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In March 2021, China put a large tariff on any imported wine from Australia, it's the largest supplier. This blog covers the economic impact on the wine industry in Australia and China, the background to the current situation, and what lies ahead for the wine industry.
In 2015, China and Australia enacted the China-Australia Free Trade Agreement (ChAFTA) that phased the removal of import tariffs on Australian wine. As a result, between 2015 - 2020, the two countries traded heavily with each other, especially in the wine industry. By 2019, China represented 40% of exports of Australian wine, amounting to nearly 1.1 billion evaluated, and almost 150 million liters of wine transported to China. This outpour of the product impacted the growers, with many changing tactics to further suit the Chinese markets (examples include switching many of their white grape varieties to red and adjusting to the more expensive corks instead of screw-on caps).
The Australian Wine industry itself is very reliant on exports. In 2020, 67% of the volume of products was exported (71% of value), the majority of which went to China, at 24% of volume and 40% of value. Exports to China far outpaced the second largest country, the United States, which only imported 16% of the value and 27% of the volume.
The strained international relations that set in motion these tariffs to an otherwise booming industry thought to have begun in 2018. In 2018, Canberra, the capital of Australia, banned Huawei Technologies from its new 5G broadband networks. Huawei Technologies is one of China’s biggest tech producers, valued at nearly $100 billion in 2021, so the ban hit their economy hard. Then, two years later, the Australian prime minister 2020, Scott Morrison, called for an independent investigation into the origins of Covid-19. Beijing denounced the “political games,” enacting a 116 - 218 percent tariff on wines in March 2021 to stay until 2026. Then, on top of the wines, China introduced tariffs and blocks on imports, including coal, barley, cotton, and lobsters. Warren Randall of the Randall Wine Group said it best, noting that “twenty-three percent of the total annual value of the entire Australian wine crop was lost overnight.”
Due to China’s tariffs and impending Covid-19 lockdowns enforced very strictly in Australia, the hopes of selling to customers abroad diminished, and the ability to sell to new domestic markets was almost completely eliminated. Accolade Wines, a conglomerate that represents over 50 brands of international wines, told its farmers to stop producing large amounts of red grapes, as it will only lead to further problems again next year. The conglomerate is now advocating for a “mothball” technique, which will have growers put the vineyards into dormant states and not sell any wine this year. They have also offered to pay farmers to switch from red grapes to white. These techniques keep farmers above float while finding new markets to sell to.
What does this mean moving forward? With Australian growers stopping production from trying to find new grape varieties and markets to sell to, there will be a halt of output going to other countries, creating a possible hole in the market for other wine-growing/selling countries. Because while the Chinese market did make up 60% of exports, 40% of exported needs will not receive any product this year.
On top of this, family growers and the industry in Australia reflect a more significant wine issue that has been going on for years - the industry is sometimes too unstable for a comfortable life. As a result, family growers are being discouraged from entering the sector by loved ones, and many vineyards are being sold. The lack of growers could lead to considerable implications in years to come, as there may need to be a larger vineyard farming population to take on the industry’s demand.
There is hope that Australian/Chinese relations may return to a more prosperous state. Recently, China bought large amounts of imported coal from Australia, another industry under the wine tariff, and is lifting trade limitations on the product. Could this mean that the wine industry is soon to follow? We will have to keep a close eye on the political sphere of both Australia and China to find out.
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