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Australian wine industry faces uncertain future amidst tariffs and changing markets

PUBLISHED

2023-09-27

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The Australian wine industry, once a thriving sector and a major contributor to the nation's exports, finds itself in a state of upheaval due to punitive tariffs imposed by China and shifting global market dynamics. Approximately two billion liters of Australian wine, equivalent to 859 Olympic-sized swimming pools, have accumulated within the country since 2020 when China, previously the largest buyer of Australian wines, implemented these tariffs amid souring relations triggered by the Covid-19 pandemic.

With recent developments aiming to mend diplomatic ties between Canberra and Beijing, including the removal of sanctions on other key Australian exports like coal and barley, Australia's Prime Minister, Anthony Albanese, raised concerns about these wine tariffs with Chinese Premier Li Qiang. "It is in Australian wine producers' interest to export wine, but it is also in China's interest to receive it," he remarked during the Asean meeting in Jakarta this month.

However, Australian winemakers are skeptical about a swift recovery even if trade with China is restored. The tariffs have inflicted severe damage to the industry, causing what some describe as the collapse of the Chinese market, which was previously the most significant market for Australian wine.

Australia's wine industry had experienced substantial growth, reaching an annual production of approximately 1.3 billion liters in 2022, with over 2,000 wineries employing 164,000 people and contributing A$40 billion ($25 billion) annually to the economy, according to Wine Australia. Despite this, the value of wine exports plummeted by 10 percent to A$1.86 billion in the year leading up to June 2023, the lowest level since 2014.

Before the imposition of tariffs, China represented a pivotal market for Australian wine, accounting for A$1.2 billion in industry value—more than double the value of the UK or the US, the next largest export markets. Since then, exports to China have dwindled to about A$8 million.

While some winemakers adapted by redirecting their supply to alternative markets and focusing on domestic sales, challenges persisted, exacerbated by pandemic-related lockdowns. Certain varieties popular in China, such as Shiraz and Cabernet, faced difficulty finding buyers elsewhere, resulting in a surplus of wine.

Even if the trade dispute with China is resolved, experts believe it is unlikely that Australian wine exports will return to pre-2020 levels. Changing consumer preferences in China, where wine consumption dropped by 16 percent to 880 million liters in 2022, align with global trends of reduced wine consumption.

Alister Purbrick, CEO of the family-owned Tahbilk winemaker, remarked that Australian winemakers face a "slow road" to recovery. Rivals from countries like Chile, Argentina, South Africa, and Europe have filled the void left by Australian producers in the Chinese market.

Many Australian winemakers are now looking to India as a potential alternative to China. However, success in this endeavor largely depends on the reduction of tariffs as part of ongoing free trade agreement negotiations between Australia and India.

Reflecting on the industry's challenges, Purbrick emphasised the need for diversification and risk management, cautioning against overdependence on a single export market. He voiced concerns that potential regional conflicts involving China, such as those related to Taiwan, could further disrupt the industry.

For the heartland of Australia's wine industry—its inland red grape-growing regions spanning northern Victoria and South Australia—industry experts anticipate a significant shake-up in the coming years. Tim Ford, CEO of Treasury Wine Estates, Australia's largest wine company, noted that it would take time to stabilise the industry, urging a calm and strategic approach.

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