China Lifts Australian Wine Tariffs, Could Europe Be Next to Suffer?

In recent months, the European wine industry has been gripped by anxiety over potential trade reprisals from China. The possibility of punitive tariffs looms large, threatening to disrupt the flow of European wines to this lucrative market. This situation brings to mind the severe impact on the Australian wine industry when China imposed heavy tariffs on their exports back in 2020.

March 29th brought a wave of relief for Australian wine producers as the Chinese Ministry of Commerce announced the removal of these punitive tariffs. This decision followed three years of intense negotiations and marked the beginning of a new chapter for Australian wines in China—a journey of rebuilding their reputation and market presence.

Before the tariffs, China was Australia's most valuable export market for wine. In the twelve months leading up to October 2020, exports to China were valued at 1.3 billion Australian dollars, with a volume of 121 million liters. The tariffs, which soared up to 218.4%, devastated this trade relationship. By 2023, exports plummeted to just 10.1 million Australian dollars, with volumes shrinking to 1.4 million liters. The number of exporters also dropped dramatically, from 2,198 to a mere 117.

Martin Cole, CEO of Wine Australia, expressed cautious optimism, highlighting the ongoing importance of relationships with importers, buyers, and consumers in China for the Australian wine community. However, producers re-entering the Chinese market will face a vastly different landscape. Both distribution and consumer trust need to be rebuilt, especially considering the significant shifts in consumer habits over the past few years.

The path back into the Chinese market involves a threefold effort: brands must choose to return, distributors must regain confidence in Australian wines, and consumers must be reintroduced to these products. During Australia's absence, other wine regions have made significant inroads. France now dominates with a 49% market share, followed by Chile at 17%. However, the overall Chinese wine market has contracted, from 688 million liters in 2018 to just 248 million in 2023.

In response to this new reality, some Australian producers have diversified their efforts, focusing on expanding into other markets and increasing domestic demand. Yet, there remains a willingness to embrace Australian wine in China, driven partly by the novelty factor. Distributors express optimism about the potential for renewed business, despite the intense competition.

Australian wines do have some advantages. Under the China-Australia Free Trade Agreement, they will face a 0% import tariff, compared to 14% for other foreign suppliers. Major players like Penfolds are already making moves to re-enter the Chinese market. Treasury Wine Estates, Penfolds' parent company, announced in February its intention to redirect shipments to China and expand the distribution of its premium and luxury wines.

TWE CEO Tim Ford conveyed excitement about reintroducing their wines in China, but he acknowledged that it will take time to sustainably rebuild both supply and demand. The company aims to maintain growth in other global markets where Penfolds has strengthened its presence over the past few years.

Re-entering the Chinese market presents a complex but not insurmountable challenge for Australian wine producers. Although they remain behind the powerhouse reputation of French wines, the "Australia" brand still holds considerable sway in China. Despite over three years of reduced visibility, there remains significant potential for Australian wines to reclaim their place in the Chinese market.

As the European wine industry watches closely, they hope to avoid a similar fate. The current trade tensions serve as a reminder of the fragility of global markets and the importance of maintaining strong, resilient trade relationships. For Australian wines, the road ahead may be tough, but the combination of favorable trade conditions and a robust market strategy could pave the way for a successful comeback.