Genesis of Wine Export from Australia to China (Part 1)

A party that started almost a decade is in danger of getting over, with both Australia and China blaming each other and China upset over the mistreatment of Chinese living in Australia and Australia blaming China for meddling in its domestic affairs. This despite the Foreign Trade Agreement signed in 2015 that pleased Australian wine producers since from next year there will be no taxes on wines.

Billion Dollar Market

About a billion Aussie dollars worth of wine, over 92% of which was red, was exported to China in 2017, being around 40% of the total exports. Naturally, their wine economy depends a lot on this biggest market. China formulated a new policy in April 2018, reminiscent of the FSSAI policy in India which brought the import business to its knees, which has verification clauses inserted for shipments, that has delayed clearance of the shipments, partly again due to non clarity and understanding on the part of the exporters and the Chinese apparently not too keen to clarify these requirements. This has resulted in inordinate delays, first brought to attention by Treasury Wine Estate last month.

Buzzing Australia before meltdown

 Australian wines were at their zenith in the 1990s and early 2000s when the Shiraz from Barossa gave them a unique advantage. The UK and the US loved their wines. This was also the time when wines like Jacobs Creek and Hardys made their mark at the lower end of the UK market while brands like Penfolds cornered the upper end. Yellow Tail created a history of sorts with inexplicable success in the US market, crossing a sale of over 10 million cases. Every new varietal added (Moscato, for instance and Sangria), meant another million cases to the kitty, thanks to their phenomenal pricing and distribution network.

China was then enamoured by French wines which to them translated to Bordeaux and they did not import much Australian wines barring some wine companies like Treasury Wine Estate (TWE), owners of Penfolds, Wolf Blass and Lindeman’s and Rosemount etc, and Accolades (Hardys etc).

Then came the meltdown in 2009. Australian production had been increasing to meet the insatiable demand. This brought the crash in wine prices and at the same time people in UK and US, their biggest markets started drinking cheaper wines and it was labelled as a producer of cheap wines-bringing more wines to supermarkets which sold bulk wines bottled in UK. (The now defunct Indage Vintners of India bought two bottling plants in UK to import wines from Australia and bottle the brands in UK besides some major contracts of bottling in hand but the plan failed miserably).

Enter China

With the close distance of China from Australia being an important factor along with the most copied Australian wine Penfolds, China seemed like a lucrative substitute. Even agencies like Wine Australia started promoting China as the new destination and in fact helped the producers monetarily. Everyday there was some story about Australians setting base in China through distributors or their own offices, with the hope of windfall gains to follow. In fact, this meticulous planning helped making China become a darling of the Australian producers.

Australian producers started opening offices, and in general started spending much more time in China. Total Australian wine exports to China today are worth more than twice those to the UK and almost twice those to the US.

In fact, according to a recent report by Jancis Robinson Australia’s bulk wine exports caught up with bottled imports in 2010 and it was sending six times as much wine in bulk to the UK as it was in bottle in four years! Australian wine is much more likely to be found on the bottom shelf of a supermarket than on a prestigious wine list, says Jancis, whose love for Australian wine falls somewhere between the bulk wine imported and sold as the branded bottle and the iconic wines like Penfolds owned by Treasury Wine Estate which has been in the eye of the storm recently.

Penfolds has long been the darling of the iconic and Shiraz-loving Chinese. Its success has been huge in the fragmented market where copying and fraud is predominant and difficult to check. Many fakes are available and have been regularly caught by the policing department of Penfolds which brings it to the notice of the Chinese police regularly. The faking goes beyond the similarity of labels and changing labels on non-Penfolds wines.  Copying the label varies from their launching a similar sounding label  like Benfolds- using the same distinctive type, to a recent case of infringement by Rush Rich, a Chinese living in Australia, who calls his label Ben Fu.

China’s imports of French wine are far in excess of Australian wines but the average price per litre of wine imported into China is more than a third higher. No wonder Australian wine producers are still bullish about Australia. They stand the risk of putting most eggs in just one basket, but they are going ahead with making their vineyards and winery have some USPs, to attract Chinese visitors. Producers have added an art gallery or a high-end restaurant to their winery in an attempt to capitalise on the huge influx of Chinese tourists into Australia. According to Wine Australia, there were over a million wine tourists. According to another estimate, there were over 1.4 million tourists from China in 2017. The Chinese were the largest group of visitors, at 14% of the total visitors, followed by UK (13%) and USA (11% last year) .

Subhash Arora

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