as well as Explore and gain Education on Australia’s extraordinary and commercially robust wine scene.
• This article was first published in the May-June 2021 issue of WBM – Australia’s Wine Business Magazine. To subscribe click here.